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Fannie, Freddie Plunge After Court Rules Hedge Funds Can’t Sue

Editor’s Note: Although the hedge funds and investors can’t claw back lost profits, perhaps they can sue on the rampant fraud committed by the GSEs.
Moments ago, the stocks of the nationalized GSEs – Fannies and Freddie – tumbled by over 30%, after a federal appeals court upheld a ruling that barred hedge funds from suing to overturn the U.S. government’s 2012 decision to capture billions of dollars in the profits generated by the mortgage guarantors Fannie Mae and Freddie Mac after their bailout.According to Bloomberg, which first reported the ruling, some Fannie Mae and Freddie Mac investors still have a shot at money damages, based on when they acquired their shares and whether they did so before or after the Federal Housing Finance Agency was created and then imposed its control over Fannie Mae and Freddie Mac. They can pursue breach of contract claims, the appeals panel said in a split 2-1 decision Tuesday.

“It’s a little too early for me to announce what our response will be other than to say what these breach of contract claims were always the central claims in this case,” said Hamish Hume, a Washington-based attorney with Boies Schiller Flexner LLP, who represented some of the prevailing shareholders.

In place since January 2013, the controversial net worth sweep allowed the U.S. to recapture all of the $187 billion in taxpayer money it spent to stave off the companies’ collapse during the global fiscal crisis and as of 2016, at least $56 billion more. All of that without reducing Treasury’s liquidation stake in either firm.

As Bloomberg adds, the court, which included two judges selected by Republican presidents and one picked by a Democrat, heard arguments on April 15. It later allowed additional friend-of-the-court briefs to be filed by allies on each side, solicited still more submissions concerning a jurisdictional question and permitted the investors’ filing of evidence produced in sweep-related cases pending before other courts. Their ruling may yet be subject to U.S. Supreme Court review.

The U.S. Treasury Department press office did not immediately reply to an e-mailed request for comment. David Thompson, an attorney for the suing Fairholme Funds Inc. did not immediately respond to a voice-mail message seeking comment.

The appellate decision follows Fannie Mae’s Nov. 3 report in which it said it made a $3.2 billion profit in the third quarter of 2016, the company’s 19th straight quarterly profit. Those profits were more than the $1.96 billion earned in the same quarter a year earlier. The company had said it would send $3 billion to the Treasury in December, bringing its total payments to $154.4 billion.


Two days earlier, the smaller Freddie Mac said it made a $2.3 billion profit during the third quarter of this year and would send the same amount to the U.S.


Sweep terms let the companies retain an annually diminishing capital buffer that phases out in 2018, meaning any losses later sustained will require one or both to draw on taxpayer funds.

Meanwhile, some prominent hedge funds investors – most notably Bill Ackman and Richard Perry –  have been actively pushing the government to revert to the GSE status quo, as existed prior to the 2008 bailouts, convinced it would unlock substantial stakeholder value. Today, however, that won’t be the case.

Fannie and Freddie Launch Flex Modification Program: No Paperwork Required in Some Cases

By the Lending Lies Team

Fannie Mae and Freddie Mac have launched a new loan modification program for troubled mortgages known as “Flex Modification.”  The GSE’s have an issue with rising defaults and questionable paperwork and the Flex Modification allows them to modify the underlying defective “loan” and gloss over the false endorsements, assignments and chain of title issues.  Brilliant!

The new flexible loss mitigation tool is a combination of the impotent HAMP,  the Standard Modification, and the Streamlined Modification, and will replace the trio as early as March 2017.

Loan servicers are beginning to implement the Flex Modification at that time, but will be required to participate starting October 1st, 2017.

The Home Affordable Modification Program (HAMP) expired at the end of December.

How the Flex Modification Works

It is obvious that Fannie and Freddie are attempting to lure as many homeowners in or near default inot the Flex Modification program.  Unlike the original HAMP modifications that required burdensome amounts of paperwork (that was intentionally lost), the required borrower documentation needed to get a loan modification under this new program is surprisingly minimal.

A major problem with HAMP was the complicated paperwork and long, drawn out processes.  Not to mention that loan servicers who had little incentive to modify a loan when they could foreclose, typically threw the homeowner’s application into the trash.

HAMP has been revised to make it easier for borrowers to get relief, and it appears those lessons have been applied to the new Flex Modification, at least in theory.  However, the reality is that a servicer who illegally forecloses on a home receives a financial windfall, compared to a paltry fee for modifying.

Fannie and Freddie claim that the Flex Modification will aim to lower monthly housing payments to help at-risk, delinquent borrowers avoid foreclosure.

Those who are less than 90 days behind on their mortgage must submit a Borrower Response Package (BRP) in order to be evaluated for a Flex Modification, which will target a 20% monthly payment reduction and a 40% Housing Expense-to-Income (HTI) Ratio.  Why such aggressive measures when the previous HAMP program would rarely reduce principal or monthly payments?  The GSE’s have always been hostile to homeowners wishing to modify preferring to foreclose.  Less than 40% of all applicants were given loan modifications.

Freddie Mac noted that a “high percentage” of those at least 60 days delinquent would be eligible, and in some cases it could also be an option for those who are current on the mortgage or less than 60 days late.

However, that latter group would need to occupy their homes in order to get relief.

For those more than 90+ days delinquent, the program targets the same 20% payment reduction, but requires no “borrower documentation.”

