Florida Appellate Court Dismisses Foreclosure Action after Servicer Fails to Prove Standing | Practical Law

Florida Appellate Court Dismisses Foreclosure Action after Servicer Fails to Prove Standing | Practical Law

The Second District Court of Appeal of Florida recently held that a servicer attempting to foreclose a mortgage loan did not present proper documentation to prove standing, and consequently dismissed the action. The loan servicer did not submit an allonge or indorsement to the original promissory note evidencing that the servicer was the holder of the loan.

Florida Appellate Court Dismisses Foreclosure Action after Servicer Fails to Prove Standing

by Practical Law Real Estate
Published on 13 May 2015 • Florida
The Second District Court of Appeal of Florida recently held that a servicer attempting to foreclose a mortgage loan did not present proper documentation to prove standing, and consequently dismissed the action. The loan servicer did not submit an allonge or indorsement to the original promissory note evidencing that the servicer was the holder of the loan.
In Russell v. Aurora Loan Services, LLC, the Second District Court of Appeal of Florida held that Aurora Loan Services and substitute party plaintiff Nationstar Mortgage, LLC both lacked the standing as servicers to foreclose against the borrower, William Russell ( (Fla. Dist. Ct. App. Apr 24, 2015)).

Background

In February of 2011, Aurora filed a complaint for foreclosure, alleging that it was authorized to bring suit as servicer of Russell's mortgage loan. Aurora attached to the complaint:
  • A note payable to First National Bank of Arizona.
  • An allonge with three indorsements, the third of which named Deutsche Bank Trust Company Americas as Trustee as the final payee.
  • A mortgage in favor of Mortgage Electronic Registration Systems, Inc. (MERS), as nominee for First National Bank of Arizona.
  • An assignment of mortgage from MERS as nominee for First National Bank of Arizona to Aurora.
In addition, Nationstar entered into evidence a limited power of attorney (POA) executed by Deutsche Bank identifying Nationstar as Deutsche Bank's loan servicer.
During the litigation, Nationstar was substituted as plaintiff, and Aurora attached to the substitution filing an assignment of the mortgage from Aurora to Nationstar. Russell alleged that Aurora and Nationstar both lacked standing to foreclose. Despite expressing concerns over standing, the trial court entered a final judgment of foreclosure in favor of Nationstar, and Russell appealed.

Analysis

On appeal, the Second District Court of Appeal held that Nationstar did not establish Aurora's standing as a holder of the note to bring the foreclosure action. If a plaintiff is not the payee on the original note, it must prove that the original note contains an indorsement in favor of the plaintiff or a blank endorsement. The note in this case was ultimately indorsed to Deutsche Bank, and not to Aurora or Nationstar.
Aurora contended that the POA was sufficient evidence to prove standing. However, the court of appeal found that the POA was ineffective because it:
  • Was dated 18 months after the complaint was filed.
  • Only grants limited powers to Nationstar.
  • Does not indicate the dates that Aurora acted as servicer for Deutsche Bank.
  • Does not clarify whether Deutsche Bank previously granted to Aurora the same limited powers that were granted to Nationstar.
The court further explained that even if the POA was evidence of Aurora's authority to bring suit, it referenced agreements corresponding to mortgage loans serviced by Nationstar by "series" numbers, none of which correlated to any of the loan documents in evidence.
Because of the lack of evidence, the court of appeal reversed the final judgment of foreclosure and remanded the case to the trial court to dismiss the suit.

Practical Implications

This case reiterates the importance for lenders and loan servicers to ensure that they are always in possession of proper documentation related to the loans they hold. Even if there is an assignment of a mortgage, lenders (or servicers acting on their behalf) should also make sure to have clear evidence that the lender or servicer who is bringing the foreclosure action is the ultimate holder of the underlying promissory note.