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There seems to be confusion about what is necessary to file a foreclosure. To start with the basics, the debt is created when the borrower receives the funds or when the funds are disbursed for the benefit of the borrower. This requires no documentation. The receipt of funds presumptively implies a loan that is a demand loan. The source of funding is the creditor and the borrower is the debtor. The promissory note is EVIDENCE of the debt and contains the terms of repayment. In residential loan transactions it changes the terms from a demand loan to a term loan with periodic payments.
But without the debt, the note is worthless — unless the note gets into the hands of a party who claims status as a holder in due course. In that case the debt doesn’t exist but the liability to pay under the terms of the note can be enforced anyway. In foreclosure litigation based upon paper where there are claims or evidence of securitization, there are virtually all cases in which the “holder” of the note seeks enforcement, it does NOT allege the status of holder in due course. To the contrary, many cases contain an admission that the note doesn’t exist because it was lost or destroyed.
The lender is the party who loans the money to the borrower. The lender can bring suit against the borrower for failure to pay and receive a money judgment that can be enforced against income or non-exempt property of the borrower by writ of garnishment or attachment. There is no limit to the borrower’s defenses and counterclaims against the lender, assuming they are based on facts that show improper conduct by the lender. The contest does NOT require anything in writing. If the party seeking to enforce the debt wishes to rely on a note as evidence of the debt, their claim about the validity of the note as evidence or as information containing the terms of repayment may be contested by the borrower.
If the note is transferred by endorsement and delivery, the transferee can enforce the note under most circumstances. But the transferee of the note takes the note subject to all defenses of the borrower. So if the borrower says that the loan never happened or denies it in his answer the lender and its successors must prove the loan actually took place. This is true in all cases EXCEPT situations where the transferee purchases the note for value, gets delivery and endorsement, and is acting in good faith without knowledge of the borrower’s defenses (UCC refers to this as a holder in due course). The borrower who signs a note without receiving the consideration of the loan is taking the risk that he or she has created a debt or liability if the eventual transferee claims to be a holder in due course. Further information on the creation and transfer of notes as negotiable paper is contained in Article 3 of the Uniform Commercial Code (UCC).
Thus the questions about enforceability of the note or recovery on the debt are fairly well settled. The question is what happens in the case where collateral for the loan secures the performance required under the note. This is done with a security instrument which in real property transactions is a mortgage or deed of trust. This is a separate contract between the lender and the borrower. It says that if the borrower does not pay or fails to pay taxes, maintain the property, insure the property etc., the lender may foreclose and the borrower will forfeit the collateral. This suit is an action to enforce the security instrument (mortgage, deed of trust etc.) seeking to foreclose all claims inferior to the rights of the lender established when the mortgage or deed of trust was recorded.
The mortgage is a contract that does not qualify as a negotiable instrument and so is not covered by Article 3 of the UCC. It is covered by Article 9 of the UCC (Secured Transactions). The general rule is that a party who purchases the mortgage instrument for value in good faith and without knowledge of the borrower’s defenses may enforce the mortgage if the contract is breached by the borrower. This coincides with the requirement that the holder of the mortgage must also be a holder in due course of the note — if the breach consists of failure to pay under the terms of the note. Any party may assign their rights under a contract unless the contract itself says that it is not assignable or assignment is barred by statute or administrative rules.
The “assignment” of the mortgage or deed of trust is generally taken to be an instrument of conveyance. But forfeiture of collateral, particularly one’s home, is considered to be a much more severe remedy against the borrower than a money judgment for economic loss caused by breach of the borrower in making payments on a legitimate debt. So the statute (Article 9, UCC) requires that the assignment be the result of an actual transaction in which the mortgage is purchased for value. The confusion that erupts here is that no reasonable person would merely purchase a mortgage which is not really an asset deriving its value from a borrower’s promise to pay. That asset is the note.
So if the note is purchased for value, and assuming the purchaser receives delivery and endorsement of the note, as a holder in due course there is no question that the mortgage assignment is valid and enforceable by the assignee. The problems that have emerged is when, if ever, any value was paid to anyone in the “chain” on either the note or the mortgage. If no value was paid then the note might be enforceable subject to borrower’s defenses but the mortgage cannot be enforced. Additional issues emerge where the “proof” (often fabricated robo-signed documents) imply through hearsay that the note was the subject of a transaction at a different time than the date on the assignment. Denial and/or discovery would reveal the fraud upon the Court here — assuming you can persuasively argue that the production of evidence is required.
Another interesting question comes up when you seen the language of endorsement on the mortgage. This might be seen as splitting hairs, but I think it is more than that. To assign a mortgage in form that would ordinarily be accepted in general commerce — and in particular by banks — the assignment would be in the form that recites the ownership of the mortgage and the intention to convey it and on what terms. Instead, many cases show that there is an additional page stapled to the mortgage which contains only the endorsement to a particular party or blank endorsement. The endorsement is not recordable whereas a facially valid assignment is recordable.
