Good afternoon, and welcome. I'm Melissa Murphy with The Fund and I have the pleasure of hosting these Popup Webinars that we have from time to time. And we always strive to deal with issues that are of current concern to Fund Members and real estate practitioners. Sometimes it's breaking news. Sometimes we, revisit topics that we covered a year ago.
But often those topics deserve a new look. So new legislation is always a great topic for these webinars and today is no exception.
But before we get to my guest, a brief reminder that we push the audio from this webinar out on our podcast, which is also conveniently called Title Now. And you can get that wherever you get any of your podcasts to which you subscribe. So please go there and subscribe to Title Now. It's free just like these webinars. And it really is a great way for you to listen to the material again. And it's a really easy way for you to share this content with your colleagues.
So what are we gonna talk about today? Mortgage payoffs.
And despite the title to this webinar. This is really an exciting topic. We were sort of teasing each other before the webinar started that I don't know how sexy or exciting this topic is, but we have over two hundred people registered for it. So, obviously, there's some interest in it. Because there is a new law in Florida. It's not effective until October 1st, but it makes some pretty significant changes in the process for both requesting a payoff, how the lender sends it back to you, and it changes sort of the dynamics of whether you can rely on that payoff.
And as we all know, dealing with mortgage payoffs is a daily task for closing agents.
And over the past several years, it's become more and more difficult to rely on the payoff letter that you get from a lender because you close.
You send them the money and they often send you that money back and say, "Oops, we made a mistake on our payoff."
"You know, get us that additional money and we'll satisfy the mortgage."
And in the meantime, interest is accruing against that full mortgage balance. So it's a big problem.
So to address this issue, we took the legislative route and worked with various stakeholders to come up with a bill that we thought would provide some redress.
And we, we're very, very lucky to have a legislator who's a real estate practitioner and a member of the fund. He supported our effort and he sponsored the bill. So Rep. Tom Fabricio is my guest today. Rep, thank you so much for talking with us today.
Melissa, thank you so much for, inviting me on to the webinar. A long time fan, first time participant.
And, and this is, you know, I gotta tell you getting a bill passed through the Florida legislature is it may not be as easy as, as one may think, and it took a lot of a lot of folks to help us get it done. You were one that really worked on crafting this idea, and working on getting it to work and and and whatnot. So you you you certainly are owed a a debt of gratitude on this. But also, Scott Merrick from the Florida Land Title Association was quite instrumental in helping us get this done. And we also have to thank our Senate sponsor, Senator Danny Burgess, who worked on it, also an attorney.
Speaker Paul Renner, Speaker of the House, at the Florida legislature helped us quite a bit. As well as Senate President, Senator Passidomo, who did. And, of course, we can't forget Governor DeSantis for signing this bill into law. So a lot of hands, to get, to get the, 120 in the House and the 40 in the Senate to get this passed and then off across the Governor's desk. But it's good law, and we're really, really excited to see it become enacted now in October.
Well, and the history of how this law came to be is is interesting to me. And I wanna share that with our listeners because not this past legislative session but the legislative session before that. So in 2022, so actually in the Fall of 2021, out of the blue, you gave me a call and introduced yourself to me.
And I started chatting about the things I'm working on, and I mentioned something about mortgage payoff reform. And that is when you said "Melissa, I would be very interested in helping with that bill. I will see if I can sponsor it."
That's right.
So we we went through the effort of drafting the bill. And and that was kind of challenging that first go around. What were the kinds of things that we encountered that first time around?
Sure. Yeah. Yeah. This this bill like many other bills, but this bill in particular, was a multi year process. Sometimes through the legislature, a bill is initially filed And, we get it to hearings, and we talk to, folks on the other side, and, and, you know, we hear from folks in the public and and other entities.
And so one of the things that we worked on the first year the bill was run was engaging with the Florida Bankers Association and the members and the the members of that entity. And we worked with the bankers to make sure that all parties to these estoppel letters to these mortgage payoff letters that their rights would be preserved appropriately. And we worked quite extensively with them we for an entire legislative session. Unfortunately, that first year, like it happens oftentimes, the bill didn't make it all the way across the finish line.
