Archive for January, 2012

Setting a Foreclosure Case for Trial

Did you know the banks and their lawyers don’t want to have to go to trial in foreclosure cases?  It’s not exactly breaking news, I realize.  (Recall, for instance, this post, where I showed that just 198 trials took place in the entire state of Florida in a recent, one-year period.)  In fact, those of us in the industry have known this for some time, i.e. banks want to win by default and/or summary judgment, not by trial in contested cases against lawyers who are asserting valid objections each step of the way.  

Given the volume of foreclosure cases in Florida, the increasing number of homeowners defending those cases, and the banks’ aversion to trial, our court system is inundated with foreclosure cases.  Personally, I don’t think this is a problem – if the banks don’t want to prosecute their cases, that’s their prerogative.  However, in an attempt to push through the logjam, I’ve seen some judges take measures which, in any other time, would be considered quite unusual.  One local judge, for instance, has stated setting cases for trial sua sponte, one after another, regardless of how the parties feel about it.  This begs the question – what is the appropriate way to set a case for trial?

I’ve blogged about this issue for some time now, including here and here, so at this point we should all know the basics of setting a case for trial, as set forth in Fla.R.Civ.P. 1.440.  First, a case can’t be set for trial unless it is “at issue,” meaning the defendant has filed an Answer to the operative Complaint and no there are no pending motions directed to the pleadings.  Second, when the court sets a case for trial, it must provide at least 30 days notice; anything less is insufficient.  The two cases which I love to cite for these propositions are Bennett v. Continental Chemicals, Inc., 492 So. 2d 724 (Fla. 1st DCA 1986) (en banc) and Precision Constructors, Inc. v. Valtec Constr. Corp., 825 So. 2d 1062 (Fla. 3d DCA 2002).  Notably, in both cases, the Florida appellate court reversed a final judgment not because there was any substantive error at trial, but because the trial had been set prematurely, in violation of Rule 1.440.  That’s how big of a deal this is – it doesn’t matter if the trial was done correctly if it was set prematurely. 

I’m confident the local judge who has started setting cases for trial en masse, sua sponte, is aware of these requirements.  In fact, I sincerely believe she tries to follow the law, and she has refrained from setting cases for trial that are not “at issue,” which is obviously a good thing.  The question that has arisen from her rulings, in my view, is whether a judge can set a case for trial on his/her own, sua sponte, when the case has not been noticed for trial. 

By way of example, and to illustrate the situation at hand, I recently had a hearing before this judge on a Motion to Substitute Party Plaintiff.  The issue of trial was not set for hearing, and no party had filed a Notice for Trial, so I wasn’t even thinking about a trial at this hearing.  Heck, the plaintiff’s lawyers were trying to change the identity of the plaintiff, so getting proper pleadings in place, and taking discovery regarding the new plaintiff, was paramount in my mind, not trial.  Anyway, at the hearing, immediately after she allowed the new plaintiff to join the case, the judge decided to set the case for trial with, quite frankly, limited input from the parties.  I objected, but it was clear to me that the court was following a procedure where foreclosure cases were being set for trial. 

Respectfully, I’m troubled at this sequence of events. 

Any time I go into a hearing, I expect that the only matter(s) being argued are those which have been noticed for hearing.  This is fairly basic, so a Court bringing up a matter like this, sua sponte, is the last thing I’d expect at a hearing on a simple motion.  I could perhaps understand this better if the plaintiff had filed a Notice for Trial.  But for a court to set a case for trial, totally on its own, where the case was not even noticed for trial and the issue of trial wasn’t set for hearing … I just don’t see that.  In my case, for example, I think I should get to amend my pleadings and take discovery about this new plaintiff before a trial is set. 

I believe the case law supports my view that a “Notice for Trial” must be filed before a judge can set a case for trial.  Rule 1.440 has three subsections, and each one is a step in a three-step process.  Once a case is “at issue” (subsection (a)), then it may be noticed for trial (subsection (b)), and then the court may set it for trial (subsection (c)).   As I read the cases which cite Rule 1.440, I believe they all support this interpretation.  See Genuine Parts Co. v. Parsons, 917 So. 2d 419 (Fla. 4th DCA 2006) (reversing final judgment where the court set the case for trial without a notice for trial having been filed); Garcia v. Lincare, Inc., 906 So. 2d 1268 (Fla. 5th DCA 2005) (“Procedural readiness for trial differs from actual readiness for trial.  It is the former, coupled with a properly filed ‘Notice for Trial,’ that imposes on the court the obligation to set a trial date.”); Hartford Fire Ins. Co. v. Controltec, Inc., 561 So. 2d 1334 (Fla. 5th DCA 1990) (“The rule requires the filing of a notice of trial for review by the court in order to determine whether the cause is ready for trial”); Balboa Ins. Co. v. Shores of Madeira, Inc., 457 So. 2d 596 (Fla. 2d DCA 1984) (“Once a proper notice of trial has been filed, the duty is on the court to set the cause for trial.”).  

This may sound like procedural mumbo jumbo, and I suppose to some extent it is.  That said, when trial is set, the substantive rights of the parties are being adjudicated (or about to be adjudicated), so it’s important to follow the procedure correctly.  As the en banc First District explained in Bennett, “strict compliance with Rule 1.440 is mandatory.”  Using my example above, if a Notice for Trial had been filed, I would have had a chance to object on the basis that trial was premature because the plaintiff had just changed.  At minimum, even if it was time to set the case for trial, I could have begun preparing the file accordingly (by completing discovery or amending pleadings as necessary).  In my view, all litigants are entitled to this right, and to sua sponte deprive them of that right is contrary to law. 

Reasonable minds can disagree, and this is certainly not the worst thing I’ve seen in foreclosure court.  That said, I’d love to see legal authority that allows a judge to set a case for trial, sua sponte, when a Notice for Trial has not been filed.  In light of the cases I’ve cited above, I just don’t think it’s possible.

Mark Stopa

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Should I Default on my Mortgage?

I get all sorts of comments on this blog, not to mention inquiries from prospective clients via email.  This one, which I’ll paraphrase, really caught my attention, as it presents a situation I suspect a lot of Florida homeowners are facing.  Here’s the question, and my response:

Question:  My wife and I have always paid our mortgage, but with the economy as it is we’ve struggled to do so recently.  Our house is about $150,000 underwater, and for the past year or so, we’ve borrowed money from my parents to make the mortgage payments.  Unfortunately, my parents can no longer afford to lend us any more money, so we’re trying to decide what to do. 

I’ve been asking the bank for a loan modification for many months.  They keep telling me “we’ll get back to you,” but then I never hear anything.  Most recently, the bank began insisting that my wife disclose her financial information as well.  I argued with them about this, since my wife wasn’t a borrower and did not sign the Note, but they insisted that the only way I would be considered for a loan modification was if my wife submitted her financial information as well. 

What should I do?  My wife doesn’t want to disclose anything, but if she doesn’t, and we don’t get a modification, then we can’t continue to keep making our mortgage payments for much longer. 

Answer:  First off, this might sound backwards to you, but I’m glad your parents are no longer giving/lending you money for your monthly mortgage payments.  I can understand the logic behind their doing so, don’t get me wrong, and I’m certainly not trying to criticize you or them.  However, as I’ve explained on many occasions, including here and here, depleting a 401(k), IRA, or savings account to make monthly mortgage payments on a house you just can’t afford is almost never a good idea. 

Please read this post, which I wrote in July, 2010.  As I explained there in detail, it’s almost never a good idea to deplete your savings to make monthly mortgage payments, as all that will happen is you’ll run out of savings and then still be facing foreclosure anyway.  If you realize you can’t afford to continue making monthly mortgage payments indefinitely into the future, isn’t it better to stop making those payments now, keep whatever money you have in your own pocket, and brace yourself for the impending foreclosure lawsuit, rather than spend all of your savings, then face foreclosure with no money left in your pocket? 

The fact that your parents were lending to you, as opposed to you depleting your own savings, doesn’t change my view.  In fact, it might make it worse.  Your parents are obviously older than you, so they’ll have fewer years in the work force (if any) to recover, and I suspect from your email that you’ve depleted your own savings, too.  Nonetheless, you’re still in the same situation you would have been in had you and your parents kept those monies in your own pockets – facing foreclosure. 

It’s critical for you, your parents, and all homeowners to realize that any money in your 401(k) or IRA can never be taken by the bank (i.e. to collect on a deficiency judgment) – the only way you’ll ever lose that money is if you take it out voluntarily.  Even if you get foreclosed, you’ll still get to keep your 401(k) and IRA monies.  Even if you have to file bankruptcy, you’ll still get to keep your 401(k) and IRA monies.  Hence, I can hardly imagine a circumstance where it makes sense to dip into these accounts to make mortgage payments.  I suppose a temporary reduction in income could justify doing so for a short period of time, but that’s the catch – lots of people think/hope their reduction in income is temporary, but before they know it, they’ve made a year of mortgage payments from their IRA or 401(k) with no end in sight. 

