By Gary Blankenship
A bill to streamline foreclosures in Florida has passed its first legislative committee, although some lawyers for borrowers warned the bill would leave some homeowners with insufficient time to mount a defense.
The House Civil Justice Subcommittee voted 10-3 to pass HB 87 on February 7. At Bar News deadline, the bill had no Senate counterpart.
“We have a judicial [foreclosure] process in place that we intend to keep, but we need to give the courts the tools they need,” said Rep. Kathryn Passidomo, R-Naples, sponsor of the bill.
She said the bill has four main components:
* The statute of limitations for seeking a deficiency judgment is shortened from five years to one year from the date of the foreclosure sale.
* Lenders must have their documentation in order and complete when they file a foreclosure — a requirement in response to the robosigning and other paperwork scandals that hit the banking industry in 2009 and 2010.
* Creating a streamlined show cause hearing at the plaintiff’s request, at which the defendant must show a valid reason for contesting the foreclosure, or the judge can expedite the foreclosure process. As part of this change, homeowner and condominium associations that have junior liens for unpaid fees and assessments also would be able to seek a show cause hearing to prevent banks from dragging their feet on foreclosures in order to avoid having to pay those delinquent fees and assessments.
* Limiting claims to monetary damages once a foreclosed home has been sold to a third party and then that foreclosure is found to be faulty. Passidomo said that is necessary to protect the titles and get title insurance for foreclosed properties and protect innocent buyers of those properties. In most cases, she said, the defaulting owner doesn’t want the property back because it would come with the mortgage and unpaid assessments that they are still unable to pay. In many cases, those former owners have moved out of state or bought other homes.
The provision on the show cause hearing raised concerns among some committee members who said it would leave homeowners with less time than current procedures to hire lawyers and explore possible defenses.
“The primary concern that I have relates to the show cause hearing,” said Rep. José Javier Rodríguez, D-Miami. “Currently the borrower, in order to survive the show cause hearing, just has to show up and assert some defense. This is requiring a borrower who is asserting that robosigning has occurred, or they’re challenging the title record, or they’re asserting that the assignment of the mortgage into a secured trust, they would have to submit evidence to the court prior to having conducted any discovery.”
“If the borrower has a defense, such as, ‘I didn’t sign the note’ or some of the defenses you indicated — the big one would more than likely be the lender did not offer me a modification, which is federal law now — he only has to raise that at the hearing,” Passidomo replied.
“If there’s additional time needed to do discovery, the judge can extend it.”
Rep. Jim Waldman, D-Coconut Creek, joined in: “I think the biggest heartburn in this bill has to do with the show cause [hearing]. You’re saying if the defendant shows up in court and says, ‘I believe I have a valid defense,’ the judge should grant them time . . . or is not obligated to?”
“I think if the borrower just showed up in court and said, ‘I have a valid defense’ and said nothing else, the judge is going to say, ‘What do you have?’” Passidomo replied. “The streamlined process can only work if we have a judiciary that is handling these cases and that understands the complexity of the foreclosure process, because no two cases are the same.”
Waldman said he’s seen many cases where the interest rate on a variable rate mortgage was miscalculated, resulting in a high payment that the homeowner couldn’t pay and then a foreclosure ensued. Some homeowners don’t realize the error, he said.
“How do you protect that person who has a valid defense but doesn’t know it?” he asked.
“The lender has to actually provide an affidavit of indebtedness and has to show the amount owed,” Passidomo said. “If the borrower at the [show cause] hearing disputes that, or says, ‘Judge, that doesn’t look right,’ I think it will be reviewed.”
Jacksonville Area Legal Aid attorney Lynn Drysdale, a former chair of the Bar’s Consumer Protection Law Committee, testified that there is no need for a streamlined process because delays in foreclosures are caused by the banks themselves, not defendants.
“Faulty paperwork was involved in the majority of foreclosure cases, and servicers were not doing what they were supposed to do in considering loan modifications and short sales prior to the foreclosure process,” she said.
In the Fourth Circuit, she said, uncontested foreclosures or those without a valid defense can be handled in as little as two months. Yet last year, the circuit sent out more than 2,000 notices to foreclosure plaintiffs who had not been pushing cases that had been sitting in the courts for more than two years.
Homeowner and condominium associations already have the ability to bring a suit to force a foreclosure, Drysdale said, adding there’s no need to give them another way to do that in HB 87.
Janet Varnell, current chair of the Bar’s Consumer Protection Law Committee, said the bill rewards banks for bad behavior. She brought a pro bono client from a case she got through a Bar program to help homeowners facing foreclosure. The client’s late mother, while suffering from Alzheimer’s, had been victimized by a fraudulent loan.
Despite clear evidence, Varnell said, she has spent four and a half years fighting with the bank after the client inherited her mother’s house and the mortgage.
“And I still have not managed to get this unraveled or the bank . . . despite the clear evidence to do anything to cancel that loan. We’re still under foreclosure,” she said.
It took a while to figure out what happened, Varnell said — something there might not have been time for under Passidomo’s bill.
“There are not nearly enough lawyers who recognize what our cognizable defenses are,” she said.
Other speakers representing citizen and consumer groups said the bill lets banks off the hook after they have corrupted public property records with forged and altered documents relating to mortgages and titles.
Ronald Gillis testified there are 10,000 properties in Palm Beach County and 1,800 in Charlotte County, where banks have completed the foreclosure process but delayed the sale by more than a year. That, he said, demonstrates there is no need to further speed the process.
Another view came from Anthony DiMarco, representing the Florida Bankers Association. He said the association opposes the bill, because of the time-period reduction to file for a deficiency judgment from five years to one. He said that should be no shorter than two years.
Pete Dunbar, representing the Bar’s Real Property, Probate and Trust Law Section, praised the bill, saying it requires lenders to get their paperwork right at the start of a foreclosure, has consumer protections, and has ways for condominium and homeowner associations to force a foreclosure sale, which will help end the backlog where banks have delayed the foreclosure sale to avoid paying fees and assessments to those associations.
It also protects innocent third-party purchasers if a problem with the foreclosure is discovered after the foreclosed home is sold, he said.
Passidomo, making the final pitch for her bill, said the problem is the lender-borrower relationship in mortgages is regulated by the federal government, but it’s the states, and particularly the state court systems, that have to sort out the problems when there are foreclosures.
“The intent of this bill is to create a scenario that no matter what happened before, it’s done right when the State of Florida gets involved,” she said.
The bill passed the committee on a 10-3 vote, with Rep. Cynthia Stafford, D-Opa Locka, joining Rodríguez and Waldman in voting against the bill.
“I believe this bill addresses a short-term problem with a long-term law,” Stafford said.
“I don’t see how this bill protects homeowners who have done the right things and been the victims of fraud and other unscrupulous activities.”