A recent ruling by the Florida Supreme Court could end up paving the way for mortgage lenders to recoup on thousands of mortgage “write-offs” that came in the years following the Great Recession, as many defaulted borrowers rode out a five-year statute of limitations that resulted in their cases essentially being vacated by the state courts.
As per the much-anticipated ruling in Lewis Brooke Bartram v. U.S. Bank National Association, mortgage lenders can now refile foreclosure actions against borrowers who won foreclosure cases more than five years ago, should the borrowers default again within five years of the first case’s dismissal.
The ruling, which came in early November, upholds an earlier Florida Appellate Court ruling that determined that when foreclosure actions are dismissed, lenders and borrowers return to their pre-foreclosure complaint status.
That means thousands of Florida homeowners who have been in foreclosure for years and who saw their cases vacated by the courts – thus leading them to believe that their homes are now “free and clear” – could see their foreclosure cases reopened.
Whether that means lenders will take full advantage of the ruling and start refiling cases right away remains to be seen. As of this writing, many in the industry are awaiting a ruling in a related case being heard in the state’s second circuit – Bollettieri Resort Villas Condo Association Inc. v. The Bank of New York Mellon – which will lead to greater clarity in the Bartram ruling.
According to Robyn Katz, managing partner at Florida law firm McCalla Raymer Pierce (a USFN member firm), the ruling in Bartram is significant because “the court held that lender is not barred from filing a subsequent foreclosure action based on a default, after a first foreclosure action is involuntarily dismissed, provided that the subsequent default occurred within five years of a new foreclosure action. So, it is allowing us a cause of action there.”
Basically, the Florida Supreme Court determined that “a dismissed foreclosure case does not prevent a suit on a separate and subsequent default,” Katz says. “The court found that when foreclosure actions are dismissed, the lender and the borrower are returned to their pre-foreclosure complaint status, with the same continuing obligations. The one exception: If the default is within five years and the prior dismissal was without prejudice, a suit may be brought on the same default date.”
Katz says the decision “was very long awaited,” as oral arguments had been presented in court over a year ago.
“It has put a lot of cases in a holding pattern,” Katz tells MortgageOrb. “Referrals that we previously received from the servicers we haven’t been able to move forward on because we have found potential statute of limitation issues.”
Katz says although her firm has been providing opinions based on the prevailing case law, “The caveat always was, ‘We are all waiting for the Supreme Court to rule on this Bartram case.'”
The court’s ruling in Bartram, however, only answered a “very narrow and limited” question, known as the “certified question.” Thus, there is a question as to how broadly the ruling will be interpreted.
“Basically, the argument from the defense counsel side is that there is a five-year statute of limitations,” Katz explains. “So, the question then was, five years from what? Five years from the default date? Five years from the filing of a previous foreclosure action? Five years from the dismissal of a previous foreclosure action? Five years from acceleration? Everyone was interpreting it differently. And the ruling of the Florida Supreme Court was really limited to a subsequent foreclosure action, based on a default, after a first foreclosure action is involuntarily dismissed. So, involuntary dismissal is really the question they answered. So, it’s up to the courts now to make that transition, to decide how this applies to cases where the action was voluntarily dismissed – which I believe is the bigger population [of defaulted loans], when you’re talking about 2010.”
The upcoming decision in the Bollettieri case, she says, will answer the question as to whether the ruling in Bartram also pertains to cases that were voluntarily dismissed.
“The Florida Supreme Court just accepted jurisdiction [of the Bollettieri case in November],” Katz says. “So, we have that one coming, as well, and we hope that it will provide the necessary guidance on this issue – and the result will be similar.”
The recent ruling in Bartram is also significant because, up until now, many court judges were reluctant to act on the five-year statute of limitations, due to conflicting interpretations, and often ended up allowing cases to linger beyond the five years.
“The Florida Supreme Court’s decision finally brings some clarity to the issue and will allow judges who have been reluctant to rule on foreclosure cases to move forward with cases that have been pending for years,” says Michele Stocker, co-chair of the national consumer financial services litigation practice at Florida law firm Greenberg Traurig. “Now everyone knows what is and what isn’t permissible.”
Stocker adds that the decision “resolves an important issue for Florida, one of the states hardest hit by the foreclosure crisis,” because it “effectively removes the unfair notion that people can live in a home for free for an extended period of time.”
“It could also help clear out the backlog of cases that have been building up in recent years,” Stocker adds.
When asked whether states with similar foreclosure laws will pick up on the ruling in Florida, Katz says it’s “difficult for me to say because I do not know how their specific statutes read.”
“But I will say that when there is a significant ruling like this in the industry, it does tend to spread,” she adds.
Stocker agrees that lenders in other states will want to follow suit.
“There are other judicial foreclosure states that have been monitoring the legal challenges in Florida on this issue,” she says. “I am sure that the Bartram decision, while not binding in those jurisdictions, will certainly be persuasive.”
So, what will the impact of the ruling be on Florida’s lengthy foreclosure timelines?
“It’s difficult to say,” Katz says. “We’re going to provide [a] memo and alert [our clients] and let them know that the opinion did answer the limited certified question – and that it was based on the involuntary dismissal. Whether or not they want to make that transition and refile – even if they are voluntary dismissals – that’s up to the servicers. It is a business decision – based on how they think the court might rule on those.
“I do think we’re going to see an uptick in the amount of cases that are filed – that the servicers are going to start removing holds and allowing us to proceed,” she adds. “A lot of firms have been long awaiting this, so they’re poised to get started. A lot of [these cases] are on hold or lying dormant, awaiting decisions.”
Stocker, however, says she doesn’t think the ruling will necessarily have much of an impact on timelines.
“The foreclosure timelines are dictated by a number of other factors that are specific to each loan, such as loss mitigation efforts between a borrower and the lender,” she says. “The decision will, however, significantly limit a borrower’s ability to use the statute of limitations as an affirmative defense to delay the foreclosure process.”
Another big question is whether there will be any challenges to the Florida Supreme Court’s decision in Bartram.
Stocker says she does “not expect significant legal challenges, since the opinion has been issued by the highest court in Florida, thereby resolving any conflicts amongst the District Courts of Appeal.”
“However, I am certain that certain consumer lawyers with significant foreclosure defense practices will try and find other ways to limit the Bartram ruling before judges within the state,” Stocker adds.