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April 15, 2013
Letters

Foreclosure Legislation
We write as members of The Florida Bar and in some cases as members of the Real Property, Probate and Trust Law Section to express our deep concern with the section’s support of Senate Bill 1666 and House Bill 87, which propose to materially change the rules governing foreclosures in Florida.

The proposed amendments are in complete derogation to fundamental tenets of due process and property rights. The passing of this legislation would completely disregard the evidence code, allowing courts to presume liability with only a prima facie showing by the plaintiff, and without opportunity of homeowners to conduct discovery into possible abuses by the banking industry that often result in out-of-court settlements between lenders and homeowners, or a rash of voluntary dismissals by the banks.

This proposed legislation would effectively undo 250 years of American jurisprudence, returning us to a legal dark age. Furthermore, certain proposed amendments would apply retroactively, creating ex post facto provisions which violate both our state and federal constitutions.

The proposed legislation favors banks, retired judges, homeowners’ associations and title insurance companies, and disfavors homeowners and newspapers. While banks support the bills because they provide them with an expedited procedure of foreclosure, many of these procedures will effectively reduce the financial incentive for lenders to participate in short sales and negotiated settlements that are helping restabilize the Florida real estate economy.

SB 1666 proposes to dramatically increase the use of retired senior judges, an issue that has profound constitutional implications. Article V of Florida’s Constitution requires that judges who reach the age of 70 retire and cease to maintain full case loads. The Florida Constitution also requires judges who preside over cases reside in the communities in which they serve and face the will of the voting public through retention votes. The proposed legislation completely ignores these fundamental protections. Foreclosure judgments entered by these senior judges will perpetually be attacked as unconstitutional, which will create unsettled cases for potentially decades, making matters ultimately worse. Overburdening of the district courts of appeal that are already struggling to keep up is not sound policy.

These bills are more interested in protecting the banking and the title insurance industries than protecting the larger interests of the Constitution, the judicial system as a whole, and the rights of homeowners. The “Finality of Foreclosure” provisions in these bills prevent homeowners from ever getting their home back even after a fraudulent foreclosure is overturned; rather, the homeowner would be entitled to economic damages only. No matter how blatant the fraud, no matter how obvious the forgery, no matter what errors are committed, once a judgment is entered, the wronged homeowner could never get that property back again.

We see no reason why there should be a special legislative exemption for an industry that has collected billions from policy premiums paid by homeowners over the years to protect them from defective title. Effectively, the Legislature would be giving the industry a huge subsidy by providing this unnecessary protection.

Should this legislation pass, the negative consequences to homeowners would far outweigh any alleged benefits to lenders, the title insurance industry, and the court system. The quantum of harm to consumers and to our legal system as a whole should shock any attorney. For example, one provision allows the retroactive application of the law to existing cases. As attorneys, even the thought of ex post facto laws should cause grave concern, creating a very dangerous slippery slope in the future in other areas of the law. If passed, these bills will change the standard in the middle of a case and subject the litigants to a new legal standard that did not exist when the case was filed. Next, the bills propose to shift the burden of proof to defendant homeowners. The plaintiff in all suits has the burden of proof to substantiate its allegations. The bills usurp the role of appellate courts by providing safe harbor for lender mortgage fraud by making foreclosure judgments final. The bills also overturn a long-standing law that only requires depositing of payments into a court’s registry where agreed upon, by the parties, in the mortgage to instead now require that any homeowner who is not occupying his or her home pay his or her mortgage in full or immediately lose possession.

Homeowners, who are already fighting an uphill battle in defending foreclosures, would effectively have little chance at defending their rights at a preliminary hearing where the banks need only show a prima facie case to foreclose. Bank fraud and robo-signing, which have primarily been exposed through discovery during the foreclosure process, will likely remain buried should the proposed summary procedures be permitted, and would not have been uncovered in the first place had these laws been in place at the time. These fast and loose procedures build a house of cards that could eventually collapse without the proper procedural and substantive safeguards in place. The more than 30,000 dismissals (in 2012 alone) for incomplete or fraudulent documentation is indicative of the banks’ own acknowledgment of their legal shortfalls.

This unfortunate track record is well documented and required the Florida Supreme Court to take unprecedented action. Never before in the history of Florida jurisprudence has the Supreme Court amended a Rule of Civil Procedure, as they did with Rule 1.110(b), in order to try to protect the courts and the public from the financial industry’s rampant use of false documents in courts across this state.

We realize that proponents of the bills are willing to sacrifice due process rights for the sake of expediency. The unfortunate, even awful, irony here is that these bills will not achieve the intended result. A major impetus for the bills is that associations should be able to schedule a “show cause” hearing so they can accelerate foreclosure cases that the banks are slow to prosecute. This would, in theory, get nonpaying homeowners out of these homes, replacing them with homeowners who will pay the associations. The fatal problem with this concept is that associations can schedule “show cause” hearings, but they can’t file the requisite bank documents for the bank to obtain a foreclosure judgment, nor can the associations force the banks to file said documents. Banks won’t prosecute their own foreclosure cases to judgment, and no amount of legislation, certainly not these bills, can force them to do so.

While we all agree that Florida’s courts are struggling to cope with thousands of pending foreclosure cases, this proposed legislation is not the solution. We must not undermine due process and fairness in our legal system in a foolhardy rush to clear the backlog of foreclosures at the expense of the integrity of our judicial system. We deserve better. Florida’s homeowners deserve better. We call on the section leadership to withdraw their support of the bills and stop lobbying for the bills’ passage.

