Today, the Florida Second District Court of Appeal released its earthshattering decision in Focht v. Wells Fargo Bank, N.A. The appellate court is asking the Florida Supreme Court to review the proposition of whether standing in a foreclosure, which has previously been a borrowers #1 defense, can be established AFTER the lender has filed the foreclosure action. It has been a bedrock principal of all civil litigation, including foreclosure litigation, that a plaintiff must have standing at the time of the filing of a complaint. In the foreclosure world, that means that at the time of the filing of the complaint, the plaintiff must have physical possession of a promissory note that bears a special endorsement or allonge to the plaintiff, or bears a blank endorsement or allonge. To obtain a final judgment of foreclosure, the plaintiff needs to submit evidence to the court proving its possession of the note. Alternatively, a Plaintiff can produce an assignment of the note that pre-dates the filing of the foreclosure action.
In the Focht case, Wells Fargo initially filed an action for foreclosure to include a lost note count (meaning that it did not have possession of the original promissory note and did not know of its whereabouts). After more than 2 years of contentious litigation, Wells Fargo produced the original promissory note at the hearing scheduled for Wells Fargo to obtain summary judgment. The trial court granted summary judgment to Wells Fargo and the property was sold at foreclosure sale.
In the decision issued by the appeals court today, the court reversed the summary judgment granted to Wells Fargo and said because Wells Fargo did not provide any evidence to the trial court that it has possession of the promissory note that was properly endorsed prior to the filing of the foreclosure action. Additionally, the assignment of note and mortgage presented by Wells Fargo was signed AFTER the filing of the foreclosure complaint.
The earth shattering part of the case comes at the conclusion of the opinion:
We recognize that trial courts have been overwhelmed by foreclosure filings and that the number is mounting. . . . For our part, the appellate courts have seen a recent influx of appeals in which defendants have successfully argued that the trial court erred in entering a foreclosure judgment in favor of the plaintiff because the plaintiff failed to establish standing at the time of filing. . . . In many of these cases, the plaintiff presented unrefuted proof of standing acquired after filing but prior to the final hearing. The appellate courts are nonetheless compelled to reverse [the trial court's award of judgment to Wells Fargo] based on the district courts' application of a long line of supreme court cases applying the general principal that "the plaintiff's lack of standing at the inception of the case is not a defect that may be cured by the acquisition of standing after the case is filed." [citations omitted}.
Accordingly we certify the following question as one of great public importance: Can a plaintiff in a foreclosure action cure the inability to prove standing at the inception of suit by proof that plaintiff has since acquired standing?
What the Second District Court of Appeal is suggesting is that we change black letter law to accommodate lenders who are not prepared to file an action for foreclosure and allow lenders to manufacture standing after the fact because "trial courts have been overwhelmed by foreclosure filings."
If the Florida Supreme Court decides to review the matter, and if it decides that standing is allowed to be established during the pendency of the foreclosure action, it will have far-reaching effects on all borrowers who are seeking relief through a modification.
As the dissenting opinion written by Judge Altenbernd states:
Admittedly, in this case and in numerous other cases, teh financial institutions have brought these problems on themselves by the complex methods of securitization and their own sloppy recordkeeping. Admittedly, Ms. Focht and many other Floridians believe they were misled by mortgage brokers and others into signing notes and mortgages that were not appropriate for their financial circumstances. Admittedly, some borrowers become confused and frustrated because they do not know whom to contact to discuss their financial difficulties when they fall behind on a note.
The effect of allowing standing to be cured during the pendency of the foreclosure will certainly speed up most foreclosures, cutting off many borrowers referred to by Judge Altenbernd from receiving relief through a modification or short sale. But isn't this what the courts want anyway?