Obviously you can’t go back in time, and my point isn’t to beat you over the head with things you can’t change.  Rather, my point is to help you realize, going forward, that it’s probably best that you and your parents stop depleting your savings to make monthly payments on a mortgage you cannot afford. 

I can understand you thinking “let’s keep making the payments and try to get a modification … if we get a loan modification, and our monthly payment is reduced, then maybe we can afford to stay here.”  Candidly, LOTS of homeowners have that mindset, especially in Florida.  Unfortunately, as I’ve explained many times, including here, here, and here, loan modifications are rare, particularly those with principal reductions, and banks/servicers have all sorts of perverse financial incentives not to provide modifications to well-intentioned homeowners.  Hence, what you view as “temporarily borrowing until we get a modification” or “temporarily using savings until we get a modification” is more like “depleting savings waiting for a modification that’s probably never going to come.” 

As for the issue of whether you should disclose your wife’s finances, let’s put it this way.  I agree with you – it’s hard to see how the bank needs your wife’s finances to evaluate you for a modification, since she wasn’t on the loan in the first place.  In that sense, it seems logical to withhold this information.  However, if you’re adamant about getting a modification, and that’s what the bank is saying they need, it won’t help to withhold it.  Frankly, it doesn’t seem like you’re going to get the modification you want either way you proceed.  Hence, whether to disclose her finances is probably a matter of how you’ll feel if you get rejected again and didn’t disclose them.  Will it eat at you to feel like you didn’t do everything you could?  Will you feel better knowing you disclosed them, even if you get rejected, as you’ll at least know you did everything you could? 

I hate to see you in this situation.  However, nothing breaks my heart more than the conversations I’ve had with clients, particularly older clients, who tell me they’ve depleted all of their savings and are now being sued for foreclosure.  Please don’t make this mistake.  It’s bad enough to face foreclosure – it’s even worse to do so after you’ve spent all of your money.

Mark Stopa

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The Presidential Candidates and their Views on Foreclosure

Politics is always a sensitive topic, one where my clients undoubtedly have a wide disparity of views and opinions, so perhaps I’m nuts to broach the topic.  That said, the four candidates to run against Barack Obama for President were in Tampa last night, discussing a variety of issues important to Floridians, including foreclosure.  As such, I’d be remiss not to provide my perspective on each candidate vis a vis foreclosure, with an eye towards each candidate’s willingness to do something to help homeowners.  In other words, are any of these Presidential candidates, if elected, going to do anything to help homeowners facing foreclosure? 

Brian Williams started last night’s debate with Newt Gingrich, so I’ll start there as well. 

As I see it, Newt’s pro-bank stance is pretty apparent.  Depending on whose version of the facts you believe, it seems Newt was paid somewhere between $300,000 and $1.8 million to provide “consulting” services to Freddie Mac for upwards of a decade prior to the real estate collapse.  Freddie Mac, of course, is a government-sponsored enterprise which buys mortgages on the secondary market, pools them, and sells them as mortgage-backed securities to investors on the open market.  These are, mind you, the very securities which helped create the real estate crash, and Freddie Mac has been notorious in recent years for pushing foreclosures and not advocating alternatives like loan modifications. 

Gingrich’s history is so anti-consumer that even Mitt Romney made Newt’s ties to Freddie Mac a centerpiece of his critiques  in last night’s debate.  Anticipating the criticism, Newt released one of his contracts with Freddie Mac, but read it and you’ll probably agree with me it prompts more questions than answers.  For instance, what, exactly, was Newt supposed to do in exchange for these “consulting” services, why doesn’t the contract so specify (who enters a contract for these amounts without specifying what services are being performed), and what was Newt doing in all the other years of consulting? 

My point isn’t to bash Gingrich.  My point, simply, is that no matter how you spin his ties to Freddie, it’s clear that those ties (both personal and financial) show there’s no way he’s going to do much to help Florida homeowners. 

Verdict on Newt for homeowners:  No help coming for homeowners; more of the same. 

Mitt Romney may have scored points by criticizing Newt’s ties to Freddie Mac, but Mitt is hardly the poster-child for middle-class America.  After all, Mitt famously challenged Rick Perry to a $10,000 bet during a live debate, showing just how out of touch he is with mainstream America.  I guess that’s what happens when you earn $20 million per year in interest

To be fair, Romney shouldn’t be discounted or disqualified just because he’s rich.  America was founded on capitalism, and there’s nothing wrong with someone taking advantage of a capitalist society.  The question, rather, is whether Romney would do anything to help homeowners.  On that score, it seems clear to me the answer is “no.” 

Yes, I realize Romney met with Florida homeowners on Monday and lent a sympathetic ear.  There’s a big difference, though, between showing compassion and taking action as President to fix the foreclosure crisis.  As such, I think Romney’s most telling statements in this regard are those he recently said in Nevada, where he opined:

“Don’t try to stop the foreclosure process. Let it run its course and hit the bottom.  Allow investors to buy homes, put renters in them, fix the homes up and let it turn around and come back up.  The Obama administration has slow walked the foreclosure process … that has long existed and as a result we still have a foreclosure overhang.”

That approach sounds, to me, very much like the businessman we all know Romney to be.  In Romney’s eyes, foreclosures aren’t people losing their homes; foreclosures a problem we should get through as quickly as possible and a business model where investors can make money.  In other words, Romney relates to corporate America, not middle-class America, and he’s not about to implement any new policies to help stop foreclosures. 

Verdict on Romney:  No help coming for homeowners; more of the same. 

For many Floridians, Ron Paul is a fresh voice in the Presidential debate.  He famously voted against all government bailouts, predicting the housing crash years beforehand.  In fact, his Presidential campaign centers largely on the drastic reduction of government intervention, in the economic sector and otherwise.  According to Paul, if the government gets out of the way, and stops spending money needlessly for programs that haven’t worked, everyone will be better off.

Frankly, I’m convinced America would be better off if Paul’s ideas had been implemented years ago.  However, we can’t go back in time, so that’s not the question.  The issue is whether Paul’s approach, i.e. the government should “get out of the way,” would help homeowners today.  On that score, I’m not so sure. 

I see two problems here.  First, imagine two parents who buy lavish, extravagant Christmas gifts for two of their children, then tell the third child “sorry, there’s no money left for any gifts for you.”  We’d all agree that’s inherently unfair, right?  Yet that’s the approach Paul would adopt.  “The government gave the bailouts to the banks, but we’re not going to give any more bailouts – no bailouts for homeowners.”  Even if that’s approach is “best,” it certainly leaves a lot of people cold and bitter, just like the third child who got no Christmas gifts.  Paul would probably say that two wrongs don’t make a right.  Maybe so, but there’s something unsatisfying about letting the banks get the bailout money and then doing nothing for homeowners. 

Also, Paul’s approach, just like that of the other candidates, is not going to stop foreclosures.  Sure, we might not be in this position in the first place had we listened to Paul.  But we are here, and we can’t go back, so letting the free market take over isn’t going to help most homeowners. 

Verdict on Ron Paul:  He was right, but he’s not going to help homeowners

Rick Santorum made an interesting suggestion at last night’s debate – give underwater homeowners some type of tax relief.  Unfortunately, Santorum gave no specifics for such a plan, nor did he explain how the government would pay for the tax cuts.  Mind you, it’s easy for politicians to suggest tax breaks at election time; the question is whether such proposals are realistic in light of budgetary constraints. 

Anyway, even if tax benefits were given to underwater homeowners, that isn’t going to stop banks from foreclosing on delinquent homeowners.  Hence, the question becomes what, if anything, Santorum would do to help homeowners.  On that score, Santorum’s stance seems clear.  Like Ron Paul, Santorum thinks the government should get out of the way and let the housing market “find its bottom.”

Verdict on Rick Santorum:  No help coming for homeowners. 

When I watched the debate last night, I was disappointed that Brian Williams didn’t force a more in-depth discussion of the housing crisis.  For instance, I would love to see a moderator ask each candidate “would you advocate principal reductions on mortgages, and if so, what procedures would you implement to do so?”  Unfortunately, as I study all four Republican candidates, it seems that such a dialogue is unnecessary, as none of them are going to do anything to directly help homeowners. 

Now that I’ve essentially rejected all four Republican candidates, you may think I’m about to support Obama.  Hardly.  Obama has had three-plus years to do something to help homeowners and he hasn’t.  Hence, my verdict for homeowners facing foreclosure, at least with respect to the next President, is a sad one.  Quite simply, no matter who is the next President, no help is coming for homeowners. 

