FLORIDA CASE LAW UPDATES
MTGLQ INVESTORS, L.P. V. MERRILL, 1D19-2682 (Fla. 1st DCA Jan. 25, 2021)
Merrill, the borrower, gave her lender a purchase-money mortgage and note in June 2007. In 2013, JPMorgan Chase Bank (“Chase”) filed a foreclosure action alleging that Fannie Mae owned the note, and that Chase was authorized to bring the action. Chase filed the original note and mortgage in 2013. The original note had an allonge with a blank endorsement. In 2014, Chase moved to substitute Fannie Mae as plaintiff. The borrower did not object. In 2016, Fannie Mae recorded an assignment of the mortgage and note to MTGLQ and also executed a power of attorney to MTGLQ, giving it “full power and authority” to take any action that FNMA could take with respect to “mortgage loans, deeds of trust, promissory notes and allonges.” MTGLQ moved to substitute itself as plaintiff; the borrower did not object. In 2018, the trial court scheduled the trial. MTGLQ amended its witness list five days before trial. Although the borrower had not deposed the prior witness, the trial court dismissed the case with prejudice due to the late amendment.
Apparently, the appellate court had previously dismissed MTGLQ’s appeal of the trial court’s order dismissing the foreclosure suit. In 2019, MTGLQ moved to retrieve the original loan documents from the court file, and then amended its motion, citing Fla. R. Jud. P. 2.430(h) that provides ongoing authority to release exhibits and records that are the property of the person or party placing the items in the court records. MTGLQ argued it was entitled to the original note and mortgage as the substituted plaintiff and the assignment (of both the note and mortgage) from Fannie Mae. The borrower argued MTGLQ’s right to enforce did not survive the appellate dismissal because MTGLQ was not the original plaintiff and could not establish a chain of ownership, and a substituted plaintiff does not necessarily own the note or have standing to enforce it.
The trial court denied MTGLQ’s amended motion to retrieve the original loan documents. MTGLQ appealed.
The First District held that because notes are negotiable instruments, when no judgment cancels the note or takes it out of the stream of commerce, if judgment is not entered in a foreclosure suit, it should be returned to the plaintiff (substituted or not) (citing cases where other courts held plaintiffs were entitled to remove original loan documents from the court file without proving their entitlement to foreclose). The Court observed that the borrower’s argument would defeat the note’s negotiability, as no party to the foreclosure action could then remove the note for further negotiation. Additionally, the Court held the borrower’s arguments were contrary to the law that allows for the assignment and transfer of both notes and mortgages, citing to § 701.01, Fla. Stat. Indeed, MTGLQ had filed the assignment of the note and mortgage from Fannie Mae to MTGLQ, as well as the power of attorney that, on their face, gave MTGLQ all of Fannie Mae’s rights in the note and mortgage. The Court held the trial court, on that basis, properly substituted MTGLQ as the plaintiff.
The First District also ruled that under Florida’s version of the UCC, MTGLQ is a “person entitled to enforce” the note under section 673.3011. The Court additionally ruled that under section 673.2013, MTGLQ is a transferee of the note and mortgage because it received the right to enforce them, which “vests in the transferee any right of the transferor to enforce the instrument, including any right as a holder in due course,” absent fraud or illegality. § 673.2031(2), Fla. Stat.
Importantly, the Court held that MTGLQ would not have to prove previous physical possession of the note to have the rights of the holder. As the holder and the assignee, MTGLQ had the authority to exercise control over the location of the note and hence had constructive possession.
The Court also, citing well established law, ruled that MTGLQ, as the substituted plaintiff, could rely on the standing of the original plaintiff. The Court also disposed of the borrower’s argument that he would be prejudiced, pointing out that if the case went to trial, MTGLQ would have had the right to prove its standing – gain physical possession of the note to authenticate it and enter it into evidence.
In the trial court, the borrower also argued that Fannie Mae purportedly rescinded the assignment of the mortgage (only) to Chase, making it impossible for Chase to assign the mortgage back to Fannie Mae before Fannie assigned the loan documents to MTGLQ. The Court rejected this argument because the borrower raised the argument only orally, without notice, and for the first time at the reconsideration hearing. He did not authenticate the document or enter it into evidence. The Court held the trial court erred by relying on the unsworn argument of counsel and an unauthenticated document to determine the substantive rights of an opposing party because neither are competent evidence. The Court concluded by holding MTGLQ, the assignee and substituted plaintiff, is authorized to receive the original note and mortgage from the court file.