April 5, 2016

by J.D. Fichtner
McCalla Raymer, LLC – USFN Member (Georgia)

Compliance with the federal Servicemembers Civil Relief Act (SCRA) (50 U.S.C.A. §§ 3901-4043) has always been, and remains, a major concern in the American mortgage servicing industry. The reasoning for the importance of compliance with this particular law is two-fold: One, there is a unique moral component to compliance with this law that does not necessarily exist with other laws. The idea behind the SCRA — to protect the rights and property of those who choose to fight for our country — is something that resonates with Americans. Second, the penalties for violating the SCRA are severe (See 50 U.S.C.A. § 4041). For example, the Department of Justice recently entered into a $123 million settlement with five major servicers for an estimated 1,000 SCRA violations.

Investor Concerns
Mortgage investors have begun raising major concerns regarding two facets of SCRA compliance: (1) sending notice of potential SCRA rights in any default or collections action; and (2) the filing of affidavits in judicial actions. The SCRA does not explicitly require that servicers perform either of these actions; however, there is an argument that the SCRA contemplates these actions. Additionally, following these methods is an effective way of showing compliance with the requirements of the SCRA.

Notices — The SCRA places the burden of notifying servicemembers and other protected persons upon “the Secretary” of the servicemember’s respected service (50 U.S.C.A. § 3915). In the majority of cases, this will be the Secretary of Defense. Nonetheless, it is best for firms and servicers to include information concerning potential SCRA benefits any time they are pursuing legal or collections action. This is in order to give anyone who may be protected the opportunity to come forward and assert his or her protection.

Many investors and servicers now require that their servicers and vendors send some notice of potential SCRA benefits. In almost every action contemplated in the servicing industry (whether it be foreclosure, eviction, etc.), notice is required to be mailed to the subject property and/or to the borrowers/owners/occupants. Correspondingly, it is sound to include SCRA benefits information in all notices that a servicer, law firm, or vendor may send.

Affidavits — The SCRA does contemplate the filing of an affidavit attesting to the military status of defendants in civil actions, specifically in cases where a default judgment is sought or granted (50 U.S.C.A. § 3931). Section 3931 of the SCRA obliges all American courts to require plaintiffs to file an affidavit “stating whether or not the defendant is in military service and showing necessary facts to support the affidavit” or “if the plaintiff is unable to determine whether or not the defendant is in military service, stating that the plaintiff is unable to determine whether or not the defendant is in military service” in any civil action “in which the defendant does not make an appearance.”

While the SCRA induces all courts to follow this affidavit requirement, many courts do not apply this portion of the SCRA, either by not compelling that an affidavit as to military status of the defendant be filed prior to issuing a default judgment, or by not requiring sufficient language in the affidavit. Consequently, many investors and servicers now direct their law firms and vendors to file affidavits of military status in all judicial proceedings where they are listed as the plaintiff. The general practice is to file an affidavit asserting that the named defendant is not protected by the SCRA, along with a copy of a Defense Manpower Data Center (DMDC) record check showing the same. Many investors take this a step further and have very specific requirements regarding the form of the affidavits, the timing of the record checks, the execution and filing of these affidavits, as well as the language contained in the affidavit.

Correspondingly, a recommended practice would be to ensure that in every judicial action filed, an affidavit as to the military status of the defendants, along with a DMDC record check attached as an exhibit, is submitted. This ensures that, even if a court is not applying section 3931, the relevant entity is in compliance with the section and can prove this in a potential action regarding an SCRA violation. It is also prudent for the affidavit to contain language addressing anyone else who may be affected by the litigation but is not named as a defendant (i.e., occupants in an eviction action who are not named as defendants because they are not required to be).

This language can be as simple as something along the lines of “[Plaintiff] is unaware of the military status of any John/Jane Does who may be affected by this judgment.” With that being said, it is important to keep in mind that many courts have their own specific requirements as to what may be filed and what forms must be used. In certain jurisdictions, filing an affidavit not on the court’s forms may create more problems than it solves, especially if the court has its particular SCRA affidavit procedure that conflicts with this suggestion. Accordingly, every effort should be made to take varying jurisdictional requirements into consideration.

