Mitigating Risks Associated with Hotel, Restaurant and Entertainment Industry Economic Challenges – Part 7: Expediting the Commercial Foreclosure Process Under Section 702.10, Florida Statutes

The first half of this series evaluated options available to lenders prior to instituting a commercial foreclosure action.  The second-half of this series has evaluated available options to lenders during the pendency of the foreclosure action.  Since there are additional considerations for lenders dealing with lending to hotels, restaurants and others in the entertainment industry, obtaining fast relief is critical.

This article explores another option during the pendency of a foreclosure action, which is an order to show cause under Section 702.10, Florida Statutes.  This article explains the process for seeking an order to show cause and how an order to show cause can benefit a lender during the foreclosure process.

Orders to Show Cause Under Section 702.10, Florida Statutes.

There are essentially two types of orders to show cause afforded under Section 702.10, to wit: 1) an order requiring all defendants to show cause why a final judgment of foreclosure should not be immediately entered (Section 702.10(1)); and 2) an order requiring defendants to show cause why an order to make payments during the pendency of the foreclosure action or an order to vacate the premises should not be entered (Section 702.10(2)).  Each of these orders to show cause and the process afforded under the statute will be discussed separately.

Section 702.10(1), Florida Statutes

The first type of order to show cause, as set forth in Section 702.10(1), directs the defendants to show cause why a foreclosure judgment should not be entered. §702.10(1), Fla. Stat. (2020).  Under Section 702.10(1), the lender must request an order to show cause and upon making the request, the court is required to immediately review the request and the court file without a hearing.  After review, if the court finds that the foreclosure complaint is verified, complies with the statute and alleges a cause of action for foreclosure, the court is then required to promptly issue an order directed to the defendants to show cause why a final judgment of foreclosure should not be entered.  Section 702.10(1)(a) sets forth the specific requirements for the contents of the court’s order.  Simply put, the order will direct the defendants to appear at a hearing and to show cause why a foreclosure judgment should not be entered.

After being served with the order to show cause, if a defendant fails to appear at the hearing on the order to show cause or appears and fails to assert any defenses by motion, a verified or sworn answer, affidavits or other papers, the court may enter a foreclosure judgment at that hearing. §702.10(1)(b).  On the other hand, if a defendant appears and presents any viable defenses, the court should address the validity of the defenses at the hearing.  If that happens, the court should determine whether there is cause not to enter a final judgment of foreclosure.  §702.10(1)(d).  This process potentially allows the lender to obtain quick relief (in the form of a final judgment of foreclosure) or at least allows the lender to understand the defendant’s defenses and evaluate the likelihood of ultimate success in the foreclosure action.

Section 702.10(2), Florida Statutes

The second type of order to show cause under Section 702.10, Florida Statutes, allows a lender to request the court to enter an order directing the mortgagor defendant to show cause why an order to make payments during the pendency of the foreclosure action or an order to vacate the premises should not be entered. See §702.10(2), Fla. Stat. (2020).  Similar to Section 702.10(1)(a), the required contents for the court’s order to show cause under Section 702.10(2) are specifically set forth in Section 702.10(2)(a).

After the order to show cause has been served, the court will conduct a hearing and determine whether the defendant has waived the right to be heard, and if not, the court is to consider the affidavits and other showings made by the parties appearing and make a determination of the probable validity of the underlying claim alleged against the mortgagor and the mortgagor’s defenses. If the court determines that the lender is likely to prevail in the foreclosure action, the court shall enter an order requiring the mortgagor to make payments to the lender. However, the order requiring payment shall be stayed pending final adjudication of the claims of the parties if the mortgagor files a written undertaking executed by a surety approved by the court in an amount equal to the unpaid balance of the lien being foreclosed, including all principal, interest, unpaid taxes, and insurance premiums paid by the plaintiff.  §702.10(2)(d).

If the borrower fails to make the required payments or post a bond for the balance on the loan, the lender will be entitled to possession of the premises.  §702.10(2)(f). Possession is not defined in Section 702.10(2), but presumably means that a lender could have a receiver appointed or otherwise take control of the property.  In addition to possession, the court may award other relief, including a final judgment of foreclosure. See We Help Cmty. Dev. Corp. v. Ciras, LLC, 144 So. 3d 578, 580-81 (Fla. 4th DCA 2014) (affirming a final judgment of foreclosure entered after the defendant failed to make court-ordered payments under Section 702.10(2)).

Considerations for Seeking an Order to Show Cause

Orders to show cause can be a useful tool in many different circumstances. For example, if a borrower does not have any meritorious defenses or is unlikely to contest the foreclosure, an order to show cause can expedite the entry of a final judgment of foreclosure. Alternatively, if the borrower can make the loan payments, but refuses nonetheless, an order to show cause may lead to the borrower making payments during the foreclosure action.

Another situation in which a lender may want to seek an order to show cause is when the foreclosure action is contested simply to delay an inevitable foreclosure sale. The borrower may do so to extract as much personal benefit from the property as possible.

Conclusion

Section 702.10 is lender-friendly and affords a lender the ability to quickly obtain a foreclosure judgment or quickly learn of the borrower’s defenses, which will allow the lender to evaluate the lender’s likelihood of success in the foreclosure action.  The statute also allows the lender to potentially obtain payments from the borrower during the pendency of the foreclosure action.

Many cases do not warrant the appointment of a receiver (see series part 6), and lenders cannot always gain assignment of the rents (see series part 4). Therefore, seeking an order to show cause may be a good option to allow a lender to potentially mitigate losses from a long and protracted foreclosure action.

Finally, part 8 of this series will conclude the series and provide considerations for lending to the hotel, restaurant and entertainment industry in the post COVID-19 era.

• Continued Reading in this Mitigating Risks Associated with Hotel, Restaurant and Entertainment Industry Economic Challenge Series:

  • Part 1: Introduction and Considerations When Hotels and Restaurants Default on Their Mortgages
  • Part 2: Pre-Foreclosure Loss Mitigation Options
  • Part 3: Commercial Mortgage Default Options Including Acceleration and Enforcement of Personal Guaranties
  • Part 4: Assignment of Rents Under Section 697.07, Florida Statutes
  • Part 5: Commercial Foreclosures 101
  • Part 6: Considerations for the Appointment of a Receiver During Commercial Foreclosures
  • Part 8: Post-COVID-19 Considerations for Lending in the Hospitality Industry