Donna Murray and Marc Murray v. HSBC Bank USA

DISTRICT COURT OF APPEAL OF THE STATE OF FLORIDA
FOURTH DISTRICT
DONNA MURRAY and MARC MURRAY,
Appellants,
v.
HSBC BANK USA, NATIONAL ASSOCIATION AS TRUSTEE FOR ACE
SECURITIES CORP HOME EQUITY LOAN TRUST, SERIES 2006-OP1
ASSET BACKED PASS THROUGH CERTIFICATES,
Appellee.
No. 4D13-4316
[January 21, 2015]
Appeal from the Circuit Court for the Fifteenth Judicial Circuit, Palm
Beach County; Howard Harrison, Judge; L.T. Case No.
502009CA005458XX.
Kunal A. Mirchandani and Joann M. Hennessey of Civil Justice
Advocates, PL, Fort Lauderdale, for appellants.
Khari E. Taustin, Jeremy W. Harris, Masimba M. Mutamba, and Angela
Barbosa Wilborn of Morris, Laing, Evans, Brock & Kennedy CHTD., West
Palm Beach, for appellee.
MAY, J.
In this foreclosure puzzle, one of the pieces is missing. The borrowers
appeal a final judgment of foreclosure following a non-jury trial. They
argue the bank failed to prove standing. We agree and reverse.
The borrowers and Option One Mortgage Corporation, a California
corporation (“Option One California”), executed a mortgage and note.
When the borrowers missed their monthly payment, HSBC filed a two-
count complaint seeking to foreclose the mortgage and reestablish the lost
note. The original complaint, filed February 13, 2009, alleged that HSBC
“owns and holds said note and mortgage.” The borrowers then filed their
answer and affirmative defenses.
On April 3, 2009, Sand Canyon Corporation f/k/a Option One
Mortgage Corporation (“Sand Canyon”) executed an assignment of the
mortgage to HSBC. The assignment included an effective date of January
24, 2009. On April 6, 2010, HSBC voluntarily dismissed the lost note
count and filed the original note and mortgage. The note was made
payable to Option One California, but did not have an indorsement or
allonge.
On October 5, 2010, Sand Canyon executed another assignment in
favor of HSBC, with a stated effective date of April 23, 2007. On February
6, 2013, HSBC filed a second amended complaint alleging that HSBC was
“a nonholder in possession with the rights of a holder and is entitled to
enforce the terms of the Note and Mortgage, pursuant to Florida Statute
673.3011.” The case proceeded to a non-jury trial.
At trial, HSBC offered the testimony of a loan analyst with Ocwen Loan
Servicing (“Ocwen”). HSBC also offered the pooling and servicing
agreement (“PSA”), note, mortgage, demand letter, and payment history.
HSBC did not admit the assignments into evidence.
The main issue at trial concerned HSBC’s allegation that it was a
nonholder in possession with the rights of a holder.1 The PSA and
attached mortgage loan schedule both referenced the borrowers’ loan. The
PSA had ACE Securities Corp. (“ACE”) as the Depositor, Option One
Mortgage Corporation as the Servicer, Wells Fargo Bank, N.A. (“Wells
Fargo”) as the Master Servicer and Securities Administrator, and HSBC as
the Trustee. The effective date of the PSA was May 1, 2006; it does not
reference Option One California.
The loan analyst testified that Option One Mortgage Corporation was a
predecessor to American Home Mortgage Servicing (“AHMS”), which was
rebranded as Homeward Residential, and subsequently purchased by
Ocwen. Those companies serviced the loan from its inception and Ocwen
1 The trial court stated:
To me, that’s the only issue in the case; can this Court enter a
judgment on what you say is that possession is enough without the
[i]ndorsement.
In every other respect they have it. They got the mortgage. They
got the records. They got the servicing. They got the whole thing.
They just don’t have the [i]ndorsement, and is that fatal?
