Dismissal "Without" Prejudice is "Not on the Merits" - Accelertion Remains

The December 17, 2014 Florida Third District Court of Appeals decision in Harry Beauvais case addresses important mortgage foreclosure issues.  The primary discussion of the Court was that a dismissal "with" prejudice is "on the merits" and a disposition of the parties rights. On the other hand, a dismissal "without" prejudice is not "on the merits" and the parties "are simply placed back in the same contractual relationship with the same continuing obligations." 

In this case, since the first foreclosure case was dismissed without prejudice, the existing "same contractual relationship" they were placed back into was that of an accelerated mortgage note with the statute of limitations running. The statute of limitations to bring this foreclosure action had expired prior to the filing of the second foreclosure action. 

The Court further held that since the mortgage note remains accelerated "there were no 'new' payment due, there could be no 'new' default upon wich a 'new' cause of action (and newly-commenced statute of limitations) could be based" 

But, the Court reversed the portion of the lower court's order "which canceled the note and mortgage and quieted title in favor of the property owner. That is, the Court held that the determination regarding the statute of limitations bar on the foreclosure cause of action, "does not compel a conclusion that the mortgage itself is null and void."  The Court held that the continued validity, enforceability and termination of the mortgage is governed by Florida statute of repose.  

That is, until the time limit of the statute of repose, there can arise foreclosure causes of action. Neither the lien nor the debt were extinguished. 

Dismissal With Prejudice is "On the Merits", Lender and Borrower's Issues, Claims, and Defenses Whether Actually Adjudicated or Not 

The Court reviews on page 15, that a dismissal with prejudice, disposes of issues "actually adjudicated" and "every justiciable issue as well," that it is "on the merits", and further cites case law that "judgment on the merits does not require a determination of the controversy after a trial or hearing on controverted facts. It is sufficient if the record shows that the parties might have had their controversies determined according to their respective right if they had presented all their evidence and the court applied the law." That is, an order of dismissal with prejudice served to "adjudicate" the "merits of the lender's claims" as well as "the borrower's defenses." 

Dismissal Without Prejudice is Not "On the Merits"

On page 16, the Court explains that since a dismissal without prejudice is not "on merits."  That is, it does not dispose of the rights and issues of the parties.  The rights referred to are the lender's rights expressed as a foreclosure cause of action and the borrower's rights expressed as defenses. 

That is, the issues of the rights and issues of the parties regarding default, acceleration and foreclosure were not disposed in the first case as the order was without prejudice.  Without such a disposition, the cites the Supreme Court's statement in Singletary v. Greymar Associates, 882 So. 2d 1004, 1007  (Fla. 2004) that the parties "are simply placed back in the same contractual relationship with the same continuing obligations."  The contractual relationship the parties in this case were placed back into was that of an accelerated mortgage note upon with the statute of limitations running. 

Summary

In short, the Court's decision in this case is based on whether or not there was a determination of the rights and issues of the parties in the first case - that is, whether there was a determination "on the merits" or not.  The Court explained that "with prejudice" is "on the merits" and "without prejudice" is not "on the merits".  

The Court's review of to Olympia Mortg. Corp. v. Pugh, 774 So. 2d 863 (Fla. 4th DCA 2000), indicates that the "voluntary" or "involuntary" nature of the dismissal is not of import. 

Mortgage Note and Mortgage Not Invalidated
Of most importance, the Court held that, even though the statute of limitations barred this foreclosure cause of action, the mortgage debt remained valid and the mortgage lien remained valid as its continued validity is governed by the mortgage statute of repose statute. 

The implications of this holding may be that in virtually all cases the lender will be able to bring a new foreclosure action - not on the old cause of action, but on a "new" cause of action on the mortgage. It appears that most or all typical residential lenders  will quickly hold a "new" foreclosure cause of action based on the breach of the mortgage covenants to pay "new" property taxes and "new" insurance premiums. If so, it appears that it is virtually impossible for a statute of limitations consideration to ever bar a "new" foreclosure action as there will always be "new" foreclosure causes of action arising until the very long  mortgage statute of repose - in the typical case 20 to 25 more years - has expired on the mortgage lien. 

