How an “Acceleration Clause” Can Affect Your Home Mortgage

For many Florida residents, a home mortgage is the biggest debt they will ever take on. A mortgage is not something to be entered into lightly. Most mortgages contain an “acceleration clause,” which means if you miss even one monthly payment, the lender can demand the entire balance outright.

Miami Court Resets the Clock for Mortgage Lender

Recently, a state appeals court in Miami issued a major decision regarding the time limit lenders have to enforce a mortgage. The borrower in this case took out a 30-year mortgage for over $1.4 million. The promissory note containing the mortgage terms included an acceleration clause: If the borrower defaulted and failed to pay any overdue amount by a given date, the lender could require immediate payment of the balance of the loan (plus applicable interest).

The mortgage in this case was used to purchase a condominium. In September 2006, the borrower failed to make his required payment. The lender then invoked the acceleration clause and filed a foreclosure lawsuit in January 2007. After a number of delays, a Florida court ultimately dismissed the case in 2010, when the lender failed to appear at a hearing without explanation.

In 2012 the lender—actually, a successor to the original lender—filed a second foreclosure lawsuit, again citing the 2006 default as activating the acceleration clause. By this time, however, the lender no longer held title to the condominium. His condominium association had already foreclosed on the unit over unpaid dues.

The condominium association, as the new owner, opposed the lender’s lawsuit. The association cited Florida’s five-year statute of limitations for foreclosure actions. Since more than five years had elapsed between the borrower’s default and the filing of the second lawsuit, the association argued the case had to be dismissed.

A trial judge agreed and granted summary judgment to the association nullifying the lender’s mortgage. But on appeal, a divided Florida Third District Court of Appeals reversed that decision. The majority held that the dismissal of the first foreclosure lawsuit “returned the parties to the status quo existing before acceleration” and that the borrower’s subsequent failure to make monthly mortgage payments were, in effect, separate defaults that restarted the five-year clock. The majority argued this ruling was “in keeping with the long held practices of the Florida mortgage industry” and protected the interests of borrowers, “who by the terms of their mortgages, are permitted any time before judgment, to become current on their mortgage obligation.”

The dissenting judges took a different view. They argued the majority’s decision ignored “decades of Florida statute of limitations case law,” and effectively rewrote the terms of the mortgage in this case to benefit the lender. The dissent noted there was no evidence that the parties treated the dismissal of the first lawsuit “as a reinstatement of the installment nature of the loan.” That is, the loan did not “decelerate” after the lender invoked the acceleration clause and then failed to appear in court to assert its rights.

Need Help With a Florida Mortgage?

The Third District’s decision only applies in Miami-Dade County and surrounding areas. But it may influence how courts throughout Florida treat the time limit for enforcing mortgage obligations. This is why before you agree to a mortgage, you should consult with an experienced St. Petersburg real estate attorney who can advise you of the legal risks. Contact the offices of Carnal & Mansfield, P.A., if you would like to speak with an attorney today.