Conclusion
There are steps that can be taken to help ensure compliance with the SCRA that are not explicitly contemplated or required by the SCRA. This brief article covers two relatively easy points. Specifically, the inclusion of SCRA benefits information in all notices sent, and the filing of an affidavit as to the defendant’s military status in all judicial actions.

© Copyright 2016 USFN. All rights reserved.
April e-Update

April 5, 2016

by USFN Staff

Effective April 1, 2016, automatic adjustments were made to dollar amounts stated on several Official Bankruptcy Forms. The adjustments apply to cases filed on or after April 1, 2016. For detailed information, see http://www.uscourts.gov/rules-policies/pending-rules-amendments/pending-changes-bankruptcy-forms. Among the changed forms is Official Form 410, Proof of Claim, Line 12.

© Copyright 2016 USFN. All rights reserved.
April e-Update

April 5, 2016

by Jienelle R. Alvarado
Trott Law, P.C. – USFN Member (Michigan)

On March 31, 2016 the Foreclosure Relief and Extension for Servicemembers Act of 2015 (the Act) was enacted, becoming Public Law No. 114-142. The Act amends the Honoring America’s Veterans and Caring for Camp Lejeune Families Act of 2012 by extending the time period in the provision of the Servicemembers Civil Relief Act (SCRA) that grants safeguards to active duty servicemembers against foreclosure.

Specifically, the protections provided by 50 USC § 3953 (previously cited as 50 USC Appx § 533) will be extended for one year following the completion of the servicemember’s military service. The one-year protection under § 3953 of the SCRA will continue through December 31, 2017. Absent further amendments, the extended time period under § 3953 of the SCRA will revert back to the prior version on January 1, 2018.

© Copyright 2016 USFN. All rights reserved.
April e-Update

April 5, 2016

by Rebecca B. Redmond
Sirote & Permutt, P.C. – USFN Member (Alabama)

FHA servicers and lenders: There’s another rule change. Under FHA’s reduced late fee cap, which became effective March 14, 2016, late charges for case numbers assigned on or after the rule’s effective date will be limited to four percent of principal and interest. Taxes and insurance can no longer be factored into late charge calculations.

This new cap on late fees — one of the many changes set forth in the recently revised FHA handbook (i.e., online FHA Single Family Housing Policy Handbook 4000.1) — is sure to add to the ever-increasing compliance costs for servicers as fees decrease. Meanwhile, pressure mounts on lenders to provide proper closing cost disclosures in light of this revised rule. Compliance is mandatory.

© Copyright 2016 USFN. All rights reserved.
April e-Update

April 5, 2016

by Kayo Manson-Tompkins
The Wolf Firm – USFN Member (California)

On August 12, 2015 Los Angeles City approved a receivership program in order to address the ongoing “blight” that has continued to exist with vacant properties (City of Los Angeles Report No. R15-0212). Under this program, if the efforts of Code Enforcement and Building & Safety have not resulted in a remedy or abatement of the violations or nuisances, contract attorneys will be hired to file a receivership action. Once a receiver is appointed, the receiver will take steps to remedy or abate the violations or nuisances; a secured loan can be obtained to do so.

This loan will have first lien priority over all existing liens secured by the property in order to recover full costs of abatement, as well as the costs associated with the receivership (including attorneys’ fees and costs). Under the program servicers and investors may encounter properties where the amount of recovery post-sale has been significantly reduced by the receiver’s first-priority lien. Another option for a receiver is to force a sale of the property so as to recover these costs.

As a reminder, Los Angeles has a foreclosure registration requirement whether the property is vacant or occupied. The city also has a vacant registration program regardless of whether the property is in foreclosure. Furthermore, once the property has gone to sale, there is a registration program for REOs.

To prevent incurring stiff penalties (and, if applicable, having a receiver appointed) it is imperative that servicers and investors review their Los Angeles, California portfolios. Go to Los Angeles Housing Department Foreclosure Registry Program at http://hcidla.lacity.org/ForeclosureInformation and have your property preservation company register the properties.

