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Florida Commercial Mortgage Foreclosure: Navigating the Legal Landscape Through Mediation

Florida Commercial Mortgage Foreclosure: Navigating the Legal Landscape Through Mediation

Introduction

Running a successful company requires significant upfront investments. But a decision to start a business rarely comes from having extra money you do not know where to spend. It is the other way around – finding the right funding source is a starting point in your entrepreneurial journey.

So, how do business owners get the necessary funds? They take mortgages, guaranteeing (with their commercial property) they will pay the debt on time. Everything works well until your business experiences its first crisis, and you run into trouble returning the loan. Faced with the prospect of mortgage foreclosure, potential litigation, and financial loss, many business owners ask themselves what to do.

This blog post will shed light on Florida commercial mortgage foreclosures, the pitfalls of litigating foreclosure disputes, and the advantages of resolving mortgage foreclosure issues through mediation. 

Demystifying Commercial Mortgage Foreclosure in Florida

Commercial mortgage loans include a lot of paperwork. To get a mortgage, the borrower must sign documents acknowledging the debt, granting a lien on commercial real property, assigning the lender various rights and permits, giving personal guaranties for additional security, and evidencing the collateral (like reserve accounts and letters of credit). Put it differently – you must offer multiple guarantees you will repay the loan.

If you fail to repay the mortgage (a loan default), the lender can initiate the foreclosure. It is one of the legal remedies that consists of seizing and selling the commercial property (belonging to the borrower) to compensate for the debt.

Under Florida law, mortgage foreclosures are judicial proceedings (Florida Statutes, Section 45-031). That means a mortgagee (the mortgage lender, usually a bank) can only sell the mortgagor (a person who borrows money) property if they file a foreclosure action with the court. In other words, if you fail to repay the mortgage, the lender can only sell your property to compensate for their loss through the court.

However, filing a foreclosure lawsuit is not the only option mortgage lenders have available. 

Once mortgagees identify a distressed loan, they can exercise several remedies to address the situation. The most common unilateral out-of-court methods are the following:

  • Demanding loan repayment from the borrower (asking the borrower directly to repay the loan).
  • Requiring loan repayment from the guarantors (asking the guarantors to repay the loan on behalf of the borrower).
  • Ceasing loan advances (applicable only in not fully funded loans).
  • Seeking the issuance of pledged letters of credit (a financial instrument issued by another bank guaranteeing the debt payment to the lender).
  • Requesting loan repayment from reserve accounts, deposits, or income (the lender can ask for rents from income-generating commercial properties).

On the other hand, a mortgagee can file a lawsuit against the mortgagor or the guarantors. Available lawsuit remedies include:

  • Foreclosing the mortgage; 
  • Enforcing contracts or rent assignments; 
  • Filing the suit on the note, etc.

Whether the lender will file a foreclosure lawsuit or find a common language with the borrower depends on what is at stake. Both parties gauge various legal and business considerations before deciding the action. In addition to mortgage documentation (its strengths and weaknesses), the existing business relationship between the lender and the borrower is critical in determining the appropriate remedy for dealing with a distressed loan.

The Downsides of Litigating Commercial Mortgage Foreclosure 

The Downsides of Litigating Commercial Mortgage Foreclosure 

Pursuing a foreclosure action is associated with multiple difficulties for both parties. Litigating commercial mortgage foreclosure is as lengthy, expensive, and burdensome as pursuing other claims in court. Most importantly, it ends negatively for the borrower in most cases.

The process involves filing and serving the complaint, responding to the complaint (within 20 days), a court hearing, and a final judgment setting the foreclosure sale. Depending on the defenses the borrower raises in response, the process can lead to a summary judgment or default judgment. Lacking substantive affirmative defenses, the lender can file a motion for a summary judgment asking the court to resolve the issue based on existing files and sworn statements. On the other hand, if the borrower fails to respond to the complaint within 20 days, the lender can file a motion for a default judgment – urging the court to issue a final decision in favor of the lender (based solely on the facts and evidence laid out in the complaint).

In contrast to non-contested foreclosures, when the borrower raises substantive affirmative defenses, complex discovery, contested hearings, and lengthy appeals procedures ensue. The process results in a time-consuming and financially draining experience due to rigid litigation rules and hefty attorney and court filing fees.

The foreclosure sale that ensues is no less complicated. The court clerk holds live auctions and (more often recently) online sales. Prospective bidders and other participants can object to foreclosure sale details, draining the procedure and adding to the overall costs. If there are no objections, the court issues a certificate of title to the successful bidder. To prevent the sale, the borrower can redeem the commercial property until the sale date. After the certificate of title is issued, the property becomes the ownership of the most successful bidder.

