“Promissory notes are, by definition, negotiable instruments . . . .”
How later courts described this case
- “Promissory notes are, by definition, negotiable instruments . . . .”
Written by the judges who cited it.
The opinion
Third District Court of Appeal
State of Florida
Opinion filed April 27, 2016.
Not final until disposition of timely filed motion for rehearing.
________________
No. 3D15-1822
Lower Tribunal No. 12-1444-K
________________
Federal National Mortgage Association,
Appellant,
vs.
Victoria A. McFadyen, et al.,
Appellees.
An Appeal from the Circuit Court for Monroe County, Timothy J. Koenig,
Judge.
Kahane & Associates and H. Michael Muñiz, (Plantation), for appellant.
Robert B. Goldman, (Key West), for appellee, Victoria A. McFadyen;
Victoria A. McFadyen, in proper person.
Before WELLS, EMAS and LOGUE, JJ.
WELLS, Judge.
In this action to enforce a lost promissory note and to foreclose a mortgage
on real property, Federal National Mortgage Association (“Fannie Mae”) appeals
from an order granting rehearing, vacating a final judgment of foreclosure entered
in its favor, and entering a final judgment in the borrower’s favor. The trial court
granted rehearing and entered judgment in the borrower’s favor, purportedly
because the record failed to demonstrate that Fannie Mae had standing to bring the
underlying action. We disagree and reverse with instructions to reinstate the final
judgment of foreclosure. Sosa v. Safeway Premium Fin. Co., 73 So. 3d 91, 116
(Fla. 2011) (“A trial court’s decision as to whether a party has satisfied the
standing requirement is reviewed de novo.”).
The promissory note at issue here was signed by borrower Stephen Probert
on December 14, 2006. The original lender was Lehman Brothers Bank, FSB.
Victoria McFadyen co-signed a mortgage with Probert to secure the loan.
On December 27, 2012, Fannie Mae filed a verified complaint against
McFadyen to enforce a lost, destroyed or stolen promissory note (count I) and to
foreclose the mortgage McFadyen co-signed with Probert (count II). In that sworn
complaint, Fannie Mae alleged that it was the “owner and holder of [a] note and
mortgage,” which it claimed to have been lost or stolen. A copy of the note was
attached to the verified complaint, the last page of which clearly bears not only
borrower Probert’s signature but also two indorsements, one from the original
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lender, Lehman Brothers Bank, FSB, specifically indorsing the note to Lehman
Brothers Holdings, Inc., the other an indorsement in blank by Lehman Brothers
Holdings, Inc.
After initially defaulting, McFadyen was allowed to answer and in summary
form raised four defenses: lack of subject matter jurisdiction, failure to join an
indispensable party, lack of standing, and fraudulent assignment of mortgage:
FIRST DEFENSE
The Court lacks jurisdiction over the subject matter of this action
because the original note was not attached to the complaint.
SECOND DEFENSE
The complaint fails to state a cause of action because Plaintiff failed
to join an indispensable party—the estate of Stephen K. Probert who
was the maker of the note who died in January of 2009.
THIRD DEFENSE
Plaintiff [Fannie Mae] lacks standing to foreclose the note and
mortgage in this action.
FOURTH DEFENSE
Upon information and belief, MER’S [sic] assignment of mortgage to
Aurora and Aurora’s assignment to [Fannie Mae] were fraudulent.
This matter was tried on April 6, 2015, and a final judgment of foreclosure
in Fannie Mae’s favor was entered. Citing to the Fourth District Court of Appeal’s
decision in Seffar v. Residential Credit Solutions, Inc., 160 So. 3d 122 (Fla. 4th
DCA 2015), McFadyen moved for rehearing. The motion was granted with the
trial court finding that Fannie Mae “did not satisfy the requirements of Fla. Stat.
673.3091 to enforce the lost, destroyed or stolen Note.” The final judgment was
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vacated and a final judgment in McFadyen’s favor was entered. Fannie Mae
appeals from that final judgment; we reverse.
The law with regard to enforcement of promissory notes is relatively straight
forward. Promissory notes are, by definition, negotiable instruments which, by
law, may be enforced by a holder, a nonholder in possession who has the rights of
the holder, or a person not in possession who nevertheless is entitled to enforce the
note:
The “person entitled to enforce” an instrument means:
(1) The 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. 673.3091 or s. 673.4181(4).
A person may be a person entitled to enforce the instrument even
though the person is not the owner of the instrument or is in wrongful
possession of the instrument.
§ 673.3011, Fla. Stat. (2015).
