Florida’s Fourth DCA just reversed a final judgment entered in favor of the mortgagors (the Trinidads) in a lost note foreclosure case finding the lower court improperly relied on an unpled and meritless collateral estoppel defense to deny foreclosure to Federal National Mortgage Association (FNMA). Fed. Nat’l Mortg. Ass’n v. Trinidad, No. 4D22-415, 2023 WL 2505943, at *1 (Fla. 4th DCA Mar. 15, 2023). By way of history, the Trinidads executed a note and mortgage in 2007 in favor of DSK Enterprises (DSK) and stopped making payments on their loan in 2009.i FNMA obtained an interest in the loan and initiated foreclosure proceedings in 2012.
At the foreclosure trial, FNMA surrendered the original note with two allonges which reflected endorsements from DSK to First Horizons Home Loans, First Horizons to Metlife, and Metlife to blank. The trial court found that the allonge from DSK predated the note and was therefore invalid rendering the other two endorsements “legally insufficient and invalid.” The court denied foreclosure because FNMA lacked standing and entered judgment in favor of the Trinidads. FNMA did not appeal the judgment. Years later, FNMA moved to have the original note and mortgage returned to its counsel; however, the documents were lost in transit.
In 2018, FNMA initiated a second foreclosure against the Trinidads which included a count to re-establish the lost note. The matter proceeded to trial and the court admitted a copy of the note which reflected the same three endorsements as in the 2012 action.ii The parties stipulated that the original note was filed in the 2012 foreclosure action and returned by the clerk to FNMA’s counsel in July 2017, but never received. Without objection, the trial court took judicial notice of the 2012 final judgment in favor of the Trinidads. During closing argument, the Trinidads argued for the first time that “the law of the case” mandated a finding that the three endorsements were still legally insufficient and invalid based on the court’s finding in the 2012 foreclosure. FNMA objected based on waiver since the Trinidads did not raise law of the case or res judicata in their affirmative defenses.
The trial court rejected FNMA’s waiver argument and, ostensibly compelled to enforce the findings in the 2012 judgment, entered judgment for the Trinidads. The court concluded that “the first judgment determined that [FNMA] did not have standing in the 2012 foreclosure action” based on the invalid endorsements so FNMA could not prove it was entitled to enforce the note when it was lost, a required element for re-establishing a lost note. FNMA appealed that judgment to the Fourth DCA again arguing that the Trinidads waived any defense related to findings in the 2012 foreclosure by failing to properly plead collateral estoppel. The Fourth DCA agreed finding the defense had been waived and the issue was not tried by consent.iii
Notably, the DCA also held that the trial court’s conclusion (in 2012) that the endorsements were invalid was “clearly erroneous” and therefore enforcing the 2012 judgment based on collateral estoppel, an equitable defense, would be “manifestly unjust.” The DCA relied on its recent holdings wherein it found “that an allonge is not invalid simply because it predates the note to which it is attached.”iv The DCA elaborated that Florida’s Uniform Commercial Code (UCC) “expressly states that ‘an instrument may be antedated or postdated’ ” and nothing in the code even suggested that an allonge could not be executed before the note.v The DCA concluded the note was properly endorsed and that FNMA proved its holder status by proving that it “produced and filed the original note with the court during the 2012 foreclosure action.”vi The Court clarified that “[f]inancial instruments remain the property of the filing party while in a court’s possession.” The DCA also observed that the court records showed that the note was never cancelled.
The DCA found FNMA “proved all the elements to establish a lost note,” reversed the judgment for the borrowers and remanded the matter “for further proceedings on the mortgage foreclosure.”vii This case provides a helpful analysis of the doctrine of collateral estoppel and its limitations both from a pleading standpoint and a defense standpoint. Trinidad also provides valuable insight on the applicability of the UCC in the context of negotiable instruments and will be useful in defending against the never-ending attacks on standing.
i Trinidad, at *1. All future references or quotations to this case are to this citation until indicated otherwise.
ii Trinidad, at *2. All future references or quotations to this case are to this citation until indicated otherwise.
iii Trinidad, at *3. All future references or quotations to this case are to this citation unless indicated otherwise.
vi Trinidad, at *4. All future references or quotations to this case are to this citation unless indicated otherwise.
vii Trinidad, at *5.