In other words do you have to go and get, and then start over
again? That’s the question. I don’t know the answer.
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was currently servicing the loan for HSBC. He also testified that AHMS
acquired servicing rights from Option One Mortgage Corporation, a
Delaware corporation (“Option One Delaware”).
After the trial, the court took the matter under advisement and had the
parties submit memoranda. On November 4, 2013, the trial court entered
a final judgment of foreclosure in favor of HSBC, from which the borrowers
now appeal.
The borrowers argue the trial court erred in granting a final judgment
of foreclosure because Option One California never transferred its rights
to HSBC, directly or through ACE. They argue that HSBC failed to connect
the dots between ACE and the last identifiable holder of the note, Option
One California. HSBC responds that it proved its right to enforce the note
as a nonholder in possession with the rights of a holder.
We have de novo review. Dixon v. Express Equity Lending Grp., LLLP,
125 So. 3d 965, 967 (Fla. 4th DCA 2013).
“A crucial element in any mortgage foreclosure proceeding is that the
party seeking foreclosure must demonstrate that it has standing to
foreclose” when the complaint is filed. McLean v. JP Morgan Chase Bank
Nat’l Ass’n, 79 So. 3d 170, 173 (Fla. 4th DCA 2012). “[S]tanding may be
established from the plaintiff’s status as the note holder, regardless of any
recorded assignments.” Id. “If the note does not name the plaintiff as the
payee, the note must bear a special [i]ndorsement in favor of the plaintiff
or a blank [i]ndorsement.” Id.The plaintiff may also show “evidence of an assignment from the payee
to the plaintiff or an affidavit of ownership to prove its status as the holder
of the note.” Id. “Because a promissory note is a negotiable instrument
and because a mortgage provides the security for the repayment of the
note, the person having standing to foreclose a note secured by a mortgage
may be . . . a nonholder in possession of the note who has the rights of a
holder.” Mazine v. M & I Bank, 67 So. 3d 1129, 1130 (Fla. 1st DCA 2011).
A “person entitled to enforce” an instrument is: “(1) [t]he holder of the
instrument; (2) [a] nonholder in possession of the instrument who has the
rights of a holder; or (3) [a] person not in possession of the instrument who
is entitled to enforce the instrument pursuant to s[ection] 673.3091 or
s[ection] 673.4181(4).” § 673.3011, Fla. Stat. (2013). A “holder” is defined
as “[t]he person in possession of a negotiable instrument that is payable
either to bearer or to an identified person that is the person in possession.”
§ 671.201(21)(a), Fla. Stat. (2013). Thus, to be a holder, the instrument
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must be payable to the person in possession or indorsed in blank. See §
671.201(5), Fla. Stat. (2013).
HSBC did not qualify under section 673.3011(1) or (3). It was not a
holder of the note because the note is payable to Option One California,
and there is no blank indorsement. HSBC failed to produce any evidence
to prove its status as the holder of the note at trial. Indeed, HSBC admitted
it was not a holder of the note. HSBC was thus left to enforce the note
under section 673.3011(2) as a nonholder in possession of the instrument
with the rights of a holder. The issue then is whether HSBC is a nonholder
in possession with the rights of a holder.
Anderson v. Burson, 35 A.3d 452 (Md. 2011), is instructive. There, the
court held that the plaintiff was a nonholder in possession and analyzed
whether it had rights of enforcement pursuant to a Maryland statute that
employs the same language as section 673.3011, Florida Statutes.
Anderson, 35 A.3d at 462. “A transfer vests in the transferee only the
rights enjoyed by the transferor, which may include the right to
enforce[ment],” through the “shelter rule.” Id. at 461–62.
A nonholder in possession, however, cannot rely on
possession of the instrument alone as a basis to enforce it. . .
