The Florida Fair Foreclosure Act has been passed by the Florida House by a vote of 94 to 17, and has been sent to the Senate for consideration and vote. The Act does not include provisions implementing “non-judicial foreclosure’. If the Act passes the Florida Senate as it passed the House and is signed by the Governor here is what it will change:
Statute of Limitations–
Currently the Statute of Limitations (the time period within which a law suit must be filed or it is waived) on a promissory note is five years from the date of default. The Act changes the time period for deficiency decrees on residential real property to one year following the date of the sale or delivery of deed-in-lieu of foreclosure.
The prior limitation period ran from the date of default on the note, which is generally three months of non-payment regardless of the amount of time the foreclosure case took to conclude. The new period of one year doesn’t begin until the foreclosure action concludes. the average foreclosure in Florida takes just under two years. In effect the new statute of limitation will be about three years from the date of default, depending on how long the foreclosure action takes.
This first change is seen as consumer friendly because it will force the banks to decide whether to initiate a suit for deficiency in around three years as opposed to the five years they are currently allowed.
This change to the limitation period will only apply to foreclosure actions filed on or after July 1, 2012. But, the proposed legislation also requires that any deficiency on a foreclosure suit filed before that date be commenced no later than July 1, 2013, limiting many deficiency suits filed prior to the effective date of the Act.
Elements of a Foreclosure Complaint–
A huge issue in mortgage foreclosure law suits is the banks ability or inability to prove it is entitled to enforce the note and mortgage. The next proposed change seeks to address this problem by laying out in detail what must be plead for a mortgage foreclosure complaint to be valid,
Currently, a bank will allege it is the holder of the note, which is a legal term of art and has specific requirements already associated with under other statutes; or, the bank will allege it is the owner of the note with the right to enforce or that the right to enforce has been assigned to it by the holder or owner.
The issue is that the bank virtually never pleads what the basis for its right to enforce is, and the courts have not required the basis to be shown until final judgment is requested. The Act, among other things, requires that the bank explain the factual basis under which it is entitle to enforce the note; or, if authority is assigned, the bank must identify the document granting it authority to foreclose. The bank must also certify under penalty of perjury that it is in possession of the original promissory note and the notes location.
If the bank is seeking to enforce a lost note, it must explain in detail the chain of title of all assignments and endorsements of the note, and plead specific facts that entitle it to enforce a lost or stolen note.
These augmented pleading requirements should lead to banks delaying the filing of mortgage foreclosure actions that they cannot properly document, or increase the owner’s ability to have an action dismissed in the early stages due to failure to properly plead in compliance with the statute.
Previously the statute left the amount of a deficiency judgment to the discretion of the Court. The Act specifies that a deficiency judgment shall not exceed the difference between the amount of the judgment and the value of the property on the day of the sale.
This doesn’t appear to actually change the law as it is applied to deficiencies currently. It merely codifies in statute what is the current state of the law as applied by courts through prior case law.
Expedited Foreclosure by Lienholders–
Florida Statute already allow the bank in a mortgage foreclosure case to ask the Court to issue an Order to Show Cause why a final judgment of foreclosure should not be entered. This process occurs early in the case and requires to homeowner to present sworn defenses to the court, which are the “cause” why final judgment should not be entered. The current practice is to treat an Order to Show Cause hearing like a Motion for Summary Judgment, and deny entry of a final judgment if the owner and bank disagree on any important issues. In effect the process allows very quick resolution to foreclosure lawsuits not contested by the owner.
The Act extends this procedure in two ways: it allows any defendant, particularly a condominium or homeowners association, to also petition the court for the expedited procedure; and, if the property meets the criteria established in the Act to be deemed abandoned.
Property may be deemed to be abandoned by the court if a duly licenses process server cannot make service on the owner after three attempts, and at least two of the following are met. 1) windows or doors are boarded up, closed off, or are broken and unrepaired, 2) doors are damaged as to allow access or are continuously unlocked, 3) trash or debris has accumulated, 4) the premises are deteriorating and are below minimum community standards, 5) community association fees are unpaid for 90 days, or 6) residents indicate the residence has been abandoned.
This part of the Act is most concerning, because the sponsors explanation of what they are doing is to allow the judge to in effect decide the case based on affidavits and without the benefit of a trial. See here. This position isn’t necessarily supported by the current text of the Act, but the bill was reduced from 45 to 17 pages from introduction to passage by the house. In spite of these changes legislative intent is still an important part of determining how the law will be implemented, and changes and additions could be made by the Senate.
Normally the losing party in any law suit has the right to a hearing to determine how much they will have to pay the prevailing party in attorneys’ fees, based on what is reasonable. The Act deems a hearing unnecessary if the fees sought are 3% or less of the amount owed on the note or mortgage at the time of filing the law suit.
This denies the owner an important right to a hearing on whether and how much they will have to pay in attorneys’ fees.
An important political aspect to this Act is the effect it will have on the State’s housing market. Is expediting the foreclosure process and flooding the market with foreclosed homes the best thing to do right now? Some people believe that it is. That the short term harm to the market will be made up for by facilitating a recovery.