U.S. v. Alvarado

CourtUnited States Courts of Appeals. United States Court of Appeals (11th Circuit)
Citation5 F.3d 1425
Docket NumberNo. 91-4186,91-4186
PartiesUNITED STATES of America, Plaintiff-Appellant, v. Hilario R. ALVARADO, Madel Socorro, Defendants-Appellees.
Decision Date03 November 1993

Brian M. Kane, Asst. U.S. Atty., Jacksonville, FL, Mark Stern, and Steve Frank, Dept. of Justice, Appt. Section, Civ. Div., Washington, DC, for plaintiff-appellant.

Cathy L. Lucrezi, Florida Rural Legal Services, Fort Myers, FL, for defendants-appellees.

Appeal from the United States District Court for the Middle District of Florida.

Before ANDERSON and DUBINA, Circuit Judges, and CLARK, Senior Circuit Judge.

CLARK, Senior Circuit Judge:

This is an action by the United States, on behalf of the Farmers Home Administration ("FmHA"), against defendants Hilario Alvarado and MaDel Socorro to recover on a defaulted government loan. The United States seeks money damages in the amount owed on a promissory note signed by defendant

Alvarado and seeks to foreclose on the mortgage securing this note. The district court granted defendants' motion for summary judgment, holding that the action is barred by the six-year statute of limitations set out in28 U.S.C. Sec. 2415(a). We find that this statute of limitations does bar the United States' claim for money damages, but does not bar the foreclosure on the real estate securing the note. Accordingly, we affirm in part and reverse in part.

FACTS

In July 1975, defendant Hilario Alvarado obtained a $20,000 loan from the United States, acting through the FmHA, to finance the purchase of a home. Alvarado executed a promissory note in favor of the United States and, to secure this note, a real estate mortgage encumbering certain property in Collier County, Florida. In October 1980, Alvarado's loan account became delinquent. On July 16, 1981, the FmHA sent Alvarado a certified letter accelerating the entire balance of the note and demanding payment. Alvarado did not cure the default.

Some eight years later, in June 1989, the United States filed this action to recover amounts owed on the note and to foreclose on the property encumbered by the real estate mortgage securing the note. The United States named as defendants Alvarado and MaDel Socorro, Alvarado's wife. In the prayer for relief at the end of the complaint, the United States demanded:

1. An accounting of what is due the [United States] on account of the aforesaid Promissory Note and Real Estate Mortgage.

2. An order requiring the Defendant, Hilario R. Alvarado, to pay to the [United States] within the time allowed by this Court all sums found to be so due together with costs and expenses of this suit.

3. That in default of such payments, the property described in the aforesaid Real Estate Mortgage be sold under the direction of this Court in bar and foreclosure of all right and equity of redemption of the Defendants and all other persons claiming by, through, under, or against them and that out of the proceeds of the sale the amounts due the Plaintiff be paid insofar as they will suffice.

4. That the [United States] be granted such other and further relief as to the Court may seem just and proper. 1

Thus, the United States set forth two claims: (1) a claim seeking money damages from defendant Alvarado for the amounts due on the promissory note, and (2) a claim seeking foreclosure of the property securing the note.

Defendants filed a motion for summary judgment, arguing that the entire suit is barred by the six-year statute of limitations set out in 28 U.S.C. Sec. 2415(a). The district court agreed, granted the motion, and entered judgment for defendants. The United States filed this appeal.

DISCUSSION

It is a long-standing rule that the United States "is exempt from the consequences of its laches, and from the operation of statutes of limitations." 2 Although this rule originated as a prerogative of the Crown, it is "supportable now because its benefit and advantage extend to every citizen." 3 As the former Fifth Circuit explained:

[C]ourts have long held that the United States is not bound by any limitations period unless Congress explicitly directs otherwise. The doctrine that the mere passage of time cannot foreclose the rights of the United States derives from the common law principle that immunity from the limitations periods is an essential prerogative of sovereignty. This doctrine remains viable today because it furthers the public policy objective of protecting rights vested in the government for the benefit of all from the inadvertence of the agents upon Thus, " 'the United States is not bound by state statutes of limitation;' " 5 a statute of limitations will run against the United States only if Congress so prescribes. Moreover, any statute of limitations sought to be applied against the United States "must receive a strict construction in favor of the Government." 6

which the government must necessarily rely. 4

Congress has passed legislation explicitly directing that a statute of limitations shall run against the United States on claims for debts founded on contracts. This legislation, 28 U.S.C. Sec. 2415(a), provides in pertinent part:

[E]very action for money damages brought by the United States or an officer or agency thereof which is founded upon any contract express or implied in law or fact, shall be barred unless the complaint is filed within six years after the right of action accrues....

