The Bank of N.Y. Mellon v. Kardok

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THE BANK OF NEW YORK MELLON, Appellant, v. TIMOTHY M. KARDOK a/k/a TIMOTHY KARDOK, Appellee.

No. 4D22-730

Florida Court of Appeals, Fourth District

June 21, 2023

Not final until disposition of timely filed motion for rehearing.

Appeal from the Circuit Court for the Seventeenth Judicial Circuit Broward County; Barry J. Stone, Senior Judge; L.T. Case No CACE 19004885(11).

Morgan L. Weinstein of Van Ness Law Firm, PLC, Fort Lauderdale, for appellant.

Jonathan Kline of Jonathan Kline, P.A., Weston, for appellee.

CONNER, J.

In this appeal, the specific question we address is whether circumstantial evidence was competent substantial evidence to negate by a preponderance of evidence the direct evidence that the Bank of New York Mellon ("the bank") had standing to bring the mortgage foreclosure suit below. We hold that, under the facts of this case, such circumstantial evidence was not competent substantial evidence to defeat the bank's standing. We therefore reverse the trial court's final judgment in favor of Timothy M. Kardok a/k/a Timothy Kardok ("the homeowner").

Background

In 2004, the homeowner executed and delivered a note and mortgage to America's Wholesale Lender ("the original lender"). Mortgage Electronic Registration Systems, Inc. ("MERS") was identified in the mortgage as the nominee for the original lender.

In 2019, the bank sued to foreclose on the mortgage and reestablish a lost note, alleging that it "[wa]s not in possession of the note, but [wa]s entitled to enforce it." Attached to the complaint was a lost note affidavit executed by the then-current servicer for the mortgage and attorney-in-fact for the bank. In addition to alleging the execution and delivery of the note to the original lender, the affidavit alleged the note and mortgage had been assigned to the bank by the original lender. Further, the affidavit alleged the bank had searched for the original note but was unable to find it and had no knowledge as to when or how it was lost. Attached to the affidavit was a "true and correct" copy of the lost note. According to the copy, the note was unendorsed. Also attached to the affidavit was a copy of the assignment executed by MERS and recorded in 2012. The assignment assigned all interests under the mortgage "together with the note[]" to the bank.

The complaint's attachments also included a loan modification agreement executed and recorded in 2006. The modification agreement was between the homeowner and Countrywide Home Loans, Inc. ("Countrywide"), and stated it "amend[ed] and supplement[ed]" the mortgage and the note. The modification agreement further identified Countrywide as "Lender" and did not mention any other entities. It set forth a revised payment schedule for the homeowner but stated that the note and mortgage would otherwise remain unchanged.

The homeowner raised the affirmative defense of standing, and the case proceeded to a nonjury trial. The bank presented a case manager for the servicer as its sole witness. The bank also introduced into evidence multiple documents, the most pertinent to this appeal being copies of the note and mortgage, the assignment to the bank, a custodian log regarding the note, and the mortgage modification agreement.

The case manager testified as to the boarding and verification process that took place following the 2012 assignment of the note and mortgage to the bank, including the verification of original loan documents. He also testified the servicer conducted a due diligence check, looking for the original note and checking with prior loan servicers who may have had it.

Based on the custodian log, the case manager testified that during the boarding process, the servicer looked for but was unable to locate the "collateral file" for the loan. The case manager testified that the servicer determined through the independent verification process that the note had been lost before it was assigned to the bank by the original lender. Nothing in the independent verification process indicated the original lender had transferred the note to anyone other than the bank. The case manager also testified that the bank agreed to indemnify the homeowner if another party later found and enforced the original note.

The homeowner did not cross-examine the case manager, move for involuntary dismissal after the bank rested, or present any witnesses or evidence in defense.

During closing arguments, the homeowner argued, for the first time, that the bank had not presented any evidence as to the note's holder at the time the note was lost. Citing Sabido v. Bank of New York Mellon, 241 So.3d 865 (Fla. 4th DCA 2017), the homeowner argued the assignment was meaningless because the assignment did not "state on whose behalf" MERS was transferring the note. Additionally, the homeowner argued the complaint likewise did not allege when the note was lost, and the bank never entered the lost note affidavit into evidence.

