Buchanan v. HSBC, 993 N.E.2d 275 (Ind. Ct. App. 2013) is another decision shooting down a borrower’s defenses to an Indiana mortgage foreclosure action. In Buchanan, the borrower contested the validity of both the promissory note and the mortgage.
Assignment defects. The borrower attacked the legitimacy of the assignment of the promissory note from the original lender to the plaintiff/current lender. The borrower asserted that (1) the note did not include an endorsement and (2) the allonge was not dated.
Allonge application. The Indiana Court of Appeals first cited to the definition of an “allonge” by referring to Black’s Law Dictionary. An allonge is a paper “attached to a negotiable instrument [a promissory note] for the purpose of receiving further endorsements when the original is filled.” The Buchanan Court noted that it was unnecessary to use an allonge because the note did not contain any endorsements (and thus was not “filled”). Nevertheless, the Court concluded that “we are not aware of any reason to prohibit the use of an allonge in this case.” In my experience, the use of an allonge, regardless of whether there have been any endorsements, is a common and accepted practice.
Allonge okay. The lender pointed out that the allonge to the subject promissory note was endorsed in blank – a concept about which I discussed on 10/17/14. Endorsing in blank is a non-issue. The Court also concluded that the lender’s failure to produce a dated allonge was immaterial. There is no authority that the lack of a date on an allonge renders it invalid. (The lender submitted an affidavit showing the year of the transfer of the note. So, even though there was no date certain in the allonge, there was evidence as to when the transfer occurred.)
Mortgage acknowledgement. The borrower contended that the subject mortgage “lacked the requisite acknowledgement” and thus was unenforceable. Ind. Code § 32-29-1-5(d) requires Indiana mortgages to be “dated and signed, sealed, and acknowledged by the grantor . . . ,” among other things. The borrower’s argument was that the notary public did not have any authority in Indiana but was limited in its commission to Kentucky. Indeed there is Indiana case law providing that a notary public’s official activities are limited to the political subdivision for which it is appointed and commissioned and, furthermore, that acts outside of the territorial limits are void. The Court in Buchanan bypassed the borrower’s argument, stating “we need not decide whether the mortgage was properly acknowledged.” The Court’s reasoning was that the borrower did not deny that he executed the mortgage and note when he purchased the subject real estate. Moreover, Indiana case law provides that an “unacknowledged instrument is binding between parties and their privies,” meaning that, as between the borrower and the lender, the notarial acknowledgement was insignificant, according to the Court.
Upheld. The Indiana Court of Appeals affirmed the trial court’s findings that the lender was the holder of the subject note and that the mortgage was valid despite an allegedly defective acknowledgement.
By: Collie Nolen, Esquire
“A crucial element in any mortgage foreclosure proceeding is that the party seeking foreclosure must demonstrate that it has standing to foreclose” [the subject note and subject mortgage when the complaint is filed]. McLean v. JPMorgan Chase Bank Nat’l Ass’n, 79 So.3d 170, 173 (Fla. 4th DCA 2012). If Plaintiff fails to establish standing, the case is subject to dismissal. “Standing may be established by either an assignment or an equitable transfer of the mortgage prior to the filing of the complaint.” Id (emphasis added). Standing may also be established from a Plaintiff’s “status as the note holder, regardless of any recorded assignments.” Id. Florida Statute § 671.201(21) defines “holder” as:
(a) The person in possession of a negotiable instrument that is payable either to bearer or to an identified person that is the person in possession;
(b) The person in possession of a negotiable tangible document of title of the goods are deliverable either to bearer or to the order of the person in possession; or
(c) The person in control of a negotiable electronic document of title.
See Florida Statute § 671.201(21).
In addition, “[i]f the note does not name the [P]laintiff as the payee, the note must bear a special endorsement in favor of the [P]laintiff or a blank endorsement. Alternatively, the [P]laintiff may submit evidence of an assignment from the payee to the [P]laintiff or an affidavit of ownership to prove its status as holder of the note.” Id. Moreover, Florida Statute § 673.3011 identifies persons entitled to enforce a negotiable instrument. Specifically, “person entitled to enforce” an instrument means:
(1) The holder of the instrument;
(2) A nonholder in possession of the instrument who has the rights of a holder; or
(3) A person not in possession of the instrument who is entitled to enforce the instrument pursuant to § 673.3091 or § 673.4184(4). See Florida Statute § 673.3011.
Courts have found that a copy of the original note which contains an undated blank endorsement, attached to a Plaintiff’s Foreclosure Complaint, is sufficient to establish, as a matter of law, that Plaintiff had standing to bring the foreclosure action. See Clay County Trust #08-04-25-0078-014-27 Orange Park Trust Services, LLC as Trustee Only v. JPMorgan Chase Bank, Nat’l Ass’n, Case No. 1D14-1125 (Fla. 1st DCA 2014) (“[w]hen appellee filed the foreclosure complaint, it attached a copy of the note and an undated allonge to the note containing a blank endorsement. This was sufficient to establish as a matter of law that appellee had standing to bring the foreclosure action.”).
