Bartram v. U.S. Bank Nat’l Ass’n.

In November 2002, Petitioners Lewis and Patricia Bartram purchased real property in The Plantation, a private residential golf development located in Ponte Vedra Beach. Less than a year later, Patricia filed for divorce, which was granted in November 2004. As part of the divorce order, Mr. Bartram was forced to (i) obtain a $650,000 mortgage through Finance America, LLC and (ii) execute a second mortgage to Patricia, as security for a second mortgage note in the amount of $120,000, all for purposes of keeping the property. Finance America thereafter assigned its mortgage to Respondent U.S. Bank National Association (the “Bank”).

The Finance America mortgage was a standard residential form that included acceleration and reinstatement clauses. The former clause permitted the Bank to provide notice of default in the event of a failure to pay monthly obligations, a minimum thirty day window by which to cure the default, acceleration of all sums secured by the mortgage in the event the borrower failed to cure the default, and eventually foreclosure. The reinstatement clause permitted the borrower to reinstate the note and mortgage after acceleration, if certain conditions were met; e.g., paying all past defaults and other related expenses that would be due “as if no acceleration had occurred.” Specifically, and seemingly important to the Court, the reinstatement clause included the following language: “Upon reinstatement by Borrower, this Security Instrument and obligations secured hereby shall remain fully effective as if no acceleration had occurred.”

In January 2006, Mr. Bartram stopped making payments on the First America mortgage and had yet to start payments on the second mortgage. In May 2006, the Bank filed a foreclosure action based on the default; however, the trial court dismissed the action in May 2011, following the Bank’s failure to appear at a case management conference. The Bank did not appeal the dismissal. Seizing an opportunity, Mr. Bartram moved to cancel the promissory note and release the lien on the First America mortgage (ostensibly on res judicata grounds), but on August 29, 2011, the court denied the motion, citing a lack of jurisdiction since the involuntary dismissal of the Bank’s foreclosure action “was an adjudication on the merits,” pursuant to Florida Rules of Civil Procedure, Rule 1.420(b).

About a year later, and almost six years after the Bank’s initial foreclosure action, Mr. Bartram was sued by his ex-wife, Patricia, in a foreclosure action that also included the Bank. Mr. Bartram seized this second opportunity to cancel the Finance America promissory note and to release the lien on its mortgage by filing a cross-claim against the Bank, alleging that the five year statute of limitations precluded any future attempts by the Bank to foreclose on the Finance America note and mortgage. The cross-claim also sought to quiet title on the property. One motion for summary judgment later, Mr. Bartram received all that he had asked for in his cross-claim against the Bank. The Bank filed a motion for rehearing, which was denied, and then appealed to the Fifth District Court of Appeals.

On appeal, the Bank relied heavily on Singleton v. Greymar Associates, 882 So.2d 1004 (Fla. 2004), for the proposition that the trial court’s dismissal of the first foreclosure action “nullified [the Bank’s] acceleration of future payments; accordingly, the cause of action on the accelerated payments did not accrue and the statute of limitations did not begin to run on those payments, at least until default occurred on each installment.” Bartram v. U.S. Bank Nat’l Ass’n., 2016 WL 6538647 (Fla. 2016), at 4 (citing U.S. Bank Nat’l Ass’n. v. Bartram, 140 So.3d 1007, 1009-10). The Bank further argued that it could seek subsequent foreclosures on any defaults by Bartram that had occurred after the dismissal of the original foreclosure action. Id. Bartram’s and Patricia’s opposing arguments were that the Bank’s initial acceleration of the mortgage was the one and only trigger for the statute of limitations, that the Bank never rescinded its acceleration after the original dismissal, and that the five-year statute of limitation had run on any Bank foreclosure. Id.

The Fifth District agreed with the Bank and held that neither res judicata nor the statute of limitations were bars to causes of actions that had accrued pursuant to a “new and independent right to accelerate.” Id. Thus, each new default on the Finance America mortgage would represent a separate accrual for purposes of the statute of limitation, “regardless of whether the payment due dates had been accelerated in the first foreclosure action.” Id. The Fifth District reversed the trial court’s judgment and certified the question of law as a matter of great public importance for the Supreme Court.

