Fast-Track Foreclosure Bill: Winners and Losers
[In The Trenches] written by Roy Oppenheim, Oppenheim Law.
Now that Florida Governor Rick Scott has signed HB 87, better known as the fast-track foreclosure bill, I thought it would be a good time to take a look at the winners and losers who will be impacted by this misguided piece of legislation.
Suffice it to say that every law passed by the legislature has various special interests that are for and against a particular piece of legislation: HB 87 was no different. From the beginning, this bill was very complex because there were so many different parties many of who had very strong interests in either its passage or failure.
Earlier this year, HB 87 sparked a rare internal fight among members of the Florida Bar Real Estate section. On one side were Florida Bar members, like myself, who help homeowners facing foreclosure. On the other side were members of the Bar’s Real Property, Probate and Trust Law Section who hired a lobbyist to get the bill passed. Members of the Real Property section say the bill offers many new protections to distressed homeowners and buyers of repossessed homes.
Ultimately, the bill that passed is a hodgepodge of elements that likely will gum up the foreclosure process because there are parts of it that are either unconstitutional or sufficiently ambiguous so that controversies will linger on in the appellate courts for years.
So, who wins and who loses?
Title Insurance Underwriters win
The clear winners, first and foremost, are the title insurance underwriters. They basically got a “get out of jail” card for free by no longer being liable or responsible for a bad foreclosure that they insured to a purchaser of a property.
The losers are the original homeowners who were foreclosed upon and may have been illegally foreclosed upon. While they can sue the bank for an illegal foreclosure, if they can find an attorney willing to handle such a case, they will never be able to get their home back
So, for example, if someone went on a cruise around the world and they prepaid their mortgage for six months, but the money was applied to the wrong account and ultimately that homeowner was foreclosed upon, then that homeowner could conceivably come home to find that their home has been sold at the courthouse steps. At that point, their only recourse would be to sue the bank for the loss of the home. They will not be able to get their home back if the bank was able to foreclose upon it and someone else purchased the home at a foreclosure sale.Or, in the alternative, if the bank took possession of the property and sold it as an REO, in those circumstances if the title insurance company had issued the title insurance policy, they will not suffer the consequences of having a claim filed against them by the new owner of the property. The reason being is that the legislature made it clear that the prior homeowner who was illegally foreclosed upon will not be able to get their property back.
Law throws baby out with the bathwater
Unfortunately, that provision takes probably 500 years of Anglo-American jurisprudence, and turns it on its head. The idea that our home is our castle and has a unique place in American culture has been thrown out as the baby with the bathwater for the sole purpose of trying to clear up the backlog of foreclosure cases.
A report issued in April by the Foreclosure Initiative Workgroup, showed that nearly as many foreclosure cases were reopened in 2012 as new ones were filed with a total of 186,651 new cases filed and another 156,069 previously-closed cases re-opened. That figure suggests that many of those original cases were defective.
In addition, the banks will have a doozy of a time trying to bring their foreclosures in the first place. A new construct that previously has not existed has been created — a chain of title for a lost promissory note has been created out of thin air by the legislature. This notion has never previously existed in Florida law or probably any other law in the United States.
Simply put, the banks will now have to show how a lost promissory note went from A to B from B to C from C to D and from D to E. Up until now all the banks had to do was show that E had the note through an endorsement. That will no longer work and a bank will not be able to bring a foreclosure if they can’t prove that new element of a foreclosure case.
Interestingly, since 95 percent of all cases are uncontested, the question will be whether the judiciary will feel they have an obligation and responsibility, pursuant to their oath of office, to actually police this new law.
Foreclosure defense attorneys big winners
Of course, foreclosure defense attorneys like myself will have a field day with this new provision in that it will provide us with a new major quiver in our satchel of weapons which we can use to oppose the banks’ foreclosures.
Ironically enough it was the foreclosure defense bar, from the very beginning, that was concerned that the banks had lost control over their paperwork and that they had committed various misrepresentations and outright frauds to the judicial system when they were bringing their foreclosures in the first place, a la the “rocket dockets.” For example, many times the servicer pretends to be an owner or the owner pretends to be a servicer, when in fact it could be one or the other.
The new law also addresses homeowner associations. If a home is in foreclosure, then there is a good chance the HOA has not been able to collect dues or assessments. It appears that under the new law homeowner associations will be able to speed up their own foreclosures and possibly the banks’ foreclosures.
Mixed-bag for HOAs
In terms of the associations bringing their own foreclosures it is a mixed bag. If they do bring the foreclosure and they end up with the property, they will forego any back revenue (i.e. HOA fees, fines, etc) that was not collected from the prior homeowner.
The association can rent out the property and make up the back assessments through the rent. Most of the time, however, the association will ultimately lose the property to the bank because the bank will have the lien that is superior to the association. The question is will this actually help the associations. I think the jury is clearly out on that one.
Another group who may be hurt by the bill are individuals who are in foreclosure, yet the home is not their primary residence, but rather an investment property that they rent out.
Under those circumstances, under the new law, the banks have the opportunity to attempt to have the rents directed either to the bank or to the courts during the pendency of the foreclosure.
While a defendant in such a case will be able to defend such a suit, a new construct called an “order to show cause” will require the defendant to prove why the bank is not entitled to be able to collect the rents. In other words, the burden of proof and rules of civil procedure and the rules of evidence have been turned against the homeowners and the homeowner is now presumed guilty or liable prior to having their full day in court.
There is also a possibility that the poor draftsmanship of the law, resulting from it being constructed by many people and hastily pushed through the legislature, has unintentionally resulted in the omission of an entire sector of parties who previously had the right to bring foreclosure actions. The law states that a party who seeks to foreclose on a mortgage “or other lien” must demonstrate that they are either (1) the holder of the original note, or (2) entitled to enforce the note. Therefore, it would appear that a condominium or homeowners’ association cannot state a cause of action for foreclosure under the law because they are not foreclosing on a note, but rather unpaid assessments not addressed in the law.
Challenges to the law expected
Obviously, having the legislature change the rules of civil procedure is illegal under the Florida Constitution in that only the Florida Supreme Court is permitted to do that.
There will be clearly challenges to the law based on the legislature placing its nose under the judicial tent improperly and unconstitutionally.
In addition, there is a provision in the law to have a retroactive effect, which is unconstitutional for being ex post facto, retroactive and also interfering with existing contractual relations between parties all of which are unconstitutional under the Florida constitution.
Finally, the allowance of the retired senior judges to continue to serve in their capacity also is a serious constitutional question. It allows such judges to basically continue to serve while not facing either re-election or re-appointment as required by the Florida constitution.
Thus, it should be a very interesting next two years to see how the judicial branch responds to these changes. All in all one judge said it best in describing the new foreclosure bill: “Who’s on first?”
Real estate attorney and foreclosure defense attorney, Roy Oppenheim left Wall Street for Main Street, founding Oppenheim Law along with his wife Ellen in 1989 in Fort Lauderdale, Florida, and is vice president of Weston Title and creator of the South Florida Law Blog, named the best business and technology blog by the South Florida Sun-Sentinel. Follow Roy on Twitter at @OpLaw or like Oppenheim Law on Facebook.