Introduction
Florida’s First District Court of Appeal, in Rigby v. Bank of New York Mellon, Case No. 1D16-0665, appears to be considering receding from the “standing at inception” doctrine in the mortgage foreclosure context. That rule requires foreclosing lenders to prove not only that they have the right to enforce the note and mortgage at the time of trial, but that they had those rights when they filed the complaint. On May 12, the court issued an order on solicited amicus, indicating it intends to hear the case en banc, and requesting amicus to discuss “receding from the standing-at-inception rule doctrine in foreclosure cases.
This article argues that either the First District should recede from the rule itself, or at the very least, certify the question as of great public importance to the Florida Supreme Court. This article also suggests a potential Rule of Civil Procedure remedy for some of the problems the rule creates.
Equity and public policy favor reconsidering and receding from the standing at inception rule in the unique context of mortgage foreclosure. In the vast majority of foreclosure actions, plaintiff lenders believe in good faith that they have standing at inception, and typically have good reason for that belief. They must, of course, always prove actual standing by the time of trial. Most borrowers, by contrast, have no substantive defense to the foreclosure, but ambush the lender at trial with technical defenses like standing at inception, hoping to obtain a “free house.” Recent case law and statutory changes have reduced the number of instances in which these issues will prove dispositive, but many such cases remain, as evidenced by Rigby itself.
While standing at inception finds support in district court opinions almost too numerous to list, its roots are not unassailable. Several district court concurrences have already criticized the rule, noted its inequity, and traced those weak roots. The issue has once before been certified to the Florida Supreme Court as one of great public importance, though it was not taken up.
Although district courts should, for reasons of stare decisis, generally not depart from well-established district court precedent, the First District has the power to do so when presented with a compelling case. This is such a case. The First District could, therefore, explicitly disagree with district court precedent and certify conflict to the Florida Supreme Court.
Even if the First District declines to do so, it should again certify questions of great public importance to the Florida Supreme Court, to give that court a fresh opportunity to abandon the standing at inception rule in foreclosure cases.
The First District should therefore recede from the standing at inception doctrine and certify conflict, or should certify questions of great public importance.
Rigby Itself May Not Present the Appropriate Case in Which to Reconsider the Rule
Important jurisprudential concerns caution that courts should depart from precedent, or certify questions of great public importance only when the certified conflict or questions will prove dispositive of the case. We note that this may or may not be so in this particular case, and will briefly outline the facts in order to highlight this important jurisprudential concern.
According to the briefs in this case, Bank of New York Mellon (“the Bank”) attempted to prove through trial testimony that it was the holder of the note at the inception of the case. The Bank did not urge either the trial court or the First District to abandon the standing at inception rule.
The defendant (“Borrower”) asserted at trial that the Bank’s testimony and documents were inadmissible hearsay, did not comply with the business records exception to the hearsay rule, and failed to carry the Bank’s burden to establish standing at inception.
Specifically, the Bank’s initial complaint asserted that it “owns and holds the note and mortgage.” It attached a copy of the note and an assignment of the mortgage (which apparently did not recite that the note was also being assigned). The note attached to the initial complaint did not include the blank endorsement that would later appear in the case. The Borrower denied the Bank’s standing allegations, but did not set up standing as a separate affirmative defense. The Bank later filed the original note, which was endorsed in blank, with the court. The Bank also attached this new blank-endorsed note to an amended complaint.
At trial, the Bank offered the testimony of an assistant vice president for the Bank’s loan servicer. The witness had not worked directly for the Bank or any of the prior holders of the note. The witness did not know the individuals who had signed the assignments and endorsement in blank. The witness was not personally familiar with the business processes of the prior holders of the note. The witness did, however, testify to familiarity with the servicer’s procedures for incorporating the prior note holders’ records into its own business records, and for checking their accuracy. The witness testified that the notes associated with those records reflected that the endorsement in blank was on the note at the time the mortgage was securitized, and traced the history of the note from holder to holder, and ultimately to the bank.
