The U.S. Justice Department will decide in the next few months whether it will sue Moody’s Corp. for allegedly inflating ratings on mortgage bonds at the heart of the 2008 financial meltdown, according to people familiar with the matter.
The multiyearinquiry into Moody’s is among the remaining live investigations into the mortgage lenders, Wall Street banks and ratings firms that the government has sought to hold accountable for the subprime crisis. A year ago, ratings company Standard & Poor’s, a unit of McGraw Hill Financial Inc., paid $1.5 billion to resolve allegations that it had inflated mortgage-bond ratings to gain business during the housing boom.
Any case against Moody’s would be smaller than the one against S&P because the pool of Moody’s-rated securities at issue is smaller, one of the people said.
District Court of Appeal of Florida, First District.
Opinion filed February 23, 2016.
Steven Copus of Copus & Copus, P.A., Shalimar; George M. Gingo and James Orth of Gingo & Orth, P.A., Titusville, for Appellant.
Mary J. Walter of Liebler, Gonzalez & Portuondo, Miami, for Appellee.
LEWIS, J.
Appellant, Prapapun Kyser, appeals the Final Judgment for Foreclosure entered in favor of Appellee, Bank of America, N.A., arguing that Appellee lacked standing to bring the foreclosure action against her pursuant to a mortgage where Countrywide Home Loans, Inc. was the lender. We agree and, therefore, reverse.
We review the sufficiency of the evidence to prove standing to bring a foreclosure action de novo. Pennington v. Ocwen Loan Servicing, LLC, 151 So. 3d 52, 53 (Fla. 1st DCA 2014). A plaintiff who is not the original lender may establish standing to foreclose by submitting a note with a blank or special endorsement, an assignment of the note, or an affidavit otherwise proving its status as holder of the note. Id. Standing must be established at the time of the filing of the foreclosure action, and a bank must also have standing at the time a final judgment is entered. Id.
In this case, the promissory note attached to the foreclosure complaint did not contain any endorsements. Although Appellee subsequently filed what it represented to be the original mortgage and note and although its witness confirmed during the bench trial that a blank endorsement was included on the back of one of the pages of the note, we have explained, “`Where the plaintiff files the original note after filing suit, an undated blank endorsement on the note is insufficient to prove standing at the time the initial complaint was filed.'” Kelly v. Bank of N.Y. Mellon, 170 So. 3d 145, 146 (Fla. 1st DCA 2015) (citation omitted). When a plaintiff asserts its standing based on an undated endorsement of the note, it has to show that the endorsement occurred before the filing of the complaint through additional evidence, such as the testimony of a litigation analyst. Id. (reversing the foreclosure judgment because the mortgage resolution associate for a prior servicer of the loan at issue, who testified that the appellee was the holder of the note based on her review of the loan servicer’s records, did not establish that the note had been endorsed at the time of the filing of the complaint).
Moreover, while Appellee attached an Assignment of Mortgage to its Complaint, that assignment made no mention or reference to the promissory note. “[A]n assignment of mortgage, even if executed before the foreclosure action commenced, is insufficient to prove standing where the assignment reflects transfer of only the mortgage, not the note.” Tilus v. AS Michai LLC, 161 So. 3d 1284, 1286 (Fla. 4th DCA 2015) (holding that the plaintiff’s documents failed to demonstrate standing to foreclose where the undated blank endorsement on the original note, which was filed over a month after the suit was filed, was insufficient to prove standing and where the assignment reflected only an assignment of the mortgage, not the note); see also Lamb v. Nationstar Mortg., LLC, 174 So. 3d 1039, 1041 (Fla. 4th DCA 2015) (holding that the appellee did not prove its standing to enforce the note through evidence of an assignment because the assignment assigned only the mortgage and noting that while its witness testified that the appellee acquired Aurora, the witness did not testify that the appellee acquired the particular note which bore a special endorsement to Aurora); Bristol v. Wells Fargo Bank, Nat’l Ass’n, 137 So. 3d 1130, 1132-33 (Fla. 4th DCA 2014) (“Here, the bank filed the original note more than two years after the complaint was filed. The note contained an undated, blank indorsement, which was insufficient to prove standing at the time the complaint was filed. . . . The bank relies on the `Assignment of Mortgage’ . . . to support standing, but the `assignment of mortgage reflects transfer of only the mortgage, not the note.'”)(Citation omitted); Lindsey v. Wells Fargo Bank, N.A., 139 So. 3d 903, 906 (Fla. 1st DCA 2013) (reversing the summary judgment entered in favor of the appellee where the original note named Option One, not the appellee, as the lender, the original note was not endorsed in blank or otherwise assigned to the appellee, and the assignment applied only to the mortgage, not the note).
During the bench trial, Appellee’s witness testified on cross-examination that she believed Appellee came into possession of the original mortgage and promissory note in 2005 when the mortgage was executed. Importantly, however, the witness did not know when the blank endorsement was affixed to the note. “[A] plaintiff must prove not only physical possession of the original note but also, if the plaintiff is not the named payee, possession of the original note endorsed in favor of the plaintiff or in blank. . . . If the foreclosure plaintiff is not the original, named payee, the plaintiff must establish that the note was endorsed (either in favor of the original plaintiff or in blank) before the filing of the complaint in order to prove standing as a holder.” Kiefert v. Nationstar Mortg., LLC, 153 So. 3d 351, 353 (Fla. 1st DCA 2014) (holding that the appellee failed to establish that the original plaintiff, Aurora Loan Services, LLC, had standing to foreclose and noting that while the appellants’ counsel pressed the appellee’s witness concerning his knowledge, if any, of when the note had been endorsed, the witness’s “testimony established only that Aurora was in possession of the note at the time the complaint was filed, not that the note had been endorsed at the time the complaint was filed”); see also Sosa v. U.S. Bank Nat’l Ass’n, 153 So. 3d 950, 951-52 (Fla. 4th DCA 2014) (holding that the appellee failed to establish standing to foreclose where the original note and the allonge to the note were filed after the foreclosure complaint and each contained undated special endorsements and where the appellee’s analyst never stated when the appellee became the owner of the note and explaining that “[a]lthough the analyst testified that [the appellee’s servicer] came into possession of the note prior to filing the foreclosure action, such testimony is not dispositive as it is still unclear when [the appellee], through the placement of the special endorsement, became the owner of the note”). Cf. Seidler v. Wells Fargo Bank, N.A., 179 So. 3d 416, 420 (Fla. 1st DCA2015) (explaining that a dated blank endorsement constituted evidence to support a finding that the note became payable to the bearer and thus enforceable via possession alone over two years prior to the filing of the foreclosure complaint); Peuguero v. Bank of Am., N.A., 169 So. 3d 1198, 1203 (Fla. 4th DCA 2015) (holding that the bank established standing to sue and noting that “the witness responded in the affirmative to a cross-examination inquiry as to whether the endorsements on the allonge were `definitely put on before the filing of the complaint'” and that she testified that Countrywide owned and held the note when the complaint was filed and that its policy was to have notes endorsed before foreclosure complaints are filed). While Appellee’s witness also testified that Appellee and Countrywide merged, she gave no testimony that Appellee acquired all or any of Countrywide’s assets. See Fiorito v. JP Morgan Chase Bank, Nat’l Ass’n, 174 So. 3d 519, 521-22 (Fla. 4th DCA 2015) (holding that the appellee failed to establish standing to sue for foreclosure where the bank officer testified that the appellee merged with “WAMU” but never testified that the appellee acquired all of WAMU’s assets).
Accordingly, because Appellee failed to establish that it had standing to file the foreclosure case against Appellant, we reverse the Final Judgment for Foreclosure.
REVERSED.
SWANSON and WINOKUR, JJ., CONCUR.
NOT FINAL UNTIL TIME EXPIRES TO FILE MOTION FOR REHEARING AND DISPOSITION THEREOF IF FILED.
Ocwen Financial reported its fourth quarter and full-year 2015 financial results on Monday morning, and the news wasn’t good.
In fact, it was a parade of bad news for the nonbank.
According to Ocwen’s financial data filed Monday with the Securities and Exchange Commission, the nonbank posted a big loss in 2015, making it the second year in a row that the nonbank took a loss.
And not only did the nonbank take a loss in 2015, it expects to take another in 2016.
According to an article in The Hill a few weeks back, Lloyd Blankfein – head of Goldman Sachs and symbol of Wall Street’s lack of accountability – warned that Bernie Sanders is “dangerous.” Blankfein told CNBC that Sanders is too set in his ways, adding, “It’s a liability [in this anti-Wall Street environment] to say, ‘I’m willing to compromise’… It’s just incredible. It’s a moment in history. Eventually people, the electorate, will notice nothing is getting done.”
At no time did Blankfein, who personally supported Hillary Clinton against Barack Obama in 2008, find fault with Clinton; his alarm is solely focused on the senator from Vermont. He contrasted Sanders with more flexible candidates who are willing to work with Wall Street when he emphasized that a candidate must be “willing to compromise.”
The Sanders campaign – supported by public records – charges that Wall Street donations make up a considerable portion of the Clinton war chest. She is supported by at least one huge Wall Street PAC, and, of course, has made millions of dollars in speaking fees from Wall Street financial firms.
“Everybody does it,” is an excuse expected from a mischievous child, not a presidential candidate. But that is Hillary Clinton’s latest defense for making closed-door, richly paid speeches to big banks, which many middle-class Americans still blame for their economic pain, and then refusing to release the transcripts.
A televised town hall on Tuesday was at least the fourth candidate forum in which Mrs. Clinton was asked about those speeches. Again, she gave a terrible answer, saying that she would release transcripts “if everybody does it, and that includes the Republicans.”
In November, she implied that her paid talks for the Wall Street firms were part of helping them rebuild after the 9/11 attacks, which “was good for the economy and it was a way to rebuke the terrorists.”
Several media news outlets and the DOJ are reporting the indictment of former Morris-Hardwick-Schneider foreclosure mill managing partner Nathan Hardwick IV and one of his sidekicks. Here’s the DOJ Press Release:
It should be noted here that MHS was one of the suspect targets in the OSCEOLA COUNTY FORENSIC EXAMINATION for potential document manufacturing implications.
Former Managing Partner and CFO of Morris, Hardwick, Schneider Law Firm, and Land Castle Title, Indicted for Multi-Million Dollar Embezzlement
ATLANTA – A federal indictment unsealed today charges Nathan E. Hardwick IV and Asha R. Maurya with conspiracy, wire fraud, and related crimes in connection with Hardwick’s alleged theft of over $20 million from the attorney escrow accounts and operating accounts of Morris Hardwick Schneider and LandCastle Title, an Atlanta-based law firm and title agency in which Hardwick and Maurya once served as top executives. In addition to charges against Maurya for assisting with Hardwick’s theft, the indictment also charges Maurya with stealing approximately $900,000 from the firm’s accounts to pay her own personal expenses.
“The indictment alleges an embezzlement scheme dating back years,” said U.S. Attorney John Horn. “Along the way, Mr. Hardwick is alleged to have repeatedly lied to his clients, law partners, banks and others. The allegations are especially troubling given that the actions were orchestrated by a lawyer who swore an oath to uphold the law and to represent his clients with integrity.”
“The magnitude of theft as alleged in the federal indictments of these two defendants clearly merited the resulting federal investigation and prosecution. The allegations describe a trusted corporate officer and attorney in personal financial troubles conspiring with another corporate officer to steal from their employer, primarily through escrow accounts entrusted to their company. Today’s federal grand jury indictments will now move those allegations into federal court,” said J. Britt Johnson, Special Agent in Charge, FBI Atlanta Field Office, stated.
According to U.S. Attorney Horn, the indictment, and other information presented in court: Morris Hardwick Schneider and LandCastle Title (“MHS”) was a law firm and title insurance agency headquartered in Atlanta, Georgia. MHS employed approximately 80 lawyers and 800 non-lawyer employees in 16 states. MHS’s law practice specialized in residential real estate closings and default and foreclosure matters. MHS’s title insurance business involved selling title insurance policies in connection with residential real estate closings.
During periods of high activity in the real estate market, MHS performed thousands of residential real estate closings per month, and received hundreds of millions of dollars in closing funds that it was required to hold in trust in attorney escrow accounts until disbursed in accordance with its clients’ closing instructions for each transaction. At any given time, a single MHS attorney escrow account might contain millions of dollars. MHS also had operating accounts for purposes of funding its operations. MHS’s accounting and escrow account operations were based out of the firm’s Atlanta headquarters.
From MHS’s formation in 2005 until Hardwick’s resignation in August 2014, Hardwick served as managing partner of the law firm and Chief Executive Officer of the title insurance agency. Hardwick was also the majority shareholder of MHS. Hardwick worked out of MHS’s Atlanta headquarters, supervised virtually all of MHS’s day-to-day operations, and had virtually unlimited access to, and control over, MHS’s financial affairs.
Maurya was an accounting department employee of MHS from April 2009 until her termination in November 2014. Maurya was hired to be MHS’s Escrow Account Controller and was eventually promoted to the position of Chief Financial Officer of MHS’s closing division. Maurya managed MHS’s attorney escrow account operations and other accounting operations under Hardwick’s supervision.
Hardwick allegedly began experiencing severe financial problems in the late 2000s, when a sharp decline in the residential real estate market made MHS less profitable, and he was subject to a July 2008 divorce decree requiring him to pay his ex-wife over $550,000 per year in alimony and other payments for five years. Hardwick’s legitimate income could not keep pace with his lavish lifestyle, which included private jet travel; multi-million dollar homes; high-end retail goods and services; gambling at casinos in Louisiana, Mississippi, New Jersey, and Nevada; and payments to bookies and girlfriends.
The Alleged Embezzlement Conspiracy
To maintain the illusion of wealth and success despite his financial problems, and to continue to live beyond his means, in or about 2011, Hardwick allegedly began directing Maurya to make millions of dollars in shareholder distributions, bonuses, and other payments for Hardwick’s benefit, directly out of MHS’s bank accounts, in amounts that exceeded the share of MHS’s profits to which Hardwick was entitled. This occurred at times when no shareholder bonuses or distributions were scheduled to be made, and without causing or directing proportionate bonuses or distributions to be made to the other MHS shareholders. The excess bonuses, distributions, and payments to and for Hardwick’s benefit included payments to casinos, private jet charter companies, credit card issuers, and other creditors and accounts.
To fund the vast majority of these illicit payments, Hardwick and Maurya allegedly caused millions of dollars to be wire transferred to and for Hardwick’s benefit out of MHS’s attorney escrow accounts. Hardwick and Maurya fraudulently concealed Hardwick’s excess payments from the other MHS shareholders, MHS employees, outside auditors, title insurance underwriters, and others through false statements, half-truths, and by the omission of material facts, and by distributing false and misleading financial information and records.
