Properly Evaluating Statute of Limitations Risk

The Florida Statute of Limitations (“SOL”) continues to undergo judicial review and scrutiny. As a result, lenders are wise to conduct a fact-specific analysis of loans that may be impacted by the SOL. Mortgages impacted by the SOL are not destined to being dismissed.  The impact of the SOL may reduce the amount that a mortgagee is entitled to collect, but the SOL is not necessarily fatal to the judicial foreclosure proceedings in Florida. 

Conditions Precedent vs. AccelerationUniform mortgages provide borrowers with “Acceleration Remedies”. Pursuant to Uniform Mortgages, a lender must provide the borrowers notice of a breach prior to acceleration of the mortgage. The notice must specify (i) the default, (ii) the action required to cure the default, (iii) an opportunity to cure the default within no less than 30 days, and (iv) notification that the failure to cure the default within the 30-day period may result in acceleration of the mortgage. Under contract law and foreclosure law, this letter is known as a “Condition Precedent” to enforcement of the mortgage contract. It is a condition lenders are required to meet prior to accelerating the mortgage.  Thereafter, if the borrowers fail to cure, the lender can accelerate and enforce the mortgage. Acceleration is deemed to be the filing of a foreclosure complaint in cases that impose the 30-day cure condition. 

As a result, the default notice does not necessarily govern the SOL. In the event a default notice was timely delivered to the borrowers, a new demand letter may not be required notwithstanding the mortgage being impacted by the SOL. A lender can establish satisfaction of Conditions Precedent in cases that may be impacted by the SOL post acceleration. 

  Liability vs. Damages: The presentation of all mortgage foreclosure cases involves two elements. The first is liability; establishing that the borrowers violated the terms of the mortgage and is thereby in breach of the mortgage. The second is damages; the lender must establish the amounts due and owing under the promissory note and mortgage.  Florida Courts have historically followed the Florida Supreme Court’s ruling in Singleton v. Greymar Associates, which provides an SOL analysis holding that each successive default date can be viewed as a separate cause of action. This position is premised on the unique nature of a mortgage contract, which provides a borrower with the right to reinstate a defaulted mortgage after acceleration. This right essentially puts the power of the contract in the control of a borrower, which is unique to traditional contractual defaults. Interpreting the Singleton rationale, the recent decision of Deutsche Bank Trust Co. Ams. v. Beauvais, held that “dismissal of a foreclosure action accelerating payment on one default does not bar a subsequent foreclosure action on a later default date if the subsequent default occurred within five years of the subsequent action.”  Therefore, the window carved out by Beauvais is a five-year window from acceleration. This begs the question of whether a case that includes a claim of default that exceeds the five-year window is a “lost cause”. The same Court in Beauvais has opined that those cases are not fatal. 

The case of Jorge Pablo Collazo & Maria Edith Collazo vs. HSBC Bank USA, N.A. involves a case wherein HSBC accelerated a mortgage in 2008 which was dismissed. A second foreclosure action was filed in 2014 alleging the same default date as the 2008 case.  While a portion of the amounts due were barred by the SOL, the Appellate Court held that the proper procedure was for the Trial Court to “. . .  determine the correct sum of principal and interest due under the mortgage note calculated by excluding the monthly installment payments due over five years before the commencement of the second foreclosure suit by HSBC (January 24, 2014).”  Based on the foregoing, the Court established the method trial courts should adjudicate borrowers liability in cases impacted by the SOL.

Borrowers are afforded redemption rights under the mortgage and the law. Therefore, the borrowers may redeem (payoff) the amount due under the mortgage note prior to foreclosure sale.  Once a court adjudicates default liability, the issue of damages must be adjudicated and a borrowers is thereby provided with the ability to redeem. Historically, courts have found a portion of the amount due under the mortgage note to be barred by the SOL and have dismissed cases outright. The Court in Collazo has clarified that dismissal is not the appropriate result in cases impacted by the SOL. Instead, courts must calculate damages and enter a judgment consistent with the SOL by reducing the amount of damages by the amount barred by SOL. With that exception, a lender has the right to obtain judgment of foreclosure based on the adjusted amount of damages.