Fannie Mae’s claim below was that it was entitled to enforce the Probert
promissory note although not in possession of it. It therefore had to satisfy the
requirements detailed in section 673.3091 of the Florida Statutes to prevail. See §
673.3011(3), Fla. Stat. (2015). In pertinent part, that provision requires a party
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seeking to enforce an instrument not in its possession to show that it was entitled to
enforce the instrument at the time it was lost:
(1) 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.
(2) A person seeking enforcement of an instrument under subsection
(1) must prove the terms of the instrument and the person’s right to
enforce the instrument. If that proof is made, s. 673.3081 applies to
the case as if the person seeking enforcement had produced the
instrument. The court may not enter judgment in favor of the person
seeking enforcement unless it finds that the person required to pay the
instrument is adequately protected against loss that might occur by
reason of a claim by another person to enforce the instrument.
Adequate protection may be provided by any reasonable means.
§ 673.3091, Fla. Stat. (2015).
Fannie Mae was, therefore, required to demonstrate at trial that at the time
the note was lost, it had the right to enforce it. The record confirms that Fannie
Mae satisfied this burden.
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Documents introduced without objection into evidence at trial1 established
1The documents were admitted under section 90.803(6)(c) of the Florida Statutes
which in pertinent part provides:
The provision of s. 90.802 [governing hearsay] to the contrary
notwithstanding, the following are not inadmissible as evidence, even
though the declarant is available as a witness:
....
(6) Records of regularly conducted business activity. –
(a) A memorandum, report, record, or data compilation, in any form,
of acts, events, conditions, opinion, or diagnosis, made at or near the
time by, or from information transmitted by, a person with
knowledge, if kept in the course of a regularly conducted business
activity and if it was the regular practice of that business activity to
make such memorandum, report, record, or data compilation, all as
shown by the testimony of the custodian or other qualified witness, or
as shown by a certification or declaration that complies with
paragraph (c) and s. 90.902(11), unless the sources of information or
other circumstances show lack of trustworthiness. . . .
....
(c) A party intending to offer evidence under paragraph (a) by means
of a certification or declaration shall serve reasonable written notice of
that intention upon every other party and shall make the evidence
available for inspection sufficiently in advance of its offer in evidence
to provide to any other party a fair opportunity to challenge the
admissibility of the evidence. . . . A motion opposing the
admissibility of such evidence must be made by the opposing party
and determined by the court before trial. A party’s failure to file such
a motion before trial constitutes a waiver of objection to the evidence,
but the court for good cause shown may grant relief from the waiver.
§ 90.803(6)(a), (c), Fla. Stat. (2015).
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that Aurora Loan Services, Inc., an entity which services loans for various lenders,
received the Probert promissory note indorsed in blank and scanned it into
Aurora’s computer database on June 29, 2009.2 Two days later, the original note
and mortgage were sent to the Law Offices of David J. Stern, P.A., along with a
bailee letter instructing the firm to institute foreclosure proceedings.3 The
subsequently filed foreclosure action, while inaccurately representing that Aurora
was the owner and holder of the note, ultimately was dismissed and a new
servicing agent, Seterus, Inc., was retained to service this loan for Fannie Mae. By
this time, however, the original note and mortgage could not be located.
In addition to this documentary evidence, Fannie Mae called Jeff Andersen,
a foreclosure litigation corporate officer for Seterus, as a witness at trial. Mr.
Andersen testified that Seterus was the current loan servicing agency for the
2 Prior to trial, on March 6, 2015, Fannie Mae filed a “Certification of Business
Records Pursuant to § 90.803(6)(c), Florida Statutes,” which included the loan
documents associated with this action and the sworn affidavit of Laura McCann, an
Aurora vice president. McCann’s affidavit attested, among other things, that
Aurora was the prior servicing agent for the subject mortgage; that when Probert
defaulted on the subject loan, Aurora sent Probert a demand letter noticing its
intent to accelerate on March 23, 2009; that the original promissory note—bearing
two stamped indorsements on the page signed by Probert, one of which was an
indorsement in blank from Lehman Brothers Holdings, Inc.—had been scanned
into Aurora’s computer system on June 29, 2009; that on July 1, 2009, the original
note and mortgage were sent to the Law Offices of David J. Stern, P.A. along with
a bailee letter instructing the law firm to institute foreclosure proceedings; and that
servicing of the subject mortgage loan transferred from Aurora to Seterus, Inc. on
August 2, 2010.
3 David J. Stern has since been disbarred by the Florida Bar.
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Probert loan and that it had assumed that role from Aurora. According to Mr.
