State Supreme Court makes it more difficult for lenders to foreclose

Article Courtesy of The Tampa Tribune

By Shannon Behnken

Published February 16, 2010

TAMPA - The Florida Supreme Court continues to make it more difficult for lenders to foreclose in the Sunshine State.

The court says lenders are now required to verify they own loans before they file a foreclosure lawsuit. And, according to the court order, lenders can no longer charge the homeowner for that investigation.

This follows the court's order in late December that requires lenders to offer owners of primary residences a chance to negotiate with a third-party mediator before moving forward with foreclosure.

Florida has the nation's fourth-highest foreclosure rate, and the court estimates about 456,000 foreclosure cases are clogging the state's court system.

The new rules are an effort to help the courts better manage foreclosure cases and make sure lenders have tried to modify loans before taking back homes.

The rules and corresponding legal forms were proposed by a pair of Florida Bar panels.

"They found that many cases were being filed by plaintiffs that didn't own the mortgages any more," said Miami lawyer Mark Romance, who chairs the Civil Procedures Rules Committee.

Lenders sometimes have a difficult time coming up with the original note to prove they have the authority to foreclose. This is because loans were often bundled and sold as securities. In some cases, the notes are stored in warehouses or get lost in the shuffle.

Lenders have said the rules are cumbersome and may cause even more delays.

"It's just going to be another hoop to jump through," said Anthony DiMarco, executive vice president for public Affairs for the Florida Bankers Association, which opposed that provision.

No deadline has been set on the mediation order, which is being executed through the chief judges of Florida's 20 judicial circuits.

The program will require all cases involving primary residences be sent to mediation unless the plaintiff and borrower have already done so or both parties agree to opt out.

Florida's high court isn't the only one putting pressure on lenders to work something out with distressed homeowners. The federal government is, too.

Some lenders, burdened with loans in foreclosure, are agreeing to allow homeowners to sell for less than the loan amount. In those cases, the lender typically writes off the rest.

The lower prices have helped spur home sales, but real estate professionals and buyers complain that lenders take too long to approve sales. Sometimes the process can drag on for six months or longer, and frustrated buyers often walk away before they get the lender's answer.

The U.S. Treasury Department wants to speed up the process. The department said last month that starting in April, lenders will be required to respond to offers within 10 days.

Not all lenders are required to obey the rules. The rules apply to the 83 loan servicers participating in the Obama administration's Home Affordable Modification Program. Those include Bank of America and JPMorgan Chase.