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Fla. App. Court (2nd DCA) Holds HELOC Instrument Not Self-Authenticating Article 3 Note

The District Court of Appeal for the Second District of Florida recently affirmed an order involuntarily dismissing an action to foreclose a second mortgage which secured a home equity line of credit.

In so ruling, the Appellate Court upheld the trial court’s holding that the promissory note for the relevant home equity line of credit was not admissible into evidence because it was nonnegotiable, and thus, not a self-authenticating instrument.

A copy of the opinion in Third Federal Savings Loan Association of Cleveland v. Koulouvaris is available at:  Link to Opinion.

A lender bank filed a complaint to foreclose a second mortgage to real property (the “foreclosure action”) which secured a home equity line of credit (HELOC) obtained by husband and wife borrowers.

The foreclosure action proceeded to a nonjury trial, where the bank moved to admit the promissory note (the “HELOC note”) into evidence.  The borrowers objected on the basis that the HELOC note was non-negotiable and thus not a self-authenticating instrument.

The trial court sustained the borrowers’ objection and also declined to admit the HELOC mortgage into evidence, explaining that the second mortgage “has no legal significance without a note.”

With no note or mortgage admitted into evidence, the borrowers moved to involuntarily dismiss the case due to the lack of evidence to support foreclosure.  The trial court agreed that the bank failed to establish a prima facie case on its HELOC cause of action and dismissed the case.  The instant appeal followed.

As you may recall, although Florida law requires the authentication of a document prior to its admission into evidence (see § 90.901, Fla. Stat. (2012)), there are a number of recognized exceptions to the authentication requirement.  See Fla. Stat. § 90.902(8) (“Commercial papers and signatures thereon and documents relating to them [are self-authenticating], to the extent provided in the Uniform Commercial Code”).

The bank argued that the HELOC note should have been admitted into evidence as a self-authenticating negotiable instrument, citing long-standing Florida law.  HSBC Bank USA, Nat’l Ass’n v. Buset, 43 Fla. L. Weekly D305, 306 (Fla. 3d DCA Feb. 7, 2018) (“for over a century . . . the Florida Supreme Court has held [promissory notes secured by a mortgage] are negotiable instruments. And every District Court of Appeal in Florida has affirmed this principle”).

The Court rejected this argument, agreeing with the trial court that the HELOC note was not a self-authenticating negotiable instrument because:

  1. By its own terms, the note established a “credit limit” of up to $40,000 from which the borrowers could “request an advance . . . at any time”;
  2. The HELOC note provided that “[a]ll advances and other obligations . . . will reduce your available credit”; and
  3. The HELOC established “[t]he maximum amount of borrowing power extended to a borrower by a given lender, to be drawn upon by the borrower as needed,” and thus was not an unconditional promise to pay a fixed amount of money.  See Line of Credit, Black’s Law Dictionary, 949 (8th ed. 1999); § 673.1041(1), Fla. Stat. (2012) (a “negotiable instrument” is “an unconditional promise or order to pay a fixed amount of money, with or without interest or other charges described in the promise or “order.”)

Moreover, the Court noted, its conclusion was consistent with a recent decision from the Fifth District Court of Appeal for the State of Florida, where the appellate court there held that a series of credit agreements, first for a credit line of up to $30,000, and second to modify the line up to $90,000, were “nonnegotiable instrument[s] because [they were] not for a fixed sum.” Chuchian v. Situs Invs., LLC, 219 So. 3d 992, 993 (Fla. 5th DCA 2017).

Accordingly, because the HELOC note was not self-authenticating, the Court held that trial court did not err in sustaining the borrowers’ objection to its admission into evidence, and affirmed the involuntary dismissal of the foreclosure action.

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Christopher P. Hahn practices in Maurice Wutscher’s Commercial Litigation, Consumer Credit Litigation and Insurance Recovery and Advisory groups. Prior to joining Maurice Wutscher LLP, he served under the General Counsel at the Florida Office of Financial Regulation. He also obtained extensive experience litigating property insurance claims through all phases of discovery, motion practice and other pre-trial activities. Christopher obtained his Bachelor of Science degree in Business Administration from the University of Southern California, followed by his Juris Doctorate degree from the University of Miami School of Law. He is also a graduate of the University of Miami’s Masters of Business Administration program, completing his degree with an emphasis on finance and mergers and acquisitions.

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