Likely this program will be used to grease the runways, as Timothy Geitner of the Fed admitted back in 2008 when HAMP was devised.   It appears that the GSEs know they have MAJOR issues with the underlying loans they guarantee and they are resorting to issuing modifications to wipe the slate clean.  I predict that there is language in the agreement that states the homeowner will not sue their servicer or the GSE’s once the loan is modified.  The GSEs, Fed and OCC are not benevolent entities- they are cold, calculating bankers where profit is all that matters.

In other words, they realize you’re in imminent danger of foreclosure and that they have major legal liabilities so they’re going to make it easy for you to get assistance.   Without knowing more about the program I can already tell it doesn’t pass the sniff test.

Perhaps this program will actually provide relief by lowering monthly mortgage payments.  It is likely that borrowers will be incentivized to hit the 90 day plus delinquent status to take advantage of the easier modification option also.  Not that it matters because the entire program appears to be created to “fix” loans that are damaged beyond repair.

It is interesting that many loan servicers are exiting the market while the GSEs are attempting to paper over their fraudulent history.  There are unseen forces in the background that are influencing change.  It appears that servicers and faux lenders are running scared or do they know something we don’t?

In any case, the program will also allow for principal forbearance to an 80% mark-to-market loan-to-value ratio (MTMLTV), but this amount must not exceed 30% of the unpaid principal balance.

Some key changes from the Standard Modification include:

• Housing-to-income ratio for borrowers less than 90 days delinquent changed from less than/equal to 55% to 40%
• No amortization choice for borrowers with an MTMLTV ratio of less than 80%
• Must now forbear principal down to a 100% MTMLTV ratio rather than the prior 115%

Flex Modification Eligibility

– Mortgage must be owned or guaranteed by Fannie Mae or Freddie Mac (GSEs do not own loans)
– Must be 60 or more days delinquent unless owner-occupied and in imminent default
– Must submit a Borrower Response Package (will the servicer actually process the package when they have more incentive to foreclose than modify?)
– Must have an eligible hardship
– Must verify income
– Must have been originated 12 months prior to evaluation date
– Must target a 20% principal and interest payment reduction and 40% front-end DTI
*If 90 days+ delinquent, a Borrower Response Package is not required, and servicer is not required to confirm a borrower’s hardship or income.

Ineligible for Flex Modification

– FHA, VA, and USDA loans
– Mortgages subject to recourse
– Mortgages secured by second homes or investment properties less than 60 days late
– Mortgages that have been modified three or more times previously
– Mortgages approved for a short sale or deed-in-lieu
– Mortgages under a different modification program
– Mortgages that don’t make it through the trial period or aren’t brought current

2d Florida DCA Knocks Down CitiMortgage – PennyMac Dance

“In order to establish its entitlement to enforce the lost note, PennyMac could establish standing “through evidence of a valid assignment, proof of purchase of the debt, or evidence of an effective transfer.” BAC Funding Consortium, 28 So. 3d at 939. PennyMac’s filings in support of its motion for summary judgment did not present evidence of any of these things. In the absence of such evidence, the order of substitution standing alone was ineffective to establish PennyMac’s entitlement to enforce the lost note. See Geweye v. Ventures Trust 2013-I-H-R, 189 So. 3d 231, 233 (Fla. 2d DCA 2016); Creadon v. U.S. Bank, N.A., 166 So. 3d 952, 953-54 (Fla. 2d DCA 2015); Sandefur v. RVS Capital, LLC, 183 So. 3d 1258, 1260 (Fla. 4th DCA 2016); Lamb, 174 So. 3d at 1040-41.”

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The Second  District Court of Appeal in Florida has issued an opinion that diligently follows the law and the facts. This decision should serve as the blue print of foreclosure defense in all cases involving the dance between CitiMortgage and PennyMac. It is a shell game and the Court obviously is growing weary of the claims of “immunity” issued by the banks in foreclosure cases.

It all starts with self serving proclamations of owning the note, the mortgage or both. It NEVER starts with an allegation or assertion of ownership of the debt because they don’t own the debt. When the note was made payable to someone other than the owner of the debt, there could be no merger wherein the debt became merged into the note. And the reason for all this is that the mega banks were engaged in the a program of institutionalizing theft from investors.

The aim of the game is to get a court to enter an order which then raises the presumption that everything that preceded the entry of the order was legal — a presumption that is hard to rebut. So the strategic path for borrowers is to show that the program or scheme is not legal before the foreclosure is entered or to attack for damages based upon fraud after the foreclosure judgment or sale is entered.

In this decision lies the foundation for most cases involving foreclosure defense. The reader is encouraged to use the above link to read and then reread the decision. My comment on the highlights follows:

“In order to establish its entitlement to enforce the lost note, PennyMac could establish standing “through evidence of a valid assignment, proof of purchase of the debt, or evidence of an effective transfer.” BAC Funding Consortium, 28 So. 3d at 939.

COMMENT: Merely alleging that it was the holder of a note when it was lost is insufficient to assume standing to enter a judgment on behalf of the foreclosing party (in this case PennyMac). In the absence of physical possession of the note standing can be established by (1) EVIDENCE of (2) a VALID assignment or (3) PROOF of PURCHASE OF THE DEBT or (4) evidence of “effective” transfer.

