Deceleration: restarting the expired statute of limitations in mortgage foreclosures.

• Author: Bernhard, Andrew J.

The 2007 debt crisis spawned a wave of mortgage foreclosure filings that overwhelmed the Florida state court system. As Florida courts struggled to process the swelling foreclosure actions, so too did lenders and their foreclosure firms, leading to mass mis-filings, the David J. Stern and Ben Ezra Katz law firm implosions, rocket dockets and mobbed for-want-of-prosecution calendars, and the robo-signing pandemic. In reaction, many lenders voluntarily dismissed up to thousands of foreclosure actions, thinking it better to collect their original loan documents and refile another day. Likewise, the courts involuntarily dismissed innumerable foreclosure actions to clear their overcrowded dockets. The statute of limitations on mortgage foreclosure is five years, and seven years have passed without refilings of these dismissed foreclosure actions. (1) Are many of these mortgage foreclosures now time-barred?

Institutional lenders across the country are confronting this time-bar question. Lenders are asserting that the panacea is deceleration. Deceleration is the act of undoing a mortgage note's acceleration and the accrual of the limitations period to return the lending arrangement to status quo ante--an installment agreement maturing in the distant future. Florida appellate courts have yet to flesh out mortgage deceleration. (2) In anticipation of a surge in deceleration litigation in Florida, this article explains the concept of deceleration and its capacity to extend the foreclosure flood for years to come.

Accrual of Mortgage Foreclosure Actions and the Statute of Limitations

Mortgages in Florida are property liens securing the payment of debt, memorialized in a promissory note. Judicial foreclosure is the primary remedy available to recoup unpaid mortgage debt. (3) Thus, at its simplest, a mortgage foreclosure is an action in breach of a promissory note, requesting judicial sale of property secured by the note through the mortgage. Modern notes and mortgages are most often installment contracts, whereby a new payment is due each month until the note and mortgage reach a maturity date. (4) As such, the statute of limitations for an action on a written contract or foreclosure on a mortgage applies to enforcement of the note and mortgage. Florida law provides a five-year statute of limitations for both. (5) The five-year limitations period for foreclosure begins when the foreclosure claim accrues against the borrower. (6)

Unlike causes of action that entirely accrue on a single date, separate claims accrue on a mortgage contract for each period in which the borrower fails to make a payment, creating a separate five-year limitations period for each unpaid installment. (7) However, if the mortgage gives the lender an option to accelerate the entire debt balance after a defaulted payment, a single claim for the entire remaining balance can and does accrue when the lender exercises the contractual right to accelerate. (8)

Acceleration in lending parlance is the lender's demand for immediate repayment of the entire loan balance. Acceleration transforms a loan from a long-term installment contract with a monthly payment plan to a loan whose entire remaining principal balance is immediately due. If the borrower does not immediately pay the entire principal balance of an accelerated mortgage loan, then the lender may foreclose upon the mortgage loan, recovering up to the entire loan value from proceeds of the judicial foreclosure sale. This acceleration process is of great convenience to the lender, given that many mortgages bear 30-year maturity dates. Through acceleration, the lender need not bear the cost and inefficiency of a suit upon every default through maturity, and the borrower need not spend the next 30 years under the threat, uncertainty, and cost of constant litigation. (9)

If a lender has the option to accelerate, it must make clear its intention to exercise this contractual right, usually by serving a notice letter to the borrower. (10) Notice of intent to accelerate is almost always a contractual condition precedent to a foreclosure action on the entire mortgaged debt. (11) If the lender neither sends written notice of intent to accelerate nor alleges acceleration in foreclosure pleadings, and there is no other external sign of acceleration, then a new cause of action should continue to accrue on each installment payment that the borrower misses. (12) However, if the lender sends written notice of acceleration or alleges acceleration in foreclosure pleadings, then the note and mortgage evolve from an installment contract to a single-payment lump-sum debt, due immediately.

Further, if a lender takes affirmative action to accelerate the note and mortgage, then the application and accrual of the statute of limitations for recovering under the note and mortgage also evolve. Rather than accruing with each defaulted installment, one unified limitations period accrues immediately on all of the installment payments, i.e., triggering the limitations period for the entire principal balance through maturity. (13) Thus, if the mortgage gives the lender an option to accelerate the entire debt balance after a defaulted payment, a single claim for the entire remaining balance can and does accrue when the lender exercises the contractual right to accelerate. (14) It is of some debate in Florida whether the acceleration of the note and mortgage debt and the accrual of the statute of limitations may thereafter be undone by reinstatement of the original installment terms or dismissal of the foreclosure complaint alleging acceleration. (15) Whether there can be a deceleration of the accelerated note and mortgage to restart the clock remains unanswered by Florida state courts.

Deceleration is the post-acceleration process of returning the contractual lending arrangement between lender and borrower to status quo ante--an installment contract under which the statute of limitations for the entire loan debt has not been triggered. Although most mortgage contracts delineate the prerequisites of acceleration, they neither address the right nor the procedure of deceleration, leaving much to postulation, conjecture, or judicial determination. Compounding the uncertainty, lenders rarely, if ever, proactively decelerate through a written notice of intent to the borrower. Instead, lenders retroactively assert deceleration in the lender's second foreclosure action or the borrower's action to quiet title. These lender assertions respond to the borrower's allegation that the five-year statute of limitations precludes enforcement of the note and mortgage. In these instances, the lender must argue that the accelerated mortgage effectively decelerated through either the involuntary dismissal or voluntary dismissal of its initial foreclosure complaint. (16)

Deceleration and Involuntary Dismissal

Beginning with Singleton v. Grey mar Assocs., 882 So. 2d 1004 (Fla. 2004), courts have been pouring the foundation of deceleration in Florida. In Singleton, the Florida Supreme Court held that an involuntary dismissal with prejudice of a mortgage foreclosure action did not preclude by res judicata a later foreclosure action based on a subsequent default involving the same note and mortgage. The court held against res judicata preclusion because the dismissal with prejudice only had the effect of adjudication on the merits as to the first date of default, leaving the lender free to assert foreclosure and acceleration as to the subsequent default. The court stated:

[A borrower] may prevail in a foreclosure action by demonstrating that she [or he] was not in default on the payments alleged to be in default, or that the [lender] had waived reliance on the defaults. In those instances, the [lender and borrower] are simply placed back in the same contractual relationship with the same continuing obligations. Hence, an adjudication denying acceleration and foreclosure under those circumstances should not bar a subsequent action a year later if the [borrower] ignores [his or] her obligations on the mortgage and a valid default can be proven.... This seeming variance from the traditional law of res judicat a rests upon a recognition of the unique nature of the mortgage obligation and the continuing obligations of the parties in that relationship.... If res judicat a prevented a [lender] from acting on a subsequent default even after an earlier claimed default could not be established, the [borrower] would have no incentive to make future timely payments on the note.... (17)

The court reasoned that "clearly, justice would not be served if the [lender] was barred from challenging...