What Does it Mean That Florida is a Judicial Foreclosure State?

In 2011, the Florida House and Senate considered arguments encouraging them to pass some form of nonjudicial foreclosures. Currently, there are numerous states across the country that allow lenders to directly foreclosure on a property. Florida is not currently among those states. The only method of foreclosure available to Florida lenders is judicial foreclosure. A judicial foreclosure requires the lender to file a lawsuit against the borrower. Ultimately, a judge has the final say on whether or not the foreclosure is allowed to proceed.

What Is the Difference between a Judicial and Non-judicial Foreclosure?

A judicial foreclosure requires that the lender file a lawsuit and pursue that lawsuit through the Florida courts. Essentially, this means that a foreclosure must follow the procedural rules applicable to litigation. As an example, the debtor must be personally served with the foreclosure complaint so that a Florida court has jurisdiction to enter a judgment against them. Once they are served, the debtor has the opportunity to present defenses to the court and argue against the foreclosure process.

A nonjudicial foreclosure, on the other hand, would allow a lender to foreclose on a property without going through the judicial process. This ultimately gives lenders much more control over the process than they have in the State of Florida. A nonjudicial foreclosure sale is similar to a tax deed sale. The property owner would receive a notice of delinquency and be given a certain amount of time to pay the debt in full. If the debtor cannot pay the debt in full, the property will be sold out from under them.

Nonjudicial foreclosures are created as a matter of law. In other words, there are statutes that apply to nonjudicial foreclosures. The State of Florida has no such statute. Thus, lenders who are looking to foreclose on a property must go through the courts to do so. The Florida legislature would have to pass a specific bill that authorizes nonjudicial foreclosure.

In some states, a debtor can contest a nonjudicial foreclosure by requesting that the foreclosure go through the judicial process. This avails them the opportunity to present defenses to the foreclosure. If the debtor does not contest the nonjudicial foreclosure, then the foreclosure can proceed without court involvement. At present, the legislature has not adopted nonjudicial foreclosure in the State of Florida. However, that could change heading into the future.

Commercial Foreclosures in Florida

As stated prior, Florida is a judicial foreclosure state. This applies to commercial properties the same way it does to residential properties. Mortgage foreclosures in Florida are “judicial proceedings” that are governed by Section 45.031 of the Florida Statutes. Florida’s judicial procedure allows a mortgage lender to force the sale of the borrower’s property at a public auction to satisfy the mortgage debt. Since Florida requires judicial foreclosure of any mortgage interest, the power of the lender to take possession of a mortgaged property, operate it, manage it, or sell it, without the completion of a judicial action are not enforceable in Florida.

Mortgage foreclosure lawsuits are filed as civil lawsuits in state court. Mortgage foreclosure suits are typically treated no differently than any other type of civil lawsuit. Such suits are subject to the same rules governing discovery, including depositions, motion practice, affirmative defenses, counterclaims, trial, and rights of appeal. Such an action can potentially take more than a year to resolve (not including an appeal).

Pre-suit Considerations for a Commercial Mortgage Foreclosure

Once the lender identifies that a loan is “distressed” (whether it is in default or not), the mortgage lender can begin considering how to address the distressed loan. Mortgage lenders usually consider actions that can be initiated without filing a lawsuit. These can include consensual remedies such as loan workouts and enforcement remedies.

Remedies that lenders can exercise without filing a lawsuit include:

• Discontinuing advances on a loan (if the loan has not been fully funded)
• Making a demand for repayment upon any or all of the guarantors of the mortgage loan
• Making a demand on the borrower and potentially accelerating the rate of repayment
• Exercising any self-help rights to other collateral
• Exercising rights to set off against pledged deposits or reserve accounts
• Drawing upon pledged letters of credit

Remedies Available to Lenders after They’ve Initiated a Lawsuit

Once the lender has initiated a lawsuit against the borrower, they can take several measures against the borrower including foreclosure of a commercial property. These include:

• Foreclosing the mortgage
• Filing suit on the note
• Filing suit on any or all of the guarantees
• Enforcing various assignments (rent, contracts, etc.)

Consensual Remedies Available to Lenders and Borrowers of Commercial Property

Alternatively, the lender and borrower can enter into a negotiated agreement to take the mortgage out of default. Potential remedies include:

• Modifying loan documents to provide the borrower additional time to pay or refinance the mortgage loan with another lender
• Reconstituting the terms of the loan
• Transferring the property to the lender (deed-in-lieu of foreclosure)
• Transferring the property to the lender through an uncontested foreclosure

The lender’s decision on whether or not they will pursue litigation as a remedy is often reached after weighing both business and legal options. Lenders generally analyze the facts and circumstances of the specific loan relationship, including the collateral, and issues related to the borrower. Depending on the individual circumstances, the lender will pursue a remedy that is in their best interests.

Talk to a Florida Commercial Foreclosures Attorney Today

Commercial foreclosures have skyrocketed all across the U.S. Today, the rate of foreclosures on commercial properties is as high as it has ever been. If your business is in danger of losing one of its most vital assets, you should talk to the Florida commercial foreclosure lawyers at Loan Lawyers, LLC. Call our office today to schedule an appointment, and we can begin discussing your options right away.