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

[James Zink]

I don’t have as much to say as Cary, but I did want to address a few items from his email. Cary and I have found ourselves on opposing sides of the courtroom, but I do think he raises some legitimate concerns.

I think his concern on the length of leases is very legitimate and a time limit on the maximum length of the lease is worthwhile to consider.

As far as the situations of fraud he is raising, I am not sure they are worthy of consideration for the purpose of this act. Whenever you create laws with timelines and procedural due process, you are going to have people trying to find ways around them. I cannot tell you how many times I have had landlords refuse rent and deny it in court, claim to have provided three day notices that were never given, etc.. It is a fact of our profession and of life generally that people will try to find ways around laws. As far as I know, the PTFA has not had a chilling effect on foreclosure sales, and this law basically incorporates that language into state law.

I also believe that the concerns about the last paragraph are concerning, though I don’t know what the resolution to the language could be. Practically speaking, it is unlikely a defendant in a foreclosure action is going to transfer deposits they are holding. I can speak from experience the law, as is, creates confusion for my clients as they have no idea who to properly sue. Technically they are required to start with the new owner, but the time and cost involved with an action for a deposit is often not worthwhile for that amount of money when considering the possibility of attorney fees for being wrong and having to find and sue a previous owner. The deposit system in general creates havoc for all parties involved, even with the updates.

The concerns about tenants refusing to provide proof of tenancy seem to be unfounded to me. However, a provision requiring proof of tenancy be required upon demand perhaps would solve this issue if it is of great concern?

I can also see the concerns about vast amounts of rent being collected at signing only to have those losses fall on a new owner, but does this happen often? I can personally say I rarely, if ever, see a client pay more than first, last, and security. Even if these things happen, creating a right for the new owner to collect said credits from the previous owner may deal with this issue.

Overall, Mr. Sabol zealously advocates on behalf of the people he represents, which is what we should be doing for our clients. I would point out, however, that this is not the Landlord Committee. This is Landlord Tenant Committee, and I can say that as someone who represents tenants, this law has helped create a stable environment for many of our working class citizens and their children. Could it have some of the effects on some purchasers? Absolutely. But I also think the law should take all those affected by this process into consideration, including those who would potentially be immediately displaced without recourse without protections in place.

James Zink, Esq.
Florida Rural Legal Services, Inc.
3111 South Dixie Highway, Suite 140
West Palm Beach, FL 33405
Phone: (561) 820-8902 x. 6025
Fax: (561) 820-8892

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From: landten-bounces at lists.flabarrpptl.org [mailto:landten-bounces at lists.flabarrpptl.org] On Behalf Of Cary Sabol
Sent: Thursday, December 04, 2014 11:28 AM
To: RPPTL Landlord Tenant Committee
Subject: Re: [RPPTL LandTen] FW: Proposed legislation - tenants in foreclosure properties

