2010 NY Slip Op 50909(U)

DEUTSCHE BANK NATIONAL TRUST COMPANY AS TRUSTEE UNDER THE POOLING AND SERVICING AGREEMENT DATED AS OF FEBRUARY 1, 2007, GSAMP TRUST 2007-FM2, Plaintiff,
v.
WILHELMENA STEVENS, Defendant.

15862/08.

Supreme Court, Kings County.

Decided May 18, 2010.

Jeffrey A Kosterich & Assoc, Plaintiff Attorney.

Wilhelmena Stevens Pro se, Defendant Attorney.

YVONNE LEWIS, J.

The plaintiff, Deutsche Bank National Trust Company moves for an order granting it summary judgment, appointing a referee to compute, deleting from the caption the remaining defendants sued herein as “JOHN DOE ONE” through “JOHN DOE TEN” and awarding plaintiff costs and sanctions for frivolous conduct pursuant to 22 NYCRR § 130.

Plaintiff commenced this action on June 2, 2008 to foreclose a mortgage executed by defendant Wilhelmena Stevens on October 26, 2006 and encumbering the property at 517 Christopher Street in Brooklyn. The mortgage was given to secure a loan from Fremont Investment & Loan (Fremont) in the amount of $225,000.00. The plaintiff became the holder of the mortgage by assignment from MERS (as nominee of Fremont) dated June 11, 2008.

In response to the summons and complaint, Ms. Stevens sent the plaintiff’s counsel a handwritten letter, dated June 16, 2008, wherein she stated, in sum and substance, that her loan originated with Fremont, that The plaintiff’s name was not mentioned anywhere in the loan documents and that she desired proof as to The plaintiff’s status as the mortgagor.

When a court is deciding a motion for summary judgment, it can search the record and, even in the absence of a cross motion, may grant summary judgment to a non-moving party (CPLR 3212[b]; Dunham v Hilco Constr. Co., Inc., 89 NY2d 425 [1996]).

“Where the plaintiff is the assignee of the mortgage and the underlying note at the time the foreclosure action was commenced, the plaintiff has standing to maintain the action” (Federal Natl. Mtge. Assn. v Youkelsone, 303 AD2d 546, 546-547 [2003]; see Natl. Mtge. Consultants v Elizaitis, 23 AD3d 630, 631 [2005]). On the other hand, “foreclosure of a mortgage may not be brought by one who has no title to it” (Kluge v Fugazy, 145 AD2d 537, 538 [1988]) and an assignee of such a mortgage does not have standing to foreclose unless the assignment is complete at the time the action is commenced (see Wells Fargo Bank, N.A. v Marchione, 69 AD3d 204 [2009]; Lasalle Bank Nat. Assn. v Ahearn, 59 AD3d 911 [2009]).

Since it is clear from the face of the summons that this action was commenced on June 2, 2008, which is prior to the date of the mortgage assignment, and the record contains no proof demonstrating that there was a physical delivery of the mortgage prior to June 2, 2008, this court finds that The plaintiff has no standing to maintain this action.

Accordingly, The plaintiff’s motion is denied in all respects, and this action is dismissed without prejudice (see Citigroup Global Markets Realty Corp. v Randolph Bowling, 25 Misc 3d 1244[A], 2009 NY Slip Op 52567[U] [2009]).

The foregoing constitutes the decision and order of the court.

In re: SIMEON MORENO, Chapter 13, Debtor

Case No. 08-17715-FJB.

United States Bankruptcy Court, D. Massachusetts, Eastern Division.

May 24, 2010.

MEMORANDUM OF DECISION ON MOTION OF PROPERTY ASSET MANAGEMENT, INC. FOR RELIEF FROM THE AUTOMATIC STAY

FRANK J. BAILEY, Bankruptcy Judge

In the Chapter 13 case of debtor Simeon Moreno, Property Asset Management, Inc. (“PAM”), claiming to be the assignee of a mortgage originally given by the debtor to Mortgage Electronic Registration Systems, Inc. (“MERS”) as nominee for lender GE Money Bank, moved for relief from the automatic stay to foreclose the mortgage. Moreno initially opposed the motion but then withdrew his objection, whereupon the Court granted the relief requested. Months later, at Moreno’s request, the Court vacated the order granting relief from stay and scheduled an evidentiary hearing on the Motion for Relief from Stay for the limited purpose of reconsidering whether PAM had an interest in the mortgage it sought to foreclose and, to that extent, standing to seek relief from stay.^[1] Having held the evidentiary hearing and received proposed findings and conclusions, the Court now enters the following findings of fact and conclusions of law.