According to the indictment and based on information presented in court, when other MHS shareholders, MHS employees, and one of MHS’s title insurance underwriters began to uncover the conspiracy in July and August 2014, Hardwick and Maurya took further steps to conceal the illicit payments and to delay and obstruct the discovery of their scheme, including by making false statements about the nature, amount, and cause of the excess payments and any resulting escrow account shortages. In particular, Maurya allegedly provided excuses and denials that attempted to attribute any problems to bank error.
Before the other MHS shareholders and employees knew the full extent of the scheme, Hardwick also allegedly tried to conceal the amount of his illicit payments and the severity of the resulting escrow account shortages by lying to obtain and to attempt to obtain loans from various individuals and entities to repay part of the money that he had stolen.
The indictment also charges Hardwick with lying to obtain over $3.5 million in loans from federally-insured banks in 2009, 2011, 2013, and 2014.
Maurya’s Alleged Embezzlement
In addition to charges against Maurya for her assistance with Hardwick’s alleged theft of over $20 million, the indictment charges Maurya separately with a scheme to defraud MHS by tricking MHS into issuing checks to pay off her personal credit card bills. Maurya is alleged to have diverted over $900,000 from MHS’s attorney escrow accounts and operating accounts to pay off her credit card bills and home mortgages.
Overview of The Charges
The indictment charges Hardwick and Maurya with one count of conspiracy to commit wire fraud and 18 counts of wire fraud. It charges Hardwick with one count of bank fraud and three counts of making false statements to federally-insured financial institutions. The indictment charges Maurya with 11 counts of mail fraud. The conspiracy, wire fraud, and mail fraud charges against Hardwick and Maurya each carry a maximum sentence of 20 years in prison and a fine of up to $250,000 per count. The bank fraud and false statements charges against Hardwick each carry a maximum sentence of 30 years in prison and a fine of up to $1 million per count. In determining the actual sentence, the Court will consider the United States Sentencing Guidelines, which are not binding but provide appropriate sentencing ranges for most offenders.
A federal grand jury in Atlanta returned the sealed indictment against Hardwick, 50, formerly of Atlanta, and Maurya, 40, of Atlanta, on February 9, 2016. Both defendants made their initial appearances today before U.S. Magistrate Judge Justin S. Anand.
Members of the public are reminded that the indictment only contains charges. The defendants are presumed innocent of the charges and it will be the government’s burden to prove each defendant’s guilt beyond a reasonable doubt at trial.
This case is being investigated by Special Agents of the FBI. Valuable assistance has also been provided by Special Agents of the Criminal Investigation Division of the IRS.
Assistant United States Attorneys David M. Chaiken and J. Russell Phillips are prosecuting the case.
Today’s announcement is part of efforts underway by President Obama’s Financial Fraud Enforcement Task Force (FFETF) which was created in November 2009 to wage an aggressive, coordinated and proactive effort to investigate and prosecute financial crimes. With more than 20 federal agencies, 94 U.S. Attorneys’ offices and state and local partners, it’s the broadest coalition of law enforcement, investigatory and regulatory agencies ever assembled to combat fraud. Since its formation, the task force has made great strides in facilitating increased investigation and prosecution of financial crimes; enhancing coordination and cooperation among federal, state and local authorities; addressing discrimination in the lending and financial markets and conducting outreach to the public, victims, financial institutions and other organizations. Since fiscal year 2009, the Justice Department has filed over 18,000 financial fraud cases against more than 25,000 defendants. For more information on the task force, please visit www.StopFraud.gov.
For further information please contact the U.S. Attorney’s Public Affairs Office at USAGAN.PressEmails@usdoj.gov
Email links icon
or (404) 581-6016. The Internet address for the U.S. Attorney’s Office for the Northern District of Georgia is http://www.justice.gov/usao-ndga.
The sudden collapse of the Butler & Hosch law firm is already causing delays in some home foreclosure sales in Florida courts, including Orange and Collier counties.
Because the firm represented banks and mortgage lenders on 60,000 cases nationwide, the impact is likely to grow, some officials said.
“This is a big deal because it’s going to end up clogging up the court even more,” said Collier County Clerk Dwight Brock.
The Butler firm closed its doors on May 14, suddenly and without warning, to about 700 employees nationwide. The firm had major offices in Orlando, Tampa and Miami.
District Court of Appeal of Florida, Fifth District.
Opinion filed February 19, 2016.
Thomas Erskine Ice, and Amanda L. Lundergan, of Ice Appellate, Royal Palm Beach, for Appellant.
Nancy M. Wallace, and Diane G. DeWolf, of Akerman LLP, Tallahassee, and William P. Heller, of Akerman LLP, Fort Lauderdale, for Nationstar Mortgage, LLC, Appellee.
No appearance for other Appellees.
EDWARDS, J.
William O. McNair (“Appellant”) appeals the trial court’s entry of a summary final judgment of foreclosure in favor of Nationstar Mortgage, LLC (“Nationstar”). Nationstar’s proof was lacking in the following regards: (1) it failed to authenticate the loan payment history; (2) it failed to lay the foundation for admission of its business records and those of its predecessor; and (3) there was no competent, substantial evidence regarding the amount of interest that Appellant owed on the loan. Accordingly, we reverse the summary final judgment and remand for further proceedings.
In December 2006, Appellant and his wife executed a note in the amount of $257,600 payable to Aegis Wholesale Corporation, secured by a mortgage. The note reflected an annual interest rate of 2.45%, and indicated that the interest rate could change monthly based upon an index. In September 2009, Aurora Loan Services (“Aurora”), an alleged assignee of the mortgage, filed a foreclosure complaint against Appellant, asserting in Count I that the May 1, 2009, payment and all later payments had not been made. In Count II of its complaint, Aurora sought to establish and enforce a lost, destroyed or stolen note and mortgage. Aurora attached a copy of the note and mortgage to the original complaint.
In March 2011, Aurora filed an amended complaint that omitted the claim to reestablish the lost note and mortgage. The amended complaint included a copy of the note, mortgage, and an allonge to the note. The allonge contained three undated endorsements. The first endorsement was from Aegis Wholesale Corporation to Aegis Mortgage Corporation. The second was from Aegis Mortgage Corporation to Residential Funding Company, LLC. The final endorsement was from Residential Funding Company to Deutsche Bank Trust Company Americas (“Deutsche Bank”).
In April 2013, Nationstar was substituted as the plaintiff based on Aurora’s motion. Nationstar asserted that it was authorized to maintain the foreclosure action on behalf of Deutsche Bank as the new servicer of the loan. Nationstar filed its motion for summary judgment in July 2014, attaching the supporting affidavit of A.J. Loll, a Vice President of Nationstar. It also filed a copy of the note and mortgage, the pooling and servicing agreement, the assumption agreement, the asset purchase agreement between Aurora and Nationstar, a default letter, a loan payment history purporting to be Appellant’s, and the notice of assignment of servicers from Aurora to Nationstar.
Loll’s affidavit flirted with laying the foundation for admission of many of Nationstar’s documents under the business records hearsay exception; however, it came up short in several respects. Although Loll testified in the affidavit to having personal knowledge of the facts, he only stated that he was employed as a “Vice President” of Nationstar and did not discuss his job responsibilities. Thus, it is unknown whether his position at Nationstar necessarily required a familiarity and understanding of the business records attached to the motion as he only vaguely described his familiarity with Nationstar’s recording system and did not indicate whether he personally reviewed the business records. See Progressive Exp. Ins. Co. v. Camillo, 80 So. 3d 394, 399 (Fla. 4th DCA 2012) (“An affiant’s personal knowledge may be based on his or her review of the underwriting file.” (citing Jackson Nat’l Life Ins. Co. v. Proper, 760 F. Supp. 901, 907 (M.D. Fla 1991))). Thus, despite the recitation of the requirements of the business record exception, it does not appear from the affidavit that Loll had the requisite personal knowledge to lay a foundation for Nationstar’s business records. See Yang v. Sebastian Lakes Condo. Ass’n, Inc., 123 So. 3d 617, 621 (Fla. 4th DCA 2013) (holding that the witness failed to establish the foundation for the business records exception even though she “employed all of the magic words”).
Loll’s affidavit was insufficient to authenticate Aurora’s records as he did not explain whether he had any familiarity with that company’s documents. Loll’s testimony that Nationstar retained a number of former Aurora employees who were familiar with Aurora’s record keeping system, did not serve to authenticate Aurora’s records. Although Loll stated that Nationstar employees “reviewed” the Aurora records, it failed to confirm that Nationstar employees reviewed the Aurora records for accuracy.
While Loll suggested that Aurora had policies and procedures in place regarding how information was entered, he completely failed to describe those policies or procedures. In Bank of New York City v. Calloway, 157 So. 3d 1064 (Fla. 4th DCA 2015), the Fourth District Court of Appeal determined that “[w]here a business takes custody of another’s business records and integrates them within its own records, the acquired records are treated as having been made by the successor business, such that both records constitute the successor’s business’s singular business record.” 157 So. 3d at 1071 (citing United States v. Adefehinti, 510 F.3d 319, 326 (D.C. Cir. 2007)). However, since the third party’s business records “lack the hallmarks of reliability inherent in a business’s self-generated records, proponents must demonstrate not only that the other requirements of [the business records exception rule] are met but also that the successor business relies upon those records and the circumstances indicate that the records are trustworthy.” Id. (alteration in original)(citations omitted). “In most instances, a proponent will clear this hurdle by providing evidence of a business relationship or contractual obligation between the parties that ensures a substantial incentive for accuracy.” Id. at 1072. Nationstar failed to prove this through Loll’s affidavit.
Furthermore, Loll’s affidavit only swore that “true and correct copies” of the note and mortgage, the pooling and servicing agreement, the assumption agreement, and the purchase agreement were attached to the motion. Loll did not indicate that the loan payment history documents, also attached to the motion, were true and correct copies. Instead, he only asserted that the loan payment history was made in “accordance with the business records maintained by Nationstar.” As the affidavit did not swear to the authenticity of the loan payment history, it did not comply with the requirements of Florida Rule of Civil Procedure 1.510(e) and could not properly be considered by the trial court. See Bifulco v. State Farm Mut. Auto. Ins. Co., 693 So. 2d 707, 710 (Fla. 4th DCA 1997) (“In short, rule 1.510(e), by its very language, excludes any document from the record on a motion for summary judgment that is not one of the enumerated documents or is not a certified attachment to a proper affidavit.”). Nationstar’s efforts to prove the amount of interest owed by Appellant were likewise inadequate, being based upon various calculations and assumptions instead of actual business records.
Based on the foregoing, it is clear that there were disputed issues of material fact and that Nationstar failed to establish that it was entitled to judgment in its favor as a matter of law. Accordingly, we reverse the summary final judgment entered in favor of Nationstar and remand this matter to the trial court for further proceedings.
REVERSED AND REMANDED WITH INSTRUCTIONS.
COHEN and LAMBERT, JJ., concur.
NOT FINAL UNTIL TIME EXPIRES TO FILE MOTION FOR REHEARING AND DISPOSITION THEREOF IF FILED.
CONSUMER FINANCIAL PROTECTION BUREAU ORDERS CITIBANK TO PROVIDE RELIEF TO CONSUMERS FOR ILLEGAL DEBT SALES AND COLLECTION PRACTICES Citibank Sold Credit Card Debt with Inflated Interest Rates; Debt Collectors for Citibank Altered Affidavits
Washington, D.C. –The Consumer Financial Protection Bureau today took two separate actions against Citibank for illegal debt sales and debt collection practices. In the first action, the CFPB ordered Citibank to provide nearly $5 million in consumer relief and pay a $3 million penalty for selling credit card debt with inflated interest rates and for failing to forward consumer payments promptly to debt buyers. The second action is against both Citibank and two debt collection law firms it used that falsified court documents filed in debt collection cases in New Jersey state courts. The CFPB ordered Citibank and the law firms to comply with a court order that Citibank refund $11 million to consumers and forgo collecting about $34 million from nearly 7,000 consumers.
“Citibank sent inaccurate information to buyers when it sold off credit card debt and it also used law firms that altered court documents,” said CFPB Director Richard Cordray. “Today’s action provides redress to consumers who were victimized by slipshod practices as part of our ongoing work to fight abuses in the debt collection market.”
Citibank, N.A., is a national bank with headquarters in New York, N.Y., that issues consumer credit cards. From 2010 to 2013, Citibank sold portfolios of charged-off credit card accounts. It typically provided debt buyers with information about the consumer and the debt, including the supposed annual percentage rate (APR). A “charged-off” account is one the bank deems unlikely to be repaid, but may sell to a debt buyer, usually for a fraction of face value. The debt buyer then can try to collect on those accounts.
Illegal Debt Sales Practices Citibank broke the law when, from February 2010 until June 2013, it provided inaccurate and inflated APR information for almost 130,000 credit card accounts it sold to debt buyers. These buyers then used the exaggerated APR in debt collection attempts. Citibank also failed to promptly forward to debt buyers approximately 14,000 customer payments totaling almost $1 million. The CFPB found that Citibank violated the Dodd-Frank Wall Street Reform and Consumer Financial Protection Act. Specifically, Citibank:
Overstated the annual percentage rate in accounts sold to debt buyers: Between February 2010 and June 2013, Citibank overstated the APR for 128,809 accounts it sold to 16 different debt buyers. For some accounts, Citibank claimed the APR was 29 percent when it was actually 0 percent. Consumers paid about $4.89 million to debt buyers who used an APR inflated by more than 1 percent in collection efforts.
Delayed sending consumer payments to debt buyers: From 2010 to 2013, Citibank delayed forwarding to debt buyers nearly 14,000 payments made by consumers, totaling almost $1 million. This delayed the updating of account balances and subjected consumers to collection efforts from debt buyers after they had already, in reality, paid off their account.
Enforcement action Under the Dodd-Frank Act, the CFPB has the authority to take action against institutions or individuals engaged in unfair, deceptive, or abusive acts or practices. Under the CFPB’s order addressing illegal debt sales practices, Citibank must:
Refund an estimated $4.89 million to roughly 2,100 consumers: Citibank must refund all payments consumers made from Feb. 1, 2010 to Nov. 14, 2013 to debt buyers that referenced an inflated APR provided by Citibank in their collection efforts where the discrepancy was more than 1 percent.
Accurately document the debt it sells: Citibank must provide certain account documents when it sells debt, such as the credit agreement and recent account statements.
Stop selling debt it cannot verify: Citibank cannot sell debts if it cannot provide documentation, if the consumers notified Citibank of identity theft or unauthorized use, if consumers allege in writing that they do not owe the amount claimed, or if the account is within 150 days of the end of the statute of limitations.
Include certain protections in debt sales contracts: Citibank must include provisions in its debt sales contracts prohibiting the debt buyer from reselling the debt.