Finding Common Language: A Mediation Approach to Mortgage Foreclosure Disputes

In contrast to litigation, which typically results in mortgage foreclosure (benefiting the lender), mediation provides mutually beneficial outcomes. 

Until 2011, Florida residential mortgage foreclosures were subject to a mandatory mediation program. After the Supreme Court of Florida terminated the program, the judges can refer the foreclosure cases to mediation individually (regardless of the request for referral).

In commercial mortgage foreclosures, the parties can entrust their case to an impartial facilitator at any time. That typically occurs after the loan modification application denial. 

Mediation offers multiple advantages for everyone involved. Some of the best-known benefits when mediating commercial mortgage foreclosure cases include the following:

1. Avoiding Loss of Property

As mentioned, mediation aims to avoid negative consequences for the borrower while satisfying the lender. In reaching mutually beneficial results, mediation involves various scenarios that prevent loss of property:

  • Modifying the loan (providing additional time for the borrower, refinancing the mortgage, adjusting the repayment plan, and making the loan more affordable for the borrower in other ways).
  • Forbearance agreement (allowing the borrower to stop the payments until they overcome a difficult financial situation.).
  • Property transfer to the mortgagee (the so-called deed-in-lieu of foreclosure or voluntary ownership transfer to avoid foreclosure).

2. Saving Time and Money

Unlike time-consuming and costly litigation, mediation offers a painless way out of the most contested foreclosure disputes. Without hefty fees, mediation allows the parties to resolve the conflict at a considerably lower price. In addition to saving money, you will also preserve your precious time. Instead of dragging in court for years, mediation brings mutually beneficial outcomes in months or even weeks.

3. Confidentiality

While taking a loan to propel your growth is part of almost every business trajectory, not everyone wants to share their mortgage details with the public. In litigation, that scenario occurs in each case. Choose mediation to avoid undue publicity that can ruin your reputation and business relationships. As an out-of-court method, it allows a free flow of information because participants cannot disclose the information shared during mediation sessions to anyone. The confidentiality rules apply to potential litigation in the future.

4. Preserving Relationships

Commercial mortgages often involve an ongoing business relationship between the lender (bank or other financial institution) and the borrower (a company using borrowed money to finance business operations). Litigating mortgage foreclosure disputes wreaks havoc on successful relationships, putting the disputed parties into opposite roles and stimulating them to engage in an all-or-nothing court battle. On the other hand, mediation fosters friendly negotiations, motivating the parties to find common ground and avoid selling the property. 

If the parties agree on one of the foreclosure-avoiding scenarios, they sign an enforceable agreement. Otherwise, the lender initiates litigation by filing a foreclosure lawsuit.

Key Takeaways

  • A commercial mortgage is an unavoidable funding source for companies in Florida;
  • While taking a mortgage helps your business get on a fast track to success, it puts you at risk of losing your commercial property in foreclosure;
  • Commercial mortgage foreclosure consists of seizing and selling the property to compensate the lender;
  • Florida is a judicial foreclosure state, meaning the lender can only sell the commercial property through court proceedings – after obtaining the certificate of title;
  • In addition to filing a foreclosure lawsuit, the lender can use out-of-court unilateral actions (ceasing loan payments, demanding loan repayment from the borrower or guarantors, etc.).
  • Unlike litigation, which typically results in foreclosure, mediation provides mutually beneficial outcomes such as avoiding foreclosure, confidentiality, time and cost savings, and relationship preservation.

Florida’s Finest: A Top-Tier Commercial Mortgage Foreclosure Mediator

Commercial mortgage foreclosure disputes do not have to result in loss of property, ruined businesses, and relationships. Instead of a financial catastrophe, temporary setbacks that cause loan distress can be an opportunity to start over.

Schedule a confidential consultation with The Mediation Group

Schedule a confidential consultation with The Mediation Group

The Mediation Group, Inc.’s vast selection of services, which includes Business Contract Disputes, Commercial Litigation, and Insurance Disputes, underscores the efficacy and adaptability of commercial mediation in settling conflicts.

Our mediators are skilled in guiding parties through intricate business disagreements, working towards a resolution that satisfies their commercial objectives while fostering enduring, favorable outcomes. We use a methodical yet adaptable approach that fosters open communication, empathy, and cooperation. Get in touch with us today at 954-474-8700 and let The Mediation Group Inc.’s proficient mediators facilitate a resolution to your commercial disputes!