Tuesday, November 8, 2016

When does the “foreclosure clock” start ticking?

Managing Director
Lenders Compliance Group

One of the cases I have been monitoring is U.S. Bank NA v Bartram, which had been argued before the Florida Supreme Court (“Supreme Court”). The issue at bar concerns the statute of limitations for filing a foreclosure suit. I think this case is being watched closely not only because of its impact on Florida’s statute of limitation provisions but also because of its wider, national implications.

Last week, the Supreme Court ruled that each monthly default on a mortgage loan payment resets the five-year statute of limitations for filing a foreclosure suit. This ruling affirms a lower court's decision, which stemmed from a foreclosure action in Ponte Vedra, Florida.

The Supreme Court affirmed a Fifth District Court of Appeal (“Appeals Court”) ruling that the statute of limitations was reset each time the borrower failed to make a payment to U.S. Bank NA on the mortgage.

This is a long, winding, and somewhat complicated case with tons of citations and plenty of positions taken via amici curiae. I wish only to hit on a few salient observations. I will conclude with a view of the remarks of one of the Justices, who concurred as to “result only,” which means that the Justice agreed with the decision made by the majority of the court, but stated different (or additional) reasons as the basis for the decision.

Now, the big question that the Supreme Court needed to answer was:

If there is a default on a loan, causing an acceleration thereof, where the lawsuit to foreclose has been dismissed and a five-year statute of limitations has run out, is the lender permanently prevented from subsequent foreclosure proceedings because of the statute of limitations?

Here is a meta-outline:
  • Loan defaults,
  • Lender accelerates,
  • Foreclosure lawsuit,
  • Foreclosure dismissed, and
  • Five-year statute of limitations elapses. 

Or, to put the question more precisely into the framework of the litigation:

Does acceleration of payments due under a residential note and mortgage with a reinstatement provision in a foreclosure action that was dismissed 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 answered in the negative.

Let me provide some background.

This dispute began with a 2006 foreclosure lawsuit against Lewis Bartram after he stopped making payments on the mortgage. In April 2011, with Bartram's suit still in litigation, his ex-wife Patricia Bartram filed a suit to foreclose her mortgage, naming her ex-husband, the bank and the homeowners' association as defendants.

To provide some dates and actions:
  • November 14, 2002: Lewis Bartram and Patricia Bartram purchase real property in St. Johns County, Florida
  • November 5, 2004: marriage is officially dissolved, with the divorce court ordering Lewis to purchase Patricia’s interest in the property, pursuant to their prenuptial agreement
  • February 16, 2005: Bartram obtains $650,000 loan through Finance America, LLC, and Finance America subsequently assigns the mortgage to U.S. Bank, with March 1, 2035 as the designated maturity date of the note
  • February 17, 2005: Bartram executes a $120,000 second mortgage to Patricia to buy her interest in the real property, in accordance with the prenuptial agreement, thus she ends up with a recorded interest in the same real property as the Bank
  • January 1, 2006: mortgage goes into default
  • May 16, 2006: U.S. Bank files complaint to foreclose
  • December 12, 2006: Lewis Bartram files answer to the complaint
  • December 19, 2006: U.S. Bank moves for final summary judgment of foreclosure, which does not appear to have been denied
  • February 23, 2009: U.S. Bank files renewed motion for summary judgment