Foreclosure is the mechanism for a secured lender to seek recourse against a borrower’s collateral to satisfy the indebtedness to the lender. The foreclosure process in Florida can be a long one, as any seasoned banker or attorney can attest to. Florida is a judicial foreclosure state, meaning that a foreclosure lawsuit needs to be filed by a secured lender in order to recover title to the collateralized property. This is in contrast to other states, known as non-judicial states, where quicker and more efficient mechanisms are often in place for recovering secured real property.
FORECLOSURE LITIGATION PROCESS
The Florida foreclosure process begins with the filing of a complaint for foreclosure by the lender. Hopefully, for the lender, they complied with the various conditions precedents that are required under the standard mortgages found in many residential mortgage documents, such as the infamous “paragraph 22” of the standard Fannie Mae mortgage. These conditions precedent usually involve a letter to the borrower prior to filing a foreclosure suit, advising them of the ability to reinstate the loan, and the amounts required to do so. In some instances, it can also mean a formal acceleration of the underlying promissory note prior to filing foreclosure. This acceleration is done through a demand letter by the lender or its attorney. The letter provides the borrower an amount of time to pay the full balance of the loan, the failure of which will result in the filing of a foreclosure action. In commercial loan documents, conditions precedents are not usually found in the loan documents. Most commercial notes and mortgages will allow the lender to file suit without notice to the borrower in the event of a payment default. However, virtually all lenders will first demand and accelerate the note and mortgage prior to filing suit. This gives the opportunity to either work out a forbearance agreement with the borrower or perhaps stipulate to a deed in lieu of foreclosure or another arrangement.
Once the lawsuit has been filed, the case can go in many different directions. Florida has a reputation for a very slow foreclosure process. This is driven by two primary factors – plaintiff’s attorneys who do not move cases diligently enough and foreclosure defense attorneys who stall the foreclosure process through various delay tactics. With some larger banks and servicers, problems often reside internally, such as where audits must be conducted for poorly documented residential loan files. This too causes delay. Because of the securitization of many residential mortgages, documentation errors plague many loan files that were poorly underwritten and hastily originated. Such documentation problems can prove fruitful for defense attorneys, who can raise standing defenses based on the poorly documented securitized mortgages.
Depending on the strength of the lender’s documentation, the foreclosure process can take many turns. If the promissory note in question is made payable to the foreclosing lender, standing defenses are futile. In the commercial foreclosure context and with smaller banks and lenders (who often portfolio their loans rather than sell them on the secondary market) this is often the case. But in the residential world of mortgage back securities, more often than not the promissory note is originally made payable to one party, who has since endorsed it to another party through a blank endorsement on the face of the note, a specific endorsement on the face of the note, or through an allonge. A blank endorsement allows the holder of the note to enforce it (similar to cash). A specific endorsement only allows the party listed as the payee to enforce the instrument. There are of course intricacies to the negotiable instrument area of the law founds in the depths of UCC Article 3, which has been adopted by Florida in Florida Statute §673.
Once a lender gets beyond the standard “conditions precedent” or standing defenses, most foreclosures should be relatively smooth if there is nothing unusual in the file. After all, the entire premise behind UCC Article 3 is to encourage the orderly and efficient enforcement of negotiable instruments. However, in the Florida foreclosure context, issues of title disputes, omitted owners, omitted lien holders, statutes of limitations, and condominium associations also can wreak havoc for the unsuspecting lender. In order to efficiently navigate the Florida foreclosure process, these issues need to be addressed before the foreclosure is filed. In the case of standing, Florida appellate courts are clear that standing cannot be acquired once the lawsuit is filed. This means if the foreclosing plaintiff holds a promissory note specifically endorsed to a different party, it is not good enough that they receive an endorsement after the suit is filed. In such an instance the case would need to be voluntarily dismissed, the proper endorsements/allonges secured, and the case re-filed. This could be problematic for the foreclosing lender, as they may be on the hook for defense counsel’s fees, and could also be running against a statute of limitations deadline to file the new suit.
MORTGAGE LITIGATION SERVICE
In the context of omitted owners and lien holders, our law firm believes flurries of title disputes are forthcoming in Florida. Many foreclosures judgments entered over the past 5 – 10 years have been done without the adequate review of title by the foreclosing lender’s attorney. The failure to include an owner of the property or even a junior lien holder can provide enormous headaches down the road (usually at the time of sale of the bank owned property). Moreover, improper legal descriptions plague many foreclosure judgments entered in Florida. While some would say “what’s the difference, just ask trial judge to amend the foreclosure judgment,” such is not the case. Recent Florida case law out of the Third District Court of Appeal makes clear that the trial court loses jurisdiction upon the rendition of the final judgment and expiration of the time for altering, modifying or vacating the judgment unless the court specifically retains jurisdiction. The standard language used by many foreclosure attorneys in drafting final judgments of foreclosure reserve jurisdiction only to enter deficiency judgments and writs of possession. A general reservation by the trial court to enter “all other orders necessary to enforce the judgment” is not sufficient, for example, to correct an error in a legal description or reform the mortgage by the foreclosing lender. This may result in the lender filing a new lawsuit to accomplish this, which could be extremely problematic for enforcement depending on the circumstances. At Law Offices of Paul A. Humbert, P.L., we are well versed in the complicated title issues facing foreclosing lenders and can provide insight into how to navigate these issues.
Finally, if all goes according to plan, the foreclosing lender should prevail on a motion for summary judgment of foreclosure. This requires filing the necessary affidavits of indebtedness, costs, fees, and ownership of the note. Borrowers can defend that the amounts sought by the bank are not accurate, but rebuttal affidavits in opposition would need to be filed to thwart summary judgment. Many large servicers have preferred simply setting their foreclosure for trial in lieu of moving for summary judgment. In such a case, a representative from the lender comes to testify at the trial and may be cross-examined by the defense attorney. The lender’s attorney then seeks to move the original promissory note into evidence, as well as the mortgage, any reinstatement letters that were required as conditions precedent under the mortgage or note, and the relevant payment history for the loan. The testimony of the lender’s representative will likely be met with a hearsay objection by defense counsel. However, if the lender or servicer’s representative can demonstrate they have adequate knowledge of the business records of the company they work for and of the loan in question, they should be able to overcome and hearsay objections by opposing counsel, by using the business records exemption to hearsay, found in Florida Statute §90.
FORECLOSURE LITIGATION ATTORNEY
At Law Offices of Paul A. Humbert, P.L. we work with banks and other institutional lenders in the enforcement of both residential and commercial foreclosures. We work diligently to make sure our clients recover their secured collateral efficiently, and can also assist in preparing all forbearance and modification documentation where a settlement has been reached with the borrower.