Florida's Anti-investor Legislation, Stature 501.1377 and the Foreclosure-rescue Consultant

On May 28, 2008, Governor Crist of Florida signed into law Statute 501.1377 (HB 643/SB 992) or so called Anti-Fraud Legislation. The real estate investing community has labeled the new legislation as anti-investor, despite the statute formally being called "Foreclosure-rescue Transactions". The legislation targets certain types of foreclosure-related transactions including any action or method that postpones or stops a foreclosure transaction, the purchase of a foreclosure property, and the lease optioning of a foreclosure property back to the homeowner.

There are two types of individuals covered by the statute, the first of which are called Foreclosure-rescue Consultants. These individuals may or may not be investors and their efforts are focused on stopping or postponing a foreclosure for the homeowner whether or not they collect a fee. Before this legislation took effect, an individual could charge a homeowner an upfront fee for loan modification, short selling his home, or any service that would stop or postpone the homeowner's foreclosure. As of October 1, 2008 any person deemed to be doing foreclosure-rescue consulting can no longer collect any fees before all services are complete as specified in a contract between the homeowner and the consultant. This means that if a consultant spends 10 to 30 hours on a case, and the end result is exactly as proposed in the contractual agreement with the homeowner, the consultant may not be able to collect his fee after all. It depends on whether the homeowner decides to abide by the terms of the contract or not.

There are literally thousands of legitimate foreclosure consultants who for many years have saved homeowners from foreclosure or eased the burden of their foreclosure and charged a reasonable upfront fee to do it. The well-meaning sponsor of this legislation was focused on a few scam artists who took foreclosure victims' money and never made an effort to complete the services promised. Ironically, the true victim in this legislation will be the homeowner who now can only seek the very expensive help of an attorney to do the same work a non-attorney can easily do.

Originally included in the legislation were bankruptcy attorneys who have to charge a fee before the bankruptcy filing. However, attorneys were later exempt by the State's Attorney General who explained he would not enforce it against attorneys. So every attorney in Florida is now exempt from charging upfront fees for loan mitigation, foreclosure postponement, short sales, and any other service that stops or postpones a foreclosure. This has created a new and vast market that was formerly unprofitable for attorneys in most cases. This legislation now gives attorneys a whole new client base to work on.

When real estate investors realized what the legislation meant to their careers and independent small businesses, they reacted in the only way they knew – to try and find "loopholes" by which they were exempt from the severe penalties of this statute. As with attorneys or wannabe attorneys, if you get five together, you will get five opinions. In this case many were trying to escrow the payment(s) for services rendered or charge in small increments as the work was completed, such as an application fee, submission fee, and other "step-by-step" fees. These are illegal under the statue and subject to fines of $15,000 per incident and possible jail time.

Also included in this legislation was specific wording about contract clauses and the requirements of the foreclosure consultant interacting with a homeowner including:

1.) The homeowner must have the contract for at least 24 hours before signing it and this right cannot be waived or modified, as are the waiver rights for the maximum fees that personal injury attorneys can charge. 2.) The homeowner must receive from the foreclosure consultant a copy of all documents that he signed within three hours of signing them. 3.) The homeowner has a three-day right of recession or cancellation of the contract without penalty and any funds collected by the foreclosure consultant must be returned to the homeowner within ten days. 4.) The date of the agreement must be shown as well as the name and address of the foreclosure consultant and it must be signed and dated by the homeowner and the foreclosure consultant after the date the homeowner received the original contract for review. 5.) The contract must be in 12 point or larger "Upper Case" print which we believed must have been a mistake but after speaking to the Attorney General's Office, they confirmed the entire contract must be in upper case letters. 6.) The contract must explain the exact nature of the proposed services to be provided, the total charges for each. 7.) The contract contains very specific language that cannot be modified in any way and recommends that the homeowner contact his lender or loan servicer since they may do the same service as the foreclosure consultant for no charge. 8.) No upfront fee, money, property or other form of payment may be accepted by the foreclosure consultant until all services are completed.

This is a brief overview of the first part of Florida Statute 501.1377 and is not meant to be a legal opinion advice and is for educational purposes only.