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Florida’s Third District Court of Appeal (DCA), sitting en banc, recently withdrew an unpopular decision applying the statute of limitations defense to mortgage foreclosures. As previously discussed on this blog, the Third DCA’s prior opinion in Deutsche Bank Trust Co. Am. v. Beauvais took the unique position that the dismissal of a foreclosure action without prejudice had no effect on the running of the five-year statute of limitations. This meant that a subsequent foreclosure action based on a new default could be time-barred if not commenced within five years of the original acceleration if the lender took no affirmative action to decelerate the loan following the original dismissal.
In Beauvais, a lender accelerated a delinquent loan and filed a mortgage foreclosure action in January 2007. When the lender failed to appear at a case management conference, the circuit court dismissed the action without prejudice. In December 2012, the lender filed a second foreclosure action based on the borrower’s continued failure to make mortgage payments. However, the circuit court dismissed the second action on the basis that the five-year statute of limitations expired in January 2012, five-years after the loan was first accelerated.
In its 2014 panel opinion, the Third DCA distinguished between dismissals with and without prejudice. Because a dismissal with prejudice is a final adjudication on the merits of a case, the Third DCA panel reasoned, a dismissal with prejudice is a determination that the loan was not in default and, by extension, not validly accelerated, such that the statute of limitations is not triggered. However, a dismissal without prejudice, according to the 2014 panel opinion, means the acceleration of the loan survives dismissal, thereby requiring the lender to take separate action to “decelerate” the loan in order to stop the running of the statute of limitations. Otherwise, a subsequent foreclosure action would be barred if brought more than five years after the original acceleration.
The Third DCA’s opinion garnered some criticism from the mortgage industry. The First, Fourth, and Fifth DCAs adopted the conflicting position that any dismissal (with or without prejudice) returned the parties to the position they had been in prior to acceleration, including reinstating the installment nature of the loan. Federal district courts interpreting Florida law also rejected the Third DCA’s position.
On April 13, 2016, in a rehearing en banc, the Third DCA issued a 6-4 opinion which retreated from the 2014 panel decision. The majority opinion rejects the distinction between dismissals with or without prejudice for purposes of the statute of limitations. Any dismissal, whether with or without prejudice, operates to return the parties to their position prior to the filing of the action and effectively “decelerates” the loan. The effect of any dismissal, therefore, is to stop the running of the statute of limitations without the need to “decelerate” and thereby permit lenders to bring new causes of action based on a subsequent default, so long as the action is brought within five years of the acceleration based on the subsequent default.
Florida’s intermediate appellate courts now appear to be aligned on this issue. The Florida Supreme Court, however, will likely provide more guidance in this area when it issues its opinion in Bartram v. U.S. Bank National Association, et. al. That case considers whether a subsequent foreclosure action can be barred by the statute of limitations even when a prior action is dismissed with prejudice.
The full text of the Third DCA’s most recent opinion is available here.
The Right of Replevin and What May Be Taken
Tracing its roots back to the common law, replevin is not a novel concept. While the cause of action is simple—allowing for the recovery of personal property that is wrongfully detained—replevin can be confusing for some creditors. This article is a brief glance at the nuances of chapter 78, Florida Statutes, to demonstrate how replevin can be a valuable tool to creditors.
In its simplest form, a writ of replevin allows a creditor to obtain possession of personal property on an expedited basis before the entry of a final judgment. When deciding whether to grant a writ of replevin, the court considers the creditor’s present, possessory right to the property at the time the suit is commenced. In the creditor context, the majority of replevin actions involve defaulted obligations under loan documents.
It is important to understand that replevin is only a remedy for recovering personal, tangible property. Thus, real property is ineligible, as are funds held in a bank account or in accounts receivable. There is, however, at least one instance where metal coins, paper bank notes, and checks were lawfully seized. In addition, a creditor may not seize property previously taken by a tax authority under a warrant for the collection of a tax, assessment, or fine.
Once a creditor lawfully seizes property through a replevin action, the debtor or any defendant that was named in the original lawsuit, may not use a new replevin action to recover the property. That is, the remedy of replevin cannot be used twice as to the same property.
Finally, as a practical matter, the sheriff must be able to physically identify and manually seize the property. Thus, it is paramount that the writ of replevin clearly describes the property to be seized.
As we have previously discussed , although section 720.3085(2)(b), Florida Statutes, generally makes a subsequent owner of real property liable for all unpaid homeowners’ association assessments that came due under the previous owner, first mortgagees who acquire title through foreclosure may take advantage of a “safe harbor” under section 720.3085(2)(c), Florida Statutes, which limits the first mortgagees’ liability for unpaid assessments to the lesser of the “unpaid common expenses and regular periodic or special assessments” that came due during the twelve months preceding acquisition of title or one percent of the original mortgage debt. Despite the safe harbor provision, homeowners’ associations sometimes seek to add additional fees and costs, such as interest, attorneys’ fees, late charges, court costs, and collection costs, when providing estoppel letters to a foreclosing lender. A recent opinion from the Third District Court of Appeal clarifies, however, that the liability of a first mortgagee for unpaid homeowners’ association assessments does not extend to such additional fees and costs.
In Catalina West Homeowners Association, Inc. v. Federal National Mortgage Association, the first mortgagee foreclosed its mortgage on property subject to an HOA. In the estoppel letter provided to the bank, the HOA sought interest, attorneys’ fees, late charges, court costs, collection costs and other charges it incurred in addition to the unpaid quarterly assessments. The bank filed an action for declaratory judgment and injunctive relief, arguing that under section 720.3085(2)(c), Florida Statutes, it could not be liable for these additional charges imposed by the HOA prior to its acquisition of title. The HOA countered that because section 720.3085(3)(b) provides that payments received by an HOA must be applied first to interest, then administrative late fees, then costs and attorneys’ fees, and finally the late assessments, it was entitled to recover those costs from the foreclosing first mortgagee.
The trial court granted summary judgment in favor of the bank. The Third DCA agreed, concluding that the plain language of section 720.3085(2)(c) limited the extent of the first mortgagee’s liability for “unpaid assessments” to the lesser of the two options described, either twelve months of “unpaid common expenses and regular periodic or special assessments” or one percent of the original mortgage debt. The court reasoned that if the Legislature intended to include attorneys’ fees, interest, or costs, it would have done so. The court further concluded that interest, late charges, attorneys’ fees, collection costs, and the like are individualized charges to induce compliance with assessment obligations, rather than “common expenses” or “regular periodic or special assessments,” which infer expenses shared among all the units of a homeowners’ association. In rejecting the HOA’s argument, the court reasoned that nothing in the safe harbor provision prevented the HOA from applying the monies received in the order specified by section 720.3085(3)(b), to the extent it was required to do so, but the HOA was simply not authorized under the safe harbor provision to payments for the additional cost items sought.
As this opinion demonstrates, when foreclosing on a first mortgage on property subject to an HOA, lenders should be sure to review estoppel letters carefully, to ensure only those amounts for which the lender is statutorily liable are included.