POST IN DEPTH: FORECLOSURE FALLOUT How to get your house for free: Rare but possible
WEST PALM BEACH — Florida’s five-year deadline to foreclose on a home is ticking on thousands of aging cases statewide, giving lucky borrowers a shot at a free house and catching banks with muddled files unaware.
The statute is common contract law that says a person has five years to sue on a debt, with the right to collect that money expiring at the end of the time period.
But its application to foreclosures is unsettled. A very specific set of circumstances must be in play for a homeowner to walk away a jackpot winner, and without clear case law or a high court’s ruling, its impact on foreclosures filed between 2007 and 2009 is hazy.
Still, a few prominent judgments in favor of owners, including a multi-million-dollar waterfront mansion in Boca Raton, have presented another surreal twist in Florida’s lengthy foreclosure fiasco.
“At some point there has to be an end to the dispute, and if a bank sits on its rights for five years, or they try once and fail and don’t bother to try again, then they abandon their right to go after someone,” said foreclosure defense attorney Michael Wasylik. “You either pull the trigger or you don’t, and you get five years to do it.”
No one knows how many foreclosure cases the deadline could affect, but estimates range from several hundred to thousands.
In Palm Beach County, 30,100 foreclosures were filed in 2008. There are about 1,550 still in the system that are five years old or older.
But it’s not just age that determines whether the statute of limitations will grant a free house.
The most common scenario in Florida: The bank filed the initial foreclosure, then dismissed it for whatever reason and failed to refile during the five-year period. It is possible that cases currently in the system, and older than five years, could get dismissed and then can’t be refiled because the allotted time has run out.
It’s also critical to know when the clock started ticking. Most attorneys agree it’s at the time of “acceleration” — when the bank decides after a series of missed payments that the entire loan amount is due. That typically happens when the foreclosure is filed with the court.
Homeowners can’t just assume they will be protected by the statute. If a lender files after the deadline passes, and the borrower doesn’t respond and defend the case, the bank could win despite missing the deadline.
“These cases are out there, and we are educating our clients,” said attorney Ronnie Bronstein, whose Holllywood-based firm Mansfield Bronstein represents homeowners associations.
In May, the firm won a million-dollar condo for one of its clients because the bank missed a filing deadline by less than two weeks. In that case, the court agreed that acceleration began when the bank filed for foreclosure Nov. 8, 2007. When the lender failed to show up for trial in 2011, the case was dismissed.
In the meantime, the condominium association board had taken ownership of the unit through a foreclosure for unpaid dues and was renting it out.
When the bank refiled for foreclosure on Nov. 19, 2012, the condo association argued the five-year deadline had passed. Miami-Dade Circuit Judge Peter Lopez agreed.
Bronstein said the bank didn’t appeal because it doesn’t want definitive case law that could shut it down in other foreclosures. There is a 2012 judgment from the state’s 3rd District Court of Appeals — Elizabeth Spencer vs. EMC Mortgage — that rules in favor of the homeowner, in part, because of the five-year statute. Spencer hadn’t made a payment on a $76,000 mortgage since 1997, according to the ruling, because of the “stumbling, bumbling, and general ineptitude of the (bank) and its representatives.”
“As someone — probably either St. Thomas More or George Costanza — must have said, the law is the law,” the ruling states. “Notwithstanding the distasteful consequences of applying it in this case, it must be served.”
While some foreclosure defense attorneys are hesitant to discuss the statute for fear of a public backlash or awakening the banks to the deadline, Bronstein said he hopes the publicity will force lenders to start moving cases through the courts.
“If it means a couple homeowners get to keep their houses for free, so be it,” he said.
Several unprecedented events during Florida’s housing crisis have increased the chances that borrowers will benefit from the five-year statute.
In the fall of 2010, it was revealed that hundreds of thousands of foreclosure documents filed with Florida’s courts were flawed or fraudulent. Sloppy paperwork was signed by robosigners who swore to things that they had no knowledge of and fraudulent notarizations attested to the veracity of the signers even when the notaries weren’t present during the signing.
Banks took much of the blame, but heat also came down on Florida’s foreclosure mills, which were already under investigation by the attorney general’s office. The largest firm was the Plantation-based Law Offices of David J. Stern. He was fired by most of his clients and shut down in 2011. An estimated 100,000 foreclosures statewide were left in limbo by the collapse.
Cases were transferred or lost, and in the tumult, many were dismissed. If new attorneys haven’t refiled yet, the statute of limitations may have expired. The Fort Lauderdale-based Law Offices of Marshall C. Watson, which closed after settling with the attorney general’s office, was the original firm that handled Bronstein’s condo case.
“I’d say many cases will be where Stern was involved and no one followed up,” Wasylik said. “But unless the bank was completely asleep at the switch, you still won’t see a ton of cases with a statute of limitation problem.”
More recently, courts have been under pressure to clear the backlog of 340,000 foreclosure cases statewide. Additional judges were hired with money from the National Mortgage Settlement and older cases — those filed before mid-2010 — are being set in Palm Beach County for trial regardless of whether the two sides are ready to proceed.
If banks are forced to trial unprepared, they may have to take a voluntary dismissal. The statute would bar a refiling of the case if it’s older than five years.
Royal Palm Beach foreclosure defense attorney Tom Ice estimates he has 50 clients affected by the statute.
“Ironically, many come out of the courts’ recent push to try cases,” Ice said.
In the case of the waterfront Boca Raton mansion, a legal misstep by the bank’s attorneys at trial forced them to voluntarily dismiss the case July 25. Because it was originally filed more than five years ago, homeowner attorney Roy Oppenheim said it will go to the homeowner free and clear.
But the bank is fighting back on that case, asking for the dismissal to be reversed, and attorney Shari Olefson said lenders may find statute workarounds.
“You always have multiple remedies under loan documents,” said Olefson, who is the CEO of the Carnegie Group think tank, which focuses on real estate, business, education and healthcare.
She said lenders may even go after mortgage servicers or law firms for dropping the ball.
“There’s just not enough information right now to know how this will play out,” Olefson said.
Oppenheim said pursuing attorneys or servicers for malpractice is small potatoes for banks who are foreclosing on billions of dollars of real estate. That’s the same reason he thinks banks haven’t rebelled in force against the statute.
“These are just rounding errors for them,” he said. “But we are all having success. It’s not a wives’ tale, it’s not an urban legend, it’s happening.”
Rulings based on statute
$8.4 million Boca mansion: A waterfront mansion purchased in 2003 was foreclosed on Jan. 9, 2008. After years of court pleadings, the bank had to voluntarily dismiss the case at a July 25 trial because of a legal misstep. Homeowner attorneys believe the bank is barred from refiling because of the statute.
$1.5 million Aventura condo: A condominium bought in 2005 went into foreclosure Nov. 9, 2007. The case was dismissed in February 2011 when the bank missed a trial. In the meantime, the condo association foreclosed for unpaid dues and rented the unit out. On Nov. 19, 2012, the bank refiled its foreclosure as the primary lienholder, but because it was past the five-year deadline, the judge allowed the association to keep the unit.
$76,000 Miami mortgage: Last year, the 3rd District Court of Appeal ruled in favor of a homeowner who had not made a mortgage payment in 15 years, but whose foreclosure got caught up in bank failures and multiple law firm changes. The ruling was in part due to the expiration of the five-year statute. The court blamed the “stumbling, bumbling and general ineptitude” of the lender and its representatives for the judgment.
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 .