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Clarifying Contested Foreclosures After Bankruptcy

Florida Governor Rick Scott recently signed off on Senate Bill 220, a new law addressing the property rights of defendants pertaining to bankruptcy and foreclosure proceedings. DS News spoke to representatives from several Florida-based Legal League 100 law firms to get the inside scoop on what Senate Bill 220 means for the industry.

During the foreclosure process, debtors will sometimes file for bankruptcy. In Florida, when the debtor does this, they must also declare their intentions toward any property that is securing their debt, which can include a home. The debtor has several options, including surrendering the property to the lender or retaining it and making payments to whittle down the debt. But if a debtor does agree to surrender the property in order to clear their mortgage debt, can they then contest the foreclosure to try and delay the process while they remain in the home?

Some Florida debtors have attempted to do so in recent years, and Senate Bill 220 sought to address this problem.

"This bill, which codifies the 2016 U.S. Court of Appeals Eleventh Circuit decision in Failla v. Citibank, N.A., expands the rights of lienholders in foreclosure actions by authorizing documents filed in a federal bankruptcy proceeding to be admitted as evidence in a foreclosure action," said Amy Kiser, Managing Bankruptcy Attorney for Gilbert Garcia Group, P.A. "This helps us to overcome defenses raised in a foreclosure case, based upon the borrower’s surrender of real property in a bankruptcy case."

Robyn Katz, Managing Partner, Florida Foreclosure for McCalla Raymer Leibert Pierce, LLC further explained, “Once a debtor agrees to surrender the property that is the subject of the mortgage, the secured creditor can commence or continue foreclosure or other proceedings to sell the property to attempt to satisfy the creditor's claim. This will prevent unnecessary litigation by the debtor surrounding a property that has already been surrendered in bankruptcy court and will expedite the foreclosure timeline in these cases.”

Roy A. Diaz, Managing Shareholder of SHD Legal Group, P.A., praised the bill for articulating the boundaries of the law in a manner that is consistent with the Federal Bankruptcy Courts. “This bill is consistent with the ruling we obtained in the Florida Middle District Case In re Metzler,” a 2015 bankruptcy ruling wherein the firm successfully argued debtors cannot raise defenses once a subject property has been surrendered in bankruptcy. However, Diaz cautioned that the law allows defendants to raise defenses based on the conduct of the lender after surrendering the property. Diaz said, “the implications of this provision will certainly lead to some creative defense positions which will have to be worked out in the courts.”

“Senate Bill 220 is a well-founded and practical solution to arm lenders and their counsel with an avenue to fight back against frivolous dilatory tactics,” said Michael J. Barker, Managing Partner, Financial Services and Real Estate Division for Quintairos, Prieto, Wood & Boyer, P.A. “It is unfortunate and troubling that a borrower would avail his or herself of the protections afforded under the Bankruptcy Code and then put forth a disingenuous position in state court proceedings. Hopefully, this new law will cause borrowers and their counsel to think twice before engaging in such unethical tactics.”

“The Senate may go far by relieving lienholders from seeking additional recourse in the bankruptcy court to enforce the surrender by arming them with a Florida statute aimed at compelling the surrender,” said Jason Weber, Shareholder and Managing Attorney of the Sirote & Permutt, P.C. Fort Lauderdale office. “Crafty defense attorneys will attempt to sidestep the restriction on defenses by raising post-surrender conduct or defenses which are triggered beyond the surrender (i.e. statute of limitations). However, in the end, my guess is this will promote negotiations for resolving contested foreclosures by empowering lienholders with a clear statutory advantage and chilling the scope of defenses.”

"The new statute will certainly reduce the legal timeline and litigation costs of post-bankruptcy foreclosure matters," said Robert S. Kahane, Managing Shareholder, Kahane & Associates, P.A.

About Author: David Wharton

David Wharton, Editor-in-Chief at the Five Star Institute, is a graduate of the University of Texas at Arlington, where he received his B.A. in English and minored in Journalism. Wharton has nearly 20 years' experience in journalism and previously worked at Thomson Reuters, a multinational mass media and information firm, as Associate Content Editor, focusing on producing media content related to tax and accounting principles and government rules and regulations for accounting professionals. Wharton has an extensive and diversified portfolio of freelance material, with published contributions in both online and print media publications. He can be reached at [email protected].

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