The Florida Supreme Court has amended procedures for filing foreclosure complaints involving residential property, requiring lenders and lawyers to verify ownership of the note and providing sanctions for false allegations in foreclosure complaints.
The amendment grew out of a task force’s recommendations designed to help Florida courts handle the huge volume of foreclosure cases and to prevent problems caused when foreclosure plaintiffs are not entitled to enforce notes in complaints.
The verification requirement means lenders and lawyers filing foreclosure complaints have to take steps to prove ownership of mortgages or face the possibility of a perjury charge and fine.
Verifying mortgage ownership adds another expense to foreclosure and can be time-consuming for banks and other lenders and lawyers because during the residential real estate boom, mortgages were bundled and sold and resold, often numerous times.
Bankers don’t like it
The Florida Bankers Association urged the court to reject the task force’s verification recommendation.
Virtually all paper documents related to a note and mortgage are converted to electronic files almost immediately after the loan is closed, and physical documents are eliminated to avoid confusion, said Alex Sanchez, CEO and president of the association.
He and the banking organization contend courts already have the authority to sanction lawyers and others who assert improper foreclosure claims.
Ownership of a note or lost note claims are issues in most of the residential foreclosure complaints Michael Wasylik handles.
“In the vast majority of my cases, the note is no longer owned by the original lender,” said Wasylik, a Dade City foreclosure defense lawyer and president of the Florida Foreclosure Defense Bar Association. “Many of the original lenders were essentially brokering loans for others and quickly flipped them to larger investors. Often the plaintiff foreclosing is not the lender but a successor at best.”
Lost note claims in foreclosure complaints are common, he said, which is an issue the Supreme Court noted in amending procedures late last month as a way to prevent lost note arguments that waste the courts’ time.
“Only the owner of the loan and note has the legal right to foreclose and has to prove they bought the note,” Wasylik said. “Banks don’t always have that evidence because ownership changes were not physically transferred. These notes are like checks. The physical possession of them is an important issue.”
The burden falls on foreclosure plaintiffs’ lawyers who contend in their complaints that their clients have the right to enforce notes, he said.
“If they care about their licenses, they make sure the plaintiffs have all the documentation required for verification of ownership,” Wasylik said. “What the Supreme Court has done is established a procedural step to make certain that happens.”
What the defense bar calls foreclosure mills are involved in many cases and mass produce foreclosure complaints in an assembly line fashion without tracking note ownership, causing judges to take notice.
Plaintiff lawyers generally are paid a wide range of flat fees that can be $1,200 or more for uncontested complaints and hourly fees for contested cases. In the past, most complaints were decided on summary judgments for plaintiffs, Wasylik said.
“We’ve started noticing a change in complaints,” he said. “There are fewer lost note claims. They are definitely decreasing.”
Scott Lilly, a real estate litigator and shareholder at GrayRobinson in Tampa, said the sheer volume of foreclosures is forcing the courts into “a balancing act” and has resulted in the adoption of rules everyone has to follow.
“That had to happen,” said Lilly, who has represented clients on both sides of foreclosure. “I’ve watched judges express incredible frustration at mass hearings. We do need to be concerned if the plaintiff in a lawsuit is the appropriate party to enforce a note. We learned early on in law school that a fundamental rule of litigation is be prepared.”
Senior Staff Writer Margie Manning contributed to this story.