Does Bartram v. U.S. Bank have any Application to Secured Commercial Loans?
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The Supreme Court of Florida in Bartram v. U.S. Bank Nat. Ass’n, 2016 WL 6538647 (Fla. 2016) held that prior acceleration in a foreclosure action that was involuntarily dismissed was revoked by the involuntary dismissal, and therefore did not trigger the statute of limitations to bar future foreclosure actions. Additionally, the Court held in Singleton v. Greymar Assoc., 882 So. 2d 1004 (Fla. 2004) that the res judicata analysis applies equally to statute of limitations defenses and doesn’t prohibit the re-filing of a foreclosure action that was previously dismissed so long as the second foreclosure action is predicated on a subsequent default. At first glance, this decision appears to have broad application to any type of secured installment debt. If Bartram is broadly applied it could breathe life into ancient debt that was long ago considered time barred by commercial lenders. However, there are distinctions that may limit the application of Bartram to residential mortgage foreclosures. Future appellate decisions will address how broadly Bartram should be applied. This article addresses the best argument for narrow application and the best argument for broad application. If Bartram is applied broadly it could serve as a basis for commercial lenders to re-evaluate mortgages in default in which they previously declined to foreclose. It could also serve as a basis for commercial lenders to re-evaluate corporate policy directed toward secured property that currently has little value or corporate policy directed toward junior mortgages with current value that is insufficient to cover the senior lienholder.
Ultimately, the Bartram decision allows subsequent residential foreclosure actions to survive a statute of limitations defense even if filed more than five years after the debt was accelerated. Practical application of Bartram means that when a residential foreclosure action is voluntarily or involuntarily dismissed, the initial acceleration is revoked and is thereby a nullity–as if it never happened. So from a statute of limitations analysis, the initial acceleration is simply irrelevant. The lender is prohibited by the statute of limitations from seeking to include payments that were missed more than five years prior to the subsequent filing but the prior acceleration was revoked by the prior dismissal and thereby doesn’t time bar the entire debt.
The Argument for Narrow Application of Bartram:
The most interesting part of the Court’s analysis in Bartram is its focus on a right to reinstatement provision in the mortgage. In both residential and commercial foreclosures, the mortgagor can save the property from foreclosure by redeeming the amount of the Judgment (the accelerated debt) up to the date the certificate of sale is issued. Fla. Stat. §45.0315. However, in a residential mortgage there is a standard contractual provision that allows a mortgagor to save the property from foreclosure by paying only the past due amounts, and such payment need only be made five days before the foreclosure sale. Specifically, Bartram stated “[o]ur conclusion is buttressed by the reinstatement provision of the Residential Mortgage that by its express terms granted the mortgagor, even after acceleration, the continuing right to reinstate the Mortgage and note by paying only the amounts past due, as if no acceleration had occurred,” (emphasis in original). Bartram went on to state that “[i]n the absence of a final judgment in favor of the mortgagee, the mortgagor still had the right under paragraph 19 of the Mortgage—the reinstatement provision—to cure the default and continue making monthly installment payments.” The gravamen of Bartram’s reliance on this reinstatement provision is apparent in the following excerpt from the opinion:
Accepting Bartram’s argument that the installment nature of his contract terminated once the mortgagee attempted to exercise the mortgage contract’s optional acceleration clause—ignoring the existence of the mortgage’s reinstatement provision—would permit the mortgagee only one opportunity to enforce the mortgage despite the occurrence of any future defaults.
The mortgagor’s statute of limitations defense was hinged on the assumption that once the lender chooses to accelerate the debt, all sums are currently due, and the lender only has five years from the date of acceleration to pursue the accelerated debt and file a lawsuit. However, residential mortgages are unique in that once acceleration occurs, a mortgagor has the right to reinstate the debt by merely paying the defaulted payments. As such, acceleration in the residential mortgage context is not an act of finality until the right to reinstate expires. Under the residential mortgage contract, the mortgagor can reinstate, even after judgment, up to five days before the foreclosure sale.
