Radical Changes Proposed To Mortgage Foreclosure Laws Will Harm Associations And Their Members

A proposed law to amend Florida Statute 697.07 to enable banks to collect an "assignment of rents" during the pendency of a mortgage foreclosure lawsuit from owners of property who are not on the note/mortgage. This is a danger to #Condo and #HOAS as well as #CAMS.  

Stakeholders in the operation and management of condos and HOAS, must realize the chilling effect this will have on the bidding process at #association #foreclosure sales and, in turn, the negative impact this will have on our ability to collect delinquent association dues. 

As you know, for many years, we have been able to collect association dues from third-party purchasers who buy properties at association foreclosure sales.  

An incentive for these third-parties to buy at foreclosure sales is their knowledge that they will be able to rehabilitate and rent out the property during a mortgage foreclosure lawsuit, while raising any appropriate challenges to the bank's lack of standing, the amounts due, and other legally allowed defenses. It's called #due #process  

If third-parties cannot keep any rents collected during a mortgage foreclosure lawsuit, it will be a significant deterrent on their desire to bid. This will effectively prevent associations from being able to collect unpaid dues. It will result in many properties being uninhabited - an eyesore in the community - with nobody willing to fix them up out of fear that the bank can swoop in at any moment by filing a mortgage foreclosure lawsuit and forcing rents to be turned over to it.  

The law proposes to exempt associations from its provisions and allow them to rent as long as they do not "contest or impede" foreclosure by the mortgagee. One might say that answering a complaint is contesting it. Alleging lack of standing as we did in hundreds of cases in the last recession that were thrown out would be barred. Even if an association takes title, who wants to spend money to fix it up and rent it? Who wants to deal with the hassle of it? This will result in chilling the efforts of associations to collect assessments, leading to larger losses in the next crash. Asset prices that rise and fall tend to revert to the mean over time, which may see a 30% reduction in values for a time. Association costs will rise, because lawyers like us who collect our fees and costs at a lien foreclosure sale get paid if the property sells. Now associations will have to be charged for all fees and costs without hope of reimbursement. There will be a downward spiral as delinquencies mount with no cost effective way to collect those dues. Small claims court is not the answer, it's of no use in homestead property and money judgments are discharged in bankruptcy, or the former owner skips town and cannot be found. Condos don't file bankruptcy or move to Nevada.

The banks purport to justify these horrific consequences on all associations throughout #Florida by claiming the change would prevent frivolous filings by third-party purchasers. They say they are concerned about delays resulting from these filings. Florida law already has remedies for frivolous filings and filings which are done for delay, as set forth in Fla. Stat. 57.105. What banks really want to do is to ensure that their widespread fraud (remember #robosigning) is pushed under the rug with nobody opposing their frivolous filings. The inevitable byproduct of this legislation - foreclosure lawsuits, will be almost unopposed, with no assurances that they will be promptly prosecuted.  

One purported justification for this legislation is said to be judges' desire to avoid spurious litigation from these third-party owners. Think back to the judges who instituted "Rocket Dockets" to push mortgage foreclosures through at a blazing speed. Former attorney Mark Stopa chronicles other problematic behavior of judges and lawyers for plaintiffs in www.peoplevmoney.com.   

The benefits of third-party purchasers are clear. They buy zombie foreclosures, fix them up and pay all of the back assessments and ongoing monies due. Yes there are a few bad apples, but the vast majority of our clients benefit from prompt aggressive action. While some of these owners may have an incentive to contest mortgage foreclosure lawsuits, the law already affords severe penalties for such actions. To prevent these parties from defending at all - and destroy the entire manner in which associations collect unpaid dues - claiming a concern about frivolous filings by third parties, is like killing a fly on a glass table with a hammer.  

It is my sincere hope that associations, management companies, and their counsel will band together to oppose this legislation. If we don't, and this passes as drafted, then lenders and their counsel will continue their bad behavior, with no moral hazard for it while associations suffer more damages next time the market crashes.