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Statute of Limitations on Reverse Mortgages

In Hayes v. Reverse Mortgage Solutions, Inc., No. 3D17-1603 (Fla. 3d DCA Nov. 21, 2018), a case of first impression, the Florida Third District Court of Appeals considered whether the statute of limitations for enforcing reverse mortgage loans begins on the date the note matures or upon the death of the borrower.

Defendant contended that the foreclosure action, filed in 2014, was time-barred by the Florida statute of limitation because the cause of action accrued on the date the borrower died in 2008, or alternatively, upon the mortgagee’s acceleration of the reverse mortgage when a prior foreclosure action was filed in 2009. Finding that the language in the reverse mortgage at issue (“[l]ender may require immediate payment in full of all sums secured by this Security Instrument if: (i) A Borrower dies …”) confers upon the mortgagee the right, but not the obligation, to accelerate payment of the debt, the Court held acceleration of the debt based on the death of the borrower is optional and therefore does not automatically amount to accrual of the cause for purposes of the statute of limitations.

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Negotiability of HELOC Notes under Florida Law

In Third Fed. Sav. & Loan Ass’n of Cleveland v. Koulouvaris, No. 2D17-773, 2018 WL 2271112 (Fla. 2d DCA 2018), Florida’s Second District Court of appeal analyzed, in the context of trial exhibit authentication, whether the note for a home equity line of credit (“HELOC”) was negotiable.

The Second District Court of Appeal considered whether it was proper for the Pasco County, Florida trial court to involuntarily dismiss Third Federal’s claim for foreclosure of a HELOC mortgage based on an objection that the HELOC note was nonnegotiable.  At trial, Third Federal attempted to admit the note as self-authenticating, endorsed commercial paper.  The borrowers countered that because the HELOC note was nonnegotiable, self-authentication did not apply.  Because Third Federal made no further effort to authenticate, the trial court sustained the borrowers’ objection, and the borrowers’ subsequent motion to dismiss was granted.  Third Federal appealed.

The Second District Court of Appeal sided with the borrowers.  It noted that self-authenticating commercial paper is an exception to Florida’s requirement that a document be authenticated prior to its admission into evidence.  That rule, however, does not apply where the paper is not an unconditional promise to pay a fixed amount of money.  By its own terms, the subject HELOC note only established an obligation for the borrowers to repay whatever they might borrow, without any guarantee that they would ever borrow a single dollar.  Thus, the note’s failure to require payment of a fixed amount meant the note was nonnegotiable and, as such, was not self-authenticating.  Without proof of authentication, the note was inadmissible, and the trial court’s decision to grant the borrowers’ motion to dismiss was proper.

Although it is fairly obvious, the negotiability attributes of a HELOC are similar to a home equity conversion mortgage (“HECM”) and thus this case would likely apply to reverse mortgages too.  It is expected that borrower’s counsel will cite the decision for this purpose.  Accordingly, it is recommended that trial counsel in both HELOC and HECM matters be prepared to not rely on an endorsement of the note for authenticity, but rather should elicit live testimony supported by admissible documentary evidence that the note was assigned.  A prepared witness should be able to authenticate a HELOC or HECM note.

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Federal Courts in Georgia and Florida Dismiss Ordinary Negligence Claims

We have previously summarized an important district court ruling dismissing the FDIC’s ordinary negligence claims against former directors and officers of Integrity Bank of Alpharetta, Georgia.  The FDIC asked the U.S. District Court for the Northern District of Georgia to reconsider its decision in that case, but the court recently denied that request and reaffirmed its rationale that Georgia’s version of the Business Judgment Rule bars claims for ordinary negligence against corporate directors and officers.  A copy of the court’s recent order in the Integrity Bank case is available here.  Although the district court declined to reconsider its prior dismissal of the ordinary negligence claims, it acknowledged that there was “substantial ground for difference of opinion” on that issue, and it granted the FDIC’s request to certify an order of interlocutory appeal to the Eleventh Circuit Court of Appeals.  Everyone in the D&O defense community, and especially those here in Georgia, is anxiously awaiting to learn if the Eleventh Circuit will accept interlocutory appeal of the case.

In the meanwhile, district courts in two other cases have weighed in on whether the Business Judgment Rule bars claims for ordinary negligence.  The first of these also comes from the Northern District of Georgia, and specifically from the FDIC’s lawsuit against certain former directors and officers of Haven Trust Bank.  (We have previously summarized the Haven Trust complaint.)  Utilizing the same rationale set forth in the Integrity Bank rulings, the court here ruled that the FDIC’s claims for ordinary negligence are not viable by virtue of the Business Judgment Rule.  Furthermore, the court ruled, to the extent that the FDIC’s claims for breach of fiduciary duty are based on the same alleged acts of ordinary negligence, those claims are foreclosed by the Business Judgment Rule as well.  The ruling was not a complete victory for the D&O defendants, however, as the court declined to dismiss the FDIC’s claims for gross negligence under FIRREA.  Specifically, the court held that the FDIC had alleged, in a collective fashion, sufficient facts on which a jury might reasonably conclude that the defendants had been grossly negligent.  Despite that holding, the court took the unusual step, “in the interest of caution,” of ordering the FDIC to replead the gross negligence claim with specific allegations as to each defendant’s involvement or responsibility for the alleged wrongful acts.  A copy of the court’s ruling can be viewed here.

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