Dear Committee,

I have some very serious concerns about this proposed legislation based upon a significant amount of personal experience in dealing with the current PTFA and representing foreclosure sale purchasers.
First, I believe that this proposed legislation invites fraud, in fact sanctions fraud by parties in foreclosure to the detriment of innocent foreclosure sale purchasers.  For example, this proposed legislation provides that the purchaser must give the tenant credit for all deposits and advanced rent payments made to the former owner.  This would allow a person in foreclosure to enter into a lease for less than fair market value (not "substantially less, but less nonetheless less) even after the foreclosure sale occurred, but just one day before the Certificate of Title is issued.  The tenant is encourage to participate in the scam in return for his or her less than fair market value rent.  The parties could write a lease that states an unusually high deposit and prepayment of the entire lease term, even if those amount were either not really paid in full or maybe paid with a kickback to the tenant.  And the innocent purchaser is liable for these amounts and would even have to refund the tenant a bogus deposit at the end of the lease term, despite the fact that the foreclosure sale purchaser is not in receipt or possession of these funds.  Moreover, this puts the purchaser in a position where he or she is not permitted to collect any rent because it was allegedly prepaid in full.
One may respond by saying, it has to be an arms length transaction and the purchaser would have the right to challenge that in court and prove otherwise and I agree that in theory, that is a legitimate solution.  However, I have personally been involved in these situations and the problem is that the purchaser would not have been present during the lease transaction and therefore, it is almost impossible to prove other than by inference or circumstantial evidence, that this scam had occurred.  The only parties with any knowledge of what really occurred would be the tenant and the former owner, which has a self serving interest.  I believe this fact alone would have a significant chilling effect on foreclosure sale purchasers and would gut the entire purpose of foreclosure sales.
Secondly, this proposed legislation does not state there is any limit on the term of the 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 at Foreclosure Act.  So again, to show an absurd, but potential example.  Let's say the same former owner and tenant in the above example make the lease a 10 or 20 year lease.  According to my reading of this proposed legislation, a foreclosure sale purchaser would be required to allow the tenant to live out a 10 or 20 year prepaid lease and therefore, 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 these exact situations and as lawyers, it is our job to foresee the worst case scenario.
Next, is the question of “fair market value.”  I understand this proposed legislation provides that the lease payments cannot be significantly less than FMV and I have no problem with a foreclosure sale purchaser being obligated by a legitimate lease that is slightly less than FMV, as this is not that unusual for a number of reasons.  However, again using the example above with a long term lease (e.g. 10 or 20 years) with no rent escalations, how does one establish what is FMV a year or 5 or 10 years from now?  Once again, this does nothing more than create a situation to invite fraud.  Another problem with this theory and one that I have been personally involved with, is where the former owner and tenant create a lease for significantly less than FMV, but claim the reason is because the house was in terrible condition and the tenant incurred all the expenses of repair, but not future maintenance.  Again, although the purchaser would have the right to challenge this in court and prove otherwise, it is an illusory right because the foreclosure sale purchaser had no ability to assess the property condition at the time of entering into the lease, which again invites fraud and false statements.
Another concern I have is the provision that allows the foreclosure sale purchaser who is an investor, sell to a party who wishes to occupy the premises and then terminate 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 on our overall real estate market and a chilling effect on investors willing to purchaser forelcosures.
I believe it is very rare that a home buyer who wishes to purchase a house to occupy as their primary residence would be either willing or able to purchase a property, then either hire an attorney or go at it pro se to go through the 90 day process of terminating the tenancy.  Moreover, if the tenant refuses to vacate, the new buyer will now have to 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 notice period, plus the time it takes to complete an eviction, the purchaser could easily 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, if any, typical homebuyers who would be willing to take on this risk.  Also, we should consider these questions.
Where will this purchaser live during this process?
What if the tenant refuses access?  How could a seller or buyer determine the value of the property?
What is 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?

