A Summary of Florida's
1993 Mortgage Foreclosure Act
"Practice and procedure may never be the same."
By Mark A. Glitto
On October 1, 1993, new Florida laws went into effect that amended portions of the mortgage foreclosure statutes. The new law is a product of two years of work by the Foreclosure Study Commission, the Florida Bankers Association and the Florida Bar. The Foreclosure Study Commission was directed by the Legislature to review the existing mortgage foreclosure process in Florida and to identify the problems with the existing system. The Commission reviewed the foreclosure system in Florida and studied and compared foreclosure systems in other jurisdictions. The Commission reviewed alternatives to the existing system including non-judicial foreclosures. Although the Florida Legislature ultimately decided against adopting a non-judicial foreclosure process, the Act makes changes in the foreclosure process that will expedite the mortgage foreclosure process. The changes are extensive and Florida mortgage practice and procedure will never be the same.
Overview of Principal Changes
This summary gives a brief overview of ten principal changes in the foreclosure process.
1. Amended Fla. Stat. 45.031 provides that a final judgment of foreclosure shall direct the clerk to conduct a public sale within 35 days, unless the court in its discretion finds reason to enlarge the time. The purpose of this addition is to speed up judicial sales.
2. Newly created Fla. Stat. 45.0315 adopts a uniform redemption period for mortgagors and holders of subordinate interests. Now property is redeemable from foreclosure by paying the amount specified in the judgment, including the reasonable expenses of foreclosure, any time before the filing of a certificate of sale. Before this change, a mortgagor had the right to redeem the property until the issuance of the certificate of title.
A holder of a subordinate interest may redeem the property any time before the entry of final judgment. The new statute shortens the time for redemption by mortgagors and lengthens the time for holders of subordinate interests.
3. Amended Fla. Stat. 48.193 provides for the long arm jurisdiction of Florida courts over persons holding any mortgage or lien on property in Florida. This amendment treats a lienholder similarly to persons owning, using or possessing real estate in Florida.
4. Modified Fla. Stat. 48.194 to provide for service of process by registered mail on out-of-state defendants. Registered mail includes certified mail with return receipt requested. If the registered mail is accepted, service is obtained upon the signing of the return receipt. The receipt may be signed by anyone, upon whom substitute service can be made. A problem exists because it may be impossible for the lender to know weather, the served party satisfies these requirements. Thus, substitute service cannot be relied upon. Unless the identity of the recipients is known, or the title insurance company involved accepts counsel's affidavit of identity of the recipient, personal service must be obtained.
Note, if this type of service is acquired, the lender cannot pursue a deficiency judgment because personal jurisdiction was not obtained.
5. Amended Fla. Stat. 48.23 clarifies that filing of a lis pendens does not form a bar to enforcement of possessory interests. This did not create a substantive change in the law, but corrects an ambiguity. The amendment also clarifies that a lis pendens bars the enforcement of subsequently recorded federal tax liens.
6. Amended Fla. Stat. 49.021 allows service of process by publication if service by mail is ineffective. Fla. Stat. 49.09 is amended to require defendants served by publication to file defenses within 30 days of the first publication of the notice of action. Further, Fla. Stat. 49.10 is modified to exempt foreclosure actions from the general rule that notices be published once a week for four consecutive weeks. The new statute provides that notices are published only once a week for two consecutive weeks.
7. Amended Fla. Stat. 55.10 requires that judgments contain the social security number of the judgment debtor, if known. Although the failure to include it will not affect the validity of the judgment. This section is also amended to mandate that the judgment contain the address of the judgment creditor or be recorded with an affidavit containing that address.
8. Fla. Stat. 697.07 is amended to clarify ambiguities that had arisen from the former statute regarding assignment of rents. The new law provides that an assignment of rents contained in a mortgage is a lien on the rents rather than an absolute transfer of title to the rents. After default and upon the written demand by the mortgagee, the mortgagor must turn over all rents in possession unless the monies are used for expenses approved by the mortgagee.