And it died before the end of session. But, to the credit of the Florida Bankers Association, in particular, my dear friend, Kenneth Pratt, we are able they agreed to certain terms during that first year, and they they complied with her, and they conform to that agreement and we came back this last legislative session exactly where we left off, and we were able to get that bill all the way across the finish line. So we work with a lot of different folks. We are lucky to work with, the correct folks, that had the industry knowledge and the exact technical knowledge know how to be able to craft this legislation so that it's good law across the board for all parties, involved in the mortgage payoffs.
Exactly. And I think you've pretty much just said why you were so willing to back this bill because you felt like it appropriately adjusted the rights between the parties. So kudos to you for picking a great bill to attach your name to.
So in addition to addressing, you know, the adjustment of those rights and the annoying way in which lenders were conditioning their payoffs and and certainly making them less and reliable.
This bill really set out in detail.
The requirements for both requesting a payoff and the sending of the payoff by the lender. And I wanna make sure that our listeners are aware of these new very technical requirements.
So we're gonna include information about that in conversation today in addition to talking about the more important substantive issues of conditional language. And the lender's obligation to release the lien. So before we get into that, I want our listeners to know that if they have any questions, that they would, like to post to us. Just use the question bar over on the right hand side of your screen. We have Michael Rothman, behind the scenes with us today who's gonna be monitoring those questions and sharing those, with me and the Rep. at the end of our remarks. And we will try to answer your questions here live. If we run out of time, we'll respond afterwards.
We've also included a copy of the new law in the handouts. And you can click on that and download it. It's over again on the right hand panel of your screen. And, the Rep. and I are following the order of the bill in our conversation today so that you can follow along if you want rather than pinging around from one topic to the next. So I am gonna start us off with, a summary of the new procedural requirements for ordering of mortgage payoff. Now, as you've already alluded, Tom, they are mortgage payoffs are referred to as a estoppel letters in the new law, which is a good thing because with these changes in the law, they now are truly a estoppel letters.
But just because I'm old and used to referring to them as mortgage payoffs, I'm gonna call them mortgage payoffs.
So one of the changes that we made this year is that the lender must send the mortgage payoff to the request or within 10 days of the request. We got that reduced from 14 days to 10 days because the reality is in today's environment, the lenders don't need 14 days to send you a payout. So we reduce that down to ten days and if the request comes from someone other than the mortgage or which is certainly the situation with closings. The request must include a copy of the instrument showing that person's title or other lawful authorization.
Then the lender must notify the more you're sure that this third party has requested the payoff. I think those are great changes. The reduction in time and requiring the lender to notify their borrower that somebody has requested a payoff.
I think you're gonna address the next issue.
Yes.
So the second issue that was addressed in the bill, touches on section 701.041c.
And it's that a lender may not qualify and this is the heart of it. A lender may not qualify, reserve the right to change or condition or disclaim the reliance of others on the information provided in an estoppel letter. And any attempt to do so, is void and unenforceable. Of course, there's an exception for mortgages that are in foreclosure a lis penden is recorded or suggestion of bankruptcy filed.
And, you know, this goes to the heart of making these mortgage payoff letters in effect estoppel letters as we all learned, estoppel letters would should be in law school. The lender has the right to correct a payoff provided in it, provided it is received by the requester by 3:00 PM in such person's time zone at least 1 business day before a payment is issued. In reliant on the previously issued estoppel letter. This was, a matter that was negotiated extensively with the bankers about what 3:00 pm is, which time zone it would be, and all those fun things that went back and forth.
But the point here is, you know, broadly speaking, the point is that when the lender issues in an estoppel letter, they there can't be this conditional language in it, that gives them the right to wiggle out of this estoppel letter. You owe x dollars, but, hey, that may not be x dollars by the time you pay it off. It may be y dollars or x plus whatever. So it it can't be that way.
You have to be able to rely on it. We did in fact put in the mechanism there for the lender to be able to correct that and the time frames, for that lender to be able to correct that. Corrected payoff must be sent in the same manner as used to respond to the original written request.
A copy of the corrected payoff must be sent to the mortgagor.
If, properly sent and received the corrected payoff supersedes all previous payoffs, as it should. If not properly sent and received. The lender must honor the original payoff, but the right to recover any additional sums properly owed is preserved. Again, that was a point that we worked out with the bankers because, if there is a debt, if there is a loan, there shouldn't necessarily be a windfall for any particular party.