The trial court overruled the Borrower’s objections to the testimony and documents, denied his motion for involuntary dismissal, and entered judgment for the Bank.
In the parties’ initial briefs, both conceded that standing at inception was required, and contested only whether the Bank’s evidence had been admissible and legally sufficient.
The First District directed the parties to brief the question of whether it should abandon the standing at inception rule. The Borrower submitted a brief arguing (1) that standing at inception is the uniform rule, (2) that no equitable or public policy considerations weigh in favor of abandoning it because any problems are caused by banks’ sloppy practices, (3) that standing should not be required to be raised as an affirmative defense, so long as the standing allegations are denied in the answer, and (4) that the new requirements of Fla. Stat. § 702.015 and Fla. R. Civ. P. 1.115 do not suggest that standing at inception should be abandoned. The Bank filed a supplemental brief arguing that the First District should recede from the standing at inception rule, and has authority and good public policy reasons for so doing.
The First District may not need to decide the questions of whether the Bank’s evidence was admissible or legally sufficient. The First District could avoid the need to certify conflict or questions of great public importance by ruling that the Bank’s evidence was admissible and sufficient, as district courts have recently done when presented a similar record. See Citibank, N.A. for WAMU Series 2007-HE2 Trust v. Manning, Case No. 4D-15-4526, 2017 WL 2665072 (Fla. 4th DCA June 21, 2017) (standing sufficiently proven); Desylvester v. Bank of New York Mellon, Case No. 2D15-5053, 2017 WL 2562370 (Fla. 2d DCA June 14, 2017) (same); Bank of New York v. Calloway, 157 So. 3d 1064 (Fla. 4th DCA 2015) (same); Channell v, Deutsche Bank Nat’l Trust Co., 173 So. 3d 1017 (Fla. 2d DCA 2015) (same); cf. Kumar v. U.S.Bank, N.A., Case No. 5D16-2889, 2017 WL 2885555 (Fla. 5th DCA July 7, 2017) (standing not proven); Veriizzo v. Bank of New York Mellon, Case No. 2D15-2508, 2017 WL 2664323 (Fla. June 21, 2017) (same).
We suspect, however that the First District has solicited briefing on whether to abandon standing at inception because it is inclined to rule against the Bank on those issues.
If the court is indeed inclined to rule against the Bank on the sufficiency or admissibility of its evidence, then we urge it to abandon the rule and certify conflict, or to certify questions of great public importance.
Equity Favors Lenders Who Foreclose in Good Faith
Equity and public policy favor re-examining and receding from the doctrine of standing at inception rule in the unique context of mortgage foreclosure. There are good reasons to require standing at inception in most kinds of action, for example to discourage strangers to a suit from essentially “speculating” on causes of action they do not own. But mortgage foreclosures in today’s world will rarely implicate those concerns. In the vast majority of cases, a foreclosure plaintiff believes in good faith that it has the right to enforce the note and mortgage at the inception of the suit. Yet, because of the complexity of the contemporary mortgage market, and the frequency with which notes change hands in that market, this may not always be the case. Still, plaintiffs must always prove standing at the time of trial, and will almost always resolve any deficiency in standing by the time of trial.
Notes and mortgages (and their servicing rights) are so often sold in the stream of commerce. The length of time it takes to conclude a contested foreclosure can take years, so the holder or owner of the note may change several times while the case is pending. This presents real challenges to proving standing at inception and at trial, when the original lender may be out of business or unavailable to testify at trial.
Borrowers, by contrast, typically have never cured their failure to pay their mortgage debt. Instead, they usually raise an array of technical defenses to foreclosure, including failure of standing. They rarely bring this issue to a head in a timely fashion, but instead lie in wait to raise the issue at trial. By that time, years and thousands of dollars’ worth of judicial time and resources, along with the time and resources of an otherwise prevailing plaintiff, have been wasted.
This is true even if, as in some cases, the lender is able to sue again for subsequent defaults without a statute of limitations issue. See Bartram v. U.S. Bank, N.A....