Findings of Fact and Procedural History

On January 23, 2007, Moreno executed a promissory note in the principal amount of $492,000, payable to lender GE Money Bank. GE subsequently endorsed the note in blank, whereupon possession of the note was transferred through a series of holders and ultimately to Lehman Brothers Holdings, Inc. (“LBHI”), who held the note when PAM filed its Motion for Relief from Stay and continues to hold it now.^[2] LBHI, through one of its employees and through LBHI’s attorney, who not coincidentally also is PAM’s attorney in the present matter, produced the original note at the evidentiary hearing. PAM is not now a holder of the note or an entity for whose benefit another has held the note.

To secure the promissory note, Moreno gave a mortgage on the real property at 5 Maple Street, West Roxbury, Massachusetts (the “Property”) to MERS as nominee for GE (the “Mortgage”). The Mortgage specifies that MERS “is a separate corporation that is acting solely as a nominee for [GE] and [GE’s] successors and assigns. MERS is the mortgagee under this security instrument.” The Mortgage further provides that Moreno does hereby mortgage, grant and convey to MERS (solely as nominee for [GE] and [GE’s] successors and assigns) and to the successors and assigns of MERS, with power of sale, the [Property]. . . . Borrower understands and agrees that MERS holds only legal title to the interests granted by Borrower in this Security Instrument, but, if necessary to comply with law or custom, MERS (as nominee for [GE] and [GE’s] successors and assigns) has the right: to exercise any or all of those interests, including, but not limited to, the right to foreclose and sell the Property; and to take any action required of [GE] including, but not limited to, releasing and canceling this Security Instrument.

The Mortgage was duly recorded.

MERS administers an electronic registry to track the transfer of ownership interest and servicing rights in mortgage loans. With respect to certain loans of which its members are the beneficial owners, MERS also serves as mortgagee of record and holds legal title to the mortgages in a nominee capacity. MERS remains the mortgagee of record when beneficial ownership interests or servicing rights are sold from one member of the MERS system to another. When the beneficial interest in a mortgage loan is transferred from one member of the MERS system to another, MERS tracks the transfer through its internal records. When rights are transferred from a member of the MERS system to a non-member, MERS executes and records an assignment from MERS to the non-member.

To facilitate the execution of the assignments from MERS, MERS designates “certifying officers,” who are typically employees of MERS member firms. MERS authorizes these employees, through formal corporate resolutions, to execute assignments on behalf of MERS. On or about January 6, 2005, MERS, through a document entitled Corporate Resolution and issued by its board of directors, authorized Denise Bailey, an employee of Litton Loan Servicing L.P. (“Litton”), a member of MERS, to execute such assignments on behalf of MERS. In the language of the authorizing document (the “MERS Authorization”),^[3] Ms. Bailey was authorized to, among other things, “assign the lien of any mortgage loan naming MERS as the mortgagee when the Member [Litton] is also the current promissory note-holder, or if the mortgage loan is registered on the MERS System, is shown [sic] to be registered to the Member”^[4]; and Ms. Bailey was further authorized to “take any such actions and execute such documents as may be necessary to fulfill the Member’s servicing obligations to the beneficial owner of such mortgage loan (including mortgage loans that are removed from the MERS System as a result of the transfer thereof to a non-member of MERS).” In each instance, Bailey’s authority to act is dependent on the existence of a specified relationship of Litton, the MERS member for whom she is employed, to the loan in question.

The Moreno loan was entered into the MERS tracking database in the ordinary course of business. Thereafter, MERS tracked the beneficial interest in the loan. The beneficial interest was transferred from G.E. Money Bank to WMC Mortgage Corporation; then, on September 19, 2007, from WMC Mortgage Corporation to Aurora Bank FSB (formerly known as Lehman Brothers Bank FSB), and then, on July 30, 2008, from Aurora Bank FSB to LBHI. Aurora Bank was at all relevant times a wholly-owned subsidiary of LBHI.

With respect to the Moreno Mortgage, MERS remained the mortgagee of record until, on or about April 30, 2008, MERS, acting through Denise Bailey, assigned the Mortgage to PAM. At the time, Aurora Bank FSB was the beneficial owner of the loan. In executing the MERS assignment to PAM, Ms. Bailey purported to be acting under her MERS Authorization.

