Actions, Requirements & Results of Foreclosure

Q: What are statutory notice requirements in Florida?

A: With any assertion of default, compliance with notice provisions can be critical. In addition to default and acceleration notices, critical notices in Florida for commercial lenders are sequestration of rents and profits notices pursuant to Chapter 697, Florida Statutes and FDCPA notices when consumer debtors are involved.

Q: Do Florida courts afford a remedy of reforeclosure in the event a party is omitted that should have been joined in the original action?

A: Yes. Through additional petition to the court, the foreclosing mortgagee is able to reinstate the foreclosing lender’s mortgage, declare priorities and reforeclose the property. Sometimes this may result in an order similar to a quite title decree that directs the omitted junior mortgagee to pay all principal and interest through redemption by a date certain or else its lien would be extinguished.

Q: My title commitment shows that through subordinate liens, the State of Florida or the United States of America must be served. How do I do accomplish that?

A: Fla. Stat. Chapter 48 sets forth the requirements for serving the state of Florida under a variety of circumstances. If Florida is a party because of a tax lien, service is made on the Department of Revenue under Fla. Stat. §48.111(3). If the state’s interest is other than a tax lien, service usually may be on the state’s attorney for the circuit in which the action is brought (or this attorney’s designee) with two copies of the summons and complaint mailed to the Attorney General of Florida by certified or registered mail in accordance with Fla. Stat. § 48.121. The state has 40 days in which to respond to the complaint. Legal practitioners should modify the standard summons to reflect this extended response period. After service is perfected, an affidavit of compliance should be filed with the court.

Service of process on the United States of America is accomplished by serving a summons and complaint on the United States Attorney for the district in which the property is located (or this attorney’s designee) and by mailing a copy of the summons and complaint by certified or registered mail (return receipt requested) to the Attorney General of the United States of America at the U.S. Department of Justice in accordance with 28 U.S.C. §2410. The United States has 60 days in which to answer the complaint. Legal practitioners should modify the standard summons to reflect this extended response period. After service is perfected, an affidavit of compliance should be filed with the court.

Q: After suit is filed, what considerations should be given to adding and dispensing of other interested parties?

A: Once the lawsuit has been filed and the lis pendens has been recorded, the plaintiff should update the title report to determine if any new persons or entities filed liens or clouds of title against the property which were not discovered by the initial title search but were filed prior to the recording of the lis pendens. If any such liens are discovered, the complaint must be amended to add their holders as parties. Parties who obtain interests in the property subsequent to the recording of the lis pendens need not be joined as parties, but they will still be bound by the foreclosure. Adding and dispensing with parties often raises priority issues, such as:

Homeowners assessments – A mortgage recorded after a declaration creating a homeowner’ association but before the recording of that homeowner’s association lien takes priority over the lien unless relation-back is clearly evidence by specific language. Fla. Stat. §720.3085 provides that the association’s assessment lien relates back to the filing of the Declaration, except as to first mortgages, with respect to which the assessment lien is effective as of the date of its recording. Fla. Stat. §720.3085 further provides that a first mortgage is liable for up to 12 months of unpaid assessments, not to exceed one percent of the unpaid mortgage debt.

Condominium assessments – Condominium assessments recorded after April 1, 1992 relate back to the recording of the original declaration of condominium; however, as to first mortgages of record, the claim of assessment lien is effective as of the date of its recording.

A further discussion of priorities is set forth further above.

Q: In the rare event Defendants file an Answer, what are their typical defenses?

A: Common equitable and legal defenses include: waiver, estoppel, unclean hands, excessive lender control, duress, unconscionability, fraudulent inducement, statute of frauds, breach of contract, fraud, usery, TILA violations, statute of limitations, statute of repose, forgery, incompetency, failure of consideration, set-off, mistake, laches, payment/tender before notice of acceleration, improper assessment of charges not owed, improper plaintiff/improper assignment and procedural deficiencies.

Q: What effect does an auction price have on a deficiency?

A: A mortgage foreclosure judgment generally includes a money judgment for principal, pre-judgment interest, expenses reasonably incurred, and costs of the action as well as an order directing sale of the property. Among many other provisions, it is important to reserve jurisdiction of the court for entry of a deficiency judgment.

Q: Can objections to sale be made, and if so, how?

