Florida's short-term rental market -- spanning beach condos in Destin and Panama City Beach, vacation homes near Walt Disney World, urban apartments in Miami and Tampa, and Gulf Coast waterfront properties -- has attracted significant investor activity over the past decade. Many of these properties carry mortgages. When a short-term rental (STR) property goes into foreclosure, the owner faces a distinct set of legal issues that do not apply to primary residence foreclosures. Understanding those differences is essential for making good decisions under time pressure.
No Homestead Protection for Short-Term Rental Properties
Florida's homestead law provides powerful protections for an owner's primary residence: exemption from most creditor liens, a cap on annual property tax assessment increases, and significant procedural protections in foreclosure. None of these apply to a short-term rental property.
A property qualifies for Florida homestead only if the owner resides there as their permanent, primary residence. An STR property -- by definition operated as a temporary accommodation for guests rather than as a primary residence -- does not qualify. This means:
- No homestead property tax exemption (saving $50,000 off assessed value)
- No Save Our Homes cap limiting annual assessment increases
- No homestead protection from judgment liens in bankruptcy (creditors can reach the property)
- None of the procedural homestead protections that can affect Florida primary residence foreclosure
Your Lender Can Claim Your STR Income: The Assignment of Rents
Almost every mortgage on a non-owner-occupied investment property includes an assignment of rents clause governed by Florida Statute 697.07. This clause gives the lender the right to claim rental income -- including short-term rental income from Airbnb, VRBO, and other platforms -- when you default on the mortgage.
Upon default, the lender can:
- Issue written notice to you and to any known tenants or platform accounts directing rents to the lender
- Petition the circuit court for appointment of a receiver to manage the property and collect all rental income
A court-appointed receiver takes over day-to-day management of the property -- including managing the STR listing, communicating with guests, handling bookings and cancellations, and remitting net rental income to the court. For detailed information on how the assignment of rents works in Florida, see our post on assignment of rents in Florida foreclosure under F.S. 697.07.
Guests With Existing Reservations Have Limited Protections
Long-term tenants in a foreclosed property have significant protections under the federal Protecting Tenants at Foreclosure Act (PTFA), which requires new owners to honor existing bona fide leases through their term and give month-to-month tenants at least 90 days' notice to vacate.
Short-term rental guests are in a fundamentally different legal position. PTFA applies to "bona fide" leases with a term and a fixed rent. A typical short-term booking -- whether 2 nights or 30 nights -- is generally not treated as a lease under PTFA. This means:
- Guests with existing reservations may have no legal right to remain in the property if control changes
- The new owner after a foreclosure sale is not legally required to honor existing STR bookings
- Guests who have paid deposits through the platform are dependent on the platform's refund policies, not Florida landlord-tenant law
If a receiver is appointed during the foreclosure, the receiver must decide how to handle existing reservations -- some receivers honor near-term bookings and let revenue flow through the proceeding; others cancel all future bookings to simplify the administration.
Your Options When an STR Property Is in Foreclosure
Loss Mitigation for Investment Property
Unlike primary residence loans, investment property mortgages are not covered by CFPB Regulation X's mandatory loss mitigation evaluation requirements. However, many servicers have voluntary programs and investor guidelines that allow modifications of investment property loans. If your STR income was strong before a disruption -- a natural disaster, platform policy change, health event, or market downturn -- documenting that income history and demonstrating a path to sustainable payments can support a modification request.
Short Sale
A short salecan resolve the debt and end the foreclosure. Florida's active investor market -- particularly in STR-heavy areas like Kissimmee, Daytona Beach, Fort Walton Beach, and coastal communities -- often supports quick short sales to buyers who understand the STR use and can continue operating the property. A short sale approval letter that includes a full deficiency release is critical for investment properties, where the forgiven debt is not eligible for the principal residence tax exclusion.
Deed in Lieu of Foreclosure
A deed in lieu transfers the property to the lender in exchange for debt forgiveness. This avoids the public auction and may allow more control over the timing and terms. The lender will require clear title, which means resolving any HOA liens, local STR tax liens (tourist development tax arrears), or other encumbrances before the transfer.
Traditional Sale Before Foreclosure
If the property has equity -- often the case in Florida's competitive coastal and tourism markets -- a traditional sale before the auction protects your credit and captures the equity for you rather than losing it in the foreclosure process. See our guide to selling before foreclosure.
Chapter 11 or 13 Bankruptcy
Bankruptcy imposes an immediate automatic stay, stopping the foreclosure and assignment of rents enforcement. Chapter 13 (for individuals with regular income) allows you to catch up on mortgage arrears over 3 to 5 years while keeping the property. Chapter 11 is available for more complex investment portfolios. Read our Chapter 13 and Florida foreclosure guide.
Tax Consequences of STR Property Foreclosure
The tax hit from losing an investment property to foreclosure can be significant:
- Cancellation of debt income: Any debt forgiven in a foreclosure, short sale, or deed in lieu is generally treated as taxable income. Unlike primary residences, investment properties do not qualify for the Mortgage Forgiveness Debt Relief Act exclusion.
- Taxable gain: If the foreclosure sale price exceeds your adjusted cost basis in the property (original purchase price plus improvements minus depreciation taken), you may have a taxable capital gain even when you receive no sale proceeds.
- Depreciation recapture: Years of depreciation deductions on the STR property will be subject to recapture at the time of foreclosure or sale.
Consult a CPA experienced in Florida real estate investment taxation before the foreclosure sale. Early planning -- a short sale structured carefully -- can sometimes reduce the tax impact compared to a straight foreclosure.
What Happens After a Florida STR Property Sells at Auction
Two post-sale issues are important. First, if the auction sale price exceeds the outstanding debt and court costs, the excess is surplus fundsthat you are entitled to claim by filing with the circuit court within one year. Florida's active STR investor pool -- particularly in coastal, Disney Corridor, and high-demand vacation markets -- can produce competitive bidding and genuine surplus. Second, if the sale price falls short of the debt, the lender may seek a deficiency judgment within one year. Florida Statute 702.06 caps the deficiency at the fair market value of the property minus the outstanding balance -- a retrospective FMV appraisal is an important defense if the auction price was depressed.
Getting Help
Short-term rental foreclosure in Florida combines investment property law, assignment of rents, OTA platform complications, and significant tax consequences. Barrett Henry at Florida Foreclosure Help can connect you with the right specialists. Visit our Get Help page for a confidential conversation. You can also review our foreclosure FAQ and foreclosure glossary.