The MERS Authorization limited Ms. Bailey’s authority to act for MERS to matters with respect to which Litton was involved in at least one of the ways specified in the above-quoted language from the MERS Authorization. There is evidence, and I find, that Aurora Bank FSB had requested that Litton transfer the loan from MERS to PAM in anticipation of foreclosure. However, PAM has adduced no evidence that Litton had any specified connection to this loan at the time it executed this assignment. There is no evidence that Litton was then (or at any time) the servicer of the loan for Aurora Bank or that Litton was registered as servicer of the loan in the MERS system.^[5] (PAM does not contend that Litton was the holder of the promissory note or the owner of the beneficial interest in the loan.)

Scott Drosdick, a vice-president of LBHI and witness for PAM at the evidentiary hearing, testified that Aurora Bank’s instruction to Litton to transfer the mortgage to PAM was later “ratified by LBHI.” Drosdick did not explain what he meant by this, precisely how and when this ratification occurred. Absent such evidence and clarification, this testimony is too vague to have any definite meaning; accordingly I give it no weight.

By a master servicing agreement dated February 1, 1999, LBHI engaged Aurora Loan Services, Inc., now known as Aurora Loan Services LLC (“ALS”), as master servicer of certain loans, including eventually the present Moreno loan. In turn, ALS engaged Litton to service certain loans, including eventually this same loan.

After Bailey executed the MERS assignment to PAM, Bailey executed another assignment of the same mortgage from MERS to LBHI. This second assignment was never recorded; nor is there evidence that it was ever delivered by MERS to LBHI.

Moreno filed a petition for relief under Chapter 13 of the Bankruptcy Code on October 13, 2008, commencing the present bankruptcy case. On November 13, 2008, LBHI, acting through its servicer Litton Loan Servicing, LP, filed a proof of claim in this case; the proof of claim asserts a claim, secured by real estate, in the total amount of $530,168.04, the same secured claim as PAM now seeks relief from stay to enforce by foreclosure. On the proof of claim form itself, Litton actually identifies the creditor claimant as simply “Litton,” but on an explanatory document attached to the proof of claim form, Litton states that the claim is filed by “Litton Loan Servicing, LP, as Servicing Agent for Lehman Brothers Holdings Inc.” The proof of claim does not mention PAM or indicate in any way that the mortgage securing the claim is held by anyone other than LBHI.

On March 31, 2009, and at LBHI’s direction, PAM filed the present motion for relief from the automatic stay, seeking relief from the automatic stay to foreclose and to preserve its rights as to a potential deficiency. PAM intends and is obligated to remit the proceeds of the intended foreclosure sale to Aurora Loan Services LLC, as servicer for LBHI. Regarding ownership of the note and Mortgage, PAM stated in the motion only that it was the holder of a mortgage originally given by Moreno to MERS, that the mortgage secured a note given by Moreno to GE, and that MERS had assigned the mortgage to PAM. PAM did not indicate that LBHI was the current holder of the note or that it held the mortgage as nominee for the benefit of LBHI or of any other entity. The motion did not mention LBHI.

Moreno filed a response to the motion, in essence an objection, in which he expressly admitted PAM’s allegation that his prepetition arrearage was $39,442.49 and, by lack of denial, tacitly admitted that Moreno was some four months in arrears on his postpetition payments under the mortgage. By these allegations and admissions, PAM has established that Moreno is in default on his mortgage loan obligations; the Court rejects Moreno’s request for a finding that PAM has not established a default. The response made no issue of PAM’s standing to foreclose or to seek relief from stay and did not dispute PAM’s allegations regarding ownership of the note and Mortgage. In any event, before a hearing was held on the motion, Moreno, through counsel, withdrew his objection. Consequently, on April 28, 2009, and without a hearing or any review of apparent inconsistencies in the bankruptcy record concerning ownership of the mortgage and note, the court granted PAM relief from the automatic stay to foreclose and to preserve its rights as to a potential deficiency.

