The District Court of Appeal of the State of Florida, Fifth District, recently held that the trial court erred by denying the borrower's motion to involuntarily dismiss a foreclosure action, because the plaintiff mortgagee's counsel failed to properly introduce evidence to reestablish the lost note, prove that it had standing to foreclose, prove the amount owed, and demonstrate compliance with the mortgage's condition precedent of giving notice of default.

A copy of the opinion is available at: http://www.5dca.org/Opinions/Opin2015/113015/5D14-4078.op.pdf

A servicer foreclosed alleging that the borrower defaulted under the note by failing to make the payment due on March 1, 2009 and all subsequent payments.  The loan owner mortgagee was substituted as the plaintiff, and after multiple amendments to the pleadings, the case went to trial nearly four and a half years after filing.

At trial, the new plaintiff mortgagee did not introduce any exhibits into evidence and called one witness, an employee of the loan servicer. The servicer's witness testified that he was familiar with the plaintiff mortgagee's records, that they were kept in the ordinary course the mortgagee's business, that it was the mortgagee's regular practice to make and keep the records, the records were made at or near the time of the event recorded by someone with knowledge, that he had reviewed the note and proposed final judgment and that the amount owed corresponded with the records, and that the mortgagee had complied with the condition precedent of mailing a specific notice of default and acceleration required by the mortgage.

The borrower's counsel cross-examined the plaintiff mortgagee's witness about his personal knowledge of the original plaintiff's business practices, its standing for foreclose, the loss of the note, the amount of the debt, and compliance with the condition precedent under the mortgage.  The borrower's counsel then moved several times for involuntary dismissal, arguing that the plaintiff mortgagee had not proven a prima facie case.

The trial court denied the motion for involuntary dismissal and entered final judgment of foreclosure in favor of the plaintiff mortgagee. The borrower appealed.

On appeal, the Fifth District first agreed with the borrower's argument that the plaintiff mortgagee failed to reestablish the lost note, noting that "[o]n direct examination, not a single question was asked … about the lost note." 

The Court further noted that, on cross examination, the witness "was unable to confirm that loss of possession was not the result of a transfer or lawful seizure, nor did he have the requisite personal knowledge to testify regarding how the note was lost while in the possession of [the lender]." The witness could only confirm that when servicing was transferred, the note was not in the file, that the prior servicer searched for it but could not find it and completed a lost note affidavit.  Although the lost note affidavit was attached to the servicer's verified amended complaint, "it was not offered or received into evidence."

The Fifth District also agreed with borrower's argument that "the note cannot be enforced because there as insufficient testimony regarding the terms of the note." Although a copy of the note was identified by the servicer's witness, it was not admitted in evidence.  Because "[a] document that was identified but never admitted into evidence as an exhibit is not competent evidence to support a judgment", the Court found that the plaintiff mortgagee "did not properly reestablish the lost note."

Turning to the issue of standing, the Fifth District found that the plaintiff mortgagee "failed to demonstrate standing to foreclose."  Although the plaintiff mortgagee filed "several different versions of the note, assignments, and allonge," it "did not introduce into evidence any version of the alleged lost note, the allonge, or any of the assignments.  The Court noted that, even if a copy of the note had been received into evidence, the blank endorsement attached to one copy of the note placed in the court file would be insufficient to establish standing at the commencement of suit because the endorsement is undated and cannot be used to prove that original plaintiff "had standing to sue when this suit was initially filed."

The Court held that the plaintiff mortgagee had to either introduce the original note or reestablish it pursuant to section 673.3091 of Florida's Uniform Commercial Code in order to prove standing.  Because the plaintiff mortgagee "did not tender the original note and did not properly reestablish the note, it failed to demonstrate that the original plaintiff … had standing to foreclose on the note on the date the initial complaint was filed."

On the issue of the amount owed on the note, the Fifth District found that because the plaintiff mortgagee "did not introduce its business records into evidence", it did not need to discuss whether the plaintiff mortgagee's sole witness "really had sufficient knowledge to lay the business records foundation for the loan documents pursuant to section 90.803(6), Florida Statutes (2014)."

The Court reasoned that the plaintiff mortgagee failed to prove the amount owed because it did not introduce the proposed final judgment into evidence and, "[r]emarkably, … also did not introduce any documents, such as the loan payment history, which reflect the current debt owed under the note. Likewise, there was no testimony or documentary evidence at trial regarding or supporting the award of interest, taxes, property inspections, property evaluations, or attorney's fees, aside from [the sole witness'] testimony that the figures were accurate and came from" the plaintiff mortgagee's business records.  Because the business records were not introduced into evidence, the Court held that the plaintiff mortgagee "did not establish the amount [the borrower] supposedly owed."

The Court also held that the plaintiff mortgagee failed to comply with the condition precedent in paragraph 22 of the mortgage, which required that a default letter be sent to the borrower by first class mail or actually delivered.  The Court noted that the plaintiff mortgagee it did not offer into evidence "any document purporting to be the default letter or a copy of the letter. Thus, there was no proof that the default letter, even if it was sent, complied with the requirements of paragraph 22."  

Finally, the Court noted, the plaintiff mortgagee's witness "could not confirm that the default letter was mailed vial first class" and "had no knowledge as to whether [the borrower] actually received the default letter."

The Fifth District concluded that, because the plaintiff mortgagee "failed to reestablish the note, prove standing, the amount owed on the note, and compliance with the conditions precedent in the mortgage …[t]he record does not contain competent substantial evidence to support the final judgment of foreclosure. Thus the trial court erred by refusing to grant [the borrower's] multiple motions for involuntary dismissal."

Accordingly, the final judgment was reversed and remanded to the trial court with directions to enter an order of involuntary dismissal in the borrower's favor.