Florida Appellate Court Rulings Could Resurrect Thousands of Dismissed Foreclosure Cases
On February 14, the Herald-Tribune published an article titled Rulings could breathe new life into dead foreclosure cases.
Rulings could breathe new life into dead foreclosure cases
It took seven years for Florida’s court systems to erase a backlog of nearly half a million home defaults left over from the Great Recession.
But just as that logjam is clearing, a pair of recent appellate court rulings could bring thousands of seemingly dead foreclosure cases back to life, all at a time when court systems are losing state funding to process them.
If upheld, the decisions could resurrect dismissed foreclosures dating back nearly a decade, potentially swamping court systems with yet another pool of default filings.
For unsuspecting homeowners, the ruling by the 5th District Court of Appeals in Daytona Beach, and another by the state’s 3rd District appellate court, could ultimately prompt evictions — sometimes years after cases were thought to have been decided.
Attorneys fear the decisions could strip borrowers of their primary defense in foreclosures — and perhaps change how defaults are fought in Florida.
But the cases could have widespread repercussions for banks, too.
Unless the decisions are reversed by the Florida Supreme Court, federally insured banks will lose their ability to go after the collateral — the homes — tied to hundreds of millions of dollars’ worth of delinquent loans. Experts say that could create a possible drag on the financial system in Florida and beyond.
The rulings also come as circuit courts throughout Florida are dismantling foreclosure task forces that had tackled recession-era backlogs, delegating the cases to traditional civil dockets and lengthening the foreclosure process.
“This is the biggest battle of this whole foreclosure mess yet because of the consequences to the court system,” said Matt Weidner, an area foreclosure defense attorney.
“It is the most catastrophic thing that could happen.”
Foreclosure lawsuits carry a five-year statute of limitations, a deadline designed to force repossessing banks to push cases forward in a timely manner.
Even so, mortgage foreclosures in Florida take an average of 944 days to complete once initiated — one of the longest foreclosure timelines in the nation, court records show.
Typically, the five-year period begins when a bank petitions a court to accelerate a delinquent mortgage note after borrowers miss several payments.
In mortgage contracts, lenders can demand remaining loan balances when borrowers fail to make payments, “accelerating” the repayment time period.
But with the 5th District appellate decision in U.S. Bank v. Bartram, the court stated that every time a foreclosure case is voluntarily dismissed by a bank, its acceleration clause is withdrawn — meaning the start of the statute of limitations never begins.
The ruling also stated that the statute of limitations resets for every missed borrower payment, which, in turn, constitutes a new contract breach.
As a result, lenders that already have lost foreclosure cases could refile them, said Peter Ticktin, a prominent South Florida foreclosure attorney.
“The law is in a state of flux right now — nobody knows what’s going on,” Ticktin said. “What this law is basically saying here is: ‘Flip a coin. Heads, the bank wins. Tails, the homeowner loses.’ ”
The 5th District’s decision has been somewhat contradicted by a ruling in the 3rd District appeals court, in a case titled Deutsche Bank v. Beauvais.
As a result, the Florida Supreme Court is expected to hear arguments on the merits of the cases this summer.
If the state’s highest court sides with the 5th District, some attorneys fear it will hinder homeowners’ ability to fight foreclosures. The statute of limitations is often borrowers’ primary defense.
The five-year window also became a primary consumer protection tool during the late-2000s financial crisis, when bank fraud was rampant and mortgages and foreclosures were executed using shoddy paperwork.
As a result, banks were often forced to dismiss foreclosure cases they had filed because of paperwork mistakes, missing documents or fraudulent signatures.
This became known as the “robo-signing” scandal.
But if statute-of-limitations rules are revised, lenders could file new foreclosure suits in many of those botched cases, experts say.
It is hard to determine just how many such cases could find their way back to courthouses. Of the 7,025 cases resolved in the 12th Judicial Circuit Court — which covers Sarasota, Manatee and DeSoto counties — since July 2013, about 57 percent were disposed of by a judge or jury ruling, according to the Florida courts administrator.
The remaining 3,044 local foreclosures, though, could potentially have the statute of limitations reset.
“It’s going to have a hard impact on the poor homeowners, who thought they were in the clear, and now this thing rears its ugly head again,” said Scott Petersen, a Sarasota-based real estate attorney who has studied the respective appellate court decisions closely.
The possible changes come as local court systems throughout the state have significantly reduced foreclosure backlogs, prompting state lawmakers to disband many special task forces comprising retired judges and special magistrates and created to clear logjams.
In the 12th Circuit, the seven specialists that make up the region’s task force are to be let go by July 1. When that occurs, nearly 6,000 area foreclosures that are pending will be pushed back into traditional civil courtrooms.
“I guess they declared victory, and now they view it as a mop-up effort,” said 12th Circuit Judge Lee Haworth, who helped spearhead the foreclosure reduction initiative in Florida. “This will put a lot of pressure on our civil judges.”
Haworth said he worries the rulings could further strain court systems at a time when they can least afford that added strain.
“It gives the banks another shot at foreclosure,” Haworth said. “This will open a whole lot of litigation.”
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