Lexology-

On March 20, Florida Governor Rick Scott signed Senate Bill 220 into law. The bill is designed to limit the ability of defendants in foreclosure proceedings to keep contesting the foreclosure after agreeing, in bankruptcy, to surrender the property to their lenders.

By way of background, when an individual debtor files for bankruptcy, whether under Chapter 7 (liquidation) or Chapter 13 (reorganization), the debtor is required to make a statement under penalty of perjury as to how the debtor proposes to handle property that secures a debt, such as a home or a car. Broadly speaking, the debtor can choose to surrender the property, to redeem the property (by paying off the debt), or to retain the property and make payments on the debt going forward.

Oftentimes, debtors choose to surrender the property to their lenders, which typically results in the debtor receiving a discharge of the associated debt. Once a debtor agrees to surrender it, a creditor can commence or continue foreclosure or other proceedings to recover and sell the property to attempt to satisfy the creditor’s claim. In recent years, a number of Florida debtors attempted to “have their cake and eat it too” by agreeing to surrender their homes in bankruptcy, thereby obtaining a discharge of the mortgage debt – but then fighting later foreclosure proceedings in state court in an attempt to delay or prevent foreclosure. The result was troubling, as it would allow debtors to live essentially “rent free” in homes while the foreclosure wound slowly through the state judicial system.

[LEXOLOGY]

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