The steamrolling presumptions that buried millions of homeowners are now hitting the wall. The main point here is that an allegation is not enough and most importantly standing to file suit does NOT mean that the party has standing for the entry of judgment in favor of the foreclosing party.

The error that both courts and lawyers for litigants have consistently made for the last 10 years is their assumption that a sufficient allegation that a party has legal standing at the time suit is filed (or notice of sale, notice of default, notice of acceleration) means that the party has proven standing with evidence. It does not. Like any other allegation it is subject to being discredited or rebutted. AND it requires proof, which places the burden of persuasion upon the party making that allegation. It is neither the law of the case nor subject to any twisted notion of res judicata to assume that matter is proven when merely alleged.

The 2d DCA shows it has a firm grasp of this basic fact. The fact that standing was challenged in an unsuccessful motion to dismiss does NOT mean the matter is resolved or has been litigated.

Fundamentally the issue in all these cases is about money. The question of foreclosure should always have been a secondary issue of much less importance. American jurisprudence is filled with recitations of how foreclosure was a severe remedy that requires greater scrutiny by the court. Up until about 15 years ago, Judges would sift through the paperwork and deny foreclosure even if it was uncontested if the paperwork raises some unanswered questions. That tradition follows centuries of tradition and doctrine.

Thus the 2d DCA has placed purchasing of the debt and ownership of the debt in the center of the table. In the absence of a party who owns the actual debt, it is possible for a party to seek enforcement of the note, the mortgage or both — but that can only be true if the foreclosing party has indeed acquired the right to enforce the instrument from an instrument signed by the owner of the debt; simply alleging that one is owner of the note has no effect at trial or summary judgment as to evidence of ownership of the debt. And without evidence of the true owner of the debt being the payee on the note, the grant of authority through Powers of Attorney, Servicing agreements or anything else is evidence of nothing.

The use of the word “effective” (i.e., effective transfer) in this decision also opens the door to the rescission debate that was actually settled by the unanimous decision of the Supreme Court of the United States in Jesinoski v Countrywide. What does it mean that something is effective? Reviewing court decisions and legislative histories it is clear that “effective” means that the event or thing has already happened at the moment of its rendering. Thus the court here is talking about an effective assignment (not just a piece of paper entitled “assignment”), meaning that all the elements of a proper assignment had been met, and NOT just the writing or execution of the instrument. It is not effective if the elements are missing. And the elements are missing if the proponent of the assignment does not prove the elements — not just allege them.

There is a difference between pleading and proof.

In the absence of such evidence, the order of substitution standing alone was ineffective to establish PennyMac’s entitlement to enforce the lost note. See Geweye v. Ventures Trust 2013-I-H-R, 189 So. 3d 231, 233 (Fla. 2d DCA 2016); Creadon v. U.S. Bank, N.A., 166 So. 3d 952, 953-54 (Fla. 2d DCA 2015); Sandefur v. RVS Capital, LLC, 183 So. 3d 1258, 1260 (Fla. 4th DCA 2016); Lamb, 174 So. 3d at 1040-41.”

COMMENT: This addresses the musical chairs tactics that have perplexed the Courts, borrowers and attorneys for nearly 2 decades. The court here is presenting for consideration the notion that substitution of parties does not confer anything on the apparent successor or new foreclosing party. What it DOES accomplish is removing the original party from having any legal standing for judgment to be entered in its favor. The claim of “succession”must be proven by the party making the claim — not by the party defending. What it does NOT accomplish is bootstrapping the allegations of standing from the original plaintiff or foreclosing party to a new party also having standing to pursue the judgment.

In all events therefore, the party alleging and/or asserting standing must prove it before the homeowner is required to rebut or even cross examine it.



Happy 70th Birthday Neil Garfield!!!!!


Dear Mr. Garfield,

For the last decade you have enlightened and educated millions of homeowners and helped countless others defend against fraudulent foreclosure.

Your willingness to explain complex legal theories and procedure have helped to level the playing field between homeowners and the banks.

We appreciate your sacrifices and believe that history will memorialize you as a mercenary who exposed the greatest financial crime ever perpetrated on the American public.  The Livinglies blog was ground-zero.

Happy Birthday!


The Lending Lies Team & your devoted readers

The FBI convicts a small time operator while the Big Banks continue their Crime Spree unabated

The FBI proudly announces they have convicted a California mortgage rescue operation but pays no attention to the fact that banks are continuing their unabated crime spree that way surpasses a small time mortgage rescue operation.  The government has hard evidence that bank servicers are participating in criminal conduct that includes forging instruments, perjured affidavits, predatory servicing and modification scams and does nothing of impact to address the rampant fraud.

To date no executive calling the shots has gone to prison, further emboldening their illegal behavior.  In fact, most executives who designed the greatest financial fraud scheme the world has ever seen, are promoted or enter government.  Steven Mnuchin perfectly executed the OneWest master crime spree and instead of a stint in federal prison he was promoted to Secretary of Treasury.

The government has sanctioned and fined the banks hundreds of millions of dollars.   The paltry fines have done nothing to curtail their fraudulent behaviors.  A fine of $500 million is simply a tax write-off and a cost of doing business for the big servicers who are collecting billions in profits for foreclosing on loans they can’t prove they own.