Provide consumers with basic information about the debt: When it sells a debt, Citibank must give consumers information about the debt, such as the name of the original creditor, the credit agreement, and recent account statements.
Pay civil money penalties: Citibank must pay a $3 million penalty to the CFPB’s Civil Penalty Fund.
Altered Affidavits Separately, the CFPB is taking action today against Citibank, two of its affiliates – Department Stores National Bank and CitiFinancial Servicing, LLC – and two debt collection law firms for altering affidavits filed in debt collection lawsuits. Citibank retained Faloni & Associates, LLC, of Fairfield, N.J., and Solomon & Solomon, P.C., of Albany, N.Y. to collect credit card debt on its behalf in New Jersey state courts.
Citibank filed sworn statements attesting to the accuracy of the debt allegedly owed. Citibank then provided the affidavits to their attorneys to file with New Jersey courts. The two firms retained by Citibank altered the dates of the affidavits, the amount of the debt allegedly owed, or both, after the affidavits were executed. This violated the Fair Debt Collection Practices Act.
In May 2011, Citibank learned that one of its law firms had altered affidavits and stopped referring new credit card accounts to it. At Citibank’s request, a New Jersey court dismissed actions pending as of Sept. 12, 2011 that Citibank identified as involving altered affidavits or incorrect information.
The CFPB’s order requires Citibank to comply with the New Jersey state court order, in which Citibank had to refund $11 million collected from consumers and stop collection of an additional $34 million in debts, both of which Citibank has done. Solomon & Solomon, P.C., must pay a $65,000 penalty to the Bureau’s Civil Penalty Fund. Faloni & Associates, LLC, must pay $15,000. Consistent with the Bureau’s Responsible Business Conduct bulletin, the CFPB did not impose civil money penalties on Citibank for this violation, especially in light of its efforts to recompense harmed consumers.
The Consumer Financial Protection Bureau is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. For more information, visit consumerfinance.gov.
U.S. BANK NATIONAL ASSOCIATION, AS TRUSTEE, SUCCESSOR IN
INTEREST TO BANK OF AMERICA, NATIONAL ASSOCIATION, AS
TRUSTEE, AS SUCCESSOR BY MERGER TO LASALLE BANK, NATIONAL
ASSOCIATION, AS TRUSTEE FOR WMALT 2005-11,
Appellee.
No. 4D13-4179
[February 17, 2016]
Appeal from the Circuit Court for the Seventeenth Judicial Circuit,
Broward County; Kathleen D. Ireland, Senior Judge; L.T. Case No. CACE
10-022197 (12).
Alan D. Sackrin of Sackrin & Tolchinsky, P.A., Hallandale Beach, for
appellants.
N. Alejandra Arroyave Lopez and Jeffrey S. Lapin of Lapin & Leichtling,
LLP, Coral Gables, for appellee.
CONNER, J.
Appellants, Mark Barnett and Yvette Barnett, appeal the trial court’s
entry of final judgment of foreclosure in favor of U.S. Bank National
Association. Appellants assert multiple grounds for reversal, only one of
which we discuss. Because there was no evidence presented at trial to
prove that the initial plaintiff in this action, Bank of America, possessed
the note at the time suit was filed, we reverse.
Factual Background and Trial Proceedings
Bank of America, “as Successor by Merger to LaSalle Bank, National
Association, as Trustee for Washington Mutual Mortgage Pass-Through
Certificates, WMALT Series 2005-11,” filed a mortgage foreclosure
complaint against Appellants on May 25, 2010. The complaint alleged that
Bank of America “is the current owner of or has the right to enforce the
Note and Mortgage. See attached Exhibit C.” The copy of the note attached
to the complaint identified First Savings Mortgage Corporation as the
lender. The note also contained an undated special indorsement from
First Savings Mortgage Corporation to a third party, Residential Funding
Corporation. Also attached to the complaint was a copy of the mortgage.
The mortgage, like the note, identified First Savings Mortgage Corporation
as the lender and contained the following statement:
“MERS” is Mortgage Electronic Registration Systems, Inc.
MERS is a separate corporation that is acting solely as a
nominee for Lender and Lender’s successors and assigns.
MERS is the mortgagee under this Security Instrument.
Attached as Exhibit C to the complaint was a copy of an unrecorded
assignment of mortgage dated April 8, 2010, from MERS to Bank of
America, the successor to LaSalle Bank, with the same name designation
in the complaint. The assignment transferred both the mortgage and the
note to Bank of America.
In their answer, Appellants challenged Bank of America’s standing.
Bank of America later filed the original note and mortgage with the trial
court. In February 2013, U.S. Bank was substituted as party plaintiff
upon a motion alleging the right to enforce the loan had been transferred
to it.
The matter proceeded to a non-jury trial. At trial, U.S. Bank called one
witness, a home loan research officer for JP Morgan Chase Bank, N.A., the
servicer of the loan at the time. The bank’s witness gave confusing
testimony about the ownership of the loan. At no time did U.S. Bank
present testimony as to possession of the note at the time suit was filed.
In response to Appellants’ closing argument regarding lack of standing,
the trial court stated: “I find that by virtue of possession of the original
Note that there was standing at the filing of the suit, of the foreclosure
action.” Thereafter, final judgment was entered in favor of U.S. Bank.
Appellants gave notice of appeal.
Appellate Analysis
A trial court’s determination of whether a party has standing is
reviewed de novo. GMAC Mortg., LLC v. Choengkroy, 98 So. 3d 781, 781
(Fla. 4th DCA 2012).
Standing of the plaintiff to foreclose on a mortgage at the time suit is
filed must be established at trial, if contested. See McLean v. JP Morgan
Chase Bank Nat’l Ass’n, 79 So. 3d 170, 173 (Fla. 4th DCA 2012); Rigby v.
Wells Fargo Bank, N.A., 84 So. 3d 1195, 1196 (Fla. 4th DCA 2012).
“[P]ossession of the note determines standing to foreclose.” Everhome
Mortg. Co. v. Janssen, 100 So. 3d 1239, 1240 (Fla. 2d DCA 2012). While
courts have permitted foreclosure by a substituted party plaintiff, the
original plaintiff must have had standing at the inception of the suit. See
Lewis v. J.P. Morgan Chase Bank, 138 So. 3d 1212, 1213 (Fla. 4th DCA
2014) (explaining that the bank had standing to pursue the foreclosure
action against the borrower despite having acquired the note and mortgage
during the pendency of the action, where the original plaintiff possessed
the note and mortgage at the time it brought suit against the borrower).
We agree with Appellants’ argument that U.S. Bank failed to prove that
Bank of America had sufficient standing to file suit. There was no evidence
presented below to prove that Bank of America actually possessed the note
at the time of the filing of the complaint. While there was evidence of an
assignment transferring the note and mortgage from MERS, as nominee
for the original lender, to Bank of America, which predates the complaint,
U.S. Bank failed to present any evidence to account for the undated special
indorsement on the note from First Savings to the third party. Likewise,
U.S. Bank presented no evidence showing whether the assignment of the
note and mortgage to Bank of America occurred before or after the undated
indorsement of the note to the third party.
We acknowledge that the assignment of mortgage could be construed
as circumstantial evidence that Bank of America possessed the note at the
time suit was filed. However, the unexplained, undated indorsement to
the third party is also circumstantial evidence that Bank of America may
not have possessed the note at the time suit was filed. At trial, U.S. Bank
had the burden of proof by greater weight of the evidence. Therefore, we
conclude that the trial court erred in ruling that, by virtue of possession
of the original note, there was standing at the time suit was filed.
Accordingly, we reverse the final judgment and direct the trial court to
dismiss the proceeding. Klemencic v. U.S. Bank Nat’l Ass’n, 142 So. 3d
983, 984 (Fla. 4th DCA 2014).
Reversed.
WARNER and LEVINE, JJ., concur.
* * *
Not final until disposition of timely filed motion for rehearing.
A handful of Central Florida homeowners have defied the odds doing what most people only dream of: they walked away from their mortgage.
Audrey Sterling battled foreclosure for 8 years first filing bankruptcy then challenging the fifth lender to hold her mortgage, Nationstar Bank, to produce the “original promissory note.”
“I haven’t gotten a phone call or foreclosure notice in years,” she said.
Index No. 7758/2008
AFFIDAVIT OF BERNARD JAY PATTERSON
<snip>
The America’s Wholesale Lender, Inc. result indicates this corporation’s initialDepartment of State’s Filing Date was December 16,2008. It is my belief this corporation is a
completely separate and unrelated entity than the entity shown on the McQueen Mortgage as the
“Lender”. Even for argument’s sake this is the same entity, it was not registered with the State
of New York until 2008 however, the McQueen Mortgage was executed on September 6,2005.
(over three years earlier) . . .
11. My investigation further found a Final Judgment entered in The Circuit Court of the
Eighteenth Judicial Circuit, in and for Seminole County, Florida on October 16, 2014. This Final
Judgment was granted by Senior.Judge Robert l Pleis. (NASH)
12. The Court found in paragraph l, “The Mortgage dated May 24,2005 was executed by the
Borrower, Linda A. Nash, payable to the alleged Lender, America’s Wholesale Lender, which
was recited to be a New York Corporation.”
13. The Court found in paragraph T. “Plaintiffs witness testified that he was aware that
America’s Wholesale Lender was not incorporated in the year 2005 when the Note and Mortgage
were signed, and that no such corporation was subsequently formed by either Countrywide
Home Loans, or Bank of America, or any of their related corporate entities or agents.”
Tsvetana Yvanova, in pro. per.; Law Offices of Richard L. Antognini and Richard L. Antognini for Plaintiff and Appellant.
Law Office of Mark F. Didak and Mark F. Didak as Amici Curiae on behalf of Plaintiff and Appellant.
Kamala D. Harris, Attorney General, Nicklas A. Akers, Assistant Attorney General, Michele Van Gelderen and Sanna R. Singer, Deputy Attorneys General, for Attorney General of California as Amicus Curiae on behalf of Plaintiff and Appellant.
Lisa R. Jaskol; Kent Qian; and Hunter Landerholm for Public Counsel, National Housing Law Project and Neighborhood Legal Services of Los Angeles County as Amici Curiae on behalf of Plaintiff and Appellant.
The Sturdevant Law Firm and James C. Sturdevant for National Association of Consumer Advocates and National Consumer Law Center as Amici Curiae on behalf of Plaintiff and Appellant.
The Arkin Law Firm, Sharon J. Arkin; Arbogast Law and David M. Arbogast for Consumer Attorneys of California as Amicus Curiae on behalf of Plaintiff and Appellant.
Houser & Allison, Eric D. Houser, Robert W. Norman, Jr., Patrick S. Ludeman; Bryan Cave, Kenneth Lee Marshall, Nafiz Cekirge, Andrea N. Winternitz and Sarah Samuelson for Defendants and Respondents.
Pfeifer & De La Mora and Michael R. Pfeifer for California Mortgage Bankers Association as Amicus Curiae on behalf of Defendants and Respondents.
Denton US and Sonia Martin for Structured Finance Industry Group, Inc., as Amicus Curiae on behalf of Defendants and Respondents.
Goodwin Proctor, Steven A. Ellis and Nicole S. Tate-Naghi for California Bankers Association as Amicus Curiae on behalf of Defendants and Respondents.
Wright, Finlay & Zak and Jonathan D. Fink for American Legal & Financial Network and United Trustees Association as Amici Curiae on behalf of Defendants and Respondents.
WERDEGAR, J.
The collapse in 2008 of the housing bubble and its accompanying system of home loan securitization led, among other consequences, to a great national wave of loan defaults and foreclosures. One key legal issue arising out of the collapse was whether and how defaulting homeowners could challenge the validity of the chain of assignments involved in securitization of their loans. We granted review in this case to decide one aspect of that question: whether the borrower on a home loan secured by a deed of trust may base an action for wrongful foreclosure on allegations a purported assignment of the note and deed of trust to the foreclosing party bore defects rendering the assignment void.
The Court of Appeal held plaintiff Tsvetana Yvanova could not state a cause of action for wrongful foreclosure based on an allegedly void assignment because she lacked standing to assert defects in the assignment, to which she was not a party. We conclude, to the contrary, that because in a nonjudicial foreclosure only the original beneficiary of a deed of trust or its assignee or agent may direct the trustee to sell the property, an allegation that the assignment was void, and not merely voidable at the behest of the parties to the assignment, will support an action for wrongful foreclosure.
Our ruling in this case is a narrow one. We hold only that a borrower who has suffered a nonjudicial foreclosure does not lack standing to sue for wrongful foreclosure based on an allegedly void assignment merely because he or she was in default on the loan and was not a party to the challenged assignment. We do not hold or suggest that a borrower may attempt to preempt a threatened nonjudicial foreclosure by a suit questioning the foreclosing party’s right to proceed. Nor do we hold or suggest that plaintiff in this case has alleged facts showing the assignment is void or that, to the extent she has, she will be able to prove those facts. Nor, finally, in rejecting defendants’ arguments on standing do we address any of the substantive elements of the wrongful foreclosure tort or the factual showing necessary to meet those elements.
Factual and Procedural Background
This case comes to us on appeal from the trial court’s sustaining of a demurrer. For purposes of reviewing a demurrer, we accept the truth of material facts properly pleaded in the operative complaint, but not contentions, deductions, or conclusions of fact or law. We may also consider matters subject to judicial notice. (Evans v. City of Berkeley (2006) 38 Cal.4th 1, 6.)[1] To determine whether the trial court should, in sustaining the demurrer, have granted the plaintiff leave to amend, we consider whether on the pleaded and noticeable facts there is a reasonable possibility of an amendment that would cure the complaint’s legal defect or defects. (Schifando v. City of Los Angeles (2003) 31 Cal.4th 1074, 1081.)
In 2006, plaintiff executed a deed of trust securing a note for $483,000 on a residential property in Woodland Hills, Los Angeles County. The lender, and beneficiary of the trust deed, was defendant New Century Mortgage Corporation (New Century). New Century filed for bankruptcy on April 2, 2007, and on August 1, 2008, it was liquidated and its assets were transferred to a liquidation trust.
On December 19, 2011, according to the operative complaint, New Century (despite its earlier dissolution) executed a purported assignment of the deed of trust to Deutsche Bank National Trust, as trustee of an investment loan trust the complaint identifies as “Msac-2007 Trust-He-1 Pass Thru Certificates.” We take notice of the recorded assignment, which is in the appellate record. (See fn. 1, ante.) As assignor the recorded document lists New Century; as assignee it lists Deutsche Bank National Trust Company (Deutsche Bank) “as trustee for the registered holder of Morgan Stanley ABS Capital I Inc. Trust 2007-HE1 Mortgage Pass-Through Certificates, Series 2007-HE1” (the Morgan Stanley investment trust). The assignment states it was prepared by Ocwen Loan Servicing, LLC, which is also listed as the contact for both assignor and assignee and as the attorney in fact for New Century. The assignment is dated December 19, 2011, and bears a notation that it was recorded December 30, 2011.
