Chapter 2-1 Default

• Jurisdiction: Florida

2-1 Default

The failure to pay a debt or to perform a duty secured by the mortgage is a default under the mortgage¹ and is an element of the action to foreclose.² The default must exist at the time the foreclosure action is filed.³

2-1:1 Defined by Loan Documents

Since the mortgage is a contract,⁴ the covenants of the mortgage are determined by the language in the mortgage, together with any other loan documents signed contemporaneously. In most cases, multiple documents⁵ are executed together as part of a single transaction. "Where other instruments are executed contemporaneously with a mortgage and are part of the same transaction, the mortgage may be modified by these other instruments. All the documents should be read together to determine and give effect to the intention of the parties."⁶

There are no terms implied in a mortgage by law. As with contracts generally, the terms are only those that appear in the loan documents.⁷

The original loan terms may be modified by a subsequent agreement between the lender and the borrower. In such a case, default is determined by reference to the loan terms as modified.⁸,⁹

2-1:2 Monetary Defaults

Most foreclosures are predicated on a default in the payment of money—a monetary default. The borrower's monetary obligations, and by extension monetary defaults, are defined in the loan documents.

The loan documents in residential foreclosure cases are usually uniform documents, which all contain nearly identical terms and conditions.¹⁰

By contrast, non-standard residential loan documents and commercial loan documents vary widely in terms and conditions, including the payment terms. Such terms are limited only by the drafter's creativity and agreement of the parties.¹¹ Some examples include grace periods, credits, offsets, deferments, partial acceleration of payments, and method of payment. In all cases, the contractual language controls when a default occurs.

When a contractual default in payment occurs, it is a material breach of the mortgage contract and gives rise to a cause of action for foreclosure.¹²

2-1:3 Non-Monetary Defaults

2-1:3.1 Non-Monetary Default by Act or Omission

Nearly all mortgages contain ongoing non-monetary obligations in addition to payment obligations. Typical non-monetary obligations include: keeping the mortgaged property insured,¹³ keeping the property taxes paid,¹⁴ and paying the full loan balance upon a sale or transfer of the property.¹⁵ Less common examples include: the borrower depositing cash other assets at the lending institution, the borrower submitting accounting statements to the lender and even the borrower following contractually mandated standards of business conduct.¹⁶

Non-monetary obligations are limited only by the drafter's creativity and agreement of the parties.¹⁷ Default on a non-monetary obligation gives rise to a cause of action for foreclosure if the default puts the lender's security in jeopardy,¹⁸ even if all payments are current.¹⁹

2-1:3.2 Non-Monetary Default Due to Existence of a Condition

The parties to a mortgage can define a default giving rise to foreclosure as the existence of conditions rather than the breach of a duty. Examples include the death of the mortgagor,²⁰ the mortgagor's insolvency or diminished ability to continue making payments,²¹ a decline in the value of the mortgaged property, and the existence of a default under an unrelated loan.²²

2-1:4 Grace Period

Some mortgages provide that payments and other obligations are not considered late until after the passage of additional time beyond the nominal due date. This additional time is commonly known as a "grace period." When the mortgage provides a grace period for specified obligations, there is no default of those obligations until after expiration of the grace period.²³ Whether a mortgage actually provides a grace period is a matter of contract interpretation and therefore depends on the exact contractual language employed in the loan documents.²⁴

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Notes:

^[1] Default is defined as "the omission or failure to perform a legal or contractual duty . . . to observe a promise or discharge an obligation." Reed v. Lincoln, 731 So. 2d 104, 105 (Fla. 5th DCA 1999) (quoting Black's Law Dictionary 376 (6th Ed.1990)).

^[2] Bank of Am., N.A. v. Delgado, 166 So. 3d 857, 859 (Fla. 3d DCA 2015) ("Foreclosure plaintiffs must show: (1) an agreement; (2) a default; (3) an acceleration of debt to maturity; and (4) the amount due.") (emphasis added); cf. Rozanski v. Wells Fargo Bank, N.A., 250 So. 3d 747 (Fla. 2d DCA 2018) (affirming equitable lien based on satisfaction of prior mortgage but reversing...