On December 17, 2014, Florida’s Third District Court of Appeal issued an opinion holding that a mortgage loan is not automatically “decelerated” when a foreclosure suit is dismissed without prejudice.  Under the Court’s opinion in Deutsche Bank Trust Company Americas v. Beauvais, No. 3D14-575, 2014 WL 7156961 (Fla. 3d DCA, Dec. 17, 2014), the statute of limitations on an entire mortgage debt starts running when the debt is accelerated and the collection of the debt will be time barred after five years unless the loan is somehow “decelerated.”  This opinion, which has not yet been released for permanent publication, will negatively impact creditors’ rights if it is adopted by other Florida courts.

The basic procedural posture in Beauvais is all too common in the backlogged foreclosure dockets across Florida.  In Beauvais, Deutsche Bank sued on a note and mortgage that its predecessor in interest, American Home Mortgage Servicing, Inc. (“AHMS”), had previously accelerated and sued on over five years earlier.  In the prior suit, AHMS’s attorney failed to appear at a hearing, resulting in an involuntary dismissal without prejudice.  Deutsche Bank subsequently filed a new foreclosure suit on the same note and mortgage, but the trial court held that the 5-year statute of limitations barred enforcement of the loan since AHMS had already accelerated the entire indebtedness.

Florida’s Third District Court of Appeals agreed, holding that an involuntary dismissal without prejudice does not, by operation of law, “decelerate” the loan or otherwise reinstate the installment payment nature of the loan.  The crux of the holding is that a dismissal without prejudice is not a judgment on the merits.  On the other hand, any dismissal with prejudice is an adjudication on the merits, having the effect of exonerating a borrower from the claimed default and thus “decelerating” the loan and returning the parties to their pre-suit positions.  See Singleton v. Greymar Assocs., 882 So. 2d 1004, 1007 (Fla. 2004) (holding that after a case is dismissed with prejudice, a subsequent default on an installment can be the basis for a new foreclosure suit and such suit is not barred by res judiciata).  According to the Court, when a foreclosure suit is merely dismissed without prejudice, there is no ruling that the borrower did not default and thus, the debt remains fully accelerated absent (i) a contractual “deceleration”; or (ii) subsequent modification of the loan.  While there was no deceleration or modification in Beauvais, contractual deceleration could be accomplished through a reinstatement provision in the note or mortgage, and a subsequent modification could be accomplished pursuant to the modification provisions in the note and mortgage.

The Beauvais case conflicts with Evergrene Partners v. CitiBank, N.A., 143 So. 3d 945, 956 (Fla. 4th DCA 2014), Dorta v. Wilmington Trust Nat. Ass’n, No. 5:13-cv-185-Oc-10PRL, 2014 WL 1152917 (M.D. Fla. Mar. 24, 2014), and a handful of other Florida cases holding that the statute of limitations does not bar a subsequent foreclosure action following a dismissal without prejudice.  The Third Circuit certified this conflict within the opinion, but also stated that its decision might not conflict with U.S. Bank Nat. Ass’n v. Bartram, 140 So. 3d 1007 (Fla. 5th DCA, 2014) review granted, No. SC14-1265, 2014 WL 4662078 (Fla. Sept. 11, 2014). 

In Bartram, Florida’s Fifth District Court of Appeals held that “a default occurring after a failed foreclosure attempt creates a new cause of action for statute of limitations purposes, even where acceleration had been triggered and the first case was dismissed on its merits.”  The Florida Supreme Court has granted review of Bartram and the Fifth District Court of Appeals’ certified question 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?

Bartram, 140 So. 3d at 1014 (Fla. 5th DCA, April 25, 2014).

            The Florida Supreme Court’s answer to this question is likely to materially impact the ultimate resolution of the issues in Beauvais, because the certified question does not distinguish between dismissals on the merits and dismissals without prejudice.  The Third District’s certification of a conflict with Evergrene also increases the likelihood that the Florida Supreme Court will review the Beauvais decision.  In the meantime Florida lenders and servicers should scrutinize their special asset portfolios to flag files that may be impacted by Beauvais.