At this point, servicing fraud, securitization fraud, foreclosure fraud and modification fraud are considered acceptable operating procedures for the big banks.    The Federal Bureau of Investigation has not done their job and are part of the cover up.  Meanwhile the FBI tries to distract people with stories about saving vulnerable homeowners from small time operators while the guilty go free.

In fact, if you have hard proof of fraud or criminal behavior and report it to the FBI, you will be told that your problem is a civil matter.   If the FBI is interested we would be happy to share dozens of cases where the bank and their counsel forged documents, submitted fraudulent affidavits to the court and foreclosed on homes they didn’t own by resorting to forgery and fraud.  The evidence we have is 100% conclusive and yet no governmental agency has any interest in what the big banks are doing to steal homes.

False Promises

California Man Sentenced for Operating Foreclosure Rescue Scheme

When California homeowners couldn’t make their mortgage payments and faced foreclosures during the Great Recession in 2008, some turned to a Long Beach church pastor for help.

For almost six years, Karl Robinson offered mortgage rescue services under his name and through companies such as Stay in Your Home Today, 21st Century Development, and Genesis Ventures Corporation. Now he’s serving four years in federal prison for his role in a scheme that brought in nearly $3 million in fees from unknowing clients.

Robinson and a group of co-conspirators attracted distressed homeowners with the promise of delaying foreclosures and evictions. They claimed to offer services that connected clients to experienced consultants who could keep them in their homes for an affordable fee.

It was all too good to be true—until an FBI-led investigation in 2013 determined that the mortgage rescue programs were far from legitimate.

“Robinson joined a growing number of con artists surfacing throughout the country during the subprime mortgage crisis focused on lining their own pockets instead of actually helping clients,” said FBI Special Agent Kevin Danford, who investigated the case out of the Bureau’s Los Angeles Field Office.

During the housing crisis, opportunistic groups like Robinson’s preyed on vulnerable and desperate homeowners through common scams such as offering affordable refinancing with lower monthly payments, low-interest deals, and delinquent mortgage pay-offs.

In 2008, Robinson began offering fraudulent foreclosure delay solutions by taking part in what were known as partial-interest bankruptcy scams (see sidebar). The process went on for months, providing Robinson with a steady flow of income as long as his clients were willing to pay.

Another scam delayed evictions for Robinson’s clients whose homes had been sold in foreclosure proceedings. Robinson falsely claimed in state court eviction actions that his clients still had tenants in those homes. Robinson would then file bankruptcies for the fictional tenants, postponing the evictions.

By 2011, clients and lenders were starting to catch on to Robinson’s scams. They turned to their local police, who confirmed the suspected fraud and alerted the FBI.

“Robinson joined a growing number of con artists surfacing throughout the country during the subprime mortgage crisis focused on lining their own pockets instead of actually helping clients.”

Kevin Danford, special agent, FBI Los Angeles

The Bureau opened an investigation on Robinson in August 2013 and subsequently obtained an external hard drive from his home that contained documents such as fake driver’s licenses, false identities, and incomplete bankruptcy petition drafts—which revealed the steps he was using to carry out his fraud scheme.

Following his arrest, Robinson confessed to knowingly defrauding his clients and the state and federal courts. Robinson pleaded guilty in August 2016 to the role he played in running the multi-year foreclosure rescue scheme.

“Robinson was able to delay foreclosure sales for more than 100 properties, and he filed at least 200 bankruptcy petitions,” said Danford. “His scheme not only impacted more than 60 lenders and clogged both federal bankruptcy court and state and local eviction court systems but also caused undue stress to numerous purchasers.”

Partial-Interest Bankruptcy Scams

The scam operator asks you to give a partial interest in your home to one or more persons. You then make mortgage payments to the scam operator in lieu of paying the delinquent mortgage. However, the scam operator does not pay the existing mortgage or seek new financing. Each holder of a partial interest then files bankruptcy, one after another, without your knowledge. The bankruptcy court will issue a “stay” order each time to stop foreclosure temporarily. However, the stay does not excuse you from making payments or from repaying the full amount of your loan. This complicates and delays foreclosure, while allowing the scam operator to maintain a stream of income by collecting payments from you, the victim. (Source: FDIC)

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Houk v. PennyMAC CORP. | FL 2DCA – PennyMac failed to meet its burden of showing the nonexistence of a genuine issue of material fact regarding its entitlement to enforce the lost note.

Hat tip to


LANE A. HOUK, Appellant,

Case No. 2D15-2583.District Court of Appeal of Florida, Second District.Opinion filed February 10, 2017.Appeal from the Circuit Court for Lee County; Thomas S. Reese, Senior Judge.

Mark P. Stopa of Stopa Law Firm, Tampa, for Appellant.

Nancy M. Wallace of Akerman LLP, Tallahassee; William P. Heller and Marc J. Gottlieb of Akerman LLP, Fort Lauderdale; and Kathryn B. Hoeck of Akerman LLP, Orlando, for Appellee, PennyMac Corp.

No appearance for remaining Appellees.


Lane A. Houk challenges a final summary judgment of foreclosure entered in favor of PennyMac Corp., an entity that was substituted as the party plaintiff in place of CitiMortgage, Inc., during the pendency of the litigation in the circuit court. Because a genuine issue of material fact exists regarding PennyMac’s standing to foreclose, we reverse.


