Written by attorney Nicholas Attilio Vidoni

The New Foreclosure Law: Not So Good for the Banks, and Not Everything Community Associations Wanted

IV. Courts Cannot Vacate Final Judgments Where a Third Party Purchased the Property at the Foreclosure Sale. Fla. Stat. 702.036.

If a third party is the highest bidder at a foreclosure sale, another party cannot subsequently vacate the final judgment under Fla. R. Civ. P. 1.540. The statute does not address whether just the sale and certificate of title can be vacated. Previously, courts have vacated those, without vacating the underlying judgment, when the Plaintiff neglected to cancel or reset the sale when there was an ongoing loan modification or short sale. Vacations of sales also occurred where the sale price to the third party was unconscionably low, or where there was a failure to adequately publicize the sale. Third party purchasers can argue that those vacations should no longer be allowed under the spirit of this statute, but the plain text of the law only disallows vacation of the final judgment in a third party purchaser scenario. As such, it appears the new statute does nothing to prohibit vacations of sales and certificates of titles for reasons currently allowed by the law. There are exceptions to this prohibition. Parties who were not properly served in the foreclosure lawsuit can still vacate the final judgment, or they can seek to reestablish a lien or encumbrance on the property. Fla. Stat. 702.036(1)(a). Parties can also seek vacation where they recorded a lis pendens for the suit to vacate the judgment prior to a sale’s occurrence. Id. Reversal of the judgment upon appeal can also occur. Id. In cases where the Plaintiff foreclosed under a lost note theory and the true owner of the note subsequently comes forward, the true owner cannot vacate the foreclosure judgment, even though it was not served in the foreclosure lawsuit. Fla. Stat. 702.036(3). Instead, the statute contemplates that the true owner’s only source of recovery is a suit for money damages. Id. Similarly, if any other party, injured by the foreclosure judgment, does not fit within one of the statutory exceptions in Fla. Stat. 702.036(1)(a), that party can only seek money damages.

V. Community Associations, and Other Lienholders, can Obtain the Fast-Tracked Order to Show Cause Proceedings. Fla. Stat. 702.10.

The legislature granted the wishes of those lobbying on the behalf of community associations. Now, community associations and other lienholders can try to fast-track stalled mortgage foreclosures by requesting an order to show cause for the entry of a final judgment. Currently, this will not likely prove to be much of a savior to the associations because most of the factors for entitlement to a show cause hearing are controlled by the contents of a plaintiff’s complaint. Prior to the new foreclosure statute, only plaintiffs could obtain an order to show cause. These orders required a defendant to assert defenses or raise issues of material facts that would preclude a summary judgment. To preclude judgment, the defendant had to verify or swear to the facts underlying a defense or issue of material fact. To get an order to show cause, and a quick hearing on the merits of the case, the plaintiff had to have a verified complaint and the complaint needed to properly allege a cause of action for foreclosure. Under the new law, community associations and other lienholders can now move for an order to show cause to obtain a proceeding for a final judgement. The old requirements that the complaint be verified and correctly allege a cause of action for foreclosure remain. The new statute adds an additional requirement: the complaint must comply with the new allegation and verification requirements found in Fla. Stat. 702.015. Fla. Stat. 702.10(1). Since Fla. Stat. 702.015 is brand new, pretty much all current foreclosure complaints do not comply with its requirements. Therefore, associations and other lienholders will not likely be able to obtain orders to show cause for the great majority of the foreclosure cases currently clogging the dockets. There is also an unresolved question as to what type of verification is required by Fla. Stat. 702.10. Is a verification based upon “knowledge and belief," in compliance with Fla. R. Civ. P. 1.110(b), sufficient, or must verification be based upon knowledge under Fla. Stat. 92.525 and its supporting case law? The show cause proceedings contemplate a hearing similar to a motion for summary judgment. Its verified complaint requirement mimics the requirement that a summary judgment be supported by sworn admissible evidence. Case law exists where the appellate court reversed a trial court’s summary judgment where the movant relied upon a complaint verified based upon language that the facts are “true to the best of my knowledge and belief." Ballinger v. Bay Gulf Credit Union, 51 So. 3d 528, 529 (Fla. 2d. DCA 2010),citing Muss v. Lennar Fla. Partners I, L.P., 673 So.2d 84, 85 (Fla. 4th DCA 1996); Barton v. Circuit Court of the Nineteenth Judicial Circuit, 659 So.2d 1262, 1263 (Fla. 4th DCA 1995); Thompson v. Citizens Nat'l Bank of Leesburg, Fla., 433 So.2d 32, 33 (Fla. 5th DCA 1983). In Ballinger, the court held that a plaintiff who seeks summary judgment based upon a verified complaint needs to verify the complaint based upon personal knowledge, not based upon “knowledge and belief." Ballinger at 529. Ballinger, and the precedent upon which it is based, suggests that the complaint verification requirement for show cause proceedings must be based upon some equivalent to personal knowledge. Also, the show cause procedure, and its requirements that the complaint be verified, predate the verification requirements of Fla. R. Civ. P. 1.110(b). As such, there is a strong argument that the legislature originally contemplated, and the statute requires, that the show cause procedure cannot be used for a complaint verified on “knowledge and belief." Associations and other lienholders have no control over a plaintiff’s complaint. If the judge does not accept verifications based upon knowledge and belief, or if the complaint does not comply with the new requirements set forth in Fla. Stat. 702.015, associations and other lienholders will not be able to rely on the new statute which would otherwise allow them to obtain an order to show cause. If the association/lienholder does obtain an order to show cause, the property owner can stop a judgment by raising a valid defense or an issue of material fact. Fla. Stat. 702.10(5). To be properly raised, the defense or issue of material fact must be sworn or verified. Id. If the property owner prevails at the show cause hearing, the association/lienholder will be limited to the same techniques available to it prior to this new foreclosure law.

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