© Copyright 2016 USFN. All rights reserved.
April e-Update

February 23, 2016

by Kimberly M. Raphaeli
RCO Legal, P.S. – USFN Member (Alaska, Oregon, Washington)

Washington has traditionally been a squatter-friendly state. However, recent news stories about squatters taking over homes and refusing to leave, while property owners are helpless to stop them, have resulted in an outcry by concerned citizens. The law currently requires property owners to file an eviction action or, other civil lawsuit, to obtain a writ of restitution before the sheriff can step in and forcibly remove squatters from a home. This can be difficult when a property owner does not know the identity of the persons and may not have the financial ability to pursue a civil action. While a property owner wades through this difficult legal process, the home and neighborhood suffers. Illegal activity may be present; property damage may be ongoing — all while property values decline in the neighborhood.

Lawmakers have taken note and introduced House Bill 2897. The bill proposes to expand the definition of criminal trespass in the first degree to include an individual not listed as a tenant on a rental agreement or as a guest in an affidavit signed by the owner of the property, who refuses to leave immediately upon demand and surrender possession of the premises to the owner (a “tenant by sufferance”). This means a property owner, after written demand to the squatters, may contact law enforcement to report an active criminal trespass and receive assistance without needing to file a civil action.

© Copyright 2016 USFN. All rights reserved.
March e-Update

February 22, 2016

by Jennifer M. McGrath
Hunt Leibert – USFN Member (Connecticut)

Discovery under the Federal Rules has long been governed by the principles of proportionality; however, the revised Rule 26(b)(1) — effective December 1, 2015 — has put increased importance on the concept and made it a central term of the Rule, which now reads:

Unless otherwise limited by court order, the scope of discovery is as follows: Parties may obtain discovery regarding any nonprivileged matter that is relevant to any party’s claim or defense and proportional to the needs of the case, considering the importance of the issues at stake in the action, the amount in controversy, the parties’ relative access to relevant information, the parties’ resources, the importance of the discovery in resolving the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit. Information within this scope of discovery need not be admissible in evidence to be discoverable. Rule 26(b)(1) (emphasis added).

The U.S. District Court of Connecticut is among the first to interpret the revised Rule in the context of a discovery dispute, and can be utilized to prohibit depositions of a party. In Williams v. Rushmore Loan Management Services LLC, 3:15-cv-00673 (RNC), an action concerning alleged violations of the Fair Debt Collection Practices Act (FDCPA), the plaintiff sought to depose two employees of the defendant loan servicer when, procedurally, he had already moved for summary judgment based on liability. The defendant loan servicer filed a motion for protective order, asserting that the FDCPA provides a maximum statutory penalty of $1,000 [15 U.S.C. § 1692K (a)(2)]; there is no provision for punitive damages, and the plaintiff was limited to actual damages [Gervais v. O’Connell, Harris & Associates, Inc., 297 F. Supp. 2d 435, 439-40 (D. Conn. 2003)], which he had described as “garden variety” emotional distress.

On February 16, 2016 the court granted the loan servicer’s motion for protective order, finding the requested depositions of the servicer’s employees to be of “marginal utility” in the case, and holding that the cost of preparing for (and taking) the out-of-state depositions was “disproportionate to the needs of the case and the plaintiff’s potential recovery.”

The court’s decision in Williams sets an important precedent and reinforces the parties’ obligations to consider proportionality when serving discovery. By requiring litigants to show a logical nexus between the claims and defenses in an action and the discovery sought, the court eliminates “unnecessary or wasteful discovery” (as U.S. Supreme Court Chief Justice Roberts instructed in his 2015 Year-End Report, which was cited by the Connecticut District Court in Williams).

Counsel for loan servicers can utilize this recent decision to limit or prohibit deposition practice in consumer claims under the FDCPA, RESPA, and other statutory claims in which the actual damages are relatively small.

Editor’s Note: The author’s firm represented Rushmore Loan Management Services, LLC in the summarized proceedings.

© Copyright 2016 USFN. All rights reserved.
March e-Update

February 4, 2016

by Douglas A. Oliver
Anselmo Lindberg Oliver – USFN Member (Illinois)

The Illinois Court of Appeals for the Second District recently held a mortgage to be invalid because of the manner in which the borrowers signed it. At the same time, the appellate court left open the possibility that the mortgage could be judicially reformed, thus all hope was not lost. Improperly executed mortgages are not common, but they are also not rare. This case, and how a seemingly intractable problem can be approached by foreclosure counsel, is worth knowing about.

