In today’s environment, clients are more cost-conscious than ever and this is in direct conflict with the ever-increasing cost of litigation. There are, however, some common sense ways in which a case can be managed in order to help minimize the associated fees and costs. This article is the first of a series and is excerpted from my new book entitled Mortgage Foreclosure and Loan Collection: A Practical Guide for Lenders which is now available at Amazon.com. Here, we provide a couple of examples in which adequate pre-suit file review may help save on litigation costs by reducing the opportunity for defense counsel to delay the case.
A common defense raised by borrowers against foreclosing lenders deals with whether the lender has standing, or the legal right to bring the lawsuit. In Florida, the proper party to file a mortgage foreclosure lawsuit is the party that “owns and holds” the note and mortgage. In today’s world of syndicated loans and failed financial institutions, it is not always clear who the proper party is. When a loan is originated by a lender and is held throughout its life by the same lender, there is generally no issue. However, when a loan is sold in the secondary market or a situation in which the original lender has failed, it is imperative to review the loan files to determine whether the note, mortgage, and loan documents have actually been assigned and, if so, to which new lender. Many times there are multiple assignments, and the last lender holding the note and mortgage would generally be the proper party to file the suit. The foreclosing lender should be able to produce a written assignment of note and mortgage and this document will typically have been (or, at least, should have been) recorded in the public records of the county in which the real estate is located and the original mortgage recorded. The best practice is also to have an allonge, which is a separate instrument, affixed to the promissory note that endorses the note from the last payee to the current payee.
The borrower’s attorneys who identify improper or lacking loan assignments will frequently respond by filing motions to dismiss the complaint. The technical basis for dismissal is that the plaintiff “lacks standing” and cannot therefore legally proceed with foreclosure of the mortgage or enforcement of the note. Current case law in Florida has held that this issue cannot be corrected after the suit is filed. Rather, the court will dismiss the case on the defendant’s motion, forcing the lender to regroup and refile its case with appropriate documentation in place to evidence that it is the owner and holder of the note and mortgage.
The lender should also be aware that in Florida, the original promissory note must be surrendered to the court in order to obtain a judgment either enforcing the note or foreclosing a mortgage secured by the note. Many lenders proceed through a sometimes lengthy foreclosure case only to realize at the end that they have lost the original note. The unpleasant result is a significant loss of time and money as the lender must amend its complaint to address the issue of the lost note and basically start the process over. A thorough pre-suit file review should include locating the original note or identifying that it has, indeed, been lost. Losing a note is often not fatal to enforcement. Florida, for example, provides a statutory procedure to reestablish the lost instrument. It does, however, require that the complaint be drafted to address the issue, and this is best done at the outset to prevent the delay discussed above. It should be noted that Florida has recently adopted a law, effective June 7, 2013, with additional requirements imposed on plaintiff’s seeking mortgage foreclosure on residential real property. This will be addressed in a future blog post summarizing the new law.