On September 27, 2005, Mr. Houk executed a note for $584,800 in favor of Cherry Creek Mortgage Co., Inc. Mr. Houk and his wife executed a mortgage on real property in Lee County to secure payment of the note on the same day. A stamp with a signature appearing on a copy of the note indicates that Cherry Creek indorsed the note to the order of CitiMortgage.

On January 11, 2008, CitiMortgage filed a two-count complaint against Mr. and Mrs. Houk and other defendants. Count I of the complaint sought the foreclosure of the note and mortgage. Count II requested the reestablishment of the note that CitiMortgage alleged had been lost. In an affidavit of lost note that was subsequently filed in the case, a document control officer for CitiMortgage stated that the note had been lost or destroyed while it was in the possession of the law firm that was responsible for filing the foreclosure action.[1]

On May 20, 2013, CitiMortgage filed an unsworn motion to substitute party plaintiff seeking the substitution of PennyMac as plaintiff. The motion stated, in pertinent part: “Subsequent to the filing of the present action, the underlying note and mortgage were transferred.” A copy of a recorded assignment of mortgage from CitiMortgage to PennyMac was attached to the motion. The circuit court entered an order granting the motion on the same day that it was filed.

After the entry of the order of substitution, PennyMac filed a second amended verified complaint seeking both foreclosure and reestablishment of the lost note. In Count I, PennyMac alleged, in pertinent part:

4. CitiMortgage, Inc. subsequently transferred all rights in the note and mortgage to PennyMac Corp.

5. PennyMac Corp. is entitled to enforce the mortgage and mortgage note pursuant to Florida Statutes § 673.3011(3) as a person not in possession of the instrument who is entitled to enforce the instrument. PennyMac Corp. is entitled to enforce the instrument, but has lost the Mortgage Note pursuant to Florida Statutes § 673.3091.

In paragraph 25 of Count II, PennyMac alleged, in pertinent part: “Plaintiff was in possession of the Note and entitled to enforce it when loss of possession occurred or Plaintiff has been assigned the right to enforce the Note.”

Mr. Houk filed an answer to the second amended complaint. In his answer, Mr. Houk generally denied the material allegations of the complaint. He also raised ten affirmative defenses, including the defense that PennyMac lacked standing and that CitiMortgage lacked standing to enforce the note when it filed the action.

PennyMac filed a motion for summary judgment with supporting affidavits. It subsequently filed an amended motion for summary judgment. In its motion, PennyMac sought both foreclosure of the mortgage and reestablishment of the note. On February 25, 2015, the circuit court held a hearing on the amended motion for summary judgment. There is no transcript of this hearing, and the parties have not prepared a statement of the proceedings in accordance with Florida Rule of Appellate Procedure 9.200(b)(4). At the conclusion of the hearing, the circuit court entered a final judgment of foreclosure. Strangely, the final judgment does not include a provision reestablishing the lost note. Mr. Houk filed a motion for rehearing that was denied. This appeal followed.


On appeal, Mr. Houk raises two issues. First, he argues that the circuit court erred in entering the summary judgment because PennyMac failed to refute his affirmative defenses in its amended motion for summary judgment. Second, Mr. Houk contends that the entry of the summary judgment was error because PennyMac failed to establish its standing to foreclose. We need address only Mr. Houk’s second issue.


Before considering the parties’ arguments regarding the issue of standing, it is appropriate to review what PennyMac was required to demonstrate in order to establish its entitlement to enforce the note. PennyMac had to establish that CitiMortgage had standing when the complaint was filed and its own standing when the final judgment was entered. See Lamb v. Nationstar Mortg., LLC, 174 So. 3d 1039, 1040 (Fla. 4th DCA 2015). Section 673.3011, Florida Statutes (2012), addresses the question of how one may qualify as a person entitled to enforce an instrument:

The term “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 s. 673.3091 or s. 673.4181(4).

A person may be a person entitled to enforce the instrument even though the person is not the owner of the instrument or is in wrongful possession of the instrument.

In this case, PennyMac’s claim was that the note had been lost after it had been indorsed by Cherry Creek to the order of CitiMortgage. Therefore, PennyMac had to satisfy the requirements outlined in section 673.3091 in order to prevail. See Federal Nat’l Mortg. Ass’n v. McFadyen, 194 So. 3d 418, 420 (Fla. 3d DCA 2016).

Section 673.3091 provides, in pertinent part, as follows:

(1) A person not in possession of an instrument is entitled to enforce the instrument if:

(a) The person seeking to enforce the instrument was entitled to enforce the instrument when loss of possession occurred, or has directly or indirectly acquired ownership of the instrument from a person who was entitled to enforce the instrument when loss of possession occurred;

(b) The loss of possession was not the result of a transfer by the person or a lawful seizure; and

(c) The person cannot reasonably obtain possession of the instrument because the instrument was destroyed, its whereabouts cannot be determined, or it is in the wrongful possession of an unknown person or a person that cannot be found or is not amenable to service of process.

(2) A person seeking enforcement of an instrument under subsection (1) must prove the terms of the instrument and the person’s right to enforce the instrument. If that proof is made, s. 673.3081 applies to the case as if the person seeking enforcement had produced the instrument.

It was CitiMortgage—not PennyMac—that was entitled to enforce the note when it was lost. Therefore, PennyMac had to establish that it had directly or indirectly acquired ownership of the note from CitiMortgage. See § 673.3091(1).