On January 22, 2016 the Illinois Appellate Court for the Second District released its opinion in CitiMortgage, Inc. v. Parille, 2016 Ill. App. 2d 150286, holding that the mortgage in question was unenforceable. Two basic factors led to this conclusion; first, the husband-and-wife borrowers held title as “tenants by the entirety.” This special type of joint tenancy is allowed by Illinois law and is available only to spouses and only with respect to their principal residence. When an Illinois married couple holds title as tenants by the entirety, neither spouse can encumber or sell the property without the participation of the other. In other words, if one spouse wants to mortgage his or her share of the marital residence and not the whole thing, the other spouse would also have to sign the mortgage — otherwise the encumbrance would be ineffective.

That is precisely what happened in the Parille case: after a series of financing and refinancing transactions in the short space of three years, the wife took out a fourth note and mortgage on the marital residence. This time, only the wife signed the note and mortgage as a “borrower.” The husband signed the mortgage but, for the reasons that follow, without legal effect.

The second factor that caused the mortgage to be invalid was the manner in which the husband signed it. The wife executed the mortgage in the “normal” manner — without any restrictive language accompanying her signature. The husband, however, signed “only to waive homestead rights.” This means that the husband’s signature signified he was only waiving certain bankruptcy and judgment protections that apply to homesteads in Illinois; he did not indicate that he was agreeing to encumber his share of the marital residence, or that he consented to his wife encumbering part or all of her share.

This scenario is not unheard of. Mortgages are sometimes executed incorrectly, such that not all title holders sign in the correct capacity or manner so as to encumber their full interest. The principal method of dealing with this situation is to include in the foreclosure complaint a count to reform the mortgage. In such a count, it is alleged that the lender, borrower, and other title holders intended to fully encumber the title holders’ interests because they would not otherwise have been able to get the loan. The essence of the claim is that the parties agreed to a full encumbrance but the documents signed at closing did not properly reflect their agreement and did not fully carry out their intent. The court is then requested to enter an order amending the documents to correctly reflect a full encumbrance.

In the Parille case, the plaintiff-lender asserted a count to reform the mortgage. In addition, the lender asserted claims including equitable lien, unjust enrichment, and fraud. The trial court dismissed all of these claims, including that the mortgage should be reformed. The lender appealed.

Because the note and mortgage reflected on their face that the wife was the only borrower and the husband signed the mortgage merely to waive homestead rights, the appellate court found that the lender could not plead facts to support any equitable claim except one: that the documents did not truly reflect the parties’ intent. The appellate court, therefore, affirmed the dismissal of all claims, except the claim to reform the mortgage. (The dismissal of borrower fraud claims was sustained as time-barred.)

The end result was that the case was remanded to the trial court for determination of whether or not the borrower and her spouse actually intended to encumber the entire property in order to get the loan proceeds. While a positive outcome for the lender is not assured, the lender at least has a means to attempt to fully enforce the note and mortgage.

This case illustrates how improper mortgage execution — a very serious problem — can potentially be solved. To pursue a count to reform, foreclosure counsel would start by gathering all of the closing documents, including the loan application, closing statements, disclosures, and other documents submitted by the borrowers or signed prior to or at the closing. Discovery would then be conducted based on those documents. The aim of that discovery would be to establish that the borrowers knew that the lender expected that all title holders would subordinate their interests to the mortgage loan, otherwise the loan would not close. Outcome is generally positive in the vast majority of cases, whether by trial or by settlement.

It should also be noted that a lender does not need to wait for a foreclosure scenario to seek to reform a mortgage. “Reformation of instruments” is a valid cause of action on its own; a case can be filed solely for that purpose.

© Copyright 2016 USFN. All rights reserved.
February e-Update

February 2, 2016

by E. Edward Farnsworth, Jr.
Samuel I. White, P.C. – USFN Member (Virginia)

In a 6-3 decision, the U.S. Supreme Court put to rest the issue of whether an unaccepted offer of judgment pursuant to FRCP 68, in the full amount of a plaintiff’s claim, renders a case moot and ripe for dismissal under FRCP 12(b)(1). [Campbell-Ewald Company v. Gomez, 577 U.S. __, 2016 WL 228345 (Jan. 20, 2016)].

