The Florida Legislature recently enacted a new bill, Senate Bill 220, which allows a lienholder to file a debtor’s bankruptcy documents in state foreclosure proceedings to create a “rebuttable presumption” that the debtor “waived any defense to the foreclosure action.” By way of background, in bankruptcies filed under both chapter 7 and chapter 13 of the bankruptcy code, the debtor must indicate how “he or she proposes to treat secured property.”  See In re Metzler, 530 B.R. 894 (Bankr. M.D. Fla. 2015). One available option to a debtor in this regard is to surrender the secured property to the lienholder. If a debtor chooses this option, he or she must indicate this in a “statement of intentions,” if filing for protection under chapter 7, or in a “plan of reorganization,” if filing under chapter 13.

In recent years, lienholders bringing foreclosure actions often successfully argued that borrowers who voluntarily surrendered mortgaged property in bankruptcy proceedings should be prohibited from challenging the lienholder’s foreclosure. Many courts agreed. For example, SHD represented a lender in the bankruptcy case styled In re Metzler, which case established that  “[S]urrender, at a minimum, requires a debtor to relinquish secured property and make it available to the secured creditor…‘surrendering’ the property—means not taking an overt act to prevent the secured creditor from foreclosing its interest in the secured property.”

Understandably, lienholders increasingly relied upon the “surrender argument” to limit a debtor/borrower’s defenses in the foreclosure action. Ostensibly, in response to this trend the Florida Legislature enacted Senate Bill 220. Under this act, for the lienholder to rely on the presumption that a debtor waived all foreclosure defenses, the lienholder must show that the bankruptcy documents filed by the debtor:

(1) were filed “under penalty of perjury,”

(2) evince the debtor’s intent to surrender the mortgaged property to the lienholder, and

(3) have not been withdrawn by the debtor.

Additionally, the lienholder must show the debtor’s bankruptcy was finalized by a final order which discharged the debts or confirmed a “repayment plan that provides for the surrender of the property.”

Notably, the presumption of waiver does not preclude the defendant “from raising a defense based upon the lienholder’s action or inaction” subsequent to the filing of the pertinent bankruptcy documents. Although the act provides only a limited window to overcome the presumption of waiver, we anticipate the foreclosure defense bar will find innovative ways to interpret this provision. Stay tuned. The act takes effect October 1, 2018.