On its face, it certainly sounds attractive: Speed up Florida's foreclosure process to help the state move past the crisis to a healthier economy. But as Gov. Rick Scott, House Speaker Dean Cannon and Senate President Mike Haridopolos echo support for moving at least some foreclosures out of the court system to speed up the process, they should not erode borrowers' rights or encourage banks to cut even more corners. And they will have to address the fiscal impact on the courts, which rely heavily on foreclosure fees to keep the doors open.
This is not a new idea. In 2010, the Florida Bankers Association tried to get the law changed to give lenders the ability to foreclose without the courts. The justification is speed. Florida's foreclosure proceedings take an average of 638 days, one of the slowest rates in the nation, while some of the nearly 30 states that have nonjudicial foreclosures can take 400 or fewer days on average. Certainly it would benefit the state's struggling neighborhoods and overall economy to address Florida's glut of foreclosures.
But if blame is to be apportioned for delays, Florida's courts should rank well behind banks and mortgage servicers. While the state courts brought in extra senior judges to handle the flood of foreclosure filings, lenders were mired in a "robo-signing" scandal and other paperwork problems that led to a massive slowdown. Banks tried to foreclose without proof of ownership and presented sworn documents by people with no idea what they were attesting to. The reaction to all this bungling should not be to remove judicial oversight — a procedure that holds banks and servicers to account.
Nonjudicial foreclosures shift costs from banks onto homeowners, who may have to file a costly civil suit and hire legal counsel to prevent confiscation. Hawaii, unhappy with its nonjudicial foreclosure, just passed a law that allows homeowners to go through dispute resolution procedures with the lender before a foreclosure proceeds. It is similar to the mediation process Florida adopted, which facilitates homeowners working directly with someone representing the lender who has the authority to make loan modifications — a program that is part of the state's judicial foreclosure process.
Then there is the fiscal impact. More than 60 percent of the money used to fund statewide court operations during the past fiscal year came from foreclosure filing fees, yet foreclosures constitute only 8 percent of the workload. It's a huge net gain for state revenues. When foreclosure filing fees dropped from $340 million in fiscal year 2009-2010 to $153 million in 2010-2011, the Legislature and Scott had to arrange emergency funding to keep the judicial system operating normally. If a nonjudicial foreclosure process eliminates these fees entirely, other state revenues will have to make up the difference.
State leaders are suggesting that they are not prepared to go as far as the Florida Bankers Association urged in 2010, but as of yet they have no detailed plans. If the speed they seek also strips away the rights of homeowners, it would be the wrong plan for Florida.