IN THE SUPREME COURT OF FLORIDA CASE NO. SC09-2312 Lower Tribunal Case No. 3D09-821 ELIEZIER LEAL and CLARA LEON, Petitioners, v. DEUTSCHE BANK NATIONAL TRUST COMPANY, Respondent. ON DISCRETIONARY REVIEW FROM THE DISTRICT COURT OF APPEAL OF FLORIDA, THIRD DISTRICT PETITIONERS= JURISDICTIONAL BRIEF BENEDICT P. KUEHNE Florida Bar No. 233293 SUSAN DMITROVSKY Florida Bar No. 0073296 LAW OFFICE OF BENEDICT P. KUEHNE, P.A. 100 S.E. 2nd St., Suite 3550 Miami, FL 33131 Tel:305.789.5989/Fx:305.789.5987 RICHARD J. BURTON Florida Bar No. 179337 THE BURTON LAW FIRM 2999 NE 191 Street, Suite 805 Aventura, FL 33180 Tel:305.705.0888/Fx:305.705.0008 DAVID M. SOSTCHIN Florida Bar No. 253049 MICHELLE D. ALVAREZ Florida Bar No. 64702 LAW OFFICES OF DAVID M. SOSTCHIN 419 W. 49 Street, Suite 210 Hialeah, FL 33012 Tel:305.819.2118/Fx:305.819.4991 MICHAEL F. KASHTAN Florida Bar No. 362603 DANIELS KASHTAN DOWNS ROBERTSON 3300 Ponce De Leon Blvd Coral Gables, Florida 33134-7211 Tel:305.448.7988/Fx: 305.448.7978
TABLE OF CONTENTS TABLE OF CONTENTS... i TABLE OF AUTHORITIES... ii STATEMENT OF THE CASE AND FACTS... 1 STATEMENT OF THE ISSUE... 2 SUMMARY OF THE ARGUMENT... 2 ARGUMENT THE DISTRICT COURT OPINION EXPRESSLY AND DIRECTLY CONFLICTS WITH OTHER APPELLATE DECISIONS ON THE SAME QUESTION OF LAW... 6 CONCLUSION... 11 CERTIFICATE OF TYPE SIZE AND STYLE... 12 CERTIFICATE OF SERVICE... 13 2
TABLE OF AUTHORITIES CASES PAGE Eigen v. Federal Deposit Insurance Corp., 492 So. 2d 826 (Fla. 2d DCA 1986)... 6,7 Fladell v. Palm Beach County Canvassing Board, 772 So. 2d 1240 (Fla. 2000)... 8 Hughes v. Home Savings, 675 So. 2d 649 (Fla. 2d DCA 1996)... 6,7 In re: Final Report and Recommendations on Residential Mortgage Foreclosure Cases, 2009 WL 5227471 (Fla. 2009)... 3 Leal v. Deutsche Bank National Trust Co., 21 So. 3d 907, 908 (Fla. 3d DCA 2009)... 2,7 Safeco Insurance Co. v. Ware, 401 So. 2d 1129 (Fla. 4th DCA 1981)... 7,8 Sasche v. Tampa Music Co., 262 So. 2d 17 (Fla. 2d DCA 1972)... 6,7 Your Construction Center, Inc. v. Gross, 316 So. 2d 596 (Fla. 4th DCA 1975), cert. denied, 333 So. 2d 466 (Fla. 1976)... 6,7 CONSTITUTIONAL PROVISIONS Florida Constitution Art. V, '3(b)(3)... 6 FLORIDA RULES 3
Florida Rules of Appellate Procedure Rule 9.030... 6 Rule 9.210(a)(2)... 10 OTHER AUTHORITIES Final Report and Recommendations, Supreme Court Task Force on Residential Mortgage Foreclosure Cases... 5,8 4
STATEMENT OF THE CASE AND FACTS This case arises from an appellate decision approving summary judgment in a mortgage foreclosure suit on the issue of standing, to wit: whether the plaintiff bank (Deutsche Bank National Trust Company, in the capacity of a trustee) had standing to prosecute the foreclosure. Deutsche Bank was not the originating lender, but claimed it received an assignment of the mortgage and note, although no assignment was attached to or incorporated into the complaint. Deutsche Bank filed the foreclosure complaint on November 20, 2008, seeking to reestablish a lost promissory note and foreclose a $361,000 mortgage on a Miami- Dade County home. According to the complaint, the loan was made in 2006, by Premier Mortgage Funding, Inc., and was recorded. The bank asserted in its complaint that the original promissory note was lost or destroyed under circumstances unknown to the bank, but that the bank had possession of the note when the loan went into default on August 1, 2008. Deutsche Bank did not attach any assignment of the mortgage to the complaint, nor did it include any operative document evidencing its ownership of the promissory note or mortgage underlying the foreclosure complaint. During summary judgment proceedings, the borrowers contested the bank=s standing to pursue the foreclosure, in the absence of assignment or ownership documentation. It was not until the filing of the bank=s summary final judgment motion 1
on March 2, 2009, that the bank presented its assignment, a document recorded only that day. Three weeks later, on March 24, 2009, the court granted final judgment of foreclosure in favor of the bank. On appeal, the Third District approved summary judgment in part, finding the bank had standing to sue because A[t]he Bank has filed the assignment in its favor and we agree that standing has been satisfactorily established.@ Leal v. Deutsche Bank, 21 So. 3d 907, 908 (Fla. 3d DCA 2009). The appellate court nonetheless reversed the summary judgment on other grounds, remanding the case for further proceedings because the bank did not address the borrowers = affirmative defenses, while discovery on those defenses was still ongoing. Id., 21 So. 3d at 909. STATEMENT OF THE ISSUE Does the district court=s decision expressly and directly conflict with appellate decisions requiring a foreclosure complaint to include the documents forming the underlying obligation, including the standing of the party pursuing foreclosure? SUMMARY OF THE ARGUMENT The decision of the Third District expressly and directly conflicts with other appellate decisions on the same question of law, to wit: to assert standing in a mortgage foreclosure action, must a plaintiff attach the underlying document demonstrating an interest in the note and mortgage? This is a vitally important question demanding 2
