The Florida Fifth District Court of Appeal recently reversed a final judgment of foreclosure in favor of a mortgagee, holding that the mortgagee failed to prove it had standing to sue.

In so ruling, the Fifth DCA also held that failure to provide at least 30 days to cure the default in the mortgagee’s notice of default and right to cure did not prejudice the borrower, and therefore did not constitute a valid defense to the foreclosure.

A copy of the opinion is available at: Link to Opinion.

A corporate borrower and its principal signed a promissory note and mortgage securing the note in favor of the original lender. The mortgage named Mortgage Electronic Registration Systems, Inc. (“MERS”) as nominee for the lender and its successors and assigns.

The borrowers defaulted and the loan servicer sent a notice demanding payment of the past-due amount.  When the borrower failed to pay, the loan owner filed a foreclosure action, attaching copies of the note, mortgage and an assignment of the mortgage from MERS to the loan owner. The copy of the note was not indorsed. In their answer, the borrowers raised lack of standing and failure to comply with a condition precedent as defenses.

At trial, the lower court admitted into evidence the original note and mortgage, the default letter, and a loan payment history. However, the original note, unlike the copy attached to the complaint, contained an undated special indorsement from the original lender to another bank as trustee rather than to the plaintiff mortgagee. The trial court entered final judgment in the plaintiff mortgagee’s favor, and the borrowers appealed.

On appeal, the Fifth DCA began by reiterating the black letter rule of law that a party seeking to foreclose a mortgage must demonstrate that it has standing at the time the complaint is filed. In addition, the Court also noted that, under section 673.3011 of Florida’s version of the Uniform Commercial Code, the plaintiff must be either the holder of the note, a non-holder who has the rights of a holder, or a person not in possession who is entitled to enforce the note under section 673.3091, Florida Statutes.

The Court further noted that, if the note does not reflect the plaintiff as the payee, it must show a special indorsement in the plaintiff’s favor or a so-called blank indorsement, meaning it is payable to the bearer. In addition, the Court noted, the plaintiff can provide an assignment, an affidavit of ownership, or testimony of a witness at trial regarding the date the plaintiff became the owner of the note in order to prove standing.

Although the plaintiff mortgagee attached a copy of the assignment of mortgage to the complaint dated prior to the commencement of the action, it was not admitted into evidence at trial or mentioned by the plaintiff mortgagee’s only witness. The witness only stated in conclusory fashion that the plaintiff mortgagee was entitled to enforce the note, but failed to establish when the plaintiff mortgagee took possession of the note or that it had acquired the note before filing the foreclosure action. The witness also failed to explain why the copy attached to the complaint contained an undated indorsement to a non-party bank, not the plaintiff mortgagee.

Although the special indorsement on the note established that the non-party bank reflected as payee had standing to foreclose, there was no evidence in the record proving that the non-party bank indorsed the note to the plaintiff mortgagee, either specially or in blank, or that the trustee of the original lender’s pooling and servicing agreement had been changed. The indorsement on the original note did not reflect that plaintiff mortgagee was the proper party with standing to file the foreclosure action.

Importantly, however, the Court rejected the borrower’s second argument that the plaintiff mortgage failed to comply with the 30-day notice of default and right to cure requirement in the mortgage because, even though only 29 days’ notice was provided, the borrower was not prejudiced because he made no attempt to cure the default.  The Fifth DCA held that, under Florida law, without a showing of prejudice, the breach of a condition precedent is not a defense to enforcement of an otherwise valid contract.

Accordingly, the final judgment of foreclosure was reversed and remanded.