What Lenders Need to Know About Providing Adequate Protection for a Lost Note under § 702.11 in Connection with a Mortgage Foreclosure
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Section 673.3091, Florida Statutes, permits lenders to enforce lost, destroyed, or stolen instruments, but only upon certain conditions. One of those conditions is that “the person required to pay the instrument is adequately protected against loss that might occur by reason of a claim by another person to enforce the instrument.”
But what is “adequate protection”? Section 673.3091(2), Florida Statutes, merely states that “adequate protection may be provided by any reasonable means.” That’s why the Florida Legislature adopted Section 702.11, Florida Statutes, to clarify what “adequate protection” means in the mortgage foreclosure context. This article first explains when Lenders must prove “adequate protection.” Second, this article explains how Section 702.11, Florida Statutes, clarifies what constitutes “adequate protection.”
When Lenders Must Prove Adequate Protection
“[A]dequate protection is not an element of the Bank’s prima facie case. Instead, it is a post-proof condition of the entry of the final judgment.” Blitch v. Freedom Mortg. Corp., 185 So. 3d 645, 646 (Fla. 2d DCA 2016). Therefore, lenders need not post a surety bond, indemnification agreement, letter of credit, etc. until after they have proven the elements to re-establish a lost note.
Although furnishing adequate protection is not a part of the lender’s prima facie case, it is nevertheless the lender’s burden to furnish adequate protection before entry of the final judgment. See Delia v. GMAC Mortg. Corp., 161 So. 3d 554, 556 (Fla. 5th DCA 2014) (“Because the bank failed to introduce any evidence on . . . adequate protection of its lost note, we reverse.”). Therefore, if a lender fails to provide adequate protection, or if the trial court fails to make a finding that there is adequate protection, the judgment may be reversed on appeal. See id.
Section 702.11: Adequate Protection in Mortgage Foreclosures
Section 702.11, Florida Statutes, provides that, in connection with mortgage foreclosures, adequate protection includes: (1) a written indemnification agreement by a person reasonably believed to be sufficiently solvent to honor such an obligation; (2) a surety bond; (3) a letter of credit issued by a financial institution; (4) a deposit of cash collateral with the clerk of the court; or (5) such other security as the court may deem appropriate under the circumstances.
However, the statute includes the qualification, “if so found by the court.” This qualification is a recognition that the protection must also have adequate terms and be of a sufficient amount, and acknowledged in an order of the court (e.g. the final judgment). The amount that is considered “sufficient” has not yet been fully fleshed out through caselaw, but it is within the discretion of the court and will, therefore, vary from case to case. Therefore, compliance with the statute does not automatically mean that protection is adequate; the statute only provides for the adequacy of the means of protection.
As a condition to the entry of a final judgment of foreclosure, where the lender has reestablished a lost note, the lender must provide “adequate protection.” Section 702.11, Florida Statutes, explains the means with which lenders can provide such “adequate protection,” but in order to obtain a non-reversible final judgment of foreclosure, the lender should also ensure that it provides a sufficient amount of protection, provides adequate terms, and that it provides the adequate protection at the right time.