All of that said, the situation is not hopeless.  Florida homeowners can fight their foreclosure case, in court, with an experienced foreclosure defense attorney.  That may sound cliche, and it may appear self-serving, but I’m convinced the next President isn’t going to help homeowners.  As such, if you’re looking for help, a lawyer who knows the ins and outs of foreclosure defense is probably the best you’re going to do.  After all, it seems clear there’s no help coming from the next President, whoever he may be.

Mark Stopa

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300 Foreclosures in 3 Days? … Not on My Watch

Making the rounds this week was a story about a Seminole County judge who heard 300 foreclosure cases over a three-day period.  Many media outlets and consumer advocates found this troubling, as it gave the judge less than a minute to adjudicate each case.

This is a terribly sad and unfortunate dynamic.  You know the story – as Florida courts are inundated with foreclosure cases, and the Florida legislature refuses to give our courts the money it needs to function properly, some judges have felt they have no choice but to operate in this fashion. 

I’m pleased to say this type of time crunch rarely if ever happens in cases in which I’m counsel.  Why?  Three simple reasons:

1.  I’m a lawyer.  I hate to say it, but sometimes attorneys are given more respect than pro se litigants.  Remember, all judges are lawyers, and most judges are unlikely to force a fellow attorney to conduct a hearing in 30 seconds. 

I can certainly see how some would think it’s unfair to treat lawyers better than pro se homeowners.  However, candidly, I can see this from both sides.  I’ve watched many hearings where homeowners try to defend themselves but, frankly, have no idea what arguments to make or how to make them.  For instance, “I lost my job” is almost never relevant in a foreclosure case. 

Like it or not, hiring an attorney may give homeowners a better chance of being heard in court. 

2.  “Contested” cases are treated differently.  Many Florida judges treat “contested” foreclosure cases and “uncontested” foreclosure cases differently.  “Uncontested” cases often get set for hearing at the same time as dozens of other cases.  The judges’ rationale in doing so is that nobody is opposing these cases (hence the “uncontested”), so the court can have hearings in such cases quickly, one after another.  Hence, if a homeowner shows up to attend a hearing in such a case, it may have already been set on the court’s calendar for a quick, “uncontested” hearing. 

Conversely, judges know that hearings in “contested” cases will take longer to adjudicate, as someone is there defending them.  Hence, hearings in these cases are often scheduled differently on the court’s calendar.  As a result, contesting your foreclosure case from the outset may ensure your hearing is set in a manner that ensures you have more time to be heard.   

If that doesn’t make sense, look at it this way …

Many Florida judges know that my colleagues and I aren’t going to roll over and consent to foreclosure in a 30-second hearing.  We’re going to have extensive legal arguments and case law.  So the judges aren’t likely to set a hearing in our cases at the same time as hearings in other cases where nobody is arguing.  My hearing might take 20 minutes, while the court could take that same 20 minutes to hear 20 cases.  What do you think the court is going to do, wait on 20 other cases to hear my one case for 20 minutes, or handle the 20 uncontested cases?   

3.  I ask.  In the unusual situation where a hearing in one of my cases is set on a “mass motion” calendar with many other cases, all at once, I ask that the hearing be continued, i.e. file a Motion for Continuance, to ensure more hearing time. 

This is a really simple argument, actually. 

“Judge, I see you have many other cases set for hearing today.  My argument is going to be 15-20 minutes, with case law, so I respectfully submit this case should be heard on another day.” 

What do you think the judge is going to do, delay the hearing in 20 other cases, or the hearing in my one case? 

Having 300 foreclosure cases heard in a three-day period is unfortunate.  Frankly, however, it’s a problem that, quite often, is fairly easy to avoid.

Mark Stopa

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Ex Parte Motions to Substitute Party Plaintiff

I’m not very happy right now as I read a 2-1 decision from a three-judge panel from Florida’s Third District Court of Appeal.  The decision stems from an involuntary dismissal entered in favor of a homeowner, at trial, because the plaintiff failed to prove the requisite elements of its case.  In the words of the trial court judge, dismissal of the foreclosure case was required “as a result of Plaintiff’s failure to establish its status as the owner and holder of the applicable Note and Mortgage with standing to bring suit.”

In the appellate court, however, two judges decided the lower court erred by so ruling.  The third judge on the three-judge panel vehemently disagreed, but his opinion was relegated to a dissent. 

Oddly, the majority began its analysis of whether the plaintiff proved its case at trial by discussing an interlocutory Order which permitted the plaintiff to substitute as the plaintiff in the lawsuit.  That Order provided:

The Bank of New York Trust Company, N.A., as successor to JPMorgan Chase Bank, N.A., as trustee, is the real party in interest and proper Plaintiff in this action, and;

The Bank of New York Trust Company, N.A., as successor to JPMorgan Chase Bank, N.A., as trustee, is hereby substituted for JPMorgan Chase Bank, formerly known as Chase Manhattan, as trustee, residential funding corporation, as attorney in fact, as the proper Plaintiff in this action and the style is amended as reflected on this Order.

In the view of the majority, “because there was no denial or defense raised in defendants’ pleadings concerning this finding, the judgment under review cannot be permitted to stand for that reason alone.” 

This is an absolute bombshell, folks.  It’s a major, major trap for unsuspecting homeowners (especially those proceeding without counsel), one that the Florida courts have, perhaps unwittingly, been routinely and systematically permitting for many years.  Before I explain why that is, and what we must all do to avoid it, let’s start out by explaining why the majority’s opinion is, respectfully, misguided. 

First off, I struggle to see how the majority can confuse an interlocutory Order granting a motion to substitute party plaintiff, which does nothing more than allow the new plaintiff to bring suit, with proof that said plaintiff was the owner and holder of the Note and Mortgage and was entitled to foreclose.   This isn’t like confusing apples and oranges; this is mistaking apples and lawnmowers. 

Leave to amend is granted on a regular basis, almost as a matter of course.  When that happens, it means the plaintiff is entitled to bring suit against the defendant (and prove its case at trial).  It does NOT mean the plaintiff has proven the elements of his/her case (without proof at trial) – it only means the plaintiff can assert the claims.  To blend these two concepts together, and confuse permission to bring a claim and proof of that claim, is, frankly, quite misguided.   In fact, by my research, this is the first Florida case which in any way suggests that an Order substituting a party plaintiff not only allows the new plaintiff to bring suit, but also operates as some sort of finding that the new plaintiff is the correct plaintiff. 

Many Florida cases have explicitly rejected this sort of rationale.  For instance, there are legions of cases in the context of leave to amend which make it clear that an Order granting leave to amend does not mean the plaintiff’s claims have merit, but merely that the plaintiff is permitted to bring them.  (I’m so confident in this argument it doesn’t even need a case cite.)  Similarly, a plaintiff who has procured a money judgment and wants to collect against a different defendant (not named in the original suit) can initiate proceedings supplementary against that party pursuant to Fla. Stat. 56.29.  To do so, the plaintiff must file a motion and procure an order from the court allowing it to sue the new defendant.  When that happens, Florida courts have explained that such an Order, if granted, does not mean the plaintiff’s complaint against the new defendant has merit, only that the plaintiff is allowed to bring the suit.  See Machado v. Foreign Trade, Inc., 544 So. 2d 1061 (Fla. 3d DCA 1989).  Proving the allegations in the suit is, of course, a matter for trial. 

Here, the situation is the same.  When a party seeks to substitute in as the new plaintiff, it is only entitled to a ruling that it can bring suit (in place of the original plaintiff) – not a determination that the new plaintiff is actually the correct plaintiff, has standing, or is entitled to any relief.  Apparently, the majority concludes otherwise based on that portion of the Order which says the plaintiff is the “real party in interest and proper Plaintiff.”  In other words, as the majority would have it, the lower court concluded the new plaintiff was the correct Plaintiff when it entered that Order, even without proof at trial.  

What’s the big deal about that, you ask?  Well, it would be one thing if the Order concluding the Plaintiff was the correct Plaintiff was entered after an evidentiary hearing, where the homeowner had a chance to object, present evidence, and cross-examine the plaintiff’s witnesses.  Unfortunately, that virtually *never* happens, at least not in Florida.  Instead, Orders substituting a party plaintiff are routinely entered by Florida judges ex parte, without notice, and without hearing. 

Let’s repeat that: 

Orders substituting a party plaintiff are routinely entered by Florida judges ex parte, without notice, and without hearing.

Hence, what makes the majority’s reliance on the Order substituting plaintiff (in lieu of evidence at trial) so troubling is that said Order was undoubtedly entered without giving the homeowner a chance to be heard.   

