Florida has the biggest inventory of backlogged foreclosures of any state. Compounding this issue, the state has one of the longest foreclosure timelines in the country, with the average foreclosure taking 893 days. To speed up the foreclosure process and clear out some of the backlog, Florida’s governor Rick Scott signed a new foreclosure bill into law on June 7, 2013.
The law expands Florida's expedited foreclosure process, makes recovering a home after foreclosure impossible in certain circumstances, requires the lender to produce the note with its complaint, and limits deficiency judgments. Read on to learn more about the new law and how it could affect you if you are a Florida homeowner facing foreclosure.
(For more articles on foreclosure in Florida, including programs to help homeowners avoid foreclosure, visit our Florida Foreclosure Law Center.)
House Bill 87 Changes Florida Foreclosures
In Florida, foreclosures are judicial, which means the lender must file a lawsuit in state court. The lender initiates the foreclosure by filing a complaint with the court and having it served to the borrower, along with a summons. If you lose the case, the court will enter a judgment of foreclosure and the property will be sold to satisfy the debt.
(To learn more about the difference between judicial and nonjudicial foreclosure, and the procedures for each, see Will Your Foreclosure Take Place In or Out of Court?)
House Bill 87, sometimes called the Florida Fair Foreclosure Act, makes several substantive changes to how foreclosures must be conducted in the state. Most provisions of the new law go into effect immediately, though a few only apply to cases filed on or after July 1, 2013.
While any law that aims to unclog the overloaded Florida court system might sound like a good plan, just how fair is the new law to distressed homeowners? In actuality, the law is both harmful and beneficial to homeowners.
How the Law Hurts Homeowners
Since the overriding goal of the law is to speed up the foreclosure process, it can be detrimental to homeowners.
Expedited Foreclosure Process Expanded
Florida law already provided for a procedure designed to speed up the foreclosure process in uncontested cases or in cases where the homeowner does not have a legitimate defense. Previously, after the foreclosure complaint has been filed, the mortgagee (the lender) could request an order to show cause why the foreclosure should not proceed. If the defendant homeowner waives the right to be heard (by failing to file a response, by filing a response that does not contest the foreclosure, or by not showing up at the hearing) or loses at the hearing, the court can enter a final judgment of foreclosure and order the clerk of the court to conduct a foreclosure sale.
(To learn more about this process and Florida foreclosure procedures in general, see Florida Foreclosure Laws and Procedures.)
Now, any lienholder (including homeowners’ associations and condo associations) may make the request to route foreclosures through the expedited process rather than through a typical court proceeding. This means that homeowners could have less time to:
- be considered for a loan modification, forbearance, or repayment plan
- arrange another alternative to foreclosure (such as a short sale or deed in lieu of foreclosure), or
- prepare to transition out of the property.
To get information about options to avoid foreclosure, see our Alternatives to Foreclosure area.
Foreclosure Judgments are Final
Additionally, the new law makes foreclosure judgments final. Any action to set aside, invalidate, or challenge the validity of a final judgment of foreclosure is limited to monetary damages when the lender meets certain conditions. This means that a victim of a fraudulent foreclosure will not get the home back if:
- the homeowner was properly served in the foreclosure lawsuit
- the final judgment of foreclosure was entered
- the appeals periods have run (with no appeals having been taken or, if an appeal was taken, it has been resolved), and
- the property has been bought by a person not affiliated with the foreclosing lender or the foreclosed owner.
With this provision, the new law strengthens the finality of foreclosure judgments once the lender transfers the foreclosed property to a new owner. The former owner can continue to pursue money damages against the lender, but cannot regain title to the property.
How the Law Helps Homeowners
On the other hand, the new law does provide a few consumer protections.
Lender Must Produce the Note
When you took out your loan, you signed both a mortgage and a promissory note. The promissory note is what establishes your liability to pay your mortgage loan. The mortgage creates a lien on the property. The holder of the note is the only party that has the right to foreclose on the property. (Learn more about promissory notes.)
Starting July 1, 2013, the plaintiff (the owner of the loan) must prove its right to foreclose by filing additional items along with the foreclosure complaint, including:
- a certification that the plaintiff is in possession of the original promissory note, or
- if the note has been lost, a lost note affidavit with a clear chain of all endorsements, transfers, or assignments of the promissory note. (Learn more about endorsements and assignments.)
This helps to ensure that an improper party is not pursuing the foreclosure.
Deficiency Judgment Statute of Limitations Reduced
When a lender forecloses on a mortgage, the total debt owed by the borrower to the lender frequently exceeds the foreclosure sale price. The difference between the sale price and the total debt is called a “deficiency.” In some states, the lender can seek a personal judgment against the debtor to recover the deficiency. Generally, once the lender gets a deficiency judgment, the lender may collect this amount from the borrower. (Learn about methods that creditors can use to collect judgments.)
Effective July 1, 2013, the period of time in which the lender may seek a deficiency judgment is reduced from five years to one year for residential properties with no more than four dwelling units.
Additionally, the deficiency judgment cannot exceed the difference between the judgment amount and the fair market value as of the date of sale if the property is:
- owner-occupied and
Deficiency judgments for short sales involving owner-occupied residential properties are limited to the difference between the outstanding debt and the fair market value.
Read more about deficiency judgments.
Faster Foreclosure Law Unintentionally Slows Down Filings in the State
The new law, which took effect July 1, 2013, has caused foreclosures to get further backlogged in Florida as banks struggle to comply with the law and prove they own the loans. This makes sense since any time new regulations are put into place, lenders and their attorneys must take time to revise procedures and learn the new law. Florida already had one of the slowest foreclosure timelines in the country and the new law is adding to that timetable. (Learn more in Nolo's article States With Long Foreclosure Timelines.)
For More Information
To learn more about House Bill 87 and read the text of the new law, go to www.myfloridahouse.gov and click on “Bills.” Then choose the button for “House,” “Regular Session 2013” in the drop-down menu, and enter “87” to run the search.
To learn more about foreclosure in general, ways to defend against foreclosure, and programs to help struggling homeowners avoid foreclosure, visit our Foreclosure Law Center.