COMMERCIAL FORECLOSURES:
FLORIDA’S PAY-TO-PLAY STATUTE
AND OTHER PRACTICAL TOPICS
Co-Presenters
Mark M. Wall &
Overview
In an environment of judicial and clerk of court budget cuts and with the Courts still laboring under the demands of the foreclosure crisis, Mark and Eric will be discussing ways to obtain expedited relief in commercial foreclosures by taking advantage of particular Florida statutes. They will discuss how to obtain an expedited foreclosure and how to require a borrower to make mortgage payments during the pendency of a foreclosure proceeding. Mark and Eric will also review the rights of a lender when foreclosing on income producing properties. These topics will be applicable to both lenders as well as financially distressed commercial borrowers who will be informed of laws on the books and techniques that a lender may attempt to use in the event of a default.
Judicial Admin Rule 2.250(a)
(a) Time Standards. The following time standards are hereby
established as a presumptively reasonable time period for the completion of cases in the trial and appellate courts of this state. It is recognized that there are cases that, because of their complexity, present problems that cause reasonable delays. However, most cases should be completed within the following time periods:
(1) Trial Court Time Standards.
(A) Criminal.
Felony – 180 days (arrest to final disposition)
Misdemeanor – 90 days (arrest to final disposition)
(B) Civil.
Jury cases – 18 months (filing to final disposition)
Foreclosure Crisis Statistics
• Florida foreclosure starts increased annually 83 percent from May 2011 to May 2012. Source: RealtyTrac®
• Tampa and Miami rank 5th and 6th in foreclosure activity
among the 20 largest U.S. Metros – May 2012, with Tampa showing a % change from May 2011 of 110.71%, and Miami an 11.25% change. Source: RealtyTrac®
• As of January 2012, the Florida foreclosure backlog stood at 368,000, with more on the way according to State Courts Administrator Lisa Goodner. Goodner expects the backlog of cases to grow by another 380,000 cases by 2016. For 2012-2013, she predicted 165,000 foreclosure filings.
Foreclosure Crisis Statistics, cont.
• Court clerks’ budgets were reduced by 18% in 2009. Over the past three years, their offices statewide have seen a staff reduction of about 25%.
• The state ended its $6 million program to pay retired judges to tackle a backlog of hundreds of thousands of foreclosure cases across Florida on July 1, 2011. Although the budget has been increased for next year to re-hire staff and retired judges, for now, the state’s courts have fewer judges and more foreclosure cases.
Interactive Map of Foreclosure Hot Spots
Florida Statute Section 701.10
• Invoke Florida Statute Section 701.10 order to show cause.
• Seek entry of final judgment of foreclosure. • Require payment during foreclosure.
Or, as we like to think of it, Florida’s summary foreclosure statute sometimes referred to as
Fast-Track foreclosure or Florida’s “Pay-to-Play Statute.”
Underutilized Statute Can Greatly
Expedite the Foreclosure Process
• Ask for it if you want it- file a motion
• Subsection (1) applicable to residential or commercial
• Requires a hearing within 60 days from service • Places burden on borrower, as a practical matter • Judgment can be entered at hearing and sale
scheduled
Requires Lender to Have its
Papers in Order
• Verified Complaint
• Need to be sure loan documents are available and assigned
• Submit Judgment
• Obtain Order for “Show Cause” hearing • Required content in Order
Statute Requires Borrower to Respond
in a Certain Way
• Borrower’s rights are deemed waived if no response
• Borrower must respond by motion or verified or sworn answer
• Tactical benefits of sworn answer
• Standard at hearing is whether there is cause NOT to foreclosure
Subsection (2) Can Require Payments
to be Made Upon Motion
• Applies if no relief under Subsection (1)
• Only applies to commercial (non-residential properties)
• Mortgage payments for duration of foreclosure proceedings
• If payments not made, possession (not foreclosure) can be awarded
You Have to Pay if You Want to Play
• Return hearing within 60 days
• Court can consider Affidavits and other showings
• Standard is whether lender is “likely to prevail in foreclosure action”
• If standard met, borrower has to “pay to play,” i.e. pay to defend lawsuit
Florida Statutes Section 697.07
Borrower’s Assignment of Rents to Lender
• Rents assigned at closing
• Assignment is lender’s insurance policy – security for repayment
• Rents go to Borrower as long as they service loan • Assignment needs to be recorded
Lender’s Recovery Under
Assignment of Rents
• After default, Lender’s written demand should cause turnover of rents
• Use Section 697.07 with the Pay-to-Play statute
• Rents go to (1) pay reasonable operating expenses of property; (2) escrow; or (3) PAY THE LENDER
• Rent leftover goes into Court’s registry until the foreclosure is done
• Borrower’s duty to account • Lender’s duty to account
This presentation is made available by Hill Ward
Henderson for educational purposes only to provide you general information and a general understanding of the law, it is not intended to provide nor does it constitute legal advice. The presentation should not be used as a substitute for specific legal advice from a licensed
professional attorney. Further, the subject matter
contained in this presentation is complex and subject to change. Any tax statements in this material are not
intended to suggest the avoidance of U.S. federal, state or local tax penalties.
