Van Ness Attorneys

SAVINGS CLAUSES IN FORECLOSURE

An overlooked topic in foreclosure law is the effect of savings clauses in loan documents. Notes, mortgages, modifications, and just about any other document affecting the validity or viability of a loan may have a savings clause. Review of loan document templates is necessary because savings clauses may be helpful, but also may not completely solve the issues they were meant to address.

Simply stated, a savings clause is a clause in a contract that provides that the contract will remain intact and enforceable to the extent allowable by law, even if certain portions of the contract are deemed invalid or unenforceable. These clauses can both be general and apply to the contract as a whole or specific and apply to key provisions or subject areas of the contract.

A general savings clause is frequently styled as a “severability” clause because the contract explains that the parties intend for the court to sever any portion of the contract that is legally invalid or unenforceable while maintaining the remainder of the agreement. These clauses are helpful to clarify issues that may be severed. See generally Gessa v. Manor Care of Fla., Inc., 86 So. 3d 484, at passim (Fla. 2011). However, courts may find certain portions of the clause ineffective. For instance, a limitations of remedies provision is not severable, regardless of whether the contract contains a severability clause. Id.at 490‐491 & n. 5. Thus, a severability clause may be an attractive addition to a loan document, but it must be understood that there are circumstances under which the provision will, itself, not be enforced.

In the case of mortgage promissory notes, a specific savings clause will usually be focused on interest and the calculation of payments. These clauses may clarify that interest shall not accrue or be charged at any unlawful rate. This type of savings clause can have multiple purposes. First, it can act to attempt to sever any provision that would allow for unlawful interest. Secondly, it can function as evidence of intent.

This second function is helpful in the face of a claim or defense that the loan at issue is usurious. Usury occurs when a loan is intentionally given with an interest rate that exceeds the maximum amount allowable by law. A usurious loan is subject to a setoff against recovery and, in some cases, cancellation of the debt or damages.

Florida law used to provide that a savings clause that expressed a desire for the loan to be nonusurious was sufficient to warrant dismissal of a charge of usury. However, that has changed. InLevine v. United Cos. Life Ins. Co., 638 So. 2d 183, 184 (Fla. 3d DCA 1994), the court examined a mortgage note that “expressly stated that interest was to be charged only at a lawful percentage.” The court held that the “inclusion of this language in loan documents has been held to warrant dismissal of a usury claim.” Id. (citing Forest Creek Dev. Co. v. Liberty Property Sav. & Loan Ass’n, 531 So. 2d 356, 357 (Fla. 5th DCA 1988)). The opinion in Levine, 638 So. 2d at 184 was later disapproved by the Florida Supreme Court to the extent that it explained, “a savings clause is one factor to be considered in the overall determination of whether the lender intended to exact a usurious interest rate.” Levine v. United Cos. Life Ins. Co., 659 So. 2d 265, 267 (Fla. 1995). (Internal quotations omitted.) In other words, the savings clause now presents an issue of fact that is to be weighed in making a determination whether a usurious loan was given.

Savings clauses should be used wisely. They may be helpful in a defensive posture once litigation ensues, both in terms of rescuing the enforceability of an agreement and in expressing the intent of the parties at the time of the agreement. However, it should not be taken as a given that either of these strategies will work in any particular case.

Van Ness Attorneys

VAN NESS DEFENDS NO FEES AT 2nd DCA

Van Ness Law Firm regularly prosecutes and defends appellate actions throughout the State of Florida. This portion of our practice includes representation in all five district courts of appeal and the Florida Supreme Court. We routinely appear in front of the courts for oral argument.

Van Ness Law Firm appeared at oral argument in front of the Second District Court of Appeal on March 13, 2019 in Deutsche Bank v. Hopson. The trial court had granted attorney’s fees in favor of the borrower following a judgment in favor of defendant at trial. The trial court found that there were no endorsements on the note and that the assignment of mortgage was not necessarily valid. Plaintiff filed a motion for rehearing on the fees issue due to the fact the trial court had previously found a lack of a relationship between the plaintiff and both the note and mortgage. The trial court agreed that fees should not have been awarded. Hopson appealed.

The borrower argued Madl, a case in which no valid transfer of the note occurred but a valid assignment of mortgage was made. The borrower also filed the Florida Supreme Court opinion inGlass prior to oral argument. Our firm argued that Madl goes against the literal language in the statute governing fees. Our firm also argued that the exception in Madl does not apply because there was no evidence of a valid transfer of the mortgage and such a transfer was required by the court in Madl. Further, our firm argued that Glass only applies in circumstances in which there is no determination on the merits that a party lacks a relationship to the relevant contracts.

The panel questioned the parties regarding matters outside the briefing. Judge Lucas was interested in questioning whether a mortgage is a contract. Judge Silberman wanted to know how a defendant in a case such as this could possibly get fees. And there was inquiry as to the meaning of the wording of the trial court’s order. On this latter inquiry, we made sure to remind the court that the trial court’s order was one that the borrower’s counsel had drafted, themselves.

An opinion will follow when the Court elects to issue one. Van Ness Law Firm will continue to advocate on behalf of its clients at each level of the Florida courts.