CATHERINE P. COX v. U.S. BANK, TRUST N.A., AS TRUSTEE FOR LSF9 MASTER PARTICIPATION TRUST

DISTRICT COURT OF APPEAL OF THE STATE OF FLORIDA
FOURTH DISTRICT

CATHERINE P. COX,
Appellant,

v.

U.S. BANK TRUST N.A., as Trustee for LSF9 Master Participation Trust,
Appellee.

No. 4D18-3424

[March 11, 2020]

Appeal from the Circuit Court for the Fifteenth Judicial Circuit, Palm
Beach County; Edward A. Garrison, Judge; L.T. Case No.
502018CA000536XXXXMB.

Catherine P. Cox, Delray Beach, pro se.

David Rosenberg, Cynthia L. Comras, and Jarrett Cooper of Robertson,
Anschutz & Schneid, P.L., Boca Raton, for appellee.

GERBER, J.

The purchaser of a residential property, which was encumbered by a
mortgage defaulted upon by a previous borrower, appeals from the circuit
court’s final judgment granting the plaintiff’s foreclosure action against
the property. The purchaser raises two arguments: (1) the circuit court
erred in refusing to allow her to contest the plaintiff’s standing to foreclose;
and (2) the plaintiff failed to prove it had standing to foreclose.

On the purchaser’s first argument, the plaintiff concedes the circuit
court erred in refusing to allow her to contest the plaintiff’s standing to
foreclose. However, the plaintiff argues we should conclude the error was
harmless because the plaintiff proved it had standing to foreclose.

We agree with the plaintiff’s concession that the circuit court erred in
refusing to allow the purchaser to contest the plaintiff’s standing to
foreclose. However, we conclude the error was not harmless, as the
purchaser proffered competent substantial evidence to support her
argument the plaintiff lacked standing to foreclose, and the circuit court
did not consider the proffered evidence or argument. Therefore, we reverse
the final judgment and remand for a new trial, in which the standing issue
may be decided on the merits of both sides’ evidence and arguments.

We present this opinion in five sections:
1. The plaintiff’s foreclosure action against the purchaser;
2. The purchaser’s “lack of standing” affirmative defense;
3. The circuit court’s rulings at the non-jury trial;
4. This appeal; and
5. Our review.

1. The Plaintiff’s Foreclosure Action Against the Purchaser

The instant case began when the plaintiff filed a foreclosure action
against the purchaser, the previous borrower, and others.

The plaintiff’s verified complaint alleged that, in January 2006, the
borrower executed a note payable to “Countrywide Bank, N.A.” which was
secured by a mortgage on the property at issue. Attached to the plaintiff’s
verified complaint was a copy of the note containing an undated blank
endorsement by “Countrywide Bank, N.A.” The plaintiff alleged it now held
the original note, which had been in default since June, 2013. The plaintiff
further alleged it had named the purchaser as a defendant because “the
property is now owned by [the purchaser].” The plaintiff sought a
judgment foreclosing on the mortgaged property, among other relief.

The borrower did not file any response to the plaintiff’s verified
complaint. Therefore, the plaintiff obtained a clerk’s default against the
borrower.

2. The Purchaser’s “Lack of Standing” Affirmative Defense

The purchaser filed a verified answer and affirmative defenses. The
purchaser alleged the plaintiff lacked standing to foreclose. According to
the purchaser’s allegations:

• In March 2007, a year after the borrower executed the note payable
to “Countrywide Bank, N.A.,” that entity converted from a national
bank charter to a federal savings bank charter named “Countrywide
Bank, FSB.”

• In October, 2008, “Countrywide Bank, FSB” filed the first
foreclosure action against the borrower based on the note. In the
complaint, “Countrywide Bank, FSB” alleged it “owns and is the
holder of the Note and Mortgage,” but the original note was lost or

2
 misplaced. “Countrywide Bank, FSB” attached to the complaint a
copy of the note. That copy did not contain any endorsements.

• In November, 2008, an assignment of mortgage from “Countrywide
Bank, N.A.” to “Countrywide Bank, FSB” was filed in the Palm Beach
County official records. According to the purchaser, that
assignment of mortgage did not serve to transfer the note from
“Countrywide Bank, N.A.” to “Countrywide Bank, FSB,” because “[a]
mortgage follows the assignment of the promissory note, but an
assignment of the mortgage without an assignment of the debt
creates no right in the assignee.” Tilus v. AS Michai LLC, 161 So. 3d
1284, 1286 (Fla. 4th DCA 2015).

• In February, 2009, “Countrywide Bank, FSB” applied to convert to
a national bank charter, and on the same day, Bank of America
applied to acquire the new Countrywide entity, upon which
“Countrywide FSB” would cease to exist.

