On June 7, 2013, Governor Rick Scott signed HB 87 – The Florida Fair Foreclosure Act (the “Act”), into law. The Act makes substantive changes to how residential foreclosures must be conducted in Florida. If, after your review of this letter, you have specific questions or concerns about the implications of the Act on your particular matter or strategic paradigm in general, then please contact the office to set a teleconference with me to discuss your concerns.
The Act revises several existing Florida statutes and creates a few new statutes in an effort to streamline the foreclosure process. In general, the Act does the following:
- Reduces to one year the Statute of Limitations under Fla. Stat. § 95.11 on deficiencies created by a mortgage foreclosure and a deed-in-lieu of foreclosure;
- Imposes on the plaintiff-creditor more stringent pleading requirements under Fla. Stat. § 702.015;
- Strengthens the “Show Cause” provisions of Fla. Stat. § 702.10 and allows second mortgage holders and condominium and homeowner associations the right to use said provisions;
- Allows the plaintiff-creditor in a residential foreclosure action to collect monthly payments during the pending foreclosure from the homeowner, unless the property constitutes the homeowner’s primary residence, under the revised Fla. Stat. § 702.10;
- Makes mortgage foreclosure judgments more difficult to overturn pursuant to Fla. Stat. § 702.036; and
- Under newly enacted Fla. Stat. § 702.11, provides some level of protection to debtors against “double-jeopardy” in the case of a judgment entered on a lost, destroyed, stolen or missing promissory note.
A Review Of The Florida Fair Foreclosure Act
- Change in the Statute of Limitations for Bringing Actions for Deficiency Judgment – § 95.11Statutes of limitation create a finite period of time within which a party can bring a lawsuit. If a lawsuit is filed outside of the time period prescribed by the Statute of Limitations, the suit can be dismissed, as the action is forever barred. Previously, the Statute of Limitations to sue for a deficiency under Fla. Stat. § 95.11 was five (5) years from the date a certificate of sale was issued by the Clerk following a foreclosure sale. The Act reduces that time period to one (1) year for deficiencies created by a foreclosure sale or a deed-in-lieu of foreclosure but only applies to actions commenced on or after July 1, 2013.Curiously, short sale transactions are not addressed in the provisions of the Act which will certainly lead to litigation regarding whether the Act also applies to short sales or whether the 5-year Statute of Limitations still applies to collect on a deficiency following the short sale. In an abundance of caution, the Firm is advising its creditor clients to bring actions for deficiency judgments following short sales within one (1) year of a short sale closing.
- Heightened Pleading Requirements – § 702.015Under the newly enacted Fla. Stat. § 702.015, the Florida legislature established more stringent pleading requirements for those initiating foreclosures. These changes are clearly the result of the extensive abuses seen in foreclosure filings by entities that did not have proper documentation in place at the time of filing. This lack of documentation has led to substantial delays in the foreclosure process as the courts have struggled to move cases on bloated dockets that have languished due to the inability of plaintiff-creditors to establish their standing to bring the actions.Specifically, the Act now requires in a foreclosure complaint:a) Affirmative allegations that the plaintiff is the holder of the original note or, in the alternative, specific allegations describing the facts that allow the plaintiff to enforce the note;b) If the plaintiff is the servicer, rather than the note holder, allegations establishing the basis for authority of the plaintiff to file the foreclosure action;c) If the original note exists, a certification under the penalty of perjury that the plaintiff is in possession of the original promissory note. The certification must set forth the location of the note; the name and title of the person giving the certification; the name of the person who personally verified possession of the note; and the time and date on which the possession was verified. Copies of the note with all assignments (or allonges) must be attached to the Certification;d) 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.The practical effect of these heightened pleading requirements obviously depends on whether you are a creditor-plaintiff or a debtor-defendant. For plaintiffs, the heightened pleading requirements mean that meaningful leg-work and preparation must occur prior to filing an action. Previously, actions could be brought and maintained (at least through the pleading stage of the case) with undocumented allegations and mere copies of notes. Now, plaintiffs must endeavor to track down, document, allege and certify the chain of custody of those documents which give the plaintiff standing to bring the action.
For those plaintiffs who have such documentation and information available to them, the new Act essentially “front loads” to the initiation of the case the collection of the same material they would have pulled together later in the case in support of a motion for summary judgment under the old law. For those plaintiffs who do not have such documentation and information available, the new law will certainly impair their ability to state a cause of action for foreclosure from the outset.
For those defendants obligated under the notes and mortgages sued upon under the new Act, there may be some reprieve from spurious lawsuits brought by entities that cannot demonstrate a right to bring an action. However, the majority of newly filed foreclosure actions are likely to be far better documented and afford less of an opportunity for defendants to cause delay by attacking the quality of the action as pled given provisions under the new law that allow for sanctions to be entered against plaintiffs that do not comply with the heightened standards.
While there will still be some motion practice at the pleadings stage, in light of the heightened pleading standards and the “show cause” component of the law discussed later in this letter, it will be necessary for a defendant’s legal counsel to serve immediate, extensive discovery on the plaintiff in an effort to create disputed issues of material fact in order to keep the judge from entering an early judgment in favor of the plaintiff.
