The Third District Court of Appeal, State of Florida, recently affirmed a trial court’s ruling that a foreclosure complaint was time barred because the statute of limitations started to run when the loan was accelerated in connection with a prior foreclosure that was involuntarily dismissed without prejudice.
However, the Court reversed the trial court’s determination that a mortgage lien becomes null and void once the statute of limitations expires.
In affirming the trial court’s judgment as to the time-bar issue, the Court held that the statute of limitations begins to run once a lender accelerates a debt owed to it pursuant to a mortgage and note, and unless there is a contractual reinstatement, a modification by the parties, or the foreclosure action is adjudicated on it merits, the accelerated debt is not “decelerated” by an involuntary dismissal without prejudice. Until a loan’s installment nature is reinstated, the accelerated payment of the debt continues to be due and the statute of limitations continues to run as no “new” payments are due meaning there cannot be a “new” default date giving rise to a new cause of action.
The Court further held that a mortgage lien is not null and void once the statute of limitations expires, because the enforceability of a mortgage lien is governed by a separate statute of repose which establishes the ultimate date when a mortgage lien terminates and is no longer enforceable.
A copy of the opinion is available at: http://www.3dca.flcourts.org/Opinions/3D14-0575.pdf
In February of 2006, the borrower (“Borrower”) executed a note and mortgage in the principal amount of $1,440,000 (the “Subject Loan”) extended by a lender (“Original Lender”) and secured by a condominium (the “Subject Property”). In September of 2006, Borrower defaulted on the Subject Loan.
On January 23, 2007, Original Lender filed a complaint to foreclose (the “Initial Action”). Specifically, the complaint in the Initial Action stated that Borrower failed to make the payment due on September 1, 2006 and that Original Lender elected to accelerate the payment of the Subject Loan’s remaining balance.
On December 6, 2010, the trial court dismissed the Initial Action without prejudice because Original Lender failed to appear at a case management conference. Original Lender did not appeal the dismissal nor did it take any further action concerning the acceleration of the Subject Loan.
Subsequently, the Subject Property’s Condominium’s Association (the “Association”) filed an action to foreclose on its lien levied against the Subject Property based upon Borrower’s failure to pay the Association’s assessments (the “Condominium Action”). In 2011, the Association obtained title to the Subject Property subject to the Original Lender’s mortgage.
Thereafter, on December 18, 2012, the current owner of the Subject Loan (“Trustee”) filed an action to foreclose on the Subject Property concerning Borrower’s October 2006 default on the Subject Loan, which was one month later than the default date alleged in the Initial Action’s complaint (the “Current Action”). The Association was named as a defendant in this action.
Similar to the Initial Action’s complaint, the Current Action’s complaint declared that Trustee was exercising its right to accelerate all payments and that the full amount of the Subject Loan was immediately due. The Association filed an answer asserting a statute of limitations affirmative defense.
As you may recall, section 95.11(2)(c) of the Florida Statues states that an action to foreclose on a mortgage must be commenced within five years. Moreover, “when a mortgage contains an optional acceleration clause, the statute of limitations commences when the lender exercises this option and invokes the acceleration clause.” See Greene v. Bursey, 733 So. 2d 1111, 1115 (Fla. 4th DCA (1999).
The Association proceeded to move for summary judgment arguing the Current Action was barred by the statute of limitations.
Specifically, the Association argued that:
(1) during the Initial Action, Trustee exercised its contractual right to accelerate the Subject Loan’s payments, which in turn triggered the 5 year statute of limitations; (2) the trial court dismissed the Initial Action without prejudice, meaning the acceleration of the Subject Loan’s payments was not negated nor was the installment nature of the payments reinstated; (3) Trustee took no action to withdraw its acceleration of the Subject Loan; (4) the Current Action (filed December 18, 2012) was filed more than five years after the statute of limitations commenced with Trustee’s acceleration of the Subject Loan’s payments by instituting the Initial Action (filed January 23, 2007); and (5) thus, the Association argued, the Current Action is barred by the statute of limitations.
Trustee opposed the Association’s motion for summary judgment by arguing that:
(1) the Initial Action was based on a different default date than the Current Action; (2) the trial court’s dismissal of the Initial Action “decelerated” the Subject Loan’s payments, which negated the acceleration exercised by Trustee in the Initial Action and reinstated the installment nature of the Subject Loan’s repayment structure; and (3) in accordance with Singleton v. Greymar Assocs., 882 So. 2d 1004 (Fla. 2004), the statute of limitations does not bar the Current Action, because the failure to make a subsequent payment following dismissal of the Initial Action constitutes a new default, which creates a new and distinct cause of action, and commences a new statute of limitations period.