• In December, 2010, in the foreclosure case against the borrower,
“Countrywide Bank, FSB” filed the original note and mortgage with
the Clerk’s office. The original note now contained an undated blank
endorsement by the original lender entity, “Countrywide Bank, N.A.”
According to the purchaser, “[because] the blank indorsement is un-
dated, it is impossible to determine which, if any, of the numerous
‘Countrywide’ incarnations may have been in possession of the note
when it was endorsed, and therefore entitled as the holder to enforce
it and/or negotiate it.”

• In April, 2013, “Countrywide Bank, FSB” filed a voluntary dismissal
of the first foreclosure action against the borrower.

• In July, 2013, the borrower’s homeowners’ association obtained a
default final judgment against him for unpaid HOA fees, resulting in
the HOA receiving title to the property.

• In September, 2013, the HOA sold the property to the purchaser.

• In December, 2013, the mortgage was assigned from “Bank of
America, N.A., successor by merger to Countrywide Bank, N.A.
f/k/a Countrywide Bank, FSB” to “Bank of America, N.A., successor
by merger to BAC Home Loans Servicing, LP, F/K/A Countrywide
Home Loans Servicing, LP.”

3
 • In September, 2015, the mortgage was assigned from “Bank of
America, N.A. as successor by merger to Countrywide Bank, FSB
c/o Caliber Home Loans, Inc.” to “LSF9 Master Participation Trust,
c/o Caliber Home Loans, Inc.”

• In August, 2017, the mortgage was assigned from “LSF9 Master
Participation Trust” to “U.S. Bank Trust, N.A., as trustee for LSF9
Master Participation Trust” (the plaintiff/appellee in this action).

• “Since we do not know when, or by what entity the Note was
endorsed in blank (between October 30, 2008, when the Note was
reported as ‘lost,’ and December 2, 2010, when filed with the Clerk
of Court with an un-dated blank endorsement purportedly executed
by a representative of a Countrywide entity which no longer existed)
clearly plaintiff does not have standing to proceed and the
foreclosure must be dismissed. Further, there have been no
assignments of the Note, and assignment of the mortgage does not
transfer the debt.”

3. The Circuit Court’s Rulings at the Non-Jury Trial

The case went to a non-jury trial. At the beginning of trial, the plaintiff’s
counsel moved for the purchaser to “not be permitted to contest [the]
foreclosure action except as to her right of redemption after the sale of the
property.”

In response, the purchaser argued she was permitted to contest the
plaintiff’s standing pursuant to our opinion in 3709 North Flagler Drive
Prodigy Land Trust v. Bank of America, N.A., 226 So. 3d 1040 (Fla. 4th DCA
2017). In that case, the circuit court refused to allow a purchaser to
assert, as a defense at trial, the plaintiff’s alleged lack of standing. Id. at
1041. Thus, the circuit court required the plaintiff to prove only its
damages, and not its standing. Id. We reversed for a new trial in which
the purchaser could litigate a lack of standing defense. Id. at 1042-43.
We reasoned:

[The purchaser] obtained title to the property subject to the
mortgage, no doubt. Such a purchaser is estopped from
contesting a mortgage which is valid on its face. But
contesting standing of a plaintiff to bring a foreclosure action
is not contesting the validity of the mortgage itself. Further, if
the plaintiff does not have standing, it is not entitled to enforce
the note and foreclose on the property. Standing in a
foreclosure proceeding requires the plaintiff to show that it is

4
 the holder or is in possession of the note at the time of filing
suit. A subsequent title owner may contest the plaintiff’s
standing to foreclose on the mortgage to the extent that there
is no prejudicial delay to the proceedings occasioned by any
transfer of ownership during the pending process. A
subsequent purchaser has an interest in assuring that the
foreclosing plaintiff actually has the authority to bring the suit
and is entitled to raise such a defense so long as they do not
cause unreasonable delay to any ongoing proceedings. To
hold otherwise would allow a stranger to the note and
mortgage to foreclose on the property, and a subsequent
purchaser would never have the ability to defend against the
taking of a bona fide interest in the property through a
foreclosure sale.

Id. at 1042 (emphasis in original; internal citations omitted).

Despite our reasoning in 3709, the circuit court in the instant case
misinterpreted 3709 as holding that while the plaintiff had to prove its
standing, the purchaser could not contest the plaintiff’s standing.

Fortunately, however, the circuit court permitted the purchaser to
proffer her evidence and argument as to why the plaintiff allegedly lacked
standing. The purchaser argued: “I would have been prepared to prove
that the [entity] that purportedly placed a blank endorsement . . . at some
unknown moment in time . . . was invalid because [the entity] did not exist
at the time purportedly that note was [endorsed].”