Think about this for a minute.  This was a foreclosure case that advanced to trial.  The presiding judge thought the bank presented insufficient evidence at trial to prevail.  But two appellate judges disagreed based on an Order substituting plaintiff that was entered ex parte, without notice, and without hearing.  Hence, according to these two judges, evidence to justify foreclosure is unnecessary – the plaintiff obtained the Order of substitution, and since the Order included gratuitious fact-findings (included by the plaintiff’s attorney), the plaintiff need not present evidence at trial. 

I could blog all day long about the erroneous nature of this ruling.  In a way, that’s really not the point.  The point is this … if any judges think, rightly or wrongly, that an Order substituting party plaintiff can ever replace proof at trial, it is absolutely imperative that every Florida homeowner contest each and every motion to substitute party plaintiff.  Let’s say that again: 

Every Florida homeowner must challenge every motion to substitute party plaintiff in every foreclosure case.

After all, according to these two judges, the failure to challenge that motion can mean the plaintiff doesn’t have to present evidence at trial, and obviously we can’t let that happen. 

Given the now-obvious risk that Florida courts will accept Orders of substitution in lieu of evidence at trial, it is imperative that all Florida judges give homeowners a chance to object to all such motions and stop entering these orders ex parte, without notice, and without hearing.  In other words, it’s past time that these ex parte Orders stop being entered. 

Procedurally, there’s no way anyone could disagree.  The rule on substitution of parties is clear.  Fla.R.Civ.P. 1.260 explicitly requires a “notice of hearing” be filed along with the motion to substitute.  Where the Rule mandates a hearing, it is legal error to enter such Orders without a hearing.  See Metcalf v. Lee, 952 So. 2d 624 (Fla. 4th DCA 2007). 

Substantively, the need for a hearing is apparent.  If judges are going to use the Order of substitution in place of evidence at trial, all homeowners should be entitled to a hearing prior to such an Order being entered.  That means, of course, that all homeowners must request such a hearing and object to all motions to substitute party plaintiff.  After all, as the majority ruled, if you don’t object, you could be deemed to waive your right to complain later. 

So what should homeowners do to avoid this trap?  I see a few solutions. 

First, and perhaps most obvious – challenge the Motion to Substitute Party Plaintiff!  Make it clear, in writing, that you oppose the substitution.  Make it clear, in writing, that you want a hearing.  Force the new plaintiff to explain, in writing (and, ideally, under oath) why it is entitled to the substitution.  If the issue is that the Note/Mortgage were transferred after suit was filed, Rule 1.260 probably authorizes the substitution.  But if the issue is that the original plaintiff never had standing, and a new plaintiff is trying to cure the original plaintiff’s standing deficiencies by a motion to substitute party plaintiff, then the requested substitution should be denied.  And if the basis for the substitution is unclear, it should be denied until the plaintiff so clarifies. 

Second, even if an Order of substitution is granted, make sure the Order does not contain any sort of finding that the new Plaintiff is the “correct” Plaintiff.  By granting a substitution, all the court is doing is giving that party permission to bring a case, not making a fact-finding that the new Plaintiff has standing.  Quite frankly, I don’t think any Florida judge is intending to rule that the new Plaintiff is the “correct” Plaintiff (and need not present evidence at trial) by entering an Order substituting party plaintiff, so I think most judges will be happy to so clarify.  However, it’s obviously important that the written Order so reflect.  For instance, I’d envision something like this:

The Motion to Substitute Party Plaintiff is granted, and XYZ Plaintiff may prosecute this case in place of the original Plaintiff. In so ruling, this Court does not pass on the question of whether XYZ Plaintiff is the correct Plaintiff or has standing to foreclose; the Court is merely giving Plaintiff leave to plead a claim against Defendants. 

If the Order is worded like that, it should prevent any problems. 

Third, if an Order substituting party plaintiff is granted, I’d argue the new Plaintiff should have to file an Amended Complaint, enabling the homeowner to plead in response thereto.  After all, the majority makes it clear that the homeowner has to plead its standing defenses, and that being the case, the new plaintiff should have to plead its claims as well.  In other words, the homeowner should get to plead in response to a complaint brought by the new plaintiff (with allegations that the new plaintiff is the owner and holder of the Note and Mortgage), not be in a position of answering a Complaint brought by the original plaintiff when a new plaintiff is in place. 

Fourth, regardless of whether the presiding judge requires an Amended Complaint, all Florida homeowners should make sure they obtain leave to amend, particularly if they’ve already filed an Answer.  That way, it will be impossible for any judge to conclude the homeowner waived defenses by failing to plead them.  Obtaining leave to amend shouldn’t be difficult, either – it’s freely given, and it would have to be given if the court just allowed the substitution of a new plaintiff. 

For what it’s worth, Stopa Law Firm has been challenging Motions to Substitute Party Plaintiff – systematically, in every case – for a long time.  There are two ways to do so, i.e. by written objection (if an Order hasn’t been entered), or by a Motion to Vacate Order (if an ex parte Order was signed).  Frankly, I saw this trap coming a long time ago, and I’ve been trying to prevent it from prejudicing my clients.  It’s a touchy issue, though, one that I couldn’t imagine pro se homeowners handling without counsel. 

Before concluding, there are four other things about the majority’s ruling that really bother me which merit discussion:

1.  I am well aware of the line of cases cited by the majority for the proposition that standing is an affirmative defense which must be pled.  However, the majority overlooks the fact that the plaintiff being the “owner and holder” is an element of the plaintiff’s case, not a defense by the homeowner.  See Fla.R.Civ.P. Form 1.944.  As such, unless the homeowner admitted the plaintiff was the “owner and holder” in his/her Answer (which I highly doubt, lest the majority would have said as much), then the plaintiff proving it is the owner and holder is not something the homeowner could have waived – it’s something the plaintiff must prove at trial, like any element of a plaintiff’s case in any lawsuit.  

2.  The majority acts as if this interlocutory Order which substituted the plaintiff was set in stone and that a contrary finding was impossible.  In other words, the majority would have you believe that once the trial court signed an Order saying the plaintiff was “the real party in interest and proper Plaintiff in this action” that it could not, even in the face of evidence at trial, conclude otherwise.  Respectfully, that is simply not true.  As with any interlocutory Order, the judge had the discretion to reconsider that Order prior to the conclusion of the case.  See Fla.R.Civ.P. 1.530.  Hence, if the court conducted the trial and concluded based on the evidence presented that the plaintiff was not the correct plaintiff, nothing about the prior, interlocutory order prevented it from so ruling. 

Without mentioning it, the majority seems to rely on a legal doctrine called “law of the case.”  Under this legal principle, once an appellate court rules on an issue in a given case, the lower court is prohibited from ruling otherwise in that case.  Many lawyers cite this doctrine in support of an argument that a court cannot change its prior rulings.  However, that is not how it works.  “Law of the case” only applies when an appellate court makes a ruling, binding a lower court to that ruling; law of the case does not apply to rulings by the trial court.  Here, the lower court’s Order substituting the plaintiff, even to the extent it contained fact-findings, was not ”law of the case,” so the court was free to disregard or reconsider said Order as it saw fit.  To rule otherwise is to fly in the face of years of established precedent enabling trial court judges to reconsider interlocutory orders at any time prior to entry of final judgment.   

3.  The majority characterizes the assignments of mortgage as “self-authenticating.”  Respectfully, this is a false statement of law.  A Note is self-authenticating under the UCC, as are the indorsements on a Note.  However, assignments of mortgage are not negotiable instruments, are not subject to the UCC, and are not self-authenticating.  Tellingly, the majority cites no case law otherwise, as no such case law exists.  (To the extent the majority cites Riggs, that decision discusses Notes, not assignments.

Respectfully, it is very disappointing to see such a glaring misstatement of the law in a Florida appellate decision, particularly one that touches on novel issues that have not previously been addressed.  What’s more troubling is that I can’t help but wonder if the majority cited the law in this manner because it was looking for an excuse to rule against the homeowner.  That may sound harsh, but for those who know this area of law, it is troubling to see a statement that an assignment of mortgage is self-authenticating, without any legal citations, when I know that statement is false. 

4.  The majority makes conclusory assertions that the plaintiff presented sufficient evidence to re-establish a lost note, yet it cites no facts to support such a conclusion.  This failure is particularly troubling when I read the dissent, which explains that the plaintiff had no idea when the Note was lost or who lost it. 

Florida courts are inundated with foreclosure cases.  We are all dying for insightful, detailed opinions from our appellate courts, giving us guidance on the law and how to apply the law to a given set of facts.  Respectfully, citing a statute and saying the plaintiff complied is of little value. 

Here, for instance, is the majority trying to say the plaintiff need not show when the Note was lost or who lost it?  Frankly, I have no idea, because the majority does not elaborate.  As a result, lawyers like myself and the many able trial court judges before whom I appear will continue to decide for themselves, with little direction or insight, exactly what proof is required in a foreclosure case. 

