Posted on Monday, April 4, 2011
Lenders could bypass plenty of legal legwork when they foreclose on some homes, including abandoned houses, investment properties and vacation homes if a bill in the Florida House becomes law.
The law would create an "alternative foreclosure procedure" that lenders could impose on owners of non-homesteaded properties with values far below their mortgages or properties the lender deems to be abandoned.
Under the proposed procedure, delinquent owners would waive their rights to defend the foreclosure, allowing the lender to more quickly obtain a summary judgement to auction the property.
The owners would have 30 days from the date of the foreclosure filing to opt-out of the streamlined procedure. If they do object, the owner would have the right to fight the lender.
Although the proposed process wouldn't apply to houses and condos that are primary residences, critics fear a loss of consumer rights and protections.
The Florida Fair Foreclosure Act, HB 1191, is sponsored by Rep. Kathleen Passidomo, R-Naples.
Foreclosure defense attorneys and consumer activists say the bill would put the burden on owners to maintain their constitutional rights to due process.
"How would they know what to write?" asked foreclosure defense attorney Carol Asbury, a Fort Lauderdale solo practitioner. "So your right to confront the bank with evidence against them stops all together? Is that stupid? To most people, this is the first time they ever had any kind of brush with the law. They have no idea what they are into."
Backers say the bill is intended to help solve the problem of increasing numbers of abandoned properties and would speed up foreclosures where the borrowers are willing to let the lender have the house and move on.
"The mood [in the Florida Legislature] is to beat on consumers," said consumer attorney April Charney, with Jacksonville Area Legal Aid. "We are beaten down. We are depressed. We are losing our homes and losing our jobs. And now we are losing our rights. Pretty sad."
Property owners with poor English skills would be especially hard hit because of the opt-out letter, said financial consultant Jim Angleton, president of AEGIS FinServ Corp.
"[They] will be taken advantage of," said Angleton. "This is nothing but an express lane to foreclosure hell for the consumer."
Coral Gables attorney Derrick B. Gruner, who represents lenders in foreclosure cases, welcomes the proposal.
"Something has to be done," said Gruner, a partner with Alvarez Sambol Winthrop. "Is this bill the best way to resolve it? I am not so sure. But it is better than what we have now."
The proposal is similar to nonjudicial foreclosures, which are permitted in several states for all types of residential properties.
In nonjudicial foreclosures, the cases are handled through an administrative process in which the lender doesn't have to file a lawsuit. Property owners have to sue to challenge lenders' right to foreclose.
In Florida, lenders must prove they have the right to take somebody's home.
"Just because you have a judge in there signing off on the summary judgment doesn't make it a judicial process," Asbury said.
During the 2010 legislative session, the Florida Bankers Association unsuccessfully lobbied for nonjudicial foreclosures on non-homesteaded properties.
Separate House and Senate bills being considered in this legislative session would allow nonjudicial foreclosures for commercial properties.
Compared with residential properties, commercial real estate rarely ends up in foreclosure because borrowers often have personal and corporate guarantees that are incentives to work out troubled loans, said Anthony DiMarco, senior vice president of Government Affairs with the Florida Bankers Association.
"But when they go to court, the litigation is more complex and will take more time than a residential," he said.
Since the nation slid into its worst recession in decades, the courts have been flooded with foreclosures. It can take lenders more than a year to foreclose on a house or condo, much longer if the owner fights the suit.
Owners increasingly try to defend their properties by challenging the lender's right to foreclose. Some lenders don't have all the documents needed to prove they own the notes and mortgages they are seeking to foreclose on. In some instances, lenders and their lawyers have been found in contempt of court for falsifying documents.
DiMarco said the law would allow lenders to take title to abandoned properties faster and put them back on the market. That in turn would help communities rid neighborhoods of deteriorating properties. It would also help cash-strapped condo associations stuck with units whose owners have quit paying fees.
"Anything we can do to get foreclosures done correctly and more quickly, we are all for it," DiMarco added.
DiMarco is working with Passidomo to modify the bill. The bill has to moved forward within two weeks if it's to remain alive.
"We are just trying to work through some of the legal provisions in the bill," he said. "She [wrote] a very ambitious bill, especially for a freshman."
The proposed law also addresses issues such as foreclosure notifications, the right of tenants to live in foreclosed properties, and the chain of title documentation.
"Parts of the legislation sound very promising," said West Palm Beach foreclosure activist Lisa Epstein, who lobbied against HB 1191. "But unfortunately, because the bill addresses so many issues, none of it has enough detail and meat on them, so they can be interpreted or misinterpreted … there is really no clarity on any of the items."
She opposes the "automatic opt in unless you opt out" part of the bill.
Under the alternative procedure, lenders would have to file affidavits with a court attesting a home is abandoned or is a non-homestead property with a loan to value ratio of at least 150 percent. For example, a house or condo with a market value of $100,000 and debt of more than $150,000 would be eligible for alternative foreclosure action.
Epstein is worried that lenders would use workers with no familiarity of cases to attest that a house is abandoned, not homesteaded or underwater.
At the height of the foreclosure crisis some financial institutions or their law firms used "robo-signers" — workers who signed off on thousands of documents without proper review.
That caused many foreclosure cases to be dismissed and refiled.
"What concerns me about the bill is how it protects us from robo-signers?" Gruner asked. "Who is this affidavit going to come from?"
The alternative foreclosure would also apply to owners who agree to turn a residence over to a lender through a deed-in-lieu of foreclosure. In return for getting the house without going through a long an costly foreclosure, the lender would be required to waive its right to go after the borrower for the difference between the mortgage amount and the value of the property.
Gruner said lenders are increasingly making that type of deal with owners willing to do a deed-in-lieu so the bill would just make it state law. "The lender is giving up its right to seek a deficiency in exchange for quickly adjudicating the case," he said.
Under the Florida Fair Foreclosure Act, delinquent owners of abandoned houses or residential properties that are investments or vacation homes would have to notify the lender that they intended to press their right to fight foreclosure. Lack of notification would allow lenders to more quickly obtain a summary judgement to auction the property.
Foreclosure defense attorneys and consumer activists say the bill would put the burden on owners to maintain their constitutional right to due process.
Backers say the bill is intended to help solve the problem of increasing numbers of abandoned homes and would speed up foreclosures where the borrowers are willing to let the lender have the house and move on.
By Paola Iuspa-Abbott, DAILY BUSINESS REVIEW