On Friday, June 7, 2013, five days before it would have become law automatically, Governor Rick Scott signed HB 87, An Act Relating to Mortgage Foreclosures (the "Act"). The Act became law on the date it was signed, although most of the provisions take effect as of July 1, 2013.
As with any new law, there is still much confusion over the mechanics of how it will be implemented and what it will and will not do to or for lenders, borrowers, and homeowners. While legislators and Courts hail the Act as a way to break the bottleneck of foreclosures clogging the Florida court system, there are those attorneys who believe the Act is an unconstitutional denial of due process rights to Florida homeowners.
HB 87 has seven major components. It:
- Reduces the Statute of Limitations on deficiencies created by mortgage foreclosure and deed-in-lieu of foreclosure;
- Imposes strict requirements on mortgage servicers and mortgage holders where the original promissory note has been lost, destroyed or stolen;
- Makes mortgage foreclosure judgments almost impossible to overturn;
- Gives the mortgagee the right to pursue a deficiency judgment separate from a foreclosure lawsuit;
- Allows second mortgage holders, condominium and homeowner associations the right to speed up the bank's foreclosure action;
- Allows the lender to collect monthly payments during the pending foreclosure from the homeowner, unless the property constitutes the homeowner's primary residence; and
- Provides protection in the case of a lost, destroyed, stolen or missing promissory note.
These seven points are discussed in more detail below:
Statute of Limitations
Statutes of limitation create a fixed or finite period of time within which a party can sue. If the lawsuit is filed outside or after the Statute of Limitations, it can be dismissed and forever barred by the other side. Previously, the statute of limitations to sue for deficiency five years.HB87 reduces that from five years to one year for deficiencies creates by a foreclosure sale or deed in lieu of foreclosure.
It is interesting that short sale transactions are absent from the provisions of the Act. It is arguable, therefore, that the statute of limitations to collect on a deficiency following the short sale of a house is still 5 years, but if the homeowner allows the bank to foreclosure or works out a deal to give the house back to the bank, the statute of limitations to sue for deficiency is reduced to one year.
Original Promissory Note
The FL legislature used the Act toexpedite foreclosures by "ensuring initial disclosure of a plaintiff's status and the facts supporting that status, thereby ensuring the availability of documents necessary to the prosecution of the case." Therefore, the foreclosure complaint must contain the following allegations:
(a) Affirmative allegations that the plaintiff is the holder of the original note;
(b) Specific allegations describing the facts that allow the plaintiff to enforce the note;
(c) The authority of the plaintiff to file the foreclosure action (if the plaintiff is the servicer, rather than the note holder);
(d) If the original note exists, a certification that the plaintiff is in possession of the original promissory note that sets forth the location of the note, the name and title of the person giving the certification, the name of the person who verified the certification and the time and date on which the possession was verified, and copies of the note with all assignments (orallonges);
(e) If the original note is lost, an affidavit detailing a clear chain of all endorsements, transfers or assignments of the note, and all facts that show the plaintiff is entitled to enforce the lost, destroyed or stolen instrument, and copies of the note with all allonges.
Mortgage Foreclosure Judgment
One of the most controversial provisions of the new law deals with the entry of the mortgage foreclosure judgment. If all rehearing and time-limits to appeal have expired and the repossessed property is purchased by a third party unaffiliated with the lender, either at the foreclosure sale or subsequent to the foreclosure sale, and the foreclosure lawsuitwas improper, the borrower's ONLY remedy is to sue the bank for money damages. The Act prohibits the mortgagor from suing to get the property back.
Opponents of the Act point to this provision of the new law as an unconstitutional taking of property without due process. Consumer lawyers and advocates point to situations where amortgageerepossesses a house in error although the homeowner made all required payments. In that scenario, under the new law, the homeowner cannot get the house back but can recover money from the mortgage company.
Supporters of the Act point out that for a mistaken foreclosure to reach conclusion, the borrower would have to ignore the lawsuit entirely. It is unclear how Banks, Realtors and Mortgage Brokers reconcile the ability of the borrower to properly defend a foreclosure when the goal of the Act is to speed up foreclosure timelines.
The Act defines "deficiency" for owner-occupied residential property as the difference between the judgment amount, or outstanding debt in a short sale, minus the fair market value of the property on the day of the sale. However, Florida case law clearly defines "deficiency" in exactly the same way whether the property is owner-occupied, investment, or rental property. It is unclear why the Legislature felt it necessary todefine a concept that is already clearly defined under Florida case law.
