Blogs

On December 17, 2014, the Florida Third District Court of Appeals issued its decision addressing extremely pertinent mortgage foreclosure issues in the case of Deutsche Bank Trust Company Americas, etc. v. Harry Beauvais, et al., Case No. 3D14-575.    The Court held that since the dismissal of the first foreclosure action was "without" prejudice, it was not an "adjudication on the merits." and that therefore the lender's acceleration of the mortgage note remained in place and the statute of limitations continued to run and expired prior to the filing of this second foreclosure action. The Court further held that, since the acceleration remained in place, there could be no "new" default and foreclosure cause of action upon which to base a "new" foreclosure action. 
Trial Court

The trial court had held that the second foreclosure was barred by the foreclosure statute of limitations of section 95.11(2)(c), that the mortgage lien (in addition to the mortgage note) was null and void, and quieted title in favor of the property owner. In this case, the second foreclosure action was filed more than five years after the date that the mortgage installment note had been accelerated in the first foreclosure action. This first foreclosure action was involuntarily dismissed without prejudice.

Partial Reversal on Appeal

The Court of Appeals upheld the lower court's dismissal of the second foreclosure action as barred by the statute of limitations, but reversed the portion of the order which canceled the mortgage note and cancelled the mortgage lien, and reversed the quieting of title in favor of the property owner.    The Court certified conflict with Evergrene Partners, Inc. v. Citibank, N.A., 143 So. 2d 954, 956 (Fla. 4th DCA 2014) to the Florida Supreme Court 
Prospects 
The property owner though, may have only won the "battle" but not the "war." Although this second foreclosure action based on the mortgage note was barred by the statute of limitations, the mortgage note remains uncancelled and the mortgage, including its lien provision, remains valid.

Commentators review that a residential mortgage, including its lien, not only secures the mortgage promissory note, but also contains covenants of its own, such as to maintain insurance and pay property taxes.  The commentators suggest that the breach of these covenants could constitute a "new" cause of action for foreclosure. The "new" foreclosure action founded on this "new" cause of action is subject to its own "new" statute of limitations. 
The Issues

The Court of Appeal's ruling required a consideration of a vast number of areas of law: installment promissory notes, accrual of causes of action, default, acceleration clauses, how deceleration can be effected,  commencement of a statute of limitations period, Fla. R. Civ. P. 1.420(b),  what is the scope of an "adjudication on the merits,"  what is "justiciable" in an action, res judicata, deceleration of a note,  the distinction between a statute of limitations and a statute of repose, and the distinction between a mortgage note and a mortgage.

Florida's Mortgage Foreclosure Statute of Limitations The Court referred to the the relevant statute of limitations for foreclosure actions of section 95.11(2)(c), Florida statutes, which provides that "[a]n action to foreclose a mortgage" "shall be commenced . . . within five years."  The Court reviewed that the "statute of limitations begins to run when a cause of action accrues."  The Court stated that the exercise or invocation of an optional acceleration clause in an installment mortgage note accrues the foreclosure cause of action and commences the foreclosure statute of limitations.
Dismissal Without Prejudice Does Not DecelerateIn this case before the Court, the first foreclosure action had been dismissed "without prejudice." The Court held that since  the dismissal of the first case was "without prejudice," it was not an "adjudication on the merits" pursuant to Florida Rules of Civil Procedure 1.420(b).

Without an adjudication on the merits, there was no "determination that the acceleration was invalid or ineffectual" and therefore"the lender's exercise of its option to accelerate the debt" survived (i.e. remained in place). The Court stated that the involuntary dismissal without prejudice "did not by itself negate, invalidate or otherwise decelerate the lender's acceleration of the debt in the initial action."  Since more than five years had passed since such acceleration, accrual of the foreclosure cause of action, and commencement of the statute of limitations, the filing of the second foreclosure action was barred by the foreclosure statute of limitations of section 95.11(2)(c).

Interestingly, the Court noted that the neither the note nor the mortgage provided that the dismissal of a foreclosure action would negate an acceleration of the debt.  The concept apparently being that a note or mortgage could contractually provide that an involuntary dismissal would in itself trigger a negation or invalidation of the acceleration and thereby stop the running of the statute of limitations.