The trial court granted the Association’s motion for summary judgment and specifically held that: (1) the Current Action was barred by the statute of limitations because it was filed on December 18, 2012, more than five years after the filing of the complaint in the Initial Action in January 2007; and (2) the expiration of the statute of limitations rendered the mortgage null and void.
In its order, the trial court also quieted title to the Subject Property in favor of the Association and against Trustee. Trustee’s request for a rehearing was denied and this appeal followed.
On appeal, Trustee argued that the Initial Action’s involuntary dismissal without prejudice “decelerated” the Subject Loan, and thus Trustee and Borrower were returned to their respective positions prior to the filing of the Initial Action meaning the installment nature of the Subject Loan was restored. Therefore, Borrower’s failure to make a payment on October 1, 2006 constituted a “new” default and created a new cause of action with a new limitations period that permitted Trustee to file the Current Action.
The Association argued that the five-year statute of limitations period began to run when Trustee exercised its contractual right to accelerate the Subject Loan during the Initial Action, and neither Borrower nor Trustee took any action to reinstate the installment nature of the Subject Loan.
The Association further argued that the trial court’s dismissal of the Initial Action without prejudice could not “decelerate” the Subject Loan nor did it otherwise reinstate the installment nature of the payments “because such a conclusion would in effect permit the trial court to rewrite the terms of the contract between the lender and the borrower.” Therefore, the Association claimed the statute of limitations continued to run on the accelerated debt and expired prior to Trustee filing the Current Action in December of 2012.
The Court began its analysis by examining the note and mortgage. The Court stated that “neither the note nor the mortgage provided that dismissal without prejudice of the foreclosure action would negate the acceleration of the debt or otherwise reinstate the installment nature of the loan.” The Court noted that the mortgage contained a provision regarding a borrower’s right to reinstatement after acceleration, but the provision was inapplicable as Borrower failed to meet the conditions for reinstatement.
The Court then proceeded to examine whether the Initial Action’s involuntary dismissal without prejudice reinstated the installment terms of the mortgage and note, and whether Borrower’s subsequent failure to make a payment was a “new” default which created a new cause of action.
In support of its position that an involuntary dismissal without prejudice creates a new action and a new statute of limitations period, Trustee relied heavily on the holding of Singleton v. Greymar Assocs., 882 So. 2d 1004 (Fla. 2004) (“Singleton”).
In Singleton, a lender instituted a foreclosure action after borrowers failed to make any payments from September 1, 1999 to February 1, 2000 (the “first action”). Id. at 1005. This first action was dismissed with prejudice when the lender failed to appear at a case management conference. Id. Thereafter, in Singleton, a second foreclosure action was filed, alleging borrowers failed to make any payments beginning in April of 2000 (the “second action”). Id. The trial court entered final judgment in favor of the lender despite borrowers’ contention that res judicata barred the second action because it was identical to the first action. Id.
On appeal, the Court affirmed the trial court’s judgment in favor of lender, holding that “even though an earlier foreclosure action filed by lender was dismissed with prejudice, the application of res judicata does not bar this lawsuit. The second action involved a new and different breach.” Id.
The Florida Supreme Court subsequently accepted review and held that:
the doctrine of res judicata does not necessarily bar successive foreclosure suits, regardless of whether or not the mortgagee sought to accelerate payments on the note in the first suit. In this case the subsequent and separate alleged default created a new and independent right in the mortgagee to accelerate payment on the note in a subsequent foreclosure action.
Id. at 1008.
The Appellate Court determined Singleton’s holding was inapplicable because Singleton involved an involuntary dismissal with prejudice, whereas the Initial Action’s involuntary dismissal was without prejudice. The Court explained that this distinction was crucial because a dismissal without prejudice is not an adjudication on the merits, but a dismissal with prejudice is. See Fla. R. Civ. P. 1.420(b).
The Court further stated that Singleton’s dismissal with prejudice disposed of every issue actually adjudicated as well as every justiciable issue. Thus, Singleton’s order of dismissal with prejudice “served to adjudicate, in favor of the borrower, the merits of the lender’s claim and the borrower’s defenses, thus determining there was no valid default.”
As the dismissal of the Initial Action was without prejudice, the Court held that Borrower did not “prevail in the foreclosure action by demonstrating that she was not in default” nor was there “an adjudication denying acceleration and foreclosure” such that the parties “are simply placed back in the same contractual relationship with the same continuing obligations.” Singleton, 882 So. 2d at 1007.
