STATUTE OF LIMITATIONS DID NOT PREVENT BANK FROM ENFORCING MORTGAGE & REESTABLISHING LOST NOTE
The Eleventh Circuit of the United States Court of Appeals addressed the applicability of the statute of limitations to a mortgage foreclosure action which included a claim to reestablish a lost note. Bank of New York Mellon for Nationstar Home Equity Trust 2007-A v. Pederson. In Pedersen, the borrowers (“the Pedersens”) appealed the Bank of New York Mellon’s (“the Bank”) foreclosure judgment arguing that the Bank was barred from foreclosing the Pedersen’s mortgage due to the running of the five-year statute of limitations. The Bank had previously accelerated the mortgage by filing a foreclosure action. Although the Bank subsequently dismissed that action, more than five years passed between the initial acceleration and the subsequent foreclosure action. The Pedersens also argued that the Bank’s claims were barred by res judicata[i] since the court dismissed the Bank’s prior foreclosure of the same mortgage. In affirming the lower court’s entry of summary judgment in favor of the Bank, the Eleventh Circuit interpreted the statute of limitations as applied by Florida courts.
The statute of limitations, as it pertains to mortgage foreclosures, has been a hot topic recently and we have discussed the issue at length in prior articles. In Pedersen, the court recognized and enforced the following Florida precedents regarding the application of the statute of limitations to foreclosure actions: (I) In Florida, acceleration of the loan, which triggers the running of the statute of limitations, is marked by the filing of the foreclosure complaint; (II) Dismissal of a foreclosure complaint, whether with or without prejudice, “revokes acceleration” and returns the parties to their “pre-foreclosure complaint status” where the borrower is entitled to make installment payments and the lender has the right to seek acceleration upon default; (III) Once a foreclosure complaint is dismissed, the statute of limitations stops running on the acceleration date; (IV) After dismissal, the borrowers continuing or subsequent default gives rise to a new cause of action for foreclosure.
The Court, in Pedersen, concluded neither the doctrine of res judicata nor the statute of limitations prevented the Bank from foreclosing its mortgage. The court explained: “…[D]ismissal of an earlier suit filed by a predecessor in interest revoked any acceleration of the debt, which reverted the mortgage to an installment loan and created new defaults…Suits over new defaults are not barred by res judicata.” Similarly, the court concluded: “…[T]he statutes of limitations and repose did not bar suit because the revocation of acceleration by the previous dismissal halted the statutes of limitations until there was another acceleration or the loan reached maturity.” The court affirmed the Bank’s summary judgment.
One issue the court did not discuss in Pedersen was the applicability of the statute of limitations to the Bank’s claim to reestablish the lost note. In fact, it appears no court has resolved this issue, although the Second DCA discussed it briefly in Peters v. Bank of New York Mellon. In Peters, the borrowers again appealed a foreclosure judgment. On appeal they raised three issues: (I) The bank failed to prove its standing to enforce the lost note, (II) the bank’s claim to reestablish the lost note was barred by the statute of limitations, and (III) the bank failed to prove it complied with pre-suit notice requirements. Ultimately, the Second DCA agreed that the bank failed to prove its standing to enforce the lost note and reversed on that ground. However, in its written opinion, the court noted: “[the Peters’] second point regarding the application of the statute of limitations to an action for reestablishment of a lost promissory note raised an issue that is apparently one of first impression in Florida.”
Although the Second DCA found it unnecessary to address the statute of limitations as applied to the Bank’s reestablish count, the Court did include the lower court’s brief analysis of the issue in its opinion. The lower court explained:
The purpose of the statute of limitations is to try to prevent stale claims, okay, but my belief—and this is going to be the ruling of the Court—that the loss or discovery of the lost instrument is not a claim. It’s an event. It’s nothing that gives rise to a claim that would give rise to [a] cause of action. The only time that there’s going to be a claim resulting from a lost instrument is when it needs to be enforced and that is when it goes into default. So the ruling of the Court … is going to be that there is no need once a lost negotiable instrument is discovered as being lost, that they have to file a cause of action to reestablish that note when that note is not being sought to be enforced.
Although of no precedential value, the lower court’s reasoning and ruling on the issue and its inclusion by the Second DCA in its opinion is insightful and provides some guidance on the issue. The requirement to file a lawsuit within five years of discovering the loss of a note seems impractical and a waste of the court’s resources unless brought in conjunction with an action to foreclose the mortgage. We anticipate there will be more litigation in the coming years regarding the applicability of the statute of limitations to a claim to reestablish a lost note.
[i] This Latin term is translated as “a thing adjudicated.” As explained in Black’s Law Dictionary, res judicata means that “[o]nce a lawsuit is decided, the same issue or an issue arising from the first issue cannot be contested again.” Black’s Online Law Dictionary, 2nd Ed.
The statute of limitations, as it pertains to mortgage foreclosures, has been a hot topic recently and we have discussed the issue at length in prior articles.