MANATEE — A trio of early bills filed in Tallahassee aim to provide more protections to Florida homeowners and tenants in foreclosure cases, but it’s unlikely any will be passed.
The bills, all filed by House Democrats, likely will have an uphill battle next year in the Republican-controlled Legislature, which didn’t act on similar proposals in 2009. All three measures also face resistance from the state’s banking industry, which remains politically influential despite the economic beating it has taken.
And, foreclosure experts say, some of the bills’ provisions might be undercut by state and federal laws and mortgage-relief efforts.
“I doubt any will get passed, but we’ve got to do something about this crisis,” said Rep. Darren Soto, D-Orlando, who filed two of the bills.
Florida ranks second nationally in foreclosure activity, with one in every 140 homes receiving a foreclosure-related notice in August, according to RealtyTrac, a tracking firm in Irvine, Calif.
One of Soto’s bills would prohibit deficiency decrees in final foreclosure judgments against homesteaded property. A deficiency decree is a judgment against a borrower for the balance still owed if his property is auctioned for less than the final foreclosure judgment amount.
The other would, among other things, allow borrowers to invoke mediation in foreclosure cases involving homesteaded properties.
A third bill by Rep. Hazel Rogers, D-Lauderhill, would force lenders to provide greater notification and financial assistance to tenants involved in foreclosures or short sales.
Mediation bill has tough road
Soto’s “Foreclosure Bill of Rights” appears to have the steepest climb to passage, as an identical bill never got a committee hearing during the 2009 session.
It would let homesteaded borrowers invoke mediation in foreclosure suits still pending as of July 1, 2010, or filed between that date and July 1, 2015. In preparation for mediation, lenders would have to conduct an updated appraisal and furnish copies of the mortgage, note and closing papers to borrowers. Lenders also would be required to negotiate in good faith, with a judge making that determination.
In turn, borrowers would have to provide up to three years’ worth of personal financial information.
If the mediation results in a reduction in the mortgage principal, the lender would be allowed to file a forbearance lien for the amount of the reduction — basically postponing the foreclosure. That allows the lender to recoup any loss if the mortgage is later refinanced or the home is sold for excess funds. If there are no excess funds, the lender can seek to foreclose on the lien.
Soto, a lawyer who has represented borrowers in foreclosure cases, says the bill would force lenders to bargain in good faith. It also would encourage lenders to do more in mediation than just offer lower mortgage payments without reducing principal despite the property’s drop in value, he says.
“All that really does is create balloon loans,” Soto said, which are more likely to fall back into default.
The Florida Bankers Association hasn’t taken a position on the bill, as it is waiting to see what the Florida Supreme Court does in response to a task force report that urged mediation, an official says. But the group sees several potential problems.
“We’re not opposed to mediation,” said Anthony DiMarco, the association’s executive vice president of government relations. “We’re opposed to it being misused as a delaying tactic.”
The trade group also would oppose the required appraisal if its purpose is to reduce the principal and relieve borrowers of their financial obligations, DiMarco says. And the forbearance lien provision won’t be attractive to lenders, many of whom don’t own the mortgage they’re seeking to foreclose on.
Anne Weintraub, a Sarasota attorney and foreclosure expert, says the lien provision could stoke more litigation after foreclosure.
“The ultimate goal here should be finality so both the borrower and lender can move on when the home is sold,” she said, adding she supports the bill’s encouragement of mediation.
Differences on deficiency bill
Weintraub and the bankers’ group differ on Soto’s deficiency decree bill.
A deficiency decree can be valid for up to 10 years, with a 10-year renewal period. Soto calls it “a double anvil” that could stifle the housing market’s recovery.
“We don’t need this huge debt saddling them for 20 years, because it could block them from getting back into the housing market,” he said.
But Weintraub calls the bill “long overdue,” saying many other states already outlaw deficiency judgments in foreclosure proceedings.
“It is about time that the state of Florida protects its homestead homeowners,” she said. “Bravo to the Legislature if they can get this bill passed.”
But DiMarco says the bankers association believes it would unfairly let borrowers off the hook for part of their financial obligations.
“You signed a note and borrowed a certain amount of money and agreed to repay it,” he said, adding it should be the lender’s choice whether to seek a deficiency judgment.
Others say the bill could infringe on contract rights in mortgages that contain a provision for such a judgment.
Tenants bill: mixed reactions
Rogers’ bill would require lenders to notify tenants of rental properties that may be subject to a foreclosure action or short sale. Lenders also would be required to give the tenant first chance to buy the property and use any escrow funds the lender has accumulated from the property owner toward the tenant’s closing costs.
If the tenant decides not to buy, then any available escrow funds must be used to help relocate him. To qualify, the tenant must have a written lease and a one-year rental history.
It would have limited impact, Weintraub says, as it would only apply to tenants with annual leases. Also, many tenants are former homeowners who don’t have the credit needed to buy the place they are renting because they’ve lost their previous homes to foreclosure or short sales.
The bankers group would oppose the escrow provisions because that money is supposed to pay for property insurance and taxes, DiMarco says. Lenders also could unfairly take a big financial hit if they have to relocate hundreds or thousands of renters from an apartment complex, for example.
Experts say the bill’s provisions would duplicate a federal tenants’ rights law that was passed earlier this year.