In In re Dukes, No. 16-16513 (11th Cir. Dec. 6, 2018), the Eleventh Circuit held that a debtor’s mortgage obligation was not discharged, despite a proof of claim not being filed, because the mortgage was not provided for by the debtor’s plan and because of the anti-modification provision of Section 1322(b)(2).
Last week, after much anticipation and speculation, the Florida Supreme Court decided Bartram v. U.S. Bank National Association, No. SC14-1265 (Fla. Nov. 3, 2016). To the relief of lenders, the Court rejected the borrower’s attempt to use Florida’s five-year statute of limitations for mortgage foreclosures to avoid the mortgage on his home based on the bank’s earlier unsuccessful attempt to foreclose. This decision means that Florida courts will be less likely to find that subsequent attempts to foreclosure are time-barred.
In early 2005, Bartram obtained a $650,000.00 loan secured by his Ponte Vedra home. One day later, Bartram granted a $120,000.00 second mortgage on the home to his ex-wife. Bartram stopped making payments on the first mortgage in January 2006 and never made payments on the second mortgage.
In May 2006, U.S. Bank N.A., as assignee (the “bank”), sued to foreclose the first mortgage based on Bartram’s failure to make installment payments. In the complaint, the bank claimed it was accelerated the note and declared that all amounts under the note were due. Almost five years later, the bank’s foreclosure action was involuntarily dismissed because the bank failed to appear at a case management conference.
About a year later, Bartram’s ex-wife sued to foreclosure her second mortgage. Bartram filed a crossclaim against the bank to cancel the first mortgage based on the statute of limitations. Bartram argued that any claim by the bank under the mortgage would be time-barred because over five years had passed since he defaulted, the bank accelerated the loan, and the bank attempted to foreclose the mortgage. The trial court agreed with Bartram and entered an order that, in effect, released the bank’s lien on the property. The bank appealed to the Fifth District Court of Appeal, and the Fifth District reversed. The Florida Supreme Court later granted review of the Fifth District’s decision.
The Florida Supreme Court held that the dismissal of the previous foreclosure action returned the parties to their “prior contractual relationship,” meaning that (1) Bartram had the opportunity to restart making his installment payments and (2) the bank had the right to accelerate the loan through a foreclosure action if Bartram subsequently defaulted. Because Bartram failed to make any installment payments after the prior case’s dismissal, the court determined that there were new defaults within the statute of limitations that entitled the bank to accelerate the loan and foreclose the mortgage.
Note that the court based its determination that the previous case’s dismissal returned the parties to their prior contractual relationship, at least in part, on the fact that the mortgage at issue was a standard residential form mortgage that grants the right to reinstate after acceleration to the borrower if the borrower meets certain conditions. It is unclear whether a judge in the future will decide that a different result should occur where the mortgage at issue does not grant a right to reinstate to the borrower.