Diaz Anselmo Lindberg, P.A. (formerly SHD Legal Group, P.A.) celebrated a big win for their client last week when the Fourth DCA reversed a judgment of dismissal previously rendered in favor of the borrowers, Charles and Lesley Stevens (the Borrowers). Wilmington Savings Fund Society, FSB v. Stevens. The Fourth DCA concluded the lower court erred when it found the mortgagee, Wilmington Savings Fund Society, FSB (“Wilmington” or “the Bank”), failed to prove its standing at the time of trial despite the fact the court admitted the original blankly endorsed note into evidence at trial without objection.
In Stevens, the Borrowers executed a note and mortgage in favor of Countrywide Bank, FSB (“Countrywide”) in 2008 and defaulted in 2011. Thereafter, FNMA obtained an interest in the note and its servicer, Green Tree Servicing LLC (Green Tree), initiated foreclosure proceedings on FNMA’s behalf in 2012. Sometime before that, Countrywide blankly endorsed the original note and Green Tree attached a copy of the blankly endorsed note to its complaint. The copy of the note attached to the complaint reflected two sets of hole punch marks at the top.
Ostensibly, in preparation of moving for judgment Green Tree filed the original note with the clerk of court. The original note was identical to the copy attached to Green Tree’s complaint with a few exceptions. The original note filed with the clerk reflected only one set of hole punch marks and the loan numbers were redacted and an exhibit sticker affixed to the face of the note. The Borrowers answered the complaint and challenged Green Tree’s standing to foreclose.
Green Tree successfully moved to substitute Wilmington as the party plaintiff without objection. In preparation of trial and to support its holder status, Wilmington moved to have the original note returned to it. The court never ruled on the motion, the note remained in the court file and the matter proceeded to trial. Charles Stevens (“Stevens”) testified at trial and identified his signature on the original note. The Fourth DCA noted: “Wilmington then proffered the note into evidence and Stevens did not object ‘as long as it stay[ed] in the court file and it [was] a part of the court file.” The court admitted the original blankly endorsed note into evidence. Wilmington also proffered “multiple documents [which] showed Green Tree [the original Plaintiff] was in possession of the original note before the complaint was filed.”
At the close of trial, the Borrowers argued Green Tree did not have standing at the inception of the case. They surmised the presumption that Green Tree possessed the original endorsed note and was a holder when it filed suit did not apply because of the differences (an exhibit sticker and redacted loan numbers) between the copy of the note attached to the complaint and the original surrendered to the court. The lower court found even without the presumption Plaintiff’s documentary evidence demonstrated Green Tree had possession of the original endorsed note prior to initiating the lawsuit and therefore Green Tree had standing at the inception of the case.
The Borrowers also argued Wilmington “could not claim holder status [at the time of trial] because the note remained in the court file…” and was not returned to Wilmington after it became the party plaintiff. The lower court agreed with the Borrowers on this point, finding Wilmington failed to prove it had standing at the time of trial and entered an order involuntarily dismissing the case. Wilmington appealed.
On appeal, the Borrowers argued for the first time that the differing hole punches in the note constituted a substantial alternation to the note. The Fourth DCA noted Stevens failed to raise this argument below and failed to explain how any of the alternations he identified, “the sticker, the redactions, or the additional set of hole marks,” were “substantial alternations” or “showed that Green Tree lacked possession of the note at the inception of the case.” The Fourth DCA concluded the lower court properly found Green Tree (and Wilmington by virtue of substitution) established its standing at the inception of the case through its documentary evidence and the fact Green Tree attached the endorsed note to its complaint.
As to standing, at the time of trial the Fourth DCA disagreed with the Borrowers’ argument and the lower court’s conclusion that the fact the note remained in the court file at trial prevented Wilmington from establishing its holder status at the time of trial. The court explained even though Wilmington never obtained a ruling on its motion to return originals, Stevens failed to object when “Wilmington obtained the original [endorsed in blank] note from the court file and proffered it into evidence” at trial. The court concluded the fact “the note from the file was entered into evidence at the bench trial” was “sufficient to establish standing at trial.” The court reversed the judgment of dismissal and remanded the matter for entry of judgment in Wilmington’s favor.
The Stevens opinion is an important win for the industry as it reverses a dangerous precedent among the lower courts based on a misapprehension of negotiable instruments and holder status. Possession of a note endorsed in blank is sufficient to confer holder status and standing, absent conflicting evidence. The decision also provides helpful guidance on the proper procedure for establishing holder status as a substituted party prior to moving for summary judgment or going to trial.