The homeowner argued the bank's evidence was particularly concerning because of the loan modification agreement, which was entered into by Countrywide and not the original lender. The homeowner therefore argued the bank had not shown an unbroken chain of transfers.

The bank countered that the 2012 assignment was valid as it transferred the note and mortgage from MERS, as nominee for the original lender, to the bank. Because the note was unendorsed, even if Countrywide physically possessed it, Countrywide could not enforce it. The bank argued that the homeowner's arguments were irrelevant because Countrywide was just another servicer, not another lender or note holder. The bank contended only two potential note owners or holders were involved: the original lender and the bank. Thus, the bank argued it had shown standing in two different ways: through the assignment and through reestablishment of the lost note. The bank additionally argued that Sabido made it clear that reestablishment of a lost note did not require the lost note affidavit to be admitted into evidence. Instead, the required information could be supplied by testimony.

After closing arguments, the trial court verbally ruled that the mortgage modification agreement created "too big a gap here for me to say that I can find by a preponderance of the evidence before me that the note was a result of the transfer in accordance with the language of the statute 673.3091." The trial court subsequently entered a final judgment in the homeowner's favor, stating that the bank "failed to prove standing by failing to prove compliance with Florida Statute § 673.3091[(1)](a)." The bank gave notice of this appeal.

Appellate Analysis

The bank argues it proved its standing because it reestablished the lost note and, regardless of the lost note, the assignment from MERS established standing. The homeowner counters that the trial court correctly found the bank did not reestablish the lost note because the loan modification listing Countrywide as the lender broke the chain of assignments, and the assignment to the bank from MERS was invalid because it did not list an assignor.

A party's standing is a legal issue, reviewed de novo. Lewis v. U.S. Bank Nat'l Ass'n, 298 So.3d 72, 75 (Fla. 4th DCA 2020). "A trial court's determination of whether a party has reestablished a lost note is reviewed for sufficiency of the evidence" and "[a]n appellate court may reverse on finding a failure of proof." Id. (quoting Home Outlet, LLC v U.S. Bank Nat'l Ass'n, 194 So.3d 1075, 1077 (Fla. 5th DCA 2016)).

"A plaintiff seeking to foreclose a mortgage must tender the original promissory note to the trial court or seek to reestablish the lost note pursuant to section 673.3091, Florida Statutes." Am. Residential Equities LLC v. Saint Catherine Holdings Corp., 306 So.3d 1057, 1059 (Fla. 3d DCA 2020) (quoting Boumarate v. HSBC Bank USA, N.A., 172 So.3d 535, 536 (Fla. 5th DCA 2015)); see also Sabido, 241 So.3d at 866 (noting same).

Section 673.3091, Florida Statutes (2019), governing reestablishment of lost notes, provides: A person not in possession of an instrument is entitled to enforce the instrument if:

(a) The person seeking to enforce the instrument was entitled to enforce the instrument when loss of possession occurred, or has directly or indirectly acquired ownership of the instrument from a person who was entitled to enforce the instrument when loss of possession occurred;

(b) The loss of possession was not the result of a transfer by the person or a lawful seizure; and

(c) The person cannot reasonably obtain possession of the instrument because the instrument was destroyed, its whereabouts cannot be determined, or it is in the wrongful possession of an unknown person or a person that cannot be found or is not amenable to service of process.

§ 673.3091(1), Fla. Stat. (2019) (emphasis added).

"A party seeking to reestablish a lost note may meet the statutory requirements 'either through a lost note affidavit or by testimony from a person with knowledge.'" Lewis, 298 So.3d at 76 (quoting Sabido, 241 So.3d at 866). "The lost note affidavit or testimony need not 'establish exactly when, how, and by whom the note was lost.'" Id. (quoting Sabido, 241 So.3d at 867). "It must, however, prove the party seeking reestablishment of the note acquired ownership from a party with the right to enforce the note when lost." Id. "At a minimum then, the evidence must establish who had the right to enforce the note when it was lost and how the party seeking reestablishment obtained ownership." Id. (emphasis added).

Except for the circumstantial evidence discussed later in this opinion, if the assignment in this case was valid, then the bank qualified as an entity that "directly or indirectly acquired ownership of the instrument from...