The purchaser proffered the documents she would have offered as
evidence to support the argument above. As the purchaser proffered each
document, the plaintiff stated it would have objected to each document’s
admission into evidence on the grounds of relevance, among other
objections. The circuit court stated it would have sustained each objection
based on its ruling not permitting the purchaser to contest standing.

During the trial, the plaintiff’s sole witness testified that when the
plaintiff filed its foreclosure action against the purchaser, the plaintiff
possessed the original undated blank-endorsed note, which matched the
copy filed with the complaint. However, the plaintiff did not present
evidence that “Countrywide Bank, N.A.” still existed at whatever time its
blank endorsement was applied.

During cross examination of the plaintiff’s witness, the purchaser
asked if the witness knew the date on which the note had been endorsed

5
in blank. The plaintiff objected to relevance, and the circuit court
sustained the objection.

After the plaintiff presented its evidence as to its alleged standing,
which relied only on its possession of the undated blank-endorsed note
when it filed its action against the purchaser, the circuit court orally
announced a final judgment in the plaintiff’s favor. The circuit court also
entered a written judgment consistent with the oral pronouncements. The
circuit court never considered the merits of the purchaser’s evidence and
argument on the plaintiff’s alleged lack of standing.

4. This Appeal

This appeal followed. The purchaser raises two arguments: (1) the
circuit court erred in refusing to allow the purchaser to contest the
plaintiff’s standing to foreclose; and (2) the plaintiff failed to prove it had
standing to foreclose.

As mentioned above, on the purchaser’s first argument, the plaintiff
concedes the circuit court erred in refusing to allow the purchaser to
contest the plaintiff’s standing to foreclose, pursuant to our holding in
3709.

However, the plaintiff argues we should conclude the error was
harmless because the plaintiff filed with the circuit court the original
undated blank-endorsed note in the same condition as the copy attached
to the complaint. The plaintiff relies upon our decision in Ortiz v. PNC
Bank, Nat’l Ass’n, 188 So. 3d 923 (Fla. 4th DCA 2016):

We recognize the fact that a copy of a note is attached to a
complaint does not conclusively or necessarily prove that the
Bank had actual possession of the note at the time the
complaint was filed. However, if the Bank later files with the
court the original note in the same condition as the copy
attached to the complaint, then we agree that the combination
of such evidence is sufficient to establish that the Bank had
actual possession of the note at the time the complaint was filed
and, therefore, had standing to bring the foreclosure action,
absent any testimony or evidence to the contrary.

Id. at 925 (emphases added).

The purchaser replies the error was not harmless, because she sought
to present “evidence to the contrary,” which the circuit court refused.

6
According to the purchaser’s argument, her evidence would have shown
that, when “Countrywide Bank, N.A.’s” blank endorsement was applied to
the note, that entity no longer existed, and thus that entity was not the
note’s holder, making the undated blank endorsement a nullity. See Vieira
v. PennyMac Corp., 241 So. 3d 193, 197 (Fla. 4th DCA 2018) (“As we have
made clear in the past, separate corporate entities, even parent and
subsidiary entities, are legally distinct entities.”). Thus, the purchaser
argues, at a minimum, we should reverse and remand for a new trial at
which she can contest the plaintiff’s standing to foreclose.

In the alternative, the purchaser argues we should reverse and remand
with instructions for the circuit court to enter an involuntary dismissal of
the plaintiff’s action, because the plaintiff did not present evidence that
“Countrywide Bank, N.A.” still existed at whatever time its blank
endorsement was applied.

5. Our Review

Our review is de novo. See Caraccia v. U.S. Bank, Nat’l Ass’n, 185 So.
3d 1277, 1278 (Fla. 4th DCA 2016) (“We review the sufficiency of the
evidence to prove standing to bring a foreclosure action de novo.”) (citation
omitted).

We agree with the purchaser’s argument for a new trial, but not for an
involuntary dismissal. Our decision is controlled in part by PennyMac
Corp. v. Frost, 214 So. 3d 686 (Fla. 4th DCA 2017), which recognizes the
existence of the standing defense which the purchaser sought to litigate.
We examine PennyMac in more detail.

In PennyMac, the borrower executed a note and mortgage in favor of
Washington Mutual Bank, F.A. Id. at 688. The note contained a blank
endorsement made by Washington Mutual, but it was marked “VOID.” Id.
The note also contained an allonge with a purported blank endorsement
by “JPMorgan Chase Bank, National Association, successor in interest by
purchase from the FDIC as Receiver of Washington Mutual Bank, f/k/a
Washington Mutual Bank, F.A.” Id.

After the borrower defaulted, PennyMac filed a foreclosure action
against the borrower. Id. At trial, PennyMac presented evidence showing
it possessed the original note with JPMorgan’s endorsement when
PennyMac filed the complaint. Id.