statewide resolution, especially in the midst of our mounting foreclosure crisis, when Florida courts are struggling with an increasing docket of residential foreclosure cases, homeowners are desperate to find ways to maintain their homes, and this court recently prescribed mandatory mediation of foreclosures of residential homestead property. In re: Final Report and Recommendations on Residential Mortgage Foreclosure Cases, 2009 WL 5227471 (Fla. 2009). 1 The Third District=s conflicting decision allows a bank in a residential mortgage foreclosure action to proceed to summary judgment even when the bank does not attach an assignment of the promissory note and mortgage to the complaint, but instead awaits summary judgment proceedings before presenting an assignment. In holding that a late-produced assignment Asatisfactorily@ establishes standing, the Third District departed from precedent in promoting uncertainty in the law of mortgage foreclosure cases, causing direct and express conflict with several appellate decisions, including a relevant opinion from this court. The discrepancy within appellate districts as to the 1 AForeclosure case filings in Florida trial courts stood at nearly 369,000 in December 2008. At the beginning of the last quarter of 2009, foreclosure filings statewide totaled in excess of 296,000. Florida has the third highest mortgage delinquency rate, the worst foreclosure inventory, and the most foreclosure starts in the nation. At the close of 2009, it is estimated there will be an inventory of approximately 456,000 pending foreclosure cases statewide. The crisis continues unabated.@ In re: Final Report and Recommendations on Residential Mortgage Foreclosure Cases, 2009 WL 5227471, *1 (Fla. 2009). 3
requirements necessary to maintain a foreclosure is particularly troubling in cases in which banks claim to not have possession of the original promissory note, having lost the operative document for reasons unexplained. In this modern-day environment when residential mortgages are not just a mechanism to obtain home ownership financing, but are also vehicles for third-party investment and collateral guarantees, the relationship between borrower and lender is frequently difficult to identify and establish. This is the result of securitized mortgages, when a residential mortgage becomes the lifeblood of Wall Street financing, and the original promissory note and mortgage have been far separated from the borrower and lender by a series of investment transactions that include payment and repayment of the debt from lender to investor to assignee. With this sophisticated commercial structure, proof of the underlying debt and the status of the person (or entity) entitled to recover that debt is the subject of significant dispute. Accordingly, if residential mortgages and the debt flowing therefrom are to be stable and enforceable, then proof of the chain of title of ownership is essential to the legitimacy and credibility of Florida=s property title system. That is precisely why Florida=s courts have long required, as a condition of initiating a residential mortgage foreclosure action, that proof of standing must be included with the case-initiating filings. To allow otherwise, as the Third District has done in a dramatic conflict from 4
precedent, provides an unfair advantage to the banks and lending institutions, enabling purported parties who are not connected to the transaction through the chain of ownership to initiate debt collection and foreclosure actions, knowing that many, if not most, homeowner-borrowers proceed pro se. 2 The result of this departure from Florida=s orderly approach to foreclosure cases is to lull homeowners into a sense of complacency and confusion because they may not recognize the entity suing or be aware that this entity now owns or services the loan. Final Task Force Report, at 24. It is proper and timely for this court to examine this important question of law that is poised to disrupt the judicial foreclosure process in which courts and litigants have come to understand the importance of a prompt showing of standing to sue by demonstrating not only the existence of the debt, but also the title ownership of that debt. The wisdom of that precedent is especially compelling in this crisis, warranting this court=s exercise of discretionary review to rectify the present imbalance. ARGUMENT THE DISTRICT COURT OPINION EXPRESSLY AND DIRECTLY CONFLICTS WITH OTHER APPELLATE DECISIONS ON THE SAME QUESTION OF LAW. 2 See Final Report and Recommendations on Residential Mortgage Foreclosure Cases, Florida Supreme Court Task Force on Residential Mortgage Foreclosure Cases, 23-24, http://www.floridasupremecourt.org/pub_info/documents/ Filed_08-17-2009_Foreclosure_Final_Report.pdf. 5