PAM had not yet foreclosed when, on December 2, 2009 and by new counsel, Moreno filed an adversary complaint against PAM and, with it, a motion for preliminary injunction. The complaint sought among other things (i) an order invalidating the mortgage on account of irregularities in its origination and (ii) a declaration that PAM was not the holder of the mortgage and note. In the motion for preliminary injunction, Moreno asked that the foreclosure be stayed, or that the automatic stay be reimposed, pending disposition of the adversary proceeding. On December 7, 2009, after a hearing on the motion for preliminary injunction, the Court found that the motion was, in part, essentially one to vacate the order granting relief from the automatic stay, vacated that order, and scheduled an evidentiary hearing on the motion for relief. The order specified that the sole issue at the evidentiary hearing would be PAM’s standing to seek relief from the automatic stay, all other issues under 11 U.S.C. § 362(d) being deemed established. After discovery, the evidentiary hearing was held on April 8, 2010, and, with the submission of proposed findings and conclusions, the matter was then taken under advisement.

Discussion

As the party seeking relief from stay to foreclose a mortgage on the debtor’s property, PAM bears the burden of proving that it has authority under applicable state law to foreclose the mortgage in question and, by virtue of that authority, standing to move for relief from the automatic stay to foreclose. PAM contends that it has such authority and standing because, although it does not hold the promissory note that the mortgage secures, it does have title to the mortgage itself; and it holds that title as nominee of and for the benefit of the note holder, LBHI, and is foreclosing for LBHI. In these circumstances, PAM contends, a mortgagee has a right under Massachusetts law to foreclose for the benefit of the note holder and therefore standing to move for relief from stay to foreclose. The Debtor objects, arguing (among other things) that Massachusetts law prohibits foreclosure by one who holds only the mortgage and not the note it secures. I need not address the merits of this and other objections because, even if the theory is a valid one, it requires proof that PAM is the present title holder of the mortgage, and PAM has not carried its burden in this regard.

To show that it presently holds the mortgage, PAM must show a valid assignment of the mortgage from MERS to itself. PAM contends that it holds the mortgage by assignment from MERS. Accordingly, PAM must show that the assignment, which was executed for MERS by Denise Bailey, was within the scope of Bailey’s limited authority to act for MERS.

Ms. Bailey’s authority to act for MERS is defined in the MERS Authorization in seven enumerated paragraphs. In each, Ms. Bailey’s authority to act is dependent on the existence of a specified relationship of Litton, the MERS member by whom she is employed, to the loan in question. PAM has submitted no evidence of the existence of any such relationship. The beneficial owner of the loan at the time of the assignment was Aurora Bank FSB, but there is no evidence that Litton was at the time the servicer of the loan for Aurora Bank FSB or was registered with MERS as such. The Court does not find that Aurora Bank FSB had not retained Litton as its servicer; there is simply no evidence on the issue. But the burden is on PAM to prove that it had, and PAM has not adduced evidence to that effect.

Accordingly, by a separate order, the Court will deny PAM’s motion for relief from the automatic stay without prejudice to renewal upon proper proof.

[1] All other issues were resolved upon entry of the original order granting relief from stay. No cause has been adduced to revisit any but the narrow issue of standing.

[2] Moreno contends that LBHI, which is in bankruptcy proceedings of its own, may have sold its interest in the note through a court-approved sale in its bankruptcy case. However, Moreno does not contend that possession of the note has passed from LBHI to the alleged purchaser (or any nominee of the purchaser), and therefore the alleged possible sale is irrelevant, as possession undisputedly remains in LBHI. In any event, Moreno attempted to establish the fact of the alleged sale by designating certain documents on the docket of the LBHI case and asking the Court to take judicial notice of these and then to find them on its own and to determine from them whether the promissory note in question was among the assets transferred. Having found the alleged sale to be irrelevant, the Court declined to take judicial notice of the bankruptcy documents. However, the proffer also failed for two additional reasons: first, that Moreno did not take a position as to whether a sale did occur, only that the Moreno note may have been among those transferred in the sale; and second, even if the court had taken judicial notice as requested, it remained Moreno’s obligation, which he has not fulfilled, to produce the documents in question and to explain in the first instance how one would conclude from them that the asset in question was among those transferred.

[3] MERS Corporate Resolution, attached to Bailey Affidavit as Exhibit 1.

[4] The grammatical difficulty in this second clause is native to the authorizing document.