Often times, Plaintiff is able to establish standing several ways. One of the most common ways is through an assignment of mortgage. An assignment of mortgage that assigns the note, as well as the mortgage, to the Plaintiff prior to filing date can establish Plaintiff’s standing. Section 701.01 of the Florida Statutes also gives an assignee of a mortgage the authority to “take and pursue the same means and remedies which the mortgagee may lawfully have, take or pursue for the foreclosure of a mortgage . . . .” § 701.011, Fla. Stat. (2014). In Taylor v. Deutsche Bank Nat’l Trust Co., 44 So.3d 618, 623 (Fla. 5th DCA 2010), the Court affirmed the final judgment in which the trial court concluded that the assignee of MERS had standing to foreclose the mortgage. Specifically, the Court held that:
[T]he written assignment of the note and mortgage from MERS to Deutsche Bank properly transferred the note and mortgage to Deutsche Bank. The transfer, moreover, was not defective by reason of the fact that MERS lacked a beneficial ownership interest in the note at the time of the assignment, because MERS was lawfully acting in the place of the holder and was given explicit and agreed upon authority to make just such an assignment. Id.
Sometimes, however, the assignment of mortgage transfers the mortgage only. “[A]n assignment of mortgage, even if executed before the foreclosure action commenced, is insufficient to prove standing where the assignment reflects a transfer of only the mortgage, not the note. Tilus v. Michai LLC, Case No. 4D13-3616 (Fla. 4th DCA April 8, 2015). See also Bristol v. Wells Fargo Bank, Nat’l Ass’n, 137 So.3d 1130, 1132 (Fla. 4th DCA 2014). “The mortgage follows the assignment of the promissory note, but an assignment of the mortgage without an assignment of the debt creates no rights in the assignee.” Tilus, Case No. 4D13-3616. However, federal case law has found that “unless there is a plain and clear agreement to the contrary, both the mortgage and note are assigned as one.” Wane v. The Loan Corporation, Case No. 13-11597 (11th Cir. 2014).
Cases in which Plaintiff is a Trust
If the Plaintiff is a trust, and if the assignment of mortgage was executed after the Complaint was filed, or if there is an issue with the endorsements on the original note, a pooling and servicing agreement with master loan schedule may be introduced into evidence to show that the subject loan was placed into the trust prior to the filing of the Complaint, to show Plaintiff’s status as note holder. However, some defendants attempt to attack the validity of the trust by alleging that Plaintiff failed to comply with the pooling and servicing agreement. It is well established that “[a] person not a party to nor in privity with a contract has no right to enforce it.” Gallagher v. Dupont, 918 So.2d 342, 347 (Fla. 5th DCA 2005) (emphasis added). See also White v. Exchange Corp., 167 So.2d 325, 326 (Fla. 3d DCA 1964); Castillo v. Deutsche Bank Nat’l Trust Co., 89 So.3d 1069 (Fla. 3d DCA 2012). “When a contract is designed solely for the benefit of the contracting parties, a third party cannot enforce its provisions even though the third party may derive some incidental or consequential benefit from the enforcement.” Gallagher, 918 So.2d at 347 (emphasis added). See also K-Mart Corp v. State Dept. of Transp., 636 So.2d 131, 133 (Fla. 2d DCA 1994) (Lazzara, J., concurring). A defendant cannot allege noncompliance with a trust or pooling and servicing agreement since the defendant is not a party to same.
Owner v. Holder
In many contested cases, Defendants attempt to attack Plaintiff’s standing by alleging that Plaintiff has not proven that it is the owner and holder of the subject note, and thus Plaintiff’s Complaint should be dismissed. However, Florida law does not require Plaintiff to be both the holder and the owner of the subject note in order to foreclose. “[U]nder the Uniform Commercial Code, a [P]laintiff is not required to be both the owner and holder of the note in order to have standing to foreclose.” Tilus, Case No. 4D13-3616.
How we prove standing
In a contested case, Plaintiff must attempt to prove standing as many ways as possible in order to prevent dismissal and/or a subsequent reversal on appeal. The following are ways to establish standing in a contested trial: the admission of a screen shot to show that Plaintiff was in possession of the original endorsed note prior to the date on which the Complaint was filed (filing date); and/or the admission of an assignment of mortgage (in which also assigns the note) executed prior to the filing date; and/or the admission of a pooling and servicing agreement with master loan schedule to show that the blank endorsed note was placed into the trust prior to the filing date; and/or the admission of the collateral routing history to show that Plaintiff’s Counsel was in possession of the original endorsed note prior to filing date; and/or the admission of a bailee letter to show that Plaintiff’s Counsel received the original endorsed note prior to filing date; and/or admission of the note certification to show that Plaintiff’s Counsel was in possession of the original endorsed note prior to the filing date; and/or the admission of the original endorsed note, along with another method.
Here at Gilbert Garcia Group, P.A. (GGG), we strive to exceed expectations. By always following the below, we can ensure that our cases will not be dismissed for failure to prove Plaintiff’s standing at the time the Complaint was filed.
- Ensure that a copy of the original note (with all endorsements) is attached to the Complaint
- Ensure that a copy of all recorded assignments of mortgage are attached to the Complaint
- Ensure that all documents needed to establish standing are requested, received, and provided to Opposing Counsel well in advance of trial
- Thoroughly prepare our witnesses for trial and be sure they can answer all relevant questions
- Stay up to date on all new relevant case law regarding standing
Standing is the most important element in any mortgage foreclosure action. If Plaintiff is unable to prove that it had standing at the time the Complaint was filed, the Complaint is subject to dismissal.