[RPPTL LandTen] FW: Proposed legislation - tenants in foreclosure properties

Thu Dec 4 08:27:30 PST 2014

DearCommittee, Ihave some very serious concerns about this proposed legislation based upon asignificant amount of personal experience in dealing with the current PTFA andrepresenting foreclosure sale purchasers.First,I believe that this proposed legislation invites fraud, in fact sanctions fraudby parties in foreclosure to the detriment of innocent foreclosure salepurchasers.  For example, this proposed legislation provides that thepurchaser must give the tenant credit for all deposits and advanced rentpayments made to the former owner.  This would allow a person inforeclosure to enter into a lease for less than fair market value(not "substantially less, but less nonetheless less) even after theforeclosure sale occurred, but just one day before the Certificate of Title isissued.  The tenant is encourage to participate in the scam inreturn for his or her less than fair market value rent.  The parties couldwrite a lease that states an unusually high deposit and prepayment of theentire lease term, even if those amount were either not really paid in full ormaybe paid with a kickback to the tenant.  And the innocent purchaser isliable for these amounts and would even have to refund the tenant a bogus depositat the end of the lease term, despite the fact that the foreclosure salepurchaser is not in receipt or possession of these funds.  Moreover, thisputs the purchaser in a position where he or she is not permitted tocollect any rent because it was allegedly prepaid in full.One may respond by saying, it has to be an arms length transaction and thepurchaser would have the right to challenge that in court and prove otherwiseand I agree that in theory, that is a legitimate solution.  However, Ihave personally been involved in these situations and the problem is that thepurchaser would not have been present during the lease transaction andtherefore, it is almost impossible to prove other than by inference orcircumstantial evidence, that this scam had occurred.  The only partieswith any knowledge of what really occurred would be the tenant and theformer owner, which has a self serving interest.  I believe this fact alone would have a significant chillingeffect on foreclosure sale purchasers and would gut the entire purpose offoreclosure sales.Secondly,this proposed legislation does not state there is any limit on the term ofthe lease.  Again, something I have had personal experience with. I've never seen so many 5 or 10 year residential lease agreements (in fact,I've never seen any) prior to the enactment of the Protecting Tenants atForeclosure Act.  So again, to show an absurd, but potentialexample.  Let's say the same former owner and tenant in the aboveexample make the lease a 10 or 20 year lease.  According to my reading ofthis proposed legislation, a foreclosure sale purchaser would be requiredto allow the tenant to live out a 10 or 20 year prepaid lease andtherefore, would essentially receive nothing in return for his or her purchase,except the liabilities of ownership and none of the benefits.  Maybe his or her grandchildren might finally collect some rent on the investment.  Again, this may sound absurd or unlikely, but I have faced all of theseexact situations and as lawyers, it is our job to foresee the worst casescenario.Next,is the question of “fair market value.” I understand this proposed legislation provides that the lease paymentscannot be significantly less than FMV and I have no problem with a foreclosuresale purchaser being obligated by a legitimate lease that is slightly less thanFMV, as this is not that unusual for a number of reasons. However, again using the example above with a long term lease (e.g. 10or 20 years) with no rent escalations, how does one establish what is FMV ayear or 5 or 10 years from now?  Onceagain, this does nothing more than create a situation to invite fraud.  Another problem with this theory and one thatI have been personally involved with, is where the former owner and tenantcreate a lease for significantly less than FMV, but claim the reason is becausethe house was in terrible condition and the tenant incurred all the expenses ofrepair, but not future maintenance. Again, although the purchaser would have the right to challenge this incourt and prove otherwise, it is an illusory right because the foreclosure salepurchaser had no ability to assess the property condition at the time ofentering into the lease, which again invites fraud and false statements.Anotherconcern I have is the provision that allows the foreclosure sale purchaser whois an investor, sell to a party who wishes to occupy the premises and thenterminate the lease with 90 days notice. Although this appears to protect investors ability to resell the property and a owner who wishes to occupy the property, once again, I don't believe that will be the result.  I believe this would have a significantly negative effect onour overall real estate market and a chilling effect on investors willing topurchaser forelcosures.Ibelieve it is very rare that a home buyer who wishes to purchase a house tooccupy as their primary residence would be either willing or able to purchase aproperty, then either hire an attorney or go at it pro se to go through the 90 dayprocess of terminating the tenancy. Moreover, if the tenant refuses to vacate, the new buyer will now haveto go through the eviction process, which is costly and time consuming and under this statute, as will be discussed below, uncertain.  Factoring in the 90 days initial noticeperiod, plus the time it takes to complete an eviction, the purchaser couldeasily face 4 or 5 months before being able to occupy their new home.  And who knows what condition it will be in after they finally remove the tenant.  From my experience, there are very few, ifany, typical homebuyers who would be willing to take on this risk.  Also, we should consider these questions.Wherewill this purchaser live during this process?Whatif the tenant refuses access?  How coulda seller or buyer determine the value of the property?Whatis the tenant damages the premises, who is liable to the new buyer?  The seller? The tenant?How do you even know if the tenant has a lease or not if they refuse to communicate with the new owners?