. The transferee does not enjoy the statutorily provided
assumption of the right to enforce the instrument that
accompanies a negotiated instrument, and so the transferee
“must account for possession of the unindorsed instrument
by proving the transaction through which the transferee
acquired it.” Com. Law § 3–203 cmt. 2. If there are multiple
prior transfers, the transferee must prove each prior transfer.
Once the transferee establishes a successful transfer from a
holder, he or she acquires the enforcement rights of that holder.
See Com. Law § 3–203 cmt. 2. A transferee’s rights, however,
can be no greater than his or her transferor’s because those
rights are “purely derivative.”
Id. (emphasis added) (internal citations omitted).
HSBC had to prove the chain of transfers starting with Option One
California as the first holder of the note. The only document admitted that
purported to transfer the note was the PSA. Although the note was
included in the PSA, the parties to the PSA were ACE, Option One
Mortgage Corporation, Wells Fargo, and HSBC; not Option One California.
The loan analyst testified that Option One California was acquired by
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AHMS, which rebranded to Homeward Residential, which was ultimately
acquired by Ocwen. HSBC argues that since “Option One” is defined
under the PSA as “Option One Mortgage Corporation or any successor
thereto,” and Option One transferred its interest to HSBC through the PSA,
HSBC had the rights of a holder. We disagree.
Even if Option One California, Option One Delaware, Option One
Mortgage Corporation, and Option One Mortgage Corporation, a Maryland
corporation, were all the same corporation, HSBC’s argument fails.
Although Option One Mortgage Corporation was a party to the PSA, it was
the Servicer. “Servicing” is defined in the PSA as “the act of servicing and
administering the Mortgage Loans.” Nothing in the PSA established that
the Servicer conveyed rights in mortgage loans to any party. Also, even
though the loan analyst testified that through a chain of transfers Ocwen
was the current servicer of the loan, it does not prove that HSBC had
standing as a nonholder in possession with the rights of a holder.
The chain of transfers starts with Option One California as the original
holder of the note. ACE, as the Depositor, transferred its rights in the note
to HSBC through the PSA. However, there was no evidence that Option
One California transferred its rights in the note to ACE. This is the missing
piece of the puzzle. See Appendix. As HSBC cannot prove that ACE had
any right to enforce the note, it cannot derive any right from ACE and is
not a nonholder in possession of the instrument with the rights of a holder
to enforce. §§ 673.2031, .3011, Fla. Stat. (2013). Put simply, HSBC failed
to prove standing. We therefore reverse the final judgment of foreclosure.
Reversed and Remanded for entry of judgment in favor of appellants.
WARNER and TAYLOR, JJ., concur.
* * *
Not final until disposition of timely filed motion for rehearing.
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Appendix
Pooling and Servicing Agreement
(PSA)
ACE SECURITIES CORP.
OPTION ONE CALIFORNIA (Depositor)
(Holder of mortgage and
note)
Assigns mortgage to HSBC
after complaint is filed
HSBC
(Trustee)
HSBC HS
(Plaintiff) WELLS FARGO BANK,
Non-Holder in Possession N.A.
(Master Servicer and
Securities
Administrator)
The dotted line represents the missing piece in the
chain of transfers. The plaintiff did not prove a
transfer of rights from Option One California to
ACE. Although under the PSA, the Depositor ACE OPTION ONE
transferred its rights to the plaintiff and Trustee MORTGAGE CORP.
HSBC, the plaintiff did not prove that ACE derived (Servicer)
its rights from Option One California or any other
Option One Mortgage Corporation. Option One
Mortgage Corporation was a party to the PSA, but
only as a servicer. As such, Option One Mortgage
Corporation did not transfer any rights.
OPTION AMERICAN
ONE HOME
MORTGAGE MORTGAGE
CORP. SERVICING
Servicer (Servicer)
(Delaware)
This is a separate chain of
transfers that occurred between
servicers, but still does not
provide HSBC with standing.
Rebranded as
HOMEWARD OCWEN
RESIDENTIAL (Servicer)
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