The Third District decision creates express and direct conflict with appellate decisions, warranting review and resolution pursuant to Article V, '3(b)(3), Florida Constitution, and Rule 9.030(a)(2)(A)(iv), Florida Rules of Appellate Procedure. Florida law has long required, as an essential element in mortgage foreclosure cases, that every complaint include a copy of the note and mortgage on which the foreclosure is based. See Eigen v. Federal Deposit Insurance Corp., 492 So. 2d 826 (Fla. 2d DCA 1986) (foreclosure complaint without attachment of instruments sued upon subject to dismissal); Hughes v. Home Savings, 675 So. 2d 649 (Fla. 2d DCA 1996) (failure to attach exhibits referenced in amended complaint warranted dismissal). Essential to that initial showing is a demonstration the party bringing the foreclosure action has standing to enforce the note and foreclose on the mortgage. Your Construction Center, Inc. v. Gross, 316 So. 2d 596 (Fla. 4th DCA 1975), cert. denied, 333 So. 2d 466 (Fla. 1976) (plaintiff not entitled to maintain action if it does not own and hold note secured by the subject mortgage); see Sasche v. Tampa Music Co., 262 So. 2d 17 (Fla. 2d DCA 1972) (failure to attach copy of instrument upon which action is brought warrants dismissal unless plaintiff can assert the operative instrument is not in its possession or control). The Third District emasculated this requirement of initial standing by approving the presentation of an assignment of a note and mortgage B for the first time B well 6
after the initiation of the complaint and only when the matter was being considered for summary judgment in favor of the bank: After the case had been pending for two months, the borrowers obtained counsel who filed an answer and affirmative defenses. The Bank filed a motion for summary judgment and the borrowers filed an affidavit in opposition. At the hearing on the motion for summary judgment, the main issue under discussion was whether the Bank had standing. The Bank has filed the assignment in its favor and we agree that standing has been satisfactorily established. Leal v. Deutsche Bank National Trust Co., 21 So. 3d 907, 908 (Fla. 3d DCA 2009). This judicial declaration defines a new and questionable rule in foreclosure actions, permitting the maintenance of a foreclosure even without a demonstration at the time of filing that the plaintiff has standing to sue by being an owner of the note upon which the suit is brought, thereby conflicting directly and expressly with Hughes, Eigen, and Your Construction Co., each of which mandated a showing of ownership of the debt upon which foreclosure was based. This requirement is so firmly entrenched in Florida law that attachment of the underlying contractual obligation is required in other contexts in order to apprise the defendant of the nature and extent of the cause of action, so the defendant can understand the claim and determine an appropriate defense. Sasche v. Tampa Music Co., 262 So. 2d 17, 19 (Fla. 2d DCA 1972). The absence of the document upon which the plaintiff=s action is premised fails 7
to state a cause of action under Florida law. Safeco Insurance Co. v. Ware, 401 So. 2d 1129 (Fla. 4th DCA 1981). This court has even acknowledged, in election litigation cases, the underlying ballot form attached to the complaint becomes an essential part of the pleading for the ensuing litigation. Fladell v. Palm Beach County Canvassing Board, 772 So. 2d 1240 (Fla. 2000). The Third District opinion dealt a conflicting blow to the requirement that a plaintiff must first demonstrate standing to proceed with a foreclosure action, creating uncertainty in the processing of foreclosure cases and confusion among borrowers and lenders as to who owns the debt being sued upon. 3 Importantly, the Foreclosure Task Force acknowledged, in expressing concern for the number of foreclosure cases resulting in defaults even when meritorious defenses are available, that the current practice of trading mortgages as investment vehicles, known as securitization, often leads to an unfair imbalance in the resolution of foreclosure cases, id. at 24-25: However, a recently developed business practice affects the filing of the complaint. Due to the frequency of sales of notes and mortgages, central depositories developed to hold the actual paper while the transactions between servicers and lenders which bought and sold notes occurred. As a result, plaintiff lawyers told the Task Force, the firms frequently do not have the note in hand at the time the action is brought. As a result, prophylactic lost note counts are filed in most actions filed by 3 The Foreclosure Task Force specifically noted the likelihood of consumer confusion when a foreclosure complaint is filed by someone other than the lender: AThis practice leads to confusion among defendants because they may not recognize the entity suing or be aware that this entity now owns or services the loan.@ Foreclosure Task Force Final Report and Recommendations, at 24. 8