- Strengthened “Show Cause” provisions of Fla. Stat. § 702.10As with most legislation, there is a “give and take” evident in the Act. The “give” to the debtor-defendants by the heightening of the pleading requirements (which effectively makes it harder for the plaintiff to bring its foreclosure action) is offset by the “take” of a modified “show cause” procedure provided for in the new Act. This strengthened show cause procedure under Fla. Stat. § 702.10 will undoubtedly speed up the time between the filing of a foreclosure complaint and the consideration of the merits of the complaint in many foreclosure actions.Florida Statute § 702.10 has afforded a show cause procedure in foreclosure actions for many years. Essentially, that section would allow a creditor in non-residential foreclosures to have the court enter an order against the defendant debtor to “show cause” why a foreclosure judgment should not be entered. However, the prior version of the § 702.10 has been under-utilized, in part, because of its lack of teeth. For example, all that was required for a defendant to defeat an order to show cause was the filing of a simple motion to dismiss. See Barrnunn, LLC v. Talmer Bank and Trust, 106 So. 3d 51 (Fla. 2d Feb. 2013). Such is no longer the case under the new Act.The new show cause procedure effectively shifts the burden of proof from the plaintiff to the defendant and can be utilized, for the first time, in residential foreclosures. This burden-shifting is accomplished by requiring the plaintiff to meet the heighted pleading requirements (discussed previously). Once met, the defendant is then required to defend against such pleadings by presenting the type of defenses and proof that have historically been required to defeat a summary judgment. If the defendant fails to raise and substantiate any meritorious defenses either before or at the hearing on the order to show cause, then judgment may be entered against the defendant.The Act also shortens the timeframe between the initial complaint filing and the hearing on the show cause order from 60 days after service of the order to 20 days and greatly broadens the scope of parties who can use the procedure. Now, not only can the plaintiff-creditor use the show cause procedure, but so may any “lienholder,” including condominium associations and homeowners associations.The practical effect of the new show cause procedure is substantial. For plaintiffs who can comply with the heightened pleading requirements, the show cause procedure can literally cut years out of the process by circumventing the chaotic pleading stage of the foreclosure process wherein defendants could historically tie up foreclosures for months and months by attacking the quality of the plaintiff’s pleadings, thereby getting repeated “bites at the apple” in defending the foreclosure. However, this benefit is only conferred on those plaintiffs who can actually meet the heightened pleading requirement.What is difficult to assess at this time is whether the show cause provisions can be meaningfully used by lienholders other than the plaintiff-creditors. In order for the show cause provision to be effective, the stringent pleading requirements of Fla. Stat. § 702.015 still must be met. Given that such pleading requirements can only be met by the plaintiff initiating an action, it is questionable whether this new right given to “other” lienholders will have a substantial impact on their ability to motivate the timely prosecution of foreclosure cases.
- Collection of Monthly Payments Under § 702.015One of the most important new elements of the Act is again found under the strengthened show cause provisions in § 702.015. Specifically, the new § 702.015 gives a foreclosing plaintiff in a residential foreclosure the right to include in its show cause order a requirement that the borrower-defendant show cause why it should not have to make monthly payments to the plaintiff while the foreclosure lawsuit is pending. After the entry of such an order, if the borrower-defendant fails to demonstrate why it should not make payments and then fails to make payments, the plaintiff can evict the borrower-defendant from the property if the property is a rental or investment property. This provision does NOT apply to primary residences being occupied by the borrower-defendant.The practical effect of this new statute is significant. A substantial percentage of the pending foreclosures currently involve defendants who either can only afford or are only “choosing to afford” the costs of litigation because those costs are actually less on a monthly basis than the cost to service the debt (or are less than the cost of alternative housing or are less than the rental income they are receiving). If these people are forced to pay the debt in question as a condition precedent to raising defenses to the foreclosure, then a high number of current borrower-defendants will be forced to abandon their defense of the foreclosure action. Again, this section is NOT applicable to primary residence foreclosures.
- Foreclosure Judgment Finality Under § 702.036One of the most serious consequences of the mortgage debacle has been the title issues created by questionable mortgages and documentation. In an effort to bring closure to many such latent issues, the Act limits the type of collateral attacks that can be made against foreclosure judgments. In the event of an improper foreclosure, if all re-hearing and time limits to appeal have expired, and the foreclosed property is purchased either at the foreclosure sale or subsequent to the foreclosure sale by a third party who is not affiliated with the lender, the borrower’s only remedy is to sue the bank for money damages. The Act prohibits a borrower from suing to get the property back, a right previously afforded to the borrower under the old law.
- § 702.11 Protection For Debtors’ Facing “Double-Jeopardy”Another area of concern addressed by the Legislature in the new Act relates to the potential harm to a defendant-borrower who is subject to potential “double-jeopardy” as a result of a judgment being entered in favor of a plaintiff who did not have the right to prosecute an action on the subject note in the first place. This double-jeopardy occurs if a plaintiff comes to court alleging rights under a “lost” note and is afforded relief (like a judgment), only to later have someone come along in possession of the original note and bring a new action. Under Florida’s common law, a debtor can actually find itself facing a second judgment entered in favor of the entity that shows up with the original note.In an effort to address this issue, the Act provides that if an action is brought on a lost, stolen or destroyed note, one of the following must be provided by the foreclosing plaintiff in order to provide a “reasonable means” of “adequate protection” to the defendant-borrower:a) A written indemnification agreement by a plaintiff reasonably believed sufficiently solvent to honor such an obligation;b) A surety bond by the plaintiff;c) A letter of credit issued by a financial institution;d) A deposit of cash collateral with the clerk of the court; ore) Such other security as the court may deem appropriate under the circumstances.
It will be interesting to see what the practical effect of this particular new law will be. It is likely to be the basis for a substantial amount of motion practice by defense counsel early in the case who are desperate to “fill the gap” in the absence of the motion to dismiss practice historically used to slow the foreclosure process. The thrust of the new motion practice will likely be to attack the sufficiency of the alleged “adequate protection” as a means of trying to slow the progression of the case to a show cause hearing.
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This letter provides a brief overview of the Florida Foreclosure Act. Because every case presents a unique set of facts and legal issues, each case must be analyzed individually. Should you have any questions or concerns about this new law or how it may impact a particular case, please feel free to contact the Firm at your convenience to schedule a teleconference with one of our attorneys.