Donna Murray and Marc Murray v. HSBC Bank USA

DISTRICT COURT OF APPEAL OF THE STATE OF FLORIDA

FOURTH DISTRICT

DONNA MURRAY and MARC MURRAY,

Appellants,

v.

HSBC BANK USA, NATIONAL ASSOCIATION AS TRUSTEE FOR ACE

SECURITIES CORP HOME EQUITY LOAN TRUST, SERIES 2006-OP1

ASSET BACKED PASS THROUGH CERTIFICATES,

Appellee.

No. 4D13-4316

[January 21, 2015]

Appeal from the Circuit Court for the Fifteenth Judicial Circuit, Palm

Beach County; Howard Harrison, Judge; L.T. Case No.

502009CA005458XX.

Kunal A. Mirchandani and Joann M. Hennessey of Civil Justice

Advocates, PL, Fort Lauderdale, for appellants.

Khari E. Taustin, Jeremy W. Harris, Masimba M. Mutamba, and Angela

Barbosa Wilborn of Morris, Laing, Evans, Brock & Kennedy CHTD., West

Palm Beach, for appellee.

MAY, J.

In this foreclosure puzzle, one of the pieces is missing. The borrowers

appeal a final judgment of foreclosure following a non-jury trial. They

argue the bank failed to prove standing. We agree and reverse.

The borrowers and Option One Mortgage Corporation, a California

corporation (“Option One California”), executed a mortgage and note.

When the borrowers missed their monthly payment, HSBC filed a two-

count complaint seeking to foreclose the mortgage and reestablish the lost

note. The original complaint, filed February 13, 2009, alleged that HSBC

“owns and holds said note and mortgage.” The borrowers then filed their

answer and affirmative defenses.

On April 3, 2009, Sand Canyon Corporation f/k/a Option One

Mortgage Corporation (“Sand Canyon”) executed an assignment of the

mortgage to HSBC. The assignment included an effective date of January

24, 2009. On April 6, 2010, HSBC voluntarily dismissed the lost note

count and filed the original note and mortgage. The note was made

payable to Option One California, but did not have an indorsement or

allonge.

On October 5, 2010, Sand Canyon executed another assignment in

favor of HSBC, with a stated effective date of April 23, 2007. On February

6, 2013, HSBC filed a second amended complaint alleging that HSBC was

“a nonholder in possession with the rights of a holder and is entitled to

enforce the terms of the Note and Mortgage, pursuant to Florida Statute

673.3011.” The case proceeded to a non-jury trial.

At trial, HSBC offered the testimony of a loan analyst with Ocwen Loan

Servicing (“Ocwen”). HSBC also offered the pooling and servicing

agreement (“PSA”), note, mortgage, demand letter, and payment history.

HSBC did not admit the assignments into evidence.

The main issue at trial concerned HSBC’s allegation that it was a

nonholder in possession with the rights of a holder.1 The PSA and

attached mortgage loan schedule both referenced the borrowers’ loan. The

PSA had ACE Securities Corp. (“ACE”) as the Depositor, Option One

Mortgage Corporation as the Servicer, Wells Fargo Bank, N.A. (“Wells

Fargo”) as the Master Servicer and Securities Administrator, and HSBC as

the Trustee. The effective date of the PSA was May 1, 2006; it does not

reference Option One California.

The loan analyst testified that Option One Mortgage Corporation was a

predecessor to American Home Mortgage Servicing (“AHMS”), which was

rebranded as Homeward Residential, and subsequently purchased by

Ocwen. Those companies serviced the loan from its inception and Ocwen

1 The trial court stated:

To me, that’s the only issue in the case; can this Court enter a

judgment on what you say is that possession is enough without the

[i]ndorsement.

In every other respect they have it. They got the mortgage. They

got the records. They got the servicing. They got the whole thing.

They just don’t have the [i]ndorsement, and is that fatal?

In other words do you have to go and get, and then start over

again? That’s the question. I don’t know the answer.

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was currently servicing the loan for HSBC. He also testified that AHMS

acquired servicing rights from Option One Mortgage Corporation, a

Delaware corporation (“Option One Delaware”).

After the trial, the court took the matter under advisement and had the

parties submit memoranda. On November 4, 2013, the trial court entered

a final judgment of foreclosure in favor of HSBC, from which the borrowers

now appeal.

The borrowers argue the trial court erred in granting a final judgment

of foreclosure because Option One California never transferred its rights

to HSBC, directly or through ACE. They argue that HSBC failed to connect

the dots between ACE and the last identifiable holder of the note, Option

One California. HSBC responds that it proved its right to enforce the note

as a nonholder in possession with the rights of a holder.

We have de novo review. Dixon v. Express Equity Lending Grp., LLLP,

125 So. 3d 965, 967 (Fla. 4th DCA 2013).

“A crucial element in any mortgage foreclosure proceeding is that the

party seeking foreclosure must demonstrate that it has standing to

foreclose” when the complaint is filed. McLean v. JP Morgan Chase Bank

Nat’l Ass’n, 79 So. 3d 170, 173 (Fla. 4th DCA 2012). “[S]tanding may be

established from the plaintiff’s status as the note holder, regardless of any

recorded assignments.” Id. “If the note does not name the plaintiff as the

payee, the note must bear a special [i]ndorsement in favor of the plaintiff

or a blank [i]ndorsement.” Id.

The plaintiff may also show “evidence of an assignment from the payee

to the plaintiff or an affidavit of ownership to prove its status as the holder

of the note.” Id. “Because a promissory note is a negotiable instrument

and because a mortgage provides the security for the repayment of the

note, the person having standing to foreclose a note secured by a mortgage

may be . . . a nonholder in possession of the note who has the rights of a

holder.” Mazine v. M & I Bank, 67 So. 3d 1129, 1130 (Fla. 1st DCA 2011).

