The District Court of Appeal of the State of Florida, Fourth District, recently issued four opinions on the same day addressing the issue of standing to sue in mortgage foreclosure actions. In every case, the Court held that the plaintiff mortgagee failed to present sufficient evidence of standing.
In the first case, the assignment of mortgage was executed after the foreclosure was filed, and the plaintiff mortgagee did not present evidence that it became the holder of the note prior to the filing of the complaint. Accordingly, the Fourth District reversed the judgment of foreclosure entered in favor of the plaintiff mortgagee, holding that the plaintiff mortgagee did not provide it had standing when the complaint was filed.
A copy of the opinion is available at: http://www.4dca.org/opinions/March%202015/03-25-15/4D13-4645.op.pdf
The plaintiff filed its foreclosure action in February of 2010, alleging that it was the present holder of the note and mortgage. At trial, plaintiff introduced the original note into evidence. The note was endorsed in blank by the bank that was the original lender. The plaintiff also introduced in evidence the assignment of the mortgage to the plaintiff. Unfortunately, however, the assignment of mortgage was signed in March of 2010, after the foreclosure action was filed, but provided for an effective back-date of January of 2010.
The trial court ruled in favor of the plaintiff and entered a final judgment of foreclosure, from which the borrowers appealed.
On appeal, the Fourth District reiterated that its prior standing jurisprudence provides that standing to foreclose may be established by either an assignment or an equitable transfer of the mortgage prior to the filing of the complaint. However, the Court reiterated, the assignment or equitable transfer must pre-date the filing of the foreclosure action, and a party that does not have standing when the complaint is filed cannot retroactively remedy this defect.
Even though the note introduced at trial showed the plaintiff had standing at that point in time because plaintiff was the bearer under a “blank endorsement” under section 673.2051 of Florida’s version of the Uniform Commercial Code, because the blank endorsement was undated, the Appellate Court held that the plaintiff mortgagee did not prove it was the holder when the complaint was filed.
Before reversing the final judgment for failure to establish standing, the Appellate Court took pains to point out that it recognized that even if an assignment is executed after the complaint is filed, standing can be proven by evidence that equitable title was transferred prior to the filing date, but that no such evidence was presented at trial.
In the second case, the Court rejected another attempt to remedy retroactively a standing problem caused by a blank and undated indorsement on the promissory note.
A copy of the opinion is available at: http://www.4dca.org/opinions/March%202015/03-25-15/4D13-3799.op.pdf
The plaintiff mortgagee attached copies of the mortgage and promissory note bearing an undated, blank endorsement from the original lender.
Prior to trial, the plaintiff filed the original note with the court, but the note differed from the copy attached to the complaint in that it showed another undated endorsement -- from the original lender to another bank, not the plaintiff. The plaintiff also filed an assignment of mortgage from the original lender, dated one month after the lawsuit was filed.
At trial, the lower court found that the plaintiff had standing to sue and entered judgment in the plaintiff’s favor.
On appeal, the Fourth District first reiterated that standing must exist at the time the foreclosure suit is filed. This burden, the Court held, may be satisfied by submitting “the note bearing a special indorsement in favor of the plaintiff, an assignment from payee to the plaintiff or an affidavit of ownership proving its status as holder of the note.”
The Court further held that, when standing is based on an undated indorsement on the note, the plaintiff mortgagee must show that the indorsement occurred before the complaint was filed through record evidence such as testimony of a person with knowledge, proving that it had the right to enforce the note on the date the complaint was filed.
The plaintiff’s trial witness was unable to say with certainty whether the copy of the note attached to the complaint was the most recent version, nor could he definitely show that the plaintiff had possession of the note prior to the filing of the complaint. For these reasons, the Appellate Court held that the plaintiff could not prove that it had standing to foreclose the mortgage “by establishing an assignment or equitable transfer of the note and mortgage prior to instituting the complaint.”
The Court also held that the plaintiff mortgagee failed to present evidence proving that it actually had equitable title to the note and mortgage before the complaint was filed.
Because neither the record evidence nor testimony at trial clarified when the plaintiff came into title, the Court held there was no evidence proving the assignment took place before the filing of the complaint, and, therefore, the trial court’s finding of standing was not supported by competent substantial evidence. Accordingly, the Fourth District reversed the final judgment of foreclosure and remanded for entry of judgment in the borrowers’ favor.
The third case resulted in another victory for borrowers due to the plaintiff mortgagee’s failure to prove standing when the complaint was filed, with the Court reversing the final judgment of foreclosure and remanding for entry an order involuntarily dismissing the case.
A copy of the opinion is available at: http://www.4dca.org/opinions/March%202015/03-25-15/4D13-4040.op.pdf
The plaintiff mortgagee sued to foreclose in February of 2009, attaching a copy of the mortgage to the complaint. Shortly thereafter, it filed a copy of the note, which was devoid of either blank or special endorsements.
At trial, the plaintiff mortgagee introduced into evidence the original note, two assignments, and part of a pooling and servicing agreement (“PSA”). However, the second assignment, to the plaintiff mortgagee, was signed more than six months after the foreclosure was filed. The plaintiff mortgagee’s witness also testified that, based on a “cut-off date” for the trust of April 1, 2006 reflected in the excerpt from the pooling and servicing agreement, the borrower’s loan was transferred into the trust prior to that date.
The trial found the plaintiff mortgagee had standing and entered final judgment in the bank’s favor.
