Bill has the support of Real Property, Probate and Trust Law Section
By Gary Blankenship
If you want to get Rep. Kathleen Passidomo’s attention, just refer to HB 87 as a “speedy” foreclosure bill.
“Frankly, the only way a foreclosure could be speedy is if it’s nonjudicial, and that’s not acceptable to me,” said the Naples Republican.
“I think the courts need to be involved in the process, and what we need to do is give the courts the tools to streamline it [the foreclosure process] and make it efficient.”
For the second year in a row, Passidomo has introduced a bill to “streamline” the handling of foreclosure cases. Her bill last year cleared the House but stalled in the Senate.
The bill also has the support of the Bar’s Real Property, Probate and Trust Law Section, which worked with Passidomo both last year and this year on her bills.
Passidomo said the new bill addresses a multitude of problems that have slowed the handling of foreclosures, from faulty paperwork from lenders, trumped-up defenses by borrowers, and delays by parties in pursuing cases. It also attempts to provide certainty for buyers of foreclosed properties and help for homeowner or condominium associations that are owed back maintenance payments on foreclosed properties.
The bill was filed around the time the federal government reached a settlement with 10 major banks over irregularities in their handling of foreclosures — and some officials and consumer groups have said errant paperwork figures into as much as 75 to 90 percent of all foreclosures. The banks agreed to provide $8.5 billion to aid homeowners, both those who have been foreclosed and those facing foreclosure.
Passidomo said her bill was not intended to help banks who used faulty paperwork in foreclosures, but rather ensure that their paperwork is in order before they file. It imposes the penalty of perjury if false documents are filed to show ownership of a lost or misplaced mortgage.
“Basically, what I’m saying to the lenders is: Don’t file the foreclosure complaint unless you have all your ducks in a row,” she said.
That should help speed foreclosures by doing away with hearings necessitated by challenges to false or missing documentation, Passidomo said, adding, “We want to make sure that anyone who files a foreclosure complaint has the right to do so.”
She also noted that “under the Uniform Commercial Code there are provisions for establishing a lost note. We’re kind of beefing up those provisions, making sure if the lender says he has lost the note, it is lost and someone else doesn’t have it.”
The bill also gives homeowner and condominium associations the ability to seek a quick resolution of a foreclosure action. All too often, Passidomo said, banks have filed a foreclosure and then delayed getting the final ruling or continually postponed the judicially ordered sale because the bank would wind up buying the property at the sale and then would become liable for past due and ongoing homeowner and condominium association assessments and dues.
“Lenders have been taking the process so far and then stopping,” Passidomo said. “That is detrimental to homeowners and condominium associations. Many of them don’t have the funds to do their own foreclosure. This says a lienholder or anyone entitled to a lien has the right to ask the court to move the process along.”
The bill also requires that defendants show a legitimate objection in order to hold up a foreclosure. Passidomo said that is in reaction to what she said has become a common practice of attorneys offering to delay foreclosures for the debtors which allows them to stay in the home without paying the mortgage.
“The due process rights of the lenders will be protected by the courts,” she said. “If the borrower has a valid defense, then the borrower makes that defense. If not, then the court can move that along, and the condo and homeowner associations can be paid. . . . If the borrower has a valid defense . . . that’s not going to be streamlined. That’s going to have a hearing.”
Aside from tightening up documentary requirements and keeping the judiciary involved in the foreclosure process, Passidomo said the bill has other advantages for borrowers. One is that it would cut the time lenders have to seek deficiency judgments against borrowers from five years to one year from the foreclosure.
The bill also could reduce the amount of some deficiency judgments.
Under current law, the judge can set the amount of the deficiency, which can be up to the value of the mortgage. Under HB 876, the value would be limited by the fair market value of the property on the date of the foreclosure sale, which could be considerably less than the outstanding mortgage.
Another section of the bill protects owners who buy foreclosed properties. Except in limited circumstances, those sales could not be undone and parties would be limited to seeking monetary damages from lenders.
“My concern is not the title problem [with a defective foreclosure] per se, but the new homeowner,” Passidomo said. “The problem is title insurance is probably not enough to cover all of the sweat equity people are putting into the property. Secondly, they’ve moved into the property; this is their home. These are people who had nothing to do with the foreclosure; they just came in and are living there. My concern is they’re going to get a summons that says, ‘By the way, we’re going to try to take this away from you.’ And they have to go back and defend that.”
The finality will also encourage title insurance companies to insure foreclosed properties when otherwise they might be reluctant, she said. Nor is undoing the foreclosure necessarily in the best interest of the original borrower, she added.
In one case, Passidomo said, a family had been foreclosed and moved out of state when the lender discovered an error in the process and went to court to revoke the foreclosure. But the former owners didn’t want the property back, because it would come with the mortgage that they still could not afford to pay, and they had moved on with their lives.
Jerry Aron, of the Real Property, Probate and Trust Law Section, said Passidomo consulted with the section and incorporated several of its suggestions into her bill last year and into the new bill. He said the new bill is close to the final version that passed the full House last year.
The section has endorsed Passidomo’s draft this year, but hasn’t formally looked at the version that came back from the Legislature’s bill drafting service, although Aron said there do not appear to be any objectionable changes from that.
“The section’s view is protecting due process rights is essential,” Aron said, adding the section is satisfied the bill does that.