Enforcement of Mortgage Note Barred, But Mortgage Lien Remains

12/19/14

On December 17, 2014, the Florida Third District Court of Appeals issued its decision on a very important foreclosure issue in the case of Deutsche Bank Trust Company Americas, etc. v. Harry Beauvais, et al., Case No. 3D14-575.  In this case, the Court held that the enforcement of the mortgage note was barred by the statute of limitations but the mortgage lien is not null and void as its validity is governed by the separate statute of repose. Ironically, the enforcement of the mortgage note would not have been barred by the statute of limitations if the first foreclosure action had been dismissed with prejudice instead of,  as herein, without prejudice. 

statute limitation mortgage floridaThe Court's generally held that the five year statute of limitations on enforcement of a mortgage note begins to run upon acceleration of the note. A dismissal of a foreclosure action without prejudice does not de-accelerate the note back to its original terms but a dismissal of a foreclosure action with prejudice does undo the acceleration and the terms of the original note are reinstated.  A second foreclosure action based upon a new default  is not barred on the assertion of the running of the statute of limitation counting from the first acceleration as the acceleration was undone by the dismissal with prejudice as it was an "adjudication on the merits."

Facts and Trial Court's Ruling

  • First foreclosure case based upon defaulted and accelerated mortgage note
  • First foreclosure case was dismissed "without prejudice"
  • Second foreclosure case filed more than five years after acceleration in first case
  • Homeowner filed affirmative defense of statute of limitations on enforcement of note
  • Trial Court held enforcement of mortgage note barred, and that the mortgage lien is hence null and void, and quieted title in favor of home owner

Court of Appeals Reveral in Part 

The Court of Appeals held that under the particular facts of this case, that 
  • Enforcement of the mortgage note was barred by statute of limitation
  • The distinction being that first foreclosure case was dismissed without prejudice
  • A dismissal without prejudice is not an "adjudication on the merits", but a dismissal with prejudice is
  • Without an adjudication on the merits, the acceleration of the note remained in place and the statute of limitations  continued to run
  • An adjudication on the merits (a dismissal with prejudice.)  would have reinstated the original terms of the installment mortgage note, leaving nothing upon which a statute of limitations would continue to run 
  • Even though enforcement of the mortgage note was barred by the statute of limitations, the mortgage lien itself remained valid under Florida's statute of repose 
  • Whether the mortgage note was barred Enforcement of mortgage note barred by statute of limitations

Statute of Repose 

The Court held that the mortgage lien, as distinct from the mortgage note, remained enforceable as it is governed by Florida's "statute of repose" set forth in section 95.281. This provision provides, in general,  that the mortgage lien only terminations after 5 years after the maturity date of the mortgage note (if such date is ascertainable from the record of the recorded mortgage) or 20 years from the date of the mortgage note without certain exceptions of re-recording or further recording (if the final date of the mortgage note is ascertainable from the recorded mortgage)

Foreclosure Action on Breach of Mortgage Lien Covenants Prior commentators reviewed that a mortgage instrument itself (aside from the mortgage note) contains covenants, such as a a duty to keep the real property insured and for the homeowner to pay the property taxes.  The commentators submitted that the default of such covenants could form the basis for a foreclosure action. Hence, the homeowner does face foreclose based on a default on such covenants. The mortgage lender would not be left with a mortgage lien upon which it could not take any action.

ReferencesCTS v. Waldburger, et al., US Supreme Court, Case NO. 13-339, Decided June 9, 2014 (Distinction between statute of limitations and statute of repose, equitable tolling)

Remedying the Confusion Between Statutes of Limitations and Statutes of Repose in Wisconsin  - a Conceptural Guide 

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