[5] The original affidavit of Scott Drosdick includes the following two sentences:

By Master Servicing Agreement dated February 1, 1999, LBHI engaged Aurora Bank FSB (f/k/a Lehman Brothers Bank FSB), to master service, among other things, the Loan [the Moreno loan]. In turn, Aurora Bank FSB engaged Litton pursuant to a Flow Subservicing Agreement dated October 1, 2007, to service the loan.”

By an amendment to the affidavit and in testimony, Drosdick later amended his affidavit to correct this passage by striking Aurora Bank FSB from the first sentence and in its place inserting Aurora Loan Services LLC. Drosdick did not expressly change the second sentence, but that sentence, which begins with the critical words “in turn,” would be nonsensical unless the same substitution—Aurora Loan Services LLC for Aurora Bank FSB—were also made in the second sentence. Therefore, though the second sentence might perhaps be read in isolation as evidence that Litton was servicing the loan for Aurora Bank FSB at the time when Bailey executed the assignment, that sentence cannot credibly be so construed.

An Appeal from the Circuit Court for Miami-Dade County, Jon I. Gordon, Judge.

Morgan, Lewis & Bockius and Robert M. Brochin, for appellant.

Jose A. Fuentes (Plantation), for appellees.

Greenberg Traurig and Elliot H. Scherker and Daniel M. Samson for Amicus Curiae Chase Home Finance LLC.

April Carrie Charney (Jacksonville) for Amicus Curiae Jacksonville Area Legal Aid, Inc.

Before FLETCHER and WELLS, JJ., and SCHWARTZ, Senior Judge.

SCHWARTZ, Senior Judge.

As in, and on the authority of, Mortgage Electronic Registration Systems, Inc. v. Azize, ___ So. 2d ____ (Fla. 2d DCA Case no. 2D05-4544, opinion filed, February 21, 2007)[32 Fla. L. Weekly D546], which involved a very similar procedural situation1 and the identical question of law, we reverse the dismissal below of a mortgage foreclosure action brought by Mortgage Electronic Registration Systems, Inc., entered on the asserted but erroneous conclusion that MERS, which acts essentially as a collection and litigation agent for the current owner of notes and mortgages, see Phyllis K. Slesinger & Daniel McLaughlin, Mortgage Electronic Registration System, 31 Idaho L. Rev. 805 (1995), could not establish its standing to proceed.

Although there is little to add to the Second District’s discussion of the issue, with which we entirely agree,2 we do note that this decision is in accord with

1 Unlike Azize, the trial court here went so far as to strike MERS’s pleadings as sham. Even if we were to reach an opposite conclusion on the merits, we do not think that the circumstances of this case, in which the court considered improper MERS’s perhaps disingenuous attempt to claim the status of a conventional “actual” mortgagee, would justify such a ruling. See Cromer v. Mullally, 861 So. 2d 523 (Fla. 3d DCA 2003).

2 Despite the existence of ambiguous language in the Second District opinion as to whether MERS was the “owner and holder of the note and the mortgage” in the clear majority of cases which have considered the question of MERS’s standing to maintain mortgage foreclosure proceedings. See, e.g., In re Huggins, ___ B.R. ____ (Bankr. D. Mass. Case no. 05-18826, opinion filed, December 14, 2006); In re Sina, No. A06-200, 2006 WL 2729544 (Minn. Ct. App. Sept. 26, 2006)(unpublished); Mortgage Elec. Registration Sys., Inc. v. Ventura, No. CV 054003168S, 2006 WL 1230265 (Conn. Super. Ct. April 20, 2006)(unpublished); Mortgage Elec. Registration Sys., Inc. v. Leslie, No. CV044001051, 2005 WL 1433922 (Conn. Super. Ct. May 25, 2005)(unpublished); but cf. LaSalle Bank Nat’l Ass’n v. Lamy, 824 N.Y.S.2d 769 (N.Y. Sup. Ct. 2006)(unreported table decision). To the extent that courts have encountered difficulties with the question, and have even ruled to the contrary of our conclusion, the problem arises from the difficulty of attempting to shoehorn a modern innovative instrument of commerce into nomenclature and legal categories which stem essentially from the medieval English land law. See MERSCORP, Inc. v. Romaine, 8 N.Y.3d 90, 101, 828