According to the complaint, the Morgan Stanley investment trust to which the deed of trust on plaintiff’s property was purportedly assigned on December 19, 2011, had a closing date (the date by which all loans and mortgages or trust deeds must be transferred to the investment pool) of January 27, 2007.
On August 20, 2012, according to the complaint, Western Progressive, LLC, recorded two documents: one substituting itself for Deutsche Bank as trustee, the other giving notice of a trustee’s sale. We take notice of a substitution of trustee, dated February 28, 2012, and recorded August 20, 2012, replacing Deutsche Bank with Western Progressive, LLC, as trustee on the deed of trust, and of a notice of trustee’s sale dated August 16, 2012, and recorded August 20, 2012.
A recorded trustee’s deed upon sale dated December 24, 2012, states that plaintiff’s Woodland Hills property was sold at public auction on September 14, 2012. The deed conveys the property from Western Progressive, LLC, as trustee, to the purchaser at auction, THR California LLC, a Delaware limited liability company.
Plaintiff’s second amended complaint, to which defendants demurred, pleaded a single count for quiet title against numerous defendants including New Century, Ocwen Loan Servicing, LLC, Western Progressive, LLC, Deutsche Bank, Morgan Stanley Mortgage Capital, Inc., and the Morgan Stanley investment trust. Plaintiff alleged the December 19, 2011, assignment of the deed of trust from New Century to the Morgan Stanley investment trust was void for two reasons: New Century’s assets had previously, in 2008, been transferred to a bankruptcy trustee; and the Morgan Stanley investment trust had closed to new loans in 2007. (The demurrer, of course, does not admit the truth of this legal conclusion; we recite it here only to help explain how the substantive issues in this case were framed.) The superior court sustained defendants’ demurrer without leave to amend, concluding on several grounds that plaintiff could not state a cause of action for quiet title.
The Court of Appeal affirmed the judgment for defendants on their demurrer. The pleaded cause of action for quiet title failed fatally, the court held, because plaintiff did not allege she had tendered payment of her debt. The court went on to discuss the question, on which it had sought and received briefing, of whether plaintiff could, on the facts alleged, amend her complaint to plead a cause of action for wrongful foreclosure.
On the wrongful foreclosure question, the Court of Appeal concluded leave to amend was not warranted. Relying on Jenkins v. JPMorgan Chase Bank, N.A. (2013) 216 Cal.App.4th 497 (Jenkins), the court held plaintiff’s allegations of improprieties in the assignment of her deed of trust to Deutsche Bank were of no avail because, as an unrelated third party to that assignment, she was unaffected by such deficiencies and had no standing to enforce the terms of the agreements allegedly violated. The court acknowledged that plaintiff’s authority, Glaski v. Bank of America, supra, 218 Cal.App.4th 1079 (Glaski), conflicted with Jenkins on the standing issue, but the court agreed with the reasoning of Jenkins and declined to follow Glaski.
We granted plaintiff’s petition for review, limiting the issue to be briefed and argued to the following: “In an action for wrongful foreclosure on a deed of trust securing a home loan, does the borrower have standing to challenge an assignment of the note and deed of trust on the basis of defects allegedly rendering the assignment void?”
Discussion
I. Deeds of Trust and Nonjudicial Foreclosure
A deed of trust to real property acting as security for a loan typically has three parties: the trustor (borrower), the beneficiary (lender), and the trustee. “The trustee holds a power of sale. If the debtor defaults on the loan, the beneficiary may demand that the trustee conduct a nonjudicial foreclosure sale.” (Biancalana v. T.D. Service Co. (2013) 56 Cal.4th 807, 813.) The nonjudicial foreclosure system is designed to provide the lender-beneficiary with an inexpensive and efficient remedy against a defaulting borrower, while protecting the borrower from wrongful loss of the property and ensuring that a properly conducted sale is final between the parties and conclusive as to a bona fide purchaser. (Moeller v. Lien (1994) 25 Cal.App.4th 822, 830.)
The trustee starts the nonjudicial foreclosure process by recording a notice of default and election to sell. (Civ. Code, § 2924, subd. (a)(1).)[2] After a three-month waiting period, and at least 20 days before the scheduled sale, the trustee may publish, post, and record a notice of sale. (§§ 2924, subd. (a)(2), 2924f, subd. (b).) If the sale is not postponed and the borrower does not exercise his or her rights of reinstatement or redemption, the property is sold at auction to the highest bidder. (§ 2924g, subd. (a); Jenkins, supra, 216 Cal.App.4th at p. 509; Moeller v. Lien, supra, 25 Cal.App.4th at pp. 830-831. Generally speaking, the foreclosure sale extinguishes the borrower’s debt; the lender may recover no deficiency. (Code Civ. Proc., § 580d; Dreyfuss v. Union Bank of California (2000) 24 Cal.4th 400, 411.)
The trustee of a deed of trust is not a true trustee with fiduciary obligations, but acts merely as an agent for the borrower-trustor and lender-beneficiary. (Biancalana v. T.D. Service Co., supra, 56 Cal.4th at p. 819; Vournas v. Fidelity Nat. Tit. Ins. Co. (1999) 73 Cal.App.4th 668, 677.) While it is the trustee who formally initiates the nonjudicial foreclosure, by recording first a notice of default and then a notice of sale, the trustee may take these steps only at the direction of the person or entity that currently holds the note and the beneficial interest under the deed of trust—the original beneficiary or its assignee—or that entity’s agent. (§ 2924, subd. (a)(1) [notice of default may be filed for record only by “[t]he trustee, mortgagee, or beneficiary”]; Kachlon v. Markowitz (2008) 168 Cal.App.4th 316, 334 [when borrower defaults on the debt, “the beneficiary may declare a default and make a demand on the trustee to commence foreclosure”]; Santens v. Los Angeles Finance Co. (1949) 91 Cal.App.2d 197, 202 [only a person entitled to enforce the note can foreclose on the deed of trust].)
A deed of trust may thus be assigned one or multiple times over the life of the loan it secures. But if the borrower defaults on the loan, only the current beneficiary may direct the trustee to undertake the nonjudicial foreclosure process. “[O]nly the `true owner’ or `beneficial holder’ of a Deed of Trust can bring to completion a nonjudicial foreclosure under California law.” (Barrionuevo v. Chase Bank, N.A. (N.D.Cal. 2012) 885 F.Supp.2d 964, 972; see Herrera v. Deutsche Bank National Trust Co. (2011) 196 Cal.App.4th 1366, 1378 [bank and reconveyance company failed to establish they were current beneficiary and trustee, respectively, and therefore failed to show they “had authority to conduct the foreclosure sale”]; cf. U.S. Bank Nat. Assn. v. Ibanez (Mass. 2011) 941 N.E.2d 40, 51 [under Mass. law, only the original mortgagee or its assignee may conduct nonjudicial foreclosure sale].)
In itself, the principle that only the entity currently entitled to enforce a debt may foreclose on the mortgage or deed of trust securing that debt is not, or at least should not be, controversial. It is a “straightforward application[] of well-established commercial and real-property law: a party cannot foreclose on a mortgage unless it is the mortgagee (or its agent).” (Levitin, The Paper Chase: Securitization, Foreclosure, and the Uncertainty of Mortgage Title (2013) 63 Duke L.J. 637, 640.) Describing the copious litigation arising out of the recent foreclosure crisis, a pair of commentators explained: “While plenty of uncertainty existed, one concept clearly emerged from litigation during the 2008-2012 period: in order to foreclose a mortgage by judicial action, one had to have the right to enforce the debt that the mortgage secured. It is hard to imagine how this notion could be controversial.” (Whitman & Milner, Foreclosing on Nothing: The Curious Problem of the Deed of Trust Foreclosure Without Entitlement to Enforce the Note (2013) 66 Ark. L.Rev. 21, 23, fn. omitted.)
More subject to dispute is the question presented here: under what circumstances, if any, may the borrower challenge a nonjudicial foreclosure on the ground that the foreclosing party is not a valid assignee of the original lender? Put another way, does the borrower have standing to challenge the validity of an assignment to which he or she was not a party?[3] We proceed to that issue.
II. Borrower Standing to Challenge an Assignment as Void
In Glaski, supra, 218 Cal.App.4th 1079, 1094-1095, the court held a borrower may base a wrongful foreclosure claim on allegations that the foreclosing party acted without authority because the assignment by which it purportedly became beneficiary under the deed of trust was not merely voidable but void. Before discussing Glaski‘s holdings and rationale, we review the distinction between void and voidable transactions.
A voidable transaction, in contrast, “is one where one or more parties have the power, by a manifestation of election to do so, to avoid the legal relations created by the contract, or by ratification of the contract to extinguish the power of avoidance.” (Rest.2d Contracts, § 7.) It may be declared void but is not void in itself. (Little v. CFS Service Corp., supra, 188 Cal.App.3d at p. 1358.) Despite its defects, a voidable transaction, unlike a void one, is subject to ratification by the parties. (Rest.2d Contracts, § 7; Aronoff v. Albanese (N.Y.App.Div. 1982) 446 N.Y.S.2d 368, 370.)
In Glaski, the foreclosing entity purportedly acted for the current beneficiary, the trustee of a securitized mortgage investment trust.[5] The plaintiff, seeking relief from the allegedly wrongful foreclosure, claimed his note and deed of trust had never been validly assigned to the securitized trust because the purported assignments were made after the trust’s closing date. (Glaski, supra, 218 Cal.App.4th at pp. 1082-1087.)
The Glaski court began its analysis of wrongful foreclosure by agreeing with a federal district court that such a cause of action could be made out “`where a party alleged not to be the true beneficiary instructs the trustee to file a Notice of Default and initiate nonjudicial foreclosure.'” (Glaski, supra, 218 Cal.App.4th at p. 1094, quoting Barrionuevo v. Chase Bank, N.A., supra, 885 F.Supp.2d at p. 973.) But the wrongful foreclosure plaintiff, Glaski cautioned, must do more than assert a lack of authority to foreclose; the plaintiff must allege facts “show[ing] the defendant who invoked the power of sale was not the true beneficiary.” (Glaski, at p. 1094.)
Glaski adopted from the federal decisions and a California treatise the view that “a borrower can challenge an assignment of his or her note and deed of trust if the defect asserted would void the assignment” not merely render it voidable. (Glaski, supra, 218 Cal.App.4th at p. 1095.) Cases holding that a borrower may never challenge an assignment because the borrower was neither a party to nor a third party beneficiary of the assignment agreement “`paint with too broad a brush'” by failing to distinguish between void and voidable agreements. (Ibid., quoting Culhane, supra, 708 F.3d at p. 290.)
The Glaski court went on to resolve the question of whether the plaintiff had pled a defect in the chain of assignments leading to the foreclosing party that would, if true, render one of the necessary assignments void rather than voidable. (Glaski, supra, 218 Cal.App.4th at p. 1095.) On this point, Glaski held allegations that the plaintiff’s note and deed of trust were purportedly transferred into the trust after the trust’s closing date were sufficient to plead a void assignment and hence to establish standing. (Glaski, at pp. 1096-1098.) This last holding of Glaski is not before us. On granting plaintiff’s petition for review, we limited the scope of our review to whether “the borrower [has] standing to challenge an assignment of the note and deed of trust on the basis of defects allegedly rendering the assignment void.” We did not include in our order the question of whether a postclosing date transfer into a New York securitized trust is void or merely voidable, and though the parties’ briefs address it, we express no opinion on the question here.
Returning to the question that is before us, we consider in more detail the authority Glaski relied on for its standing holding. In Culhane, a Massachusetts home loan borrower sought relief from her nonjudicial foreclosure on the ground that the assignment by which Aurora Loan Services of Nebraska (Aurora) claimed authority to foreclose—a transfer of the mortgage from Mortgage Electronic Registration Systems, Inc. (MERS),[7] to Aurora—was void because MERS never properly held the mortgage. (Culhane, supra, 708 F.3d at pp. 286-288, 291.)
Before addressing the merits of the plaintiff’s allegations, the Culhane court considered Aurora’s contention the plaintiff lacked standing to challenge the assignment of her mortgage from MERS to Aurora. On this question, the court first concluded the plaintiff had a sufficient personal stake in the outcome, having shown a concrete and personalized injury resulting from the challenged assignment: “The action challenged here relates to Aurora’s right to foreclose by virtue of the assignment from MERS. The identified harm—the foreclosure—can be traced directly to Aurora’s exercise of the authority purportedly delegated by the assignment.” (Culhane, supra, 708 F.3d at pp. 289-290.)
Culhane next considered whether the prudential principle that a litigant should not be permitted to assert the rights and interest of another dictates that borrowers lack standing to challenge mortgage assignments as to which they are neither parties nor third party beneficiaries. (Culhane, supra, 708 F.3d at p. 290.) Two aspects of Massachusetts law on nonjudicial foreclosure persuaded the court such a broad rule is unwarranted. First, only the mortgagee (that is, the original lender or its assignee) may exercise the power of sale,[8] and the borrower is entitled to relief from foreclosure by an unauthorized party. (Culhane, at p. 290.) Second, in a nonjudicial foreclosure the borrower has no direct opportunity to challenge the foreclosing entity’s authority in court. Without standing to sue for relief from a wrongful foreclosure, “a Massachusetts mortgagor would be deprived of a means to assert her legal protections. . . .” (Ibid.) These considerations led the Culhane court to conclude “a mortgagor has standing to challenge the assignment of a mortgage on her home to the extent that such a challenge is necessary to contest a foreclosing entity’s status qua mortgagee.” (Id. at p. 291.)
The court immediately cautioned that its holding was limited to allegations of a void transfer. If, for example, the assignor had no interest to assign or had no authority to make the particular assignment, “a challenge of this sort would be sufficient to refute an assignee’s status qua mortgagee.” (Culhane, supra, 708 F.3d at p. 291.) But where the alleged defect in an assignment would “render it merely voidable at the election of one party but otherwise effective to pass legal title,” the borrower has no standing to challenge the assignment on that basis. (Ibid.)[9]
In Reinagel, upon which the Glaski court also relied, the federal court held that under Texas law borrowers defending against a judicial foreclosure have standing to “`challenge the chain of assignments by which a party claims a right to foreclose.'” (Reinagel, supra, 735 F.3d at p. 224.) Though Texas law does not allow a nonparty to a contract to enforce the contract unless he or she is an intended third-party beneficiary, the borrowers in this situation “are not attempting to enforce the terms of the instruments of assignment; to the contrary, they urge that the assignments are void ab initio.” (Id. at p. 225.)