Unfortunately, this is why Florida judges have such disparate views on how to rule on such issues – we have, quite frankly, very little guidance from our appellate courts.  What’s good about this, though, is that this shows why lawyers can be so beneficial for homeowners facing foreclosure.  There is a LOT of gray area in foreclosure cases, so having a lawyer who knows the ins and outs, and can avoid falling into the traps like the one in this opinion, can make all the difference.

Mark Stopa

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Florida Legislature – Catering to Banks

The fix is in, and those of us paying attention have been saying as much for a long time now.  Don’t believe me?  Check out the Florida legislature’s most recent effort to cater to the whims of the banks.  Florida Statute 702.065 now provides:

702.065 Final judgment in uncontested proceedings where deficiency judgment waived; attorney’s fees when default judgment entered.—

(1) In uncontested mortgage foreclosure proceedings in which the mortgagee waives the right to recoup any deficiency judgment, the court shall enter final judgment within 90 days from the date of the close of pleadings. For the purposes of this subsection, a mortgage foreclosure proceeding is uncontested if an answer not contesting the foreclosure has been filed or a default judgment has been entered by the court.
(2) In a mortgage foreclosure proceeding, when a default judgment has been entered against the mortgagor and the note or mortgage provides for the award of reasonable attorney’s fees, it is not necessary for the court to hold a hearing or adjudge the requested attorney’s fees to be reasonable if the fees do not exceed 3 percent of the principal amount owed at the time of filing the complaint, even if the note or mortgage does not specify the percentage of the original amount that would be paid as liquidated damages. Such fees constitute liquidated damages in any proceeding to enforce the note or mortgage. This section does not preclude a challenge to the reasonableness of the attorney’s fees.

My thoughts, in no particular order: 

1.  The requirements to recover attorneys’ fees in Florida have been long-established over many decades and countless court cases.  Any attorney wishing to recover fees must prove the reasonableness of those fees (both the number of hours and the hourly rate) by affidavit or live testimony.  Additionally, an independent, third-party expert must opine the fees are reasonable.  Any order granting such fees must contain written findings, by the judge, that the fees were reasonable.  And except in contingent fee cases, the amount of fees cannot exceed what the client paid/owed to the lawyer.  

In one swoop, the Florida legislature has completely changed the law in these regards.  Now, there’s no need for expert testimony.  Heck, there’s no need for any other proof whatsoever.  Instead, the legislature has decided, in its infinite wisdom (insert sarcasm here), that 3% of the amount owed is always a reasonable fee in mortgage foreclosure cases.  Hence, if the mortgage is $1,000,000, then $30,000 is a reasonable attorneys’ fee – even though the case was uncontested (which is what happens when the bank wins by “default judgment”). 

$30,000 in fees for an uncontested mortgage foreclosure case?  Seriously?  Respectfully, this law  is absolutely disgusting.  If you don’t understand why, bear in mind there is no relationship whatsoever between the amount owed on a mortgage and the attorneys’ fees actually incurred foreclosing that mortgage.  None.  Nada.  Zero.  You can’t even say “well, homeowners with bigger mortgages will defend more aggressively, resulting in more fees” because the statute only applies when judgment was obtained by “default.”  By definition, there is very little work done on such files, yet the banks get a rubber-stamped judgment entitling them to 3% attorneys’ fees.  That’s $30,000 in fees on a $1,000,000  mortgage for a case that was uncontested.  Truly appalling. 

2.  The only saving grace about the automatic, 3% fee is that it only applies in uncontested cases.  Consider this another reason to fight your foreclosure case.  After all, if you don’t fight, and you lose by default, the bank can tack on 3% to the judgment amount, and it can attempt to recoup this amount from you via deficiency judgment, whereas if you defend your case, the bank’s lawyers will have to prove the fees they seek are reasonable.

You might think a bank can’t recoup the 3% fees via deficiency, but you’d be mistaken.  Look closely at the statute and you’ll see the waiver of deficiency language is only in subsection (1).  Per subsection (2), a bank can win by default, tack on 3% in fees, and pursue those amounts from the homeowner via deficiency. 

3.  Other than contingent fee cases, I can’t ever recall seeing a situation where an attorney could recoup more in attorneys’ fees than what the client actually owes/pays.  The law has been set up this way, of course, to prevent an attorney from getting a windfall against his/her opponent.  By way of example, if I bill my client just $3,000, I shouldn’t get to recoup $10,000 from the other side just I beat them in court. 

Despite years of established law in this regard, the Florida legislature has turned this law on its head via this statute.  Now, it doesn’t matter how much the bank’s lawyers charged or received – they’ll always (in uncontested cases) get 3% of the amount owed.  And if they weren’t charging 3% of the mortgage amount previously, you can darn sure bet they will now.  

4.  Conspicuously absent from this new law regarding 3% attorneys’ fees for bank lawyers is a reciprocal provision entitling homeowners’ attorneys to recover a 3% fee if the homeowner prevails in the mortgage foreclosure case.  In every other context, Florida law ensures fee provisions are reciprocal for both sides.  See Fla. Stat. 57.105(7).  As far as mortgage foreclosure cases go, though, the legislature clearly doesn’t care about reciprocity – it’s all about giving a windfall to the banks. 

Personally, I intend to argue that 57.105(7) makes the fee provision of 702.065 reciprocal, meaning I should recoup 3% of the mortgage amount in cases where I’ve prevailed.  Unfortunately, I’m not holding my breath.

5.  I’m less appalled at subsection (1), which basically directs a court to enter final judgment against any homeowner who defaults if the bank has waived a deficiency claim.  I will note, however, that this portion of the statute is also rife with problems. 

For instance, the statute directs that Florida courts enter a final judgment of foreclosure in uncontested cases 90 days after the pleadings have closed.  “Uncontested cases,” though, are defined as those where a “default judgment” has been entered.  Hence, the legislature is trying to tell Florida courts to enter judgments in cases where they’ve already entered judgments.  Nonsensical?  Yes, and that’s the point. 

I presume the legislature intended to require judgments be entered in cases where a “default” (not a default judgment) had been entered, but that’s not what the statute says (and there’s an obvious difference between a “default” and a “default judgment” – see Fla.R.Civ.P. 1.500).  Apparently, the legislature was in such a rush to enter something pro-bank, it couldn’t take the time to create a statute that makes the slightest bit of sense. 

6.  The fact that I have to cite the Florida Rules of Civil Procedure to explain this statute is telling, and it’s illustrative of the statute’s problems.  Under Article V, Section II of the Florida Constitution, the Florida Supreme Court has the exclusive authority to designate rules of practice and procedure in all Florida courts.  If the Florida legislature creates a statute which purports to set forth a rule of practice or procedure, it is acting in derogation of its constitutional authority and such a statute should be deemed unconstitutional. 

Here, I’d argue that Rule 1.500 sets forth the procedure by which a Florida court can enter a judgment after a default and that the legislature’s attempt to direct courts when to enter judgment in foreclosure cases unconstitutionally infringes on the terms of the Rule.  In other words, I see a fair argument that subsection (1) of Fla. Stat. 702.065 is unconstitutional, and I expect court rulings on this issue in the near future. 

Speaking of the unconstitutionality of this statute, I also expect constitutional challenges to the 3% fee provision in subsection (2).  If I find that law appalling, I’m sure others do as well.  But it’s more than just appalling – it’s easy to couch that statute in terms of a violation of due process or in derogation of Fla.R.Civ.P. 1.525.   

Putting aside the legal technicalities, Fla. Stat. 702.065 is a bad sign for Florida.  It’s sad that the legislature is willing to stoop to these levels to cater to the whims of the banks.  If you’ve been ignoring issues like this, get involved.  Stand up and fight.  Tell the legislature what you think about it.  The banks are obvoiusly pushing the legislature to do what it wants … are you?

Mark Stopa

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Celebrating Martin Luther King, Jr.

Monday, January 16, 2012, we celebrate the birthday of Martin Luther King, Jr.  To truly celebrate, let’s take a look at some of MLK’s famous quotes and ask ourselves what he would think about America if he were alive today:

  • A nation that continues year after year to spend more money on military defense than on programs of social uplift is approaching spiritual doom.
  • A riot is the language of the unheard.
  • He who passively accepts evil is as much involved in it as he who helps to perpetrate it. He who accepts evil without protesting against it is really cooperating with it.

As I read through quotes like this, and many more that were similar, one image came to mind …


Mark Stopa

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Combining Bankruptcy and Foreclosure Defense

Many Florida homeowners who get sued for mortgage foreclosure are under the impression they can file bankruptcy or defend their foreclosure lawsuit, but not both.  The thought process of such homeowners generally goes like this … “if I’m filing bankruptcy, then I’m walking away from my home (or, to use the bankruptcy term, “surrendering” my home), so I must move out and live elsewhere.” 

