The Florida District Court of Appeal, Fifth District recently reversed a final foreclosure judgment in favor of a mortgagee, holding that the mortgagee did not establish that the original foreclosure plaintiff acquired the note by virtue of a merger, and did not establish the relationship between the original foreclosure plaintiff and the originating lender. Accordingly, the Court held, the mortgagee did not properly establishing standing as to the original foreclosure plaintiff, as required.
A copy of the opinion is available at: Link to Opinion.
In 2004, a bank (“originating bank”) extended a mortgage loan to the borrower. Servicing of the loan was transferred, and in 2009 the new servicer (“filing servicer”) alleged that borrower defaulted on the loan and filed a foreclosure complaint against the borrower. The complaint attached an unindorsed copy of the note. The borrower answered the complaint, denied that the filing servicer owned the note, and alleged a lack of standing affirmative defense.
In 2012, the trial court granted the filing servicer’s motion to substitute its successor by merger (“second servicer”) as plaintiff. In 2014, the trial court granted the second servicer’s motion to substitute a new servicer (“mortgagee”) as plaintiff.
The mortgagee filed an amended complaint alleging the same 2009 default date, its status as holder of the note, and attaching a copy of the note that contained an undated blank indorsement from the originating bank. The borrower again raised lack of standing as a defense to the amended complaint.
At trial, the mortgagee called a foreclosure mediation specialist employee as its witness. The trial court admitted the original note with the same blank indorsement from the originating bank as the copy attached to the amended complaint into evidence.
The mortgagee’s witness did not know when the originating bank indorsed the note, and the mortgagee did not introduce any evidence demonstrating when the originating bank indorsed the note. The mortgagee’s witness testified that the filing servicer changed its name in April 2009.
Over the borrower’s objection that the mortgagee lacked standing, the trial court entered a final judgment of foreclosure in favor of the mortgagee. This appeal followed.
As you may recall, in Florida the party seeking to foreclose must demonstrate that it had standing to foreclose “at the time the lawsuit was filed.” McLean v. JP Morgan Chase Bank Nat’l Ass’n, 79 So. 3d 170, 173 (Fla. 4th DCA 2012). The Fifth DCA noted that “a person entitled to enforce the note and foreclose on a mortgage is the holder of the note, a non-holder in possession of the note who has the rights of a holder, or a person not in possession of the note who is entitled to enforce” the note has standing to foreclose. Gorel v. Bank of N.Y. Mellon, 165 So. 3d 44, 46 (Fla 5th DCA 2015) (citing § 673.2011, Fla. Stat. (2013)).
The Fifth DCA found that the original foreclosure complaint did not demonstrate its holder status because it only attached a copy of an unindorsed note payable to the originating bank. Indeed, the mortgagee conceded that attaching the indorsed note to its amended complaint and introducing it into evidence at trial did not retroactively demonstrate standing to foreclose when the filing servicer filed suit.
Instead, the mortgagee argued that a merger between the originating bank and the filing servicer established the filing servicer’s standing to foreclose when it filed the original complaint. “[T]o prove standing to foreclose based upon a merger, the surviving entity must prove that it ‘acquired all of [the absorbed entity’s] assets, including [the] note and mortgage, by virtue of the merger.'” Vogel v. Wells Fargo Bank, N.A., 192 So. 3d 714, 716 (Fla. 4th DCA 2016).
However, the mortgagee’s witness did not offer testimony explaining “why the copy of the note attached to the complaint . . . did not reflect the [i]ndorsements” and did not know when the blank indorsement was placed on the note. The mortgagee’s witness testified about incorporating business records, but did not testify regarding the transfer of the note pursuant to the merger.
Thus, the Fifth DCA concluded that the mortgagee did not prove that the merger gave the filing servicer standing to foreclose when the complaint was filed.
The Fifth DCA also noted that the asserted merger did not establish the filing servicer’s standing to foreclose because the merger involved an affiliate of the originating bank and the filing servicer, but the copy of the note attached to the complaint at the time the foreclosure was filed listed the originating bank as the payee. The mortgagee did not explain the relationship between the originating bank and its affiliate that merged with the filing servicer.
Thus, the Fifth DCA rejected the mortgagee’s argument that the filing servicer acquired possession of the note when it merged with the affiliate of the originating bank that may never have held the note.
The mortgagee also argued that the affiliate of the originating bank had standing to foreclose because it was the original mortgage servicer. The Fifth DCA disagreed finding that “the servicer relationship alone does not demonstrate standing to foreclose.” Thus, because none of the mortgagee’s predecessors “had standing to foreclose at the inception of the case, the trial court erred by finding that [the mortgagee] acquired standing to foreclose.”
The Fifth DCA therefore reversed the final foreclosure judgment, and remanded for entry of an involuntary dismissal.