The borrower moved for an involuntary dismissal, arguing that
PennyMac failed to show how JPMorgan had the right to enforce the note

7
at the time JPMorgan transferred the note to PennyMac. Id. The circuit
court granted the borrower’s motion for involuntary dismissal. Id.

On appeal, PennyMac primarily argued the involuntary dismissal
should be reversed because it possessed the original blank-endorsed note
from the case’s inception. Id.

We disagreed with PennyMac’s argument and affirmed. Id. at 688-89.
We reasoned:

The underlying premise of PennyMac’s argument . . . is
flawed because the indorsement by JPMorgan did not
constitute a blank indorsement.

. . . Under the UCC, a “person entitled to enforce” a
negotiable instrument means the holder of the instrument, a
nonholder in possession of the instrument who has the rights
of a holder, or a person not in possession of the instrument
who is entitled to enforce. § 673.3011(1)–(3), Fla. Stat. (2015).

A “holder” is “[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. (2015). Thus, a plaintiff who is not the original
lender may establish its standing to foreclose with proof that
it was in possession of the original note with a blank or special
indorsement when it filed the complaint.

Generally, “if an instrument is payable to an identified
person, negotiation requires transfer of possession of the
instrument and its indorsement by the holder.” § 673.2011(2),
Fla. Stat. (2015) (emphasis added). By definition, a “blank
indorsement” must be “made by the holder” of the note.
§ 673.2051(2), Fla. Stat. (2015).

An indorsement “made by a person who is not the holder”
of the note is defined as an “anomalous indorsement.”
§ 673.2051(4), Fla. Stat. (2015). “An anomalous indorsement
does not affect the manner in which the instrument may be
negotiated.” Id.

Here, from the face of the note, JPMorgan’s indorsement
was an anomalous indorsement, not a blank indorsement.
Because the indorsement by the original lender was void,

8
 JPMorgan could not have been a holder of the note. At best,
JPMorgan may have been a nonholder in possession of the
note with the rights of a holder. Thus, because JPMorgan was
not a holder of the note, JPMorgan’s indorsement was not a
blank indorsement and did not negotiate the note.

Any rights PennyMac had to the note were purely derivative
to those of JPMorgan. “A transfer vests in the transferee only
the rights enjoyed by the transferor, which may include the
right to enforcement, through the shelter rule.” Murray v.
HSBC Bank USA, 157 So. 3d 355, 358 (Fla. 4th DCA 2015)
(citation, internal quotation marks, and brackets omitted). To
prove standing as a nonholder in possession with the rights
of a holder, the plaintiff must prove the chain of transfers
starting with the first holder of the note. Id. at 357–58. Where
the plaintiff “cannot prove that [a transferor] had any right to
enforce the note, it cannot derive any right from [the
transferor] and is not a nonholder in possession of the
instrument with the rights of a holder to enforce.” Id. at 359.

In this case, because JPMorgan’s indorsement was merely
an anomalous indorsement, PennyMac’s possession of the
note did not make it a holder. Therefore, PennyMac needed
to establish its standing by showing that it was a nonholder
in possession of the note with the rights of a holder, which
required PennyMac to prove the chain of transfers in
accordance with Murray. Correspondingly, PennyMac was
required to prove that JPMorgan, as the transferor, had the
right to enforce the note at the time of the transfer. PennyMac
failed to do so at trial.

....

In sum, because PennyMac failed to prove that it was
entitled to enforce the note, we affirm the trial court’s entry of
an involuntary dismissal.

Id. (other internal citations and quotation marks omitted).

The PennyMac “anomalous indorsement” standing defense is exactly
what the purchaser sought to assert in this case. However, because the
circuit court erred in excluding the purchaser from asserting that
argument in this case, a reasonable possibility exists that the error
contributed to the outcome, i.e., the error was not harmless. See Special

9
v. West Boca Med. Ctr., 160 So. 3d 1251, 1256 (Fla. 2014) (“To test for
harmless error, the beneficiary of the error has the burden to prove that
the error complained of did not contribute to the verdict. Alternatively
stated, the beneficiary of the error must prove that there is no reasonable
possibility that the error contributed to the verdict.”) (citation omitted).

Conclusion

Based on the foregoing, we reverse for a new trial in which the
purchaser can litigate her lack of standing defense by presenting her
proffered evidence and arguments, as well as any evidence obtained since
the first trial. We conclude, without further discussion, that the plaintiff’s
other arguments for affirmance lack merit.

Reversed and remanded for new trial.

LEVINE, C.J., and MAY, J., concur.

* * *

Not final until disposition of timely filed motion for rehearing.

10