The main purpose of this provision is to allow the lender to sue for foreclosure in one lawsuit, and sue for deficiency in a separate lawsuit - which again is already allowed under existing Florida case law.
The "show cause" procedure in the law is the most talked-about and most controversial portion of the Act. However, it merely amends a procedure that has been in place in Florida for over 20 years; banks have simply refused, forgotten about, or failed to follow the what the statutes already allow.
Simply put, the show cause procedure shifts the burden of proof from the plaintiff, who must show why they are entitled to foreclose, to the defendant, who must now prove why the bank is not entitled to its foreclosure. Based on the more strict pleading requirements discussed earlier, the bank makes its case for why foreclosure should be allowed in the initial complaint. If the defendant fails to raise any defenses, either before or at the hearing on the Order to Show Cause, then judgment is entered and a foreclosure sale date is scheduled. Even if the defendant shows defenses at the Show Cause Hearing, the judge is then allowed to review those defenses, and if the judge believes the defenses have no merit the judge can enter judgment anyway.
The Act gives "lienholders" - the plaintiff and any defendant who holds a lien encumbering the property, condominium associations, and homeowner associations - to utilize the show cause procedure in the bank's foreclosure action, thus speeding up the foreclosure.
Collection of Monthly Payments
The Act gives the lender the ability to file a motion requesting that the defendant make monthly payments to the lender while the foreclosure lawsuit is pending. If the borrower fails to do so, the bank can evict him. This provision, however, only applies to non-owner-occupied properties (in other words rental or investment properties). There is a competing provision requiring tenants to pay rent directly to the Condominium or Homeowner Associationsif the assessments are overdue. Therefore, the Courts will have to resolve this "tug-of-war" between the mortgagees and the associations.
"Adequate Protection" Where Note is Lost
The number of lost, destroyed or stolen notes grew to epidemic proportions between 2001 and 2011. To address lost notes, the Act imposes "adequate protections" for the lost, destroyed or stolen promissory notes: "(a) A written indemnification agreement by a person reasonably believed sufficiently solvent to honor such an obligation; (b) A surety bond; (c) A letter of credit issued by a financial institution; (d) A deposit of cash collateral with the clerk of the court; or (f) Such other security as the court may deem appropriate under the circumstances."
The Act is now effective; some provisions were retroactive and effective on the date the new law was signed, June 7, 2013, andthe remainder of the Act was effective as of July 1, 2013. Whether the law is good or bad is still unknown and largely depends on whether the Act is analyzed from the borrower's or lender's perspective. There is a split amongst association attorneys as to whether they will utilize the "show cause" process. There is also some confusion as to how the associations will provide the evidence necessary to prosecute the bank's foreclosure. It is also unknown whether lenders will use the "show cause" procedure when they have not been using it in the past.
Finally, what impact will this law have on the current real estate market? With foreclosures processing faster, and with a reduced statute of limitations on foreclosure deficiencies, but not short sales, what incentive do borrowers have to short sale their home rather than let the bank foreclose?
My analysis - whilethe Act has some good components to it, the law does not go far enough to help homeowners and extends too much help to the banks. The law also confuses issues that were previously clear under Florida law and actually puts banks and associations more at odds. This new legislation will have significant unintended consequences to the real estate market and fragile economic recovery in Florida.
For more information on Foreclosure issues, or to schedule a free initial consultation to discuss your options, please contact our firm at: 813-774-5737 or email me at: firstname.lastname@example.org.
- Shawn M. Yesner, Esq.
Shawn M. Yesner, Esq., is the founder of Yesner Law, P.L., a Tampa-based boutique real estate law firm that handles foreclosure defense with a purpose. We assist clients withshort sales, loan modifications, bankruptcy Chapter 7 and Chapter 13, and counsels consumers on debt settlement, for clients in Tampa, Westchase, Carrolwood, St. Petersburg, St. Petersburg Beach, Treasure Island, Medeira Beach, Reddington Beach, Kenneth City, Gulfport, Seminole, Clearwater, Clearwater Beach, Oldsmar, Dunedin, Safety Harbor, Palm Harbor, Lutz, New Port Richey, Trinity, Port Richey, and other areas that comprise the greater Tampa Bay area.