Florida’s Statutory Rate on Final Judgments and Their Impact on ROI for Asset and Loan Portfolio Managers

When a Final Judgment is entered, it typically reflects a financial equation consisting of the principal, delinquent interest, late charges, legal fees, court costs, and…the additional interest due a lender to get them up to the default rate they are entitled to. In Florida, on most commercial loans, that default rate is 18%. However, when a Final Judgment is entered in Florida, lenders are only entitled to collect the “state mandated” interest rate for Final Judgments as established for that particular quarter, in that year. The last quarter of 2020 called for a rate of 6.81%. That meant that for the time frame between when a Final Judgment was issued, and the auction sale date occurred – a commercial lender was only entitled to collect interest on the Judgment at the rate of  6.81%. However, a Motion to Amend the Final Judgment can be filed to “update” and collect more of the 18% default interest portion due a lender (after the initial Judgment). It is worth noting that in an era of COVID-19 court shutdowns, decreased access to judges, increased remote court proceedings, and other issues, amending the Final Judgment is not easily accomplished.  

Now, as we entered this new year, we were reminded of the financial losses due to decreased post judgment interest when Florida’s Chief Financial Officer – who is required by Florida law to set the rate of interest payable on judgments and decrees on January 1, April 1, July 1, and October 1  of each year – set the new rate for final judgments to start in 2021 at 4.81%. This was eye-opening, to say the least, as it is a third lower than what was previously in place

Our legal team started reviewing client loan documents routinely used in closings (in particular,  the Note and Mortgage documents) and concluded there had to be a better “legal” way to address this rate differential as a way of offering a solution to our clients already financially bleeding from non-performance for months. (That is to say, not only stem the financial loss between the issuance  of the Final Judgment and the auction sale date – be it 6.81% or the new rate of 4.81% – but even  more importantly, to help our asset managers, lenders, and loan portfolio managers garner the  entire default rate they are entitled to, up through the auction sale date.) 

Pursuant to Section 55.03(1) of the Florida Statutes, a lender is allowed to collect the default rate through the auction sale date, if clearly provided for “per contract”. That is to say, so long as the  Mortgage (or any other loan document executed in connection with the loan) calls for collection of the default rate set out in the Note in any post-judgment period, the lender will be entitled to it.  

In reviewing the typical commercial loan documents, there generally appears a gap in the language that prevents collection of the contractual default interest rate following entry of a Judgment. Adding new language is an easy remedy that would serve to bridge that gap. At time of closing – whether introduced in the Mortgage form itself, or as a separate but related “loan document” in the loan package – the added language should result in collection of the default interest rate (versus the statutory mandated rate) for commercial lenders in foreclosure from the time the Final Judgment is issued until the sale date at auction.

Legal Recommendation 

RLG’s suggestion – whether added to the Mortgage, Note, or as a stand-alone separate “loan  document” – adding the following paragraph should bridge the gap

The post judgment rate of interest for any judgment entered pursuant to this Mortgage or any other loan document executed in connection herewith shall be the greater of: (i) the default rate set forth in the Note; or (ii) the rate established by the Comptroller of the State of Florida pursuant to F.S. Section 55.03(1). 

This added provision comports with the language of Florida Statutes Section 55.03(1) and serves to allow commercial lenders to collect the default rate of interest all the way through and up to the date of the auction sale. Moreover, court clerks and/or financial personnel are obligated to collect the entire amount at auction. 

No doubt, this added “nugget” to the loan documentation will allow lenders to collect the default rate portion owed on the delinquent loan, and for Asset and Loan Portfolio Managers, serve to increase their loan and overall portfolio ROI. 

Asset and Loan Portfolio Managers with questions or comments are welcome to email me at Carlos@ReyesLegal.com or call my office at 954-369-1993. At Reyes Law Group, we not only defend your investment, but preserve your rights, and value your trust every single day.

Reyes Law Group