In the Lamb case, the Fourth District outlined what a substituted plaintiff seeking to enforce an instrument indorsed to the original plaintiff must establish as follows:

“When specially indorsed, an instrument becomes payable to the identified person and may be negotiated only by the indorsement of that person.” § 673.2051(1), Fla. Stat. (2013). Where a bank is seeking to enforce a note which is specially indorsed to another, it may prove standing ” `through evidence of a valid assignment, proof of purchase of the debt, or evidence of an effective transfer.’” Stone v. BankUnited, 115 So. 3d 411, 413 (Fla. 2d DCA 2013) (quoting BAC Funding Consortium Inc. ISAOA/ATIMA v. Jean-Jacques, 28 So. 3d 936, 939 (Fla. 2d DCA 2010)); see also Hunter v. Aurora Loan Servs., LLC, 137 So. 3d 570, 573 (Fla. 1st DCA), review denied, 157 So. 3d 1040 (Fla. 2014); Dixon [v. Express Equity Lending Grp., LLLP], 125 So. 3d [965, 967 (Fla. 4th DCA 2013)] (“`[T]he plaintiff must submit the note bearing a special [i]ndorsement in favor of the plaintiff, an assignment from payee to the plaintiff or an affidavit of ownership proving its status as holder of the note.’”) (quoting Rigby v. Wells Fargo Bank, N.A., 84 So. 3d 1195, 1196 (Fla. 4th DCA 2012)). “A witness who testifies at trial as to the date a bank became the owner of the note can serve the same purpose as an affidavit of ownership.” Sosa v. U.S. Bank Nat’l Ass’n, 153 So. 3d 950, 951 (Fla. 4th DCA 2014).

Lamb, 174 So. 3d at 1040-41. With these principles in mind, we turn to the parties’ arguments about whether PennyMac established the nonexistence of a material fact about its entitlement to enforce the note.


A. Introduction

Mr. Houk concedes that the affidavit of lost note with the copy of the note attached was sufficient to establish CitiMortgage’s entitlement to enforce the note when the complaint was filed. Instead, Mr. Houk contends that PennyMac failed to establish its entitlement to enforce the note at the time of the entry of the summary judgment of foreclosure. In response to Mr. Houk’s challenge to its entitlement to enforce the note, PennyMac raises five arguments. First, the absence of a transcript of the hearing on the motion for summary judgment “demands affirmance.” Second, the order substituting PennyMac as the party plaintiff was sufficient to give it standing to enforce the lost note. Third, the assignment of mortgage was sufficient to establish its standing to foreclose. Fourth, the allegations of the motion to substitute and the verified second amended complaint were sufficient to establish its entitlement to enforce the lost note. Finally, PennyMac had standing to foreclose as the servicer of the loan. We will consider PennyMac’s arguments separately below.

B. The Absence of a Transcript

PennyMac correctly notes that the record on appeal does not include a transcript of the hearing on the amended motion for summary judgment or a statement of the proceedings prepared in accordance with Florida Rule of Appellate Procedure 9.200(b)(4). “However, hearing transcripts ordinarily are not necessary for appellate review of a summary judgment.” Shahar v. Green Tree Servicing LLC, 125 So. 3d 251, 254 (Fla. 4th DCA 2013). We join the Fourth District in agreeing with the Third District, which has addressed this question as follows:

It is the burden of the appellant to bring up a proper record for consideration of the issues presented on appeal. Where the appeal is from a summary judgment, the appellant must bring up the summary judgment record, that is, the motion, supporting and opposing papers, and other matters of record which were pertinent to the summary judgment motion. Those are the portions of the record essential to a determination whether summary judgment was properly entered. However, the hearing on a motion for summary judgment consists of the legal argument of counsel, not the taking of evidence. Consequently, it is not necessary to procure a transcript of the summary judgment hearing, although it is permissible and often helpful to do so.

Seal Prods. v. Mansfield, 705 So. 2d 973, 975 (Fla. 3d DCA 1998) (citations omitted); see also Inglis v. Casselberry, 200 So. 3d 206, 212 (Fla. 2d DCA 2016) (citing Mansfield for the foregoing proposition with approval).

In this case, the record includes the operative complaint, Mr. Houk’s answer and affirmative defenses, the motion and the order for substitution of the plaintiff, the amended motion for summary judgment, and the supporting and opposing affidavits, including the affidavit of lost note. Thus we have all of the portions of the record necessary for us to determine whether the summary judgment was properly entered. Under these circumstances, a transcript of the hearing on the motion for summary judgment is not critical to a determination of this appeal.

C. The Sufficiency of the Order of Substitution

PennyMac asserts that it “became entitled to enforce the lost note when it was substituted as party plaintiff.” According to PennyMac, its standing derives from CitiMortgage, the holder of the note when it was lost or destroyed.

