Mortgage Servicing Fraud
occurs post loan origination when mortgage servicers use false statements and book-keeping entries, fabricated assignments, forged signatures and utter counterfeit intangible Notes to take a homeowner's property and equity.
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Ann

Standing at Inception, Appropriately Raised Via Motion to Dismiss

Foreclosure defense attorneys see this fact-pattern frequently. The Note attached to the original Complaint contains no endorsements, yet the Note attached to an Amended Complaint is specially endorsed to the Plaintiff or endorsed in blank. This prompts an obvious question – “When was the Note endorsed?”

Plaintiffs’ attorneys love to argue this doesn’t matter because they have the original Note, with an endorsement, so they’re the holder. However, as I’ve been arguing for many years, including here, here, and here, that’s not sufficient – foreclosure plaintiffs must show they had standing at the inception of the case. Specifically, foreclosure plaintiffs must show they had an endorsement (or an assignment, as the case may be) and possession of the original Note before filing the underlying lawsuit.

In recent months, Florida’s appellate courts have borne out this distinction, requiring plaintiffs to prove ”standing at inception” to prevail in a foreclosure case. See Feltus v. U.S. Bank, N.A., Case No. 2D10-3272 (Fla. 2d DCA 2012); McLean v. J.P. Morgan Chase Bank, N.A., Case No. 4D10-3429 (Fla. 4th DCA 2012); Venture Holdings & Acquisitions Group, LLC v. A.I.M. Funding Group, LLC, 75 So. 3d 773 (Fla. 4th DCA 2012). Notably, these cases make it clear that an outright dismissal (without leave to amend) is the only proper remedy for a foreclosure plaintiff which lacks standing when suit was filed.

Admittedly, it’s easy to cite a case and assert it stands for a proposition of law when that may or may not be the case. So don’t take my word for it. Read McLean:

While it is true that standing to foreclose can be demonstrated by the filing of the original note with a special indorsement in favor of the plaintiff, this does not alter the rule that a
party’s standing is determined at the time a lawsuit was filed. See Progressive Exp. Ins. Co. v. McGrath Cmty. Chiro., 913 So. 2d 1281 (Fla. 2d DCA 2005). Stated another way, “the plaintiff’s standing at the inception of the case is not a defect that may be cured by the acquisition of standing after the case is filed.” …

To summarize, the plaintiff must prove it had standing to foreclose when the complaint was filed. …

Where the plaintiff contends that its standing to foreclose derives from an indorsement of the note, the plaintiff must show that the indorsement occurred
prior to the inception of the lawsuit.
If the Note or allonge reflects on its face that the endorsement occurred before the filing of the complaint, this is sufficient to establish
standing. …

In the present case, as is common in recent foreclosure cases, Chase did not attach a copy of the original note to its complaint, but instead brought a count to re-establish a lost Note. Later, however, Chase filed with the circuit court the original promissory note, which bore a special indorsement in favor of Chase. Because Chase presented to the
trial court the original promissory note, which contained a special endorsement in its favor, it obtained standing to foreclose, at least at some point.

Nonetheless, the record evidence is insufficient to demonstrate that Chase had standing to foreclose at the time the lawsuit was filed. The mortgage was assigned to Chase three days after Chase filed the instant foreclosure complaint. While the original note contained an undated special endorsement in Chase’s favor, the affidavit filed in support of
summary judgment did not state when the endorsement was made to Chase. Furthermore, the affidavit, which was dated after the lawsuit was filed, did not specifically state when Chase became the owner of the note, nor did the affidavit indicate that Chase was the owner of the note before suit was filed. Therefore, Chase failed to submit any record evidence proving that it had the right to enforce the note on the date the complaint was filed.

We therefore reverse the summary judgment and corresponding final judgment of foreclosure. On remand, in order for Chase to be entitled to summary judgment, it must show,
without genuine issue of material fact, that it was the holder of the note on the date the complaint was filed (i.e., that the note was endorsed to Chase on or before the date the lawsuit was filed). By contrast, if the evidence shows that the note was endorsed to Chase after the lawsuit was filed, then Chase had no standing at the time the complaint was filed, in which case the trial court should dismiss the instant lawsuit and Chase must file a new complaint. See Jeff-Ray Corp., 566 So. 2d at 886. An evidentiary hearing may also be required if there is disputed
evidence on an issue, such as to the date the note was endorsed to Chase.

I’m pleased to say the judges before whom I appear are really starting to understand this principle of law and apply it in foreclosure cases. However, one issue I’ve begun encountering (in response to motions to dismiss) is when plaintiffs’ attorneys to say ”yeah, but those are summary judgment cases.” In a motion to dimiss, they argue, the Court is confined to the four corners of the Amended Complaint, and the absence of an endorsement on the original Complaint (when the plaintiff has filed an Amended Complaint) is outside the court’s purview at the motion to dismiss stage of a lawsuit.

I’ve thought about this fact-pattern a lot, and I think the solution is clear. In cases where they’re traveling under an Amended Complaint that has an endorsement on the Note that was not on the Note attached to the original Complaint, foreclosure plaintiffs need to plead the date in which the endorsement was entered. Let’s say that again:

Foreclosure plaintiffs need to plead the date in which an endorsement was entered.