Adopting Justice Kagan’s rationale from her dissent in Genesis Health Care Corp. v. Symczyk, 133 S. Ct. 1523 (2013), the majority held that an unaccepted offer to completely satisfy a plaintiff’s claim does not render a case moot, depriving a federal court of jurisdiction. Gomez, at *6-7. The decision resolved a conflict amongst the federal circuits as to whether such unaccepted full judgment offers can operate to remove the “case or controversy” requirement for subject matter jurisdiction under Article III of the United States Constitution.

Background — The named plaintiff (Jose Gomez) alleged that the defendant (the Campbell-Ewald Company, a nationwide marketing and advertisement agency) violated the Telephone Consumer Protection Act (TCPA) by sending him solicitations via text message without prior express consent. Id. at *4. The defendant agency had been engaged by the United States Navy to develop a multimedia recruiting campaign targeting young adults, which included the utilization of text messaging. Id. at *3.

The TCPA prohibits the use of automated dialing systems to cellular numbers without the prior express consent of the call recipient. Violation of the TCPA entitles the aggrieved to statutory damages of $500 per violation or actual monetary loss, whichever is greater, and treble damages for willful violations. The plaintiff filed a class action suit in the district court, alleging that he and a nationwide class had received such texts without prior express consent, seeking treble damages, costs, attorneys’ fees, and an injunction against further unsolicited messages.

Prior to class certification, the defendant filed an offer of judgment under FRCP 68, agreeing to pay $1,503 (treble damages) for each text for which the plaintiff could show receipt, as well as consenting to the requested injunction; the offer did not stipulate to liability or that grounds for the injunction existed. Gomez did not accept the offer and allowed the 14-day time period for acceptance to expire. The defendant subsequently filed a motion to dismiss under FRCP 12(b)(1), alleging that a “case or controversy” no longer existed because the unaccepted offer to pay the plaintiff’s claims in full afforded complete relief — mooting the case — and depriving the district court of subject matter jurisdiction under Article III.

The defendant further alleged that because its unaccepted offer of judgment mooted the plaintiff’s individual claims before class certification, the putative class claims were also moot. The district court denied the motion to dismiss; the U.S. Court of Appeals for the Ninth Circuit affirmed the denial, holding that the unaccepted offer of judgment did not moot the case.

Majority Opinion — Justice Ginsberg, writing for the majority, opined that “[u]nder basic principles of contract law, Campbell’s settlement bid and Rule 68 offer of judgment, once rejected, had no continuing efficacy” and, further, “Rule 68, hardly supports the argument that an unaccepted settlement offer can moot a complaint.” Id. at *7. A “case or controversy” still existed in the opinion of the majority because “with no settlement offer still operative, the parties remained adverse; both retained the same stake in the litigation they had from the outset.” Id. In summation, the majority affirmed the denial of the defendant’s motion to dismiss, holding that “an unaccepted settlement offer or offer of judgment does not moot a plaintiff’s case, so the District Court retained jurisdiction to adjudicate Gomez’s complaint.” Id. at *8.

Concurring Opinion — Justice Thomas concurred in the opinion, disagreeing with Justice Ginsberg’s rationale that was based on principles of contract law and a dissent from a previous case. Instead, he relied upon the common law history leading to FRCP 68, which the Justice opined demonstrated a “mere offer of the sum owed is insufficient to eliminate a court’s jurisdiction to decide the case to which the offer is related.” Id. at *10.

Dissenting Opinion — Chief Justice Roberts dissented, joined by Justices Scalia and Alito. The dissent opined that an offer of judgment that would have completely satisfied the plaintiff’s claims eliminated any “case or controversy” and that “federal courts exist to resolve real disputes, not to rule on a plaintiff’s entitlement to relief already there for the taking .... If there is no actual case or controversy, the lawsuit is moot.” Id. at *14. Moreover, the dissent criticized the majority’s rationale, asserting that it effectually places the decision as to whether a “case or controversy” exists in the hands of a plaintiff rather than the federal court. Id. at *16. To this the majority retorted that the dissent’s position would achieve the opposite result, placing a defendant “in the driver’s seat.” Id. at *8.

