Rogers Towers, PA welcomes readers to its new Florida Banking Law Blog! A product of the firm’s Banking and Financial Services Practice Group, the blog will serve as a convenient way for us to share our expertise in banking-related legal issues. We represent banks and other providers of financial services in a broad range of matters throughout the state of Florida. As a result of our significant experience, we will have much to share in the upcoming blog posts and we hope that you will find these posts to be informative and beneficial to you in your respective positions in the industry. We appreciate your interest in the field and in Rogers Towers, PA and we look forward to your comments in response to our blog. Again, welcome to the Florida Banking Law Blog!
Following a foreclosure sale, a lender may seek to obtain a deficiency judgment against the borrower and guarantors for the difference between the amount of the debt (as listed in the foreclosure judgment) and the value of the property. As part of this effort, a lender may also be able to recover certain costs.
As a general rule, costs that predate the foreclosure judgment are not recoverable in a deficiency proceeding, absent some sort of fraud or collusion. However, certain costs secured by the terms of the mortgage or note and specifically reserved by the terms of the foreclosure judgment for future determination may be recoverable.
Florida courts have found that recoverable costs may include a receiver’s fee, clerk’s fee, accounting fee, attorneys’ fees incurred in obtaining the deficiency judgment, and, in some instances, costs incurred by inappropriate bankruptcy filings between the entry of the foreclosure judgment and the foreclosure sale. Moreover, although unpaid real estate taxes that remain delinquent following the foreclosure sale are typically not recoverable as a cost, such amounts may be considered by the court to reduce the setoff that is given for the value of the property when determining the deficiency amount.
Because what costs are recoverable may vary depending on the terms of the loan documents and the specific circumstances, lenders should be sure to consult with counsel to ensure maximum recovery.
In a previous article, we provided an overview of the basic procedures judgment creditors must follow when serving writs of garnishment on banks and the obligations of financial institutions that are served with writs. We also suggested that complications may arise when judgment creditors pursue bank accounts that include more than one party as the account holder. A recent case out of Florida’s Fourth District Court of Appeals, Branch Banking and Trust Company v. ARK Development/Oceanview, LLC, makes clear that when a third party named on the account claims ownership of the account’s funds, a judgment creditor’s success hinges on proving that the garnished funds belong solely to the judgment debtor.
Judgment Debtor’s Status on the Account
Creditors may garnish only property owned exclusively by the judgment debtor or debts due exclusively to the debtor. This does not mean that a judgment debtor can shield his assets from garnishment by simply depositing his funds into an account held jointly with another party. Where the debtor and third party maintain a joint account (other than an account held as tenants by the entirety, which is subject to different rules), a creditor may garnish that portion of the account attributable to the debtor. Where the debtor is merely a fiduciary or beneficiary and possesses no present interest in the account, however, the creditor may not access the account’s assets.
Proving Ownership of the Funds
Even if someone other than the debtor claims an interest in an account, a judgment creditor may still garnish the account if it can prove the debtor holds an interest in a portion of the funds. Judgment creditors should pay attention to who is named on the account, as there is a strong presumption that the assets in a bank account belong to the named account holder(s). In ARK Development, the creditor targeted an account that named the debtor as beneficiary and also granted him power of attorney, but the account explicitly self-identified as an individual account in the debtor’s wife’s name. Following procedures set out in Chapter 77, Florida Statutes, the debtor’s wife filed an affidavit claiming that the creditor improperly garnished the account because the funds belonged to her.
Looking at who actually and “in good conscience” owned the funds in the disputed account, the court found that the wife presented sufficient evidence to suggest her debtor-husband did not own any of the funds in his individual capacity. While the creditor alleged the debtor maintained an equitable interest in the account, the creditor failed to present evidence revealing the source of any of the account’s funds or the debtor’s exclusive control over any portion of the account. The court therefore held that the account was immune from the creditor’s writ of garnishment.
Creditors should familiarize themselves with Chapter 77, Florida Statutes, and the duties and obligations that accompany service of writs of garnishment. Check out our previous posts on service requirements in garnishment actions, issues of agency in garnishment procedures, and competing claims over funds subject to garnishment for more information on writs of garnishment in Florida.
As part of a coordinated, multi-agency initiative known as “Operation Choke Point,” the Federal Deposit Insurance Corporation (FDIC) has warned financial institutions that they might be liable for maintaining banking relationships with certain “high risk” businesses and customers. Specifically, the FDIC expressed concern about relationships between banks and payment processors who use their deposit accounts to process payments for third-party merchant clients. If these merchant clients are involved in money laundering or consumer fraud, then the banks could be liable for facilitating illegal activity. However, critics of Operation Choke Point contend that the regulators are actually seeking to deny access to credit markets for legitimate industries that are politically unpopular.
FDIC Guidance and Clarification
On January 31, 2012, the FDIC issued a Financial Institution Letter cautioning financial institutions about certain “high-risk” merchants who typically use payment processors, including credit repair companies, debt consolidation and forgiveness programs, online gambling operations, will-writing kits, payday loans, and online tobacco sales. The FDIC also published on its website a larger list of disfavored industries, including dating services, firearms sales, fireworks sales, life-time memberships, telemarketing, and travel clubs. As a result of this guidance, several banks terminated accounts with businesses that fell into these high-risk categories.
Following an investigation by the U.S. House Committee on Government and Oversight Reform, the FDIC clarified its guidance in a Financial Institution Letter dated July 28, 2014. This letter explained that the list of high-risk merchant categories was not meant to discourage banks from maintaining relationships with specific businesses. Rather, the FDIC intended the list to be illustrative of types of businesses that warrant elevated risk management. Since the list of specific industries caused confusion, the FDIC removed the list from its website and also revised its 2012 Financial Institution Letter.
Continued Uncertainty and Litigation
The revised FDIC guidance recommends that financial institutions obtain information from payment processors about their merchant clients and verify that the merchants are legitimate businesses. The FDIC also advises that banks monitor consumer complaints as a potential indicator of illegal activity. Financial institutions must exercise due diligence in authenticating a payment processor’s business operations and conduct background checks on both the payment processor and its third-party merchant clients.
The current FDIC guidance also advises banks about the need to consider the “reputational risk” posed by certain businesses. It is unclear how examiners will be able to fairly enforce reputation risk rules, which are inherently subjective. Indeed, the Community Financial Services Association of America (the trade association for payday lenders) recently filed a federal lawsuit against the FDIC, alleging that the FDIC uses “pressure tactics” and warns banks to terminate relationships with short-term lenders or face “hard and prolonged examinations, reduced examination ratings, and/or other punitive measures.”
We will monitor this litigation as it proceeds in federal court. In the meantime, financial institutions who are concerned about how to comply with the current FDIC guidance should consult with counsel.