The Florida Supreme Court’s recent decision in Bartram v. U.S. National Bank Association is instructive for condominium associations and community managers dealing with a unit in foreclosure, including those trying to determine whether or not to appear and defend a foreclosure by the lender, even though it does not deal directly with a condominium or the Florida Condominium Act.
In this case, the Court held that the statute of limitations does not bar a second foreclosure action where the mortgage has previously been accelerated by the lender in an unsuccessful foreclosure suit. The Court reached its ruling by first analyzing its prior decision in Singleton v. Greymar Associates, 882 So. 2d 1004 (Fla. 2004), where it held that the concept of res judicata (i.e. a party may not pursue a second time a matter that has already been adjudicated), does not prevent a second suit on a mortgage where there has already been an acceleration of the mortgage during an unsuccessful mortgage foreclosure action. In Singleton, the mortgagor/owner had argued that his lender was allowed only one opportunity to accelerate the note and mortgage and, if unsuccessful, was barred by the doctrine of res judicata from bringing further foreclosure proceedings. The Court disagreed with the owner and found that each monthly installment payment due under the mortgage was its own individual obligation, and thus, each such payment renewed the limitations period. The Court stated that, while a foreclosure and acceleration upon the same default may bar a subsequent action on that default, an acceleration and foreclosure predicated upon a subsequent and different default is a separate and distinct issue, and thus does not constitute res judicata.
Drawing on Singleton’s rationale, the Court in Bartram found that the statute of limitations is not implicated when a lender re-accelerates and forecloses on a mortgage, notwithstanding a prior acceleration and foreclosure suit, where the second suit is premised on a different, subsequent default, since that is a separate and different action than the first. The Court found support for its ruling in the terms of the standard mortgage, which allows for acceleration as well as de-acceleration and reinstatement at any time before final judgment. Accordingly, the terms of the mortgage itself, the Court found, contradicted the owner’s argument that the mortgage could be accelerated but once. The Court pointed out that, under the owner’s analysis, borrowers would be incentivized to stop all future payments if they had faced, and resolved or defeated, a prior acceleration and foreclosure action.
This case has implications for associations who have units in foreclosure because associations should not think that just because a unit owner previously faced a foreclosure, which was resolved or defeated by the owner, that the owner will not face a second foreclosure suit. As an example: an association has recorded a lien against a unit for failure to pay assessments. Prior to being able to foreclose its lien, the owner’s mortgage lender files a foreclosure against the owner for failure to make payments. The owner hires an attorney to defend him in the foreclosure and manages to have the lender’s foreclosure action dismissed. Subsequent to the dismissal, the association does not take timely action to foreclose its lien, believing that the bank won’t ever be able to wipe the lien out via a subsequent foreclosure, and despite that the owner has not satisfied his outstanding assessments either. However, the lender knows this isn’t true and, when the owner defaults again several months later, brings another foreclosure suit. This time the suit is successful and the association loses its lien rights. Unfortunately for the association, it could have been pursuing its lien, or a judgment against the owner, during the intervening seven months and avoided that result. One can therefore see why associations need to be aware of how the Bartram ruling stands to affect their operations.
Additionally, this is yet another reminder of why condominium associations cannot afford to ignore lender foreclosure actions. Using the above example, if the association had not appeared in the original foreclosure action, it wouldn’t know that the owner had successfully defended against it, and thus wouldn’t know that it needed to move immediately to enforce its lien rights before the owner faced a second foreclosure.