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!
There have been several articles posted on this blog on the subject of standing – the legal right to enforce a promissory note and/or mortgage. This continues to be a popular issue for defense counsel to raise and, as a result, relevant and current caselaw is abundant.
I have a couple of observations in this regard. First, the majority of reported decisions involve appeals of entry of summary final judgment. Florida attorneys understand that the standard for entry of summary judgment involves a finding that there are no disputed issues of material fact. In many of the cases on standing, the plaintiff lender failed to establish this at the summary judgment hearing. That does not mean that in all of these cases standing cannot be established. It may ultimately be if the summary judgment preparation and hearing is done correctly with adequate evidence of standing presented.
Another observation is that many of the decisions are involving cases that were not subject to Florida Statutes Section 702.015 created under HB 87. This statute requires plaintiffs in certain residential foreclosure cases to verify that they have possession of the original note prior to filing suit and to include in their complaints the specific factual basis by which they are entitled to enforce the note. It seems to me that this statutory requirement may help in reducing the number of successful challenges to standing.
The bottom line for now is that those seeking to enforce a note and/or foreclose a mortgage must continue to scrutinize their documents prior to foreclosure and make sure their complaints are carefully drafted in this regard. Of particular concern is making sure the various assignments, allonges and endorsements needed to support a claim of standing are present and accounted for.
In a future post, I will address a couple of the more recent court decisions on this issue.
An important issue that arises for lenders when pursuing foreclosure actions is determining when the statute of limitations begins to run. Florida Statutes provide that a party has five years to foreclose a mortgage, but determining when the five years begins to run has proven to be a topic of legal debate. Lenders who find themselves potentially beyond the statute of limitations after an unsuccessful first attempt to foreclose may find hope in the recent decision by the Florida Fifth District Court of Appeals in U.S. Bank National Association v. Bartram.
In Bartram, the bank initially brought a foreclosure action in 2006, accelerating the debt. However, the bank did not actively participate in the action, resulting in an involuntary dismissal in 2011. In the meantime, the borrower and his wife divorced, and the borrower was required in the divorce to execute a note and mortgage in favor of his ex-wife. In 2011, the ex-wife filed her own foreclosure action, naming the bank. In her foreclosure, the borrower filed a counterclaim seeking a declaratory judgment against the bank, arguing that the statute of limitations now barred the bank from enforcing its rights under the loan documents. The trial court entered summary judgment for the borrower, rejecting the bank’s argument that it was not barred from bringing a subsequent foreclosure action, and that the five-year statute of limitations did not bar the payments that were missed within the five-year period.
Relying on the analysis of the 2004 Florida Supreme Court decision Singleton v. Greymar Assocs., the appellate court agreed with the bank, and reversed summary judgment. The Bartram court concluded that “a default occurring after a failed foreclosure attempt creates a new cause of action for statute of limitations purposes, even where acceleration had been triggered and the first case was dismissed on its merits.” Furthermore, the court certified the following question to the Florida Supreme Court:
Does acceleration of payments due under a note and mortgage in a foreclosure action that was dismissed pursuant to rule 1.420(b), Florida Rules of Civil Procedure, trigger application of the statute of limitations to prevent a subsequent foreclosure action by the mortgagee based on all payment defaults occurring subsequent to dismissal of the first foreclosure suit?
If the Florida Supreme Court answers in the negative, it may provide new hope to lenders who have been unsuccessful in an initial action in which the debt was accelerated, allowing them to pursue a subsequent foreclosure action.
The hotel industry appears to be on an uptick, which is good news for lenders. Hotel construction in May 2014 is up over 13% from the same time period in 2013. Moreover, record high occupancy rates and low supply could continue to drive an influx of new rooms into 2015 and beyond. As more lenders are called upon to secure these projects, lenders should consider that hotel projects require a particular diligence not always found in other types of commercial projects. Below are a few of the more commonly overlooked issues.
The Elevated Role of UCC Financing. A significant percentage of the value of a hotel property is in furnishings, artwork, televisions, dining equipment, and other personal property. As such, lenders should obtain a separate security agreement that specifically identifies the personal property and prevents the borrower from disposing of the property except in the ordinary course of business. The lender should consider obtaining UCC insurance as well.
Management Agreements. Hotel properties are frequently managed by a third party under a management agreement between the manager and the borrower. The hotel manager controls the day-to-day operations of the hotel, hotel procedure, operating expenses, budgets and financial reports. The lender should review the management agreement to insure that it is adequately protected and has access to all financial and other reports of the hotel. The management agreement should be subordinate to the interests of the lender. Furthermore, a lender should carve-out an exception from any non-disturbance agreement between the lender and hotel manager, giving the lender the right to terminate the management agreement in the event of the borrower’s default or a distressed sale.
Comfort Letters. Lenders secured by franchised hotels should obtain a comfort letter from the franchisor as part of the loan documentation. The comfort letter is an agreement between the hotel franchisor and the lender that grants certain protections to the lender in the event that the borrower defaults on its obligations under the franchise agreement or the lender takes control of the property. A typical comfort letter gives the lender rights to assume and transfer the franchise agreement in the event of a foreclosure, receivership, or distressed sale. It also allows the lender an opportunity to cure any defaults of the borrower under the franchise agreement. Because the value of a franchised hotel is often tied to its brand, the comfort letter is a valuable tool to protect the value of the lender’s collateral.
Occupancy rates, business operations, the hotel manager, and the franchisor all play a significant role in the success of the hotel and ultimately, the security in the loan. As a result, hotels are different than other commercial properties and require different diligence in underwriting. The additional time and attention given to these matters at loan origination can save a lender a great deal more time and expense later.