Wrap-Up — The Supreme Court left open the door for a defendant’s full offer of judgment to possibly moot a case under certain circumstances. Justice Ginsberg specifically indicated that the ruling was limited to the fact pattern at hand, which was an unaccepted offer for judgment without more, and reserved consideration of whether a “case or controversy” still existed where a defendant also deposits the full amount of the claim in an account payable to the individual plaintiff. The Court reserved the latter question for a case where the facts were actual and not hypothetical. It is noteworthy that the majority opinion distinguished cases cited by the defendant, which were also cited by the dissent, based on this factual distinction, indicating that such cases did not concern a mere offer to pay. Id. at *7.

The implications of this Supreme Court decision for those in the default servicing industry is that a full offer of judgment (without more) in RESPA, TILA, FCRA, FDCPA, and other similar actions will not have the stopping power to unilaterally end litigation out of the gate. However, it should be noted that the use of an offer of judgment under FRCP 68 still remains a viable and important piece of defense strategy in federal litigation. The Supreme Court pointed out that the federal rule still maintains the “built-in-sanction” whereby if a plaintiff does not achieve a better result than offered, then “the offeree must pay the costs incurred after the offer was made.” Id.

Indeed, many consumer attorneys remain highly motivated by the specter of attorneys’ fee awards allowed to prevailing plaintiffs under the federal statutes governing mortgage servicing and debt collection. Nothing in the Gomez decision operates to temper the limiting affect of FRCP 68 offers of judgment on such attorneys’ fee awards to plaintiffs who dare risk proceeding where the potential to recover above the amount offered is questionable.

© Copyright 2016 USFN. All rights reserved.
February e-Update

January 29, 2016

by Adam M. Silver
McCalla Raymer, LLC
USFN Member (Georgia)
Vice Chair, USFN Legal Issues Committee

On November 4, 2015 the Florida Supreme Court heard oral arguments in Bartram v. U.S. Bank, N.A. — an important case addressing that state’s statute of limitations for mortgage foreclosure. At issue is whether acceleration of payments due under a note and mortgage in a foreclosure action that was dismissed triggers application of the statute of limitations (SOL). A determination that the SOL irrevocably accrues upon the initial acceleration could prevent a subsequent foreclosure action by the mortgagee.

The impact of the pending decision could affect “an untold number of contractual agreements between borrowers and lenders.” [Amicus Brief of MBA, 1-2 (Feb. 2, 2015)]. Although it may sound unusual that there would even be an issue with loans in default for more than five years, in Florida today this is not an uncommon situation. Delays have plagued Florida’s foreclosures for several years, starting in 2007 as the economic recession led to more loans going into default and foreclosure. The state’s court system was ill-equipped to handle the increased volume of foreclosures and cases that lingered for years. Additionally, unscrupulous “foreclosure defense” firms filed bogus pleadings and used other tactics to delay foreclosures.

On the lender side, various loss mitigation initiatives extended cases or caused them to be dismissed. Further, lenders relied on existing case law to determine mortgage servicing and default strategies. At times, this involved dismissing foreclosure cases (or allowing them to be dismissed) for loss mitigation or other compelling reasons with the knowledge that a separate foreclosure action could be filed if needed in the future, based on a subsequent default.

The Florida Supreme Court could also create precedent affecting interpretation of the uniform mortgage agreement language with its decision in Bartram. Both sides to the lawsuit contend that the relatively modern (to Florida case law) language of the now almost universally-used uniform mortgage agreement is of critical importance to their positions. More specifically, each side relies on paragraph nineteen, providing the mortgagor a right to reinstate the loan at any time prior to judgment.

Factual Background
In 2005, Lewis Bartram (Bartram) borrowed $650,000 from U.S. Bank’s predecessor, secured by a mortgage on his property located in The Plantation at Ponte Vedra. Bartram and his wife Patricia subsequently divorced. The divorce order resulted in Bartram executing a note and second mortgage on the same property to his wife. The Bank initiated a judicial foreclosure action against Bartram in May 2006 for failing to make payments to the Bank as of January 2006. With the Bank’s foreclosure action pending, in April 2011, Patricia filed a separate suit to foreclose her mortgage, naming the Bank as a defendant. In May 2011, the trial court dismissed the Bank’s 2006 foreclosure action for failure to appear at a case management conference.