This perception is very much mistaken.  Even if a Florida homeowner files Chapter 7 bankruptcy and “surrenders” his/her home, it is up to the bankruptcy trustee to decide if the home has value and whether he/she wants to take title and/or sell it to a third party.  “Surrender,” quite simply, doesn’t mean give title to the mortgage company (as there is no such transfer of title in the bankruptcy itself).  Rather, to explain it in layman’s terms, “surrender” basically means “let the trustee decide whether to take title to the property and/or to sell the property to a third party.” 

When a property has value, the trustee is almost always going to sell the property and use the proceeds to pay the debtor’s creditors.  That’s the trustee’s job.  For instance, if a house is worth $200,000 and has a mortgage for $150,000, then the trustee is going to sell it, pay the mortgage company with the proceeds, and use the remainder to pay any creditors. 

That scenario, however, rarely transpires nowadays.  Most of the time, when a bankruptcy debtor “surrenders” a property in a Chapter 7 bankruptcy, it’s because the amount owed on the mortgage is greater than the current value of the property.  In that situation, it’s very common for bankruptcy trustees to see no value in the property and to allow the debtor/homeowner to remain on title.  After all, who would want to buy a property worth $200,000 if a mortgage company has a mortgage on it for $250,000?  As a result, even though the homeowner has filed bankruptcy and “surrendered” the home, the homeowner may remain on title, can remain in possession, and can defend a foreclosure lawsuit by a mortgage company, if and when it comes. 

In recent years, as foreclosure lawsuits started to take longer to prosecute, this dynamic began to change a bit.  Trustees realized that even if a house was upside down that third parties may want to purchase it so as to rent it out while the mortgage foreclosure lawsuit was pending.  In other words, that $200,000 house with $250,000 owed can’t be sold free and clear, but it could be sold “subject to” the existing mortgage.  Hence, if it takes three years to prosecute the foreclosure case to conclusion, and the house can be rented for $1,000/month, then that’s $36,000 in gross rental income for a prospective third-party purchaser.  As a result, every so often, bankrtupcy trustees started selling properties that debtors were surrendering in bankruptcy. 

Frankly, this didn’t happen terribly often, but homeowners filing Chapter 7 bankruptcy had a reason to be concerned that if they surrendered their homestead in Chapter 7 that they couldn’t remain on title, and remain in possession – they’d have to leave and find elsewhere to live. 

A recent decision from a Tampa bankruptcy judge seems to eliminate that concern.  In the opinion, which I’ve cut and pasted, below, the judge rules that even though the homeowner filed Chapter 7 bankruptcy, and surrendered his/her homestead as part of that bankruptcy, the trustee could not sell the home during the bankruptcy process – the homeowner could still live in the home indefinitely (unless/until the mortgage foreclosure case was concluded). 

This is a significant ruling, one that very much favors Florida homeowners.  It seems clear, at least in this judge’s eyes, that homeowners can file Chapter 7 bankruptcy, surrender their homestead, eliminate their debt, and still remain in possession of their home unless/until the bank forecloses in state court.  In other words, Florida homeowners can file bankruptcy and still defend their foreclosure lawsuit. 

Each person’s situation is different, of course, but Florida homeowner should give serious consideration to the pros and cons of both bankruptcy and foreclosure defense.  At worst, everyone should realize that, at least in Florida, bankruptcy and foreclosure defense is not an either/or proposition.

Here is the opinion, fresh out of the United States Bankruptcy Court, Middle District of Florida, Tampa Division. 

23 Fla. L. Weekly Fed. B179a

Bankruptcy — Exempt property — Homestead — Chapter 7 debtor properly claimed his residence as exempt homestead property under Florida law, given debtor’s proffer that he intended to reside in home permanently, or until such time as mortgagee foreclosed on property, and Florida’s liberal interpretation of homestead exemption — Statement of Intention, which indicated debtor’s intent to surrender property to mortgagee, is insufficient, alone, to establish a lack of intent to continue residing at property and preclude debtor from contending that he intended to continue to reside at property indefinitely — Once property acquires homestead status, debtor must affirmatively act to abandon the homestead, and debtor has neither abandoned nor alienated the property — Trustee may not infer intent to abandon homestead from Statement of Intention alone

In re: RANDALL E. GENTRY, Debtor. U.S. Bankruptcy Court, Middle District of Florida, Tampa Division. Case No. 8:11-bk-03796-CED, Chapter 7. November 15, 2011. Caryl E. Delano, Judge.




In order to qualify for the Florida homestead exemption, a debtor must reside in Florida and intend to make his home his permanent residence. In this case, the Chapter 7 trustee (“Trustee”) objected to the Debtor’s claim of homestead exemption because the Debtor’s Statement of Intention filed on the petition date stated that the Debtor intended to surrender his residence to the mortgagee. The Statement of Intention is, by itself, insufficient to establish a lack of intent to continue residing at the property. Therefore, the Court overrules the Trustee’s objection to the Debtor’s claim of exemption and sustains the Debtor’s objection to the Trustee’s attempt to sell the homestead property.


On March 1, 2011, the Debtor filed a Chapter 7 bankruptcy petition, and on March 16, 2011, filed his bankruptcy schedules and statement of financial affairs (Doc. No. 11). On Schedule C, the Debtor did not claim his residence (the “Property”) as exempt.1 In his Statement of Intention (Doc. No. 12), the Debtor indicated his intent to surrender the Property to the mortgagee. Thereafter, the Trustee filed a Report and Notice of Intention to Sell the Property (Doc. No. 33) (the “Notice of Intent to Sell”). The Debtor filed an objection (Doc. No. 38) to the Notice of Intent to Sell, together with an amended Schedule C (Doc. No. 36), claiming the Property exempt pursuant to Article X, § 4(a)(1) of the Florida Constitution, and an amended Statement of Intention (Doc. No. 48), indicating his intent to retain — not surrender — the Property.

The Trustee objected to the Debtor’s amended claim of exemption (Doc. No. 50) on the grounds that the Debtor, having indicated his intent to surrender the Property on the petition date, was not eligible for the Florida homestead exemption as of that date. The Court scheduled a hearing on the Trustee’s objection and on the Debtor’s objection to the Notice of Intent to Sell for July 27, 2011. At that hearing, the Debtor’s attorney proffered the Debtor’s testimony that he intended to reside in the home permanently, or until such time as the mortgagee foreclosed on the Property. The Debtor argued that he intended to continue residing at the Property on a permanent basis, and that his Statement of Intention to surrender the Property to the mortgagee did not render hi m incapable, as a matter of law, from intending to reside permanently at the Property. The Debtor argued that the official form Statement of Intention requires debtors to choose one of three options relating to debts that are secured by property of the estate: redemption, reaffirmation, or surrender. Given the Debtor’s financial inability either to redeem the Property (i.e., pay the present fair market value of the Property in one single payment), or reaffirm the mortgage debt on the Property, he chose the only remaining option, to surrender the Property.

After considering the arguments of counsel, the Court continued the hearing to August 24, 2011, and provided the parties with the opportunity to submit legal authorities in support of their positions. The parties filed Notices of Legal Authorities (Doc. Nos. 64, 65, 66, and 67). The Court announced its ruling at the August 24, 2011 hearing (Transcript, Doc. No. 89, p. 17, lines 18-21) and reserved the right to supplement its order with a written opinion (Transcript, Doc. No. 89, p. 18, lines 7-12).

On September 2, 2011, the Court entered an order sustaining the Debtor’s objection to the Notice of Intent to Sell (Doc. No. 69), but has yet to enter an order explicitly overruling the Trustee’s objection to the Debtor’s claim of exemption. The Trustee timely filed a notice of appeal of the Court’s order sustaining the Debtor’s objection to the Notice of Intent to Sell (Doc. No. 73). The fact that an appeal has been taken on this matter does not divest the Court of the ability to enter an opinion memorializing its ruling and amplifying its views. See Silverthorne v. Laird, 460 F.2d 1175, 1178-79 (5th Cir. 1972).

Jurisdiction & Burden of Proof

The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and 1334. This is a “core” proceeding pursuant to 28 U.S.C. § 157(b)(2)(B). Because this matter involves an objection to a claim of exemption, the Trustee bears the burden of proving that the exemption was not properly claimed. See Rule 4003(c) of the Federal Rules of Bankruptcy Procedure.


