In a typical foreclosure action in Florida, a creditor forecloses the real property first, the court determines the fair market value of the property as of the date of the foreclosure sale (usually through a deficiency hearing under Fla. Stat. §702.06), and then the creditor pursues a money judgment under a breach of note or breach of guaranty count. The borrowers and guarantors are entitled to a setoff equal to the fair market value of the collateral, which determines the amount of the deficiency judgment.
However, creditors sometimes find themselves in a situation where they do not want to, or perhaps are unable to, foreclose the property (e.g. there are potential environmental liabilities associated with the collateral, the collateral is subject to an automatic bankruptcy stay, or the collateral is simply undesirable). It may also be the case that the guarantors have assets that a creditor would like to pursue immediately, and the creditor does not want to wait for a foreclosure sale.
We have discussed recent case law where a court entered a final judgment in plaintiff’s favor that determined the amount owed by defendants, and simultaneously entered a foreclosure judgment ordering the clerk to sell the property. In that case, it was appropriate for the bank’s collection efforts to be abated until completion of the foreclosure sale, because the defendants were entitled to a setoff for the fair market value of the collateral.
But where a foreclosure sale has not yet been set, there is nothing to preclude a Plaintiff in Florida from pursuing its legal remedy first, and then if the judgment is unsatisfied, pursuing the equitable remedy of foreclosure second. In another recent case, Royal Palm Corporate Center Ass’n, Ltd. v. PNC Bank, NA, 2012 WL 933060, 6 (Fla. 4th DCA 2012), the court expressly declined to set a foreclosure sale date so that the Plaintiff could first pursue, and execute upon, its money judgment before foreclosing the property and before setting a deficiency hearing under Fla. Stat. §702.06. In order to ensure that the plaintiff did not receive double recovery, the plaintiff certified to the court that the money judgment had not been satisfied, after which it could elect to foreclose the property.
Reading Fort Plantation and Royal Palm in tandem suggests that the trigger for abatement of plaintiff’s collection efforts is when the foreclosure sale date is set. Before that trigger, if plaintiff elects to pursue its legal remedies first, plaintiff is entitled to a money judgment and execution as a matter of law. But once the creditor elects to foreclose and the court sets a sale date, the plaintiff is barred from executing the money judgment until the setoff amount has been established and credited to defendants.
Royal Palm illustrates that a creditor does not have to set a foreclosure sale before obtaining and executing upon a money judgment against borrowers and guarantors. This is particularly true where the creditor holds an absolute guaranty. Since the ability to execute a judgment is of paramount importance, particularly where defendants are solvent, this case is an important tool for creditors to consider as they evaluate their options in the foreclosure context.