Chapter 2-3 Acceleration

• Jurisdiction: United States

2-3 Acceleration

2-3:1 Contractual in Nature

An acceleration clause is a provision in a mortgage, note, or other contract⁶⁵ that requires the obligor to pay part or all of the balance sooner than otherwise required upon the occurrence of an event or circumstance described in the contract.⁶⁶ Absent an acceleration provision, the loan balance cannot be accelerated.⁶⁷ Rather, the balance continues to be payable in installments according to the contract terms—even after the borrower defaults.⁶⁸

As with any other contractual provision, acceleration clauses are "to be construed in accordance with the intention of the parties as disclosed by the ordinary meaning of the words used and the circumstances of the parties."⁶⁹

2-3:2 Automatic Versus Optional

Acceleration clauses fall into two categories: automatic and optional.

An automatic, or self-executing, acceleration clause is triggered by the happening of the contingency stated in the acceleration clause, whether or not the holder of the instrument wants the acceleration to occur.⁷⁰

An optional acceleration clause is one that expressly makes acceleration an option of the lender and is the type included in the uniform Fannie Mae/Freddie Mac residential mortgage. To exercise this option, "the holder or payee of the note must take some clear and equivocal [sic] action, indicating its intent to accelerate all payments under the note, and such action should apprise the maker of the fact that the option to accelerate has been exercised."⁷¹ Optional acceleration may be achieved by sending written notice to the debtor, by making an oral demand, by demanding acceleration in a court pleading, and the like.⁷² Filing a foreclosure action constitutes an exercise of the option to accelerate.⁷³ Acceleration can be revoked by the same method used to exercise it.⁷⁴

In the event of a note and mortgage that contain unambiguous but conflicting acceleration clauses, one automatic and the other optional, the optional clause controls.⁷⁵

2-3:3 Effect of Pre-Acceleration Payments

Before acceleration, a borrower who pays all amounts then due under the note, the mortgage and other loan documents cures the default and prevents acceleration from occurring.⁷⁶ A borrower who pays part of the amounts due but leaves a balance owing generally cannot defeat acceleration.⁷⁷ Certain unique cases of partial payment may defeat acceleration if the particular facts and circumstances make acceleration unconscionable and the defendant pleads and proves those facts and circumstances.⁷⁸

2-3:4 Standard Residential Mortgage

The acceleration provision of the standard Fannie Mae/Freddie Mac residential mortgage in Florida permits the lender to "require immediate payment in full of all sums secured" by the mortgage.⁷⁹ This is an optional acceleration provision.⁸⁰ Even after the lender elects to accelerate, the standard Fannie Mae/Freddie Mac mortgage allows the borrower to pay only those amounts that would be due absent acceleration, provided certain other conditions are met.⁸¹ Payment of those amounts and fulfillment of the other conditions prevent foreclosure on an accelerated basis. This ability to prevent acceleration and foreclosure by paying less than the full debt is a peculiar contractual right created by the Fannie Mae/Freddie Mac mortgage and does not exist in the absence of a similar contractual provision.⁸²

When the mortgagee exercises the option to accelerate by the filing of a foreclosure action, a dismissal of that action revokes the acceleration and returns the parties to their installment contract relationship.⁸³ The acceleration is revoked whether the dismissal is involuntary⁸⁴ or voluntary.⁸⁵

2-3:5 Effect of Post-Acceleration Foreclosure, Dismissal and New Foreclosure

Many foreclosure cases in recent years have been successive foreclosures, meaning a second or third foreclosure on the same mortgage. This arises when a foreclosure action is filed, that action is dismissed, and a subsequent action is filed seeking to foreclose the mortgage again. This scenario gives rise to three ostensible defenses in the subsequent case. These are: (1) res judicata; (2) the two dismissal rule; and (3) the statute of limitations. All three ostensible defenses have been rejected.⁸⁶

2-3:5.1 Res Judicata

When an action is adjudicated on the merits, the doctrine of res judicata will bar a subsequent action if the two actions share four identical traits, called the four "identities." The four identities are: (1) identity of the thing sued for; (2) identity of the cause of action; (3) identity of persons and parties; (4) identity of the quality or capacity of the persons for or against whom the claim is made.⁸⁷ The dismissal of an action with prejudice is an adjudication on the merits for res judicata purposes, whether the dismissal is voluntary⁸⁸ or involuntary.⁸⁹

Thus, a refiled foreclosure that has all four identities with a prior foreclosure will be subject to dismissal on res judicata grounds. However, the second identity requires the two actions be premised on the same alleged event(s) of default. When the first and second actions are premised on different events of default, there is no identity of the cause of action, and the second action is not barred.⁹⁰ Identity of the cause of action is lacking where additional payments have become delinquent between the first and second actions, such that res judicata will not bar the second action.⁹¹

A foreclosure that fails due to lack of fulfillment...