All indications point to yes; but it is wise to heed the old adage that you should “never count your chickens before they hatch”.

The Florida Supreme Court (FLSC) accepted certiorari earlier this year from its 5th District Court of Appeal and held oral argument last week to resolve a dispute on the statute of limitation issue plaguing the mortgage industry.  The State of Florida is divided into five District Courts of Appeal (DCAs), whose application of law reigns sovereign over their respective districts.  The debate stems between the 3rd DCA, which encompasses the populous county of Miami-Dade as well as neighboring Monroe County, and all other DCAs and federal courts throughout Florida which have spoken on the issue of the impact of the statute of limitations on re-filed foreclosure actions. (Notably only the 2nd DCA and the federal courts of the northern district of Florida have yet to publish an opinion on the issue.) 

While it is generally understood that extinguishment of a mortgage only occurs when all sums secured are paid off or the mortgage is foreclosed, the 3rd DCA has held that a mortgagee may not have the right to foreclose on a mortgage if a prior foreclosure action was dismissed and a second action was filed within five years after the filing of the first.  Five years represents the statute of limitation for foreclosure actions in Florida.  Consequently, a lucky borrower might get a free house if a mortgagee has, through oversight or inadvertence, had its prior action dismissed -- although there is some debate as to whether the mortgage would still encumber the property for the remaining mortgage term even though the mortgagee can no longer foreclose on it.  Indeed, it might be possible that the right to foreclose a mortgage could be lost even if the mortgagee was not negligent but, instead, had voluntarily dismissed its own action for any reason including, but not limited to, simply abandoning the action to give the borrower some relief. 

In order to better understand the debate and the possibility and hope that the issue might be coming to an end in Florida in the near future, it is important to analyze both sides of the issue.  Beginning with the borrower friendly position, the 3rdDCA in Deutsche Bank Trust Co. Americas v. Beauvais, 2014 Fla. App. LEXIS 20422 (Fla. 3d DCA 2014), held that a mortgagee who had not taken any affirmative action to decelerate the underlying debt was barred from refiling a foreclosure action more than five years after the filing date of a prior foreclosure action that had been dismissed without prejudice due to the mortgagee's failure to attend a case management conference.  The 3rd DCA said this additional act to decelerate was necessary because the mortgagee's complaint in the first action accelerated the unpaid installments on the loan and, therefore, triggered the statute of limitations not just on the defaulted payments but on the entire balance of the loan.  Per the court:  

Without an adjudication on the merits, the acceleration of the debt remained in place, meaning that the entire balance of the debt was and remained immediately due.  Without any new payment due there could be no new default, and without a new default there could be no new cause of action. 

In reaching its decision, the 3rd DCA quoted a Nevada court for the following proposition:

Because an affirmative act is necessary to accelerate a mortgage, the same is needed to decelerate.  Accordingly, a deceleration, when appropriate, must be clearly communicated by the lender/holder of the note to the obligor.  Here, if lender intended to revoke the acceleration of the debt due under the note, it should have done so in a writing documenting the changed status.  The voluntary dismissal without prejudice did not decelerate the mortgage because it was not accompanied by a clear and unequivocal act memorializing that deceleration. Cadle Co. II, Inc. v. Fountain, 281 P.3d 1158 (Nev. 2009). 

Although not explicitly stated by the 3rd DCA, effective acts of deceleration might include sending a letter of deceleration to the borrower, adding language to the motion to dismiss (if voluntary) of the intent to decelerate, or entering into some kind of reinstatement, loan modification, or forbearance plan with the borrower.  Consequently, as a result of the 3rdDCA's opinion, many foreclosure actions may currently be time barred and mortgagees holding such mortgages can do nothing but sit and wait for a change in the law by either the FLSC or the 3rd DCA.  Further, mortgagees might also be holding mortgages that although not time barred yet may still nevertheless require some action on the part of the mortgagee (deceleration) in order to preserve the right to reinitiate foreclosure in the future if necessary. 

It should also be noted that the impact of Beauvais may be limited to only those cases that were dismissed withoutprejudice.  This is because if the dismissal was with prejudice, then it presumably would act as an adjudication on the merits that the foreclosure was not effective, which in turn means the attempted acceleration was not effective.  Indeed, by her questions to counsel for the mortgagees during last week's oral argument, Justice Pariente indicated that the distinction between a with or without prejudice dismissal of the prior action may impact her opinion, which might qualify as a partial victory for borrowers as it could result in the time barring of cases whose facts match those of Beauvais.  However, if the form of case adjudication truly affects the ability to file subsequent actions, then it can be argued that acceleration can never be deemed effective until the final judgment.  This in turn would mean that a case dismissed prior to a final judgment was then never fully accelerated and, thus, the accelerated balance was never subject to the statute of limitations.  To paraphrase counsel for the mortgagees during last week's oral arguments, “acceleration is akin to running a 5K; you don't complete it until you cross the finish line.”   