Roy Oppenheim
Mark P. Stopa
Evan M. Rosen
Jacquelyn Trask
Thomas Ice
Matthew D. Weidner
Christopher D. Forrest
Charles R. Gallagher III
Chip Parker
Geoffrey Sherman
Lynn Szymoniak
Margery Golant
Ellen Pilelsky
Marc Marra
Matthew Bavaro
Darin Lentner
Jon Coats
Carmen Dellutri
Jonathan Kline
Stephanie Taylor
Joshua Strudwick
J. Wil Morris
Chae duPont
Dominick Salfi
C. Michael Duncan
Manny Singh
Jaitegh Singh
Sergio Cabanas

RPPTL Section Responds
The Real Property, Probate and Trust Law Section appreciates this opportunity to address misperceptions concerning the context in which it is advocating certain reforms to our judicial foreclosure system.

The Bar has a unique view of how Florida’s foreclosure crisis has gripped Florida’s economy, including the negative impact on the judicial branch and the legal profession. Foreclosing a contested mortgage in Florida has become an extraordinarily lengthy process. Whether this extended time period is attributable to lender inaction, borrower delay, overcrowded dockets, or otherwise, debate by interested parties for half a decade has failed to produce any solution. That failure has hurt not only individual property owners, but entire communities, as evidenced by abandoned properties depressing market prices and unpaid assessments draining community associations.

Instead of ignoring a problem for which many believe there is no solution, the section’s Executive Council has pursued its commitment to help find a solution. The section’s legislative position on foreclosure reform was approved by its full 240-member Executive Council upon the recommendation of the section’s Ad Hoc Foreclosure Reform Committee. The deliberative process followed by the section in this matter was broad, lengthy, and open, and it included extensive input from many sources and much discussion with interested parties, groups, and numerous section members to ensure that all voices and viewpoints were fully considered. After taking the lead in the fight against nonjudicial foreclosure legislation, it became clear to the section that the interests of all Floridians would be better served by seeking well-reasoned reforms to Florida’s judicial foreclosure process.

The section has remained keenly aware that foreclosure reform must fairly balance the competing interests of the property owner, the lender, and the good faith purchaser of foreclosed property. Consistent with that goal, the section has vigorously opposed any amendments to existing Florida law governing real property foreclosures unless they preserve and protect the property and due process rights of those parties in a fundamentally fair way. The section also recognizes that some groups oppose foreclosure reform and support inaction for the sole purpose of delaying foreclosure, and it firmly believes that inaction and delay for the sake of delay serves to undermine trust in the courts and the independence of the judiciary.

The position taken by the section on foreclosure reform is a balanced one that contains appropriate provisions protecting the respective interests of property owners, lenders, and good faith purchasers. Thus, the section respectfully disagrees with many of the conclusions stated in the above letter regarding HB 87 and SB 1666. A few of the letter’s more extreme assertions are the following:

1. The use of senior judges is unconstitutional. Article V, Section 2(b) of the Florida Constitution expressly authorizes the use of senior judges. Further, the letter’s broad and unjustified attack on the distinguished service of senior judges due to an alleged lack of accountability overlooks the Supreme Court’s continuing oversight and recurring review process which invites and encourages input from attorneys who practice within the jurisdiction in which the senior judge serves.
2. Some of the proposed amendments would apply retroactively, creating ex post facto provisions which violate both our state and federal constitutions. The proposed changes in the way that foreclosure cases are processed are constitutional, as they do not impair existing contractual obligations or impose a penalty on prior conduct.

3. The proposed amendments would shift the burden of proof to defendant homeowners and would completely disregard the evidence code. The bills do neither. The bills impose additional requirements for stating a cause of action for foreclosure, including allegations showing that the plaintiff is a person presently entitled to enforce the note and, if the plaintiff is presently in possession of the original note, a certificate to that effect under penalty of perjury. In order to obtain a show cause order, the plaintiff is required to properly state a cause of action for foreclosure in a complaint that is verified under penalty of perjury. Only when a plaintiff has complied with those requirements may the court issue a show cause order requiring a defendant to file some paper that raises a genuine issue of material fact or constitutes a legal defense in order to avoid the entry of a foreclosure judgment. This procedure essentially applies a summary judgment standard to the show cause hearing and does not shift the burden of proof or persuasion to the defendant or eliminate the applicability of the evidence code in evidentiary hearings in foreclosure cases.

4. The proposed amendments are in complete derogation of fundamental tenets of due process and property rights. The bills fully protect fundamental due process and property rights. Nothing in the bills prevent anyone with a legitimate defense from defending a foreclosure action. The bills also protect owners of residential property by reducing the statute of limitations for obtaining deficiency judgments from five years to one year, and exempt owner-occupied residences from orders to show cause why they should not be required to make payments during the pendency of the foreclosure proceeding or vacate the premises.

5. The proposed amendments would prevent homeowners from ever getting their home back even after a fraudulent foreclosure is overturned. The bills would give additional certainty and protection to good faith purchasers for value who acquire foreclosed property after the final judgment of foreclosure by providing that title to the property cannot be later challenged. However, this protection only applies if the party attempting to challenge the purchaser’s title was properly served in the foreclosure action, final judgment of foreclosure has been entered, the appeal periods have run, and the purchaser is not affiliated with the foreclosing lender or the owner. Because all appellate rights are fully preserved, the letter’s assertion that this aspect of the bills usurp the role of appellate courts and provides a safe harbor for lender mortgage fraud is incorrect.

While fully respecting differing or opposing points of view, the section continues to believe that foreclosure reform, which seeks to responsibly expedite and streamline the judicial foreclosure process without compromising fundamental fairness or the property and due process rights of those holding interests in the property, is very much in the best interest of the citizens of Florida.

Wm. Fletcher Belcher, Chair
Real Property, Probate and Trust Law Section of The Florida Bar

[Revised: 11-26-2014]