A: Objections to a foreclosure sale must be filed within 10 days following the sale. If an objection to the propriety of the sale is filed before the certificate of title is issued, issuance will be delayed until the objection is resolved by the court. This deadline is important, as courts routinely deny late requests to set aside foreclosure sales. A timely-filed objection will prevent issuance of the certificate of title until the matter has been resolved. There is some dispute about what constitutes proper grounds for objecting to a foreclosure sale. Acceptable grounds have included: 1) gross inadequacy of consideration; 2) surprise; 3) accident; 4) mistake; 5) incorrect legal description of the property; 6) collusive bidding agreements; 7) failure to give notice of supplementary court orders; 8) failure of the mortgagee to conduct diligent search and inquiry to determine the mortgagor’s whereabouts; and 9) any other irregularity in the conduct of the sale. However, it does not appear that a bid significantly below the true value of the property is not, by itself, a basis to vacate a foreclosure sale.

Q: What documents must be provided to the Clerk of Court after a Final Judgment of Foreclosure is issued and before the foreclosure sale?

A: The plaintiff must provide the clerk with certain documents so he or she can record the sale after it has been conducted and file appropriate paperwork with the court. These documents include a certificate of sale, a certificate of title and a certificate of disbursement.

Q: What does the issuance of a certificate of title after foreclosure sale mean?

A: Following the conclusion of the sale, the clerk will file a certificate of sale confirming the identity of the successful bidder and the amount of the bid. Unless objections are filed within 10 days of the certificate of sale (as referenced above), the clerk will issue a certificate of title to the successful bidder. Issuance of the certificate of title constitutes a confirmation of the sale and will pass title to the purchaser named in the certificate without need for further action or a court order. Only upon issuance of the certificate of title does the lender gain title and the right of possession. In at least one holding of a Florida court, a lender has held liable for trespassing because they changed the locks and took possession of the property prior to the issuance of a certificate of title, even prior to the foreclosure sale. The result was the lender being obligated to pay 12 months’ rent to the mortgagor. Upon its issuance, the certificate of title entitles the successful bidder to possession of the property as well as to the issuance of writs of possession to remove any unwelcome tenants who were properly joined in the foreclosure. The clerk does not warrant the title, so the buyer is subject to any liens that have not been extinguished by the foreclosure. Unless specifically reserved, once the certificate of title is issued, redemption rights are extinguished, even if the party asserting the right was not made a party to the foreclosure.

Q: How does the right to deficiency develop and how are such claims prosecuted?

A: A deficiency judgment is a personal money judgment that can be entered against the mortgagors as well as guarantors based on any deficiency between judgment amount and the value of the property as of the date of the sale. As a general rule, where the winning bid at a foreclosure sale is not sufficient to pay the entire judgment, the mortgagee is entitled to a deficiency judgment equal to the total judgment amount less the amount bid. However, if the mortgagee is the high bidder, the deficiency is determined by subtracting from the judgment amount the greater of the bid amount or the fair market value of the property. Thus, when a mortgagee purchases foreclosed property by bidding the full amount in the final judgment of foreclosure, the mortgagee’s judgment is satisfied in full and a deficiency judgment is not possible. If the mortgagee does not bid the full amount of the final judgment, or if the mortgagee does not acquire the property and the foreclosure sale price is not sufficient to pay off the loan and allowable expenses, the mortgagee can sue the mortgagor to recover the deficiency. The foreclosing mortgagee has the burden of proving that the fair market value was less than the judgment.

Deficiency judgments may not exceed the difference between the foreclosure sale price and the amount of the indebtedness secured by the final judgment of foreclosure. Petitions for a deficiency which are filed more than one year after the foreclosure judgment was entered may be dismissed as untimely. Additionally, the amount bid at a foreclosure sale is not conclusive on the issue of the property’s market value. The court also considers the fair market value of the property through appraisal evidence and testimony as well as other evidence required to determine whether a deficiency exists. For example, unpaid property taxes reduce the fair market value the property and should be considered in determining a deficiency judgment. It is not uncommon for deficiency proceedings to turn into a battle of differing real estate appraisal experts.

A post-foreclosure deficiency proceeding can follow either one or two courses. Within one year following the foreclosure sale, the lender can file a separate action at law against any makers or guarantors for the sum of the deficiency. More typically, however, deficiency proceedings follow judicial sale through an application made by the lender in the original foreclosure action. Often this simply requires a motion seeking deficiency and noticing a hearing on the merits. If the deficiency is contested, usually basic discovery will be initiated, specifically exchanging appraisal reports of the testifying real estate valuation experts.