While the 3rd DCA's ruling understandably shook the mortgage industry, every other DCA that has been presented with the same or similar facts has ruled to the contrary and, over time, their rulings have not been impacted by whether the prior dismissal was with or without prejudice.  For example, the 1st DCA first said in dicta in PNC Bank N.A. v. Neal, 2013 WL 5779048 (Fla. 1st DCA 2013), that “the dismissal with prejudice of PNC Bank's foreclosure action against the Neals does not preclude PNC Bank from instituting a new foreclosure action based on a different act or a new date of default not alleged in the dismissed action.” The 1st DCA then subsequently held that it was immaterial whether the dismissal was with or without prejudice in Nationstar Mortgage, LLC v. Brown, 2015 WL4999017 (Fla. 1st DCA Aug. 24, 2015), stating that “[a]fter the dismissal without prejudice, the parties returned to the status quo that existed prior to the filing of the dismissed complaint.” Indeed, the 4th DCA in Evergrene Partners v. Citibank, N.A., 143 So.3d 954 (Fla. 4th DCA 2014), in a case that was dismissed without prejudice, held that “[w]hile a foreclosure action with an acceleration of debt may bar a subsequent foreclosure action based on the same event of default, it does not bar subsequent actions and acceleration based upon different events of default”.  Likewise, the 5th DCA in U.S. Bank, N.A. v. Bartram, 140 So.3d 1007 (Fla. 5th DCA 2014), which was one of the cases on cert and orally argued to the FLSC last week, held that subsequent defaults under the mortgage created new causes of action. 

Even the federal courts of Florida have exclusively found for the mortgagees in virtually identical cases.  For example, the United States District Court for the Southern District of Florida, whose geographic jurisdiction also covers the same area covered by the 3rd DCA but with respect to federal rather than state matters, stated that “[w]ith the exception of Beauvais, the current state of the law does not support the claim [that]…, prior acceleration and expiration of the 5-year statute of limitations for foreclosure actions bars all other foreclosure actions based on non-payment.” LNB-017-13, LLC v. HSBC Bank USA, N.A., 2015 WL 1546150, *5 (S.D. Fla. April 7, 2015).  Similarly, the United States District Court for the Middle District of Florida held that the Beauvais decision was contrary to the overwhelming weight of authority, which hold that “even where a mortgagee initiates a foreclosure action and invokes its right to acceleration, if the mortgagee's foreclosure action is unsuccessful for whatever reason, the mortgagee still has the right to file later foreclosure actions . . . so long as they are based on separate defaults.'” Dorta v. Wilmington Trust National Association, 2014 WL 1152917, at *1 (M.D. Fla. 2014).  

The great weight of authority in favor of the mortgage industry's position should not be terribly surprising when you recognize the unique nature of the mortgage contract, which is an installment contract, and the “continuing obligations of the parties in that relationship”. Singleton v. Greymar Assc., 882 So.2d 1004, 1007 (Fla. 2004).  Although not addressing the identical issue, in Singleton, the FLSC itself made it clear that “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. 

While a decision from the FLSC could be only weeks away given that oral arguments have now finally been held, the issue is so hot that the 3rd DCA, which is the only DCA to find in favor for the borrower thus far on the issue, is reconvening en banc this week to once again hear oral arguments in Beauvais. The issues being raised are similar to the ones that were raised to the FLSC last week.  For example, one argument for the mortgagee, which most courts have not explicitly discussed yet in their holdings, is the argument that most mortgages provide the borrower the right to cure the default even after acceleration by paying only the past due installments and not the entire accelerated balance.  Consequently, since the mortgagee must accept those payments if tendered, it illustrates that the mortgage cannot truly be accelerated until it is foreclosed and reduced to a judgment.  Similarly, as noted by the 1st DCA in Brown, most notes and mortgages “contain typical provisions reflecting the parties' agreement that the mortgagee's forbearance or inaction do not constitute waivers or release appellees from their obligation to pay the note in full.”  

Finally, putting aside the legal arguments, the ultimate decision might be one based not on law but on equity.  To paraphrase FLSC Justice Polston, “if the statute of limitations cuts off the mortgagee's subsequent foreclosure action, then the borrower will get to keep his $650,000 house without having to pay for it.  Where is the equity in that?”  Consequently, it would appear that the legal and equitable arguments are turning in the mortgage industry's favor and that the statute of limitations issue may soon be a thing of the past in Florida but we will not count our chickens just yet.