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Stopping the Limitations Clock in Bank Foreclosures – Bartram v. U.S. Bank

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Associations across Florida have anxiously awaited the Florida Supreme Court’s decision in Bartram v. U.S. Bank Nat. Ass’n, 2016 WL 6538647 (Fla., November 3, 2016).  While the underlying facts in Bartram are somewhat convoluted, the relevant question before the Florida Supreme Court was whether the five (5) year statute of limitations found in §95.11(2)(c), Fla. Stat., would operate to bar banks from filing subsequent foreclosure actions after the loan was accelerated and an initial foreclosure action was filed and subsequently dismissed by the trial court for lack of prosecution, i.e. involuntarily dismissed. In its decision, which was based on specific language found in the mortgage at issue in the case, the Florida Supreme Court answer the question in the negative.

In Bartram, the Court found that the involuntary dismissal of the initial foreclosure action resulted in an automatic revocation of the acceleration, thereby reinstating the following: (1) the borrower’s right to continue making payments under the note and mortgage; and (2) the bank’s right to seek acceleration and foreclosure based on subsequent defaults by the borrower, i.e. defaults occurring after the filing of the initial foreclosure.  This revocation of the acceleration effectively stopped the clock for purposes of the statute of limitation, thereby preventing the borrower, or any other party, from raising the statute of limitations defense to the ongoing amounts due under the note and mortgage. Specifically, the Court found that:

[A]fter 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.  Bartram at pg. 8.

In its opinion, the Court refers to specific language in the mortgage at issue in the case that allowed the borrower to reinstate after acceleration of the amounts owed, as long as certain conditions were met.  The portion of the mortgage dealing with the borrower’s right to reinstate included language stating: “Upon reinstatement by Borrower, this Security Instrument and obligations secured hereby shall remain fully effective as if no acceleration had occurred,” and allowed the borrower to exercise this right prior to entry of a judgment enforcing the Security Instrument.  Bartram at pg. 3. This language is found in the majority of mortgages, which means that that in the vast majority of cases, borrowers, associations and/or other junior lienholders will no longer be able to raise the argument that §95.11(2)(c), Fla. Stat. bars the enforceability of mortgages against a property.

Also of note, is the fact that while the borrower did not meet any of the conditions to reinstate the loan, the Court found that the availability of this option until entry of a final judgment of foreclosure meant that the installment nature of the loan continued until entry of a final judgment of foreclosure.  As a final judgment of foreclosure was never entered, the installment nature of the loan was in effect and there was no need for the bank to reinstate the loan by notice of deceleration.

In reaching this conclusion, the Court relied on the analysis set forth in a prior decision in Singleton v. Greymar Assocs., 882 So. 2d 1004 (Fla. 2004), as well as subsequent decisions by appellate courts across the State of Florida that applied the reasoning in Singleton in holding that the statute of limitations did not bar subsequent foreclosure actions based on defaults occurring after an initial foreclosure action was filed and involuntarily dismissed. In Singleton, the bank’s initial foreclosure was involuntarily dismissed by the trial court for failure to appear at a case management conference.  The bank filed a subsequent foreclosure, alleging a new default date under the loan and the borrower contended that the dismissal of the first foreclosure action barred the second foreclosure action, pursuant to the doctrine of res judicata.  The Singleton Court upheld the trial court and the appellate court’s decision in finding that that the doctrine of res judicata did not bar a second action involving a new and different breach.  The Court based its decision partly on the equitable nature of the remedy of foreclosure, finding that:

[t]he 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.  Singleton, 882 So. 2d at 1008.

The Court’s ruling in Bartram v. U.S. Bank Nat. Ass’n effectively extends its holding regarding the doctrine of res judicata not barring subsequent foreclosure actions to the statute of limitations not barring subsequent foreclosure actions, an extension that associations were hopeful would not happen. This decision must be taken into account when an association is making decisions regarding its strategy for properties encumbered by a mortgage.

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