A “person entitled to enforce” an instrument is: “(1) [t]he holder of the

instrument; (2) [a] nonholder 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 s[ection] 673.3091 or

s[ection] 673.4181(4).” § 673.3011, Fla. Stat. (2013). A “holder” is defined

as “[t]he person in possession of a negotiable instrument that is payable

either to bearer or to an identified person that is the person in possession.”

§ 671.201(21)(a), Fla. Stat. (2013). Thus, to be a holder, the instrument

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must be payable to the person in possession or indorsed in blank. See §

671.201(5), Fla. Stat. (2013).

HSBC did not qualify under section 673.3011(1) or (3). It was not a

holder of the note because the note is payable to Option One California,

and there is no blank indorsement. HSBC failed to produce any evidence

to prove its status as the holder of the note at trial. Indeed, HSBC admitted

it was not a holder of the note. HSBC was thus left to enforce the note

under section 673.3011(2) as a nonholder in possession of the instrument

with the rights of a holder. The issue then is whether HSBC is a nonholder

in possession with the rights of a holder.

Anderson v. Burson, 35 A.3d 452 (Md. 2011), is instructive. There, the

court held that the plaintiff was a nonholder in possession and analyzed

whether it had rights of enforcement pursuant to a Maryland statute that

employs the same language as section 673.3011, Florida Statutes.

Anderson, 35 A.3d at 462. “A transfer vests in the transferee only the

rights enjoyed by the transferor, which may include the right to

enforce[ment],” through the “shelter rule.” Id. at 461–62.

A nonholder in possession, however, cannot rely on

possession of the instrument alone as a basis to enforce it. . .

. The transferee does not enjoy the statutorily provided

assumption of the right to enforce the instrument that

accompanies a negotiated instrument, and so the transferee

“must account for possession of the unindorsed instrument

by proving the transaction through which the transferee

acquired it.” Com. Law § 3–203 cmt. 2. If there are multiple

prior transfers, the transferee must prove each prior transfer.

Once the transferee establishes a successful transfer from a

holder, he or she acquires the enforcement rights of that holder.

See Com. Law § 3–203 cmt. 2. A transferee’s rights, however,

can be no greater than his or her transferor’s because those

rights are “purely derivative.”

Id. (emphasis added) (internal citations omitted).

HSBC had to prove the chain of transfers starting with Option One

California as the first holder of the note. The only document admitted that

purported to transfer the note was the PSA. Although the note was

included in the PSA, the parties to the PSA were ACE, Option One

Mortgage Corporation, Wells Fargo, and HSBC; not Option One California.

The loan analyst testified that Option One California was acquired by

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AHMS, which rebranded to Homeward Residential, which was ultimately

acquired by Ocwen. HSBC argues that since “Option One” is defined

under the PSA as “Option One Mortgage Corporation or any successor

thereto,” and Option One transferred its interest to HSBC through the PSA,

HSBC had the rights of a holder. We disagree.

Even if Option One California, Option One Delaware, Option One

Mortgage Corporation, and Option One Mortgage Corporation, a Maryland

corporation, were all the same corporation, HSBC’s argument fails.

Although Option One Mortgage Corporation was a party to the PSA, it was

the Servicer. “Servicing” is defined in the PSA as “the act of servicing and

administering the Mortgage Loans.” Nothing in the PSA established that

the Servicer conveyed rights in mortgage loans to any party. Also, even

though the loan analyst testified that through a chain of transfers Ocwen

was the current servicer of the loan, it does not prove that HSBC had

standing as a nonholder in possession with the rights of a holder.

The chain of transfers starts with Option One California as the original

holder of the note. ACE, as the Depositor, transferred its rights in the note

to HSBC through the PSA. However, there was no evidence that Option

One California transferred its rights in the note to ACE. This is the missing

piece of the puzzle. See Appendix. As HSBC cannot prove that ACE had

any right to enforce the note, it cannot derive any right from ACE and is

not a nonholder in possession of the instrument with the rights of a holder

to enforce. §§ 673.2031, .3011, Fla. Stat. (2013). Put simply, HSBC failed

to prove standing. We therefore reverse the final judgment of foreclosure.

Reversed and Remanded for entry of judgment in favor of appellants.

WARNER and TAYLOR, JJ., concur.

* * *

Not final until disposition of timely filed motion for rehearing.

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Appendix

Pooling and Servicing Agreement

(PSA)

ACE SECURITIES CORP.

OPTION ONE CALIFORNIA (Depositor)

(Holder of mortgage and

note)

Assigns mortgage to HSBC

after complaint is filed

HSBC

(Trustee)

HSBC HS

(Plaintiff) WELLS FARGO BANK,

Non-Holder in Possession N.A.

(Master Servicer and

Securities

Administrator)

The dotted line represents the missing piece in the

chain of transfers. The plaintiff did not prove a

transfer of rights from Option One California to

ACE. Although under the PSA, the Depositor ACE OPTION ONE

transferred its rights to the plaintiff and Trustee MORTGAGE CORP.

HSBC, the plaintiff did not prove that ACE derived (Servicer)

its rights from Option One California or any other

Option One Mortgage Corporation. Option One

Mortgage Corporation was a party to the PSA, but

only as a servicer. As such, Option One Mortgage

Corporation did not transfer any rights.

OPTION AMERICAN

ONE HOME

MORTGAGE MORTGAGE

CORP. SERVICING

Servicer (Servicer)

(Delaware)

This is a separate chain of

transfers that occurred between

servicers, but still does not

provide HSBC with standing.

Rebranded as

HOMEWARD OCWEN

RESIDENTIAL (Servicer)

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