Anotherconcern I have is (again, using my example above of the conspiring former ownerand tenant), if the foreclosure sale purchaser is required to refund a depositto the tenant, which the foreclosure sale purchaser never received, can he seekreimbursement from the former owner who was foreclosed upon?  There’s no privity of contract and there’s noright for recovery stated in the statute. And this person was just foreclosed upon, so the likelihood ofcollection is almost zero.  I understandthat judgment collect is difficult under any circumstance, but at least mostjudgments are the result of some form of voluntary relationship between thecreditor and debtor.  We all know thatlandlords never collect judgments for damages from tenants, but at least thelandlord had the opportunity choose whether or not to enter into a contractwith the tenant.  But in this case, thetenant and former owner liabilities are being forced upon the foreclosure salepurchaser, so he or she would have had no opportunity to decide whether or notto engage in a business relationship with these parties, but will suffer the consequences.Anotherissues is although the form Notice mentions that the tenant would have to payrent to the new owner during the 90 period, the proposed statute itself doesnot state this obligation.  Although it would seem obvious, it's not stated in the statute or the Federal Act either, so I believethis opens the door for uncertainty and I know from experience that tenants andtheir attorneys will argue that there is no obligation for payment.  And since neither the Federal PTFA nor thisproposed statute clearly states this obligation, many judges will agree and wewill have inconsistent and uncertain results.Anotherconcern is this proposed statute does not make reference to the process to beused to remove a tenant who does not comply by vacating.  Would it be a typical eviction, an unlawfuldetainer, and ejectment, a writ of possession through the foreclosure court?Anotherproblem that I have found from personal experience is tenants are notespecially cooperative in these situations and they often claim to have alease, but refuse to provide a copy.  Andof course the former owner is either not cooperating or unable to be found.  So the first time a landlord will have theopportunity to even see the alleged lease is in court, so neither the owner northeir attorney has the ability to evaluate the situation prior to filing alawsuit, which we all know is a dangerous position to be in and could result insanctions or an attorney fee award against an innocent purchaser who is doingnothing more than attempting to protect his or her interests in property.Anotherissue is that this proposed statute gives a month to month tenant significantlymore rights than they would have outside of foreclosure.  A month to month tenancy can be terminatedwith only 15 days notice, but this give them a minimum of 90 days.  Why should they gain more rights just because their landlord was foreclosed upon?  Why should the former owner's debt default result in a future owner's liability to a tenant who does not even have a lease?Anotherconcern I have is a completely forged lease created by a sophicatedsquatter.  Since most people who areforeclosed upon either disappear, have died, or refuse to cooperate with anything thatoccurs after they lost their property, how could a new owner prove a lease wascompletely forged?Myfinal concern is the right to enter into a lease at any time before the issuanceof a Certificate of Title.  Although I understandthat legal ownership does not transfer until the CT is issued, how can we, ingood conscience, enact a law that not only allows, but encourages a person whohas already lost equitable ownership to their property because of a FinalJudgment of Foreclosure and a legitimate foreclosure sale, but just prior toissuance of CT, to collect potentially significant amounts of money and enterinto contracts that control the property rights of the future owner, just daysbefore involuntarily losing all ownership rights to the property. Ialso believe that the Banking industry should be very concerned because thislaw not only affects investors who purchaser properties, but appears to bebinding upon a lender who obtains the property through foreclosure.  I do not believe that banks are equipped orlegally permitted to be in the business of holding properties indefinitely as aresult of the potential consequences of this proposed legislation.Asyou can see, in my opinion, both the Federal Act and this proposed Floridastatute are an example of good intentions, but potentially devasting unintendedconsequences.  There are very few tenants who are now aware tat a house is in foreclosure because the number of notices that are sent to the property during a foreclosure is enormous.  On the other hand, there are many tenants and former owners who are willing to take advantage of the situation. All of these examples arefrom personal experience in representing landlords and foreclosure purchasers.  