No Possibility of a "New" DefaultWithout deceleration, by the dismissal of the first foreclosure case or by other affirmative action, the mortgage note remained in a state of acceleration. The Court explained that with the acceleration remaining in place, "the installment nature of the loan payments was never reinstated following the acceleration" and that therefore "there were no 'new' payments due and thus there could be no 'new' default following the dismissal without prejudice of the initial action." The Court explained that
"[w]ithout a new payment due, there could be no new default, and therefore no new cause of action."
Dismissal With Prejudice - "There Was No Default or Acceleration" Ironically, had the first foreclosure case been dismissed "with prejudice", the mortgage lender would have been better off.  The Court stated that a dismissal with prejudice disposes "not only of every issue actually adjudicated, but every justiciable issue as well." The Court indicated that it is implicit in an adjudication on the merits that "there was no default and therefore no valid or effectual acceleration." and the parties would have been "simply placed back in the same contractual relationship with the same continuing obligations."   That is, had the prior foreclosure action been dismissed "with prejudice," a default or acceleration never happened and there had never arisen a cause of action and the statute of limitations never began to run.  Without a default or acceleration,
the mortgage note's installment payment terms remained intact and the default on each installment payment could give rise to a new cause of action.

Mortgage Lien Remained ValidAlthough the lower Court's ruling that the statute of limitations had run, the Court of Appeals reversed the lower Court's ruling that the mortgage lien was null and void. The Court held that the lack of ability to enforce the mortgage note due to the statute of limitations, did not render the mortgage lien invalid.  The Court explained that the continued validity of a mortgage is governed, not by such five year statute of limitations for foreclosure actions, but by the "statute of repose" provided by section 95.281.  In this case, the time periods set forth in this statute of repose had not yet expired.

Section 95.281 provides, in general,  that the "lien of a mortgage or other instrument encumbering real property" terminates 5 years after the date of the "final maturity of an obligation secured by a mortgage" if such date "is ascertainable from the record of it."  The statute further provides for the termination of such a lien after 20 years after the date of the mortgage if the "final maturity of an obligation secured by a mortgage is not ascertainable from the record of it."  The statute also provides certain exceptions if there is re-recording or further recording.

Winning the Battle but Not the War ? What the Court Did Hold 

The Court held that this particular action for foreclosure based on the accrued cause of action to enforcement payment of the mortgage note (accrued upon acceleration) was barred by the statute of limitations. The Court also held that there was no possibility of a further "new" further cause of action accruing on this mortgage note as there were no remaining installment payments.

What the Court Did Not Hold

But, the Court did not cancel the mortgage note. The Court also held that the mortgage lien remained valid. That is, there still remained a mortgage note debt and a lien on the real property.

Mortgage Lien Covenants and Foreclosure

Recent Florida commentators review that a typical residential mortgage itself contains covenants, including to keep the property insured and to pay the property taxes.  The commentators apparently suggest that a foreclosure action could be pursued based on cause of action based on a default of these covenants in the mortgage itself.

Distinction Between Statutes of Limitations and Statutes of ReposeThe United States Supreme Court recently had occasion to review, in the context of a different area of law,  the distinction between statutes of limitations and statutes of repose in the case of CTS v. Waldburger, et al., Case No. 13-339, decided June 9, 2014.  The Supreme Court explained that in "the ordinary course, a statute of limitations creates 'a time limit for suing in a civil case, based on the date when the claim accrued.'" (citing Black's Law Dictionary 1546 (9th ed. 2009).  In contrast, the Court stated that a

A statute of repose, on the other hand, puts an outer limit on the right to bring a civil action. That   limit is measured not from the date on which the claim accrues but instead from the date of the  last culpable act or omission  . . The statute of repose limit is "not related to the accrual of any cause of action . . . The repose provision is therefore equivalent to "a cutoff" . . in essence an "absolute . . . bar" on a defendant's temporal liability. . . 

The Court further explained that statutes of repose mandate that there shall be no cause of action beyond a certain point, "even if no cause of action has yet accrued. Thus, a statute of repose can prohibit a cause of action from coming into existence."   

The Supreme Court explained that there is a "substantial overlap" between the two, but that "each has a distinct purpose and each is targeted at a different actor."  The Court explained that statutes of limitations "encourage plaintiffs to bring actions in a timely manner" but that statutes of repose "effect a legislative judgment that a defendant should be 'free from liability after the legislatively determined period of time."  The Court noted that a statute of repose is like a discharge in bankruptcy in that they both "provide a fresh start or freedom from liability." 

Jordan E. Bublick - Miami Bankruptcy Lawyer - Kendall & Aventura Offices - (305) 891-4055 - www.bublicklaw.com

When it comes down to consumer bankruptcy, the official forms do a pretty good job of setting forth the facts of the case, the assets involved in the case, the liabilities in the case, and the debtor’s statement of financial affairs. However, there is a very important document that is missing from the official forms,+ Read More
The post Chapter 13 Bankruptcy Forms: Do You Know What Is Missing? appeared first on David M. Siegel.