It should be a matter that the lender is able to collect. However, it shouldn't muck up the actual closing. The borrower/mortgagors right, to raise defenses to this collection effort is also preserved. So that was a big portion of, what was negotiated and worked out, and I think it's landed in their correct place.
The next section 701.041e, states that the lender must apply payments received promptly to the unpaid balance of the loan, prohibited from sending the money back to the mortgagor or closing agent. I mean, that's that's critical. And that's that's one of the critical aspects of what we're trying to get done. We don't want a situation where the lender says, "Oops, I said a $100,000, but I really meant a $105,000. So here's all your money back. And by the way, in the meantime, interest is accruing on the entire amount, and you, title company, have to redo this closing."
So that's a large portion of what we were seeking to get done and we were effectively able to get that done.
I found it very interesting in the negotiations with the Bankers Association that they really have no heartburn with prohibiting conditional language as long as you could have the right to properly correct a payoff, but they also felt that sending the money back and continuing to accrue interest on the full mortgage balance was not an equitable solution because the discrepancy could be a small amount. It could be $500 and lenders would send the money back and continue accrue interest on that full mortgage balance. So they had no problem with a specific prohibition from the lender returning the money back to the mortgagor if they have to take money that is sent to them and apply that to pay down the mortgage.
So that is the gist of this bill. That was the important stuff to you and me. Was to get that stuff in there. But there was also some clean up on the whole process.
So I've talked about the response time that a lender has to send a payoff back, but let's talk about how you request a payoff. So the statute says that it has to be in writing written request is, a euphemism for just a valid communication.
You can send it first-class mail. You can send it by common carrier delivery.
But you can also send your request by email, facsimile, or other electronic means at the address made available by the lender or through an automated system provided by the lender for the requesting of an estoppel letter. So we try very hard to deal with all of the different ways in which a closing agent might be inclined to request a payoff also to deal with those automated systems because our sense was that that's how closing agents generally more often than not request pay off. So we wanted to make sure that that was a valid option.
And that request is deemed received 5 business days after a first-class mail letter the day the request is delivered by the common carrier and the day the request is received through those electronic means, email, facsimile.
The automated system that the lender might set up. We did build in allowance for weekends.
And legal holidays. And I remember a lot of discussion about what's the proper list of holidays.
You can really get in the weeds when you're doing legislation. Right?
And then the payoff must be sent to the requestor, by first-class mail common carrier, email again, or an automated system. And remember that 10 days applies to, when the lender must send that payoff back.
And note that this also relates back to those corrected payoffs because if the lender sua sponte just on their own goes "Oops. We made a mistake in that payoff." They have to send the corrected payoff to the closing agent.
The same way that the original payoff was sent.
So if they sent the original payoff first-class mail back to you, then they can't email you the corrected payoff and have that control. It's very important that the lenders pay attention to these requirements.
And then let's talk about satisfying the lien of the mortgage because this was a really great provision in the bill that we were able to get through.
Right. Thank you, Melissa. And this section, this, kind of brings it all together. And the idea here, of course, generally with a bill was that we wanted to make sure that if a lender were to send back certain monies or there was a discrepancy or whatnot or parties couldn't rely on that estoppel letter.
It would slow down, and it would, you know, for lack of a better term muck up a closing. So what we what we're doing here is we've required statutorily, that we're we should be able to rely on the unstoppable letter. The parties have a properly issued and accepted accept it. Estoppel letter is not amended properly pursuant to the statute, then, under 701.042 Within 60 days after the unpaid balance of a loan secured by a mortgage, which has been fully paid or here's our new language or paid pursuant to an estoppel letter under subsection one above that we discussed.
The, the satisfaction shall be issued. The it says, the mortgagee or mortgage servicer shall send the release to the clerk for recording and send a copy to the mortgagor or record title owner of the property. So that and that's the point we wanna be able to get these, closings done, get the, release of mortgage issued. However, as we spoke above, the actual lender's right to recuperate any and all amounts due in owing is preserved.
