The District Court of Appeal of Florida, Second District, recently confirmed that a substituted plaintiff would have to demonstrate its standing to enforce a note and mortgage at the time of trial, and the original plaintiff’s standing at the time the foreclosure complaint was filed.

In so ruling, the Court rejected the argument a substituted mortgagee must also prove its standing at the time of a court-ordered substitution.

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

A mortgagee filed a foreclosure action asserting two counts: an action to reestablish the note which was allegedly lost or destroyed, and an action to foreclose the mortgage. A lis pendens against the property was also recorded. The borrower defaulted and never set aside the judicial default.

The borrower subsequently filed for bankruptcy and surrendered his interest in the property to the bankruptcy trustee. The third party purchased the property from the bankruptcy trustee sale in July 2013. The original mortgagee was placed into receivership with the FDIC, and the new mortgagee was substituted in its place as plaintiff in the foreclosure.

The third party property purchaser intervened in the foreclosure, and the substituted mortgagee filed a motion to amend the complaint to assert itself as the holder of the note.

At trial, the third party property purchaser argued that the substituted mortgagee plaintiff had to prove its standing to enforce the note at the time of the court-ordered substitution, the original plaintiff’s standing to enforce the note when the complaint was filed, and the substituted mortgagee’s standing at the time of trial.

The substituted mortgagee noted that the third party property purchaser did not raise any affirmative defense in their answer, and therefore the affirmative defense should be deemed waived.

Nevertheless, the trial court dismissed the foreclosure. The substituted mortgagee appealed.

On appeal, the Second District focused on two issues with the trial court’s ruling.

First, the Appellate Court held that the third party property purchaser should not have been heard to argue a defense at trial that it never previously raised. The Court noted that an intervenor may not inject a new issue into the case. By intervening, the Court held, the third party property purchaser must take the suit as it found it. When the third party property purchaser intervened in the case, the borrower had already defaulted, and lack of standing was never asserted in any pleading.

Therefore, the Appellate Court held the third party property purchaser could not raise the waived defense.

Second, the Court held that the substituted mortgagee would only need to demonstrate its standing to enforce the note and mortgage at the time of trial, and the original plaintiff’s standing at the time the complaint was filed.

Thus, the Appellate Court rejected the third party purchaser’s attempt to add “a third temporal point for required standing in foreclosure proceedings — a prior, substituted plaintiff’s at the time of a court-ordered substitution — in order for a holder to enforce a mortgage.”

Accordingly, the Second District reversed the trial court’s dismissal.