Last year, we wrote an article about the Florida Supreme Court ruling that each missed mortgage payment constituted a new default subject to a new five-year statute of limitations clock, meaning most lenders could proceed with foreclosure even after five years from the initial default. Recently, Justice C. Alan Lawson issued an opinion in Bollettieri Resort Villas Condominium Association, Inc. v. The Bank of New York Mellon, SC16-1680 (Fla. Oct. 2, 2017) that adds an important caveat to this rule of law.
Justice Lawson addressed the seemingly shifting statute of limitations start date for foreclosures that may involve multiple defaults and lawsuits. Justice Lawson aptly referred to the issue as “the latest symptom of a more serious problem: widespread and fundamental misunderstanding, in Florida, regarding how the statute of limitations, § 95.11(2)(c), Fla. Stat. operates vis-à-vis a long-term note (and mortgage) with regards to when the clock starts for lenders to file suit.”
The problem revolves around payments and whether or not the date of a missed payment carries any weight in terms of defining a lender’s start and finish time to file suit on long-term debts such as mortgages. The five-page opinion indicates that missed payments may not initiate the clock on the statute of limitations. The court’s reasoning rests on the issue that such promissory notes may include optional acceleration clauses that impact the statute of Llmitations. While Justice Lawson reasons that a missed payment does not necessarily start the five-year statute of limitations clock ticking, it may provide lenders a renewed opportunity to bring suit and recoup on the note.
The Florida justice previously pointed out that “[t]he law used to be well-settled and clear,” when the state’s High Court accepted but decided to not review a case regarding a double foreclosure on a single loan. At issue was the district courts’ disagreement about whether the Statute of Limitations’ five-year window should be strictly applied or whether each default restarted the clock for lenders to renew or initiate civil litigation. The Florida Supreme Court’s November ruling held that new defaults opened the door for lenders to bring suits outside the initial five-year opportunity.
Following that direction, lower courts appeared to understand and uniformly apply the decision that new defaults restarted the statute of limitations. Consistent decisions from courts that included the Fifth, Fourth and First District Courts of Appeal prompted the Florida Supreme Court to conclude the conflict had been resolved. However, the High Court appears to shift direction by declining to review the very case it initially accepted.
At issue in Bollettieri Resort Villas was whether the lender could recover installments that were due outside the window and prior to a suit filed regarding a second foreclosure proceeding. The Florida Supreme Court ultimately rejected to hear Bollettieri Resort Villas based on the notion the district courts were in agreement and no conflict existed. But Justice Lawson’s special concurrence points to a continued “fundamental misunderstanding” of how the statute of limitation should impact mortgages and other long-term loans.
Under the new guidance, lenders have the ability to recoup the full balance of the debt. Payments not made by the borrower may not be recovered because the full maturation of the loan has not come due. Typically, this does not occur for decades. Lenders must therefore accelerate the outstanding debt and call in the full balance of the loan to pull such missed payments into the litigation.
A key strategic point becomes the decision by a lender to hold off on the acceleration decision. Such acceleration could be implemented upon a second default had the lender not acted after the first default. The courts appear to have created a unique statute of limitations rule regarding the relationship between lender and borrower that cracks the door for multiple lawsuits based on a single, ongoing obligation between the parties.
As Justice Lawson noted in his opinion: “In the latter context, Florida courts have created a special rule that can allow a second suit between the same parties based upon ‘the unique nature of the mortgage obligation and the continuing obligations of the parties in that relationship,’ and equitable principles.” In that different legal context, the rule fashioned by the Florida Supreme Court does give legal significance to the date of missed payments — but not for statute of limitations purposes.
The once firm and long-held application of Florida’s statute of limitation rules appears to have made a shift with regards to long-term lending litigation.