HO– USE OF REPRESENTATIVES STAFF ANALYSIS
BILL #: PCS for HB 213 Judicial Proceedings
SPONSOR(S): Civil Justice Subcommittee
TIED BILLS: None IDEN./SIM. BILLS: SB 1890
Orig. Comm.: Civil Justice Subcommittee
As to foreclosure of real property, the bill:
- Reduces the statute of limitations for deficiency judgments on a foreclosure action from five years to two years.
- Amends the expedited foreclosure process to allow all lienholders to use the procedures, instead of just the mortgagee; reduces the number of hearings from 2 to 1; and prohibits service by publication when using the expedited process unless the property is abandoned.
- Requires the plaintiff in a foreclosure action to provide information to the court upon filing of the case regarding lost, destroyed or stolen promissory notes. Allows any party to request a case management conference to expedite the lawsuit.
The bill applies to existing mortgages and to pending cases.
The bill does not appear to have a fiscal impact on state or local governments.
The bill provides an effective date of July 1, 2012.
I. SUBSTANTIVE ANALYSIS
A. EFFECT OF PROPOSED CHANGES:
The foreclosure crisis has greatly impacted the economy of the state of Florida. It has also negatively affected the judicial branch, in terms of both funding and caseload.
Foreclosing on a mortgage in Florida is an unusually long process. Florida trails only New York and New Jersey in terms of the length of time between the first foreclosure filing and bank repossession, at 676 days. The national average is less than half that, at 318 days.1
Courts are struggling with a backlog of foreclosure cases, which courts were not prepared for. In 2005, before the housing market crash, there were only 57,106 foreclosure filings statewide. By 2009, the number of filings exploded to 399,118. Courts did not have the resources to quickly and efficiently deal with this litigation explosion. Due to constitutional and statutory requirements to provide speedy trials to criminal defendants, civil filings take the brunt of any caseload backlog.2 There has been a significant recent decline in filings due to problems with title and the robo-signing situation3, with only 123,793 filings through November, 2011, but filings are expected to increase as those issues are worked out by mortgage servicers.4
Furthermore, the caseload backlog is not spread evenly across the state. Certain circuits, particularly those located in South Florida, have a much greater percentage of loans in foreclosure than other circuits. At the county level, Miami-Dade has 18.88% of loans in foreclosure compared to only 4.15% in Jefferson County. Put another way, the number of housing units in foreclosure varies from a low of 1 in 5282 to a high of 1 in 148.5
The foreclosure procedure is governed by statutory process and the rules of civil procedure. It is initiated by the lender or servicer, known as a mortgagee, when the borrower, or mortgagor, fails to perform the terms of his or her mortgage, usually by defaulting on payments. Most mortgages contain an ‘acceleration clause,’ which gives the mortgagee the authority to declare the entire mortgage obligation due and payable immediately upon default. If the borrower is not able to pay the entire mortgage obligation upon proper notice, the holder of the note or its servicing agent may begin the foreclosure process in a court of proper jurisdiction. The following is a brief outline of the judicial foreclosure process, with the caveat that litigation is driven by the parties, so the process may be slightly different from case to case:
- Upon proper notice of default to the defendant, the mortgage servicer files a foreclosure complaint6, which must allege that the plaintiff is the present owner and holder of the note and mortgage7, contain a copy of the note and mortgage8, and allege a statement of default,9 along with a filing fee10 and a lis pendens, which serves to cut off the rights of any person whose interest arises after filing.11
- Service of process must be made on defendants within 120 days after the filing of the initial pleadings.12
- If a defendant has not filed an answer or another paper indicating an intent to respond to the suit, then the plaintiff is entitled to an entry of default against the defendant.13
- If an answer is filed (thus negating the possibility of a default judgment), the plaintiff may then file for a motion of summary judgment or proceed to trial, however the vast majority of plaintiffs file a motion for summary judgment.14
- Following the proper motions, answers, affidavits, and other evidence being filed with the court, the judge holds a summary judgment hearing and if he or she finds in the favor of the plaintiff, renders a final judgment.15
- If summary judgment is denied, the foreclosure proceeds to a trial without a jury.16
- The court schedules a judicial sale of the property not less than 20 days, but no more than 35 days after the judgment if the plaintiff prevails at summary judgment or trial.17
- A notice of sale must be published once a week, for 2 consecutive weeks, in a publication of general circulation, where the second publication must be at least five days prior to the sale.18
- The winning bid at a public judicial sale is conclusively presumed to be sufficient consideration for the sale.19
- Parties have 10 days to file a verified objection to the amount of the bid or the sale procedure.20 After 10 days, the sale is confirmed by the clerk’s issuance of the certificate of title to the purchaser, sale proceeds are disbursed in accordance with the statutory procedure21, and the court may, in its discretion, enter a deficiency decree in the amount of the fair market value of the security received and the amount of the debt.22