Andersen, when Seterus took over servicing this loan, it “boarded” Aurora’s
records, that is, it made Aurora’s records part of its own, after confirming by
independent investigation that Aurora’s records were accurate.4 Those records, as
Mr. Andersen testified, confirmed that: when Aurora received the original Probert
promissory note in June of 2009, it bore only two indorsements, an indorsement
from the original holder to Lehman Brothers Holdings, Inc. and an indorsement in
blank from Lehman Brothers Holdings, Inc.; within days of Aurora’s receipt of the
original note and mortgage, they were scanned into Aurora’s system and then
forwarded to the Law Offices of David J Stern, P.A.; and that these originals never
4 As already stated, Aurora’s loan documents associated with this action were
admitted without objection as a certified business record pursuant to section
90.803(6)(c). Aurora’s business records also were admissible through Mr.
Andersen’s testimony, which established that the records were reviewed for
accuracy during the boarding process with which he was sufficiently familiar. See
Channell v. Deutsche Bank Nat’l Trust Co., 173 So. 3d 1017, 1020 (Fla. 2d DCA
2015) (finding that a successor mortgage servicer may establish the admissibility
of a prior mortgage servicer’s loan records “by testimony that the successor
servicer had independently confirmed the accuracy of the predecessor’s records” or
“by offering evidence that the records were reviewed for accuracy prior to being
integrated into the successor servicer’s records system”); Bank of New York v.
Calloway, 157 So. 3d 1064, 1072 (Fla. 4th DCA 2015) (stating that the successor
mortgage servicer “itself may establish trustworthiness by independently
confirming the accuracy of the third-party’s business records upon receipt”); see
also Nationstar Mortg. v. Berdecia, 169 So. 3d 209, 216 (Fla. 5th DCA 2015)
(finding that the successor servicer’s witness need not have personally participated
in the boarding process to ensure the accuracy of the records acquired from the
prior servicer of the subject loan; rather, the witness need only “demonstrat[e] a
sufficient familiarity with the ‘boarding’ process to testify about it”).
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were returned from Stern’s office to Aurora before the loan was transferred to
Seterus for servicing.
Significantly, Mr. Andersen, by virtue of a power of attorney from Fannie
Mae, also testified on behalf of Fannie Mae and without objection confirmed that
Fannie Mae was the owner of and holder of the Probert promissory note on June
29, 2009, when it was sent to Aurora, its servicer, and scanned into Aurora’s
computer database. See Sosa v. U.S. Bank Nat’l Ass’n, 153 So. 3d 950, 951 (Fla.
4th DCA 2014) (recognizing that a bank witness’s trial testimony “can serve the
same purpose as an affidavit” in establishing that the bank was the owner of the
note and mortgage before the suit was filed); see also Fiorito v. JP Morgan Chase
Bank, Nat’l Ass’n, 174 So. 3d 519, 521 (Fla. 4th DCA 2015) (“A bank employee’s
trial testimony that the plaintiff bank owned the note before the inception of the
lawsuit is sufficient to resolve the issue of standing.”).
This evidence confirms that Fannie Mae had standing to enforce the Probert
promissory note when this action was brought. Because the note was indorsed in
blank,5 Fannie Mae only had to have possession of it to be a “holder” to have
standing to enforce it:
5 A promissory note indorsed in blank is a bearer instrument enforceable by “a
person in possession” of that instrument. See § 671.201(5), Fla. Stat. (2015)
(“‘Bearer’ means . . . a person in possession of a negotiable instrument . . . that is
payable to bearer or indorsed in blank.”); § 673.1091(1)(b)-(c) (“A promise or
order is ‘payable to bearer’ if it: . . . [d]oes not state a payee . . . or otherwise
indicates that it is not payable to an identified person.”); § 673.1091(3), Fla. Stat.
9
The requirement of holding a note as proof of standing derives from
the Florida Uniform Commercial Code. See § 673.3011(1), Fla. Stat.
(2008) (“The term ‘person entitled to enforce’ an instrument means:
the holder of the instrument[.])” To hold a note under the Uniform
Commercial Code ordinarily connotes possession of the document
itself. See § 671.201(21)(a), Fla. Stat. (2008) (“‘Holder’ means: The
person in possession of a negotiable instrument that is payable either
to bearer or to an identified person that is the person in
possession[.]”); St. Clair v. U.S. Bank Nat’l Ass’n, 173 So. 3d 1045,
1046 (Fla. 2d DCA 2015).