It is highly unlikely you will ever find a right to reinstatement, not to be confused with a right of redemption, in any commercial security agreement or note. The right of reinstatement analysis is the portion of Bartram that nullified the best argument raised by the mortgagor, which was that once the debt was accelerated the entire sum was due at that point and the mortgagee only had five years to pursue the debt once accelerated. Because commercial loans do not have this unique right of reinstatement, the portion of Bartram that relies upon the reinstatement clause appears to be inapplicable to commercial loans.
The Argument for Broad Application of Bartram:
The broad application of the Singleton decision, and its blessing in Bartram, is the strongest argument that Bartram applies to commercial loans. It is curious that Bartram relied on Singleton at all. Bartram was a statute of limitations case and not a res judicata case. Singleton was a res judicata case. The reliance on the reinstatement provision to render the acceleration non-final was more than sufficient to make the logical leap that a dismissal of the case acted to revoke a non-final acceleration, thereby allowing a lender with this unique right of reinstatement clause to avoid the statute of limitations defense raised by the mortgagor. The reliance on Singleton really seemed superfluous. Perhaps the lack of attention to the right of reinstatement at the trial court and the appellate court level required some reliance by the Florida Supreme Court on Singleton, since Singleton was what was argued and relied upon at the lower courts.
So what does The Florida Supreme Court’s reliance upon Singleton in Bartram mean for commercial foreclosure cases? It is likely this is a question that is going to be resolved by later decisions. At the very least, Singleton now applies to residential mortgage foreclosures in which a statute of limitations defense is raised due to a prior dismissal, with or without prejudice. So what about a note secured by a commercial printing press? Assume the lender accelerated the debt, filed their lawsuit and then had their case dismissed (six years after filing) for missing a case management conference. It seems that Bartram’s application of Singleton may help the lender, regardless of whether the debt is commercial, consumer or residential. Singleton essentially holds that res judicata does not bar a subsequent foreclosure action so long as the dates of default are different. Now Bartram states that same reasoning applies in a statute of limitations analysis. However, Bartram’s analysis of Singleton is little more than a superficial application of the root holding in Singleton.
The most thorough analysis of the Singleton decision comes in the closing paragraph of the Singleton analysis. The closing paragraph in the portion of the Bartram decision analyzing Singleton states “that because foreclosure is an equitable remedy the ends of justice require the doctrine of res judicata not be applied so strictly so as to prevent mortgagees from being able to challenge multiple defaults on a mortgage.” The court in Singleton was concerned with preventing unjust enrichment that would occur if the mortgagee was barred from bringing a subsequent foreclosure action simply because it missed a case management conference. If Singleton is an equitable avoidance of a res judicata defense, now a statute of limitations defense, it seems to reason that it could be an equitable avoidance to any defense raised in an equitable claim. At its heart, Singleton disallows the res judicata defense of the mortgagor because it was unfair, under the circumstances, for the mortgagor to receive a financial windfall, i.e. a free house.
There will certainly be future decisions that will provide guidance as to the breadth to which Singleton will apply. As for now, Singleton’s breadth, as expanded by Bartram, could be wide-stretching indeed. It could apply in the context of any action to foreclose secured commercial debt. It may even apply to all actions in equity.
Commercial lenders will not be able to rely upon the revocation of acceleration doctrine relied upon by Bartram because the revocation of the acceleration was a function of a specific contractual provision that is not likely to be found in any commercial note. However, Bartram’s reliance on Singleton arguably injects a fairness analysis to the analysis of any affirmative defenses seeking to bar the foreclosure of secured debt. Future cases will provide some help as to the breadth of Singleton after Bartram. However, any analysis predicated upon fairness will be fact suspect and will give the Court wide latitude to equitably resolve the dispute. In general, Bartram is a favorable decision for residential mortgagees. It will also likely turn out to be a favorable decision for any holder of secured debt.
 This is the reason the initial U.S. Bank foreclosure attempt was dismissed.