The Florida Supreme Court released the attached opinion, which answers the following certified question in the negative.
“DOES ACCELERATION OF PAYMENTS DUE UNDER A RESIDENTIAL NOTE AND MORTGAGE WITH A REINSTATEMENT PROVISION IN A FORECLOSURE ACTION THAT WAS DISMISSED PURSUANT TO RULE 1.420(B), FLORIDA RULES OF CIVIL PROCEDURE, TRIGGER APPLICATION OF THE STATUTE OF LIMITATIONS TO PREVENT A SUBSEQUENT FORECLOSURE ACTION BY THE MORTGAGEE BASED ON PAYMENT DEFAULTS OCCURRING SUBSEQUENT TO DISMISSAL OF THE FIRST FORECLOSURE SUIT?”
The Supreme Court explained that “When a mortgage foreclosure action is involuntarily dismissed pursuant to Rule 1.420(b), either with or without prejudice, the effect of the involuntary dismissal is revocation of the acceleration, which then reinstates the mortgagor’s right to continue to make payments on the note and the right of the mortgagee, to seek acceleration and foreclosure based on the mortgagor’s subsequent defaults.” The Court explained that the dismissal of the foreclosure action against the mortgagor has the effect of returning the parties back to their pre-foreclosure complaint status.
It should be noted that the Supreme Court made it a point to make reference to the “optional” acceleration clause as opposed to an “absolute” acceleration clause. The analysis undertaken by the Supreme Court relies on the mortgage containing an optional acceleration clause where the keywords are “may result in acceleration.” An absolute acceleration clause would use terminology of “failure to cure the default on or before the date specified in the notice will result in the full loan balance being accelerated.” While most mortgages contain an optional acceleration clause, one should be cautious in first confirming that your subject loan does not contain an absolute acceleration clause before relying on Bartam to file a new lawsuit that contains a statute of limitations issue.
Included within the analysis, the Supreme Court ruled that “when a second and separate action for foreclosure is sought for a default that involves a separate period of default from the one alleged in the first action, the case is not necessarily barred by res judicata.” Following this reasoning, the Court explained that when a Plaintiff loses at trial on the merits of a case, the adjudication merely bars a second action re-litigating the same alleged default.
Utilizing equity on a portion of the ruling, the Supreme Court ruled that “each new default presented a separate cause of action because foreclosure is an equitable remedy, and the ends of justice require that the doctrine of res judicata not be applied so strictly as to prevent mortgagees from being able to challenge multiple defaults on a mortgage.” As justification of the aforementioned conclusion, the Supreme Court reminded us of the “unique nature of the mortgage obligation and the continuing obligations of the parties in that relationship.” The Court concluded that “an adjudication denying acceleration and foreclosure does not bar subsequent foreclosure actions based on separate and distinct defaults.”
The Supreme Court explained that “with each subsequent default, the statute of limitations runs from the date of each new default providing the mortgagee the right, but not the obligation, to accelerate all sums then due under the note and mortgage.” As further clarification, the Court pointed out that a “mortgagee would not be barred by the statute of limitations from filing a successive foreclosure action premised on a separate and distinct default. Rather, after the dismissal, the parties are simply placed back in the same contractual relationship as before, where the residential mortgage remained an installment loan, and the acceleration of the residential mortgage declared in the unsuccessful foreclosure action is revoked.”
The Supreme Court also addressed the significance of the type of dismissal and whether the type of dismissal has any bearing; and whether a case dismissed with prejudice is treated differently than a case dismissed without prejudice in context of the Statute of Limitations. While the Court did not explain every factual pattern, the Court did rule 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.”
Pertaining to the facts of the Bartram case, in considering the law, the facts, and equity, the Supreme Court explained that after the case was involuntarily dismissed, “the dismissal returned the parties back to the same contractual relationship with the same continuing obligations.” The Court further explained that “the bank’s attempted prior acceleration in a foreclosure action that was involuntarily dismissed did not trigger the statute of limitations to bar future foreclosure actions based on separate defaults.”
There will continue to be more case rulings in Florida pertaining to how the Statute of Limitations impacts the installment contract nature of mortgage foreclosure actions. While this Supreme Court ruling does not answer every question, it does confirm that a foreclosure action that is involuntarily dismissed does not prevent a subsequent foreclosure action being filed based on subsequent defaults.
The attorneys of ALAW remain well attuned to our ever-changing legal landscape and are prepared to provide you with unparalleled representation every step of the way.
For more information on this legal update or any other legislative matters, please contact:
Nathan P. Gryglewicz
ALAW Partner, Foreclosure Legal Operations