Fla. App. Court (4th DCA) Holds PSA Insufficient to Prove Foreclosure Standing

In an appeal involving an amicus filed by a national mortgage lending trade association, the District Court of Appeal of the State of Florida, Fourth District, recently reversed a final judgment of foreclosure in favor of a mortgagee, holding that the mortgagee failed to prove that it had possession of the promissory note when the complaint was filed and thus lacked standing to sue because:

(a) despite the admission of the Pooling and Servicing Agreement (PSA) into evidence, the evidence was still insufficient to show that the loan was physically transferred; and

(b) there were discrepancies between the copy of the note attached to the complaint and the original introduced in evidence at trial.

A copy of the opinion in Justin Friedle and Sandra Friedle v. The Bank of New York Mellon, etc. et al. is available at:  Link to Opinion.

During the trial, the plaintiff mortgagee tried to prove that it possessed the note when the complaint was filed by offering the PSA into evidence over the borrowers’ hearsay objection.

The trial judge admitted the PSA into evidence as a self-authenticating document pursuant to section 90.902 of the Florida Evidence Code because it had been filed with the Securities and Exchange Commission (SEC). The trial court then entered a final judgment of foreclosure in the mortgagee’s favor, from which the borrowers appealed.

On appeal, the Fourth District explained that just because the PSA was self-authenticating didn’t mean it was admissible, citing Charles Ehrhardt’s Florida Evidence hornbook: “Even after a document is authenticated, it will not be admitted if another exclusionary rule is applicable. For example, when a document is hearsay, it is inadmissible even if it has been properly authenticated.”

The Court reasoned that while “the PSA purportedly establishes a trust of pooled mortgages, [the] particular mortgage [at issue] was not referenced in the documents filed with the SEC … [and] [t]he Bank did not present sufficient evidence through its witness to admit this unsigned document as its business record. While the witness testified that a mortgage loan schedule, which listed the subject mortgage, was part of the Bank’s business records, the mortgage loan schedule itself does not purport to show that the actual loan was physically transferred.”

Because the mortgagee’s witness did not explain “the workings of the PSA or [loan schedule],” and no other document or other evidence showed how the note was transferred to the mortgagee pursuant to the PSA, the evidence was insufficient to prove that the note in question “was within the possession of the Bank as Trustee at the time suit was filed.”

The mortgagee argued that the trial court’s ruling should nevertheless be affirmed under the tipsy coachman doctrine, pursuant to which an appellate court may affirm a trial court’s ruling, despite flawed reasoning by the trial judge, so long as the record supports the alternative ruling.  In other words, a trial court’s incorrect reasoning may be corrected on appeal for any reason that appears in the record.

However, the Court here noted that, in order for the doctrine to apply, “the record must be sufficiently developed to support an alternative theory for affirmance.”

The Fourth District previously held that there is a “presumption of standing if the note attached to the complaint was the same as the note introduced at trial.”  The Appellate Court rejected the mortgagee’s argument because “the note attached to the complaint was not in the same condition as the original introduced at trial.”

The Court reasoned that “[w]here the copy differs from the original, the copy could have been made at a significantly earlier time and does not carry the same inference of possession at the filing of the complaint.”  Because the mortgagee did not “explain the discrepancies in the condition of the note attached to the complaint or the original introduced into evidence[,]” the tipsy coachman doctrine did not apply “based on the record made in this case.”

Having concluded that the mortgagee failed to prove that it had standing to sue, the trial court’s judgment was reversed and the case remanded with instructions to vacate the judgment and involuntarily dismiss the complaint.

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Hector Lora has substantial experience in all phases of complex commercial litigation, including motion practice, written discovery, depositions, mediations, bench and jury trials, and appellate practice. For more than a decade, his practice has focused extensively on the defense of civil enforcement actions filed by the FTC, as well as real estate litigation, and contested mortgage and condominium lien foreclosures and foreclosure of security interests under UCC Article 9. Hector also has substantial experience in advising a variety of types of businesses regarding their compliance with applicable federal and state laws, including the Federal Trade Commission Act, the Telephone Consumer Protection Act, the Telemarketing and Consumer Fraud and Abuse Prevention Act, the Telemarketing Sales Rule, the Controlling the Assault of Nonsolicited Pornography and Marketing Act of 2003, and Florida laws governing telephone solicitation and communication. Hector received his Juris Doctor from the Georgetown University Law Center, and his undergraduate degree with honors from the University of Florida.