Locke Lord QuickStudy: Loan Servicers Score Victory in Florida Appellate Decision Rejecting Multiple Common Foreclosure Defenses

February 8, 2018

On February 7, 2018, Florida’s Third District Court of Appeal rejected multiple arguments routinely advanced by borrowers’ counsel in defense and delay of foreclosure litigation, reversed the trial court’s order dismissing the case, and remanded with instructions to enter a judgment of foreclosure. HSBC Bank USA, N.A. v. Joseph T. Buset, et al. Case No. 3D16-1382. The opinion offers lenders and servicers who litigate foreclosures in Florida a strong new weapon to overcome common delay and obstruction tactics.

The court in Buset rejected a number of challenges to the plaintiff’s standing to maintain a foreclosure. The court reaffirmed that typical promissory notes are negotiable under the Florida analog of the Uniform Commercial Code, rejecting the argument that the note’s reference to the mortgage, and the note’s definition of “Note Holder” destroyed negotiability. Buset, slip op., pp. 7–9. The court also held that the plaintiff had standing to foreclose by virtue of holding a copy of the note endorsed in blank, and that the plaintiff need not show ownership of the loan through a chain of endorsements. Id., pp. 9–13. The court rejected the borrowers’ claim that the plaintiff lacked standing because of alleged violations of the Pooling and Servicing Agreement, affirming that borrowers lack standing to assert such violations. Id., pp. 13–14. And the court rejected attacks on the form of a mortgage assignment, both because the assignment was in a proper form and because the formal mortgage assignment was superfluous; the mortgage followed the note and the note holder thus automatically had standing to enforce the mortgage. Id., pp. 14–15.

The court in Buset also made two significant evidentiary rulings. First, Buset held the trial court erred by admitting the testimony of a so-called “expert” on loan securitization and negotiability, and ruled that such witnesses are precluded from testifying as to legal conclusions. The use of these “experts” has oftentimes been employed by foreclosure defendants to oppose or otherwise stall the prosecution of foreclosures throughout Florida.

Buset is also extremely helpful to servicers on the admissibility of prior servicing records, a hot topic in Florida foreclosure litigation. The opinion recognizes that creating a loan payment history at or near the time of payment is “industry practice” (Id., p. 16), a finding that should be helpful in admitting prior servicing records even where the new servicer does not have personal knowledge of the prior servicer’s record-entry and record-keeping practices. Further, Buset found that the new servicer’s loan-boarding process was sufficient to allow it to admit and rely on the prior servicer’s records even though that loan-boarding process did not include “an audit.” Id. This indicates that a new servicer need not verify the accuracy of each transaction conducted by the prior servicer to rely on the prior servicer’s records. Finally, Buset confirmed that a new servicer can incorporate a prior servicer’s records into its own so long as there is “a business relationship or contractual obligation between the parties that ensures a substantial incentive for accuracy.” Id., pp. 16–17. Thus, contractual warranties of accurate record keeping should permit servicers to admit prior servicing records into evidence.