The attachment of the last page could mean nothing was conveyed or that it was accidentally done in addition to a proper assignment. But I have seen several cases where the only evidence of assignment was a stamped endorsement, undated, in which there was no assignment. This appears to be designed to confuse the Judge who might be encouraged to apply the rules of transfer of the note to the circumstances of transfer of the mortgage. This smoke and mirrors approach often results in a foreclosure judgment in favor of a party who has paid nothing for the debt, note or mortgage. It leaves the actual lender out in the cold without a note or mortgage which they should have received.
It is these and other factors which have resulted in trial and appellate decisions that appear to be in conflict with each other. Currently in Florida the Supreme Court is deciding whether to issue an opinion on whether the assignment after the lawsuit has begun cures jurisdictional standing. The standing rule in Florida is that if you don’t own the mortgage at the time you declare a default, acceleration and sue, then those actions are essentially void.
Valid assignment is necessary for the plaintiff to have standing in a foreclosure case. (David E. Peterson, Cracking the Mortgage Assignment Shell Game, The Florida Bar Journal, Volume 85, No. 9, November, 2011, page 18).
In BAC Funding Consortium v. Jean-Jeans and US Bank National Association, the Second District of Florida reversed summary judgment for a foreclosure for bank because there was no evidence that the bank validly held the note and mortgage. BAC Funding Consortium Inc. ISAOA/ATIMA v. Jean-Jacques 28 So.2d, 936.
BAC has been negatively distinguished by two cases:
- Riggs v. Aurora Loan Services, LLC, 36 So.3d 932, (Fla.App. 4 Dist.,2010) was distinguished from BAC, because in BAC the bank did not file an affidavits that the mortgage was properly assigned; in Riggs they did. The 4th District held that the “company’s possession of original note, indorsed in blank, established company’s status as lawful holder of note, entitled to enforce its terms.” [Editor’s note: The appellate court might have erred here. The enforcement of the note and the enforcement of the mortgage are two different things as described above].
- Dage v. Deutsche Bank Nat. Trust Co., 95 So.3d 1021, (Fla.App. 2 Dist.,2012) was distinguished from BAC, because in Dage, the homeowners waited two years to challenge the foreclosure judgment on the grounds that the bank lacked standing due to invalid assignment of mortgage. The court held that a lack of standing is merely voidable, not void, and the homeowners had to challenge the ruling in a timely manner. [Editor’s note: Jurisdiction is normally construed as something that cannot be invoked at a later time. It can even be invoked for the first time on appeal.]
In his article, “Cracking the Mortgage Assignment Shell Game,” Peterson in on the side of the banks and plaintiffs in foreclosure cases, but his section “Who Has Standing to Foreclosure the Mortgage?” is full of valuable insights about when a case can be dismissed based on invalid assignment. Instead of reinventing the wheel, I’ve copied and pasted the section below:
It should come as no surprise that the holder of the promissory note has standing to maintain a foreclosure action.34 Further, an agent for the holder can sue to foreclose.35 The holder of a collateral assignment has sufficient standing to foreclose.36 [Editor’s note: Here again we see the leap of faith that just because someone might have standing to sue on the note, they automatically have standing to sue on the mortgage, even if no value was paid for either the note or the mortgage].
Failure to file the original promissory note or offer evidence of standing might preclude summary judgment.37 Even when the plaintiff files the original, it might be necessary to offer additional evidence to show that the plaintiff is the holder or has rights as a nonholder. In BAC Funding Consortium, Inc. v. Jean-Jacques, 28 So. 3d 936 (Fla. 2d DCA 2010), for example, the court reversed a summary judgment of foreclosure, saying the plaintiff had not proven it held the note. The written assignment was incomplete and unsigned. The plaintiff filed the original note, which showed an indorsement to another person, but no indorsement to the plaintiff. The court found that was insufficient. Clearly, a party in possession of a note indorsed to another is not a “holder,” but recall that Johns v. Gillian holds that a written assignment is not needed to show standing when the transferee receives delivery of the note. The court’s ruling in BAC Funding Consortium was based on the heavy burden required for summary judgment. The court said the plaintiff did not offer an affidavit or deposition proving it held the note and suggested that “proof of purchase of the debt, or evidence of an effective transfer” might substitute for an assignment.38 [e.s.]
