En Banc Fla 4th DCA Delivers Blow to PennyMac Foreclosure Model

In a highly unusual turn of events, the Per Curium opinion overturning the trial court’s dismissal was overturned on Motion for Rehearing en banc — including all the 4th DCA judges.

Changing its course, the full court of the 4th DCA corrected the erroneous unanimous decision of the same court, which held that proof of the validity of the indorsement is not required, reversing the trial court’s involuntary dismissal.

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The issue at its core is very simple. Is there a creditor to stand up before the court and say that they are entitled to enforce the alleged obligation under the putative note? The answer in most of the foreclosure cases is a resounding “NO.”
This was identified in 2007 in  Fordham Law review article entitled “Will the Real Holder in Due Course Please Stand Up”. The issue was obvious: if the parties to the foreclosure were merely being used as sham conduits then it followed that (a) the foreclosure could not proceed and should not proceed and (b) that someone somewhere was the real creditor, raising an extreme moral hazard where the foreclosing parties were denigrating the collateral and eliminating the protections that the creditor expected in the form of a true note and true mortgage.
The banks have been hugely successful in getting courts to rule based upon inferences and presumptions without proving their right to foreclose. But by reversing the burden of proof homeowners have been required to try and prove a negative when it is third parties, unrelated to the foreclosure, who actually have the evidence that would show that the so-called “chain” was nothing but an illusion.
The burden of persuasion, in both judicial and non-judicial actions should be on the party seeking foreclosure. In practice in non-judicial states that virtually never happens. In judicial states where the party filing the lawsuit is the party seeking foreclosure, it has been an uphill battle to convince judges that the burden is on the pleader to prove its allegations and its implied allegations contained on its exhibits, like an indorsed note.
Here the 4th DCA, en banc, ruled that “a ‘blank indorsement’ must be ‘made by the holder'” citing §673.2011(2), Fla. Stat. (2015) and § 673.2051(2), Fla. Stat. (2015. Translated into common language they are saying that a real creditor must be present and not presumed. “To prove standing as a non-holder in possession with the rights of a holder, the plaintiff must prove the chain of transfers starting with the first holder of the note.” Hence the vague “we have the note”, is insufficient to prove standing unless the foreclosing party proves that it is the original lender, or proves that it is the holder acting on behalf of the original lender, or that it is a possessor acting on behalf of the original lender or on behalf of a holder. Nothing less will do.
PRACTICE NOTE: This might have a negative impact on homeowners’ recovery of attorney fees, since the answer in many cases where the judge found the existence of a “holder with rights to enforce” was mistaken. The Alexander case indicates (erroneously in my view) that fees tart when the foreclosing party had standing, and not when the foreclosure case started. If the party never had standing, which under this decision is going to be the case in all cases in the 4th DCA, then fees never start accruing even upon the homeowner winning the case solidly. If the court limits its ruling to lack of standing (even though there were several other grounds upon which the homeowner prevailed) then by implication the plaintiff was never party to the loan contract. Hence the provision of the loan contract awarding fees and the statute §57.105 Fla Stat. (2015) making such a provision reciprocal would never have any effect. Hence an operation like PennyMac which presumptively has no legal or economic interest in the loan other than its fee for enforcing, goes into litigation and wins fees if it wins the case but is not liable for fees if it loses because it was trying to commit a fraud upon the court.
The implication of this ruling, when you think about it, is probably that objections to discovery based upon privacy or proprietary information may well be over-ruled, or if not, overturned by 4th DCA. Or in lay terms, you can’t come into court saying that you are acting for the creditor without proving it; and the corollary to that is you can’t come into court hiding the creditor for whom it is implied that you are seeking foreclosure. As pointed out in dozens of case decisions, any ruling to the contrary would (and did) initiate a new industry of stealing receivables, collecting, and then leaving the real creditor and the debtor in a kind of legal purgatory.
You can’t prove it without disclosing the creditor and the proof that the creditor has delegated the task of foreclosing to the third party who is bringing the foreclosure.
But the 4th DCA went further. Using a reference from §673.3081(1), Fla. Stat. (2015), the court states quite emphatically that “the issue of whether a signature on an indorsement is “authentic and authorized” is a separate questions from the legal effect of the indorsement. Stated another way, the presumption that a signature on an indorsement is “authentic and authorized” does not mean we must presume that JP Morgan was a holder of the note or that JP Morgan’s indorsement negotiated the note. To the contrary, the note on its face demonstrates that JP Morgan’s indorsement was an anomalous indorsement rather than a blank indorsement.” Translation: just because you signed something doesn’t mean anything legal actually occurred.
The door was slammed shut on the basic strategy of the banks, whose entire case depends upon presumptions and inferences. They were using §673.3081(1), Fla. Stat. (2015), which says that a signature on an instrument is generally “presumed to be authentic and authorized.”
But they didn’t take the last step which would have been to say that given the widespread and commonly known issues with fabricated, forged and robo-signed documents, no presumptions should arise because the party proffering them has a pattern of untrustworthy behavior. Maybe that will be later.

3 Responses

  1. I encourage everyone that lives in the state of Florida call you legislation we need foreclosure laws that don’t hurt us an our attorney,’s. Judge’s have run amok.
    They believe we are deadbeats which we knew is not true. We need to confront them but judges do not have the judicial power to let them foreclose on us for 35 years, not give our lawyers fees if there is fraud the plaintiff should always pay, and they shouldn’t be able to foreclose if the banks coerced homeowners into foreclosure. YoU don’t get a house if you live to get it sorry. Please everyone call make those appt. They are in session now. So call Tallahassee# . Them then if you can you will speak at committee meeting. We need to step this up. Before another family loses their home

  2. So what does this mean that kid thousands of pending foreclosures in the state of Florida? So we are not “show me the note state” anymore? It is not mentioned about the signatures being stamps. It is not mentioned how they price standing?

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