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Florida Statute of Limitations Does Not Bar Foreclosure Based on a Default Occurring More Than Five Years Before Complaint Filed

In two recent decisions, the Florida Fifth District Court of Appeals (“Fifth DCA”) clarified its position regarding the circumstances under which the statute of limitations will not bar a foreclosure action despite a default date greater than five years from filing the complaint.  Ventures Tr. 2013-I-NH v. Johnson, (5th DCA June 30, 2017); Klebanoff v. Bank of N.Y. Mellon, (5th DCA June 30, 2017).

In Ventures v. Johnson, the Court previously issued a written opinion in which it affirmed the dismissal of a foreclosure action based on the fact the borrower’s default occurred more than five years from the filing of the complaint. However, the Court granted rehearing, withdrew that opinion, and replaced it with an unwritten opinion in which it affirmed the dismissal of the foreclosure, but, ostensibly, for different reasons. The new holding included a brief concurrence in which the concurring judge explained affirmance of the lower court’s dismissal was appropriate based on the bank’s failure to preserve certain issues for appellate review:

“Appellant argues, inter alia, that it was error for the trial court to dismiss its foreclosure action on statute of limitations grounds where the complaint alleged defaults both within and outside the five-year statute of limitations. Because this argument was not preserved below, I agree that affirmance is appropriate.”

The earlier written opinion in Ventures v. Johnson established a very unfavorable precedent for lenders, so the June 30th order is a welcome modification, albeit limited in its analysis.

In contrast, the Fifth DCA’s written opinion in Klebanoff v. BONY, issued the same day as Johnson, provided a detailed analysis of why the statute of limitations did not prevent a lender from foreclosing its lien despite an initial default date more than five years from the date the bank filed its complaint. In Klebanoff v. BONY, the borrowers failed to make their March 2009 payment. The bank filed its foreclosure complaint in June 2014, more than five years from the default date. The borrowers raised the statute of limitations as an affirmative defense and the case proceeded to trial.

At trial, the bank proved not only that the borrowers defaulted in March 2009 but that the loan remained in default due to the borrowers’ continued failure to make any payments thereafter. The Court relied almost exclusively on this fact in affirming the entry of the final judgment. The Court explained:

“Because the Bank alleged and proved that the subject mortgage was in a continuous state of default, which included defaults within the five-year statute of limitations, its action was not barred, even if the initial default was alleged to have occurred more than five years prior to the filing of the complaint.”

The Court distinguished its holding in Hicks v. Wells Fargo Bank and the Third DCA’s holding in Collazo v. HSBC Bank USA where final judgments of foreclosure were reversed and the cases dismissed based on the fact the bank filed its complaint more than five-years after the alleged payment default in violation of Florida Statute of Limitations. In both those cases, the bank relied exclusively on a default date which occurred more than five years before the complaint was filed, rather than the fact the loan remained in default after the initial default due to continued non-payment.  The Court, quoting from Hicks, noted the parties stipulated to the facts prior to trial, one of which was the default date:

“Here, Bank’s complaint was filed in 2013, based on an alleged default occurring on June 1, 2006. Because trial counsel for the parties stipulated to the court that the facts were undisputed…the court erred when it failed to dismiss the foreclosure complaint with prejudice based on a default that occurred outside of the five-year statute of limitations period.”

Similarly, quoting from Collazo, the Court noted: “[C]ounsel for HSBC, when challenged, doubled down on a stale default outside the limitation period.”

In contrast, in Klebanoff v. BONY, the Court affirmed the entry of the foreclosure judgment because “the Bank both alleged and proved that the Klebanoffs had defaulted on each and every mortgage payment from March 1, 2009, and onward.” The Court concluded:

“Because the Bank alleged and proved that the subject mortgage was in a continuous state of default, which included defaults within the five-year statute of limitations, its action was not barred, even if the initial default was alleged to have occurred more than five years prior to the filing of the complaint.”

This holding provides much-needed guidance and clarification regarding when the statute of limitations will bar a lender from foreclosing. If the complaint includes allegations regarding the borrower’s continued default, it should survive a motion to dismiss, despite an initial default date more than five years prior to filing the complaint. Additionally, as long as the continued nature of the borrower’s default can be proven on summary judgment or at trial, the bank should be able to successfully foreclose its lien and accelerate all sums due under the note.