firms handling a volume foreclosure practice. This practice leads to confusion among defendants because they may not recognize the entity suing or be aware that this entity now owns or services the loan. After the complaint is filed, the summons are issued and sent to process servers for service upon the various borrowers. The documentation of service varies among process server companies. In addition, the process servers usually conduct the diligent search in the event that they are unable to serve the borrower personally. The inconsistent quality of the diligent search efforts caused the Task Force to recommend a new form for affidavits of diligent search tailored to mortgage foreclosure cases. Further, at least one law firm is having process served in all its foreclosure cases by a process serving firm owned by the lawyer-principals of the law firm, many times charging expedited rates, as reflected in affidavits of costs filed in those cases. Without a defense lawyer on the other side, these practices may go unchallenged by defaulted borrowers. Once service is achieved, either through personal service or publication, defaults are submitted if no answer has been filed. In the vast majority of cases, borrowers are defaulted and no defense is submitted to the foreclosure action. People who cannot afford to pay their house payments usually cannot afford an attorney... * * * A motion for summary judgment is filed with the affidavits of amounts due and owing. There are some legal issues in connection with the filing of the affidavits. For example, one firm uses its office manager as Aattorney in fact@ to sign affidavits of amounts due and owing for its foreclosure clients. Without a defense attorney on the other side, these practices go unchallenged 9
In this time of crisis for Florida=s courts and homeowners trying to stay in their homes while navigating the perilous waters of economic turmoil, the judicial foreclosure process should not stray from the tested methods of assuring that foreclosure cases are initiated only by those parties who own or are entitled to enforce the promissory note and mortgage. With the third highest residential mortgage delinquency rate in the nation, Florida law should continue to promote a level playing field for both borrowers and lenders. By allowing putative plaintiffs to initiate a residential mortgage foreclosure without an initial showing of standing to enforce the note and mortgage, the Third District accelerated the number of unwarranted foreclosures that will proceed to judgment in the absence of a testing of meritorious defenses, because many of the borrowers will default in favor of an unknown bank that may not have a legally cognizable interest in the debt obligation. Current Florida law avoids this unfair result, yet allows properly situated lenders to fully pursue their legal remedies in court. The Third District=s decision is in irreconcilable conflict with the governing law of Florida. This court should rectify this discrepancy. CONCLUSION For the reasons set out in this jurisdictional brief, this court should grant discretionary review to correct the decision of the Third District Court of Appeal on this important question of mortgage foreclosure law and procedure. I:\JUDY\09-2312_JURISINI.DOC 10
CERTIFICATE OF TYPE SIZE AND STYLE This brief complies with Rule 9.210(a)(2) of the Florida Rules of Appellate Procedure. It is printed in Times New Roman 14-point proportional font. LAW OFFICE OF BENEDICT P. KUEHNE, P.A. 100 S.E. 2nd St., Suite 3550 Miami, FL 33131-2154 Tel: 305.789.5989/Fax: 305.789.5987 ben.kuehne@kuehnelaw.com Respectfully submitted, By: S/ Benedict P. Kuehne BENEDICT P. KUEHNE Florida Bar No. 233293 SUSAN DMITROVSKY Florida Bar No. 0073296 THE BURTON LAW FIRM 2999 NE 191 Street, Suite 805 Aventura, FL 33180 Tel: 305.705.0888/Fax: 305.705.0008 By: S/ Richard J. Burton RICHARD J. BURTON Florida Bar No. 179337 I:\JUDY\09-2312_JURISINI.DOC 11
LAW OFFICES OF DAVID M. SOSTCHIN 419 W. 49 Street, Suite 210 Hialeah, FL 33012 Tel: 305.819.2118/Fax: 305.819.4991 asi@sostchinlaw.com By: S/ David M. Sostchin DAVID M. SOSTCHIN Florida Bar No. 253049 MICHELLE D. ALVAREZ Florida Bar No. 64702 DANIELS KASHTAN DOWNS ROBERTSON 3300 Ponce De Leon Blvd Coral Gables, Florida 33134-7211 Tel: 305.448.7988/Fax: 305.448.7978 Email: mkashtan@dkdr.com By: S/ Michael F. Kashtan MICHAEL F. KASHTAN Florida Bar No. 362603 CERTIFICATE OF SERVICE I HEREBY CERTIFY that a true and correct copy of the foregoing was sent by U.S. Mail on January 20, 2010, to: Katherine J. Pauls Van Ness Law Firm, P.A. 1239 E. Newport Center Drive, Suite 110 Deerfield Beach, FL 33442 S/ Benedict P. Kuehne BENEDICT P. KUEHNE I:\JUDY\09-2312_JURISINI.DOC 12