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Establishing Standing in a Foreclosure Proceeding

May 17, 2021 Banking & Financial Services Industry Legal Blog

Reading Time: 7 minutes


In order to maintain a foreclosure action against a borrower, lenders must ensure they can establish “standing”. Standing is a fundamental requirement for a foreclosure, as lenders who desire to initiate a foreclosure proceeding are required to have standing. Possession of the promissory note establishing proof of liability was always required to establish standing. However, after the 2008 crash, Section 702.015, Florida Statutes, added procedural requirements for lenders to follow when filing their complaint, including establishing proof of possession of the promissory note when filing the complaint.

establishing standing foreclosure proceeding original note possession challenges to standing foreclosure judgment

What is Standing?

In its broadest sense, standing in a foreclosure proceeding is no more than having, or representing one who has, “a sufficient stake in an otherwise justiciable controversy to obtain judicial resolution of that controversy.” Kumar Corp. v. Nopal Lines, Ltd., 462 So. 2d 1178, 1182 (Fla. 3d DCA 1985). Section 673.3011, Florida Statutes, identifies when the right to enforce a promissory note applies, and provides a “person entitled to enforce” an instrument means: (1) The holder of the instrument; (2) A non-holder in possession of the instrument who has the rights of a holder; or (3) A person not in possession of the instrument who is entitled to enforce the instrument pursuant to Section 673.3091, Florida Statutes, or Section 673.4181(4), Florida Statutes. 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 or when the final judgment is entered, and that they had standing as of the time the foreclosure complaint was filed. Craven-Lazarus v. Pennymac Holdings, LLC, 199 So. 3d 1029, 1030 (Fla. 4th DCA 2016); Fielding v. PNC Bank National Association, 239 So. 3d 140 (Fla. 5th DCA 2018).

Types of People Who Have Standing

1. The Holder of the Instrument

“Holder” means the person in possession of a negotiable instrument that is payable either to the bearer or to an identified person that is the person in possession. Section 671.201(21)(a), Florida Statutes. A plaintiff who is not the original lender and payee of the note may establish its standing to foreclose with proof that it is in possession of the original note with a blank or special indorsement. Kenney v. HSBC Bank USA, Nat’l Ass’n, 175 So. 3d 377, 379 (Fla. 4th DCA 2015). A blank indorsement is made when the payee identified on the note signs the note. The holder of a note with a blank indorsement is only required to show possession of the note at the time the complaint was filed. Wells Fargo Bank, N.A. v. Ousley, 212 So. 3d 1056, 1057 (Fla. 1st DCA 2016). A special indorsement occurs when the original payee signs the original note and writes that the note is only payable to the party identified on the note by the payee. In either case, the indorsement must have been made prior to the filing of the lawsuit in order to establish the plaintiff’s standing. Russell v. Aurora Loan Services, LLC, 163 So. 3d 639, 642 (2015).

2. A non-holder in possession of the original note who has the rights of a holder

A non-holder in possession of the original note may prove its right to enforce the note through: (1) evidence of an effective transfer; (2) proof of purchase of the debt; or (3) evidence of a valid assignment.” Bank of N.Y. Mellon Tr. Co., N.A. v. Conley, 188 So.3d 884, 885 (Fla. 4th DCA 2016). A non-holder in possession must account for its possession of the instrument by proving the transaction (or series of transactions) through which it acquired the note. Id.

A servicer acting as a collection agent for the holder of a promissory note will have standing to bring an action by establishing evidence of a valid assignment. The servicer may submit evidence of an assignment from the payee to the plaintiff or an affidavit of ownership to prove its status as a holder of the note. Servedio v. US Bank Nat. Ass’n, 46 So. 3d 1105, 1107 (Fla. Dist. Ct. App. 2010). The original assignor of a mortgage that has been collaterally assigned cannot bring a foreclosure action without the knowledge and consent of the assignee. Laing v. Gainey Bldrs. Inc., 184 So.2d 897 (Fla. 1st DCA 1966).

3. A person not in possession of the instrument who is entitled to enforce the instrument.

The first two avenues apply when the original promissory note is available. Section 673.3091, Florida Statutes applies when the party seeking to enforce a promissory note cannot establish physical possession of the original promissory note. According to Section 673.3091, Florida Statutes, a person not in possession of an instrument is entitled to enforce the instrument if: (a) The person seeking to enforce the instrument was entitled to enforce the instrument when loss of possession occurred, or has directly or indirectly acquired ownership of the instrument from a person who was entitled to enforce the instrument when loss of possession occurred; (b) The loss of possession was not the result of a transfer by the person or a lawful seizure; and (c) The person cannot reasonably obtain possession of the instrument because the instrument was destroyed, its whereabouts cannot be determined, or it is in the wrongful possession of an unknown person or a person that cannot be found or is not amenable to service of process. The person seeking enforcement of an instrument must also prove the terms of the instrument and the person’s right to enforce the instrument.

What Does Possession Mean?

Possession means actual physical possession of the original note. However, Florida courts allow for constructive possession to be established when a person has such control over the property that he may deliver the possession of it, if he so desires, as for example, where an agent holds property for his principal. Bank of N.Y. Mellon v. Heath, 219 So.3d 104, 106 (Fla. 4th DCA 2017).

Additionally, Section 702.015, Florida Statutes, requires that if the plaintiff is in possession of the original promissory note, the plaintiff must file under penalty of perjury a certification with the court, contemporaneously with the filing of the complaint for foreclosure, that the plaintiff is in possession of the original promissory note. Correct copies of the note and all allonges to the note must be attached to the certification. The original note and the allonges must be filed with the court before the entry of any judgment of foreclosure or judgment on the note.

Defending Against Challenges to Standing

Should a challenge to standing arise, there are two additional rules to consider. First, standing is an affirmative defense and failure to raise it in a responsive pleading generally results in a waiver. Jaffer v. Chase Home Fin., LLC, 155 So. 3d 1199, 1202 (Fla. 4th DCA 2015).  Thus, any challenges to standing must be raised in the answer, or such challenge will be waived. Second, lenders are required to have standing when suit is filed. Beaumont v. Bank of New York Mellon, 81 So. 3d 553, 555 (Fla. 5th DCA 2012). Even if a foreclosure defendant waives the right to challenge the lenders standing as of the date suit was filed, the lender must prove its right to enforce the note as of the time any final judgment is entered. Id.

Conclusion

Standing is a critical element for lenders to consider during foreclosure. Lenders are required to have standing both at the time of filing and upon entry of the foreclosure judgment. An understanding of standing and possession will ensure lenders are able to smoothly navigate through a foreclosure proceeding and withstand any potential challenges to standing.


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