To claim property as an exempt homestead under Florida l aw, the debtor must maintain a residence at the property and possess an actual intent to reside at that property on a permanent basis. In re Fodor, 339 B.R. 519, 521 (Bankr. M.D. Fla. 2006) [19 Fla. L. Weekly Fed. B183a]; In re Brown, 165 B.R. 512, 514 (Bankr. M.D. Fla. 1994) (noting that under Florida law, a homestead is established when there is actual intent to live permanently in a place coupled with actual use and occupancy). In bankruptcy cases, the relevant date for determining a proper claim of exemption is the petition date. Fodor, 339 B.R. at 521. In the case of amended claims of exemption, the amendment relates back to, and is effective as of, the petition date. In re Bennett, 395 B.R. 781, 786 (Bankr. M.D. Fla. 2008) [21 Fla. L. Weekly Fed. B538b]. Rule 1009(a) of the Federal Rules of Bankruptcy Procedure permits a debtor to amend a schedule or statement as a matter of course at any time before the bankruptcy case is closed, and bankruptcy courts may not deny a debtor’s right to amend absent a showing of bad faith by the debtor or prejudice to creditors. See In re Doan, 672 F.2d 831, 833 (11th Cir. 1982).

Although the Trustee does not disagree with the foregoing points of law and has implicitly conceded that the Debtor’s amended Schedule C and its corresponding homestead exemption claim relate back to the petition date, the Trustee contends that the Debtor was legally incapable of possessing the requisite intent to remain permanently at the Property based on his stated intention to surrender the Property. As a result, the Trustee argues that the Debtor is not eligible for the homestead exemption and that his amended claim of exemption is ineffective.

Individual Chapter 7 debtors must file a statement of intention concerning debts that are secured by property of the estate. 11 U.S.C. § 521(a)(2)(A). Here, the Debtor scheduled a mortgage debt that was secured by the Property. Accordingly, the Debtor had the option of redeeming the Property, reaffirming the debt on the Property, or surrendering the Property to the mortgagee. Based on his financial inability to elect either of the first two options, the Debtor elected to “surrender” the Property. However, neither the Debtor’s stated intention to surrender the Property, nor the form Statement of Intention as a whole, impacts the Debtor’s ability to exempt certain property. The purpose of the Statement of Intention is to provide notice to the secured creditor of the debtor’s intent regarding the creditor’s collateral. See In re Rodale, Case No. 3:10-bk-6845-PMG (Doc. No. 42, p. 11). The statement is directed to the creditors and “has no effect on whether the homestead is property of the estate. Neither the Statement of Intention nor any subsequent actions by the debtor to perform the intention bind the trustee in the administration of the estate.” Id. at p. 12. A Chapter 7 trustee cannot infer a debtor’s purported lack of intent — for homestead purposes — from the Statement of Intention. Indeed, in this economy, it is, unfortunately, all too common for individuals, particularly debtors in bankruptcy, to face prospects of foreclosure on their homes. However, the fact that such individuals may ultimately lose their homes to foreclosure does not alter the current status of their homes as homestead property, or otherwise disqualify them from having an intent to reside permanently at their homes.

The Debtor’s proffered testimony that he intended to reside at the Property indefinitely is, under the circumstances of this case, the equivalent of permanently. See In re Wilbur, 206 B.R. 1002, 1007 (Bankr. M.D. Fla. 1997) (rejecting trustee’s contention that debtor had no intention to reside permanently at house based on debtor’s eventual plan to sell the house, as debtor had testified that his intent when he moved into house was to reside there indefinitely); Engel v. Engel, 97 So. 2d 140, 142 (Fla. 2d DCA 1957) (stating that “permanency” in the context of homestead protection does not mean “to forever remain in a given place of abode, eternally” but rather “to reside at that particular place for an indefinite period of time”).

The Florida Supreme Court has repeatedly instructed that Florida’s constitutional homestead exemption be liberally interpreted. See Butterworth v. Caggiano, 605 So. 2d 56, 58 (Fla. 1992) (“Florida courts have consistently held that the homestead exemption in article X, section 4 must be liberally construed”); Quigley v. Kennedy & Ely Ins., Inc., 207 So. 2d 431, 432 (Fla. 1968). Moreover, any exceptions to a claim of homestead are strictly construed in favor of the debtor and against the challenger. In re Prestwood, 322 B.R. 463, 469 (Bankr. S.D. Fla. 2005) [18 Fla. L. Weekly Fed. B162a]; In re Ehnle, 124 B.R. 361, 363 (Bankr. M.D. Fla. 1991) (“all exceptions to the exemptions should be strictly construed in favor of the claim and against the challenger of the claim of exemptions”).

Once property acquires homestead status, the debtor must affirmatively act to abandon the homestead. See Barlow v. Barlow, 23 So. 2d 723 (Fla. 1945). In Barlow, the court stated that a homestead can be waived by abandonment or alienation in the manner provided by law. Id. at 724. The court found that abandonment would occur where the owner removes himself from the home without intending to return, takes up a permanent abode at another place, and pursues his livelihood there. Id. In this case, the Debtor has neither abandoned nor alienated the Property, and, as discussed above, the Trustee may not infer an intention to abandon the homestead from the Statement of Intention alone.


The Trustee has not met her burden of proof. The Debtor’s initial Statement of Intention, which indicated the Debtor’s intent to surrender the Property to the mortgagee, does not preclude the Debtor from contending that he intended to continue to reside at the Property indefinitely. Given the Debtor’s proffer of his intent, and Florida’s liberal interpretation of the homestead exemption, the Court concludes that the Debtor has properly claimed the homestead exemption on the Property. As the Property is exempt, the Trustee may not sell it. Accordingly, the Court shall enter an order overruling the Trustee’s objection to the Debtor’s claim of exemption and has previously entered its Order Sustaining Objection to Chapter 7 Trustee’s Report and Notice of Intention to Sell (Doc. No. 69).


1Schedule C of the Official Forms lists the real and personal property which a debtor claims as exempt.

* * *

Mark Stopa

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Challenging a Foreclosure Post-Judgment

As a foreclosure defense attorney since 2008, I’ve had many heartbreaking conversations where I had to tell a homeowner I didn’t think I could help him/her because he/she waited too long to call me – the court had already entered a Final Judgment of Foreclosure and the deadlines for rehearing and appeal had already passed.  This is a difficult concept for many homeowners to understand – arguments that will work before a judgment is entered simply won’t work post-judgment. 

I don’t like this any more than homeowners do, but I’m not going to collect fees from homeowners if I don’t think I can help them.  Stop and think about that for a minute … generally speaking, I’m so skeptical of helping homeowners post-judgment that I turn away their cases.  If a lawyer is turning down fees, shouldn’t that tell you something? 

To illustrate what I mean, check out the most recent decision from Florida’s Fourth District.  As you see, the court’s adverse ruling had little to do with the substance of the homeowner’s arguments and everything to do with when those arguments were made – after judgment had already been entered. 

If you don’t understand anything else I say on this blog, understand this … if you wait too long to defend your foreclosure case, you will waive rights, and if the court enters a Final Judgment of Foreclosure, it may be impossible to do anything about it.  So don’t wait to fight your lawsuit – get started right away.

Mark Stopa

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A “Free House” – That’s Not the Issue, Judge

Currently making the rounds among foreclosure defense attorneys is a transcript of a trial in a foreclosure case that recently took place in Miami.  I did not participate, as this wasn’t one of my firm’s cases, but I encourage everyone to read the transcript, as there are significant lessons to be learned here for all involved.

Before I share my thoughts, just read.  Here are some pertinent portions:

The Court:  My feeling about this equitable lawsuit, foreclosure issues, and I want to get this as a jump off.

Defense Counsel:  Okay.

The Court:  My concern is, did you sign the Note?  Did you sign the Mortgage?  Did you get the loan?  Did you default?  Did you owe the money?  Is it your signature or is it somebody else’s signature?

In response, defense counsel attempted to explain that the homeowner had an expert who would testify that the securitized trust, the plaintiff in the foreclosure case, did not actually own and hold the Mortgage because it was conveyed into the Trust after the deadline in the Pooling and Servicing Agreement.  Unfortunately, the court seemed less concerned about the legitimacy of this legal argument and more concerned about whether that argument, if granted, would give the homeowner a free house:

The Court:  Okay.  Okay, so why do I care?  Shouldn’t I just be concerned about whether or not they’re the holder of the note at the time that I try the case?

Defense Counsel:  There are requirements, like any trust, basic trust law. … The trust has certain requirements that say, all the loans have to be transferred into this trust by X date.  If they’re not transferred into the trust by X date the trust doesn’t own or hold anything.

The Court:  So if I follow your thinking, your client should be able to live in this house forever, free and clear.  Is that what you’re suggesting?

Defense counsel:  That may be the ultimate outcome.

The Court:  Good luck to you, sir.

Defense counsel:  Thank you, Judge.

The Court:  Good luck to you, sir.

Defense counsel:  Thank you.

