By: Adam B. Brandon
Florida’s Third District Court of Appeal recently filed an opinion that illuminates when a lender’s acceleration of debt triggers the five-year statute of limitations. In Snow v. Wells Fargo Bank, N.A. , 2015 WL 160326 (Fla. 3d DCA Jan. 14, 2015), the court considered the argument of borrowers who appealed a foreclosure judgment on the basis that the statute of limitations barred the litigation.
In early 2007, the borrowers executed a note and mortgage. In the event of a default, the loan documents required Wells Fargo to give notice to the borrowers prior to accelerating the entire loan amount. When the borrowers defaulted on a monthly payment, the bank sent a letter dated December 7, 2007 to the borrowers which stated, “If you do not pay the full amount of the default, we shall accelerate the entire sum of both principal and interest due and payable…” The letter also provided a 35-day period in which the borrowers could cure their default and thereby avoid acceleration.
Despite the strong language contained its letter, Wells Fargo did not accelerate the loan immediately after the cure period expired. Rather, the bank waited until March 12, 2008 to file a complaint which unambiguously accelerated the loan. Wells Fargo later voluntarily dismissed the case without prejudice on June 28, 2011.
Wells Fargo filed a new complaint on March 5, 2013 which relied upon the December 7, 2007 letter to fulfill the bank’s obligation to notify the borrowers of their default. In response, the borrowers argued that the five-year statute of limitations began to run on January 10, 2008, the date the 35-day cure period expired. The borrowers suggested that the phrase “we shall accelerate” constituted a self-executing acceleration of debt that also triggered the statute of limitations.
Rejecting the borrower’s argument, the Third District Court of Appeal found that the December 7, 2007 letter did not accelerate the loan. Rather, the letter merely notified the borrowers that Wells Fargo intended to exercise its right to accelerate the loan. The statute of limitations period actually began when the bank filed its first action on March 12, 2008. Since the bank filed its second action on March 5, 2013, Wells Fargo narrowly fell within the applicable five-year statute of limitations.
While Wells Fargo prevailed in this case, there is some language in the Snow decision that is not necessarily favorable for lenders. First, the Third District Court of appeal expressly stated that a cause of action accrues and the statute of limitations commences when a loan is accelerated. Lenders should review their notices and be aware that the statute of limitations may already be running on accelerated loans. As the Snow case illustrates, a court will parse the language of a notice to determine whether the notice actually accelerates a loan or merely threatens to accelerate a loan.
Second, the Court reaffirmed its recent decision in Deutsche Bank Trust Co. Am. v. Beauvais (2014) which held that a dismissal without prejudice does not invalidate a lender’s prior acceleration of a loan. As previously noted on this blog , the Third District Court of Appeal takes the unique position that only a dismissal with prejudice stops the clock for purposes of the statute of limitations. Other Florida courts take the position that any dismissal (with or without prejudice) decelerates a previously accelerated loan for purposes of the statute of limitations. Until a consistent, state-wide rule is adopted, lenders must be aware that a voluntary dismissal within the Third District Court of Appeals may not stay the statute of limitations.