Think about it. Is this really that unreasonable? If an endorsement shows up on a Note attached to an Amended Complaint, when the endorsement wasn’t on versions of the Note filed previously, and the plaintiff’s standing is predicated entirely on that endorsement, is it really that unreasonable to force plaintiffs to plead when the endorsement was created in their Amended Complaints? Florida requires ultimate facts. Isn’t an allegation as to when the endorsement was entered the bare minimum required to get over the “standing at inception” hurdle?

For anyone who thinks this would only serve to further burden our courts, look at it this way … which is the better use of judicial resources, forcing plaintiffs to plead the date these endorsements were created, or allowing cases to proceed to an Answer, a summary judgment hearing, and potentially a trial, without any allegation on this issue? Remember, if the plaintiff can’t show the endorsement was created before the lawsuit was filed, then the case is dismissed – case over. And if the plaintiff can so allege, then this helps the parties frame the issue as they proceed forward on the merits.

Isn’t it more efficient to require the date of the endorsement any time there’s an Amended Complaint? To prevail in a foreclosure case, the plaintiff must prove the “endorsement occurred prior to the inception of the lawsuit,” see McLean; shouldn’t they have to plead that as well?

With this backdrop in place, I’m very pleased to see this Order, which Judge Lee Haworth in Sarasota drafted himself, dismissing an Amended Complaint with instructions that the plaintiff, upon amendment, include allegations showing when the endorsement was put on the Note. The judge cited all of the appropriate cases regarding standing at inception and basically said “I’m not going to let this case proceed further if plaintiff can’t show when the endorsement upon which it relies for standing was entered.”

This should be happening across the board, in all Florida courts. There are far too many junk pleadings where endorsements magically show up after-the-fact. These garbage pleadings should stop. When foreclosure plaintiffs rely on an endorsement that wasn’t on the Note attached to the original Complaint, they should be made to plead the date that endorsement occurred in an Amended Complaint, failing which their cases should be dismissed and they should be ordered to re-file a new lawsuit. See cases, supra.

Mark Stopa Esq.

http://www.stayinmyhome.com

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HungarianProse

Mark is making an excellent point. We need to hammer this issue as it does apply in most cases.

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Unregistered

Maybe someone can help me out. I live in South Carolina and I can not find any case law to support this argument. My complaint did not have the note, mortgage or assignment attached to it when it was filed with the court and when it was presented to me. A few months later, plantiff attorney's mailed me a copy of each document, however, I believe that the note was signed  after the filing was done. I know this is mainly a state but is there also any Federal precedents involved as well? Thanks.

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Unregistered

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Maybe someone can help me out. I live in South Carolina and I can not find any case law to support this argument. My complaint did not have the note, mortgage or assignment attached to it when it was filed with the court and when it was presented to me. A few months later, plaintiff attorney's mailed me a copy of each document, however, I believe that the note was signed after the filing was done. I know this is mainly a state but is there also any Federal precedents involved as well? Thanks.

 

You need to get over the idea that the note was never actually indorsed and delivered to the investor.  This is simply never the case.

 

When the foreclosure mill attaches an unindorsed copy of the note to the pleadings, they are MAKING A MISTAKE.  They take the unindorsed copy of the note found conveniently within the servicer's imaging system.

 

They attach this to the complaint as a matter of speed and convenience, NOT out of necessity.

 

They rely upon the fact that no one much really bothered to notice and no one made an issue of the lack of indorsement.  The servicers and foreclosure mills had been doing this for more than a decade.

 

It does NOT reflect systemic securitization failure.  This is simply a MYTH created by swindlers to sell you useless reports and services.  Rather, use of the unindorsed copy reflects the foreclosure mills cutting corners and taking legal shortcuts.  This creates some evidence that is favorable to the defendant and can really muddy up a case!

 

Those who are defendants in suits where the plaintiff makes a series of serious legal errors are the beneficiaries of this sloppy work.  But make no mistake that WHEN PRESSED, the plaintiff CAN AND WILL produce an indorsed copy of the note and CAN produce some summary judgment evidence that the note was indorsed in advance of filing of the suit.

 

The more questions you ask about this and the more you get them to produce, the BETTER PREPARED THEY WILL BE TO DEFEAT YOU.

 

Where there was no note attached, you can argue that they haven't produced evidence that they were the holder at commencement.  You simply make a generic standing argument in your answer.  DO NOT ARGUE SPECIFICS IN THE ANSWER!

 

WHY would you need to make defensive arguments about a note they failed to attach to the complaint?

 

But it sounds as though standing is going to be a less robust and effective argument for you than some other arguments discussed in other threads.

 

Go read Mr. Roper's posts on hearsay, conclusory averments and the best evidence rule.  Also read his posts about conditions precedent.

 

Remember that every foreclosure case is different.  Tailor your defense to the facts in your case, NOT to the facts that you saw in some other case that you wish you were litigating!

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Ann

Link to the Feltus case .

http://www.scribd.com/doc/69517251/4DCA-FELTUSvUSBANK-Lost-Note-Fraud-Affidavit-Rule-1-190-a

...Julia Feltus appeals a final summary judgment of foreclosure in favor ofU.S. Bank National Association, as Trustee of Mastr Adjustable Rate Mortgages Trust2007-3 (U.S. Bank or the Bank). We reverse because material issues of fact as to which entity holding the promissory note executed by Feltus existed at the time the trialcourt entered summary judgment ....

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