Mortgage Modification
Beauvais, and similar recent decision by other courts, 
may give reason for many Miami homeowners with mortgage foreclosure situations to re-evaluate what is the best course of action to "save" their home from foreclosure.  It is clear now that many "foreclosure defense" measures in foreclosure court are not going to truly "save" their home" from foreclosure and that efforts would be better directed towards achieving a mortgage modification, which is available without court action and even without the expenditure on hiring a lawyer.  The opportunities to obtain a mortgage modification under HAMP or other programs may not exist in the future or if they exist, the terms may not be as favorable. 

Mortgage Modification Application 
A person may complete the mortgage modification application documents online at www.documods.com and upload, fax or mail them to their lender.  In many cases, the HAMP rules require the lender to stop the mortgage foreclosure while the mortgage modification application is being considered. 

“Technical” (Procedural) Foreclosure Defense
That is, In most cases, winning a foreclosure defense "battle" in court is not going to win the "war" to save the home. Since 2008, certainly a lot of interesting legal issues have been raised,  "won" or lost about standing, chain of assignment of notes, bearer instruments, lost notes, mortgage-backed securities, MERS, robo-signing, hearsay and business record rules of evidence, acceleration, deceleration, statutes of limitations, and statutes of repose. But in view of Harry Beauvais,  "wins" on these issues, are in most cases just a win of a "battle" but not a win of the "war."  
Costs to Homeowner of Not Obtaining a Mortgage Modification
Another item that is often overlooked is that a monthly mortgage payment includes, aside from principal ("p") and interest ("i"),  county property taxes ("t") and the various types of property insurance ("i").  That is, the mortgage lender is not the source of a large portion of the monthly mortgage payment. 

Furthermore, a homeowner should consider the economic costs of delay in the obtaining of a mortgage modification or the losing of their present home with well-intentioned, but unproductive foreclosure defense. A person should considered 

• what would be the interest rate on a modified mortgage - typically starting at around 2%
• what would be the interest rate on a new mortgage on a replacement home - if the person is even able to obtain one
• what is the amount of the property taxes on their present home - is the "assessed value" being capped at a low historical amount by Florida's constitution
• will the property taxes on a new home be much higher as the "assessed" value will be closer to the market value
• the costs of moving from the old house
• the closing costs of a new real estate purchase, mortgage broker, points, and taxes on a new mortgage instrument 
• accruing high costs of "forced place property insurance" until the mortgage modification is achieve - these may impact the amount of a modified mortgage payment and will increase the overall payoff due at the time of sale
• raising real estate values may increase the amount of the monthly modified mortgage payment 
• costs of renting vs. ownership, including its possible income tax savings

Statute of Limitation - Dismissal With Prejudice Does Decelerate
Many prior foreclosure action may have been dismissed "with" prejudice - they thinking being that this was good for the homeowner and bad for the lender.  But Beauvais indicate that it is just the opposite.  A homeowner would be better off with a dismissal "without" prejudice and a lender better off with a dismissal "with" prejudice. 

May a "Not on the Merits" Dismissal "Without Prejudice" Trigger Deceleration, Althought Not "In and Of Itself ?

The Harry Beauvais decision held that an dismissal without prejudice does not, "in and of itself", effect a deceleration.  But that is only ruling that it does not "in and of itself", which give indication that deceleration may be triggered in a different manner. The Court reviewed that an "affirmative act" is required to decelerate a accelerate note. 

On page ten of the decision, the Court reviewed the provisions of the mortgage and/or note, apparently on the possible notion that the dismissal without prejudice (although not "in and of itself") could trigger (constitute an "affirmative act") deceleration of the the note and thereby reinstate the original installment payment terms. 

Here the Court referenced that in this instance that "[n]either the note or mortgage provides that dismissal without prejudice of the foreclosure action would negate the acceleration of the debt or otherwise reinstate the installment nature of the loan." 

Issues of Estoppel?
The Court also made reference that the "factual allegations" of the lender "carried independent legal significance."  This raises questions of the legal significance of the "factual allegations" of the homeowner in the "foreclosure defense" efforts. 

That is, some foreclosure defenses are allegations that the plaintiff was not the holder of the note and have standing to bring the first foreclosure action, it may. If the involuntary dismissal without prejudice was based on such a finding by the court, this may raise some type of equitable estoppel for the homeowner to take the inconsistent position in the second foreclosure action that there actually had been an acceleration in the first action - without a prior acceleration, there was accrual of a cause of action and the statute of limitations never began to run. 

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