question, see Azize, ___ So. 2d at ____ [32 Fla. L. Weekly at D547], we apply the holding that the thing called MERS, see R.K. Arnold, Yes, There is Life on MERS, 11 Prob. & Prop. 32 (July/August 1997), does not lack standing to foreclose to the facts of this case, in which it is clear that, in accordance with the usual practice, MERS was only the holder (by delivery) of the note. See Dasma Invs., LLC v. The Realty Assocs. Fund III, L.P., 459 F. Supp. 2d 1294 (S.D. Fla. 2006). Although it was called the “mortgagee” in the instrument and acted on behalf of the most recent purchaser-assignee-lender, however, MERS was not – again, as usual – its “owner.” We simply don’t think that this makes any difference. See Fla. R. Civ. P. 1.210(a)(action may be prosecuted in name of authorized person without joining party for whose benefit action is brought); 37 Fla. Jur. 2d Mortgages § 519 (2007)(mortgage security follows the note).

N.Y.S.2d 266, 271, 861 N.E.2d 81, ____ (N.Y. 2006)(Kaye, C.J., dissenting in part)(“It is the incongruity between the needs of the modern electronic secondary mortgage market and our venerable real property laws regulating the market that frames the issue before us.”). Because, however, it is apparent – and we so hold – that no substantive rights, obligations or defenses are affected by the use of the MERS device, there is no reason why mere form should overcome the salutary substance of permitting the use of this commercially effective means of business. See 22 Fla. Jur. 2d Equity § 64 (2007).

Accordingly, the orders under review are reversed and the cause is remanded for further proceedings to foreclose the mortgage in question.

Reversed and remanded.

© 2010-19 FORECLOSURE FRAUD | by DinSFLA. All rights reserved.

PIERRE ELLIOTT and LISA ELLIOTT, Appellants,
v.
AURORA LOAN SERVICES, LLC, MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC., as nominee and STONEBROOK ESTATES COMMUNITY ASSOCIATION, INC., Appellees.

No. 4D08-4362.

District Court of Appeal of Florida, Fourth District.

April 7, 2010.

Nathaniel E. Green of Nathaniel E. Green, P.A., Fort Lauderdale, for appellants.

Patricia A. Arango of the Law Offices of Marshall C. Watson, P.A., Fort Lauderdale, for Appellee-Aurora Loan Services, LLC.

TAYLOR, J.

Pierre and Lisa Elliott appeal a final judgment of foreclosure entered for Aurora Loan Services, LLC (Aurora). Because the trial court erred in denying the Elliotts’ verified motion to vacate default and, consequently, erred in entering the final judgment of foreclosure, we reverse.

On March 7, 2008, Aurora filed a complaint against the Elliotts to foreclose on their mortgage. The Elliotts received the summons and complaint on March 11, 2008. According to their verified motion, on March 11, 2008, Lisa Elliott contacted Aurora’s attorney, as directed in a letter attached to the complaint. The attorney instructed they call Aurora directly. The Elliotts did so and they then began a workout agreement. Lisa Elliott, in the verified motion, stated that they reached a proposed “Special Forbearance Agreement” with Aurora, dated June 27, 2008.

Due to the Elliotts’ failure to file any papers, Aurora moved for an entry of default against the Elliotts, which was entered on May 21, 2008. Further, on May 21, 2008, Aurora filed a Motion for Summary Judgment and Motion for Attorneys Fee’s and Memorandum (along with supporting affidavits).

Lisa Elliott stated in the verified motion that they discovered the entry of default for the first time on August 27, 2008. They filed their Verified Motion to Vacate Default with Proposed Answer and Affirmative Defenses on September 3, 2008.

At the hearing on September 24, 2008, the trial court denied the Elliotts’ verified motion to vacate default and granted Aurora’s motion for summary judgment. The court then entered the final judgment of foreclosure.^[1]

The Elliotts argue the court erred by denying their verified motion to vacate default. “`An order denying a motion to vacate a default is reviewed under an abuse of discretion standard.'” Jeyanandarajan v. Freedman, 863 So. 2d 432, 433 (Fla. 4th DCA 2003) (quoting Lloyd’s Underwriter’s at London v. Ruby, Inc., 801 So. 2d 138, 139 (Fla. 4th DCA 2001)).

Florida Rule of Civil Procedure 1.500(a) (2008) provides that a clerk may enter a default against a party who fails to file any papers or pleadings. The court may set aside this default, however, under Rule 1.540(b). Fla. R. Civ. P. 1.500(d). “`Florida public policy favors the setting aside of defaults so that controversies may be decided on the merits.'” Jeyanandarajan, 863 So. 2d at 433 (quoting Lloyd’s Underwriter’s, 801 So. 2d at 139).