Like Culhane, Reinagel distinguished between defects that render a transaction void and those that merely make it voidable at a party’s behest. “Though `the law is settled’ in Texas that an obligor cannot defend against an assignee’s efforts to enforce the obligation on a ground that merely renders the assignment voidable at the election of the assignor, Texas courts follow the majority rule that the obligor may defend `on any ground which renders the assignment void.'” (Reinagel, supra, 735 F.3d at p. 225.) The contrary rule would allow an institution to foreclose on a borrower’s property “though it is not a valid party to the deed of trust or promissory note. . . .” (Ibid.)[10]
Jenkins, on which the Court of Appeal below relied, was decided close in time to Glaski (neither decision discusses the other) but reaches the opposite conclusion on standing. In Jenkins, the plaintiff sued to prevent a foreclosure sale that had not yet occurred, alleging the purported beneficiary who sought the sale held no security interest because a purported transfer of the loan into a securitized trust was made in violation of the pooling and servicing agreement that governed the investment trust. (Jenkins, supra, 216 Cal.App.4th at pp. 504-505.)
The appellate court held a demurrer to the plaintiff’s cause of action for declaratory relief was properly sustained for two reasons. First, Jenkins held California law did not permit a “preemptive judicial action[] to challenge the right, power, and authority of a foreclosing `beneficiary’ or beneficiary’s `agent’ to initiate and pursue foreclosure.” (Jenkins, supra, 216 Cal.App.4th at p. 511.) Relying primarily on Gomes v. Countrywide Home Loans, Inc. (2011) 192 Cal.App.4th 1149,Jenkins reasoned that such preemptive suits are inconsistent with California’s comprehensive statutory scheme for nonjudicial foreclosure; allowing such a lawsuit “`would fundamentally undermine the nonjudicial nature of the process and introduce the possibility of lawsuits filed solely for the purpose of delaying valid foreclosures.'” (Jenkins, at p. 513, quoting Gomes at p. 1155.)
This aspect of Jenkins, disallowing the use of a lawsuit to preempt a nonjudicial foreclosure, is not within the scope of our review, which is limited to a borrower’s standing to challenge an assignment in an action seeking remedies for wrongful foreclosure. As framed by the proceedings below, the concrete question in the present case is whether plaintiff should be permitted to amend her complaint to seek redress, in a wrongful foreclosure count, for the trustee’s sale that has already taken place. We do not address the distinct question of whether, or under what circumstances, a borrower may bring an action for injunctive or declaratory relief to prevent a foreclosure sale from going forward.
Second, as an alternative ground, Jenkins held a demurrer to the declaratory relief claim was proper because the plaintiff had failed to allege an actual controversy as required by Code of Civil Procedure section 1060. (Jenkins, supra, 216 Cal.App.4th at p. 513.) The plaintiff did not dispute that her loan could be assigned or that she had defaulted on it and remained in arrears. (Id. at p. 514.) Even if one of the assignments of the note and deed of trust was improper in some respect, the appellate court reasoned, “Jenkins is not the victim of such invalid transfer[] because her obligations under the note remained unchanged. Instead, the true victim may be an individual or entity that believes it has a present beneficial interest in the promissory note and may suffer the unauthorized loss of its interest in the note.” (Id. at p. 515.) In particular, the plaintiff could not complain about violations of the securitized trust’s transfer rules: “As an unrelated third party to the alleged securitization, and any other subsequent transfers of the beneficial interest under the promissory note, Jenkins lacks standing to enforce any agreements, including the investment trust’s pooling and servicing agreement, relating to such transactions.” (Ibid.)
For its conclusion on standing, Jenkins cited In re Correia (Bankr. 1st Cir. 2011) 452 B.R. 319. The borrowers in that case challenged a foreclosure on the ground that the assignment of their mortgage into a securitized trust had not been made in accordance with the trust’s pooling and servicing agreement (PSA). (Id. at pp. 321-322.) The appellate court held the borrowers “lacked standing to challenge the mortgage’s chain of title under the PSA.” (Id. at p. 324.) Being neither parties nor third party beneficiaries of the pooling agreement, they could not complain of a failure to abide by its terms. (Ibid.)
Jenkins also cited Herrera v. Federal National Mortgage Assn. (2012) 205 Cal.App.4th 1495, which primarily addressed the merits of a foreclosure challenge, concluding the borrowers had adduced no facts on which they could allege an assignment from MERS to another beneficiary was invalid. (Id. at pp. 1502-1506.) In reaching the merits, the court did not explicitly discuss the plaintiffs’ standing to challenge the assignment. In a passage cited in Jenkins, however, the court observed that the plaintiffs, in order to state a wrongful foreclosure claim, needed to show prejudice, and they could not do so because the challenged assignment did not change their obligations under the note. (Herrera, at pp. 1507-1508.) Even if MERS lacked the authority to assign the deed of trust, “the true victims were not plaintiffs but the lender.” (Id. at p. 1508.)
On the narrow question before us—whether a wrongful foreclosure plaintiff may challenge an assignment to the foreclosing entity as void—we conclude Glaski provides a more logical answer than Jenkins. As explained in part I, ante, only the entity holding the beneficial interest under the deed of trust—the original lender, its assignee, or an agent of one of these—may instruct the trustee to commence and complete a nonjudicial foreclosure. (§ 2924, subd. (a)(1); Barrionuevo v. Chase Bank, N.A., supra, 885 F.Supp.2d at p. 972.) If a purported assignment necessary to the chain by which the foreclosing entity claims that power is absolutely void, meaning of no legal force or effect whatsoever (Colby v. Title Ins. and Trust Co., supra, 160 Cal. at p. 644; Rest.2d Contracts, § 7, com. a), the foreclosing entity has acted without legal authority by pursuing a trustee’s sale, and such an unauthorized sale constitutes a wrongful foreclosure. (Barrionuevo v. Chase Bank, N.A., at pp. 973-974.)
Like the Massachusetts borrowers considered in Culhane, whose mortgages contained a power of sale allowing for nonjudicial foreclosure, California borrowers whose loans are secured by a deed of trust with a power of sale may suffer foreclosure without judicial process and thus “would be deprived of a means to assert [their] legal protections” if not permitted to challenge the foreclosing entity’s authority through an action for wrongful foreclosure. (Culhane, supra, 708 F.3d at p. 290.) A borrower therefore “has standing to challenge the assignment of a mortgage on her home to the extent that such a challenge is necessary to contest a foreclosing entity’s status qua mortgagee” (id. at p. 291)—that is, as the current holder of the beneficial interest under the deed of trust. (Accord, Wilson v. HSBC Mortgage Servs., Inc. (1st Cir. 2014) 744 F.3d 1, 9 [“A homeowner in Massachusetts—even when not a party to or third party beneficiary of a mortgage assignment—has standing to challenge that assignment as void because success on the merits would prove the purported assignee is not, in fact, the mortgagee and therefore lacks any right to foreclose on the mortgage.”].)[11]
Jenkins and other courts denying standing have done so partly out of concern with allowing a borrower to enforce terms of a transfer agreement to which the borrower was not a party. In general, California law does not give a party personal standing to assert rights or interests belonging solely to others.[12] (See Code Civ. Proc., § 367 [action must be brought by or on behalf of the real party in interest]; Jasmine Networks, Inc. v. Superior Court (2009) 180 Cal.App.4th 980, 992.) When an assignment is merely voidable, the power to ratify or avoid the transaction lies solely with the parties to the assignment; the transaction is not void unless and until one of the parties takes steps to make it so. A borrower who challenges a foreclosure on the ground that an assignment to the foreclosing party bore defects rendering it voidable could thus be said to assert an interest belonging solely to the parties to the assignment rather than to herself.
When the plaintiff alleges a void assignment, however, the Jenkins court’s concern with enforcement of a third party’s interests is misplaced. Borrowers who challenge the foreclosing party’s authority on the grounds of a void assignment “are not attempting to enforce the terms of the instruments of assignment; to the contrary, they urge that the assignments are void ab initio.” (Reinagel, supra, 735 F.3d at p. 225; accord, Mruk v. Mortgage Elec. Registration Sys., Inc. (R.I. 2013) 82 A.3d 527, 536 [borrowers challenging an assignment as void “are not attempting to assert the rights of one of the contracting parties; instead, the homeowners are asserting their own rights not to have their homes unlawfully foreclosed upon”].)
Unlike a voidable transaction, a void one cannot be ratified or validated by the parties to it even if they so desire. (Colby v. Title Ins. and Trust Co., supra, 160 Cal. at p. 644; Aronoff v. Albanese, supra, 446 N.Y.S.2d at p. 370.) Parties to a securitization or other transfer agreement may well wish to ratify the transfer agreement despite any defects, but no ratification is possible if the assignment is void ab initio. In seeking a finding that an assignment agreement was void, therefore, a plaintiff in Yvanova’s position is not asserting the interests of parties to the assignment; she is asserting her own interest in limiting foreclosure on her property to those with legal authority to order a foreclosure sale. This, then, is not a situation in which standing to sue is lacking because its “sole object . . . is to settle rights of third persons who are not parties.” (Golden Gate Bridge etc. Dist. v. Felt (1931) 214 Cal. 308, 316.)
Defendants argue a borrower who is in default on his or her loan suffers no prejudice from foreclosure by an unauthorized party, since the actual holder of the beneficial interest on the deed of trust could equally well have foreclosed on the property. As the Jenkins court put it, when an invalid transfer of a note and deed of trust leads to foreclosure by an unauthorized party, the “victim” is not the borrower, whose obligations under the note are unaffected by the transfer, but “an individual or entity that believes it has a present beneficial interest in the promissory note and may suffer the unauthorized loss of its interest in the note.” (Jenkins, supra, 216 Cal.App.4th at p. 515; see also Siliga v. Mortgage Electronic Registration Systems, Inc. (2013) 219 Cal.App.4th 75, 85 [borrowers had no standing to challenge assignment by MERS where they do not dispute they are in default and “there is no reason to believe . . . the original lender would have refrained from foreclosure in these circumstances”]; Fontenot v. Wells Fargo Bank, N.A., supra, 198 Cal.App.4th at p. 272 [wrongful foreclosure plaintiff could not show prejudice from allegedly invalid assignment by MERS as the assignment “merely substituted one creditor for another, without changing her obligations under the note”].)
In deciding the limited question on review, we are concerned only with prejudice in the sense of an injury sufficiently concrete and personal to provide standing, not with prejudice as a possible element of the wrongful foreclosure tort. (See fn. 4, ante.) As it relates to standing, we disagree with defendants’ analysis of prejudice from an illegal foreclosure. A foreclosed-upon borrower clearly meets the general standard for standing to sue by showing an invasion of his or her legally protected interests (Angelucci v. Century Supper Club (2007) 41 Cal.4th 160, 175)—the borrower has lost ownership to the home in an allegedly illegal trustee’s sale. (See Culhane, supra, 708 F.3d at p. 289 [foreclosed-upon borrower has sufficient personal stake in action against foreclosing entity to meet federal standing requirement].) Moreover, the bank or other entity that ordered the foreclosure would not have done so absent the allegedly void assignment. Thus “[t]he identified harm—the foreclosure—can be traced directly to [the foreclosing entity’s] exercise of the authority purportedly delegated by the assignment.” (Culhane, at p. 290.)
Nor is it correct that the borrower has no cognizable interest in the identity of the party enforcing his or her debt. Though the borrower is not entitled to object to an assignment of the promissory note, he or she is obligated to pay the debt, or suffer loss of the security, only to a person or entity that has actually been assigned the debt. (See Cockerell v. Title Ins. & Trust Co., supra, 42 Cal.2d at p. 292 [party claiming under an assignment must prove fact of assignment].) The borrower owes money not to the world at large but to a particular person or institution, and only the person or institution entitled to payment may enforce the debt by foreclosing on the security.
It is no mere “procedural nicety,” from a contractual point of view, to insist that only those with authority to foreclose on a borrower be permitted to do so. (Levitin, The Paper Chase: Securitization, Foreclosure, and the Uncertainty of Mortgage Title, supra, 63 Duke L.J. at p. 650.) “Such a view fundamentally misunderstands the mortgage contract. The mortgage contract is not simply an agreement that the home may be sold upon a default on the loan. Instead, it is an agreement that if the homeowner defaults on the loan, the mortgagee may sell the property pursuant to the requisite legal procedure.” (Ibid., italics added and omitted.)
The logic of defendants’ no-prejudice argument implies that anyone, even a stranger to the debt, could declare a default and order a trustee’s sale—and the borrower would be left with no recourse because, after all, he or she owed the debt to someone, though not to the foreclosing entity. This would be an “odd result” indeed. (Reinagel, supra, 735 F.3d at p. 225.) As a district court observed in rejecting the no-prejudice argument, “[b]anks are neither private attorneys general nor bounty hunters, armed with a roving commission to seek out defaulting homeowners and take away their homes in satisfaction of some other bank’s deed of trust.” (Miller v. Homecomings Financial, LLC (S.D.Tex. 2012) 881 F.Supp.2d 825, 832.)
Defendants note correctly that a plaintiff in Yvanova’s position, having suffered an allegedly unauthorized nonjudicial foreclosure of her home, need not now fear another creditor coming forward to collect the debt. The home can only be foreclosed once, and the trustee’s sale extinguishes the debt. (Code Civ. Proc., § 580d; Dreyfuss v. Union Bank of California, supra, 24 Cal.4th at p. 411.) But as the Attorney General points out in her amicus curiae brief, a holding that anyone may foreclose on a defaulting home loan borrower would multiply the risk for homeowners that they might face a foreclosure at some point in the life of their loans. The possibility that multiple parties could each foreclose at some time, that is, increases the borrower’s overall risk of foreclosure.
Defendants suggest that to establish prejudice the plaintiff must allege and prove that the true beneficiary under the deed of trust would have refrained from foreclosing on the plaintiff’s property. Whatever merit this rule would have as to prejudice as an element of the wrongful foreclosure tort, it misstates the type of injury required for standing. A homeowner who has been foreclosed on by one with no right to do so has suffered an injurious invasion of his or her legal rights at the foreclosing entity’s hands. No more is required for standing to sue. (Angelucci v. Century Supper Club, supra, 41 Cal.4th at p. 175.)