The Court:  Do you think that I am going to sit here after somebody has been lent hundreds of thousands of dollars and you have the standing to complain that the trust documents were not properly obtained, so your client who got — how much was this loan?

Plaintiff’s counsel:  $216,000.

The Court:  $216,000, I get to live there forever.  You think a court of equity which is what I am sitting as is going to allow that to occur?

Defense counsel:  If there is a family trust that says, “all of Bob’s property for his family trust needs to be assigned into the trust by January 1, 2010.”  If those — if that res is transferred prior to that January 1st, that’s fine.  We as Bob’s family trust own that property.

The Court:  Right.

Defense Counsel:  But, now there’s a subsequent transfer of 2012 and the document comporting a transfer into Bob’s family trust in 2012 when the trust says, it must be transferred by 2010, and the trust is very particular about this.  How can the 2012 transfer into the 2010 trust, you don’t have standing.

The Court:  Right, but may — by here’s my problem.  My problem is it would seem to me under your circumstances that somebody whose trust assets have been affected might have the ability to come in and say, this has effect on me.  What standing does your client have to come along and say, somebody down the line got screwed over because they didn’t do what they were supposed to do?  Your client received hundreds of thousands of dollars, has been in this house I assume for three or four years not paying a dime.  Have you found one judge in this state that has said, ‘You know what?  I buy your argument and you client can live there forever, rent free, mortgage free; because they violated the Pooling Agreement.”  Have you found one judge that has –

The Court:  So and so, they’ll never be able to foreclose on your client?

Defense counsel:  Depending on how the case comes of issue, yes.  If it’s an issue that would pertain a res judicata and/or collateral estoppel, yes.

The Court:  So what you’re suggesting is that your client should be able to stay in this house forever?

Defense counse:  That has been the result.  And Judge, yes …

The Court:  No, no, no, [defense counsel]

The Court:  I think this is a very interesting issue.  I think the Third District is doing to have to tell us to tell us that under these circumstances we should listen to this testimony and if the testimony proves what you’ve purported to prove that a person who borrowed hundreds of thousands of dollars should never have to repay it and should be able to live in the house for free, forever.

The Court:  Because I’m not doing it.

The Court:  You getting that down?  All my friends in the Third District, you want to reverse this, you go right ahead and do it.

Defense Counsel:  Right, but that’s also presuming that they’re able to prove their prima facie case.  Judge, I just want to make the record clear.

The Court:  Of course.  I mean if they put on evidence of something other than this loan and they don’t convince me that they know what the documents are; they know what the loan figures are; they know that there’s been a default; they’ve complied with all conditions precedent, I can’t give them a judgment.  But, I would be shocked.  I’m putting that on the record.  Shocked if the people of the Courts of this State, District Court of Appeal, would say that in situations like this somebody who has borrowed hundreds of thousands of dollars and has lived mortgage free for years should be able to jump in there and say ‘you guys screwed up and you can never throw me out of that house.’  If that’s what they want to write, that’s their job.  They’re my judicial superiors.  They can do it, but I’m not doing it.  Okay.

My thoughts upon reading this exchange:

1.  First off, I am very disappointed to see how the judge framed the issue before him.  The issue at this foreclosure trial was not whether the homeowner was entitled to a free house.  The issue was whether this plaintiff that filed this lawsuit was entitled to a final judgment of foreclosure against this homeowner.  That bears repeating:

The issue was whether this plaintiff that filed this lawsuit was entitled to a final judgment of foreclosure against this homeowner.   

I’m pleased to say that many of the judges before whom I appear recognize that this is the issue before them.  For those who do not, I think it’s imperative that everyone (be it my my friends, colleagues, and pro se litigants), do whatever you can to force the judges before you appear to frame the issue appropriately.  Here, for instance, when the judge kept asking this attorney if his client should get a free house, I think the response should have been something like:

“Respectfully, judge, whether my client winds up with a free house is not the issue before you.  The issue before you is whether this plaintiff is entitled to a final judgment of foreclosure against this defendant based on the evidence the plaintiff is about to present.  And candidly, judge, I’m troubled that you are not framing the issue in that manner, as it seems you have prejudged this case in a manner adverse to my client, which is causing me fear that you cannot adjudicate this case fairly and cannot be neutral and detached.

If that doesn’t make sense, put yourself in a different context – a murder trial.  Suppose the state is relying exclusively on evidence that was procured through an illegal search and seizure and that the law requires the evidence be excluded.  Allowing a murderer to go free would be inequitable as hell – I can hardly think of anything less equitable.  However, if the law says that the evidence must be excluded, then no judge can allow that evidence to be admitted simply because he/she wouldn’t like the result.

Foreclosure cases are no different.  The final outcome, no matter how unseemly it may appear to any judge, cannot justify a court to overlook the rules of evidence and rule of law.  Candidly, I think most judges before whom I appear would agree with this, and for those who don’t, let’s all remind them of the issue.

Judge, the issue before you is not a “free house,” but whether this plaintiff is entitled to a foreclosure judgment against this defendant based on the evidence before you. 

2.  It was very apparent, certainly to me, anyway, that the judge prejudged this case.  Most troubling in this regard were the judge’s repeated statements that he was not going to give the homeowner a free house, inviting the Third District to reverse if it so chose.  What was so bothersome, of course, is that the judge made these comments before the trial had begun.

Respectfully, how could the judge possibly know whether evidence which he had yet to see would be sufficient to justify a foreclosure?  How could he possibly know that the Third District would be in a position of reversing his ruling (adverse to the homeowner) when he hadn’t yet seen any evidence?  Pretty clearly, at least in my eyes, the judge knew he was ruling against the homeowner before the trial even started.

As I read the transcript, the judge’s dislike of foreclosure defense only seemed to grow the more the concept of a “free house” was discussed.  Unfortunately, this entire premise was misplaced.  Hopefully, with input from all of us, everyone will realize the issue in foreclosure cases is not whether the homeowner gets a free house, but whether this plaintiff is entitled to a foreclosure judgment against that defendant based on the evidence in that case.

3.  On the issue of whether the defendant has standing to complain about the plaintiff’s lack of standing, I follow the judge’s argument, but I disagree.  If the plaintiff is a securitized trust, and the mortgage was not conveyed into the trust in a manner required by the Pooling and Servicing Agreement, then the trust doesn’t own the mortgage.  And if the trust doesn’t own the mortgage, then it lacks standing to foreclose.

To say a defendant lacks standing to complain about a plaintiff’s lack of standing is, respectfully, silly.  If the plaintiff has no legal right to bring suit, then the defendant always has standing to assert as much.  To argue otherwise is to say ”the plaintiff might not be the right plaintiff, but shut up, defendant – you’re a bad actor, and it doesn’t matter if this plaintiff has standing – you’re going to pay.”

“But, judge, I don’t owe this Plaintiff any money.”

“Shut up, Defendant – you owe the money and you’re going to pay.”

I realize this seems a bit crass, and obviously the judge didn’t say “shut up,” but can you imagine that argument in other contexts?  For instance, imagine a lawsuit against an insurance company where the issue is coverage for a homeowner.  Can you imagine any judge saying “Shut up, insurance company.  It doesn’t matter if this is a covered item, and it doesn’t matter if you issued an insurance policy to this homeowner.  The house burned down, so you’re going to pay.”

Again, I realize that’s not how this judge worded it, but as I read the transcript, that’s how I interpret the position.  It doesn’t matter if the plaintiff is the correct plaintiff, it doesn’t matter if the plaintiff has standing, the defendant can’t complain about it.  Respectfully, does that even begin to make sense?

It’s ironic, actually.  This judge was so concerned about the homeowner getting a windfall – a “free house” – that he was completely overlooking the fact that he was willing to give the plaintiff a windfall.  After all, taking the judge’s position to its logical conclusion, it didn’t matter if that plaintiff actually owned the note – the homeowner was going to pay (and, hence, the plaintiff was going to collect).  Maybe the judge didn’t intend to come across that way, but you read the transcript, and you tell me – isn’t that how it seems?

My point here, is this.  There are laws that all of us dislike.  There are outcomes that all of us find inequitable or inappropriate for one reason or another.  However, the end does not justify the means.  It’s not up to any of us, especially a judge, to say “this is the outcome that I think should happen, and I’m going to rule accordingly.”  There are rules of evidence, procedure, and laws that must be followed.  If we act otherwise, then the court system is not enforcing a system of laws, but each judge’s version of morality.  And if we start going down that path, there can never be uniformity, as what one person finds inequitable, another will find perfectly appropriate.

Our judicial system functions by a uniform system of laws, which our courts must uphold and enforce.  That’s why it’s so important to frame the issue appropriately.  The issue isn’t whether a ruling would be fair or consistent with some nebulous standard of morality, but whether such a ruling would be fair and appropriate based on the evidence presented in that case.

Mark Stopa

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