Consumer Finance Litigation

With its recently-issued opinion in Elsman v. HSBC Bank USA as Trustee for MLMI 2006-AF1, slip op. 5D14-1753, 41 Fla. L. Weekly D57b, 2015 WL 9491875 (Dec. 31, 2015), the Fifth DCA has added to a growing body of case law regarding what is required to evidence a plaintiff's standing to foreclose a mortgage. In Elsman, the plaintiff asserted standing as holder of the promissory note at issue but failed to attach an endorsed copy of the promissory note at issue to its complaint or to present any alternate evidence of its status as holder. Because the plaintiff, HSBC Bank USA, as Trustee for MLMI 2006-AF1, was not the named payee of the note, the court recognized that HSBC had to demonstrate that the note was either specially endorsed to it or was endorsed in blank. Citing McLean v. JP Morgan Chase Bank Nat'l Ass'n, 79 So. 3d 170, 173 (Fla. 4th DCA 2012), the court further acknowledged that standing must exist at the time that a foreclosure complaint is filed. In other words, the note had to be specially endorsed to HSBC or endorsed in blank when HSBC filed its complaint against Elsman. The court held that HSBC failed to prove the existence of such an endorsement at the time that the complaint was filed. HSBC's complaint, which sought to reestablish a lost note, included as an exhibit a copy of Elsman's promissory note without any endorsements. HSBC later filed the original note with the court, which bore an undated special endorsement from Quicken Loans to HSBC. As the copy of the note attached to the complaint did not also bear the endorsement, and as the endorsement on the original note was undated, the Fifth DCA held that this could not prove that the endorsement existed at the time that the complaint was filed. As a result, the endorsement on the original note could not support HSBC's assertion that it had standing as holder of the note to foreclose at the inception of the case. Also, while HSBC attempted to present other evidence of its standing at trial, the Fifth DCA held that such evidence did not establish that HSBC was the holder of the note when it initiated the foreclosure action. HSBC offered a note assignment from Quicken Loans to HSBC, but it postdated the complaint by six days and therefore could not show that HSBC held the note on the day that the complaint was filed. Furthermore, the trial court took judicial notice of "a document referencing the pooling and servicing agreement" that showed the date on which the MLMI 2006-AF1 trust was created and "referenced the subject trust," and admitted into evidence the loan servicer's loan transfer history showing a "transfer to Wells Fargo as master servicer for the subject trust." However, as the Fifth DCA noted, neither document evidenced that the note was endorsed to HSBC at the time the complaint was filed and thus did not demonstrate HSBC's standing. In holding that HSBC failed to demonstrate standing, the Fifth DCA relied heavily on its opinion in Schmidt v. Deutsche Bank, 170 So. 3d 938 (Fla. 5th DCA 2015), where the plaintiff also failed to attach an endorsed copy of the note at issue to its complaint and did not present any other evidence at trial that established its standing to foreclose. It is notable that in Elsman and Schmidt, as well as in other recently-decided cases such as Guzman v. Deutsche Bank National Trust Co., slip op. 4D14-2509, 40 Fla. L. Weekly D2630a, 2015 WL 7568558 (Fla. 4th DCA Nov. 25, 2015) and Kenney v. HSBC Bank USA, N.A., 175 So. 3d 377 (Fla. 4th DCA 2015), the courts discussed the exhibits attached to the complaint alongside other "evidence" regarding the issue of standing. Presumably, if the copies of the notes attached to the complaints in those cases had included endorsements identical to those found on the original notes, the courts would have determined that the plaintiffs had presented competent and substantial evidence that the endorsements existed when the complaints were filed. In fact, the First DCA held precisely that in Clay County Land Trust No. 08-04-25-0078-014-27 v. JP Morgan Chase Bank, National Ass'n, 152 So. 3d 83 (Fla. 1st DCA 2014). Clay County was factually inverse to Elsman, as the plaintiff there attached a copy of a note that was endorsed in blank to its complaint, and later presented the identical original note to the trial court. The First DCA determined by attaching a copy of the endorsed note to it foreclosure complaint, the plaintiff evidenced its standing to foreclose as holder of the note "as a matter of law." Id. at 85. Thus, by comparing the copy of the note attached to the complaint to the original endorsed note, the Fifth DCA in Elsman provided additional support for the position that the copy of a promissory note attached to a foreclosure complaint can serve as evidence of a plaintiff's standing, provided that the copy bears a special endorsement in favor of the plaintiff or a blank endorsement that also exists on the original note. The full Elsman opinion can be viewed here.