So they're not losing their right to collect. But if they oops and sent a mortgage payoff letter that was improperly calculated, and payment was submitted and received by them correctly pursuant to that estoppel letter, they have to release, that lien on that property and let that the property owners, go forward. However, they're still able to go back to that, prior borrower and collect that amount. The attorneys fee, there will be in here an attorneys fee award, in the action to enforce this requirement.
That is if the lender doesn't properly release, that mortgage, and it preserves the obligation of the mortgagor for any, like, what we discussed, for any balances due as otherwise provided by law.
And I found the negotiations and discussions of this particular provision with the bankers but also with your colleagues in the house and the senate to be very interesting because people had different perspectives.
Some of the legislators thought that if the lender sent a payoff and it was wrong, so sad, too bad.
You can't even collect the balance from the borrower. You have to honor that a stop a letter. And yes, it's a windfall to the borrower, but we think that's the right way to adjust it. And then you had legislators that said, no. If they really owe the money, they should have to pay whatever the lender is owed. Yes. Let's require the lender to release the lien of the mortgage so that clear title is delivered to the purchaser.
But if the lender made an honest mistake, and there is, you know, a couple of thousand dollars still due from the bar where then they should have the right to collect that. Now it's gonna be an unsecured debt.
It's gonna be hopefully a small claims action.
Hopefully the discrepancy is not that big. And hopefully it is something that the lender can fairly readily prove up.
But we made sure in the law that the borrower has the right to raise whatever defenses are appropriate to the action by the lender to collect that shortfall. I think it will be really interesting to see how this plays out in the real world, in the world of litigation, as to how courts address these situations where the lender sent an estoppel letter. That's what it's called. And now is seeking and the borrower relies on that.
So they're different. Yeah.
Takes the net proceeds from the sale of the house.
Uses it to buy the next house?
It'll be really interesting to see how the courts address that.
I can't wait to see how our language works out in the real world and whether or not it's beneficial.
This this one in particular.
This was contentious, like you mentioned with, some of my colleagues And I think we landed in the right place because as you mentioned, you know, if the bank oops and sends you a in inappropriate, incorrect number. They didn't calculate the interest correct or whatever it is that they did incorrectly.
They are, you know, they're in a in a worse position by that error, because they now have an unsecured debt.
So but they we did give them the extra bite at the apple by allowing them to amend it. They just have to amend it properly prior to payoff taking place. So we gave them several bites out of the apple to get this thing done correctly.
And, but there is no windfall here. There's and I don't think that they're necessarily should be a windfall. And our information indicates that any amounts due after, an incorrect payoff letter, is issued, would be likely a de minimis amount. Like you mentioned, it would probably be in small claims.
And I would hope that the parties would work it out. If a borrower knows they owe certain money and they, you know, we're benefiting from an a bank error, and they owe a couple hundred bucks. They should work it out with a bank and get that resolved. But then the bank, you know, if they need to file suit, in county court, to recuperate these the small amount of money, that's something between them and their borrower.
Right.
Now the final issue that we dealt with had to do with the question of retroactivity.
And with this new law with these new adjustments of rights between the party. Would that apply to existing mortgages, mortgages already entered into, mortgages already of record, or would it apply, only to mortgages entered into after the effective date?
Well, Golly Moses. If we had to wait to apply it to mortgages entered into after the effective date, we're really not adjusting the rights of the parties.
So talk about that and how the legislature typically deals with that issue.
So, that was, an important issue in this and in other bills that we've looked at. But in particular to this bill, retroactivity is generally disfavored by the legislature. We don't like to make, laws that go backwards in time. We only wanna make laws that go forward in time. However, there is we have the ability to do that in special circumstances such as, in this case, we, you know, and and whenever we have to do that, it's not an easy lift.
But I believe we've landed in the right in in the right area because there are there are mortgages that, are being serviced currently, that are, you know, we're seeking payoffs on them on a daily basis.
And those those should be subject to this new method. When the parties entered into, these mortgage agreements, they weren't necessarily relying on the fact that the mortgage payoff letter process was gonna include these, crazy estoppel letters that weren't really estoppel letters.
So what we've done is we've done a correction to the law. We've put the law in a correct posture, in my view. And we've enacted this in a way when we're, it's gonna apply to all loans that are out there except to the loans that are currently in foreclosure.
