The New Foreclosure Law: Not So Good for the Banks, and Not Everything Community Associations Wanted
The foreclosure bill took effect on July 1, 2013. The bill’s specific text can be accessed at:
The biggest changes accomplished by the bill include: a reduced one-year statute of limitations for deficiency judgments on residential real estate; plaintiffs cannot recover attorneys fees spent to pursue a deficiency judgment on owner-occupied residential property; heightened requirements for foreclosure complaints; limits on a party’s ability to vacate foreclosure judgments after a third party purchased the property at a foreclosure sale; and community associations and other lienholders can now request orders to show cause which could possibly speed up the foreclosure process.
I. New One-Year Statute of Limitations for Deficiency Judgments for Residential Foreclosures. (Fla. Stat. 95.11(2)(b)(5)(h))
For residential foreclosures, the legislature shortened the time to bring an action for a deficiency from five years to one year after the clerk issues the certificate of title. For older cases where the property has already been sold at a foreclosure sale, the new statute of limitations requires a claimant bring the action within five years or before July 1, 2014, whichever is sooner. The legislature did not change the five-year statute of limitations for seeking a deficiency in a commercial foreclosure case.
II. A New Cap on Deficiency Judgments for Owner-Occupied Residential Property. (Fla. Stat. 702.06)
The legislature capped deficiency judgments for owner-occupied residential property by adding the following language to the statute:
[I]n the case of an owner-occupied residential property, the amount of the deficiency may not exceed the difference between the judgment amount, or in the case of a short sale, the outstanding debt, and the fair market value of the property on the date of sale. Fla. Stat. 702.06
This addition means that a plaintiff cannot recover attorneys fees spent to obtain a post-judgment deficiency decree. And if a short sale occurs, the plaintiff can only recover the “outstanding debt" minus the fair market value of the property. Since the legislature did not define the term “outstanding debt," it is subject to judicial interpretation. It may or may not include attorneys fees and costs spent in a previous mortgage foreclosure action.
III. New Requirements for Complaints (Fla. Stat. 702.015)
The new foreclosure statute has new requirements for allegations in a foreclosure complaint, and has new verification requirements for plaintiffs who hold the note or who have a lost note count. These are found in the newly created Fla. Stat. 702.015, and apply to both residential and commercial foreclosures. They do not apply to timeshares. Fla. Stat. 702.015(7). Failure to comply with these new requirements can be grounds for sanctions against the Plaintiff.
A. Plaintiff’s complaint must allege that either it is the holder of the note, or it is entitled to enforce the note on behalf of another.
The new statute requires complaints to contain an allegation that either “plaintiff is the holder of the original note secured by the mortgage," or “[a]llege with specificity the factual basis by which the plaintiff is a person entitled to enforce the note under s. 673.3011." Fla. Stat. 702.015(2). It seems that this section of the law appears to be a reaction to the way some foreclosure mills were writing their complaints. Under those complaints, there was an allegation that “Plaintiff is the holder of the note and/or is entitled to enforce the note." The new law requires more specificity. Now, complaints cannot have this “and/or" language, and a plaintiff’s attorney must now allege either the plaintiff is the holder of the note, or that it is entitled to enforce the note on behalf of another, but that it cannot do both in the same allegation.
B. Plaintiffs must allege the factual basis upon which they are entitled to enforce the note “with specificity."
The new statute also places new requirements on all plaintiffs who allege that they are entitled to enforce the note. The statute requires the complaint to “[a]llege with specificity the factual basis by which the plaintiff is a person entitled to enforce the note under s. 673.3011" Fla. Stat. 702.015(2)(b) (emphasis added). Most foreclosure plaintiffs operate under the theory that they are the holder of the note. Under the language of Fla. Stat. 702.015(2)(b), as read with the language of Fla. Stat. 673.3011, a holder of the note is classified as “a person entitled to enforce the note." Currently, most foreclosure complaints do not identify who is the “investor" or “beneficial owner," in the note and mortgage. Whether a court will require any more specificity than an allegation that the plaintiff holds the note, and whether the “specificity" requirements mandate plaintiffs to identify the investor or beneficial owner will be subject to judicial interpretation.
