Florida’s Second DCA: Florida Law Remains That Plaintiffs in Foreclosure Actions Must Have Standing at the Time of Filing Suit

On September 25, 2013, Florida’s Second District Court of Appeal issued an opinion regarding a very familiar topic in Florida – a plaintiff’s standing to file and maintain a foreclosure action.  In Focht vs. Wells Fargo Bank, the Second DCA upheld the long-established precedent that a plaintiff in a foreclosure action must prove that it had standing at the time it filed the foreclosure complaint in order to maintain the action.  2013 WL 5338048 (Fla. 2d DCA 2013).  If plaintiff lacks standing at inception, the defendant can have the case dismissed via summary judgment proceedings.  Id.

Standing, in the legal context, is defined as having a sufficient legally protectable stake or interest in a dispute against another entity that entitles a person to bring the controversy before the court for judicial relief. When it comes to foreclosure actions, the plaintiff is usually a financial institution, which means that the financial institution must demonstrate it has a legally protectable stake or interest in the property to be foreclosed upon at the time it initiated legal action.  Proving standing can become difficult for a plaintiff-bank who was not the original lender of the mortgage note.  A plaintiff-bank who is not the original mortgagee may establish standing to foreclose a mortgage loan by submitting (1) a note with a blank or special endorsement; (2) a valid assignment of the note; or (3) an affidavit otherwise proving the plaintiff’s status as the holder of the note.  McLean v. JP Morgan Chase Bank Nat’l Ass’n, 79 So.3d 170, 173 (Fla. 4^th DCA 2012).

In Focht vs. Wells Fargo Bank, the homeowner (Focht) appealed the lower court’s granting of final summary judgment in favor of Wells Fargo by claiming that Wells Fargo never proved it had standing to file the foreclosure action in January of 2008.  2013 WL 5338048 at 1.  Wells Fargo argued that it did indeed have standing by putting forth two arguments:  (1) on September 2008 it received a valid assignment of the note and mortgage, and (2) it had standing as the holder of the original note endorsed in blank.  Id. at 2.

Regarding Wells Fargo’s first argument, the Second District explained that receiving a valid assignment nearly eight months after filing the foreclosure complaint does not establish that Wells Fargo had standing at the inception of the lawsuit; rather, it proves exactly the opposite. Id. at 3.  As to Wells Fargo’s second argument, its undoing was the fact that its foreclosure complaint included a separate count to reestablish a lost note, meaning that Wells Fargo admitted that it did not have possession of the note when it filed the lawsuit.  Id.  According to Wells Fargo, it had found the lost note after filing the complaint and prior to the appeal.  The Second DCA held that to establish standing as holder of a note endorsed in blank, Wells Fargo needed to be in possession of the original note at the time it filed the lawsuit, which it was not based on its count to reestablish the lost note.  Id. at 4.

The holding of Florida’s Second DCA can be summarized as follows:  (1) if standing in foreclosure actions is predicated on a valid assignment, the plaintiff must prove it had that valid assignment prior to bringing the foreclosure action, and (2) if standing in foreclosure actions is predicated on possessing the original note endorsed in blank, the plaintiff must prove it had actual possession of that original note prior to bringing the foreclosure action.  Id. at 5.  In this case, Wells Fargo proved neither; thus, the homeowner won on appeal and had the final judgment of foreclosure overturned.  Id. at 6.

In its opinion, Florida’s Second DCA explained that numerous foreclosure judgments have recently been overturned on appeal due to the plaintiff-bank being unable to prove it had standing when filing the action although it later proved it gained standing prior to the final hearing.  Id. at 7.  The Second DCA also acknowledged that financial institutions run into this problem quite often due to the volume of foreclosures in Florida and their poor record keeping.  It then recognized that Florida’s Supreme Court has yet to definitively rule on whether lack of standing can be cured in this narrow and specific context when a plaintiff-bank proves standing prior to a final hearing.  As a result, the Second DCA, in its opinion, certified the following question to the Florida Supreme Court:  “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?”  Id. at 8.

As of the date of this blog, the long-established rule in Florida continues to be valid law—a plaintiff in a foreclosure action must prove it had standing at inception in order to maintain and prevail in its foreclosure action.  However, whether this current rule of law remains good law going forward depends upon the Florida Supreme Court’s answer to the question certified to it by Florida’s Second DCA.