Florida’s Third District Court of Appeal (DCA), sitting en banc, recently withdrew an unpopular decision applying the statute of limitations defense to mortgage foreclosures. As previously discussed on this blog, the Third DCA’s prior opinion in Deutsche Bank Trust Co. Am. v. Beauvais took the unique position that the dismissal of a foreclosure action without prejudice had no effect on the running of the five-year statute of limitations. This meant that a subsequent foreclosure action based on a new default could be time-barred if not commenced within five years of the original acceleration if the lender took no affirmative action to decelerate the loan following the original dismissal.
In Beauvais, a lender accelerated a delinquent loan and filed a mortgage foreclosure action in January 2007. When the lender failed to appear at a case management conference, the circuit court dismissed the action without prejudice. In December 2012, the lender filed a second foreclosure action based on the borrower’s continued failure to make mortgage payments. However, the circuit court dismissed the second action on the basis that the five-year statute of limitations expired in January 2012, five years after the loan was first accelerated.
In its 2014 panel opinion, the Third DCA distinguished between dismissals with and without prejudice. Because a dismissal with prejudice is a final adjudication on the merits of a case, the Third DCA panel reasoned, a dismissal with prejudice is a determination that the loan was not in default and, by extension, not validly accelerated, such that the statute of limitations is not triggered. However, a dismissal without prejudice, according to the 2014 panel opinion, means the acceleration of the loan survives dismissal, thereby requiring the lender to take separate action to “decelerate” the loan in order to stop the running of the statute of limitations. Otherwise, a subsequent foreclosure action would be barred if brought more than five years after the original acceleration.
The Third DCA’s opinion garnered some criticism from the mortgage industry. The First, Fourth, and Fifth DCAs adopted the conflicting position that any dismissal (with or without prejudice) returned the parties to the position they had been in prior to acceleration, including reinstating the installment nature of the loan. Federal district courts interpreting Florida law also rejected the Third DCA’s position.
On April 13, 2016, in a rehearing en banc, the Third DCA issued a 6-4 opinion which retreated from the 2014 panel decision. The majority opinion rejects the distinction between dismissals with or without prejudice for purposes of the statute of limitations. Any dismissal, whether with or without prejudice, operates to return the parties to their position prior to the filing of the action and effectively “decelerates” the loan. The effect of any dismissal, therefore, is to stop the running of the statute of limitations without the need to “decelerate” and thereby permit lenders to bring new causes of action based on a subsequent default, so long as the action is brought within five years of the acceleration based on the subsequent default.
Florida’s intermediate appellate courts now appear to be aligned on this issue. The Florida Supreme Court, however, will likely provide more guidance in this area when it issues its opinion in Bartram v. U.S. Bank National Association, et. al. That case considers whether a subsequent foreclosure action can be barred by the statute of limitations even when a prior action is dismissed with prejudice.
The full text of the Third DCA’s most recent opinion is available here.