One year after Patricia filed her foreclosure action, Bartram filed a crossclaim against the Bank seeking declaratory judgment, asserting: (1) the five-year mortgage foreclosure SOL had run based on the Bank’s dismissed foreclosure case and, therefore, the Bank could no longer enforce its obligations under the note and mortgage; and (2) that as a result, Bartram should have title quieted in his favor. Bartram filed a motion for summary judgment on his crossclaim, which the Bank contested. The trial court ruled in favor of Bartram on both counts and entered summary final judgment against the Bank. The Bank filed a motion for rehearing, which was denied, and the Bank appealed to the Fifth District Court of Appeals for the State of Florida (5th DCA).

The 5th DCA determined that the seminal decision of Singleton v. Greymar Associates, 882 So. 2d 1004 (Fla. 2004), applied to this case. Under similar facts, in Singleton, the Florida Supreme Court determined whether the initial attempted acceleration and foreclosure action that was dismissed barred relief in a second foreclosure suit based on res judicata. The Singleton court held that the dismissal of the first suit served as a denial of the acceleration and foreclosure relief sought, effectively placing “[the parties] back in the same contractual relationship with the same continuing obligations.” Id. at 1007. Accordingly, “each subsequent and separate alleged default created a new and independent right in the mortgagee to accelerate payment on the note in a subsequent foreclosure action.” Id. at 1008. The court concluded that to hold otherwise would be to unjustly enrich the mortgagor. Id. at 1007.

Accordingly, the 5th DCA in Bartram reasoned that if the Singleton analysis of acceleration and continuing obligations applies in the res judicata context, it applies equally so in the statute of limitations context. See generally U.S. Bank, N.A. v. Bartram, 140 So. 3d 1007 (Fla. 5th DCA 2014). In ruling that a subsequent foreclosure was not barred based on a prior attempted acceleration and foreclosure action that was dismissed, the 5th DCA reversed and remanded the trial court’s ruling, and certified the following question to the Florida Supreme Court as a matter of great public importance:

Does acceleration of payments due under a note and mortgage in a foreclosure action that was dismissed pursuant to Rule 1.420(b), Florida Rules of Civil Procedure, trigger application of the statute of limitations to prevent a subsequent foreclosure action by the mortgagee based on all payment defaults occurring subsequent to dismissal of the first foreclosure suit?

Does Singleton apply?
At oral arguments, the Florida Supreme Court demonstrated a thorough understanding of the issues and asked thoughtful and penetrating questions. The Court’s questions ensured that both sides addressed the most important legal issues.

Bartram asserted that Singleton should not apply because it merely “deals with a bundle of judicial rules that you [the Court] administer” [referring to res judicata, while] “statutes of limitations are legislative processes.”

U.S. Bank rejected the notion that Singleton is a res judicata case, contending that “Singleton is better considered to be an acceleration case. When was there an acceleration? What was the effect? That’s why Singleton is so important here.”

The Court pressed U.S. Bank on this point. U.S. Bank said that the Singleton court did not “expressly” state that it was ruling on acceleration, yet “that’s what it was doing … [t]hat is what it had to do.” As U.S. Bank further explains, “[i]n the course of reaching its conclusion in Singleton, the Court set forth … holdings that control the outcome of this case.” [Respondent’s Answer Brief, 8 (Jan. 22, 2015)].

When is Florida’s SOL for mortgage foreclosure triggered?
The relevant statutes are: Fla. Stat. § 95.11(2)(b), which states that an action to foreclose a mortgage shall be commenced within five years; and Fla. Stat. § 95.031(1), which states that a cause of action accrues when the last element constituting the cause of action occurs.

Bartram raised the common precept that the SOL starts to run upon acceleration. Further, “acceleration is effective when notice is given to the borrower.” Upon U.S. Bank’s notice to Bartram in the first action, all payments were immediately due and payable. The loan remained in that accelerated state for five years, Bartram claimed, at which time the SOL forever barred the Bank’s right to foreclose the mortgage.

U.S. Bank offered a compelling argument on this important issue. Essentially, the express language of paragraph nineteen of the mortgage proves that there was no effective acceleration because there was no final judgment in this case. The mortgage provided Bartram a right to reinstate the loan at any time up until final judgment. Thus, without a final judgment, acceleration could not be completed because the entire indebtedness never became due.

Was the loan ever reinstated?
Bartram maintained that his contractual right to reinstate was never exercised, so the existence of that right is irrelevant. Further, because only the entire “accelerated” loan balance remained due even after the case was dismissed, Bartram could never have subsequently defaulted on a non-existent periodic payment.

