Business Law 101 / Disposing of Mortgaged Property

By Albert L. Kelley, Esq.

For those who follow this column, you will notice that for the last year I have focused on issues that were related to the Coronavirus Pandemic.  Before that I had started on a series discussing the various criminal laws of Florida.  While the pandemic has not gone away, I have decided to return to the earlier series of articles to finish the discussion of what actions in Florida are considered criminal.

Florida Statutes Chapter 818 discusses what happens when someone disposes of property, either real estate or personal property, that is secured by a mortgage or security agreement.  This happens more times than most people realize, and few who violate this law realize it is a crime.

Specifically, if someone sells, transfers, or disposes in any way an item that has been secured by a written lien, mortgage, or security agreement or is secured by a statutory lien, they are committing a first-degree misdemeanor, punishable by a fine of up to $1,000 and imprisonment for up to 1 year in the County Jail. The exception is if you get the secured party’s consent, in writing, prior to the transfer.  This violation not only covers changing the ownership of the property, but also moving the property outside the County limits where the lien was created. Where you often see this violated is when a business sells assets such as furniture which have been secured in their lease agreement (Many commercial leases secure all assets of the business, including furniture, fixtures, equipment, inventory and even their accounts receivables). The secured party believes there has been an unlawful transfer, they can simply ask to inspect it. If the item is not produced for inspection, it is presumed it was transferred in violation of the statute.

Another aspect of this law is that a person cannot obtain a second mortgage or security agreement on an asset without telling the lender about the first mortgage or security agreement. Most of the time this is resolved through the public records, but if there is a lien that cannot readily be located and is not disclosed, the borrower commits a second-degree misdemeanor, punishable by a fine of up to $500 or imprisonment in the County Jail for no more than 60 days.

It is possible for the lender to violate this statute as well.  If the lender is holding collateral as security for a debt and sells or transfers the collateral before the debt has come due, then the lender or secured party has committed a first-degree misdemeanor. An example of this would be if Sally borrows $1,000 from Jane with an agreement to repay Jane within 1 year and gives Jane a diamond ring to hold as security. If Jane sells the ring, gives it away, or uses the ring herself as security on a loan before the year is up, Jane would have committed a violation.

Finally, if a person is holding property that is subject to a contract for sale and sells, disposes, or hides the property rather than turn it over to the buyer, they have committed a second-degree misdemeanor. In other words, if Bob signs a contract to sell his car to Jim but then sells to car to Sue instead, it would be a violation of the law.

Al Kelley is a Florida business law attorney located in Key West and previously taught business law, personnel law, and labor law at St. Leo University.  He is the author of five law books available through Absolutely Amazing E-Books and the host of “Basics Of The Law”, a weekly YouTube channel. This article is being offered as a public service and is not intended to provide specific legal advice.  If you have any questions about legal issues, you should confer with a licensed Florida attorney.