Rule 1.540(b) provides that if the terms are just, the court may relieve a party from a final order for mistake, inadvertence, surprise, or excusable neglect. To set aside the default pursuant to this rule, the court must determine: “(1) whether the defendant has demonstrated excusable neglect in failing to respond[;] (2) whether the defendant has demonstrated a meritorious defense; and (3) whether the defendant, subsequent to learning of the default, had demonstrated due diligence in seeking relief.” Halpern v. Houser, 949 So. 2d 1155, 1157 (Fla. 4th DCA 2007) (citing Schwartz v. Bus. Cards Tomorrow, Inc., 644 So. 2d 611, 611 (Fla. 4th DCA 1994)). Because the Elliotts demonstrated these elements, the court abused its discretion in denying their motion to vacate the default.

Excusable neglect is found “where inaction results from clerical or secretarial error, reasonable misunderstanding, a system gone awry or any other of the foibles to which human nature is heir.” Somero v. Hendry Gen. Hosp., 467 So. 2d 1103, 1106 (Fla. 4th DCA 1985). Although ignorance of the law and failure to understand consequences are not viable excuses, “a reasonable misunderstanding between attorneys regarding settlement negotiations does constitute excusable neglect sufficient to vacate a default.” Gables Club Marina, LLC v. Gables Condo. & Club Ass’n, Inc., 948 So. 2d 21, 23-24 (Fla. 3d DCA 2006). In Gables Club, the parties’ attorneys were engaged in settlement talks, and the court found it reasonable that the defendant believed it need not file an answer to the plaintiff’s complaint. Id. at 24.

“`Excusable neglect must be proven by sworn statements or affidavits.'” Geer v. Jacobsen, 880 So. 2d 717, 720 (Fla. 2d DCA 2004) (quoting DiSarrio v. Mills, 711 So. 2d 1355, 1356 (Fla. 2d DCA 1998)). Here, the Elliotts filed a verified motion containing properly sworn statements, as follows:

2. Defendants were served with summons and complaint on or about March 11, 2008.

3. On or about March 11, 2008 I, Lisa Elliott, contacted the attorney for AURORA at XXX-XXX-XXXX to discuss resolution of the complaint. I was instructed to contact the lender.

4. I contacted AURORA and began a workout agreement which lead to a proposed “Special Forbearance Agreement” dated June 27, 2008. See attached letter from Aurora Loan Services marked Exhibit “A”.

Aurora filed no refuting affidavits or other evidence to rebut the Elliotts’ claims that the parties were engaged in settlement negotiations.^[2]

In Gibson Trust, Inc. v. Office of the Attorney General, 883 So. 2d 379, 382 (Fla. 4th DCA 2004), we vacated the default entered by the trial court, stating that “[b]ecause the defendants’ affidavits were uncontradicted and established that there was a `misunderstanding’ regarding whether an extension had been agreed upon, we conclude that excusable neglect was shown.” Similarly, here, the Elliotts’ verified motion indicates they began a workout agreement with Aurora, which led to a proposed “Special Forbearance Agreement.” Aurora failed to file any affidavits refuting this. Therefore, the Elliotts’ uncontradicted verified motion established excusable neglect.

A meritorious defense is established where a “proposed answer [is] attached to its motion to vacate, which answer sets out in detail a number of affirmative defenses.” Fortune Ins. Co. v. Sanchez, 490 So. 2d 249, 249 (Fla. 3d DCA 1986). We similarly held that where a party “immediately filed a proposed answer with affirmative defenses upon receipt of the plaintiffs’ motion to set the cause for trial on damages,” the meritorious-defense and due-diligence elements were met. Broward County v. Perdue, 432 So. 2d 742, 743 (Fla. 4th DCA 1983). The Elliotts’ verified motion to vacate default contained a proposed answer and affirmative defenses, which met the meritorious-defense element.

Finally, due diligence, which is a test of reasonableness, must be evaluated based on the facts of the particular case. Franklin v. Franklin, 573 So. 2d 401, 403 (Fla. 3d DCA 1991). Due diligence must be established with evidence, which includes a sworn affidavit. Cedar Mountain Estates, LLC v. Loan One, LLC, 4 So. 3d 15, 17 (Fla. 5th DCA 2009).

