Old Republic Insurance v. Lee
12 Fla. L. Weekly 1309, 1987 Fla. App. LEXIS 8308, 507 So. 2d 754 (1987)
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Rule of Law:
Once a mortgage holder has properly exercised its contractual option to accelerate the entire loan balance upon a borrower's default, the borrower's right to cure the default by tendering only the past-due payments is terminated. A court may only refuse to enforce the acceleration and subsequent foreclosure under a limited set of established equitable defenses.
Facts:
- The Lees held a second mortgage with Old Republic Insurance Co. that required monthly payments.
- In the spring of 1986, the Lees failed to make their mortgage payments for March and April.
- On April 29, 1986, Old Republic declared the note in default, exercised its right to accelerate the debt, and notified the Lees that the entire unpaid principal balance was now due.
- On May 16, 1986, after receiving notice of acceleration, William Lee sent Old Republic a certified check to cover the past-due payments for March and April, as well as the current payment for May.
- Old Republic returned the check.
- The Lees had substantial equity in the property, the first mortgage was current, and they had the property listed for sale with the intent to pay Old Republic from the proceeds.
Procedural Posture:
- Old Republic Insurance Co. filed a lawsuit against the Lees in a trial court to foreclose on their mortgage.
- The Lees filed an answer and a motion to reinstate the mortgage.
- The trial court granted the Lees' motion, reinstated the mortgage, and refused to order foreclosure.
- Old Republic Insurance Co., as appellant, appealed the trial court's order to the Florida Fifth District Court of Appeal.
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Issue:
Does a trial court have the equitable power to reinstate a mortgage and deny foreclosure after a borrower defaults and the lender has properly exercised its contractual right to accelerate the entire loan balance?
Opinions:
Majority - Upchurch, Chief Judge
No. A trial court does not have the equitable power to reinstate a mortgage and deny foreclosure once the lender has validly accelerated the debt. The court reasoned that an acceleration clause is a contractual right, and courts have a constitutional obligation to enforce valid contracts. Once the lender exercises its option to accelerate, the borrower's right to cure the default by paying only the arrears is extinguished. While courts of equity can refuse to foreclose a mortgage, this discretion is not unlimited and must be guided by fixed principles and established equitable rules, not by a judge's personal notions of 'natural justice.' The trial court's reliance on factors such as the Lees' equity in the property or their intent to sell was insufficient, as these do not fall within the recognized equitable defenses to foreclosure articulated in precedents like David v. Sun Federal Savings & Loan Ass’n.
Analysis:
This decision strongly reaffirms the principle of sanctity of contract, particularly regarding acceleration clauses in mortgage agreements. It serves to limit the discretionary equitable power of trial courts in foreclosure actions, clarifying that equity must be applied according to established legal rules, not on a case-by-case assessment of general fairness. The ruling provides predictability for lenders, assuring them that their contractual right to accelerate and foreclose will be upheld absent specific, recognized defenses like waiver, estoppel, or a tender of arrears made before the acceleration. This precedent makes it significantly more difficult for defaulting borrowers to avoid foreclosure based on sympathetic circumstances once acceleration has occurred.