The Appellate Court explained that, when there has been no adjudication on the merits nor a determination that the acceleration was invalid or ineffectual, the lender’s exercise of its option to accelerate the debt survives a dismissal without prejudice. Thus, according to the Appellate Court, the statute of limitations on the accelerated debt continues to run because the “accelerated nature of the debt is unaffected by the order of dismissal without prejudice, and the parties never reinstate the installment terms of the repayment of the debt.”
As a result, the Appellate Court held, the only cause action available to Trustee was an action on the accelerated debt. Trustee cannot sue based upon the “new default” it alleged in the Current Action’s complaint because “without reinstating the installment terms of the repayment of the debt, there were no ‘new’ payments due, only the single accelerated payment that became due when the Initial Action was filed, which continued to remain due after the dismissal without prejudice.”
Therefore, the Court held that the Current Action was barred by the statute of limitations because the Current Action was based upon the same accelerated debt as the Initial Action and the statute of limitations on that accelerated debt expired on January 23, 2012 and before the Current Action was filed.
The Court next examined whether the holding of U.S. Bank Nat. Ass’n. v. Bartram, 140 So. 3d 1007 (Fla. 5th DCA 2014) (“Bartram”), was inconsistent with the conclusions reached by the Court. Bartram held that Singleton’s res judicata analysis applied to a statute of limitations analysis because given the Singleton Court’s “conclusion that each new default creates a new cause of action, the statute of limitations would only begin to run when the new cause of action accrued.” Id. at 1012.
The Court determined Bartram was not inconsistent with its ruling because Bartram’s initial foreclosure action was dismissed with prejudice, meaning there was adjudication on the merits. In contrast, the Initial Action was dismissed without prejudice meaning there was not an adjudication on the merits, and thus no determination was reached concerning Trustee’s acceleration of the debt in the Initial Action.
The Court noted that several court rulings have applied Singleton’s rationale to “hold that a subsequent foreclosure action was not barred by the statute of limitations following a dismissal without prejudice of the first foreclosure action.” The Court declined to follow these rulings because they did not address the distinction between dismissals with and without prejudice.
Accordingly, the Court held that the statute of limitations expired before Trustee filed the Current Action, as the Initial Action was not adjudicated on the merits, meaning the statute of limitations began to run when the Subject Loan was accelerated in the Initial Action.
The final issue the Court examined was whether its holding concerning the statute of limitations voided and canceled the lien of mortgage. Trustee and the Association agreed that section 95.281(1)(a) governed whether a lien of mortgage is null and void.
Section 95.281(1)(a) states:
(1) The lien of a mortgage … shall terminate after the expiration of the following periods of time:
(a) If the final maturity of an obligation secured by a mortgage is ascertainable from the record of it, 5 years after the date of maturity.
(b) If the final maturity of an obligation secured by a mortgage is not ascertainable from the record of it, 20 years after the date of the mortgage…
Section 95.281(1)(a) “establishes an ultimate date when the lien of the mortgage terminates and is no longer enforceable.” Houck Corp. v. New River, Ltd., 900 So. 2d 601, 603 (Fla. 2d DCA 2005). Section 95.281(1)(a) is a statute of repose meaning it serves to establish a “definitive time limitation on a valid cause of action”, Houck, 900 So. 2d at 603, which “not only bars enforcement of an accrued cause of action but may also prevent the accrual of a cause of action where the final element necessary for its creation occurs beyond the time period established by the statute.” Am. Bankers Life Assur. Co. of Florida v. 2275 West Corp., 905 So. 2d 191 (Fla. 3d DCA 2005).
The Association argued that Trustee’s acceleration of the note also accelerated its maturity date. Specifically, the Association argued that the note’s maturity date was January 23, 2007 (the date the Initial Action was filed and the note was accelerated) meaning the lien of mortgage terminated on January 23, 2012, 5 years after January 23, 2007.
The Appellate Court rejected this argument because the Association’s proposed maturity date could not be determined from the face of the recorded mortgage, as required by the statute. Instead, the mortgage clearly had a stated maturity date of March 1, 2036, and pursuant to section 95.281(1)(a), the mortgage lien was to expire on March 1, 2041.
Accordingly, the Court affirmed the trial court’s order that the Current Action was barred by the statute of limitations, but reversed the trial court’s holding that that the lien of mortgage was null and void.
Ralph T. Wutscher
McGinnis Wutscher Beiramee LLP
The Loop Center Building
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Chicago, Illinois 60602
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