Here, although the default was entered on May 21, 2008, Lisa Elliott, in the verified motion, stated that they discovered the default for the first time on August 27, 2008. Again, this sworn allegation was not refuted by Aurora. Upon discovering the default, the Elliotts filed the verified motion to vacate the default, along with the proposed answer and affirmative defenses; it was dated August 28, 2008, but not rendered with the clerk of court until September 3, 2008. Only six days elapsed between the time the default was discovered and the time the motion to vacate was filed. It has been held that six-day, sevenday, and fifteen-day time lapses between the discovery of a default and the filing of a motion to vacate that default showed due diligence. See Allstate Floridian Ins. Co. v. Ronco Inventions, LLC, 890 So. 2d 300, 303 (Fla. 2d DCA 2004) (citing Goodwin v. Goodwin, 559 So. 2d 109 (Fla. 2d DCA 1990) (six-day delay)); Coquina Beach Club Condo. Ass’n v. Wagner, 813 So. 2d 1061 (Fla. 2d DCA 2002) (seven-day delay); Marshall Davis, Inc. v. Incapco, Inc., 558 So. 2d 206 (Fla. 2d DCA 1990) (fifteen-day delay)). Thus, the Elliotts exercised due diligence by filing the motion to vacate the default within six days of discovery of the default.

Because the Elliotts demonstrated the elements necessary to set aside the default, the trial court abused its discretion in denying their motion and subsequently entering the final judgment of foreclosure.

Accordingly, we reverse the final judgment of foreclosure and order denying the Elliotts’ motion to vacate the default.

Reversed and Remanded.

FARMER and MAY, JJ., concur.

Not final until disposition of timely filed motion for rehearing.

[1] The foreclosure sale was set for November 26, 2008, but the parties agreed to stay the case and cancel the sale pending this appeal.

[2] Although the Gables Club court states that there must have been a “reasonable misunderstanding between attorneys,” this is met because the Elliotts were proceeding pro se.

Originally published: May 6, 2010 8:47 PM
By SID CASSESE  sid.cassese@newsday.com

Photo credit: Newsday / Karen Wiles Stabile | The house at 517 Pinebrook Ct. in West Hempstead, which a judge awarded to Corliss Gittens, free of any liens and mortgages because nobody opposed the action. (May 6, 2010)

A Lakeview woman got an early birthday present when a Nassau County State Supreme Court Justice awarded her the house she lives in, free and clear of any liens and mortgages because nobody opposed the action.

Tuesday, Corliss Gittens, who turned 48 Friday, received the award of her six-room ranch-style house at 517 Pinebrook Ct. from Justice John Galasso.

Gittens bought the house from her parents in late 2000. But when she mailed monthly checks to the mortgage company, Homeside Lending, the checks were never cashed, said Hempstead lawyer Fred Brewington, who represents Gittens. In 2001, Gittens was told by Homeside Lending officials that it could not locate evidence of the mortgage in its records.

“She had a mortgage and a deed. She went to a closing and purchased the house,” said Brewington. “She never stopped trying to find out to whom she should pay the mortgage because the uncertainty was making her distraught.”

Eventually, Gittens learned Homeside ceased to exist, and its parent company, SR Investments, was sold to Washington Mutual in 2002. Washington Mutual was in turn acquired by JPMorgan Chase in 2008. All of the companies, as well as the Federal Deposit Insurance Corporation, were named as respondents.

None opposed Gittens’ suit.

Brewington said he reached out to Chase on the issue, only to be told the bank knew nothing about it.

Michael Fusco, a spokesman for Chase in Manhattan, said the bank “has no comment at this time.”

Gittens did not want to be interviewed for the story, but Brewington quoted her as saying: “After so many years of existing in limbo, I am happy that I will have the resources of my property available to me.”

He said Gittens once sought a second mortgage, but failed to get it because no one could get any information on the existing one. He added that her case was filed to wipe out that mortgage.

County records show the 2009 property tax on the house as $7,667.44.

In his decision Galasso said: “The Court directs the Clerk of the County of Nassau in whose office the mortgage and note were presumably recorded on or about March 6, 2001, to mark the record of the debt secured by the mortgage canceled and discharged.”

County Clerk Maureen O’Connell said Thursday she got the order Thursday and will execute it immediately.

REVERSED : OVERTURNED

“Play it back and rewind”

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