Mr. Houk concedes that CitiMortgage had standing to enforce the note when it filed the original complaint. But PennyMac also had to establish its standing to enforce the note at the time of the entry of judgment. See Russell v. Aurora Loan Servs., LLC, 163 So. 3d 639, 642 (Fla. 2d DCA 2015). Here, the lost note had been specially indorsed to CitiMortgage. In order to establish its entitlement to enforce the lost note, PennyMac could establish standing “through evidence of a valid assignment, proof of purchase of the debt, or evidence of an effective transfer.” BAC Funding Consortium, 28 So. 3d at 939. PennyMac’s filings in support of its motion for summary judgment did not present evidence of any of these things. In the absence of such evidence, the order of substitution standing alone was ineffective to establish PennyMac’s entitlement to enforce the lost note. See Geweye v. Ventures Trust 2013-I-H-R, 189 So. 3d 231, 233 (Fla. 2d DCA 2016); Creadon v. U.S. Bank, N.A., 166 So. 3d 952, 953-54 (Fla. 2d DCA 2015); Sandefur v. RVS Capital, LLC, 183 So. 3d 1258, 1260 (Fla. 4th DCA 2016); Lamb, 174 So. 3d at 1040-41.

In support of its argument that it has standing to enforce the lost note derived from CitiMortgage through the order of substitution, PennyMac relies on the decision in Brandenburg v. Residential Credit Solutions, Inc., 137 So. 3d 604 (Fla. 4th DCA 2014). We find the decision in Brandenburg to be distinguishable because its facts are substantially different from the facts in this case. In Brandenburg, the Fourth District affirmed a final judgment of foreclosure in favor of Residential Credit Solutions, Inc. (RTS). Id. at 606. The original plaintiff in the action and prior holder of the note was Amtrust Bank (Amtrust). Id. at 605. During the course of the litigation, RTS was substituted as the party plaintiff in place of Amtrust. Id. The issue before the Fourth District in Brandenburg was whether Amtrust had standing at the inception of the foreclosure action. Id. The Fourth District concluded that the evidence established that Amtrust had standing to foreclose when it filed the complaint. Id. at 605-06. In affirming the final summary judgment of foreclosure, the Fourth District specifically noted that RTS had standing because it had “acquired the note and mortgage from the prior holder.” Id. at 605. In Brandenburg, it was RTS’s acquisition of the note and mortgage from the prior holder—coupled with the order substituting it as party plaintiff—that enabled RTS to pursue the foreclosure to judgment. In the case before us, PennyMac failed to make a sufficient showing that it had acquired the note from the prior holder, CitiMortgage. Thus, unlike in Brandenburg, the order of substitution was unavailing to give PennyMac standing to enforce the note. It follows that PennyMac’s reliance on Brandenburg is misplaced.

D. The Assignment of Mortgage

PennyMac relies on the copy of the recorded assignment of mortgage that was attached to its motion to substitute plaintiff as being sufficient to establish its standing. According to PennyMac, “[t]he assignment of mortgage showed the mortgage was assigned `with all rights due or to become due thereon.’ This would include monies owed on the note. See § 701.01, Fla. Stat. [(2012)].” This argument falls short of the mark for several reasons.

First, the assignment transferred only the mortgage, not the note. “The mortgage follows the assignment of the promissory note, but an assignment of the mortgage without an assignment of the debt creates no right in the assignee.” Tilus v. AS Michai LLC, 161 So. 3d 1284, 1286 (Fla. 4th DCA 2015) (citing Bristol v. Wells Fargo Bank, Nat’l Ass’n, 137 So. 3d 1130, 1133 (Fla. 4th DCA 2014)). PennyMac did not acquire standing to foreclose based on an assignment of only the mortgage. See Eaddy v. Bank of America, N.A., 197 So. 3d 1278, 1280 (Fla. 2d DCA 2016); Caballero v. U.S. Bank Nat’l Ass’n ex rel. RASC 2006-EMX7, 189 So. 3d 1044, 1046 (Fla. 2d DCA 2016); Geweye, 189 So. 3d at 233; Lamb, 174 So. 3d at 1041.

Second, the only evidence of the assignment of the mortgage was the copy attached to the unsworn motion for substitution. Mr. Houk’s pleadings did not admit the genuineness of the assignment. The copy of the assignment was not a certified copy, and none of the affidavits filed by PennyMac attested to the authenticity of the document. “Merely attaching documents which are not `sworn to or certified’ to a motion for summary judgment does not, without more, satisfy the procedural strictures inherent in [Florida Rule of Civil Procedure] 1.510(e).” Bifulco v. State Farm Mut. Auto. Ins. Co., 693 So. 2d 707, 709 (Fla. 4th DCA 1997). In the absence of an admission or appropriate proof of the authenticity of the assignment, it could not properly be considered as evidence in support of PennyMac’s amended motion for summary judgment. See DiSalvo v. SunTrust Mortg., Inc., 115 So. 3d 438, 439-40 (Fla. 2d DCA 2013); Bryson v. Branch Banking & Trust Co., 75 So. 3d 783, 786 (Fla. 2d DCA 2011); Toyos v. Helm Bank, USA, 187 So. 3d 1287, 1290 (Fla. 4th DCA 2016); Rodriguez v. Tri-Square Const., Inc., 635 So. 2d 125, 126-27 (Fla. 3d DCA 1994).

E. The Motion to Substitute and the Verified Complaint

PennyMac points out that “[b]oth the motion to substitute plaintiff and the verified [second] amended complaint stated CitiMortgage transferred its interest in the note and mortgage to PennyMac.” PennyMac contends that the allegations in these papers were sufficient to establish its entitlement to enforce the lost note. We disagree for several reasons.

