The Harry Beauvais Decision - Can a Foreclosure Case be "Won&qu...

The December 17, 2014 Third District Court of Appeals decision in Harry Beauvais case addresses important mortgage foreclosure issues.   The Court certified the case to the Florida Supreme Court, where Bartram is already pending.  Beauvais, and similar recent decision by other courts, 

many may give reason for many Miami homeowners with mortgage foreclosure issues to re-evaluate their course of action to "save" their home from foreclosure.  It may given indication to many that "foreclosure defense" measures in the foreclosure action are not going to going to truly "save" their home" from foreclosure and that efforts would be better directed towards achieving a mortgage modification, which is available without court action and many can achieve without the cost of hiring a lawyer,  under the present opportunities offered by HAMP or other programs. In short, a mortgage modification may be the only way for most to truly "saving" their home. "Saving" one's home from foreclosure generally requires the putting in place of an affordable monthly mortgage with affordable payments, including the required escrow for property taxes and insurance. Typically, this monthly payment is targeted to be about 31% of gross monthly wages. 

“Technical” (Procedural) Legal Arguments
Since 2008, certainly a lot of interesting legal issues have been raised,  "won" or lost about standing, chain of assignment of notes, lost notes, mortgage-backed securities, MERS, robo-signing, bearer instruments, hearsay and business record rules of evidence, statutes of limitations, and statutes of repose. But in view of Harry Beauvais,  these "wins," for many homeowners, may just be a win of a "battle" but not a win of the "war." That is, they will not be the source of what truly "saves my home" from foreclosure.

Aside from the possible unproductive costs to the homeowner, who may be better served with the non-judicial remedy of mortgage modification, "foreclosure defense" that does not truly "save" the home from foreclosure,  has a cost to the judicial system and the Florida taxpayer.  Many economists also argue that the delay in resolving the mortgage foreclosure crisis has delayed recovery of real estate market and the availability of mortgages to new home buyers.

Delay Counter-Productive?
Another item that may be overlooked is that a monthly mortgage payment includes, aside from principal ("p") and interest ("i"),  includes property taxes ("t") and the various types of property insurance ("i").  That is, the mortgage lender is not the source of a large portion of the monthly mortgage payment. The taxes and insurance remain unaffected by any changes to the principal and interest.

Furthermore, a homeowner should consider that if the present home is lost,  the mortgage interest rate for the new home - if the person is able to obtain a mortgage - is likely to be much higher than that in a mortgage modification. The property taxes on a replacement home would likely be higher as the assessed value on the present home may be locked in at a low value and the taxes on a replacement home would be based on the new higher purchase price.

What Did "Foreclosure Defense" in Harry Beauvais Achieve?
What did all the efforts of "foreclosure defense" in Harry Beauvais ultimately achieve? The answer is probably - ultimately not much at all. The homeowner only won of a "battle" and not the "war." While the Court upheld the trial court's ruling that this particular foreclosure action, on the record and arguments before it,  was barred by the statute of limitations - - of greater significance,  the Court held that the mortgage note and mortgage including its lien, remain valid, and there was no quieting of title in favor of the homeowner.  The homeowner is left somewhat in limbo.

The "big picture" may be that the homeowner may be spending significant amounts and efforts on "foreclosure defense," but the most that can be achieved on an statute of limitations argument  is to bar filing of a second foreclosure second - which would leave the mortgage note and mortgage still valid.  In the meanwhile the mortgage debt - at what is probably a rate of interest higher than what would be in a modified mortgage, monthly late fees and advanced property taxes and insurance accrue.  It should be noted, that in a many cases, the lender is required to buy "forced placed insurance" which is sometimes triple or more the cost of a regular policy and does not even fully cover the homeowner's interests. Furthermore, the homeowner would not be able to sell or refinance the property without paying off, the continuing to accrue mortgage debt in full. 

Also to note note, as referenced below, even if a foreclosure action could not be filed on the expired mortgage note default, the homeowner may still face a "new" foreclosure action - based on a breach of covenants in the mortgage, aside from the mortgage note, which also may provide a "new" foreclosure cause of action that is not barred by the statute of limitations.