Another concern I have is (again, using my example above of the conspiring former owner and tenant), if the foreclosure sale purchaser is required to refund a deposit to the tenant, which the foreclosure sale purchaser never received, can he seek reimbursement from the former owner who was foreclosed upon?  There’s no privity of contract and there’s no right for recovery stated in the statute.  And this person was just foreclosed upon, so the likelihood of collection is almost zero.  I understand that judgment collect is difficult under any circumstance, but at least most judgments are the result of some form of voluntary relationship between the creditor and debtor.  We all know that landlords never collect judgments for damages from tenants, but at least the landlord had the opportunity choose whether or not to enter into a contract with the tenant.  But in this case, the tenant and former owner liabilities are being forced upon the foreclosure sale purchaser, so he or she would have had no opportunity to decide whether or not to engage in a business relationship with these parties, but will suffer the consequences.
Another issues is although the form Notice mentions that the tenant would have to pay rent to the new owner during the 90 period, the proposed statute itself does not state this obligation.  Although it would seem obvious, it's not stated in the statute or the Federal Act either, so I believe this opens the door for uncertainty and I know from experience that tenants and their attorneys will argue that there is no obligation for payment.  And since neither the Federal PTFA nor this proposed statute clearly states this obligation, many judges will agree and we will have inconsistent and uncertain results.
Another concern is this proposed statute does not make reference to the process to be used to remove a tenant who does not comply by vacating.  Would it be a typical eviction, an unlawful detainer, and ejectment, a writ of possession through the foreclosure court?
Another problem that I have found from personal experience is tenants are not especially cooperative in these situations and they often claim to have a lease, but refuse to provide a copy.  And of course the former owner is either not cooperating or unable to be found.  So the first time a landlord will have the opportunity to even see the alleged lease is in court, so neither the owner nor their attorney has the ability to evaluate the situation prior to filing a lawsuit, which we all know is a dangerous position to be in and could result in sanctions or an attorney fee award against an innocent purchaser who is doing nothing more than attempting to protect his or her interests in property.
Another issue is that this proposed statute gives a month to month tenant significantly more rights than they would have outside of foreclosure.  A month to month tenancy can be terminated with 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?
Another concern I have is a completely forged lease created by a sophicated squatter.  Since most people who are foreclosed upon either disappear, have died, or refuse to cooperate with anything that occurs after they lost their property, how could a new owner prove a lease was completely forged?
My final concern is the right to enter into a lease at any time before the issuance of a Certificate of Title.  Although I understand that legal ownership does not transfer until the CT is issued, how can we, in good conscience, enact a law that not only allows, but encourages a person who has already lost equitable ownership to their property because of a Final Judgment of Foreclosure and a legitimate foreclosure sale, but just prior to issuance of CT, to collect potentially significant amounts of money and enter into contracts that control the property rights of the future owner, just days before involuntarily losing all ownership rights to the property.
I also believe that the Banking industry should be very concerned because this law not only affects investors who purchaser properties, but appears to be binding upon a lender who obtains the property through foreclosure.  I do not believe that banks are equipped or legally permitted to be in the business of holding properties indefinitely as a result of the potential consequences of this proposed legislation.
As you can see, in my opinion, both the Federal Act and this proposed Florida statute are an example of good intentions, but potentially devasting unintended consequences.  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 are from personal experience in representing landlords and foreclosure purchasers.  These acts open the door for fraud and rewards parties in foreclosure, rewards tenants willing to engage in fraud, and penalizes innocent purchasers of foreclosed properties.  In addition, this Act essentially gives a lease priority over a mortgage, which flies in the face of everything we, as real estate lawyers, know and appreciate about lien priority law in Florida.
In my humble opinion, as a result of a significant amount of experience in this area of the law, I feel that this proposed legislation should be completely rejected.  I do not feel any version of a statute granting tenant rights in foreclosure other than maybe a short period to 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.
I am also sure there are many other pitfalls that more experienced and more knowleable attorneys may identify as well.  And I am sure I could think of others if I took the time to think through other potential situations; this is just my immediate reaction and stream of thought from experiences I’ve had over the past few years since the enactment of the Federal Protecting Tenants at Foreclosure Act.
I would encourage our Committee to zealously advocate against this proposed legislation 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.

Cary
Law Offices of Cary P. Sabol
P.O. Box 15981 | West Palm Beach | Florida | 33416
Phone: (561) 281-2744
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From: Trey Goldman <treyg at floridarealtors.org<mailto:treyg at floridarealtors.org>>
To: RPPTL Landlord Tenant Committee <landten at lists.flabarrpptl.org<mailto:landten at lists.flabarrpptl.org>>
Sent: Thursday, December 4, 2014 9:56 AM
Subject: [RPPTL LandTen] FW: Proposed legislation - tenants in foreclosure properties

See attached proposed legislation. Like? Don’t like? Why?

Trey Goldman

Legislative Counsel | FloridaRealtors®
200 South Monroe Street, Tallahassee, FL 32301
talk: 850.224.1400 x2505
direct: 850.521.3277
visit: http://www.floridarealtors.org<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> [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

--
[http://flacp.org/FLACP_logo_Signature.png]
   Alice Vickers, Esq.
   Director
   alicevickers at flacp.org<mailto:alicevickers at flacp.org>
   850.556.3121
   www.flacp.org<http://www.flacp.org/>



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