In Florida, a five-year statute of limitations could prevent banks from being able to foreclose, even after the lengthy court process.

As a result, some mortgage servicers, who make payments on behalf of the borrowers, help keep the accounts active. 

According to a report by Moody’s Investors Service, “Servicers are trying to best preserve their foreclosure rights pending the Florida Supreme Court Decision. The issue arises because many loans went to foreclosure, stalled and then became dismissed several years ago when large bank servicers instituted foreclosure moratoriums and large Florida foreclosure firms went out of business amidst claims of improper practices.”

The Florida Supreme Court is currently deciding on a case, U.S. Bank v. Bartram, that will decide if servicers can restart foreclosures after five years, or if they will be barred by the Florida statute of limitations, according to the article. 

While they wait on the court's decision, servicers continue to make payments, allowing mortgagers to sue for up to five years worth of payments. From Moody's perspective, as a credit ratings agency, analysts do not expect bond performance to be greatly impacted either way.

At any rate, the report by Moody’s Investors Service states, “Without crediting these payments, servicers would either do nothing and wait for the Supreme Court ruling or fun the risk that courts will rule that missed payments more than five years ago are barred by the statute of limitations and may dismiss the foreclosure.”

If the court rules that servicers cannot restart the clock, some foreclosures could be permanently barred, forcing banks to accept less, give deals or greatly lower the monthly payment, according to the article. The bank may elect for a short sale in order to get any recoveries. 

“The court ruling will have only a minor impact on overall RMBS performance because the number of previously dismissed foreclosure actions that are seriously delinquent or in foreclosure is minimal,” the report said. “Only approximately 3% of private label loans backed by properties in Florida had a prior foreclosure dismissed and are greater than 60 days delinquent or in foreclosure.”