Alternative Foreclosure Procedure
Section 702.10, F.S., creates an alternative procedure that is designed to speed up the foreclosure process in uncontested or meritless cases. The following is a brief outline of this alternative foreclosure process:
- After a complaint has been filed, the plaintiff may request an order to show cause for the entry of final judgment and the court must immediately review the complaint.23 If the court finds that the complaint is verified, and alleges a proper cause of action, the court must issue an order directing the defending the show cause why a final judgment should not be entered.24
- The order must set a date and time for the hearing, not sooner than 20 days after the service of the order, or 30 days if service is obtained by publication, and no later than 60 days after the date of service.25
- The defendant can file defenses by a motion or by sworn of verified answer or appear at the hearing, which prevents entry of a final judgment.26
- The court need not hold a hearing for determination of reasonable attorney fees if the requested fees do not exceed 3% of the principal owed on the note at the time of filing.27
- The court may enter a final judgment if the defendant has waived the right to be heard or has not shown cause not to enter a final judgment.28
Additionally, if the property is not residential real estate, the plaintiff may request a court order directing the defendant to show cause why an order to make payments during the pendency of the proceedings or an order to vacate the premises should not be entered.29
- The order must set a date and time for the hearing, not sooner than 20 days after the service of the order, or 30 days if service is obtained by publication.30
- The defendant can file defenses by a motion or by sworn of verified answer or appear at the hearing, which prevents entry of a final judgment.31
- The court may enter an order requiring payment or an order to vacate if the defendant has waived the right to be heard.32 If the court finds that the defendant has not waived the right to be heard, after reviewing affidavits and evidence, the court can determine if the plaintiff is likely to prevail in the foreclosure action, and enter an order requiring the defendant to make the payments or provide another remedy.33
- The court order must be stayed pending final adjudication of the claims if the defendant posts bond with the court in the amount equal to the unpaid balance of the mortgage.34
Effects of the Bill
Statute of Limitations on Deficiency Judgment
Under current law, a lender has 5 years from the foreclosure sale to file a deficiency action.35 This bill amends s. 95.11, F.S., to provide a two-year statute of limitations for an action to enforce a claim of a deficiency related to a note secured by a mortgage against real property. The limitations period begins on the 11th day after a foreclosure sale or the day after the mortgagee accepts a deed in lieu of foreclosure.
Alternative Foreclosure Procedure
The bill amends s. 701.20, F.S., the alternative foreclosure procedure, with the following changes:
- Any lienholder, not just the mortgagee, may initiate the procedure.
- The court may issue the order to show cause, requiring defendants to show cause for not issuing a final judgment, by reviewing the court file in chambers and without a hearing.
- Provides that service of process by publication is not allowed except as provided in s. 702.11, F.S., the new provision on abandoned property.
- Creates a preponderance of the evidence standard for entry of a final judgment of foreclosure. Allows the court to enter a default against a defendant.
- Provides that the alternative foreclosure procedure may run simultaneously with other court procedures.
- Allows the court judicial discretion to determine if defenses provide cause to preclude the entry of final judgment.
- Provides that the issuance of a final judgment of foreclosure precludes the need for further hearing by the court.
- Allows the court to extend the time allotted for hearing as required for parties who appear at the initial hearing.
- For non-owner-occupied properties only, provides that the plaintiff may request that the court enter an order directing the defendant to show cause why an order to make payments during the pendency of the proceedings should not be entered.
- Provides a rebuttable presumption that a homestead property is owner-occupied.
The bill also requests that the Supreme Court amend the Rules of Civil Procedure to provide for expedited foreclosure proceedings and related forms in conformity with s. 702.10, F.S.
Expedited Foreclosure of Abandoned Residential Property
The bill creates s. 702.11, F.S., providing for expedited foreclosure of abandoned residential real property. Residential real property is deemed to be abandoned if a process server has made three attempts to locate the occupant and two certain conditions exist. The three attempts must be at least 72 hours apart, and during three different times of the day (before noon, between noon and 6 P.M., and between 6 P.M. and 10 P.M. Each attempt must include physical knocking on the door or ringing of the doorbell, along with other efforts that are normally sufficient to obtain a response from an occupant. Two of the following conditions must exist for the property to be deemed abandoned:
- Windows or entrances to the premises are boarded up or multiple window panes are broken and unrepaired;
- Doors are smashed through, broken off, unhinged, or continuously unlocked.
- Trash or debris has accumulated on the premises.
- The premises are deteriorating and are below or in imminent danger of falling below minimum community standards for public safety and sanitation.
