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Florida Case May Cause Both Borrowers and Servicers Difficulty

Gavel BHRecently, DS News did a state spotlight on a Florida court case that has caused controversy due to its potential to cause difficulty for servicers in the disposition of foreclosed properties. DS News sat down with Morgan Weinstein to discuss the case in depth and get his perspective on the impact it could hold for borrowers as well as servicers.

Weinstein is a Senior Associate at Van Ness Law Firm, PLC, focusing his practice on real property litigation and appellate law. Weinstein has been published on issues concerning mortgage foreclosure in Unbound: Harvard Journal of the Legal Left and the Florida Bar Journal, and will be published in the upcoming edition of the University of New Hampshire Law Review.

 

Describe what has happened in the case Ober v. Town of Lauderdale-By-The-Sea.

In this case there's a question as to the application of liens that are placed on a property between a final judgement of foreclosure and the sale date. The way that Florida law used to be is when a foreclosure case is filed the plaintiff, the lending institution or the mortgage servicer in the action, will also file what's called a notice of lis pendens, and that serves as a notice to the world that this case has begun and that the plaintiff claims an interest, with regard to the property, and that that interest is superior to interests that may arise after and before the sale.

That's the way that it used to be thought of. You file your case, you prosecute your case, and eventually you get a judgement that says that you're entitled to have a foreclosure sale because the property owner owes money and can't pay it, and so you're going to attempt to have the court set the sale of the property to reimburse you for what you're owed.

While that's going on, often times you have a borrower who doesn't want to get out of the property yet for various reasons. They could be working on the loan modification. They could be attempting to sell the property. They could just need more time to get out in order to get their lives in order. During this time, they're filing motions in the court to cancel the sale, for example filing for bankruptcy so that the sale can't occur for a period of time. During all that time, they get to stay in the property, but while they're in the property, they're not paying the mortgage. And if they're not paying the mortgage, they're probably not paying other things too. There are might be municipal liens or liens from the city where they might not have paid their water some months or they might not have paid the electrical some months. They also might have caused a code violation because they weren't taking care of the property during this time, and the city has claims that there is a code violation thus placing a lien on them for failure to fix the code violation. While all that is occurring those liens are being placed on the property.

The way that we used to understand the law is that these liens are not the ultimate purchaser of the property's responsibility because they occurred between the time of the final judgement and the sale. Ober came along and said "no, once the final judgement is entered the lis pendens is no longer effective to bar those liens." Those liens that accumulate on the property are valid against the property, so whoever purchases at the sale is responsible.

 

How will this decision impact servicers now that these liens are attached to these properties?

Well obviously, getting rid of the liens themselves will cost money because it's all a process and a hassle. Additionally, there has been a trend in Florida for a court to grant a fairly liberally extended sale date. If the servicer, or if the plaintiff, wins at trial, the court will say, “You can have some time to move out. You can have 90 days; you can have 120 days. We'll set the sale out that long.” There have been a couple of plaintiffs’ attorneys who have now been saying, “Well, no, we have this new Ober case out that says that any extended sale date means that liens could be occurring on the property which would prejudice us.” I've seen a couple of instances where the court will say, “well, we shouldn't have an extended sale date then,” and it's negatively impacting the borrowers in some cases. I'm not saying that that's a wide spread thing, but it could become one.

 

Do you see this as a trend that could impact servicers and the foreclosure process nationally?

There's really no way to tell. Florida state law can obviously be used as persuasive authority in any other state, but it's not binding on any other state. Some states may choose to adopt Florida law on this issue. There's nothing which would stop another state from adopting the position that this court has taken. But, again, it seems to be an isolated case so far, and it's not the Florida Supreme Court. However, until there is a case in Florida which directly conflicts with this case, this case has the authority of a Florida Supreme Court case. In other words, it applies throughout the whole of the state of Florida unless and until there's a case that comes along and says this case is wrong.

About Author: Kendall Baer

Kendall Baer is a Baylor University graduate with a degree in news editorial journalism and a minor in marketing. She is fluent in both English and Italian, and studied abroad in Florence, Italy. Apart from her work as a journalist, she has also managed professional associations such as Association of Corporate Counsel, Commercial Real Estate Women, American Immigration Lawyers Association, and Project Management Institute for Association Management Consultants in Houston, Texas. Born and raised in Texas, Baer now works as the online editor for DS News.
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