In Jeff-Ray Corp. v. Jacobson, 566 So. 2d 885 (Fla. 4th DCA 1990), the court held that an assignment executed after the filing of the foreclosure case was not sufficient to show the plaintiff had standing at the time the complaint was filed. In WM Specialty Mortgage, LLC v. Salomon, 874 So. 2d 680 (Fla. 4th DCA 2004), however, the court distinguished Jeff-Ray Corp., stating that the execution date of the written assignment was less significant when the plaintiff could show that it acquired the mortgage before filing the foreclosure without a written assignment, as permitted by Johns v. Gilliam.39
When the note is lost, a document trail showing ownership is important. The burden in BAC Funding Consortium might be discharged by an affidavit confirming that the note was sold to the plaintiff prior to foreclosure. Corroboratory evidence of sale documents or payment of consideration is icing on the cake, but probably not needed absent doubt over the plaintiff’s rights. If doubt remains, indemnity can be required if needed to protect the mortgagor.40 [e.s.] 34 Philogene v. ABN AMRO Mortgage Group, Inc., 948 So. 2d 45 (Fla. 4th D.C.A. 2006); Fla. Stat. §673.3011(1) (2010).
35 Juega v. Davidson, 8 So. 3d 488 (Fla. 3d D.C.A. 2009); Mortgage Electronic Registration Systems, Inc. v. Revoredo, 955 So. 2d 33, 34, fn. 2 (Fla. 3d D.C.A. 2007) (stating that MERS was holder, but not owner and “We simply don’t think that this makes any difference. See Fla. R.Civ. P. 1.210(a) (action may be prosecuted in name of authorized person without joining party for whose benefit action is brought)”). [Editor’s note: This is an example of judicial ignorance of what is really happening. MERS is a conduit, a naked nominee, whose existence is meaningless, as is its records of transfer or ownership of the the debt, the note or the mortgage]
36 Laing v. Gainey Builders, Inc., 184 So. 2d 897 (Fla. 5th D.C.A. 1966) (collateral assignee was a holder); Cullison v. Dees, 90 So. 2d 620 (Fla. 1956) (same, except involving validity of payments rather than standing to foreclose).
37 See Fla. Stat. §673.3091(2) (2010); Servedio v. US Bank Nat. Ass’n, 46 So. 3d 1105 (Fla. 4th D.C.A. 2010).
38 BAC Funding Consortium, Inc. v. Jean-Jacques, 28 So. 3d at 938-939 (Fla. 2d D.C.A. 2010). See also Verizzo v. Bank of New York, 28 So. 3d 976 (Fla. 2d D.C.A. 2010) (Bank filed original note, but indorsement was to a different bank). But see Lizio v. McCullom, 36 So. 3d 927 (Fla. 4th D.C.A. 2010) (possession of note is prima facie evidence of ownership). [Editor’s note: this is the nub of the problems in foreclosure litigation. The law requires purchase for value for ownership, along with other criteria described above. This court’s conclusion places an unfair burden of proof on the borrower. The party with the sole care, custody and control of the actual evidence and information about the transfer or sale of the ndebt, note or mortgage is the Plaintiff. The plaintiff should therefore be required to show the details of the transaction in which the debt, note or mortgage was acquired. To me, that means showing a cancelled check or wire transfer receipt in which the reference was to the loan in dispute. Anything less than that raises questions about whether the loan implied by the note and mortgage ever existed. See my previous articles regarding securitization where the actual loan was actually applied from third party funds. hence the originator, who did not loan any money, was never paid for note or mortgage because consideration from a third party had already passed.]
39 See also Glynn v. First Union Nat. Bank, 912 So. 2d 357 (Fla. 4th D.C.A. 2005), rev. den., 933 So. 2d 521 (Fla. 2006) (note transferred before lawsuit, even though assignment was after). [Editor’s note: if the note and mortgage were in fact transfered for actual value (with proof of payment) then a “late” assignment might properly be categorized as a clerical issue rather than a legal one — because the substance of the transaction actually took place long before the assignment was executed and recorded. But the cautionary remark here is that in all probability, nobody who relies upon the “Chain” ever paid anything but fees to their predecessor. Why would they? If the consideration already passed from third party — i.e., pension fund money — why would the originator or any successor be entitled to demand the value of the note and mortgage? The originator in that scenario is neither the lender nor the owner of the debt and therefore should be given no rights under the note and mortgage, where title was diverted from the third party who DID the the loan to the originator who did NOT fund the loan. 40 Fla. Stat. §673.3091(2) (2010); Fla. Stat. §69.061 (2010).-David E. Peterson, “Cracking the Mortgage Assignment Shell Game”, The Florida Bar Journal, Volume 85, No. 9, November, 2011.
I also came across a blog post from another attorney on how to argue Florida assignments of judges. I don’t know how reliable this is, but it does cite several cases, and may be a useful resource to you: http://discoverytactics.wordpress.com/tactics-strategies/how-to-argue-florida-assignments-to-judges/. Someone also posted the content of the above link verbatim in a comment on my blog at https://livinglies.wordpress.com/foreclosure-defense-forms/people-players-and-resources/state-laws/florida-laws/.
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