In the past, Florida homeowners sometimes agreed to surrender their home in a bankruptcy in order to discharge (eliminate) the mortgage debt, but then later fought the subsequent foreclosure in court. Because Florida foreclosures take a long time, homeowners who took this tactic were often were able to live in the home without making payments for months—or even years—while the foreclosure worked its way through the court system.
However, a Florida law that takes effect on October 1, 2018, restricts a Florida homeowner’s ability to contest a foreclosure in court after agreeing to surrender the home to the lender in a bankruptcy.
In a bankruptcy, debtors have say how they propose to deal with secured property, like a mortgaged home. One option is to surrender (give up) the property. As a result, the debtor normally gets a discharge of the loan. After the debtor agrees to surrender the home and the lender gets relief from the automatic stay, a foreclosure will begin or continue.
In recent years in Florida, many debtors agreed to surrender the property as part of a bankruptcy so they could eliminate their mortgage debt, only to turn around and then fight the foreclosure in court to delay the process while they lived in the home for free. To address this issue, on March 19, 2018, Governor Rick Scott signed into law Senate Bill 220, which creates Section 702.12 of the Florida Statutes.
Under the new law, a mortgage lender may use documents that you file as part of your bankruptcy case under penalty of perjury as an admission against you in a foreclosure action. Specifically, the lender is entitled to a rebuttable presumption that you’ve waived any defenses to foreclosure if:
The new statute also requires that, if the lender requests it, the foreclosure court has to take judicial notice of bankruptcy court orders.
Be aware, though, that you may still raise a defense in a foreclosure based on the lender's conduct after you surrender the property.
The effective date of the new law is October 1, 2018, and it applies to foreclosures filed on or after that date.
However, even before this date, homeowners who decide to let the house go in bankruptcy and then fight the foreclosure in court will likely run into a roadblock too. In the case of Failla v. Citibank,N.A. (In re Failla), No. 15-15626, 2016 WL 5750666 (11th Cir. 2016), the 11th Circuit Court of Appeals upheld a bankruptcy court decision in which the court ordered the debtors not to contest the lender’s foreclosure in state court after surrendering the home in their bankruptcy.
If you’re facing a foreclosure in Florida and have questions about how filing bankruptcy will affect the process, consider talking to a bankruptcy attorney. If you have questions about how the foreclosure process works, want to fight the foreclosure, or need help working out a foreclosure alternative—like a loan modification—consider talking to a foreclosure attorney. A HUD-approved housing counselor can also tell you about workout options and help you work with your mortgage servicer to try to avoid a foreclosure.