These acts open the door for fraud andrewards parties in foreclosure, rewards tenants willing to engage in fraud, andpenalizes innocent purchasers of foreclosed properties.  In addition, this Act essentially gives alease priority over a mortgage, which flies in the face of everything we, asreal estate lawyers, know and appreciate about lien priority law in Florida.Inmy humble opinion, as a result of a significant amount of experience in thisarea of the law, I feel that this proposed legislation should be completelyrejected.  I do not feel any version of astatute granting tenant rights in foreclosure other than maybe a short periodto vacate should exist.How about we write a statute that holds the former owner liable to the tenant for fraudulently leasing a property and taking money from the tenant when they are about to lose the property to foreclosure. I do not understand the concept of absolving the former owner, but placing all the liability on an innocent purchaser who has no ability to gauge this risk until after purchasing the property.Iam also sure there are many other pitfalls that more experienced and moreknowleable attorneys may identify as well. And I am sure I could think of others if I took the time to thinkthrough other potential situations; this is just my immediate reaction and streamof thought from experiences I’ve had over the past few years since theenactment of the Federal Protecting Tenants at Foreclosure Act.Iwould encourage our Committee to zealously advocate against this proposedlegislation and I apologize for the length of this email, but I believe the enactment of this law will have seriously negative effects to the overall real estate market in Florida.Our Committee should consider the risks to landlords.  The Banking Committee should consider the risks to lenders.  And the Florida Board of Realtors should consider the risks to its members in the form of a significant reduction in properties that can be sold.
CaryLaw Offices of Cary P. SabolP.O. Box 15981 | West Palm Beach | Florida | 33416 Phone: (561) 281-2744 IRS Circular 230 Notice: Pursuant to recently enacted U.S. Treasury Department Regulations, we are now required to advise you that, unless otherwise expressly indicated, any federal tax advice expressed above was neither written nor intended by the sender or this firm to be used and cannot be used by any taxpayer for the purpose of avoiding penalties that may be imposed under U.S. tax law. If any person uses or refers to any such tax advice in promoting, marketing or recommending a partnership or other entity, investment plan or arrangement to any taxpayer, then the advice should be considered to have been written to support the promotion or marketing by a person other than the sender or this firm of that transaction or matter, and such taxpayer should seek advice based on the taxpayer's particular circumstances from an independent tax advisor.  Confidentiality Notice: This electronic mail transmission is intended for the use of the individual or entity to which it is addressed and may contain confidential information belonging to the sender which is protected by the attorney-client privilege. If you are not the intended recipient, you are hereby notified that any disclosure, copying, distribution, or the taking of any action in reliance on the contents of this information is strictly prohibited. If you have received this transmission in error, please notify the sender immediately by e-mail and delete the original message. Thank you for your cooperation.
      From: Trey Goldman <treyg at floridarealtors.org>
 To: RPPTL Landlord Tenant Committee <landten at lists.flabarrpptl.org> 
 Sent: Thursday, December 4, 2014 9:56 AM
 Subject: [RPPTL LandTen] FW: Proposed legislation - tenants in foreclosure properties

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Legislative Counsel|FloridaRealtors®
200 South Monroe Street, Tallahassee, FL 32301
talk: 850.224.1400 x2505
direct:850.521.3277 visit:http://www.floridarealtors.org Facebook: http://www.floridarealtors.org/facebook
Twitter: http://www.floridarealtors.org/twitter The Voice for Real Estate® in Florida    From: alice.vickers623 at gmail.com [mailto:alice.vickers623 at gmail.com]On Behalf Of Alice Vickers
Sent: Wednesday, December 03, 2014 4:44 PM
To: Trey Goldman; 
Subject: Proposed legislation - tenants in foreclosure properties    Hi Trey,    You may both be aware that Protecting Tenants at Foreclosure Act, the federal law that protects tenants living in foreclosed rentals from being immediately evicted, is set to expire at the end of the year.  I have drafted legislation, with the input of legal services, to implant the protections in Florida law since we continue to see these cases throughout Florida.    Hope you both had great Thanksgivings.  See you soon,    Alice    --      Alice Vickers, Esq.    Director    alicevickers at flacp.org    850.556.3121    www.flacp.org       
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