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.
Senate Bill 220 was designed to limit this abusive conduct. The bill permits lienholders in foreclosures to submit, in a state court foreclosure, any document the debtor filed under penalty of perjury in a bankruptcy proceeding as an admission by the debtor. It further creates a rebuttable presumption that the defendant has waived all defenses to a foreclosure proceeding if the debtor (1) filed a document in the bankruptcy evidencing an intent to surrender the property, (2) did not withdraw the document and (3) received a bankruptcy discharge or had a repayment plan under Chapter 13 confirmed that provided for surrender of the property. The statute, however, does not waive a defendant’s right to raise defenses based on conduct of the lender that occurs after the defendant filed a notice of intent to surrender in the bankruptcy proceeding.
The new statute will apply to foreclosure cases filed on or after Oct. 1, 2018.