The District Court of Appeal of Florida, Fourth District, recently upheld a trial court’s ruling that a plaintiff mortgage loan servicer had authority to initiate foreclosure proceedings against borrowers on a mortgage loan evidenced by an electronic note.
The Fourth DCA also held that the e-note was a transferable record under the Uniform Electronic Transactions Act.
A copy of the opinion is available at: Link to Opinion.
In April 2008, the borrowers executed an electronic note (“e-note”) in favor of the lender, evidencing a loan secured by a mortgage.
In January 2010, the servicer filed a complaint to foreclose. The servicer originally did not specify in the complaint that the note was an e-note, but alleged it was the servicer for the loan and had authority to foreclose. The servicer attached a copy of the mortgage to the complaint but did not attach a copy of the e-note.
The servicer later filed an amended complaint, alleging that a different entity owned the note. The amended complaint included a count for a lost note. Attached to the complaint were copies of the mortgage and the e-note. The e-note was signed by the borrowers.
The borrowers filed bankruptcy in 2011 and identified the e-note and mortgage as debt to the servicer. The borrowers obtained their bankruptcy without discharging the mortgage loan debt at issue.
In 2013, the servicer filed an E-note Certificate of Authentication. Attached was a copy of the e-note, which included an information page that stated the mortgagee was the controller of the e-note, and the e-note was located with the servicer.
In October 2013, the borrowers answered the amended complaint and asserted an affirmative defense of standing. Specifically, the borrowers alleged that the servicer failed to allege ultimate facts as to how it came to be the owner and holder of the note. The borrowers also raised an affirmative defense that alleged lack of authenticity and/or validity of any signatures or endorsements on the note.
At the non-jury trial, the servicer voluntarily dismissed the lost note count as it was a mistake. The borrowers objected to the admissibility of a copy of the e-note, certificate of authentication, and the certificate’s attachments.
The servicer called a loan verification analyst to attempt to bring the exhibit into evidence. On re-direct, the servicer’s witness testified that the payment history contained an acquisition screen dated Aug. 1, 2008 and that is when the servicer became the servicer on the loan with rights to enforce the note. The borrowers did not offer any evidence at trial. The trial court entered judgment for foreclosure in favor of the servicer, and the borrowers appealed.
On appeal, the Fourth DCA focused on the borrowers’ argument that the servicer did not prove that (1) the e-note contained the borrowers’ signatures; or that (2) the mortgage loan investor owned the e-note and authorized the servicer to pursue the foreclosure.
Applying the Uniform Electronic Transactions Act, the Fourth DCA found the servicer presented substantial evidence showing that the loan investor owned the e-note and authorized the servicer to pursue the foreclosure.
As you may recall, the Uniform Electronic Transaction Act states, in pertinent part:
(16) Transferable records.—
(a) For purposes of this paragraph, “transferable record” means an electronic record that:
1. Would be a note under chapter 673, or a document under chapter 677, if the electronic record were in writing.
2. The issuer of the electronic record expressly has agreed is a transferable record.
(b) A person has control of a transferable record if a system employed for evidencing the transfer of interests in the transferable record reliably establishes that person as the person to which the transferable record was issued or transferred.
(c) A system satisfies paragraph (b), and a person is deemed to have control of a transferable record, if the transferable record is created, stored, and assigned in such a manner that:
1. A single authoritative copy of the transferable record exists which is unique, identifiable, and, except as otherwise provided in subparagraphs 4., 5., and 6., unalterable.
2. The authoritative copy identifies the person asserting control as the person to which the transferable record was issued or, if the authoritative copy indicates that the transferable record has been transferred, the person to which the transferable record was most recently transferred.
3. The authoritative copy is communicated to and maintained by the person asserting control or its designated custodian.
. . . .
(d) Except as otherwise agreed, a person having control of a transferable record is the holder, as defined in s. 671.201(21), of the transferable record and has the same rights and defenses as a holder of an equivalent record or writing under the Uniform Commercial Code, including, if the applicable statutory requirements under s. 673.3021, s. 677.501, or s. 679.330 are satisfied, the rights and defenses of a holder in due course, a holder to which a negotiable document of title has been duly negotiated, or a purchaser, respectively. Delivery, possession, and indorsement are not required to obtain or exercise any of the rights under this paragraph.
(e) Except as otherwise agreed, an obligor under a transferable record has the same rights and defenses as an equivalent obligor under equivalent records or writings under the Uniform Commercial Code.
(f) If requested by a person against which enforcement is sought, the person seeking to enforce the transferable record shall provide reasonable proof that the person is in control of the transferable record. Proof may include access to the authoritative copy of the transferable record and related business records sufficient to review the terms of the transferable record and to establish the identity of the person having control of the transferable record.
See § 668.50(16), Fla. Stat. (2010).
The Fourth DCA found that the e-note was a “transferable record” under § 668.50(16)(a).
In addition, the Court held that the servicer’s evidence proved that the loan investor had control of the e-note by showing that the servicer employed a system reliably establishing the loan investor as the entity to which the e-note was transferred. § 668.50(16)(b).
The Fourth DCA noted that the servicer’s system stored the e-note in such a manner that a single authoritative copy of the e-note existed, which copy was unique, identifiable, and unalterable. § 668.50(16)(c)1.
Moreover, the Court noted that the authoritative copy, introduced into evidence by the servicer, identified the loan investor as the entity to which the transferable record was most recently transferred. § 668.50(16)(c)2,3. In addition, the authoritative copy was supplemented by a summary information sheet.
According to the Fourth DCA, the servicer’s other evidence also showed that the loan investor owned the note, and the borrowers did not challenge the testimony that the servicer became the servicer of the loan with rights to enforce the note on Aug. 1, 2008.
Accordingly, the Fourth DCA found that the servicer presented competent and substantial evidence that the loan investor owned the e-note and authorized the servicer to pursue the foreclosure, and thus affirmed the trial court’s ruling.