Last week, the United States Supreme Court granted the writ of certiori in the case of Bullard v. Hyde
Park Savings Bank, which involves the issue of whether an order denying confirmation of a chapter 13 plan of reorganization is a "final judgment" and therefor appealable.  
Case Below - BAP and First Circuit 

In the case below, the chapter 13 debtor appealed the bankruptcy court's order first to the First Circuit's Bankruptcy Appellate Panel (BAP) under both 28 U.S.C. § 158(a)(1) [for a "final order"] and (a)(3) [with leave of court for an interlocutory order].  The BAP agreed to hear it as an interlocutory appeal and upheld the Bankruptcy Court's order denying confirmation of the chapte 13 plan. 
The debtor next filed a notice of appeal to the First Circuit and also requested that the BAP certify the matter for a direct appeal to the First Circuit pursuant to 28 U.S.C. § 158(d)(2).  The BAP denied the motion for a direct appeal and the First Circuit issued an order to show cause why the appeal should not be dismissed on the basis the BAP's order affirming the Bankruptcy Court's order was not a final order as required by 28 U.S.C. § 158(d)(1). The Court noted that it had previously held that a BAP's order could not be a final order unless the underlying bankruptcy court order was a final order. 

The First Circuit, dismissed the appeal for lack of statutory jurisdiction pursuant to 28 U.S.C. § 158(d)(1) based on its holding that an order denying confirmation of a chapter 13 plan is not a final order. The First Circuit explained that the issue presented was an issue of statutory jurisdiction and not an Article III Constitutional issue. 

Circuit SplitIn its decision, the First Circuit noted that the Sixth, Second, Eighth, Ninth, and Tenth Circuits previously that an order denying confirmation is not final if the bankruptcy case has not been dismissed and the debtor remains free to propose another plan.  On the other hand, it noted that the Fourth, Third, and Fifth Circuit held otherwise - that such an order can be final even if the underlying bankruptcy case has not been dismissed.
."  
ReferencesA Primer on the Jurisdiction of the U.S. Courts of Appeals - Federal Judicial Center 2009
Final Analysis: Determining Appealability of a Judgment or Order

Jordan E. Bublick - Miami Bankruptcy Lawyer - Kendall & Aventura Offices - (305) 891-4055 - www.bublicklaw.com

Often Oregon debtors in a Chapter 13 bankruptcy will hit a rough spot during their case and  request a hardship discharge rather than seek conversion to Chapter 7.  Conversion and hardship discharge are not one in the same. There are specific requirements that must be met before you can even be considered for a hardship discharge. The standards for conversion are often much easier to meet.
In order to obtain a hardship discharge, your Oregon bankruptcy attorney must first file a motion requesting the hardship discharge and outlining specifically as to why you would qualify.  The first step in the analysis is whether or not your Plan has been confirmed. If it has not been confirmed by the Oregon Bankruptcy Court, you are not eligible for hardship discharge.
The Oregon Bankruptcy Court will allow a hardship discharge only if three elements are present:

• You failed to complete your plan payments due to circumstances for which you are not to blame. It is not enough to have simply lost your job, you must show that the job is lost and that it is unlikely that you will be employed again. An injury will probably not compel the Court to grant your Motion unless the resulting disability is near permanent. In conversion, it is usually enough that you have been laid off or that an injury is now preventing you from working.
• Based on what you have already paid into the plan, your unsecured creditors have received at least what they would have received if you had filed for Chapter 7.  For example, if one of your vehicles would have been unprotected in a Chapter 7, you must show that the value of that vehicle has already been paid back to your unsecured creditors. In conversion, you could still convert and simply pay the unpaid equity to the Chapter 7 Trustee.
• Modification of your plan is not practical. Meeting this requirement may be difficult to meet if you are currently paying off secured loans through your Chapter 13 case.  When you are seeking a hardship discharge, it is fair for the Court to ask whether you could make even a small payment per month if you surrendered one of your vehicles. This would never come up in conversion.

Ultimately, it may be a great deal easier to convert your case rather than seek a hardship discharge. While conversion means one more 341 hearing and additional fees to your bankruptcy attorney, you can take comfort in knowing that your time and effort devoted to conversion will actually result in discharge.

The original post is titled Chapter 13 Bankruptcy Hardship Discharge in Oregon , and it came from Portland Bankruptcy Attorney | Northwest Debt Relief .