Modification of Mortgage
Typically, a modified mortgage payment is targeted to be at about 31% of one's monthly income. The 31% would normally include the property taxes, property insurance, and association fees - which amount in some cases could be about 1/2 of the 31% figure - leaving only 1/2 of the 31% for principal and interest. For example, a case may be that, if the new payment is $1,500.00, $800.00 might be for property taxes, property insurance and association fees and $700.00 for principal and interest. With possible income tax benefits, the actual cost may even be less.

Statute of Limitations and Deceleration Issues
The Court in Harry Beauvais decision teaches much about "deceleration." The decision undercuts statute of limitations arguments to a large degree. The case only held that the statute of limitations came into play in this foreclosure action as the previously accelerated mortgage note had not been decelerated as the prior dismissal had been "without" prejudice. The Court held that under the applicable rule of Florida Rules of Civil Procedure, a dismissal "without prejudice"is not a "determination on the merits" and did not decelerate the mortgage note back to its original installment terms.  That is, the statute of limitations ran on this "old" foreclosure cause of action before the lender filed the second action.

But the Court also held that a dismissal "with" prejudice is a "determination on the merits" indicative that the any alleged default or acceleration in the first foreclosure action was invalid or ineffective. That is, the statute of limitation never even began to run ab initio.  Thereby, there would not be any issue of statute of limitations coming into play in the second foreclosure action.  A second foreclosure action could be properly brought on a "new" installment payment, with a "new" default,  with a "new" acceleration, which gives rise to a "new" cause of action, filed in a "new" action governed by a "new" five-year statute of limitations.

May Dismissal "Without Prejudice" Trigger Deceleration Indirectly ?
The Harry Beauvais decision held that a dismissal without prejudice does not, in and of itself, effect a deceleration.  But the Court's decision did give reference on page ten to the notion that although the dismissal without prejudice in itself does not effect deceleration (i.e. is not an "affirmative act"), it could "trigger" deceleration in a different manner.

Here the Court referenced that in this instance that "[n]either the note or mortgage provides that dismissal without prejudice of the foreclosure action would negate the acceleration of the debt or otherwise reinstate the installment nature of the loan."  Perhaps, this is an indication to lenders that with focus on this notion,   a Court may be convinced that there is a contractual provision in the mortgage note or mortgage that is automatically triggered by the order of dismissal without prejudice. 

"Legal Significance" of Language in a Complaint - Does it Also Apply to the Homeowner's Allegations? Judicial Estoppel
Otherwise references by the Court may also defeat the defense of the statute of limitations by the homeowner in a second foreclosure action. In footnote four,  the Court stated that the lender's allegations in the first foreclosure complaint of acceleration were not simply "mere factual allegations", but "carried independent legal significance".  This, or a similar notion,  may also apply to the allegations made by the homeowner in his "foreclosure defense" in the first foreclosure action, i.e. that  they too may not not be "mere factual allegations" but also carry "independent legal significance" or be otherwise of import.

If the factual allegations of the homeowner in the first foreclosure actions are also of "legal significance," they may support estoppel or otherwise defeat efforts by the homeowner in the second foreclosure action to raise a statute of limitations defense. That is, the homeowner may have alleged facts that there had not been a valid or effective default and acceleration of the mortgage note prior to the first foreclosure action.  If there had not been a valid or effective default and acceleration in the first foreclosure action, the statute of limitations would not have even begun to run in the first instance and could not have run before the second foreclosure action.

It is noted that the doctrine of "judicial estoppel" generally prohibits, a litigant from taking inconsistent positions in different courts.

Foreclosure Cause of Action on Other Mortgage Covenants
One should note that Florida case law and commentators review that there are many covenants by the homeowner in the mortgage itself - aside from the covenant to pay the mortgage note installment payments.  Examples of such covenants are to protect the collateral by keeping it insured or paying the property taxes. With the mortgage and its lien continuing to be valid - even if a foreclosure action on the "old" mortgage note cause of action is barred - for a very extended period of time pursuant to its statute of repose, there would in a typical case, be breaches of these separate mortgage covenants giving rise to "new" foreclosure causes of action upon which a "new" foreclosure action may be filed with "new" statute of limitations.

Conclusion
In summary, the Harry Beauvais case, although being a cold dose of reality, may prompt distressed homeowners to focus their efforts on what will truly "save my home."  The opportunities to achieve a modification of a mortgage are presently probably as good as they ever will be and may, if not seized now, not be available later.