Foreclosure Deceleration

April 20, 2015

“Deceleration” is becoming a very important new term to thousands of Florida homeowners in foreclosure. Foreclosure acceleration clauses in mortgages allow the lender to collect on the entire loan amount in the event of a default on payments.  The lender is not limited to collecting the past due payments.  Once a lender has notified a borrower that the entire loan is due (that the lender is opting to exercise its right to accelerate), the lender will not accept partial payments or honor past payment agreements.  Most mortgages include acceleration clauses.

In many cases, after the bank has notified the borrower that it has opted to accelerate, and files for foreclosure, the bank dismisses its case.  Sometimes the dismissal is the result of negotiations with the borrower, but often the bank dismisses because it has not followed local court rules or does not have the loan documents.  In such cases, the bank dismisses without prejudice – meaning the bank reserves its right to file the case at a later date.

In Deutsche Bank Trust Company Americas v. Beauvais, Florida’s Third DCA determined that a dismissal without prejudice does not decelerate a previously accelerated mortgage. If a bank dismisses a foreclosure action without prejudice, the bank must decelerate the loan or risk that the statute of limitations will run barring a subsequent foreclosure action.

Florida’s Supreme Court previously held in a 2004 ruling in Singleton v. Greymar Associates that a dismissal with prejudice reverses the prior acceleration as a matter of law. In Singleton, the court found that a default never occurred and the right to accelerate never arose.  The lender could accelerate after a subsequent default.

In Beauvais, Deutsche Bank accelerated the mortgage and filed a foreclosure action. Because Deutsche Bank failed to appear at a case management conference, the court dismissed Deutsche Bank’s case without prejudice. Deutsche Bank took no further action to reinstate the case in the next two years – six years after filing the original action and more than six years after accelerating the mortgage. Florida has a five year statute of limitations for foreclosure actions.

When Deutsche Bank finally filed a new action, the court in Beauvais found that the action was time-barred and, concluded that absent an affirmative action to reinstate the installment terms or otherwise decelerate the mortgage, the acceleration prior to filing the initial suit stood and the statute of limitations continued to run on the accelerated mortgage, thereby barring the new action. The panel noted that affirmative action is generally necessary to accelerate a mortgage, and that therefore, the full amount continued to be due absent affirmative action to reverse that acceleration.

As a result of the Beauvais decision, Deutsche Bank lost the right to foreclose on a mortgage in excess of $1 million.  Deutsche Bank has filed a motion for reconsideration or rehearing, which remains pending. Therefore, the decision is not final, and it is possible that the Third DCA may be waiting until the Supreme Court issues an opinion in U.S. Bank National Association vs. Bartram, a Fifth DCA case involving acceleration.

In Bartram, the issue is whether acceleration of payments under a note and mortgage in a foreclosure case which is then dismissed involuntarily triggers application of the statute of limitations to a subsequent foreclosure action based on defaults occurring after dismissal. Oral argument in Bartram is set for October.

The Beauvais decision contradicts the decision of Florida’s Fourth District Court of Appeal in Evergrene Partners v. Citibank. In its ruling in Beauvais, the court certified conflict with Evergrene Partners.

Until the Florida Supreme Court reaches a decision, in the 3rd DCA, to prevent a future action from being time-barred after a dismissal without prejudice, lenders must take steps to decelerate the loan after dismissing any foreclosure action before judgment on the merits.