Monday, January 19, 2015

FYI: Fla App Ct (3rd DCA) Holds Foreclosure SOL Triggered By Acceleration, Not Merely By Notice of Default With Reference to Future Acceleration

The Third District Court of Appeal, State of Florida, recently held that a re-filed foreclosure action was not barred by Florida’s five year statute of limitations, because the statute of limitations was triggered by a notice of default.


In so ruling, the Appellate Court held that the statute of limitations was triggered by the foreclosure complaint, not the mortgagee’s notice of default, because the mortgagee exercised its acceleration option and notified the borrower by filing its foreclosure complaint because the foreclosure complaint explicitly provided that the sums due and owing were accelerated, but the notice of default only sought to collect the amount necessary to cure the default and did not constitute an automatic acceleration. 


A copy of the opinion is available at:


The borrowers executed a note and mortgage. Pursuant to the terms of the mortgage, the lender had the option to accelerate the debt in the event of a default by the borrower.


The borrowers failed to make the required monthly payment due on October 1, 2007. On December 6, 2007, the mortgagee sent the borrowers a notice of default, which provided, among other things, that the full amount of the default must be paid by January 10, 2008, and if this amount were not paid, the mortgagee would accelerate the entire sum of both principal and interest due and payable.


Thereafter, the mortgagee filed a foreclosure action against the borrowers on March 12, 2008, alleging, among other things, that the borrowers defaulted under the note and mortgage by failing to make their October 1, 2007 payment and all subsequent payments due and owing.


On June 28, 2011, mortgagee voluntarily dismissed the foreclosure action against borrowers without prejudice. Subsequently, on March 5, 2013, mortgagee filed a second foreclosure action against borrowers. The borrowers answered this complaint and alleged as an affirmative defense that the expiration of the five-year statute of limitations barred the second foreclosure action.


At trial, borrowers argued that because they failed to cure the default within the time period set forth in the default letter, the debt was automatically accelerated when the borrowers failed to cure their default by the January 10, 2008 deadline stated in the notice of default.  Because the second foreclosure action was not filed within 5 years of the January 10, 2008 deadline in the notice of default, the borrowers argued, the subsequent foreclosure action was time-barred.


The mortgagee argued that the date of acceleration was not the January 10, 2008 deadline stated in the notice of default, but rather the March 12, 2008 date the complaint was filed in the first foreclosure action. Therefore, mortgagee argued, the five-year limitations period had not yet expired when the second lawsuit was filed on March 5, 2013.


According to the mortgagee, the notice of default stated only that the mortgagee would take future action, including but not limited to acceleration of the debt and the filing of a foreclosure action, if the default were not cured.


The trial court held that the debt was accelerated on the date the mortgagee filed the original foreclosure lawsuit on March 12, 2008, and that the statute of limitations commenced on that date, and that the second foreclosure action was filed prior to the expiration of the five-year limitations period.  Final judgment of foreclosure was entered thereafter, and this appeal followed.


The Appellate Court began its analysis by examining acceleration clauses.  As you may recall, the statute of limitations on a mortgage foreclosure action in Florida does not commence until a default in payment of the final installment due, unless the mortgage contains an acceleration clause. Locke v. State Farm Fire and Cas. Co., 509 So. 2d 61375 (Fla. 1st DCA 1987).


Under Florida law, when an acceleration clause is absolute, the entire indebtedness becomes due immediately upon default, requiring neither notice of default nor some further action to accelerate the debt.  Baader v. Walker, 153 So. 2d 51 (Fla. 2d DCA 1963). By contrast, where the acceleration clause is optional, it is not automatic or self-executing, but requires the lender to exercise this option and to give notice to the borrower that it has done so.  See Campbell v. Werner, 232 So. 2d 252, 254 n. 1 (Fla. 3d DCA 1970).


Also under Florida law, when the borrower defaults on a payment under a note containing an optional acceleration clause, the lender can exercise its option to accelerate all future payments, making the entire debt immediately due and payable. A cause of action on an accelerated debt accrues, and the statute of limitation commences, when the lender exercises the acceleration option and notifies the borrower of this exercise. See Greene, 733 So. 2d at 1115; Monte v. Tipton, 612 So. 2d 714 (Fla. 2d DCA 1993).


The Appellate Court held that the notice of default did not accelerate the debt nor did it “apprise the maker of the fact that the option to accelerate has been exercised.”  Central Home Trust, 392 So. 2d at 933.  Rather, the communication served as a notice of default, notice of borrowers’ right to cure, and notice that the mortgagee intended, at some unspecified future date, to accelerate the debt if borrowers failed to cure the default as set forth in the notice.


Importantly, absent from the notice of default was any declaration by mortgagee that the full amount of principal and interest is immediately due, or any demand for payment of the full amount of principal and interest.  Indeed, under the terms of the mortgage, a tender by borrowers of the default amount would cure the default and prevent mortgagee from accelerating the debt. Yelen v. Bankers Trust Co., 476 So. 2d 767 (Fla. 3d DCA 1985). The payment demanded by the notice of default was merely the specific amount necessary to bring the loan current.


The borrowers’ argument focused on one portion of the letter which reads:  “If you do not pay the full amount of the default, we shall accelerate the entire sum of both principal and interest due and payable. . . “ 


The Appellate Court rejected the borrowers’ contention that the phrase “we shall accelerate” somehow converted the optional acceleration into a prospective, self-executing acceleration which was automatically triggered upon the failure of borrowers to cure the default.  Instead, the Appellate Court held, the notice of default indicated only that the mortgagee intended to exercise its option to accelerate in the future, should borrowers fail to cure the default.


Therefore, the lapse of the 35-day grace period (without a cure of the default) did not automatically accelerate the debt or trigger the commencement of the five-year statute of limitations. Instead, the limitations period commenced when mortgagee filed the original March 12, 2008 foreclosure complaint, expressing in clear and unequivocal language that it was exercising its option and accelerating the debt:  “[mortgagee] declares the full amount due under the note and mortgage to be now due.”


Thus, the Appellate Court held the statute of limitations would have expired March 12, 2013, and because the second foreclosure action was filed March 5, 2013, it was not time-barred.





Ralph T. Wutscher
McGinnis Wutscher Beiramee LLP
The Loop Center Building
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Chicago, Illinois 60602
Direct: (312) 551-9320
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