- Interviews with at least two neighbors indicate that the residence has been abandoned.
The process server may provide evidence of the condition of the property to the court.
Any party to the foreclosure of apparently-abandoned property must file a petition seeking to determine the status of the property in order to invoke an expedited foreclosure proceeding. Upon request of the petitioner, the court must issue subpoenas to the utility companies serving the property compelling disclosure of the status of utility status, including whether utilities are turned off and whether outstanding payments have been made. If the court determines the property is abandoned, the plaintiff may use the expedited foreclosure procedures of s. 702.10, F.S., with notice by publication.
Lost, Destroyed or Stolen Notes
The bill creates s. 702.12, F.S., providing legislative intent that the provisions relating to a lost, destroyed or stolen promissory note are intended to expedite the foreclosure process by insuring initial disclosure, rather than modifying existing law relating to standing. Every complaint in a foreclosure proceeding must contain affirmative allegations expressly made by the plaintiff that the plaintiff is the holder of the original note or must allege with specificity the factual basis by which the plaintiff is a person entitled to enforce the note. The plaintiff must file either the original promissory note or certification that the plaintiff is in physical possession of the original note, unless it is lost, destroyed or stolen. In such a case, the complaint must contain an affidavit that details a clear chain of all assignments, sets forth facts showing the plaintiff is entitled to enforce the note, and includes exhibits providing evidence of the acquisition, ownership and possession of the note.
Failure by the plaintiff to comply with this section may result in a court sanction, but does not provide a grounds to set aside a foreclosure sale.
Mandatory Case Management
The bill creates s. 702.13, F.S., providing for case management conferences in foreclosure actions. If all defendants in a mortgage foreclosure case have been served and no defendants have timely filed an answer or other response, the court may enter defaults against nonresponding parties. The court may then direct the plaintiff to file all evidence and proofs necessary for entry of summary judgment of foreclosure or to show cause why such a filing should not be made. The filing of these materials is treated by the court as a motion for summary judgment, and the court may set either a hearing for summary judgment or set the case for trial, in its discretion. After all parties have been served and not less than 48 days after the filing of foreclosure, any party may request a case management conference, where the court must set definite timetables for moving the case forward. The court may grant extensions or stays on showing that the parties are engaged in mediation or good faith loan modification discussions or other settlement, provided the property owner or lender pays applicable condominium, cooperative, or homeowners’ association assessments.
The bill provides an effective date of July 1, 2012, and applies to causes of action pending on the effective date of the act. The provisions relating to abandoned residential property and lost, destroyed or stolen notes apply to cases filed on or after July 1, 2012. The provision relating to case management applies to cases pending on the effective date of the act.
B. SECTION DIRECTORY:
Section 1 amends s. 95.11, F.S., relating to statutes of limitations.
Section 2 provides dates of application for section 1 of the bill.
Section 3 amends s. 702.10, F.S., relating to expedited foreclosure procedures.
Section 4 creates s. 702.11, F.S., relating to expedited foreclosure of abandoned residential real property.
Section 5 creates s. 702.12, F.S., relating to lost, destroyed or stolen promissory notes.
Section 6 creates s. 702.13, F.S., relating to defaults and case management conferences in foreclosure actions.
Section 7 provides dates of application for section 3, 4, 5, and 6 of the bill.
Section 8 provides legislative findings that the provisions of the bill are remedial in nature.
Section 9 provides an effective date of July 1, 2012.
II. FISCAL ANALYSIS & ECONOMIC IMPACT STATEMENT
A. FISCAL IMPACT ON STATE GOVERNMENT:
The bill does not appear to have any impact on state revenues.
The bill does not appear to have any impact on state expenditures.
B. FISCAL IMPACT ON LOCAL GOVERNMENTS:
The bill does not appear to have any impact on local government revenues.
The bill does not appear to have any impact on local government expenditures.
C. DIRECT ECONOMIC IMPACT ON PRIVATE SECTOR:
The bill does not appear to have any direct economic impact on the private sector.
D. FISCAL COMMENTS:
A. CONSTITUTIONAL ISSUES:
1. Applicability of Municipality/County Mandates Provision:
The bill does not appear to require counties or municipalities to take an action requiring the expenditure of funds, reduce the authority that counties or municipalities have to raise revenue in the aggregate, nor reduce the percentage of state tax shared with counties or municipalities.
B. RULE-MAKING AUTHORITY:
The bill does appear to create a need for rulemaking. The bill requests that the Supreme Court amend the Rules of Civil Procedure to provide for expedited foreclosure proceedings and related forms in conformity to s. 702.10, F.S.
C. DRAFTING ISSUES OR OTHER COMMENTS:
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