Cenlar FSB v. Joseph L. Malenfant, Jr. and Laurie G. Malenfant
151 A.3d 778
Vt.2016Background
- Borrowers executed a 1993 mortgage note; they defaulted by 2008 and lender (Cenlar FSB) filed a foreclosure action in Dec 2008. The trial court entered a foreclosure judgment for lender in May 2009.
- Borrowers appealed and requested loan-modification consideration; the court ordered lender to comply with modification-related obligations and suspended further enforcement pending review.
- Parties entered a temporary forbearance/trial payment plan (Mar–Jun 2010). Lender last received a payment in June 2010. At an Oct/Nov 2010 status conference lender failed to appear and the court dismissed the first foreclosure action "with prejudice" for failure to prosecute. Lender did not appeal or move to vacate.
- Lender filed a second foreclosure action in Sept 2011 based on a later default date; lender did not provide a new notice of default tied to that new default date. The trial court denied summary judgment and, after a merits hearing, dismissed the second action for failure to give the required notice.
- The trial court ruled the 2010 dismissal effectively vacated the May 2009 foreclosure judgment and further limited what lender could recover in any future foreclosure (e.g., barred interest, attorney fees, late fees, and other charges accruing before the new notice; allowed recovery of real-estate taxes paid). Lender appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the court's 2010 dismissal with prejudice of the first foreclosure action vacated the May 2009 foreclosure judgment | Lender: the dismissal did not vacate the prior foreclosure judgment; the dismissal lacked Rule 41(b)/notice formalities and the court lacked authority to vacate the earlier judgment sua sponte | Borrowers: the dismissal with prejudice should be read to end the litigation and thus effectively vacate any prior foreclosure decree that would otherwise authorize a sale | Court: the only reasonable reading is that the dismissal with prejudice effectively vacated the May 2009 foreclosure judgment; lender’s failure to timely appeal bars collateral attack |
| Whether the second foreclosure action could rely on the notice/acceleration used in the first action (i.e., was new notice required) | Lender: its original notice/acceleration in the first action sufficed to pursue subsequent foreclosure actions | Borrowers: the first dismissal adjudicated any arrearages and prevented lender from relying on the earlier notice; a new default and a new contractual notice are required before acceleration/foreclosure | Court: lender could not rely on the first action’s notice; because the first action was adjudicated against lender, lender needed to provide a new 30‑day notice and opportunity to cure before pursuing acceleration and foreclosure; dismissal of the second action for lack of such notice was affirmed |
| Preclusive scope of a dismissal with prejudice of a foreclosure action that followed an attempted acceleration (what amounts/rights survive) | Lender: dismissal should not bar future foreclosure on subsequent defaults and should not necessarily strip contractual remedies beyond procedural sanctions | Borrowers: dismissal with prejudice precludes relitigation of arrearages and most relief sought in the first suit | Court: adopted a middle path — amounts (principal, interest, fees, penalties) that accrued on or before the default underlying the first action are precluded; during the pendency of the first action no monthly arrearages or interest can be assessed because lender’s acceleration suspended the installment obligation; lender may recover taxes it paid to protect the collateral; to reinstate monthly obligations lender must give notice with the remaining principal, payment terms, where to pay, and 30 days to cure |
Key Cases Cited
- Johnson v. Samson Constr. Corp., 704 A.2d 866 (Me. 1997) (dismissal with prejudice after lender sought accelerated debt can bar later suit on same accelerated obligation)
- U.S. Bank Nat’l Ass’n v. Gullotta, 899 N.E.2d 987 (Ohio 2008) (Ohio Supreme Court: acceleration followed by dismissal operates to preclude later suit on the same accelerated debt)
- Singleton v. Greymar Assocs., 882 So. 2d 1004 (Fla. 2004) (Florida Supreme Court: dismissal with prejudice does not bar later foreclosure based on a subsequent and different default)
- Fairbank’s Capital Corp. v. Milligan, 234 F. App’x 21 (3d Cir. 2007) (stipulated dismissal with prejudice of prior foreclosure did not bar later foreclosure based on defaults occurring after dismissal)
- Littlefield v. Town of Colchester, 552 A.2d 785 (Vt. 1988) (defining dismissal "with prejudice" as adjudication on the merits)