Favorable Ruling for Loan Servicers regarding Statute of Limitations

ABSTRACT: In a ruling favorable to home loan mortgage servicers, the Florida Supreme Court held that the trial court's dismissal of a previous foreclosure action caused the loan to decelerate, thus recommencing the 5-year statute of limitations period for acceleration of the loan.

In November of 2016, the Supreme Court of Florida upheld the appellate court’s decision that, essentially, the borrower’s loan had been decelerated by virtue of the trial court’s dismissal of the action pursuant to the first loan default, even though that dismissal was involuntary. 

The trial court had quieted title in favor of the borrower based upon the state’s five (5) year statute of limitations, where the servicer’s prior case had been dismissed due to a failure of counsel to appear at a court-required hearing, and the servicer brought a second action to pursue foreclosure. On appeal, the Court reversed the trial court’s decision, reasoning that since potential future missed payments were not issues before the court in the first case, the two suits were not the same cause of action, and thus, the statute of limitations period re-started upon dismissal of the first case.  

The Florida Supreme Court, upon review, was asked to consider whether or not acceleration of payments due under a residential note and mortgage containing a reinstatement provision, in a foreclosure action that was dismissed involuntarily, trigger application of the statute of limitations to prevent a subsequent foreclosure action. 

Upholding the appellate decision, the Supreme Court of Florida held in the negative; that the statute of limitations does not continue to run for enforcement of the terms of the note and mortgage when a foreclosure action is dismissed.  The Court further maintained that there is no material distinction, whether or not the dismissal is considered “with” or “without” prejudice, for purposes of evaluating the statute of limitations.  

Thus, if a prior foreclosure action is unsuccessful for some reason, the lender will maintain its right to accelerate and foreclose on the home mortgage for subsequent defaults, and to accelerate the entire sums due and owing under the note.

The entire opinion may be found here.