High profile mortgage foreclosure case moves to Florida Supreme Court

When does the clock start ticking on a mortgage foreclosure case?

That’s the question being argued Wednesday before the Florida Supreme Court in the case of Bartram v. U.S. Bank.

Back in 2006, the Law Offices of David J. Stern filed a mortgage foreclosure suit against Lewis Bartram of Ponte Vedra Beach. Years later, after Stern’s “foreclosure mill” collapsed leaving tens of thousands of foreclosure cases in limbo, lender, U.S. Bank missed a case management conference and its foreclosure case was dismissed.

However, the case was revived and Bartram received another favorable judgment in 2011 based on the fact that the five-year statute of limitations on mortgage foreclosures had expired. But U.S. Bank appealed that ruling, and in 2014 Florida’s Fifth District Court ruled in the bank’s favor, throwing out Florida’s five-year statute of limitations on mortgage foreclosures.

The ruling was a victory for banks in Florida who continue to foreclose on loans that defaulted years ago. Many of those loans are so called “zombie mortgages,” or a foreclosure that has been started but not completed. Over the past few years it has taken an average of 62 months to clear such foreclosures and many have been dismissed because they fell under the state’s five-year statute of limitations rule.

At the heart of the case being argued on Wednesday is the issue of mortgage acceleration. Most mortgage contracts carry an acceleration clause, which allows the lender to sue for the entire loan amount immediately, starting a five-year clock on the foreclosure process. But the Fifth District ruled that the court’s dismissal of U.S. Bank’s lawsuit in 2011 negated the loan’s original acceleration date that had been set in 2006, effectively resetting the acceleration date to 2011.

Eric Wesoloski, a Miami-based lawyer who is not involved in the case but has clients who will be affected by the outcome, told The Real Deal that if the ruling is upheld by the Florida Supreme Court it will unleash a new round of litigation against condo and homeowners associations that are saddled with many such “zombie mortgages,” as well as what he says are the “now relatively small number of homeowners with defaulted mortgages left over from the Great Recession.”

“Basically it means the lender at any time can re-default the debtor and say the clock is ticking,” Wesoloski said.

Miami-based attorney Matthew Estevez, who is also representing the owner of a second mortgage on the Bartram condo, said banks had a deliberate strategy to delay the foreclosure process on many properties – in a bid to let the real estate market recover and allow them to avoid paying condo and homeowners fees on many foreclosed properties. The Fifth District ruling directly encroaches on the authority of Florida’s legislature, he said.

“Our position is that the banks don’t get a special judicial carve out for a statute of limitations that was passed by the legislature.”

U.S. Bank and lawyers arguing its case in Florida’s Supreme Court declined to speak with TRD about the case. Two other Florida courts have issued similar rulings upholding the Fifth District decision but a court in Miami recently ruled against it, leaving it up to Florida’s Supreme Court to settle the matter. A ruling in the case is not expected for several months.