9. Amended Fla. Stat. 701.04 requires that the mortgagee provide the mortgagor with an estoppel letter (reinstatement letter) within 14 days after receipt of a written request. This estoppel letter must set forth the unpaid principal balance, interest due, and the per diem interest rate of the mortgage. Section 701.04 does not state if a lender can charge a fee or limit the number of requests for this letter. No remedies have been set forth if the lender does not provide a timely estoppel or payoff letter.
10. New Fla. Stat. 702.10 creates an expedited foreclosure process in non-residential cases. It provides for an order to show cause why a foreclosure judgment should not be entered. The order may be entered upon notice and hearing after the filing of the complaint. The show cause procedure allows for the hearing of a case-dispositive motion without waiting 20 days after service of the complaint and for a defendant to file a responsive pleading followed by a second 20-day period for the defendant to respond to a motion for summary judgment.
An expedited foreclosure process may prove to be a powerful new remedy for the lender in non-residential cases. A potential problem exists since it may cause borrowers to file for bankruptcy relief more often and at an earlier stage to avoid losing possession of the property. A result may be the filing of more and costlier bankruptcies. Currently, filing for bankruptcy relief is not done until after a summary judgment of foreclosure is entered and just before the foreclosure sale takes place.
Writ of Possession
Section 14 of the act provides that upon the filing of an affidavit with the clerk that the premises have not been vacated pursuant to an order for possession, the clerk shall issue to the sheriff a writ for possession for the property. This adopts my current practice of including a provision in the foreclosure judgement providing that the court retains jurisdiction to issue writs of possession.
Subsection 702.10(2) provides that in foreclosure actions on nonresidential property the mortgagee can request the court enter an order directing the mortgagor to establish why payments should not be made to the lender. If payments are not made the borrower must vacate the property. If the borrower waves the right to be heard at the payment show cause hearing the court can enter an order requiring monthly payments, or surrender of the property. If the mortgagor does not wave the right to be heard the court will consider all claims and defenses in making it decision. The filing of defenses does not necessarily preclude the entry of an order requiring payments be made.
If the court finds that the mortgagee is "likely to prevail" in the foreclosure case, the court will order the mortgagor to make the monthly installment payments into the registry of the court. This requirement is similar to Florida Statue Sec. 83.60, the eviction statute, which requires a tenant to pay rent into the registry of the court in order to defend the eviction action. The mortgagor has the option of filing a bond equal to the unpaid balance of the mortgage including all interest, principal, unpaid taxes and insurance premiums paid by the mortgagee. In which case the order directing payments into the registry of the court will be stayed pending final adjudication of the case.
Retroactive and Prospective Issues
Whether or not the Act applies to loan documents in existence before the Act depends upon whether the provision in the Act is held to be substantive or procedural. add If found to be substantive additional considerations include when the cause of action is deemed to have occurred. Unless the Legislature provides otherwise, a substantive provision in the statute is construed as having prospective effect, and thus applies only to contracts entered into after the effective date of the statute. A provision which relates to a procedure or remedy is applicable to all pending cases and loan documents. Generally, substantive matters are those which create a new obligation or duty. Procedural or remedial matters are those which concern "the course, form, manner, means, method, mode, order, process or steps by which a party enforces substantive rights or obtains redress for their invasion." Haven Federal Savings & Loan Association v. Kirian, 579 So 2d 730, 732 (1990)
Whether a particular portion of the Act is substantive or procedural will certainly be disputed in court. Certain provisions affecting service of process, time periods for responsive pleading, time of foreclosure sale, exercise of assignment of rents clause, and orders to show cause appear to be procedural since they relate to enforcement of existing rights. Specifically, the "judgement show cause" procedure simply provides a mechanism to expedite the lender's contractual right to foreclose upon default. The "payment to show cause" procedure merely enables the lender receive payments due and owing under the note.
Substantive provisions establish or alter rights or obligations of parties to existing loan transactions. Examples of these in the Act include: rights of redemption which affects the rights of the borrower or junior lien holder; The notice of lis pendens which affects the rights of parties in possession and holders of easements; inclusion of addresses in judgements which creates a new obligation on lien holders; the lenders duty to provide an estoppel letter which creates a new obligation on lenders.