First, the motion to substitute was unsworn. Therefore, it was plainly insufficient as a basis for supporting a motion for summary judgment. See Fla. R. Civ. P. 1.510(e). However, PennyMac’s second amended complaint was verified. With regard to the sufficiency of a verified complaint to support a motion for summary judgment, this court has said:

We acknowledge that “[a] verified complaint may serve the same purpose as an affidavit supporting or opposing a motion for summary judgment.” “However, in order to be so considered, the allegations of the verified complaint must meet the requirements of the rule governing supporting and opposing affidavits.” Rule 1.510(e), in turn, provides that affidavits must be based on personal knowledge and shall “show affirmatively that the affiant is competent to testify to the matters stated therein.” A verification which is improperly based on information and belief is insufficient to entitle the verifying party to relief because the verification is qualified in nature.

Ballinger v. Bay Gulf Credit Union, 51 So. 3d 528, 529 (Fla. 2d DCA 2010) (citations omitted). In this case, the verification of the complaint in accordance with Florida Rule of Civil Procedure 1.110(b) stated: “Under penalty of perjury, I declare that I have read the foregoing, and the facts alleged therein are true and correct to the best of my knowledge and belief.” Where, as in this case, a verification of a complaint is based on knowledge and belief and fails to show that the affiant had personal knowledge of the matters stated in the complaint, the trial court cannot consider the verified complaint as a basis for the entry of summary judgment. See Ballinger, 51 So. 3d at 530; Colon v. JP Morgan Chase Bank, N.A., 162 So. 3d 195, 199 (Fla. 5th DCA 2015); see also Lindgren v. Deutsche Bank Nat’l Trust Co., 115 So. 3d 1076, 1076 (Fla. 4th DCA 2013) (finding a verification based on “information and belief” to be insufficient for purposes of summary judgment).

Second, the allegations of the second amended complaint regarding PennyMac’s standing to enforce the note were conclusory in nature. The pertinent allegations did not state any facts regarding PennyMac’s claim that CitiMortgage had “transferred all rights in the note and mortgage to PennyMac Corp.” This conclusory statement was insufficient to sustain PennyMac’s burden for summary judgment. See Jones Constr. Co. of Cent. Fla., Inc. v. Fla. Workers’ Comp. JUA, Inc., 793 So. 2d 978, 980 (Fla. 2d DCA 2001) (holding that an affidavit containing “only conclusory statements of ultimate fact [was] insufficient to sustain the movant’s burden of demonstrating the absence of any genuine issue of material fact”); Seinfeld v. Commercial Bank & Trust Co., 405 So. 2d 1039, 1041 (Fla. 3d DCA 1981) (stating that general statements in an affidavit, which are framed only in conclusions of law, do not satisfy the movant’s burden on a motion for summary judgment).

Third, the allegations of the second amended complaint regarding PennyMac’s claim to entitlement to enforce the note are in hopeless conflict with one of the affidavits that PennyMac itself filed in support of its amended motion for summary judgment. PennyMac filed an Affidavit of Indebtedness sworn to by a “default specialist” for PennyMac Loan Services, LLC, the alleged servicer of the loan for PennyMac. In this affidavit, the default specialist stated that PennyMac “is the holder of said Note and Mortgage.”[2] Thus PennyMac’s own affidavit undercut and contradicted the theory advanced in the complaint that it qualified under section 673.3011(3) as a person not in possession of the instrument who is entitled to enforce the instrument pursuant to section 673.3091. Unquestionably, PennyMac could not meet its burden to establish the nonexistence of a material fact regarding its standing when the affidavit that it filed in support of its motion was in express and irreconcilable conflict with the theory of standing alleged in its operative complaint.

F. Standing as the Loan Servicer

Finally, PennyMac asserts that it “had standing as the loan servicer.” This argument is without merit. We recognize that “[a] servicer that is not the holder of the note may have standing to commence a foreclosure action on behalf of the real party in interest, but it must present evidence, such as an affidavit or a pooling and servicing agreement, demonstrating that the real party in interest granted the servicer authority to enforce the note.” Rodriguez v. Wells Fargo Bank, N.A., 178 So. 3d 62, 63 (Fla. 4th DCA 2015) (citing Elston/Leetsdale, LLC v. CWCapital Asset Mgmt. LLC, 87 So. 3d 14, 17 (Fla. 4th DCA 2012)). But in this case, two of the affidavits filed in support of the amended motion for summary judgment recite that the servicer for Mr. Houk’s loan is PennyMac Loan Services, LLC, not the plaintiff, PennyMac Corp. In making the argument about its purported standing as the loan servicer, PennyMac seems to have forgotten or ignored its own affidavits.


For the foregoing reasons, PennyMac failed to meet its burden of showing the nonexistence of a genuine issue of material fact regarding its entitlement to enforce the lost note. Accordingly, we reverse the final summary judgment of foreclosure and remand this case to the circuit court for further proceedings.

Reversed and remanded.



[1] Counsel for PennyMac had no involvement in the loss of the note.

[2] Because the note had been lost long before the alleged transfer from CitiMortgage, it would be a physical impossibility for PennyMac to be a holder of the note. “`Holder’ means: (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. . . .” § 671.201(21)(a), Fla. Stat. (2012). “To hold a note under the Uniform Commercial Code ordinarily connotes possession of the document itself.” Phan v. Deutsche Bank Nat’l Trust Co., ex rel. First Franklin Mortg. Loan Trust 2006-FF11, 198 So. 3d 744, 747 (Fla. 2d DCA 2016).


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