Neither Caulfield v. Sanders (1861) 17 Cal. 569 nor Seidell v. Tuxedo Land Co. (1932) 216 Cal. 165, upon which defendants rely, holds or implies a home loan borrower may not challenge a foreclosure by alleging a void assignment. In the first of these cases, we held a debtor on a contract for printing and advertising could not defend against collection of the debt on the ground it had been assigned without proper consultation among the assigning partners and for nominal consideration: “It is of no consequence to the defendant, as it in no respect affects his liability, whether the transfer was made at one time or another, or with or without consideration, or by one or by all the members of the firm.” (Caulfield v. Sanders, at p. 572.) In the second, we held landowners seeking to enjoin a foreclosure on a deed of trust to their land could not do so by challenging the validity of an assignment of the promissory note the deed of trust secured. (Seidell v. Tuxedo Land Co., at pp. 166, 169-170.) We explained that the assignment was made by an agent of the beneficiary, and that despite the landowner’s claim the agent lacked authority for the assignment, the beneficiary “is not now complaining.” (Id. at p. 170.) Neither decision discusses the distinction between allegedly void and merely voidable, and neither negates a borrower’s ability to challenge an assignment of his or her debt as void.
For these reasons, we conclude Glaski, supra, 218 Cal.App.4th 1079, was correct to hold a wrongful foreclosure plaintiff has standing to claim the foreclosing entity’s purported authority to order a trustee’s sale was based on a void assignment of the note and deed of trust. Jenkins, supra, 216 Cal.App.4th 497, spoke too broadly in holding a borrower lacks standing to challenge an assignment of the note and deed of trust to which the borrower was neither a party nor a third party beneficiary. Jenkins‘s rule may hold as to claimed defects that would make the assignment merely voidable, but not as to alleged defects rendering the assignment absolutely void.[13]
That several federal courts applying California law have, largely in unreported decisions, agreed with Jenkins and declined to follow Glaski does not alter our conclusion. Neither Khan v. Recontrust Co. (N.D.Cal. 2015) 81 F.Supp.3d 867 nor Flores v. EMC Mort. Co. (E.D.Cal. 2014) 997 F.Supp.2d 1088 adds much to the discussion. In Khan, the district court found the borrower, as a nonparty to the pooling and servicing agreement, lacked standing to challenge a foreclosure on the basis of an unspecified flaw in the loan’s securitization; the court’s opinion does not discuss the distinction between a void assignment and a merely voidable one. (Khan v. Recontrust Co., supra, 81 F.Supp.3d at pp. 872-873.) In Flores, the district court, considering a wrongful foreclosure complaint that lacked sufficient clarity in its allegations including identification of the assignment or assignments challenged, the district court quoted and followed Jenkins‘s reasoning on the borrower’s lack of standing to enforce an agreement to which he or she is not a party, without addressing the application of this reasoning to allegedly void assignments. (Flores v. EMC Mort. Co., supra, at pp. 1103-1105.)
Similarly, the unreported federal decisions applying California law largely fail to grapple with Glaski‘s distinction between void and voidable assignments and tend merely to repeat Jenkins‘s arguments that a borrower, as a nonparty to an assignment, may not enforce its terms and cannot show prejudice when in default on the loan, arguments we have found insufficient with regard to allegations of void assignments. While unreported federal court decisions may be cited in California as persuasive authority (Kan v. Guild Mortgage Co. (2014) 230 Cal.App.4th 736, 744, fn. 3), in this instance they lack persuasive value.
Defendants cite the decision in Rajamin v. Deutsche Bank Nat. Trust Co. (2nd Cir. 2014) 757 F.3d 79 (Rajamin), as a “rebuke” of Glaski. Rajamin‘s expressed disagreement with Glaski, however, was on the question whether, under New York law, an assignment to a securitized trust made after the trust’s closing date is void or merely voidable. (Rajamin, at p. 90.) As explained earlier, that question is outside the scope of our review and we express no opinion as to Glaski‘s correctness on the point.
The Rajamin court did, in an earlier discussion, state generally that borrowers lack standing to challenge an assignment as violative of the securitized trust’s pooling and servicing agreement (Rajamin, supra, 757 F.3d at pp. 85-86), but the court in that portion of its analysis did not distinguish between void and voidable assignments. In a later portion of its analysis, the court “assum[ed] that `standing exists for challenges that contend that the assigning party never possessed legal title,'” a defect the plaintiffs claimed made the assignments void (id. at p. 90), but concluded the plaintiffs had not properly alleged facts to support their voidness theory (id. at pp. 90-91).
Nor do Kan v. Guild Mortgage Co., supra, 230 Cal.App.4th 736, and Siliga v. Mortgage Electronic Registration Systems, Inc., supra, 219 Cal.App.4th 75 (Siliga), which defendants also cite, persuade us Glaski erred in finding borrower standing to challenge an assignment as void. The Kan court distinguished Glaski as involving a postsale wrongful foreclosure claim, as opposed to the preemptive suits involved in Jenkins and Kan itself. (Kan, at pp. 743-744.) On standing, the Kan court noted the federal criticism of Glaski and our grant of review in the present case, but found “no reason to wade into the issue of whether Glaski was correctly decided, because the opinion has no direct applicability to this preforeclosure action.” (Kan, at p. 745.)
Siliga, similarly, followed Jenkins in disapproving a preemptive lawsuit. (Siliga, supra, 219 Cal.App.4th at p. 82.) Without discussing Glaski, the Siliga court also held the borrower plaintiffs failed to show any prejudice from, and therefore lacked standing to challenge, the assignment of their deed of trust to the foreclosing entity. (Siliga, at p. 85.) As already explained, this prejudice analysis misses the mark in the wrongful foreclosure context. When a property has been sold at a trustee’s sale at the direction of an entity with no legal authority to do so, the borrower has suffered a cognizable injury.
In further support of a borrower’s standing to challenge the foreclosing party’s authority, plaintiff points to provisions of the recent legislation known as the California Homeowner Bill of Rights, enacted in 2012 and effective only after the trustee’s sale in this case. (See Leuras v. BAC Home Loans Servicing, LP (2013) 221 Cal.App.4th 49, 86, fn. 14.)[14] Having concluded without reference to this legislation that borrowers do have standing to challenge an assignment as void, we need not decide whether the new provisions provide additional support for that holding.
Plaintiff has alleged that her deed of trust was assigned to the Morgan Stanley investment trust in December 2011, several years after both the securitized trust’s closing date and New Century’s liquidation in bankruptcy, a defect plaintiff claims renders the assignment void. Beyond their general claim a borrower has no standing to challenge an assignment of the deed of trust, defendants make several arguments against allowing plaintiff to plead a cause of action for wrongful foreclosure based on this allegedly void assignment.
Principally, defendants argue the December 2011 assignment of the deed of trust to Deutsche Bank, as trustee for the investment trust, was merely “confirmatory” of a 2007 assignment that had been executed in blank (i.e., without designation of assignee) when the loan was added to the trust’s investment pool. The purpose of the 2011 recorded assignment, defendants assert, was merely to comply with a requirement in the trust’s pooling and servicing agreement that documents be recorded before foreclosures are initiated. An amicus curiae supporting defendants’ position asserts that the general practice in home loan securitization is to initially execute assignments of loans and mortgages or deeds of trust to the trustee in blank and not to record them; the mortgage or deed of trust is subsequently endorsed by the trustee and recorded if and when state law requires. (See Rajamin, supra, 757 F.3d at p. 91.) This claim, which goes not to the legal issue of a borrower’s standing to sue for wrongful foreclosure based on a void assignment, but rather to the factual question of when the assignment in this case was actually made, is outside the limited scope of our review. The same is true of defendants’ remaining factual claims, including that the text of the investment trust’s pooling and servicing agreement demonstrates plaintiff’s deed of trust was assigned to the trust before it closed.
Conclusion
We conclude a home loan borrower has standing to claim a nonjudicial foreclosure was wrongful because an assignment by which the foreclosing party purportedly took a beneficial interest in the deed of trust was not merely voidable but void, depriving the foreclosing party of any legitimate authority to order a trustee’s sale. The Court of Appeal took the opposite view and, solely on that basis, concluded plaintiff could not amend her operative complaint to plead a cause of action for wrongful foreclosure. We must therefore reverse the Court of Appeal’s judgment and allow that court to reconsider the question of an amendment to plead wrongful foreclosure. We express no opinion on whether plaintiff has alleged facts showing a void assignment, or on any other issue relevant to her ability to state a claim for wrongful foreclosure.
Disposition
The judgment of the Court of Appeal is reversed and the matter is remanded to that court for further proceedings consistent with our opinion.
Cantil-Sakauye, C. J., Corrigan, J., Liu, J., Cuéllar, J., Kruger, J. and Huffman, J.[*], concurs.
[1] The superior court granted defendants’ request for judicial notice of the recorded deed of trust, assignment of the deed of trust, substitution of trustee, notices of default and of trustee’s sale, and trustee’s deed upon sale. The existence and facial contents of these recorded documents were properly noticed in the trial court under Evidence Code sections 452, subdivisions (c) and (h), and 453. (See Fontenot v. Wells Fargo Bank, N.A. (2011) 198 Cal.App.4th 256, 264-266.) Under Evidence Code section 459, subdivision (a), notice by this court is therefore mandatory. We therefore take notice of their existence and contents, though not of disputed or disputable facts stated therein. (See Glaski v. Bank of America (2013) 218 Cal.App.4th 1079, 1102.)
[2] All further unspecified statutory references are to the Civil Code.
[3] Somewhat confusingly, both the purported assignee’s authority to foreclose and the borrower’s ability to challenge that authority have been framed as questions of “standing.” (See, e.g., Levitin, The Paper Chase: Securitization, Foreclosure, and the Uncertainty of Mortgage Title, supra, 63 Duke L.J. at p. 644 [discussing purported assignee’s “standing to foreclose”]; Jenkins, supra, 216 Cal.App.4th at p. 515 [borrower lacks “standing to enforce [assignment] agreements” to which he or she is not a party]; Bank of America Nat. Assn. v. Bassman FBT, LLC (Ill.App. Ct. 2012) 981 N.E.2d 1, 7 [“Each party contends that the other lacks standing.”].) We use the term here in the latter sense of a borrower’s legal authority to challenge the validity of an assignment.
[4] It has been held that, at least when seeking to set aside the foreclosure sale, the plaintiff must also show prejudice and a tender of the amount of the secured indebtedness, or an excuse of tender. (Chavez v. Indymac Mortgage Services, supra, 219 Cal.App.4th at p. 1062.) Tender has been excused when, among other circumstances, the plaintiff alleges the foreclosure deed is facially void, as arguably is the case when the entity that initiated the sale lacked authority to do so. (Ibid.; In re Cedano (Bankr. 9th Cir. 2012) 470 B.R. 522, 529-530; Lester v. J.P. Morgan Chase Bank (N.D.Cal. 2013) 926 F.Supp.2d 1081, 1093; Barrionuevo v. Chase Bank, N.A., supra, 885 F.Supp.2d 964, 969-970.) Our review being limited to the standing question, we express no opinion as to whether plaintiff Yvanova must allege tender to state a cause of action for wrongful foreclosure under the circumstances of this case. Nor do we discuss potential remedies for a plaintiff in Yvanova’s circumstances; at oral argument, plaintiff’s counsel conceded she seeks only damages. As to prejudice, we do not address it as an element of wrongful foreclosure. We do, however, discuss whether plaintiff has suffered a cognizable injury for standing purposes.
[5] The mortgage securitization process has been concisely described as follows: “To raise funds for new mortgages, a mortgage lender sells pools of mortgages into trusts created to receive the stream of interest and principal payments from the mortgage borrowers. The right to receive trust income is parceled into certificates and sold to investors, called certificateholders. The trustee hires a mortgage servicer to administer the mortgages by enforcing the mortgage terms and administering the payments. The terms of the securitization trusts as well as the rights, duties, and obligations of the trustee, seller, and servicer are set forth in a Pooling and Servicing Agreement (`PSA’).” (BlackRock Financial Mgmt. v. Ambac Assur. Corp. (2d Cir. 2012) 673 F.3d 169, 173.)
[6] The version of Reinagel cited in Glaski, published at 722 F.3d 700, was amended on rehearing and superseded by Reinagel, supra, 735 F.3d 220.
[7] As the Culhane court explained, MERS was formed by a consortium of residential mortgage lenders and investors to streamline the transfer of mortgage loans and thereby facilitate their securitization. A member lender may name MERS as mortgagee on a loan the member originates or owns; MERS acts solely as the lender’s “nominee,” having legal title but no beneficial interest in the loan. When a loan is assigned to another MERS member, MERS can execute the transfer by amending its electronic database. When the loan is assigned to a nonmember, MERS executes the assignment and ends its involvement. (Culhane, supra, 708 F.3d at p. 287.)
[8] Massachusetts General Laws chapter 183, section 21, similarly to our Civil Code section 2924, provides that the power of sale in a mortgage may be exercised by “the mortgagee or his executors, administrators, successors or assigns.”
[9] On the merits, the Culhane court rejected the plaintiff’s claim that MERS never properly held her mortgage, giving her standing to challenge the assignment from MERS to Aurora as void (Culhane, supra, 708 F.3d at p. 291); the court held MERS’s role as the lender’s nominee allowed it to hold and assign the mortgage under Massachusetts law. (Id. at pp. 291-293.)
[10] The Reinagel court nonetheless rejected the plaintiffs’ claim of an invalid assignment after the closing date of a securitized trust, observing they could not enforce the terms of trust because they were not intended third-party beneficiaries. The court’s holding appears, however, to rest at least in part on its conclusion that a violation of the closing date “would not render the assignments void” but merely allow them to be avoided at the behest of a party or third-party beneficiary. (Reinagel, supra, 735 F.3d at p. 228.) As discussed above in relation to Glaski, that question is not within the scope of our review.
[11] We cite decisions on federal court standing only for their persuasive value in determining what California standing law should be, without any assumption that standing in the two systems is identical. The California Constitution does not impose the same “`case-or-controversy'” limit on state courts’ jurisdiction as article III of the United States Constitution does on federal courts. (Grosset v. Wenaas (2008) 42 Cal.4th 1100, 1117, fn. 13.)
[14] Plaintiff cites newly added provisions that prohibit any entity from initiating a foreclosure process “unless it is the holder of the beneficial interest under the mortgage or deed of trust, the original trustee or the substituted trustee under the deed of trust, or the designated agent of the holder of the beneficial interest” (§ 2924, subd. (a)(6)); require the loan servicer to inform the borrower, before a notice of default is filed, of the borrower’s right to request copies of any assignments of the deed of trust “required to demonstrate the right of the mortgage servicer to foreclose” (§ 2923.55, subd. (b)(1)(B)(iii)); and require the servicer to ensure the documentation substantiates the right to foreclose (§ 2924.17, subd. (b)). The legislative history indicates the addition of these provisions was prompted in part by reports that nonjudicial foreclosure proceedings were being initiated on behalf of companies with no authority to foreclose. (See Sen. Rules Com., Conference Rep. on Sen. Bill No. 900 (2011-2012 Reg. Sess.) as amended June 27, 2012, p. 26.)
[*] Associate Justice of the Court of Appeal, Fourth Appellate District, Division One, assigned by the Chief Justice pursuant to article VI, section 6 of the California Constitution.
