On March 20, 2018, Florida Governor Rick Scott signed into law Senate Bill 220, substantially restricting the rights of individuals defending foreclosure actions who have previously surrendered their property in a prior bankruptcy case. Specifically, the Bill is intended to limit the defenses that can be raised by such borrowers in a subsequent foreclosure action and aid lienholders in retaking possession of the surrendered property.
In practice, the Bill provides the lienholder with authority to introduce documents filed by the borrower in a prior bankruptcy (namely, the statement of intention in a Chapter 7 or Chapter 13 Plan in a Chapter 13 case) to create a rebuttable presumption that the defendant has waived any defenses while also requiring the trial court to take judicial notice of the bankruptcy pleadings.
Over the past few years, bankruptcy courts across the state of Florida have been asked by lienholders to compel borrowers to abide by their stated intention to surrender properties after continuing to contest subsequent foreclosure actions. Years of litigation eventually led to the 11th Circuit's decision in Failla, 838 F.3d 1170 (11th Cir. 2016) which affirmed the bankruptcy court's ruling prohibiting a borrower from impeding and interfering with a creditor's efforts to retake possession of a property by available legal means following its surrender.
In years past, an increasingly large segment of defendants would elect to surrender their property rather than redeem it (by paying off the debt), or to retain the property and continue to make payments on the debt. By surrendering the property through a statement made under penalty of perjury, bankruptcy debtors often received an added benefit in a Chapter 7 case (liquidation) in the form of additional personal property exemptions as well as the benefit of the discharge of the mortgage debt. By continuing to contest a foreclosure following the surrender, bankruptcy courts found debtors to be effectively committing fraud upon the court by raising defenses that were previously waived. Debtors were also abusing the system by slowly dragging out foreclosure cases while remaining in the property “rent free,” often, for several additional years.
However, Senate Bill 220 is not a blanket prohibition against borrowers from defending all foreclosure actions where a surrender is present. The law still allows for certain defenses to be made and crafty defense attorneys will attempt to sidestep the restrictions on defenses by raising post-surrender conduct as defenses that may be triggered after a surrender (for example, statute of limitations).
The Bill becomes effective October 1, 2018 and will provide Florida state courts and lienholders with the opportunity to enforce a fairly sensible and straightforward statute rather than having to interpret and rely on esoteric bankruptcy rules. In the end, this will likely promote stronger negotiations for resolving contested foreclosures by empowering lienholders with a clear statutory advantage and chilling the defendants' ability to employ relinquished defenses.