How Fair is the Florida Fair Foreclosure Act?

By Martin A. Schwartz, Real Estate Partner

The purpose for the Florida Fair Foreclosure Act, which became effective in July, was to speed up the residential and commercial foreclosure process in Florida, where a foreclosure could take more than two years from start to finish.

In some cases, delays in residential foreclosures were caused, in part, by the lenders' failure to diligently pursue foreclosure actions. But some homeowners may have contributed to the delay by fighting their lenders on frivolous grounds.

The Act attempts to offer something for both residential borrowers and lenders. Residential borrowers benefit from the fact the act shortens to one year, down from five, the period in which a lender can seek a deficiency judgment against them. The deficiency judgment is the difference between the mortgage and the market value of the home on the day of the foreclosure sale.

In addition, under the act, lenders are required to provide specific disclosures regarding ownership and location of the note evidencing the debt being foreclosed.

In the past, some lenders had difficulty finding the proper documents to prove they owned the note they were seeking to foreclose.

For lenders, the acts expedites the judicial procedure known as "an order to show cause" by amending an existing law that was infrequently used before because in practice it did not really speed up the foreclosure progress. An order to show cause means borrowers will need to show a good reason why a judge should let them resist the foreclosure rather than allow the lender to obtain a summary judgment and a foreclosure sale. Until now, some homeowners could assert any defense, regardless of its merit, and keep the case alive for months and years.

The act limits any borrower defense to "a genuine issue of material fact" constituting "a legal defense to foreclosure."

The process, as revamped, allows a lender to obtain a foreclosure judgment in as little as 45 days from the service of the complaint. Another adverse consequence to borrowers is that after a foreclosure sale takes place, the former homeowner is now barred from challenging the sale if the appeal period from the judgment has run.

While it is unclear at this time how the act will be administered in practice, it does grant borrowers due process by requiring service of a complaint and the ability to challenge an unjustified foreclosure.

The problem may lie in the ability of residential borrowers to timely respond to the action before a foreclosure judgment is rendered and a foreclosure sale takes place. The fast track nature of the process and the perceived inability of residential borrowers to act diligently in protecting their rights may work against them. Borrowers might find themselves unable to adequately defend their property before a foreclosure sale takes place.

The order to show cause procedure was also expanded to make it available to condominium and homeowners associations foreclosing on owners for unpaid assessments.

Overall, the act appears to reach a middle ground in accelerating the foreclosure process while attempting to protect residential borrowers. Any final judgment will have to await how the courts respond to the implementation of the new law.

This article is reprinted with permission from the Miami Herald.