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On December 17, 2014,  the Florida Third District Court of Appeals in Miami, made an important ruling regarding mortgage foreclosures, including statute of limitation related issues.   It may be prudent for many Miami homeowners with mortgage foreclosure issues to review their situation in light of this decision.

Court's Apparent Framework and Ruling  

Action and Cause of Action

• an "action" for foreclosure must be commenced within five years after the accrual of the foreclosure "cause of action" upon which it is founded (section 95.11(2)(c))

• a foreclosure "cause of action" accrues, and the statute of limitations to bring it commences,  upon the default and optional acceleration of the installment mortgage note  

Declerated and Accelerated Mortgage Note

• an installment mortgage note remains accelerated unless the note is "decelerated" 

• while a mortgage note remains accelerated, there are no "new" installment payments coming due upon which a "new" foreclosure "cause of action" could possibly accrue 

• while a mortgage note is in a state of being decelerated, each new default creates a new cause of action and commences a new statute of limitations period installment payment 

Dismissal With or Without Prejudice

• dismissal of a foreclosure action without prejudice - does not "decelerate" the accelerated mortgage note 

• dismissal of a foreclosure action with prejudice - is an "adjudication on the merits" which includes the implication that "there was no valid default (and by extension, no valid or effective acceleration of the debt")" (i.e. a cause of action never arose in the first place) - the parties are placed back into the original mortgage note contractual relationship

Effect of Expiration of Statute of Limitations    

• Mortgage Note Debt Not Cancelled - the expiration of the statute of limitations to bring the action, does not render the mortgage note cancelled 

• Mortgage Lien Not Null and Void - the temporal validity of the mortgage lien is governed by the mortgage statute of repose of section 95.281, the expiration of the statute of limitations to bring a particular foreclosure action does not render the mortgage and its lien null and void

• No Quieting of Title - no quieting of title in favor of the homeowner as the mortgage note and mortgage continue valid 

  
Review of Situation May be Considered
Due to the Court's ruling, a homeowner may need to consider its implications for their particular factual situation. Perhaps some may be proceeding under the assumption that the statute of limitations to bring a foreclosure action on the mortgage note has expired, when it has not. Also some may have assumed that the statute of limitations did not expire, when it actually has. Some may have erroneously assumed that the expiration of the statute of limitations on the mortgage note means that the mortgage note is cancelled or mortgage lien is void. Some may have the false assumptions that they are entitled to a quieting of title. 

There may be other present alternatives that better serve the economic and personal benefits of the homeowner and their family. One alternative may be consider available mortgage modification programs, including HAMP and in-house modification programs. Many mortgage modifications are targeted at about 31% of gross wages. The targeted 31% amount would include coverage of principal, interest, property taxes, insurance, and association fees.   
A homeowner should also consider that the available mortgage modification programs are not permanently in place.  Other favorable factors for a mortgage modification also may not be present in the future. 

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

Bankruptcy Courts Make It Tough To Rid Student Loans
Bankruptcy courts around the country toughened up on helping students discharge student loans beginning in 2006.  Many still do not realize the scope and extent of the lifelong financial burden they saddle themselves with when taking out student loans. Student loans are preventing thousands of college graduates from purchasing their first homes.  After all, living expenses are higher and salary levels are lower than anticipated, making student loan debt repayment difficult if not impossible.

If this is you, you might be wondering if you can turn to bankruptcy for relief and a fresh start. The chances of bankruptcy being the solution is slim.  That is because not all debt is not treated equally in bankruptcy. While bankruptcy is great for getting rid of medical bills and credit card bills it is terrible for getting rid of student loan debt.  Most chapter 7 and chapter 13 debtors accept that this debt will remain after filing for bankruptcy.

While Tough, It Is Still Possible Rid Student Loan Debt  
Bankruptcy courts will not discharge student loans except in one narrow circumstance. You have to show undue hardship.  This is a very tough standard to meet.  Some bankruptcy courts require showing not being able to maintain a minimal standard of living, with no hope of a positive change in financial circumstances for some time.  The bankruptcy judge will also look to see whether there was a good faith effort to repay student loans in the past.  

In short, this is what the bankruptcy court is looking for when determining whether is will discharge a student loan from a debtor:

• PRESENT INABILITY TO PAY

What kind of lifestyle is the debtor living?  A bankruptcy court will want to see that after living a frugal life, i.e. paying for apartment rent, food and other necessaries, a debtor does not have any money left over to pay his Lenders. 

• PERSISTENCE OF FINANCIAL CIRCUMSTANCES DURING THE REPAYMENT PERIOD

A bankruptcy court not only requires a present inability to pay, but also requires a prediction about future ability to pay. Factors to consider include a debtor's mental and physical health, dependent's needs, age and other conditions affecting earning capacity. Also considered are prospects for income in the debtor's profession. One bankruptcy court noted that the "most important factor" to satisfy this element is that the debtor's circumstances must "be beyond the debtor's control, not borne of free choice."

• GOOD FAITH EFFORT TO REPAY 

Finally, bankruptcy courts will analyze whether the debtor had made a good faith effort to repay the loans. One court found that even though a mother made over $18,000 in payments, the debtor failed to show good faith by only making one payments and not applying a tax refund he had received.  

In denying the debtor's attempt to discharge the student loans, the bankruptcy court wrote that Debtor and the Lenders "will have to live, uneasily it seems, with the consequences of the bargains they improvidently struck at the beginning of their relationship."

Ouch! present day students need to take heed and understand that today's student loans will have consequences that can effect their financial situations throughout their life.

Southeastern Seminary at Flickr

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.