Under federal bankruptcy law, when an individual debtor files for protection under either a Chapter 7 (liquidation) or Chapter 13 (reorganization), the debtor is required to make a statement under penalty of perjury as to how he or she proposes to deal with real property that secures debt, such as their home or car. Depending on the type of bankruptcy filed, the debtor can generally choose to either retain the property by restructuring payments, redeem the property by paying off the debt, or surrender the property to the lender.
Many times, especially if the debtor is underwater on a home or vehicle, they choose to surrender the property and request a discharge of the debt. Once a debtor agrees to surrender the pledged asset, a lienholder can then commence or continue foreclosure or repossession proceedings to reclaim the asset and settle the claim.
The legislation is in response to a growing number of cases over recent years, where Florida debtors attempted to have it both ways, in surrendering their property in bankruptcy and obtaining a release of their mortgage debt, and then turning around and fighting the foreclosure sale on the same property. State lawmakers found the growing situation unacceptable, as many homeowners were essentially living rent-free in their homes for many months as the foreclosure worked its way through the legal system.
The law authorizes lienholders to present certain documents as an admission in a foreclosure action that creates a rebuttable presumption that the defendant has waived any defenses to foreclosure. It also requires a court to take judicial notice of orders entered in bankruptcy cases under certain circumstances.
Specifically, the bill aims to restrict or limit the defenses that can be entered in a foreclosure action by defendants who have filed bankruptcy, and improve the ability of lienholders to repossess the surrendered property.
The bill permits lienholders to present as evidence in a state foreclosure proceeding any document filed under penalty of perjury by a debtor in a bankruptcy action as an admission of a defendant.
It also creates a rebuttable presumption that a defendant has waived all defenses to a foreclosure proceeding if the debtor:
- filed a document in the bankruptcy committing to an intent to surrender the property;
- did not withdraw the document, and
- received a bankruptcy discharge or had a repayment plan under Chapter 13 confirmed that provided for the surrender of the property.
However, the law does not prevent the defendant from still raising a defense of foreclosure based on the conduct of the lender that occurs after the defendant filed the notice of intent to surrender the property in a bankruptcy proceeding.
In certain instances, the law should empower lienholders with a clear advantage in combating a contested foreclosure proceeding by limiting the ability of the defendant to raise certain defenses after previously agreeing to relinquish the property.