Most Florida homeowners own their property in fee simple -- they own both the structure and the land beneath it. But a significant number of Floridians -- particularly in certain retirement communities, Florida Keys waterfront properties, cooperative developments, and resort communities -- own only their leasehold interest in the property. They own the home, condo, or structure but lease the underlying land from a separate land owner under a long-term ground lease.
When a leasehold owner falls behind on mortgage payments, the Florida foreclosure process applies -- but with important differences. The lender can only foreclose on what you own: the leasehold interest, not the land. And a simultaneous default on the ground lease itself can complicate or even destroy the lender's ability to recover through foreclosure.
What Is a Ground Lease?
A ground lease is a long-term lease of land -- typically 50 to 99 years -- under which the land owner (lessor) allows the tenant (lessee) to construct and own improvements on the leased land. The lessee pays ground rent (monthly or annually) to the land owner for the right to use the land. At the end of the lease term, the improvements typically revert to the land owner unless the lease is renewed or extended.
Common Florida contexts for leasehold property include:
- Retirement communities -- particularly older Sun City and similar communities where the developer retained land ownership and leased lots to homeowners
- Florida Keys waterfront properties -- government-owned land (state, county, or federal) leased for private improvements in environmentally sensitive areas
- Resort communities -- hotel and resort properties where the operator holds a ground lease from the land owner
- Tribal or institutional land -- properties on land owned by governmental entities, universities, or religious organizations that do not sell but lease long-term
- Cooperative housing -- where the cooperative corporation owns the land and building and each shareholder holds a proprietary lease
Leasehold Mortgage Foreclosure: How It Works
A leasehold mortgage is a mortgage secured by the leasehold interest -- the borrower's right to occupy and use the property for the remaining lease term. The lender does not get a lien on the land itself (the land owner holds the fee simple title).
When a leasehold mortgage goes into default, the lender can file a judicial foreclosure action in the same manner as a standard Florida mortgage foreclosure under Florida Statute 702. The foreclosure sale extinguishes the borrower's leasehold interest and transfers it to the highest bidder at auction. The new owner of the leasehold interest steps into the prior owner's shoes under the ground lease -- they must continue paying ground rent and complying with all ground lease terms.
The Critical Danger: Ground Lease Default
The most dangerous scenario for leasehold property owners in financial distress is a simultaneous default on both the leasehold mortgage and the ground lease rent. If the ground lease is terminated by the land owner for nonpayment of ground rent, the leasehold interest -- and therefore the leasehold mortgage -- can be extinguished entirely.
Well-drafted leasehold mortgages protect the lender (and indirectly the borrower) through “lender protection clauses” that require:
- The land owner to give the lender written notice of any ground lease default
- A separate cure period during which the lender can pay the delinquent ground rent and prevent termination
- A “new lease right” -- if the ground lease is terminated, the lender has the right to demand a new ground lease on the same terms from the land owner
If your ground lease does not contain these protections, a ground lease default can leave both you and your lender without recourse.
Comparison: Leasehold vs. Fee Simple Foreclosure
| Factor | Fee Simple Foreclosure | Leasehold Foreclosure |
|---|---|---|
| What is foreclosed | Land + all improvements | Leasehold interest only (remaining lease term) |
| Land ownership after sale | Acquirer owns the land | Land owner retains fee simple title |
| Ongoing obligations | Property taxes only | Ground rent + property taxes |
| Value at auction | Full fee simple value | Discounted by remaining lease term and ground rent obligation |
| Additional default risk | None beyond mortgage | Ground lease default can extinguish leasehold and mortgage |
| Homestead protection | Full homestead protection from creditors | Can apply to long-term primary residence leasehold -- consult attorney |
Options When You Are Behind on Leasehold Payments
Prioritize Ground Rent First
If you can only pay one obligation, pay the ground rent before the leasehold mortgage payment. A ground lease termination can extinguish both your interest and your lender's interest simultaneously -- and it happens faster and with fewer protections than a judicial mortgage foreclosure.
Sell the Leasehold Interest
You can sell your leasehold interest to a willing buyer before the foreclosure sale, using the proceeds to pay off the leasehold mortgage. Buyers who understand leasehold structures will pay market value if the remaining lease term is long and the ground rent is reasonable. A pre-foreclosure sale avoids the foreclosure judgment entirely.
Loan Modification
Loan modificationon a leasehold mortgage works the same as on a fee-simple mortgage from the borrower's perspective. The same CFPB Regulation X loss mitigation rules apply.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy creates an automatic stay that halts both the leasehold mortgage foreclosure and any ground lease termination action. You can cure arrears on both obligations through the bankruptcy plan while keeping the leasehold interest.
About Barrett Henry and Florida Foreclosure Help
Barrett Henry is a Broker Associate at REMAX Collective with 23-plus years of Florida real estate experience. He works with homeowners across all 67 Florida counties, including those facing complex situations involving leasehold property, cooperative housing, and ground lease defaults. Use the free equity estimator to understand your leasehold interest's market value, then contact us for a no-cost consultation.
