Foreclosure Defense Update – Bank cannot Collect on Payments Missed

The Florida Supreme Court previously held that a lender was not precluded by the five-year statute of limitations from filing a foreclosure action, as long as the alleged subsequent default occurred within five years. However, the Florida Supreme Court failed to expand upon whether the lender is able to collect the payments missed outside of the five-year statute of limitations. In a recent Fifth District Court of Appeal case, the appellate court held that the lender is prohibited from collecting payments missed more than five years prior to the filing of the foreclosure action.

In Velden v. Nationstar Mortg., LLC, 2018 Fla. App. LEXIS 359, 43 Fla. L. Weekly D 147 (Fla. 5th DCA 2018), the original plaintiff filed a mortgage foreclosure complaint alleging that Velden failed to make his Feb 1, 2009 payment and all subsequent payments. This complaint was filed about five years and six months after the first alleged missed payment. The trial court entered a final judgment awarding Nationstar Mortgage the full unpaid amount plus interest going back to January 2009, which included payments outside of the five-year statute of limitations.

Velden first argued that the court should have dismissed the complaint altogether because it was barred by the statute of limitations, since the first missed payment occurred over 5 years prior to the filing of the foreclosure action. However, the Fifth District Court of Appeal rejected this argument. Velden next argued that the trial court erred in awarding amounts in the final judgment, which accrued beyond the five-year statute of limitations. The Fifth District Court of Appeal agreed that any defaults occurring more than five years before the date of filing the foreclosure action should not be included in the final judgment amount. The Fifth District upheld a long line of case law in reaching this decision. “See generally Greene v. Bursey, 733 So. 2d 1111 (Fla. 4th DCA 1999) (recognizing that statute of limitations may run on some payments due on a promissory note but not on others); Cent. Home Tr. Co. of Elizabeth v. Lippincott, 392 So. 2d 931 (Fla. 5th DCA 1991) (holding that installment payments due on a promissory note more than five-years old are barred by the statute of limitations, although more recent missed payments are collectible).” Velden v. Nationstar Mortg., LLC, 2018 Fla. App. LEXIS 359, *3, 43 Fla. L. Weekly D 147. The Court also upheld its prior opinion in United States Bank, N.A. v. Diamond, 228 So. 3d 177 (Fla. 5th DCA 2017), where they held “that [the Bank’s] claims for defaults occurring within five years of the filing of the second foreclosure action were not barred by the statute of limitations.” Id. at 179.

This logic was also upheld by the Federal Courts in the Middle District of Florida in the case of Sanchez v. Rushmore Loan Mgmt. Services, LLC, 2016 WL 3126515 (M.D. Fla. 2016). In Sanchez, a borrower alleged the lender violated the Fair Debt Collections Practices Act by attempting to collect monies owed more than five years before it filed its state court foreclosure lawsuit. Id. at 1-2. The lender moved to dismiss the claim, but the Court agreed that the lender is prohibited from demanding payments due over five years prior to the commencement of the second foreclosure. Id. at 2.

In Velden, Judge Lambert wrote a concurring opinion stating that he would not exclude the amounts from the final judgment that were due from defaults more than five years before the date of filing the lawsuit. Judge Lambert explained that there had been a first foreclosure in this case and reasoned that under Bartrum, the first acceleration notice was revoked, taking the loan out of default status, so the note was not due until the maturity date. Therefore, the lender’s decision to accelerate did not waive a claim for those payments.

What’s going to happen with the paragraph 22 letter now that banks are precluded from collecting missed payments that predate the filing of the foreclosure action by more than five years?

Given the current case law prohibiting lenders from collecting on payments outside of the 5-year statute of limitations, the question then becomes will requesting such payments pursuant to a pre-suit breach letter comply with a paragraph 22 of the mortgage? Most mortgages require that prior to instituting a foreclosure action, the bank comply with paragraph 22 of the mortgage by, among other things, allowing the borrower the opportunity to cure the default. There has been extensive litigation over the sufficiency of paragraph 22 letters. However, the court’s current position is that the borrower must be prejudiced by the deficiency in the letter in order to have the case dismissed. In Vasilevskiy v. Wachovia Bank, Nat’l Ass’n, 171 So. 3d 192 (Fla. 5th DCA 2015), the bank only provided the borrower 28 days to cure the default, instead of 30 days. However, the Court held that the purpose of the notice provision is to allow the mortgagor to cure the default prior to acceleration. The Court found the shortage of two days insignificant under the facts of that case. See Gorel v. Bank of New York, Mellon, 165 So. 3d 44, 47 (Fla. 5th DCA 2015) (citing Allstate Floridian Ins. Co. v. Farmer, 104 So. 3d 1242, 1248-49 (Fla. 5th DCA 2012) (breach of condition precedent must be material, meaning one causing prejudice, to constitute defense to enforcement of contract). Vasilevskiy v. Wachovia Bank, Nat’l Ass’n, 171 So. 3d 192, 192-93 (Fla. 5th DCA 2015).

Arguably, the failure of the lender to provide an accurate paragraph 22 letter would be a breach of a material term of the mortgage, which would ultimately prejudice the borrower. If the borrower is requesting payments that were missed more than five years prior to the letter being sent, arguably that would be a material term that would not only prejudice the borrower but may also be precluded by the Fair Debt Collection Practices Act. Typically, courts have been hesitant to hold that the lender’s failure to include all or accurate terms in the paragraph 22 letter justifies dismissal of the action. However, if the lender is seeking to collect payments that it is not entitled to and the borrower shows some attempt or ability to pay, the appellate court may be inclined to rule in favor of the borrower. Obviously, only time will tell as more of these cases are challenged in the appellate and Federal courts.