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Ruling Could Eliminate Statute of Limitations for Foreclosures

by James McClister

A case moving through Florida’s Supreme Court could give banks a new weapon when filing foreclosure suits.

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More than anywhere in the U.S., Florida has struggled to trudge through the viscous sludge of foreclosures that pooled in the aftermath of the financial crisis. Consistently, despite steep drops in market share, Sunshine State foreclosures have dwarfed numbers recorded in other states. According to CoreLogic’s recently released December foreclosure report, Florida’s 3.7 percent foreclosure inventory more than doubled that of the national average (1.4 percent).

But as congested and messy as the state’s current process is, a forthcoming Florida Supreme Court ruling could alter rules surrounding the life of a foreclosure suit, further prolonging a bank’s authority to seek payments on a past foreclosure, even after the existing five year statute of limitations has passed.

Skirting Limitations

According to state law, when a borrower fails to make payment on a mortgage, the originator, whether it be a lender or bank, reserves the right to seek reparations via suit, but not in the amount of the missed payment – instead for the total remaining sum. It’s the result of an “acceleration clause,” Peter Ticktin, senior partner at The Ticktin Law Group, explained, which is included in nearly every mortgage.

“These clauses usually say that the lender is required to submit a 30 day Notice of Default, which offers an opportunity to redeem by paying the missed payments, or the full amount of future payments will become due at the end of 30 days,” he said. “This is how the future installments are accelerated.”

From the first missed payment for which the suing party wishes to collect, banks and lenders have a five-year window to file. Beyond that, as it was previously understood, mortgage originators had no legal standing to demand payment.

However, following an appellate court ruling on U.S. Bank v. Bartram, there may be a new legal avenue in which to skirt the limitation.

Heads the Banks Win, Tails the Homeowner Looses

“Until recently, it was understood that the statute of limitations gave a lender five years from the acceleration of the promissory note,” Ticktin said, adding that the file date from the original Notice of Default would have initiated the five year countdown. “However, in the recent Bartram decision, the court held that by filling a Notice of Voluntary Dismissal – which amounts to a lender throwing in the towel – the bank was, in effect, withdrawing its Notice of Default, so that there was no acceleration.”

The contentious decision is now awaiting debate by Florida’s Supreme Court, which is expected to issue a ruling later this year. If upheld, the new understanding could have “great ramifications” for both lenders and borrowers.

Ticktin believes the court will rule on a basis of the law’s logical process, considering a wealth of issues as they relate to the legislation, even associated laws, including the fact that never before has a voluntary dismissal officially negated a Notice of Default.

“There has never been a law that requires a lender who filed a Notice of Voluntary Dismissal to file a second Notice of Default after the first case is dismissed,” he said.

Were the court to rule in U.S. Bank’s favor, the decision would effectively establish two separate but interrelated sets of rules for lenders: one for foreclosure cases not yet five years old, and another if the case has surpassed the limitation.

“It’s similar to flipping a coin and saying, ‘Heads the bank wins. Tails the homeowner loses,’” Ticktin added.

The reason a U.S. Bank decision would position borrowers so poorly, is that a loophole to circumvent the state’s statute of limitation would allow lenders to, conceivably, prolong a foreclosure suit indefinitely. “It would destroy the statute of limitations for mortgage foreclosure cases,” he said.

How the court will rule is anyone’s guess, Ticktin admitted, but the decision will undoubtedly impact tens of thousands of Florida homeowners.

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Comments

  • Beverly says:

    warning
    does this apply?

  • David Grice says:

    Has the supreme court ruled on this issue yet? If the Lenders foreclosure is dismissed for lack of prosecution and land owner has made no new payments to restart the statue of limitations and its been 6 years since the acceleration can they still foreclose?

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