The Supreme Court rephrased the Fifth District’s certified question of law to the following: “Does acceleration of payments due under a residential note and mortgage with a reinstatement provision in a foreclosure action that was dismissed pursuant to Rule 1.420(b), Florida Rules of Civil Procedure, trigger application of the statute of limitations to prevent a subsequent foreclosure action by the mortgagee based on payment defaults occurring subsequent to dismissal of the first foreclosure suit?” Id. at 1.

The Supreme Court’s analysis started with Singleton, which entailed application of res judicata to a foreclosure action. Similar to the instant case, the Singleton mortgagee had an initial foreclosure action dismissed for failure to appear at a case management conference, but then filed a second foreclosure action based on payment defaults that had occurred after the dismissal of the first action. Id. at 5. The Singleton borrower contended, similar to Bartram’s arguments in his motion, that dismissal of the first foreclosure action barred relief in the second action. Id. A judgement, appeal, and certification later, the Supreme Court held that “when a second and separate action for foreclosure is sought for a default that involves a separate period of default from the one alleged in the first action, the case is not necessarily barred by res judicata.” Id. at 6 (citing Singleton, 882 So.2d at 1006-07).

In Singleton, the Supreme Court noted its approval of Olympia Mortgage Corp. v. Pugh, 774 So.2d 863, 866 (Fla. 4th DCA 2000), which held that “an acceleration of debt in a mortgage foreclosure action did not place future installments at issue.” Id. (citing Singleton, 882 So.2d at 1007-08). In reaching this conclusion, the Court cited to “the unique nature of a mortgage,” which necessarily includes long-term installment obligations on the part of the borrower to repay a loan. Id. In effect, the Court ruled that the doctrine of res judicata could not be used as a sword to unjustly enrich a borrower by way of completely precluding a mortgagee’s enforcement of its note and mortgage upon future default by the borrower. Id or. at 6-7.

As to how the res judicata analysis applied to the statute of limitations arguments, the Supreme Court cited to federal and state court decisions, which had recognized through Singleton that a subsequent accrual of a cause of action triggers a new running of the statute of limitations. Id. at 7-8 (citations omitted). The Court also took the inferential leap that an involuntary dismissal necessarily ended the running of the statute of limitations on the original acceleration and that the dismissal had the effect of putting the parties “back in the same contractual relationship as before, where the residential mortgage remained an installment loan, and the acceleration of the residential mortgage declared in the unsuccessful foreclosure action [was] revoked.” See Id. at 8. But the Court had one more issue to address – how an involuntary dismissal interacted with the mortgage’s reinstatement clause.

Involuntary dismissal pursuant to Rule 1.420(b) may be with or without prejudice. The Fifth District had held that the original foreclosure action brought against Bartram had been dismissed with prejudice, but also determined that for purposes of determining whether the Bank could bring subsequent foreclosure actions, the “with or without prejudice” moniker was irrelevant. Id. at 9. This was because any new accrual of a foreclosure cause of action would not implicate a res judicata defense. See Id. At most, the “with or without prejudice” moniker was relevant only to a mortgagee’s attempts to collect on debts that arose prior to the dismissal. The Supreme Court agreed with the Fifth District’s rationale and, in doing so, buttressed its decision with the language of the reinstatement clause. See Id. Specifically, the reinstatement clause did not require the borrower to pay the accelerated amounts until a final judgment of foreclosure had been entered; thus, the borrower continued to have the right to cure any default and end the acceleration; i.e., to continue making monthly installment payments without the weight of acceleration. Id. at 9-10 (author’s emphasis).

Reading between the lines, the Court majority implies that an acceleration within the context of the Finance America reinstatement clause did not occur upon the Bank’s notice of acceleration or its filing of a foreclosure seeking such acceleration; it occurs only upon a judgment of foreclosure, meaning that the acceleration of future installment payments never occurred. And if the future installment payments were never at issue – in contrast to the past installments for which Bartram was in default – then the Bank was free to bring new claims of acceleration and foreclosure for any future default in the payment of those future installments. A concurrence by Justice Lewis takes issue with the majority inference that acceleration must decelerate upon the involuntary dismissal of (as opposed to a judgment in) a foreclosure action, noting that nothing in the reinstatement clause provided as much. However, Justice Lewis was alone in this observation.