The Harry Beauvais Decision - a Cold Dose of Reality, but a Blessing...

Although the December 17, 2014 Third District Court of Appeals decision in Harry Beauvais case may seem like a cold dose of reality to some Miami homeowners, it is better regarded as a very timely "blessing in disguise."  The decision may indicate that many Miami homeowners would be better served by directing their legal efforts, sometimes heroic and idealistic, to what will truly "save my home" from foreclosure - that is a HAMP or other mortgage modification.

That is, "technical" legal arguments to defeat a foreclosure are in many or most cases not going to be what truly resolves a homeowner's situation. Also notable,  the economic and after-tax cost of a modified mortgage payment  may in some instances be the same or less than paying for "foreclosure defense."

Certainly a lot of interesting legal issues have been raised - and "won" and revered on appeal - 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, will not be the source of what truly "saves my home" from foreclosure.  

The shifting of efforts to better focus on mortgage modification instead of "foreclosure defense" would also have the benefit of lessening the burden on the sometimes over-whelmed court system and to allow it to better apply its judicial resources.

What Did "Foreclosure Defense" in Harry Beauvais Achieve?

What did all the efforts of "foreclosure defense" in Harry Beavais ultimately achieve? The answer is probably - 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 made, was barred by the statute of limitations, of more 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 on "foreclosure defense," but the most that can be achieved  - at best - is to bar enforcement of the mortgage note cause of action. In the meanwhile the mortgage debt - at what is probably a rate of interest higher than what would be in a modified mortgage plus monthly late fees and advanced property taxes and insurance  -  is increasing anyways. It should be noted, that in a typical case, the lender is required to buy "forced placed insurance" - even worse, sometimes based on an overstated value - 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.  Furthermore, as referenced below, the homeowner may still face a "new" foreclosure action - based on the mortgage covenants which remain valid, such as the requirement to pay property taxes and maintaining insurance.

Better Status of a Modification of Mortgage

The after-tax cost to a homeowner of paying a modified mortgage payment may not be very  much more than paying the costs of "foreclosure defense" and avoiding the accrual of a "new" foreclosure cause of action. Even though a second foreclosure action on the "old" cause of action is barred, to avoid accrual of a "new" foreclosure action, a homeowner may be required to pay anyways, property taxes, property insurance, any association amount, and legal fees for "foreclosure defense."

Typically, a modified mortgage payment is targeted 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 tax benefits, the actual cost may even be less.

Statute of Limitations and Deceleration Issues

The Court in Harry Beuvais 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 otherwise.

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 Beuvais case, although being a cold dose of reality, is a blessing in disguise to 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.