Thomas CORRIGAN and Deborah Elaine Corrigan a/k/a Deborah Elaine Martin, Appellants, v. BANK OF AMERICA, N.A., successor by merger to Bac Home Loans Servicing, LP f/k/a Countrywide Home Loans Servicing LP, Appellee.
No. 2D14–3208.
Decided: February 5, 2016
Mark P. Stopa of Stopa Law Firm, Tampa, for Appellants. Adam M. Topel of Liebler Gonzalez & Portuondo, Miami, for Appellee.
EN BANC
Thomas and Deborah Elaine Corrigan appeal the final judgment of foreclosure entered in favor of Bank of America following a bench trial. Because Bank of America failed to show that it or its predecessors had standing to foreclose as of the date the original complaint was filed, we reverse and remand. We consider this case en banc to recede from this court’s holding in AS Lily LLC v. Morgan, 164 So.3d 124 (Fla. 2d DCA 2015), to the extent that it suggests that standing may be established at the time an amended complaint is filed. As we conclude the Bank did not have standing to sue, we do not reach the Corrigans’ remaining issue.
The record shows that the Corrigans executed a note and mortgage on May 24, 2008. Countrywide Bank, FSB, was the lender listed on both documents. On December 11, 2008, another entity—Countrywide Home Loans Servicing, LP—filed a complaint against the Corrigans, seeking to foreclose the mortgage, attempting to reestablish the lost note, and alleging that it had standing to sue by virtue of an assignment. Attached to the complaint was a copy of the mortgage and a ledger of loan—but no copy of the note.
It was not until May 6, 2011, that Countrywide Home Loans Servicing, LP, filed the original note and mortgage. The note bore an undated blank endorsement. BAC Home Loans Servicing, LP, f/k/a Countrywide Home Loans Servicing, LP, was later substituted as plaintiff for Countrywide Home Loans Servicing, LP. Then Bank of America—as successor by merger to BAC Home Loans Servicing, LP, f/k/a Countrywide Home Loans Servicing, LP—voluntarily dismissed the count for reestablishment of the lost note and filed an amended complaint. Attached to the amended complaint were the note with an undated blank endorsement, the mortgage, and an assignment of the mortgage. The assignment showed that Mortgage Electronic Registration Systems, Inc., as nominee for Countrywide Bank, FSB, had assigned the mortgage to Bank of America, NA, successor by merger to BAC Home Loans Servicing, LP, f/k/a Countrywide Home Loans Servicing, LP. The assignment was dated December 15, 2011—approximately three years after the original complaint had been filed.
The Corrigans filed an answer and affirmative defenses, claiming that Bank of America did not have standing to bring suit because it was not in possession of the original, endorsed note at the time the lawsuit was filed. A bench trial was held on June 18, 2014. Bank of America called one witness, a mortgage resolution associate, who was familiar with the business records associated with the Corrigans’ loan. The note, mortgage, assignment, and payment history were admitted into evidence. But no evidence was presented to establish that Bank of America or its predecessors had possession of the endorsed note at the time the suit was filed. After Bank of America rested, the Corrigans’ counsel moved to dismiss, arguing that Bank of America had failed to show standing at the inception of the suit. The Bank’s attorney responded that the filing of the original documents with the note endorsed in blank was sufficient to establish standing. The circuit court denied the motion to dismiss, and the Corrigans’ counsel opted not to present any evidence. Final judgment of foreclosure was entered, and this appeal followed.
We agree with the Corrigans that Bank of America failed to show that it had standing to file suit because there was no evidence that it or its predecessors had possession of the original note, with the endorsement, at the time the original complaint was filed. “A plaintiff alleging standing as a holder must prove it is a holder of the note and mortgage both as of the time of trial and also that the (original) plaintiff had standing as of the time the foreclosure complaint was filed.” Russell v. Aurora Loan Servs., LLC, 163 So.3d 639, 642 (Fla. 2d DCA 2015) (quoting Kiefert v. Nationstar Mortg., LLC, 153 So.3d 351, 352 (Fla. 1st DCA 2014)). This is because “[a] substituted plaintiff acquires only the standing of the original plaintiff.” Id.
“To be a holder entitled to enforce under the facts of this case, Bank of America was required to show physical possession of the original note and an endorsement or allonge either in blank or in favor of the plaintiff.” Eagles Master Ass’n v. Bank of Am., N.A., 40 Fla. L. Weekly D1510, D1510 (Fla. 2d DCA June 26, 2015). “The endorsement must have occurred before the filing of the complaint because it is axiomatic that standing must be shown as of the filing of the complaint.” Id. (citing Focht v. Wells Fargo Bank, N.A., 124 So.3d 308, 310 (Fla. 2d DCA 2013)). “Had the note with the blank endorsement been filed with the original complaint, that would have been sufficient to show standing.” Id. (citing Am. Home Mortg. Servicing, Inc. v. Bednarek, 132 So.3d 1222 (Fla. 2d DCA 2014)). But “a later filed copy of the note with the endorsement [does] not suffice to show standing at the time the complaint was filed.” Id. (citing May v. PHH Mortg. Corp., 150 So.3d 247 (Fla. 2d DCA 2014)).
Here, no note—not even a copy—was filed with the original complaint. Though Bank of America later filed the original note and mortgage along with an assignment, these documents did not establish standing at the time the original complaint was filed because the endorsement was undated and the assignment was dated after the original complaint was filed. No evidence was presented at trial to establish when the note was endorsed. So Bank of America, as successor in interest to Countrywide Home Loans Servicing, LP, could not rely on the fact that it possessed the note endorsed in blank at the time the amended complaint was filed because it only acquired the standing, or lack thereof, of Countrywide Home Loans, which lacked standing at the inception of the case. Bank of America’s subsequent acquisition of the note endorsed in blank cannot cure this deficiency.
Bank of America relies on this court’s recent decision in AS Lily to argue that standing may be established at the time an amended complaint is filed. See 164 So.3d 124. To the extent that AS Lily suggests that standing may be established at the time an amended complaint is filed, we recede from our holding in that case. We reiterate that it is essential to establish standing as of the date the complaint is filed.
Reversed and remanded for the entry of an order of dismissal.
I have no objection to the court clarifying the decision in AS Lily LLC v. Morgan, 164 So.3d 124 (Fla. 2d DCA 2015). As a panel member on that case, I believe that it is distinguishable; perhaps, however, the rationale for our holding could have been stated more clearly.
In AS Lily, the original complaint was filed by a plaintiff other than AS Lily. That complaint sought to re-establish a lost note and to foreclose on the related mortgage. Four years later in 2012, and without objection, the trial court entered an order allowing the filing of an amended complaint. The original plaintiff was dropped from the foreclosure case and AS Lily appeared as the plaintiff. AS Lily’s verified complaint attached the no-longer-lost note and mortgage.
The owners of the commercial property involved in AS Lily did not answer the amended complaint or file a motion challenging AS Lily’s standing. Thus, as to AS Lily, the panel concluded that standing should be determined on the date of the amended complaint because it was effectively the original complaint for the new plaintiff, AS Lily. If AS Lily had been a party to the case four years earlier or if it had obtained its rights by assignment from the original plaintiff, the outcome, clearly, would have been different. Thus, I continue to believe that AS Lily was correctly decided. It simply involved a relatively unique set of facts.
Today the court ensures that we continue along a well-worn road of standing law in mortgage foreclosure proceedings. Because we must hew to the route laid before us, I concur with the court’s decision. But I question the rationale of applying the affirmative defense of standing as if it were a jurisdictional prerequisite in cases such as these. Our courts’ unwavering adherence to this standing-at-inception requirement imposes inequities in foreclosure cases and, in my opinion, has led the rule astray from whatever its underlying purpose may have been. We ought to change course.
I.
In recent years, the requirement that a foreclosing plaintiff must prove standing at the time a lawsuit is filed has become firmly entrenched as a feature of our law on mortgage foreclosure. See Dickson v. Roseville Props., LLC, 40 Fla. L. Weekly D2520 (Fla. 2d DCA Nov. 6, 2015) (“For better or for worse, it is settled that it is not enough for the plaintiff to prove that it has standing when the case is tried; it must also prove that it had standing when the complaint was filed.”); Ham v. Nationstar Mortg., LLC, 164 So.3d 714, 718 (Fla. 1st DCA 2015) (reversing foreclosure judgment where plaintiff could not establish standing at the time the original complaint was filed; “Although this rule has been criticized at times, we are bound to follow this long-standing rule?”); Matthews v. Fed. Nat’l Mortg. Ass’n, 160 So.3d 131, 132 (Fla. 4th DCA 2015) (“A party must have standing to file suit at its inception and may not remedy this defect by subsequently obtaining standing.” (quoting Venture Holdings & Acquisitions Grp ., LLC v. A.I.M. Funding Grp., LLC, 75 So.3d 773, 776 (Fla. 4th DCA 2011))). Indeed, as one of my colleagues observed, this rule is now “axiomatic.” Eagles Master Ass’n v. Bank of Am., N.A., 40 Fla. L. Weekly D1510, D1510 (Fla. 2d DCA June 26, 2015).
As axioms go, this one is quite rigid,1 as our court’s decision in the case at bar exemplifies. That Bank of America may have had every right to pursue the Corrigans’ loan default in foreclosure when the trial commenced is of no moment; because it could only connect another entity’s possession of the Corrigans’ note to the time of filing an amended complaint, Bank of America’s right to foreclose on its note’s security, in this case, is lost. The failure to prove a historic point of standing precluded any consideration of the substantive merits of Bank of America’s claim. Under the law, the court’s resolution of this case is both inarguable and inescapable. That is so because, equity notwithstanding, this unbending rule of standing has become a “jurisdictional prerequisite” in effect, if not in name. Cf. Focht v. Wells Fargo Bank, N.A., 124 So.3d 308, 312 (Fla. 2d DCA 2013) (Altenbernd, J., concurring) (observing that with the requirement to prove standing at the time a foreclosure complaint is filed, “[t]he courts have erroneously transformed what should be a defendant’s affirmative defense ? into a jurisdictional prerequisite that must be established by the plaintiff to avoid a dismissal of the action”); Dickson, 40 Fla. L. Weekly D2520 at n. 1 (“The rule requiring a plaintiff to prove its standing at the inception of suit at any point up to and through trial does present difficult issues both as a matter of legal doctrine and as a matter of practical application.”).2
For such stringency to have evolved in an equitable proceeding like foreclosure is a curious development. Cf. Schroeder v. Gebhart, 825 So.2d 442, 446 (Fla. 5th DCA 2002) (“A court of equity ‘should not be shackled by rigid rules of procedure and thereby preclude justice being administered according to good conscience.’ “ (quoting Wicker v. Bd. of Pub. Instruction of Dade Cty., 106 So.2d 550, 558 (Fla.1958))); White v. Brousseau, 566 So.2d 832, 835 (Fla. 5th DCA 1990) (“Equity disregards all form and looks to the substance and essence of every matter.”); see also NL Indus., Inc. v. MAXXAM, Inc. (In re MAXXAM, Inc./Federated Dev. S’holders Litig.), 698 A.2d 949, 954 (Del. Ch.1996) (denying defendants’ motion to dismiss shareholders’ derivative action where the original plaintiffs to the lawsuit were not shareholders and thus lacked standing, and observing that “[u]nless some positive rule of law mandates a dismissal no matter what the equities may be, it makes no sense, in terms of equity, justice or judicial economy, for the [c]ourt to do what the defendants ask”). That development was by no means inevitable or, in my opinion, necessarily even intentional. When one delves into the origins of this standing rule in Florida law, a notable dissonance emerges between its genesis and how it has come to be applied today in mortgage foreclosure cases.
II.
In Florida, it appears that the requirement to prove standing at the time of filing a complaint was first introduced into our common law in the case of Marianna & B.R. Co. v. Maund, 56 So. 670 (Fla .1911). But Marianna itself did not concern foreclosure at all. Id. at 670. We have examined the factual nature of Marianna previously, in Progressive Express Insurance Co. v. McGrath Community Chiropractic, 913 So.2d 1281, 1285 (Fla. 2d DCA 2005):
[I]n [Marianna ], a landowner sought to recover for permanent damages to land committed by a railroad company. The landowner did not expressly plead or offer proof that the damages occurred before the landowner acquired his ownership interest in the property. After he filed suit against the railroad, the landowner obtained an assignment of the claim for damages to the property from the former owner and alleged the fact of the assignment in an amended pleading. The trial court entered a decree in favor of the land owner, and the railroad appealed. The Supreme Court of Florida reversed the decree and remanded the case to the trial court with directions to dismiss the landowner’s case without prejudice.
(Citations omitted.)
One could marshal an argument that the standing-at-inception rule need not have migrated from Marianna into foreclosure proceedings at all, given the facts of that case. The context of the claim at issue in Marianna—a landowner’s complaining of a direct injury to his estate against a railroad—differs substantially from that of a typical residential mortgage foreclosure case, where a plaintiff seeks to enforce a security interest for an alleged default on a loan. In a property damages claim, the plaintiff’s connection to the property at issue serves as the basis for his or her claim to recover monetary damages, while in foreclosure, the security interest over the property at issue is merely incidental to a monetary debt that is founded upon a commercial instrument that is, itself, freely transferable. Cf. Marianna, 56 So. at 672 (explaining that standing to recover from injury to land belongs to the owner of that land at the time the injury occurred); Vance v. Fields, 172 So.2d 613, 614 (Fla. 1st DCA 1965) (recognizing that “[t]he mortgage is a mere incident of and ancillary to” the promissory note that it secures (citing Scott v. Taylor, 58 So. 30 (Fla.1912))).
But migrate the rule did. Cf. Ham, 164 So.3d at 718. So assuming as we must that the rule appropriately applies in all foreclosure cases, it is still fair to ask: what compelled the court in Marianna to adopt such a rule? The answer, it seems, derives from two quotations that the Marianna opinion recited and then applied to resolve the controversy before it.
A.
The first quotation was from a treatise, 1 Joseph F. Randolph, Cyclopedia of Law and Procedure 744 (William Mack & Howard P. Nash eds., 1903). Marianna, 56 So. at 672 (“It is said in 1 Cyc. P. 744: ‘A plaintiff cannot supply the want of a valid claim at the commencement of the acquisition or accrual of one during the pendency of the action.’ ”). The entire extent of Mr. Randolph’s discussion on this topic is the quote that Marianna recounts. A footnote in the cyclopedia indicates that thirty-three case opinions from seventeen jurisdictions issued between 1817 to 1898 support this sweeping pronouncement.3 Yet, of those cases, only two concerned foreclosure, and of those, only one, Hovey v. Sebring, 24 Mich. 232, 232 (1872), examined the precise issue we see litigated so frequently in foreclosure cases today: that of holding a mortgage note at the time a complaint is filed. That case is worth a brief examination.
