Analysis of Sen. Hayes’s and Sen. Richter’s Amendments to CS/SB 1890

Currently there are competing amendments to CS/SB 1890. They are identical in all respects, except Sen. Richter’s amendment would add Finality of Judgment. Below is an analysis encompassing both versions.

Both amendments to CS/SB 1890 streamline the foreclosure process. Issues remain as to both the technical changes brought to the foreclosure process and the burden homeowners who seek to contest the foreclosure must bear.

The bill basically has 4 components each of which is addressed below:

First Component – Deficiency Judgments

Section 1 and Section 4 – Deficiency judgments – Reduces the statute of limitations period for seeking a deficiency judgment after a foreclosure from 5 years to one year for a one-family to 4 family dwelling.

However, language is retained in current law at 702.06 that “the complainant shall also have the right to sue at common law to recover such deficiency.” The impact of these conflicting statements – a limitation to one year vs. allowing a common law right to deficiency – is unclear at best.

Second Component – Elements of the complaint/Lost note

Section 3 – Elements of the complaint/Lost note – Provides that the UCC requirements for documentation, currently required at the end of the foreclosure before the final judgment issues, are to be provided at the institution of the foreclosure; also specifies the requirements for establishing a lost or destroyed note – again restating current law – but providing that they must be “attached to the complaint.”

Moving the timing of requiring these documents to the filing of the foreclosure action is a welcome requirement. However, focus in the bill on the “holder” of the note, on the “party in physical possession of the note” and the “party with the right to enforce the note” is misplaced for two reasons: these concepts are embodied only in negotiable instrument law, embodied in Article 3 of the Uniform Commercial Code, and enacted as Chapter 673 in Florida; but in fact, the standard mortgage notes which were typically utilized to originate the loans which are in foreclosure now are in most cases not negotiable instruments, and therefore there can be no “holder.” With a negotiable note, the holder in due course of the note is generally a good faith purchaser of a note for value. But an individual who finds or even steals a promissory note endorsed in blank can become entitled to enforce the note, placing the borrower at risk of paying twice if the original promissory note is not properly protected. The best way to provide this protection would be to require that the plaintiff in a foreclosure action be the holder and owner of the note. (Fannie Mae considers Florida to be one of 7 original note states and requires the individual to have possession of the original note in order to take legal actions, including foreclosures.) Additionally, since you foreclosure a mortgage, it is logical to also require that the mortgage be provided from the beginning. See also, Florida Rules of Civil Procedure Form 1.944 providing as a pleading element in foreclosure actions that the “Plaintiff owns and holds the note and mortgage.”

Third Component – Order to Show Cause

Section 5 – Order to Show Cause – The sole purpose of this section is to allow condominium, cooperative and homeowner associations the ability to drive through foreclosures since the banks won’t do it and these associations, though they currently have the ability to foreclosure on their liens, are desperate to see the foreclosures concluded so they are not subject to the first lien. It is an admission that the problem today is that the banks will not push these foreclosures through to conclusion. It is an extreme solution by making a permanent change in law that allows any junior lienholder into the driver’s seat for these foreclosures. If the legislative will is to allow this, as a way to answer the associations’ desires, at the very least, some issues need to be addressed.

First, the judge is tasked with reviewing the file in chambers to decide if an order to show cause is appropriate, a time consuming and therefore costly task that in many cases cannot be determined from the documents filed (it is important to note that the show cause provisions are retroactive but, obviously, Section 3, Elements of the Complaint, is not retroactive. So judges will be asked to privately review files to decide whether to order a show cause hearing without benefit of the required documents).

Second, the homeowner seeking to contest the foreclosure, a small minority of cases, is caught in the same net as the cases against abandoned property or where the homeowner chooses not to contest the foreclosure. Homeowners seeking to contest their foreclosure and save their home should be entitled to opt out of the show cause process. Rep. Passidomo argues that homeowners will simply file letters that lack a real response or defense. This may happen, again in a minority of cases, but it is a small sacrifice to ensure homeowners who may have defenses and counterclaims are given adequate time to engage in discovery and contest the foreclosure.

Fourth Component – Expedited foreclosure of abandoned property

Section 6 – Expedited foreclosure of abandoned residential real property – This is a lengthy section that appears to have its main purpose to allow private process servers to make money. One can argue endlessly about how to establish abandonment of property, but service by publication is the simplest and probably a faster way to address the problem. The section is so unwieldy it seems doubtful it will be used much, but private process servers will no doubt market this “product.”

Finality of Judgment (Sen. Richter’s version only – error in numbering sections)

Section 4 – Finality of Judgment – Finality of judgment would limit homeowners, who may have lost their home in a foreclosure that was improper in some fashion (the foreclosing “holder” was in fact not the owner of the note), to money damages. There are two huge problems here: first, money damages will be non-existent since the only leverage a wronged homeowner may have is in claiming return of the property and “accepting” money damages in lieu; second, and more importantly, this is a huge shift in established law meant to mollify the title underwriting industry. The provision would convert what is actually fraud on the court and theft of real property to good title and effectuate a change to the special Constitutional protections afforded to homestead property. Real estate is unique, and the original homeowner should not be deprived of real estate without due process. Title underwriters can resolve this issue without obliterating homestead protections in Florida.

It is also important to note that homeowners could wrongfully lose their home, be deprived of being able to seek the return of their home or use the right to return of their home as leverage for damages, and have to pay costs and attorneys fees to defend against a suit by the actual holder and owner of the note suing for payment of the note.

~

4closureFraud.org