Header graphic for print
Florida Banking Law Blog Legal developments impacting banking, finance and loan enforcement in Florida

Minimizing Delay in Owner Occupied Commercial Real Estate Foreclosures

Posted in Debt and Judgment Collection, Special Assets Litigation

This article is an update of an article which some of our blog readers may have received by email. Based on recent experience that I have had with this statute in circuit court, I have revised the original article.

On average, a Florida foreclosure can take nearly two years from service of process to final judgment. Lenders have little option but to suffer the costs of this delay in the form of depreciating value of the property, vandalism, accruing property taxes and assessments and increased legal fees. More often than not, this delay can be attributed to stall tactics raised by borrowers’ counsel in an effort to allow their clients to retain the benefit of the property for as long as possible. How, then, can a foreclosing lender minimize this delay? One way might be through use of Florida Statute 702.10(2). The legislature apparently recognized the need to address unnecessary delays in foreclosure cases back in 1993 when it enacted Florida Statute 702.10(2), the intent of which was to remove a mortgagor’s economic incentives for delaying the case.

The statute gives creditors a right to request that the court “…enter an order directing the mortgagor defendant to show cause why an order to make payments during the pendency of the proceedings or an order to vacate the premises should not be entered.” There are surprisingly few Florida cases that have interpreted the statute. Its constitutionality was challenged on due process grounds and was upheld by the Florida Supreme Court in a case decided in 2000. More recently, a 2011 case upheld two court orders requiring the mortgagor to make monthly payments totaling in excess of $70,000 during the foreclosure proceedings. Obviously, that creates significant leverage on a mortgagor not to delay a case! With that background, let’s consider the statute in more detail and investigate its usefulness to a lender seeking to minimize foreclosure delay.

First, it is important to note that the statute is limited to actions involving non-residential real estate. If the statute applies, the bank can file a motion in which it asks the court to enter an order directing the mortgagor defendant to “show cause” (e.g. to demonstrate) why it should not be ordered by the court to either make payments to the lender or vacate the premises during the foreclosure case. While somewhat vague, the statute seems to imply that the court must enter the order upon proper motion by the foreclosing lender and further that this order can be entered without the need for a hearing.

The order, if entered by the court, will direct the mortgagor to appear at a hearing and present its argument as to why it should not be ordered to either make payments or vacate the property while the case is pending. If the court determines that the lender is likely to prevail in the foreclosure case, the statute says the court shall enter an order requiring either payment or surrender of possession. The penalty of ordering the mortgagor to surrender possession of the property seems to imply that the mortgagor must have actual possession of the property. However, I have recently had a case in which the court entered the order even though the mortgagor held only a leasehold interest in the property and had also subleased the property to numerous other tenants. The court in that case rejected arguments that, due to the subleases and the ground lease, the mortgagor did not “possess” the property as contemplated by statute. The court found that possession equated to management of the subleases and that the mortgagor could turn over that management to the mortgagee if it failed to make the required payments. The payments, if so ordered, will be made at intervals and amounts as provided for in the note secured by the mortgage prior to its acceleration or maturity. Basically, this amounts to the court ordering the mortgagor to make the note payments during the pendency of the lawsuit.

Sounds good for lenders, right? Well, there are a few drawbacks. First, once the order to show cause is obtained, it must be served (as set forth in the statute) on the mortgagor. As many lenders now know, significant delays can occur while trying to perfect service of process on defendants. Even with owner-occupied property, it can be difficult to obtain personal service. Once served though, the defendant is required to respond or could be deemed to have waived that right resulting in the court ordering payments or surrender of possession. Second, as previously mentioned, the court must find that it is likely that the lender will prevail in the foreclosure case. This statutory language is vague enough to allow a considerable amount of discretion in making that determination. Since the remedy being sought is harsh, it is possible that some courts will deny relief under the guise that the probability of prevailing has not been established. Finally, even if the court enters an order in favor of the lender, the mortgagor can stay enforcement of the order. However, to do so, the mortgagor must post a monetary surety bond in an amount equal to the mortgage balance plus unpaid taxes and any forced placed insurance premiums. The cost of posting this bond and the possible necessity of a guaranty of payment can certainly deter its use and this also provides leverage to the lender.

The Rogers Towers Banking and Financial Services Practice Group considers F.S. 702.10(2) to be a viable tool to increase leverage and reduce delay in foreclosures of owner occupied commercial properties. It is tempered to an extent by the opportunity for a court to apply discretion in determining whether the standard has been met. Still, we are actively involved in evaluating our client matters to determine whether to pursue this remedy.