By its express terms, this statute is applicable only to actions for money damages founded upon a contract. We conclude, as has every court that has addressed this issue, that a suit to recover from the debtor amounts owed on a promissory note is an action for money damages founded upon a contract. 7 Accordingly, the six-year statute of limitations set out in Sec. 2415(a) is applicable when the United States brings suit on a promissory note.

In the case before us, the United States filed this action nearly eight years after it accelerated the debt, well after the six-year statute of limitations had run. To the extent the United States seeks to recover on the note, then, its claim is barred by Sec. 2415(a). Thus, the United States' claim seeking money damages from defendant Alvarado for amounts owed on the note, including any claim against Alvarado for a deficiency following foreclosure, 8 is time barred. The district court was correct in granting summary judgment for defendants as to this claim.

The more difficult question is whether Sec. 2415(a) bars the United States' claim seeking foreclosure of the mortgage securing the note. 9 We must decide whether an action by the United States to foreclose on a mortgage securing a government loan is an "action for money damages ... founded upon [a] contract."

When a debtor defaults on a secured debt, the creditor generally has two remedies. He may bring an action at law to recover on the promissory note or other written evidence of the debt, or he may bring an equitable action to foreclose on the property securing the debt. 10 Although law and equity have merged, and although many jurisdictions permit a creditor to pursue these two remedies The life of a mortgage of real estate is not measured by that of the obligation which it is given to secure, and the mortgagee can pursue his remedy on the mortgage by foreclosure notwithstanding the debt or the evidence thereof is barred by the statute of limitations. This rule is based on the theory that the statute of limitations goes to the remedy merely, without extinguishing the rights; and since a mortgagee has two remedies, one on the security and one on the principal obligation, the bar of one of these is not necessarily destructive to the other. 16

                simultaneously, 11 there remain important distinctions between the two remedies.  An action on the promissory note is in personam;  the creditor seeks to recover money from the debtor.  As discussed above, such an action is one "for money damages ... founded upon [a] contract."   By contrast, an action to foreclose on the property securing the debt is in rem;  the creditor's remedy is limited to the property. 12  As one commentator has said, "A foreclosure suit has been said to be merely a proceeding for the legal determination of the existence of the mortgage lien, the ascertainment of its extent, and the subjection to a sale of the estate pledged for its satisfaction." 13  Thus, in a foreclosure action, the creditor does not seek to recover money directly from the debtor;  rather, he seeks only to satisfy the debt through seizure and sale of the property. 14  The creditor's right to seek satisfaction of the debt from the property is independent of his right to seek satisfaction from the debtor;  indeed, the creditor generally may pursue his remedy against the property even when his remedy against the debtor is barred. 15  As one legal encyclopedia explains
                

Having carefully considered these principles, we conclude that an action by the United States to foreclose on property securing a government loan is not "an action for money damages." Rather, it is a proceeding in rem, with the United States' remedy limited to the property. We find that the plain language of Sec. 2415(a), which covers only actions "for money damages," does not encompass foreclosure proceedings.

In an attempt to avoid this conclusion, defendants rely on FmHA's interpretation of Sec. 2415(a), as reflected in the FmHA regulation set out at 7 C.F.R. Sec. 1927.5(b) (1991). This regulation provided, in pertinent part, that "[Sec. 2415(a) ] places a 6-year limitation on suits to ... foreclose security instruments...." The FmHA recently removed this regulation from the Code of Federal Regulations, stating that it was "erroneous and contrary to current Federal and State court decisions" and that "FmHA never intended to impose additional time restrictions on the exercise of its contractual or other legal rights to foreclose its security instruments." 17 This regulation, even...

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