Florida Supreme Court to rule on the Five Year Statute of Limitations
by William Hudson
In Florida, a five-year statute of limitations rule may prevent banks from being able to foreclose despite ongoing litigation. As a result of this rule, mortgage servicers are actively attempting to preserve their right to foreclose pending the Florida Supreme Court Decision. The Florida Supreme Court is reviewing the case, U.S. Bank v. Bartram, and will decide if servicers can restart foreclosures after five years, or if they will be barred by the Florida statute of limitations. The key question in Bartram is: When does the clock start ticking to sue to foreclose on a mortgage? Mortgage servicers are prepared that they may not be able to collect on accounts where the homeowner has not made a payment for over five years and will be barred from pursuing foreclosure or other debt collection activity.
The Supreme Court will also determine if servicers can restart the clock. If they are prevented from pursuing the outstanding debt, it is possible that banks will start making earnest attempts to modify loans by lowering the monthly payment or attempt to get the borrower to short-sale the property. However, the real issue is that these homeowners will be able to live mortgage free in their homes indefinitely. The banks had an opportunity to modify mortgages in good faith and failed to do so. If the Florida Supreme Court upholds the five-year statute of limitations on debt collection it is probable that other states will institute the same consumer protection.
Moody’s Investor Service stated that, “The court ruling will have only a minor impact on overall RMBS performance because the number of previously dismissed foreclosure actions that are seriously delinquent or in foreclosure is minimal,” the report said. “Only approximately 3% of private label loans backed by properties in Florida had a prior foreclosure dismissed and are greater than 60 days delinquent or in foreclosure.” Moody’s brought up the fact that only 3% of private label loans had a prior foreclosure dismissed, when the real question should be how many GSE (Government Sponsored Enterprise) loans guaranteed by Fannie Mae or Freddie Mac are near or beyond the five year statute of limitations? The GSE loans have a higher portion of subprime loans on their books. As usual, we hear only part of the true story.
Does the clock start ticking with the bank’s acceleration and pursuit of foreclosure, and end after five years, as the law had been in Florida prior to the Fifth DCA’s Bartram decision? In almost every other state in the country that has a mortgage foreclosure statute of limitations the clock starts ticking when the loan is accelerated leaving the bank only five years to take action. The Bantram case will clarify if a lender can restart the clock by simply declaring a new default date- even if the statute of limitations is past the lenders original acceleration date of the loan.
Statute of limitation timelines are generally straightforward. In personal injury or fraud the right to sue expires after four years in Florida (check your state’s statutes). In written contracts, the law in Florida states the statute of limitations is five years and this includes the collection of rental payments and mortgages. Every plaintiff knows if you fail to take action, you are out of luck if you fail to file a claim prior to the statute of limitations running out. However, in the eyes of the Florida judiciary, the law is not the law when it comes to mortgage claims. As we have seen in foreclosure litigation, mortgage forgery is labeled “robosigning”, while a bank’s criminal trespass into an occupied home is called a “civil” matter. When it comes to matters of foreclosure there is a tendency to make presumptions in favor of the bank- let’s hope the Supreme Court rules according to law.
According to Florida law, when the borrower defaults, the lender accelerates the debt and then files to foreclose. If the Supreme Court rules for the lenders, Florida would be the only state permitting a judicial exception to the statute of limitations for mortgages. It is inevitable that this decision would unleash an explosion of litigation against homeowners in default while also inspiring banks to abandon their offers to modify mortgage loans. The end result would be chaos for the Florida housing market.
The Bartram case is from the resulting fallout from the fraudulent robosigning (forgery) practices of the Law Offices of David J. Stern that began May 16, 2006, when U.S. Bank filed a mortgage foreclosure action against Lewis Bartram of Ponte Vedra Beach through their counsel David J. Stern. On May 4, 2011, nearly five years after the original suit, U.S. Bank missed a conference and the court dismissed the foreclosure.
In March 2011 Bartram’s ex-wife instituted a series of cross-claims against U.S. Bank and Bartram. Eventually in July 2012, the trial court entered summary judgment in Bartram’s favor because the five-year statute of limitations had expired. The bank appealed and in 2014 the Fifth District ruled in favor of the bank concluding that a new five-year clock starts to tick with each mortgage payment that is missed. However, the Fifth District ignored the fact that there are no more mortgage payments due once a lender elects to accelerate the mortgage, as was the case in Bartram.
Acceleration is the key to understanding how a mortgage foreclosure action is supposed to work. The Fifth District showed their bias in favor of the banks and should have ruled in favor of Bartram. Standard mortgage contracts typically carry an acceleration clause that gives the lender two options in the event that a borrower defaults: 1) sue for missed payments or 2) call the entire loan due immediately. As we know, the banks prefer to accelerate the debt so that they can auction the property. However, acceleration requires that the lender has five years from the debt acceleration to take legal action.
The Florida Fifth District effectively ruled in Bartram that a lender could restart the clock any time they wanted. Interestingly, the mortgage contract doesn’t permit such an action by a lender. It is noteworthy that apparently res judicata does not apply and that the Fifth District found that each missed payment creates a new cause of action, thereby permitting a lender to sue again and again and literally make a homeowner’s life a living hell- indefinitely if desired.
The Fifth District’s erroneous interpretation of the mortgage foreclosure statute of limitations is yet another attempt to legislate from the bench. It is the judge’s job to enforce the rules of the legislature. If the Supreme Court upholds the Fifth District’s ruling, the Florida legislature will need to remove the mortgage foreclosure statute of limitation from the Florida Statutes because it will no longer be relevant. Maybe they could do away with all statutes that protect homeowners while they are at it- because apparently that is what the judges’ would do if they weren’t constrained by an annoying legislative branch.