Florida Supreme Court Gives Foreclosing Lenders Additional Bites at the Apple

Florida Supreme Court
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On Nov. 3, 2015, the Florida Supreme Court affirmed the decision by the Fifth District Court of Appeals in Bartram v. U.S. Bank, N.A. The Florida Supreme Court’s decision in Bartram specifically held that a bank’s acceleration of payments due under a residential note and mortgage, which contained a reinstatement provision, does not mean that the foreclosing lender is prevented by the statute of limitations from filing a subsequent foreclosure action based upon payment defaults occurring after the dismissal of the first foreclosure suit. In reaching its conclusion, the Court analyzed and reaffirmed its holding in Singleton v. Greymar Associates, 882 So.2d 1004 (Fla. 2004), which held that res judicata did not bar a second foreclosure action, which alleged a subsequent and separate default from that alleged in the first foreclosure action.

The Court’s decision in Bartram appears to be a continuation of the policy judgment made by the Court in Singleton, that “justice would not be served if the [lender] was barred from challenging the subsequent default payment solely because he failed to prove the earlier alleged default,” 882 So.2d at 1008 and gives lenders additional bites at the apple, even after their original foreclosure action is involuntarily dismissed.

The basis for the Court’s decision in Bartram rested on the fact that the mortgage at issue contained a reinstatement provision. Such a provision, which is contained in most, if not all mortgages in this country, allows a borrower to cure a default and reinstate the mortgage at any time prior to a final judgment of foreclosure. According to the Court, the effect of the existence of a reinstatement provision when a foreclosure is involuntarily dismissed is to revoke the lender’s acceleration of the note as if it had never happened. The revocation of the acceleration of the debt thereby reinstates the borrower’s right to continue to make payments on the note, as well as the right of the lender to seek acceleration and foreclosure based upon a default, which accrues subsequent to the involuntary dismissal of the first foreclosure action.

The Court held that each subsequent default accruing after the dismissal of an earlier foreclosure action creates a new cause of action, regardless of whether that dismissal was entered with or without prejudice. The Court noted that whether the original foreclosure action was dismissed with prejudice may be relevant to the lender’s ability to collect on past defaults, i.e., those defaults that accrued after the acceleration, but before the involuntary dismissal. Although the Bartram decision is not clear on this point, presumably if the case was dismissed with prejudice the lender would be limited to pursuing only those defaults which accrued after the involuntary dismissal. On the other hand, if the case was involuntarily dismissed without prejudice, the lender potentially could pursue all defaults accruing after the original default, which accrued less than five years before the involuntary dismissal. The Court refused to accept the borrower’s argument that the installment nature of the mortgage terminated once the lender attempted to exercise the mortgage contract’s optional acceleration clause. The Court appeared to recognize that ignoring the existence of the mortgage’s reinstatement provision would permit the lender only one opportunity to enforce the mortgage despite the occurrence of any future defaults. The Court further opined that following to its logical conclusion, the borrower’s argument that acceleration of the loan was effective before final judgment in favor of the lender in a foreclosure action, would mean that the borrower would owe the accelerated amount aft er the dismissal, which would effectively render the reinstatement provision a nullity and – in most cases – lead to an unavoidable default.

The Bartram decision only relates to foreclosure actions which were involuntarily dismissed. However, the Court recently accepted jurisdiction of a statute of limitations case where a prior foreclosure was voluntarily dismissed by the mortgagee. Bollettieri Resorts Villas Condo. Ass’n, Inc. v. Bank of New York Mellon, 198 So.3d 1140 (Fla. 2d DCA 2016) review granted, SC 16-1680 (Fla. Nov. 2, 2016).

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