Gallagher & Associates Team

Gallagher & Associates Team

Saturday, August 14, 2010

Pitfalls of Mandatory Foreclosure Mediation

Generally, the Florida supreme court order outlining new procedures to expedite foreclosure cases has been helpful to borrowers. However, there is one major concern for the borrowers under these new procedures which is the requirement of borrowers to furnish private financial information to lenders prior to mediation.

Lenders are requesting the full disclosure of private financial information from borrowers prior to mediation, yet the lenders furnish no information regarding their financial stability. Normally, personal financial disclosure is given during discovery in aid of execution after a judgment has been rendered. Florida Rules of Civil Procedure 1.560 allows for a judgment creditor to seek discovery to help execute his or her judgment. In addition, a judgment creditor is allowed broad discovery into the debtor’s finances. Appley's Tru-Arc, Inc. v. Liquid Extraction Systems Ltd. Partnership, 526 So.2d 177, 179 (Fla 2d DCA 1988). However, at the point of mediation in these foreclosure cases there has been no judgment. We believe the compulsion of borrower’s private financial information to be in contravention of Florida law.

Personal finances are among those private matters kept secret by most people. Rappaport v. Mercantile Bank, 17 So.3d 902, 906 (Fla. 2d DCA 2009). In Florida, there is a general rule that personal financial information is discoverable only in aid of execution after a judgment has been entered. Friedman v. Heart Institute of Port St. Lucie, Inc., 863 So.2d 189, 194 (Fla. 2003). Furthermore, the trial court should be “sensitive to the protection of a party from harassment and from an overly burdensome inquiry.” Tennant v. Charlton, 377 So.2d 1169 (Fla., 1979). Courts have to be mindful that the exposure of personal financial affairs may be used by plaintiffs trying to coerce a settlement against an innocent defendant. Tennant v. Charlton, 377 So.2d 1169, 1170 (Fla., 1979).

Additionally, courts have to analyze whether the financial information sought is relevant to the matters being litigated as the disclosure of personal financial information during discovery may cause irreparable harm to the person forced to disclose it. Friedman v. Heart Institute of Port St. Lucie, Inc., 863 So.2d 189, 194 (Fla. 2003). The Florida Constitution protects the financial information of individuals if there is no relevant or compelling reason to compel disclosure. Spry v. Professional Employer Plans, 985 So.2d 1187, 1 (Fla. 1st DCA 2008). Thus, a party seeking private financial information must provide evidence to show that the information is relevant. Id. The relevance of financial information should be determined only after an evidentiary hearing. Id.

Thus, it is perplexing that under the new mediation rules for foreclosure cases that a borrower is required to submit private financial information to the lenders when the lenders do not have a judgment against them. The relationship at the time of mediation is not yet one of judgment creditor to judgment debtor. Furthermore, Florida even has a right to privacy set forth in its own constitution which “expresses a policy that compelled disclosure through discovery be limited to that which is necessary for a court to determine contested issues.” Rappaport v. Mercantile Bank, 17 So.3d 902, 906 (Fla. 2d DCA 2009). At the time of mediation, the borrower’s financial solvency and net worth are not being contested nor adjudicated.

Moreover, the lenders assumed the risk of initiating a loan at the loan’s underwriting stage. Thus, there is nothing in the note or mortgage that requires the disclosure of personal financial information after the loan’s inception. The disclosure of financial information by the borrowers is an invasion of privacy and may cause irreparable harm. As such, we are strongly opposed to the compelled disclosure of personal financial information without any legal basis for such disclosure.

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