Once a loan is accelerated, Bartram contended that the language of the uniform mortgage agreement does not allow a mortgagee to unilaterally reinstate the loan. Paragraph nineteen of the mortgage provides the borrower a right to reinstate yet is silent regarding the lender’s right to reinstate the terms of the loan. Without that language, the lender cannot unilaterally reinstate. [Petitioner’s Initial Brief, 35 (Nov. 7, 2014)]. Further, even if U.S. Bank could reinstate, said Bartram, it must have taken an affirmative action to do so.

Must a mortgagee take affirmative action to reinstate a loan?
At this point, Bartram asserted his main argument, that “the vast majority of states” require that the mortgagee take some affirmative action communicated to the borrower in order to reinstate the loan. The affirmative action requirement ensures that the lender communicates the reinstatement to the mortgagor. Otherwise, the mortgagor would not know that the accelerated amount is no longer due. Therefore, Bartram argued, the Florida Supreme Court should apply the same rule as the courts in other states.

U.S. Bank’s response is that “[o]ne need not ‘decelerate’ that which has not been accelerated.” [Respondent’s Answer Brief, 22]. Without a final judgment, the acceleration was not effective. Affirmative action is not needed to inform the borrower that the loan is reinstated because the dismissal of the case serves that purpose. U.S. Bank adds that the mortgage provides the lender with the unilateral right to accelerate the debt. Inherent in that right is the right to unilaterally cease such acceleration. Id. at 23.

Regarding other state decisions cited by Bartram as requiring affirmative action to reinstate, U.S. Bank confirmed to the Court that those decisions are “only persuasive if you look at those opinions and decide that there’s something persuasive about them.” U.S. Bank notes that many of the decisions cited come from nonjudicial trustee foreclosure states, whose legal framework for foreclosing is entirely different than that of Florida.

The Court acknowledged that Florida would be in the minority of jurisdictions in ruling that a mortgagee is not required to take affirmative action to reinstate the mortgage. The Court further explained that on this issue, the “appellate courts have taken signal from Singleton.” Indeed, U.S. Bank points out that Singleton has been followed in the SOL context by at least sixteen other Florida decisions from April 2014 through December 2014. [Respondent’s Answer Brief, 11-12].

What is the effect of dismissal with prejudice vs. dismissal without prejudice in this case?
The effect of dismissal with prejudice versus without prejudice may be significant to the Court for two reasons. First, the parties disagree as to how the Bartram trial court actually dismissed the case. While Bartram claimed that the trial court dismissed the case without prejudice, U.S. Bank pointed to evidence to the contrary.

Secondly, in Deutsche Bank Trust Co. Americas v. Beauvais, 2014 WL 7156961 (Fla. 3d DCA 2014), under similar facts to Bartram and Singleton, that appellate court ruled (based entirely on the trial court’s dismissal being without prejudice) that the SOL barred the subsequent foreclosure action. However, despite several subsequent decisions on point, no federal or state court has followed Beauvais.

For these reasons, the Court asked U.S. Bank what the effect of a dismissal without prejudice would be. The Court then posited, would the lender have “effectively given the borrower another lease on life by letting them continue to pay on the mortgage?” U.S. Bank concurred.

During the oral arguments, U.S. Bank repeatedly stated that the type of dismissal is immaterial. U.S. Bank elaborated, “there is no difference because if there was a dismissal, there was no effective acceleration and therefore the obligation to make installment payments continued.”

The Decision is Pending
It remains to be seen whether the Florida Supreme Court’s holding in Bartram will determine the outcomes of the other two appellate cases waiting in the wings, Beauvais and Evergrene Partners, Inc. v. Citibank, N.A., 143 So. 3d 954 (Fla. 4th DCA 2014). If the Court determines that the type of dismissal should not affect the outcome of the case, then any significant factual and procedural differences among the three cases are removed, such that the Bartram holding would likely apply to the other cases — thus restoring certainty to lenders and mortgagors alike regarding the effect of Florida’s statute of limitations on a lender’s right to foreclose.

Editor’s Note: On February 12, 2015 USFN filed an amicus brief with the Florida Supreme Court in the Bartram case that is discussed in the article presented here; that brief was prepared by the author’s firm.

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Winter 2016 USFN Report