On May 14, 2020, Florida Governor Ron DeSantis issued Executive Order Number 20-121, extending his April 2, 2020 Executive Order 20-94 suspending all foreclosure actions through June 2, 2020. While the preamble to Governor DeSantis’ Executive Order makes clear that the purpose is to provide temporary relief to Floridians with single-family mortgages, the Executive Order goes further – it suspends all foreclosure actions, including commercial foreclosures. Though the deadline under Governor DeSantis’s Executive Order is now set to expire on June 2, 2020, a Florida Supreme Court Order on May 4, 2020, limiting court proceedings through May 29, 2020, and suspending jury trials through July 2, 2020, as well as orders from each of the circuit courts, makes clear that foreclosure sales will continue to be suspended for at least the next few weeks.
For now, the nearly uniform tabling of foreclosure sales, and specifically commercial foreclosures, throughout the state of Florida, may present problems. As the pandemic wreaks havoc on our economy and business cash flow decreases, many businesses will seek loans to remain afloat. While many small businesses applied for, and received, temporary relief through the CARES Act, those loans may not be enough to keep the businesses operational through the pandemic, which could last several months or even years. As such, those otherwise profitable businesses may be forced on a recurring basis to search for and obtain funding to remain operational.
But as the need for commercial loans increases, Florida’s treatment of commercial foreclosures – deeming them nonessential and suspending them indefinitely – is likely to have a chilling effect on lending. Lenders will be less inclined to issue loans if they are uncertain of their ability to enforce their loan documents.
Lenders must be aware of the difficulties they face. The following three steps can help streamline what might otherwise be an arduous litigation process when foreclosure proceedings resume:
1. Step 1: Engage in Pre-Suit Negotiations with Borrowers
Foreclosures are “equitable” proceedings. While there is no legal obligation to provide extensions or “second chances,” doing so may encourage judges to expedite resolution of your case should you need to file. To this end, it is worthwhile to attempt forbearance or pre-suit workout agreements with borrowers and document your efforts to show the court that foreclosure was a matter of last resort. Forbearance Agreements are often highly regarded by courts, which may see them as providing valuable consideration in exchange for default waivers, which will assist lenders in streamlining newly filed cases to judgment.
2. Step 2: Clean Up Perceived Weaknesses
If you have an issue with a lost promissory note or potential standing issues, these issues can be resolved in a pre-suit workout agreement. In addition to memorializing extensions or payment deferrals, lenders should seek affirmations from borrowers confirming the lender’s rights and remedies under the loan documents, including standing to foreclose.
3. Step 3: Assess Your Priorities
Set goals. While some lenders engage in a “loan to own” strategy, others look for a return on investment. Therefore, unless the lender is prepared to own the asset, lenders must consider taking a small loss to keep a good borrower making payments. In these situations, working with the borrower to make reinstatement an attractive option will allow the lender to keep its loan performing.