Phan v. Deutsche Bank Nat’l Tr. Co., 41 Fla. L. Weekly D516, D516 (Fla. 2d
DCA Feb. 26, 2016) (footnote omitted); see also Am. Home Mortg. Servicing, Inc.
v. Bednarek, 132 So. 3d 1222, 1223 (Fla. 2d DCA 2014) (finding that “because the
note at issue is endorsed in blank, and because [mortgagee] possessed the original
note, its standing to foreclose is established”).
While there is no evidence that Fannie Mae had direct or actual possession
of the note either after it was received by Aurora, its servicing agent; when the
original was sent to attorney David Stern to file suit to enforce it; when the
servicing agreement was assumed by Seterus; or later when this suit was filed, the
uncontradicted evidence was that at all times material herein, Fannie Mae was in
constructive possession of the note and thus had standing to file suit to enforce it.
(2015) (“An instrument payable to an identified person may become payable to
bearer if it is indorsed in blank pursuant to s. 673.2051(2).”); § 673.2051(2), Fla.
Stat. (2015) (“If an indorsement is made by the holder of an instrument and it is not
a special indorsement, it is a ‘blank indorsement.’ When indorsed in blank, an
instrument becomes payable to bearer and may be negotiated by transfer of
possession alone until specially indorsed.”).
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See Phan, 41 Fla. L. Weekly at D517 (confirming that “where an agent holds a
mortgage note on behalf of its principal, the principal has constructive possession
of the note and standing to file a complaint for foreclosure as a holder under
section 673.3011(1).”); Caraccia v. U.S. Bank, Nat’l Ass’n, 41 Fla. L. Weekly
D476, D477 (Fla. 4th DCA Feb. 24, 2016) (confirming that the element of
possession necessary for standing to bring an action on a note may be met “through
actual or constructive possession”).
Because Fannie Mae adduced uncontradicted evidence to establish that all
times material it was in constructive possession of the bearer note at issue here,
and thus was a the holder with the right to enforce the note at the time the original
was lost, it satisfied all of the requirements of section 673.3011 and section
673.3091 and had standing to enforce the Probert note when the instant foreclosure
action was filed.6
In reaching this determination, we reject the trial court’s reliance on the
Fourth District’s decision in Seffar to reach a different result. That case turned on
a plaintiff’s inability to prove that it was the holder of the note at issue under
section 673.3011(1) of the Florida Statutes because there was no proof that a blank
allonge, produced some nine months after the complaint was filed, was ever
6We also note that Fannie Mae represented on the record that it will indemnify and
hold McFadyen harmless from further claims on the Probert note and the mortgage
securing it should the original note and mortgage ever be found.
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affixed to or made part of the promissory note so as to establish that the plaintiff
was entitled to enforce the note as is required. Seffar, 160 So. 3d at 125.7 The
plaintiff there also alternatively failed to establish standing under section
673.3011(2) as a nonholder in possession of the instrument with the rights of a
holder. Id. By contrast, as already set forth herein, this matter concerns
application of section 673.3011(3) and involves indorsements affixed to the same
page of the promissory note which bears the borrower’s signature. Thus, here,
unlike in Seffar, the alleged owner and holder of a lost note adduced sufficient
evidence to prove its standing.8
Finding that Fannie Mae sufficiently demonstrated that it had standing to
bring the instant foreclosure action, we vacate the order granting McFadyen’s
7 “An allonge is a piece of paper annexed to a negotiable instrument or promissory
note, on which to write endorsements for which there is no room on the instrument
itself. Such must be so firmly affixed thereto as to become a part thereof.” Id.
(quoting Booker v. Sarasota, Inc., 707 So. 2d 886, 887 n.* (Fla. 1st DCA 1998)
(quoting Black’s Law Dictionary 76 (6th ed. 1990))).
8 McFadyen makes much of the fact that the note attached to the complaint in the
2009 foreclosure action contained no indorsements and that Fannie Mae presented
no evidence as to precisely when, and in what manner, the subject indorsements
were made or as to how Fannie Mae acquired the note. We are unpersuaded by
these arguments where Fannie Mae presented unrebutted evidence that the subject
indorsements were made prior to the filing of the original foreclosure action and
that Fannie Mae was the bearer of the note at that time. See 6 Fla. Jur. 2d Bills and
Notes § 63 (2016) (“The term ‘bearer’ means the person in possession of a
negotiable instrument . . . . An instrument payable to an identified person may
become payable to bearer if it is indorsed in blank pursuant to statute. In that
event, the instrument may be negotiated by transfer of possession alone until
specially indorsed.”) (footnotes omitted).
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motion for rehearing and entering final judgment in her favor and remand this
cause to the lower court with instructions that it reinstate the final judgment of
foreclosure in Fannie Mae’s favor.
Reversed and remanded with instructions.
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