In Hovey, the Supreme Court of Michigan agreed with the general proposition that “whatever may be the state of facts which authorizes the suit to be brought in the name of any particular person, that state of facts must, as a general rule, exist at the time the suit is instituted.” Id. at 233. However, the court in Hovey never suggested that a plaintiff’s failure to prove this point would warrant the dismissal of its foreclosure lawsuit; rather, a prior plaintiff’s lack of standing raised a potential affirmative defense to challenge the strength of the foreclosing plaintiff’s claim:
[T]he ownership or title can be inquired into, only for the purpose of letting in any defense or set-off the maker would have had as against a former holder (when transferred after maturity or with notice), or for the purpose of showing that the plaintiff’s possession of the note is not in good faith.”
Id. (emphasis added).
Thus, under Hovey, the want of standing by a prior plaintiff is merely a facet of a defense that a defendant can raise against the plaintiff. Accord Dage, 95 So.3d at 1023 (“[L]ack of standing is an affirmative defense that must be raised by the defendant ?“ (quoting Phadael v. Deutsche Bank Trust Co. Ams., 83 So.3d 893, 895 (Fla. 4th DCA 2012))); Jaffer, 155 So.3d at 1202 (“We have repeatedly held that standing is an affirmative defense?”).
A substantive justification for the defense can be found in the second quotation recounted in the Marianna opinion, which came from the case of Wadley, Jones & Co. v. Jones, 55 Ga. 329, 330 (1875). In that case, the Georgia Supreme Court gave the following laudatory explanation for the standing-at-inception rule:
It is a rule of law to which there is, perhaps, no exception, either at law or in equity, that to recover at all there must be some cause of action at the commencement of suit? [T]here are reasons of public policy, as well as of private justice, why there should be no needless haste in fomenting litigation, and why people who are in no default and have committed no wrong should not be summoned before the public tribunals to answer complaints which are groundless.
Id. (emphasis added). According to Jones, then, the standing-at-inception rule emanates from the litigants’ relative equities; its focus rests on the substance of the controversy, not its form.
B.
Relegated to an affirmative defense within an equitable proceeding, the standing-at-inception rule may hold merit in some foreclosure cases. See id. at 330. Certainly one can more readily glean alignment between the defensive application of this common law rule and the “public policy” and “private justice” considerations that the Jones court alluded to (and which were implicitly adopted in Marianna ). But that is not how the rule is applied in Florida today. Somehow, and without any obvious explanation, Marianna ‘s rule of standing at the inception of a case became intertwined with foreclosure proceedings and then transformed from what was arguably an affirmative defense for those “who are in no default” into a jurisdictional threshold that a foreclosing plaintiff must cross to claim relief, regardless of a defendant’s default. Cf. May v. PHH Mortg. Corp., 150 So.3d 247, 248–49 (Fla. 2d DCA 2014) (holding that bank’s failure to present evidence that it held defendant’s note prior to inception of its foreclosure lawsuit was a “failure to prove a prima facie case” that warranted dismissal). Whatever its merits, the standing-at-inception rule has strayed beyond the trajectory of its origin.
III.
The trial in this case illustrates how far off track this rule has gone. At the time the original complaint was filed in 2008, the Corrigans had not made a payment on their mortgage loan for three months. Nor apparently did they make any subsequent loan payments in the ensuing six years leading up to their trial. By Bank of America’s reckoning, they owed over $346,459.44 on their debt. And although represented by counsel throughout the underlying litigation, neither of the Corrigans appeared at the trial in their case. Indeed, with their standing-at-inception argument, they need not have bothered. Their lawyer proffered no testimony or evidence, gave no explanation for their nonpayment, made no cross-examination of Bank of America’s one witness, and never suggested that the original plaintiff’s lack of standing visited any prejudice, of any kind, upon his clients. The Corrigans all but conceded that Bank of America had acquired standing to pursue its claim against them at the time of trial.4
In essence, the Corrigans’ successful defense to this lawsuit rested on a mechanical, unwavering, jurisdictional application of the common law standing-at-inception rule. Perhaps nothing more succinctly reveals how fully engrained the automation of this rule has become in foreclosure proceedings than the Corrigans’ attorney’s arguments before the trial court:
THE COURT: Defense want to put on anything?
MR. STOPA: No, I have a Motion for Involuntary Dismissal, Judge? [T]here was no testimony at all given as to—as to standing at inception. No testimony at all as to that the plaintiff had possession of an endorsed note at the time it filed the suit. Did they get the Note in to evidence? Certainly. Is the Note endorsed? Yes. However, there is nothing establishing that the plaintiff had possession of an endorsed Note when they filed the suit? So they have nothing establishing possession of an endorsed Note before they filed suit. That’s what you have to have in order to be the holder?
You know what. I don’t need—I don’t need to put a case on this record. I’m going to win in the Second District?
Indeed.
Whatever the competing equities may have been in this case—whether for Bank of America or for the Corrigans—our standing-at-inception rule, as it is presently applied, will not allow them a passing thought. Because Bank of America could not prove the technical point of a prior plaintiff’s standing, we must ignore the merits of an equitable controversy. To my mind, that hardly seems equitable.
IV.
On this issue, our court raised a question of great public importance. See Focht, 124 So.3d at 312 (noting “the ongoing foreclosure crisis in this State” and certifying the following question of great public importance: “Can a plaintiff in a foreclosure action cure the inability to prove standing at the inception of suit by proof that the plaintiff has since acquired standing?”). It remains an unresolved question that, I believe, would be well worth answering. The jurisdictional application of the standing-at-inception rule in foreclosure cases neither comports with the rule’s common law origins, nor does it seem defensible within the tenets of equity. While it remains the law, I must concur with our court’s decision to continue following this rule. I simply wish we could stop following it so blindly.
FOOTNOTES
1. See, e.g., McLean v. JP Morgan Chase Bank, N.A., 79 So.3d 170, 174 (Fla. 4th DCA 2012) (holding that bank’s assignment of note dated three days after filing of a complaint failed to establish its standing because the plaintiff must prove it “had standing to foreclose at the time the lawsuit was filed ”).
2. Properly understood, the requirement to prove standing merely ensures that a plaintiff holds “a sufficient stake in a justiciable controversy” to warrant a judicial decree. Whitburn, LLC v. Wells Fargo Bank, N.A., 40 Fla. L. Weekly D2797 (Fla. 2d DCA Dec. 18, 2015) (quoting Centerstate Bank Cent. Fla., N.A. v. Krause, 87 So.3d 25, 28 (Fla. 5th DCA 2012)); see also Hayes v. Guardianship of Thompson, 952 So.2d 498, 505 (Fla.2006) (holding that standing “requires a would-be litigant to demonstrate that he or she reasonably expects to be affected by the outcome of the proceedings, either directly or indirectly”). Ordinarily, Florida courts do not construe a plaintiff’s lack of standing as if it were a jurisdictional defect. See Godfrey v. Reliance Wholesale, Inc., 68 So.3d 930, 931 (Fla. 3d DCA 2011) (denying defendant’s petition for writ of prohibition “[b]ecause a lack of standing is insufficient to deprive a circuit court of subject matter jurisdiction”). It is an affirmative defense. Dage v. Deutsche Bank Nat. Trust Co., 95 So.3d 1021, 1023 (Fla. 2d DCA 2012); Jaffer v. Chase Home Finance, LLC, 155 So.3d 1199, 1202 (Fla. 4th DCA 2015). And unlike the defense of lack of subject matter jurisdiction, under Florida law a standing defense can be waived. Compare Fla. R. Civ. P. 1.140(h) (“The defense of lack of jurisdiction of the subject matter can be raised at any time.”), and Strommen v. Strommen, 927 So.2d 176, 179 (Fla. 2d DCA 2006) (“A trial court’s lack of subject matter jurisdiction makes its judgments void, and a void judgment can be attacked at any time, even collaterally.” (footnote omitted) (citing rule 1.140(h) and Gonzalez v. Gonzalez, 654 So.2d 257 (Fla. 3d DCA 1995))) with Jaffer, 155 So.3d at 1201 (holding that the failure to raise the affirmative defense of standing in a responsive pleading “generally results in a waiver”).
3. Those cases are: Collier v. Crawford, Minor 100 (Ala.1822); Scott v. Fowler, 14 Ark. 427 (1854); Lewis v. Fox, 54 P. 823 (Cal.1898); Wadley v. Jones, 55 Ga. 329 (1875); Smith v. Smith, 22 Kan. 699 (1879); Dugas v. Truxillo, 15 La. Ann. 116 (1860); Wheatland v. Lovering, 10 Gray 16 (Mass.1857); Hovey v.. Sebring, 24 Mich. 232 (1872); Werth v. Springfield, 22 Mo.App. 12 (1886); Tappan v. Tappan, 30 N.H. 50 (1855); Robinson v. Burleigh, 5 N.H. 225 (1830); Banigan v. Nyack, 49. N.Y.S. 199 (N.Y.App.Div.1898); Dean v. Metropolitan El. R. Co., 23 N.E. 1054 (N.Y.1890); Wattson v. Thibou, 17 Abb. Pr. 184 (N.Y. Gen. Term 1863); Hare v. Van Deusen, 32 Barb. 92 (N.Y.1860); Garrigue v. Loescher, 3 Bosw. 578 (N.Y.1858); Storm v. Livingston, 6 Johns Ch. 44 (N.Y.1810); Dewit v. Greenfield, 5 Ohio 225 (1831); Roud v. Griffith, 11 Serg. & Rawle 130 (Pa.1824); McLaughlin v.. Parker, 3 Serg. & Rawle 144 (Pa.1817); Stewart v. McBride, 1 Serg. & Rawle 202 (Pa.1814); Campbell v. Scaife, 1 Phila. 187 (Pa.1820); Miller v. Ralston, 1 Serg. & Rawle 309 (Pa.1815); Blevins v. Alexander, 36 Tenn. 583 (1857); Nashville Bank v. Ragsdale, 7 Tenn. 296 (1823); Reed v. Brewer, 7 Tenn. 275 (1823); Crescent Ins. Co. v. Camp, 64 Tex. 521 (1885); Cox v. Reinhardt, 41 Tex. 591 (1874); Moreland v. Atchison, 24 Tex. 164 (1859); Bradford v. Hamilton, 7 Tex. 55 (1851); Linn v. Scott, 3 Tex. 67 (1848); Wetherell v. Evarts, 17 Vt. 219 (1845); Turner v. Pierce, 31 Wis. 342 (1872).
4. Such a concession would be appropriate. As the majority opinion notes, Bank of America had filed the original note with the court prior to trial, which would confer standing upon Bank of America as a holder of the Corrigans’ promissory note. See Riggs v. Aurora Loan Servs., LLC, 36 So.3d 932, 933 (Fla. 4th DCA 2010) (holding that loan servicer’s “possession of the original note, indorsed in blank, was sufficient under Florida’s Uniform Commercial Code to establish that it was the lawful holder of the note, entitled to enforce its terms”). The majority opinion also mentions an “assignment of mortgage” from MERS to Bank of America (a document that purported to transfer the Corrigans’ mortgage, not the underlying promissory note) but does not explain its significance with respect to the issue of standing. I would give it none. See Bristol v. Wells Fargo Bank, N.A., 137 So.3d 1130, 1133 (Fla. 4th DCA 2014) (recognizing that “[a]n assignment of the mortgage without an assignment of the debt creates no right in the assignee” (quoting Vance v. Fields, 172 So.2d 613, 614 (Fla. 1st DCA 1965))); but see Bank of New York v. Raftogianis, 13 A.3d 435, 450 (N.J.Super.Ct. Ch. Div.2010) (observing that “commentators have noted the propriety of treating the assignment of a mortgage, without a specific reference to the underlying obligation, as effectively transferring both interests” (citing Myron C. Weinstein, 29 N.J. Prac., Law of Mortgages § 11.2 (2d ed. 2001) (“[T]o hold ? that when one in terms assigns a mortgage, he intends, not an effective transfer of his lien alone, which is an absolute nullity, not only ignores [the] ordinary use of the term ‘mortgage,’ but is also in direct contravention of the well-recognized rule that an instrument shall if possible be construed so as to give it a legal operation.”))).
KHOUZAM, Judge.
NORTHCUTT, CASANUEVA, SILBERMAN, WALLACE, MORRIS, BLACK, SLEET, SALARIO, and BADALAMENTI, JJ., Concur.ALTENBERND, J., Concurs with an opinion in which LaROSE and CRENSHAW, JJ., Concur.LUCAS, J., Concurs with an opinion in which VILLANTI, C.J., and KELLY, J., Concur.LaROSE and CRENSHAW, JJ., Concur.VILLANTI, C.J., and KELLY, J., Concur.
Kris and Rebecca Kraft face losing their South Tampa Home, even though they’ve never missed a mortgage payment. They never even did business with the bank trying to take their home.
The Krafts bought their house, at 1508 S. Arrawana Ave., in 2013. Everything was fine, but then they started receiving strange mail from real estate professionals. The professionals offered to help the couple fight foreclosure or relocate to another home they could afford.
“It’s mind blowing that something like this could happen,” Kris Kraft told 8 On Your Side.
Then the situation got worse. They came home to find foreclosure notices taped to their front door and garage. Plus, a “relocation specialist,” hired by Nationstar Bank, started calling constantly, wanting to the Krafts to move out.
The following table contains the maximum attorney’s fees that Fannie Mae allows for legal work related to foreclosures for all Fannie Mae mortgage loans.
A 66-year-old Wenatchee apparently killed himself Sunday after refusing to leave his home, which had been foreclosed and sold.
The home’s new owners had arrived at the home and were trying to make contact with the man, Capt. Doug Jones of Wenatchee police said Monday. They called police after hearing two gunshots.
Democratic presidential hopefuls Bernie Sanders and Hillary Clinton are flooding Nevada with volunteers ahead of this week’s key nominating contest but they face a problem – the addresses, phone numbers and other personal data they need to reach many voters are out of date.
Nevada, which is more than a quarter Latino, was one of the states worst affected by the 2008 financial meltdown, with hundreds of thousands of families unable to pay their mortgages and forced to move in a crisis that by some estimates hit minorities twice as hard as whites.
With the foreclosed homes often switching hands multiple times – from homeowner to bank to investor and back to another homeowner in just a few years – keeping up with voters who at some point lived in those homes is difficult.
![Kyser v. Bank of America, NA | FL 1stDCA – “[A]n assignment of mortgage, even if executed before the foreclosure action commenced, is insufficient to prove standing where the assignment reflects transfer of only the mortgage, not the note.”](https://stopforeclosurefraud.com/wp-content/themes/gazette/thumb.php?src=wp-content/uploads/2016/02/broken_chain.jpg&w=100&h=57&zc=1&q=90)
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