Or I believe where lis pendens are currently filed. Right. Right. Suggest of bankruptcy or foreclosure with the lis pendens.
That's right. Which you know, we felt was appropriate. So I think that final issue was was really the key to making this bill, the very best that it could possibly be. So, I'm really glad that Governor DeSantis agreed with us.
And put his John Hancock on this bill. So, Michael, do we have any questions from our audience? We do. We have a bunch of questions.
And if we don't get to all of them, I'm sure Melissa and Tom will try to respond, privately afterwards. So,d oes this new law apply to what they call a mom and pop lenders private mortgages? How about to out of state lenders?
Yes. Yes.
Good. I would say yes. Yes.
Yeah.
All of the above.
Excellent.
10 days on the 701.041a. Is that business days or calendar days?
Calendar days.
What kind of teeth or enforcement remedies are available to more of the jurors if lenders failed to meet the requirement of providing the estoppel letter within the 10 day time frame.
That's kind of a tough one. There was no way to easily deal with that in the language of the bill.
I think that we're gonna have to see whether or not that is truly a challenge out there in the industry. And I think both the Rep. and I would love to hear from you all out there that are struggling with lenders not responding within the 10 day requirement. I would send them a copy of the bill technically.
I guess you could file some kind of action against them and recover attorney's fees, but that's not a practical way to get that payoff from them. So maybe some baby teeth are in that provision.
I'll add to it. When we were working on that provision, one of the things that I said, some of the silo staff and some of the folks that brought that question up originally was that I don't necessarily I personally when dealing with institutional lenders have never had a problem in getting these, in a timely response to requests for payoffs. I mean, I certainly have that problem with HOA's and condo associations, but those estoppels are a whole other problem that we're, considering otherwise. But, the institutional lenders for the most part haven't done so, but I would be interested in hearing proposed remedies for delays in providing these payoffs. Generally lenders in in my experience, have been happy to let us know how much money is owed and, are happy to take the money for the most part.
It's a great question. How the lender's gonna know about this bill being passed in Florida so that they respond timely within the time frames? How is the word getting out to all these lenders around the country that we have this law? Who is it? Who's informing the lenders?
So I'll jump in there.
The, the Florida Bankers Association that obviously deals with Florida banks and several other banking associations were involved in the lobbying, and, following the process of this bill, which took 2 years to get past.
Most lenders, which this will be shocking to all the lawyers on this webinar, but most lenders have legions of lawyers and these lenders who lend money in Florida have legions of lawyers both in Florida and throughout.
So you know, we're confident that they will be apprised of the law by following webinars such as this excellent webinar that we're putting on today and other CLE products that will include legislative updates as to what lending laws have changed in the state of Florida.
We have time for one one or two more. Where where are we at? Yeah. Sure. Yeah. One more, maybe.
We've got a lot of good ones here. What about lenders? It will only send their payoffs to the borrowers directly. Can title companies rely on those to stop those issued to the borrowers and not to the title company?
I I don't know, Tom. I would say that this law requires the lender to send it to the requestor as long as the requestor includes the appropriate authorization for the requesting of the payoff. I think they're obligated to send it to the closing agent. That's right.
And and what what are the things that I would add, is that, it's my policy in within my title company that, we don't necessarily rely on payoffs that are not issued directly to the title company. I understand that that may be an issue that occurs in different in different companies, and they have different practices. But I always find that the best practice is for the title company to directly obtain the payoff letter which would have all the calculations so that we can rely on it directly, and we won't, you know, be playing third party, getting incorrect or inaccurate data.
Well, and that additional risk of business email fraud, if things get emailed back and forth, you wanna reduce that as much as possible.
Right. Well, oh, and last reminder, this bill is effective October 1st of this year. So we purposely scheduled this webinar early in September.
So that you had time to read the bill, adjust your maybe your your processes internally in your office. Keep it fresh of mind so that we didn't do it too far in advance of October 1st. So We are out of time.
Rep. Fabricio. Thank you so much for your time today.
And a huge thank you for your role in making sure that this bill got over the finish line.
Thanks to everybody that tended the webinar and listened in. We will try to respond to your questions, but please stay tuned for future webinars.
And of course, as always, thank you for your support of The Fund.