On appeal, the Fourth District reversed and remanded for entry of an order involuntarily dismissing the action, holding that the plaintiff mortgagee failed to provide sufficient evidence that it had standing on the date it filed its foreclosure action.
The Court first held that the plaintiff mortgagee did not prove standing through the second assignment because it was executed after the foreclosure complaint was filed.
In addition, the Court held that the original note introduced at trial did not prove that the plaintiff mortgagee had standing to foreclose because the special indorsements on the note were undated and there was no testimony that these indorsements were made part of the note before the foreclosure action was filed.
Even more problematic was the fact that the special indorsement was in favor of a non-party bank, not the plaintiff mortgagee, because under section 673.2051(1) of Florida’s version of the Uniform Commercial Code, when a note contains a special indorsement, “the instrument becomes payable to the identified person and may be negotiated only by the indorsement of that person.”
According to the Appellate Court, the Pooling and Servicing Agreement (PSA) introduced into evidence at trial also failed to prove standing to foreclose because it did not shed any light on what role the assignee non-party bank under the second undated special endorsement played, whether as servicer of otherwise. Thus, leaving aside the fact that it was undated, the Court held that the second special indorsement implied that the assignee non-party bank was the proper party to bring the foreclosure action, not the plaintiff mortgagee.
Finally, the Court found that there was no competent evidence that the note and mortgage had been equitably transferred to the plaintiff mortgagee. According to the Appellate Court, it was unclear both who transferred the note and mortgage into the trust under the PSA before the complaint was filed and that that party intended to transfer its interest to the plaintiff bank. The Court noted that the only evidence of intent to transfer an interest to the plaintiff was the second assignment, which, as previously noted, was signed after the complaint was filed.
Because the plaintiff failed to provide sufficient evidence that it had standing to sue when it filed its foreclosure complaint, the Fourth District reversed and remanded. However, instead of remanding for further proceedings, it did so with instructions to enter an order involuntarily dismissing the case based on the common law rule that “appellate courts do not generally provide parties with an opportunity to retry their case upon a failure of proof.”
In the fourth case, the Fourth District once again held that the evidence presented was insufficient to prove the plaintiff mortgagee had standing for foreclose, again reversing the foreclosure judgment and directing the trial court to enter judgment in the borrower’s favor.
A copy of the opinion is available at: http://www.4dca.org/opinions/March%202015/03-25-15/4D13-3514.op.pdf
The borrower signed a note and mortgage in 2006. The servicing rights to the loan were transferred in 2009 to the plaintiff servicer, which filed suit after the borrower defaulted, alleging that it had the right to enforce the note and mortgage.
The note attached to the complaint was stamped “original” and did not contain any endorsements or allonges. Also attached was an assignment of mortgage from the Federal Deposit Insurance Corporation (“FDIC”) as receiver for a defunct bank, to MERS, as nominee for the plaintiff servicer.
Months after the complaint was filed, the servicer filed what it claims was the “original” note, along with an undated, blank allonge payable to the bearer. There was no indication however that the allonge had been affixed to the note.
Shortly before trial, the plaintiff servicer moved to substitute a new servicer as the plaintiff, which the trial court granted.
At trial, a litigation manager for the new servicer testified, but he was not familiar with the computer systems that the prior servicers used for the loan, how information was input into those systems or whether it was done correctly, or whether the prior servicers’ records were accurate, only that they were provided to the current servicer.
The litigation manager also testified that the plaintiff was both the servicer and holder of the note, but he had not seen the purchase agreement and did not have a copy. His belief that plaintiff held the note was based on a “screen shot” of the plaintiff’s computer system with loan information, which was not produced at trial.
Finally, the plaintiff’s trial witness did not know when the allonge with the blank endorsement was signed, whether the signature was a “wet ink” signature or a stamp, or whether the allonge was affixed to the note before filing with the court.
The borrower moved for involuntary dismissal, arguing that the plaintiff servicer failed to prove standing because it had now shown that it had the right to enforce the note and mortgage when the complaint was filed, but the trial court denied the motion and entered final judgment of foreclosure in favor of the plaintiff servicer.
On appeal, the Fourth District found that because the plaintiff servicer had presented no competent evidence that the prior servicer held the note when suit was filed or that it was entitled to enforce the note as servicer, it failed to prove standing to foreclose.
The Court held there was no proof of transfer of the note and mortgage from the original lender to the FDIC as receiver. Next, the Court held there was no proof that the undated allonge, which supposedly supplied the connection, was actually attached to the note and the last servicer offered no proof of when the allonge was signed. Finally, the Court held there was no proof of what rights the last servicer acquired from its predecessor that filed the complaint.
The Court also rejected the plaintiff servicer’s argument that its predecessor was a “nonholder in possession” because that party, as opposed to a holder in due course, cannot rely on possession alone, but “must account for possession of the unendorsed instrument by proving the transaction though which the transferee acquired it. If there are multiple transfers, the transferee must prove each prior transfer. Once the transferee establishes a successful transfer from a holder, he or she acquires the enforcement rights of that holder.”
Because the plaintiff did not offer any evidence of the prior transfers of the note, the Court held this gap made it impossible to prove that the plaintiff servicer was a nonholder in possession and the evidence presented according to the Court was “woefully inadequate to prove standing to foreclose.”
Ralph T. Wutscher
McGinnis Wutscher LLP
The Loop Center Building
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Chicago, Illinois 60602
Direct: (312) 551-9320
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Email: rwutscher@mwbllp.com
Admitted to practice law in Illinois
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