Commercial Foreclosures in Florida: A Judicial Process With Practical Considerations

The commercial foreclosure process in Florida is a “judicial” process.  That means a lender must file a lawsuit against the borrower in order to obtain a foreclosure judgment from a court ordering a sale of the property to recover their loan monies.  The process contains unique aspects, nuances, and components which are grounded in well-tested experience that well serves a plaintiff.  That said, the fundamentals serve as the starting point and, when carried throughout the process, serve a plaintiff well.

Commercial foreclosure cases are not like residential cases which benefit from many consumer protection provisions frequently used by defense counsel to stymie or slow down the progression of cases.  Yet, it does require that asset managers, loan portfolio managers, and lender’s work “in concert” with their counsel to successful “resolve” the non-performing state of that loan.  First and foremost, before sending a case assignment to our offices, our clients are routinely encouraged to handle all pre-suit tasks essential to the process (which may in fact resolve the non-performance itself).  These include:  sending the borrower and guarantor(s) a default/demand letter; exercise any self-help rights (that may be deemed available); draw down on any pledge or letters of credit; exercise set off rights available; and/or consider any pre-suit solutions, like forbearance, reinstatement, and loan modifications that make sense.  Once all avenues have been exhausted, or borrowers have remained silent, or elected to be non-responsive, the lender will have no alternative – having exhausted all other “workout” remedies – but to pursue the judicial route to remedy the delinquency and ongoing non-performance by the borrower.

GENERAL CONSIDERATIONS, THOUGHTS, BASICS:

1) Once a decision has been made by an asset manager or commercial lender to pursue a foreclosure, sending it to “legal” usually means our clients routinely send us a full “set” of loan documents and notices of default sent to the borrower (in compliance with the method of delivery specified in the mortgage or loan documents).  

2) In an abundance of caution, upon receipt of the case assignment, our office will also send the delinquent borrower another notice letter to assure pre-suit compliance with notice requirements found in the mortgage.

3) Other initial tasks involve ordering a title search report to determine what other liens, mortgages, or “clouds on title” may exist that might require inclusion of additional parties, allegations, and/or counts in the lawsuit. 

4) We also look to confirm with our client the whereabouts of the “original” note and mortgage.  Today, this is critical – we need to know where the “originals” are from the inception.

5) Thereafter, we focus on preparing and filing the complaint, generally containing the following causes of action:

a. breach of contract (on the promissory note), 

b. mortgage foreclosure (for sale of the collateral to recoup loan monies),

c. assignment of rents (to obtain an order on rents while the action is pending), and 

d. a claim count versus the guarantor(s) (to assure that any shortage or difficulty in garnering a recovery from the borrower gives us an alternate route via the principal or guarantor).

6) Key:  We have our client review the complaint and sign off the “verification” page in order to file the lawsuit.  This gives us flexibility when it comes to pursuing an Order to Show Cause (see below). 

7) With respect to an assignment of rents, if the loan documents support it, we include a count in the complaint designed to purse the rents during the pendency of the action.  Once filed, we follow-up with a motion and seek an expedited hearing in an effort to obtain an Order directing that rental payments from the tenants be paid directly to the mortgagee, mortgagee’s counsel, or the court registry.  The demand for rent is claimed pursuant to Florida Statute 697.07.  We also consider notifying the tenants to pay the rent directly to the lender (if appropriate).

8) Depending on the nature of the property, it may be appropriate to seek appointment of a receiver.  The size and scope of the property and the need for management and performance of vendor services, may be a “driver” to pursuing and well justify the expense.  Also, how a defendant initially responds to the lawsuit may also serve to dictate how long an action is likely to take and, therefore, also merit the additional expense.  Another key to consider is how a receiver may assist in maintaining the property and rent collection so as to assure funds are available for the plaintiff to pay necessary insurance and property taxes on the property as they come due during the pendency of the action.

9) Since 95% of cases are resolved short of a trial or final hearing, in commercial foreclosure settings we expect practical and legal solutions to similarly resolve 95% of our case filings along the timeline of the case, be it by way of  a later loan workout, reinstatement, sale of the property, refinance, or the case simply proceeding to a summary final judgment.  

a. From the law firm’s perspective, a summary final judgment – with an auction sale date – is our goal.  We focus on moving the cases towards a dispositive hearing where the court grants and issues a summary final judgment.  In that pursuit, we typically prepare the appropriate motion, to be accompanied by supporting affidavits for such a hearing. In some cases, an asset manager or loan officer may have to testify in order for the court to award the final judgment.  (In Florida these days, the logistics of the process are easier to the extent that Zoom hearings have done away with the travel logistics to get out-of-state asset managers into court rooms for this purpose.  As long as you have internet access and a computer, you should be good.)

ORDER TO SHOW CAUSE ROUTE

In Florida, we also have a “fast-track” ramp known as Florida Statute section 702.10 that we use in an effort to expedite these cases.  It calls for a verified complaint (remember that?) and request for an Order to Show Cause from the judge assigned the case.  A Judge upon review of the court file, seeing that all claim fundamentals have been pled in the complaint, may issue an Order to Show Cause where a hearing is set to take place within 20-45 days after service (but no later than 60 days).  At the hearing, the defendant must show the Judge why a final judgment should not be entered against them – usually by having to raise a legal defense or facts sufficient to preclude entry of a final judgment.  Failing to do so, a judgment may be entered against the defendant by the Judge.  This process is best used, successfully, in the context where a borrower fails to appear and, therefore, no defenses are presented.  A judgment is entered, then and there.  This is probably best for uncontested cases although in the era of the pandemic it’s hard to tell since Judges – even in a commercial context – seek to give borrowers every possible benefit of the doubt and opportunity to cure any default.  (Obviously, property rights being significant, it is understood.)

DEFICIENCY/TIMELINE CONSTRAINTS

“Deficiency” is the difference between your final judgment amount and the fair market value of the property on the date of the foreclosure sale.  While not overly concerning these days since property values have somewhat been maintained and the typical commercial loan to value ratios provide enough of a “buffer” – our final judgments seek to preserve the right to pursue a deficiency judgment and collection against a borrower where such a shortage is evident.  For this purpose, it is generally good for a lender to obtain a property appraisal dated prior to the filing of the lawsuit in case such a claim is later pursued.

In Florida, the statute of limitations – the concept where you have a limited period of time to pursue your claim – is five (5) years for “contract claims,” beginning from the default date to the moment you actually file the action.  There is case law that allows a lender to “move up” their delinquency date and thereby, revive their claim, but nevertheless, it’s worth noting that any lender that sits on its rights runs the risk of losing a portion of its claim.  Lastly, with a final judgment in hand, a lender has twenty (20) years to pursue collection on that judgment. 

Reyes Law Group