NEW TREND DEVELOPINGING IN FLORIDA AFFECTING NON-CONVENTIONAL, NON-NEGOTIABLE LOAN INSTRUMENTS

A local circuit court in Broward County recently granted summary judgment for the borrower’s estate in a proceeding to foreclose a Home Equity Loan Conversion Loan Agreement (“reverse mortgage” and/or “Note”) finding a subsequent assignee of the original lender failed to demonstrate it had standing to foreclose the mortgage which secured the Note. Bank of New York Mellon Trust Co., N.A., as Trustee for Mortgage Assets Management Series I Trust (“BONY”) v. Timothy M. Ryan, as Personal Representative of the Estate of Kurt Ely, Deceased, 17^th Cir. Court Broward County, Case No. CACE22000905. In Ryan, Benchmark Mortgage Corporation (“Benchmark”) entered into a reverse mortgage with Kurt Ely who subsequently passed away.

The loan was transferred multiple times and eventually came to be owned by BONY which initiated an action to foreclose and re-establish the lost Note. To establish its standing, BONY attached four assignments to its complaint; however, two of the four assignments transferred only an interest in the mortgage not the Note. Although the Note attached to BONY’s complaint contained endorsements, the original Note had been lost. Ryan filed affirmative defenses and later moved for summary judgment asserting that BONY failed to establish its standing to foreclose the loan. Despite having ample time to oppose summary judgment, BONY failed to file any written opposition to the motion.

Although BONY filed a lost note affidavit which included “a deraignment of title…” along with the four assignments, the lower court found that BONY’s evidence was insufficient to create a dispute on the issue of standing. The court entered summary judgment in favor of the borrower. Ostensibly, this could have been avoided had BONY opposed the summary judgment motion (in writing) and provided proof of its ownership such as a purchase agreement or a proper chain of assignments of both the note and mortgage. The court explained that the Note securing the reverse mortgage was a non-negotiable instrument so BONY could not rely on the endorsements on the Note as the basis for standing. This finding, although non-precedential[i], is notable because it reflects a continuing trend in Florida where courts have designated reverse mortgages, Home Equity Conversion Mortgages (“HECM”), and Home Equity Lines of Credit (“HELOC”) as non-negotiable instruments.

Most recently, the basis for designating these instruments as non-negotiable is the lack of a promise to pay a fixed amount of principal. Florida Statute § 673.1041 defines the term “negotiable instrument” as “an unconditional promise or order to pay a fixed amount of money.” Fla. Stat. 673.1041 (West). The negotiability of an instrument becomes an issue when a party who was not the original payee on the instrument seeks to enforce the instrument. Importantly, several courts have held that non-negotiable instruments can be transferred and enforced by an assignee. See, for example, OneWest Bank, FSB v. Nunez, 193 So. 3d 13 (Fla. 4th DCA 2016), where the Fourth DCA noted: “The assignee of a nonnegotiable instrument takes it with all the rights of the assignor, and subject to all the equities and defenses of the debtor connected with or growing out of the obligation that the obligor had against the assignor at the time of the assignment.”

The take-away from this judgment is that a defensive summary judgment motion should be taken seriously and responded to in writing after careful consideration of its merits and the facts of the case. In lost note cases the issue of standing is generally more complex and is further complicated when the loan instrument is non-negotiable. Since the prevailing party in this action was the estate of the debtor, another noteworthy issue this case brings to light is whether an estate has the right to recover attorneys’ fees based on the reciprocity of the fee provisions in the Note and mortgage. The court retained jurisdiction to make that determination. Stay tuned for developments on these important and recurring issues.

[i] Only written opinions issued by the Florida district courts of appeal (and higher courts) create binding precedent for Florida circuit courts.