The Florida Second District Court of Appeals recently ruled on yet another challenge to a note holder’s standing to foreclose based on lack of ownership of the mortgage. In OneWest Bank, F.S.B. v. Bauer (May 30, 2014), the Florida Second District Court of Appeals held that the holder of a note had standing to foreclose, even without proof of ownership of the loan documents. In the trial court, OneWest Bank clearly established that it held the note but there was conflicting testimony as to whether OneWest Bank owned the loan or merely serviced it, as successor to IndyMac Bank, F.S.B. The trial court held that OneWest Bank lacked standing to foreclose because the evidence presented before the court conflicted with the allegations in OneWest Bank’s complaint, that it was the owner and holder of the note and mortgage.
The Florida Second District Court of Appeals overturned the decision and ordered that the foreclosure be reinstated. The court decided that OneWest Bank had standing to foreclose notwithstanding the lack of clarity on ownership of the note and mortgage. The court explained that because a promissory note is a negotiable instrument (transferrable by delivery of possession) and the mortgage provides security for the note, either the note holder or a non-holder having the rights of a holder will have standing to foreclose. In these cases, proof of ownership of the loan documents is not required. The decision follows clearly established principals under Florida law and is in line with the majority of Florida decisions respecting the standing of holders of promissory notes in foreclosure proceedings.
Interestingly, the case was decided only three days after the United States Court of Appeals for the First Circuit ruled in favor of many of the same parties on a similar issue in the case of Mills v. U.S. Bank. In this case however, the court interpreted Massachusetts state law, which has been historically less consistent in its support for the validity of MERS assignments, blank assignments, and similar transfers. The court in Mills ruled in favor of OneWest Bank and Mortgage Electronic Registration Systems, Inc. (“MERS”) after a mortgagor, Rhonda Mills, challenged the authority of MERS to assign a mortgage to OneWest Bank (the loan servicer and party exercising the statutory power of sale). The court noted that “[g]iven the separability of the mortgage and note under Massachusetts law, the transfer of the promissory note between MERS members does not affect legal title to the mortgage.” As such, MERS had authority to transfer the mortgage to OneWest Bank because it remained the mortgagee even while the notes were assigned in securitization.
The state and federal courts referenced above used diametrically different Florida and Massachusetts state law on the separability of a note and a mortgage to support similar conclusions in favor of the lenders. Both cases highlight the persistent attempts of borrowers to challenge standing based on ownership of the note and mortgage and offer continuing support for lenders up against the standing defenses surrounding MERS, servicers, and note assignments in blank.