C. Plaintiffs who have received authority from a person entitled to enforce the note must identify “with specificity" the document that grants such authority.
Fla. Stat. 702.015(3) builds upon the requirements found in Fla. Stat. 702.015(2)(b). It specifies:
If a plaintiff has been delegated the authority to institute a mortgage foreclosure action on behalf of the person entitled to enforce the note, the complaint shall describe the authority of the plaintiff and identify, with specificity, the document that grants the plaintiff the authority to act on behalf of the person entitled to enforce the note. (emphasis added)
If the plaintiff is the servicer for the owner and holder of the note and mortgage, the plaintiff must disclose that fact in the complaint. Again, how much “specificity" is required will be subject to judicial interpretation. But the requirement that the “plaintiff identify, with specificity, the document that grants the plaintiff the authority to act on behalf of the person entitled to enforce the note" means the servicer will have to allege, at the very least, that they are entitled to enforce the note and mortgage under the authority of a servicing agreement. A judge interpreting this statute may require the Plaintiff identify some specifics of the servicing agreement, or any other document that confers authority on the plaintiff.
D. Plaintiff must verify that it holds the note under penalty of perjury.
Since 2010, the Florida Rules of Civil Procedure required plaintiffs in residential foreclosure cases to verify the allegations in the complaint based on “knowledge and belief." Fla. R. Civ. P. 1.110(b). The new statute adds more verification requirements. Now the plaintiff that alleges possession of the note must “file under penalty of perjury a certification with the court, contemporaneously with the filing of the complaint for foreclosure, that the plaintiff is in possession of the original promissory note."Fla. Stat. 702.015(4) This certification must also:
•set forth the location of the note; • provide the name and title of the individual giving the certification (Supposedly a notary?); • provide the name of the person who personally verified such possession; • provide the time and date on which the possession was verified; and •attach correct copies of the note and all allonges to the note to the certification. Fla. Stat. 702.015(4) E. Complaints with lost note counts must include an affidavit identifying the chain of ownership of the note.
Fla. Stat. 702.015(5) provides:
If the plaintiff seeks to enforce a lost, destroyed, or stolen instrument, an affidavit executed under penalty of perjury must be attached to the complaint. The affidavit must: (a) Detail a clear chain of all endorsements, transfers, or assignments of the promissory note that is the subject of the action. (b) Set forth facts showing that the plaintiff is entitled to enforce a lost, destroyed, or stolen instrument pursuant to s. 673.3091. Adequate protection as required under s. 673.3091(2) shall be provided before the entry of final judgment. (c) Include as exhibits to the affidavit such copies of the note and the allonges to the note, audit reports showing receipt of the original note, or other evidence of the acquisition, ownership, and possession of the note as may be available to the plaintiff. F. A court may sanction a Plaintiff for failure to comply with the new requirements for complaints.
The court can sanction the plaintiff, not the attorney, for violations of the new requirements for foreclosure complaints. Fla. Stat. 702.015(6). I cannot imagine what type of sanctions the legislature contemplated. Based on the prevailing case law, dismissal with prejudice would likely be seen by appellate courts as an unwarranted and extreme measure. It is most likely that many judges will not use this provision for anything more onerous than entering orders dismissing a complaint with leave to amend. Perhaps courts will award monetary sanctions to reimburse a successful defendant for the attorneys fees and costs in bringing a motion to dismiss for failure to comply with Fla. Stat. 702.015.
IV. Courts Cannot Vacate Final Judgments Where a Third Party Purchased the Property at the Foreclosure Sale. Fla. Stat. 702.036.
Due to character limits, this is the subject of another post.
V. Community Associations, and Other Lienholders, can Obtain the Fast-Tracked Order to Show Cause Proceedings. Fla. Stat. 702.10.
Due to character limits, this is the subject of another post.