Florida Appellate Court Denies Foreclosure When Modification Attempted

In an effort to curb abuses by mortgage servicers, the First District Court of Appeal in Florida ruled on December 8, 2010 in Palacio to set aside a default judgment against Tampa, Florida homeowners who were “under the reasonable belief that the foreclosure action had been abated.”

According to the homeowners, the lender was willing to agree to a modification pursuant to certain terms, including an immediate payment of $8,500, a reduction of principal from $205,000 to $150,000 which would be re-amortized to result in a new monthly payment. After judgment was entered, the homeowners made five payments in accordance with what they understood was a modified mortgage agreement.

Despite the alleged modification agreement, a foreclosure sale was set and the homeowners’ final payment as returned. The homeowners hired a Tampa foreclosure defense attorney before the sale date and filed a motion to set aside the default judgment which was denied. Upon appeal, the appellate court ruled that the trial court’s failure to conduct an evidentiary hearing warrants reversal in favor of the homeowners. Despite the bank’s argument that the allegations of a modification were facially insufficient to warrant setting aside a default judgment, the appellate court disagreed.

So keep written and detailed records of all contacts and communications with the servicer when discussing forbearance or modification. This Order in Palacio along with a similar Order in a Fourth District Court Case in Elliot v. Aurora Loan Serv., LLC, have made it clear that these shenanigans will not be allowed in Florida.