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Nonjudicial Foreclosures: Are They Coming to Florida?

In September 2011, presentations were given to both the Florida House and the Florida Senate encouraging them to pass legislation implementing nonjudicial foreclosures. Currently, between 25 and 37 states have some form of nonjudicial foreclosure. The only method of foreclosure now available in Florida, however, is a judicial foreclosure.

What is the difference between a nonjudicial and a judicial foreclosure?

A judicial foreclosure requires the lender to file a lawsuit and to pursue that lawsuit through the courts. This means that the foreclosure must follow the procedural rules applicable to litigation. For example, the debtor must be personally served with the foreclosure complaint so that a court has jurisdiction to enter a judgment against the debtor. Once served, the debtor then has the opportunity to present defenses to the court and to argue why foreclosure is not an appropriate remedy.

A nonjudicial foreclosure would allow a lender to foreclose on property without going through the judicial process. A nonjudicial foreclosure sale would be similar to a tax deed sale. The property owner would receive a notice of delinquency and be given a certain period of time to pay the debt in full. If he/she fails to do so, the property will be sold.

Nonjudicial foreclosures are created by statute. Therefore, the particulars would be governed by whatever legislation is passed by the State of Florida. One option the State has is to give debtors the ability to opt out of a nonjudicial foreclosure. For example, if the debtor wants to contest the foreclosure he/she can request that the foreclosure go through the judicial process to allow the opportunity to present defenses. If the debtor does not contest a nonjudicial foreclosure, then the foreclosure could proceed without court involvement. We will have to wait and see whether the Legislature adopts a non-judicial foreclosure statute and if so what provisions it elects to include.

The banking industry and others, including Governor Rick Scott, are in favor of some form of nonjudicial foreclosures to increase the speed with which foreclosures are handled. It has been estimated that nonjudicial foreclosures could reduce the amount of time from default to sale by approximately 6 months. There may be unintended consequences, however, of speeding up the foreclosure process. For example, the inventory of houses for sale could increase dramatically, reducing overall housing prices. In addition, people who may have had enough time to go through a short sale or to refinance during a judicial foreclosure process may lose that opportunity.

Furthermore, many problems associated with the slowness of the foreclosure process, are not a result of the process. Rather they exist because some lenders have intentionally decided not to file for foreclosure to avoid having to pay overdue homeowner or condominium association dues. Nonjudicial foreclosures will not address this issue.

It is a quagmire deciding how to deal with foreclosures because every decision has any impact on homeowners, lenders and on the housing market. In looking at nonjudicial foreclosures, the Legislature must consider how the procedure would impact each of these sectors. It also must be mindful of due process concerns so that homeowners continue to have the opportunity to present defenses to foreclosure actions.

Sherri K. DeWitt
DeWitt Law Firm, P.A.
October 2011