By Gary Blankenship
Senior Editor

Bills that would allow banks to bypass the courts with a nonjudicial foreclosure process appear unlikely to clear the Florida Legislature this year.

The bills suffered double setbacks in House and Senate committee hearings last month. The legislation is opposed by the Bar’s Real Property, Probate and Trust Law Section, which raised many procedural and due process questions.

The first setback for the bill came on April 12, when the House Criminal and Civil Justice Policy Council failed to consider HB 1523, sponsored by Rep. Tom Grady, R-Naples. It had cleared two other House committees, and the policy council was the last stop before sending the bill to the full House.

The committee was not scheduled to meet again before the end of the session.

That left only two rarely used methods to get the bill before the lower chamber. One would be for the House speaker to withdraw the bill from the policy council and send it to legislators. The other would be for the Senate to pass its bill and send it to the House for approval.

But that latter possibility became more unlikely on April 13 when the Senate Banking and Insurance Committee failed to consider SB 2270, sponsored by Sen. Mike Bennett, R-Bradenton, and the counterpart to HB 1523. The Banking and Insurance Committee had scheduled one more meeting the following week, but that was canceled.

However, even if the bill passed there, it still has two more committees, Judiciary and Commerce, to clear before reaching the Senate floor.

Pete Dunbar, legislative consultant for RPPTL, said it “would be my best guess” that the bills are dead. In the House, he said the speaker could withdraw the bill. But in the Senate, since the bill never cleared any committee, it would take a unanimous vote to bring the bill to the floor.

The bills allow banks to foreclose from 120 days to one year after the initial notice to property owners. Property owners would have to go to court to stop the nonjudicial foreclosures, something critics said many would either not realize until too late or would be unable to afford since filing fees for foreclosures go as high at $1,900.

Dunbar and Jerry Aron, a former RPPTL chair who is spearheading work on the issue for the section, said the bills, especially the House version, were problematic in many ways.

“The section’s position is we are against nonjudicial foreclosure to the extent they don’t protect people’s property rights and due process rights,” Aron said. “And we’re zealous in protecting those rights.”

They listed several problems, starting with due process.

“When you think about basic due process, first you have the opportunity to be notified about the action taken; two, you have an opportunity in an independent forum; and three, if there is harm caused because the facts are wrong or the claims are wrong, you have an opportunity for those to be corrected,” Dunbar said. “None of those are in the House bill.”

He and Aron noted that the House bill requires only that the bank send a letter or e-mail — with no proof it was received — to satisfy notice requirements. That was changed in the House bill for the initial default notice to require proof, but not on the notice that foreclosure was beginning, Dunbar said.

Further, instead of an independent trustee or mediator, the bank can designate any employee to deal with the property owner, and only a telephone meeting is required. And if there is a mistake, as has been documented in some recent cases where lenders mistakenly sought to foreclose on the wrong homes, the homeowner should not be faced with paying a filing fee or hiring a lawyer to correct the bank’s mistakes, even if those expenses are eventually reimbursed.

“When a process like this, which ultimately has the potential of taking someone’s property, is 100 percent overseen by such an interested party — like the lender — it’s considerably more likely that the process . . . and the qualifications of the person conducting the process are less than ideal,” Aron said. “It seems a little unusual to turn the entire process over to the lenders when the lenders are partially responsible for the current clogging of the courts.”

He also said there’s a constitutional question of whether the law would meet Florida’s due process requirements.

Aside from those questions, Dunbar and Aron said the bills would not affect the backlog of foreclosures in Florida’s courts. Dunbar said that federal requirements in Fannie Mae and Freddie Mac loans — which underwrite perhaps 80 percent of Florida’s mortgages — require judicial foreclosures.

They also said there could be unforeseen consequences, including that title companies are doubtful about insuring titles for anyone who bought a property that went through a nonjudicial foreclosure.

Nor, Dunbar said, is the House bill clear about what would happen to long-term renters of a foreclosed property or with underlying mineral rights. There could also be problems with deficiency foreclosures, which occur when a homeowner fails to maintain a property or make repairs, and can happen even if the homeowner is current on payments.

After four hurricanes hit the state in 2004, Dunbar said 1.7 million homeowners filed insurance claims, but because of a lack of adjusters, it took several months for claims to get settled, leaving those owners open to deficiency foreclosures. Likewise, he said sometimes in condominiums, it’s the condominium association that’s responsible for repairs, not the unit owner. But the association can drag its feet, leaving the owner vulnerable.

Aron and Dunbar agreed with supporters of the bills that other states do have non-judicial foreclosures. But they said there are differences. Those states typically have trustees acting as neutral third parties. Plus, Aron said, Florida has legal differences.

“Florida, in most respects, is very different. We are what’s called a lien theory state [where the property owner holds the title] as opposed to a title theory state [where the mortgage lender holds the property title until the loan is paid off],” he said. “We have a state constitution that protects access to the courts, due process, and property rights. And that combination of four elements makes us unique and different. It’s a major, major change in Florida to move to nonjudicial foreclosures.”

Despite their criticisms of the bills, Aron and Dunbar said they are not unsympathetic to the problems of bankers.

“The truth of the matter is these are borrowers who haven’t paid, and the lenders do need some relief when it comes to frivolous defenses that are being filed — and on abandoned property,” Aron said. “They are entitled to relief, and the section has worked with the bankers on proposed legislation to assist the bankers in those areas.”