Forty One Yellow, LLC v. Escalona

• Decision Date: 28 October 2020
• Docket Number: Case No. 2D18-3730
• Citation: 305 So.3d 782
• Parties: FORTY ONE YELLOW, LLC, Appellant/Cross-Appellee, v. Yoel Remon ESCALONA and Nuria Gonzalez, Appellees/Cross-Appellants.
• Court: Florida District Court of Appeals

305 So.3d 782

FORTY ONE YELLOW, LLC, Appellant/Cross-Appellee,

v.Yoel Remon ESCALONA and Nuria Gonzalez, Appellees/Cross-Appellants.

Case No. 2D18-3730

District Court of Appeal of Florida, Second District.

Opinion filed October 28, 2020

Yelena Shneyderman of Yelena Shneyderman, P.A., Hollywood, for Appellant/Cross-Appellee.

David W. Fineman and Joseph C. Lotempio of The Dellutri Law Group, P.A., Ft. Myers, for Appellees/Cross-Appellants.

LaROSE, Judge.

Forty One Yellow, LLC (FOY), appeals the final judgment dismissing its action to reestablish a lost note and foreclose upon the home of Yoel Remon Escalona and Nuria Gonzalez (the Borrowers). The Borrowers cross-appeal. We have jurisdiction. See Fla. R. App. P. 9.030(b)(1)(A) ; 9.110(b), (g). We affirm because FOY failed to prove its standing to foreclose. Although the trial court properly denied FOY's motion for rehearing/motion to reopen the evidence, we write, primarily, to explain why the trial court erred in finding that res judicata barred FOY's foreclosure action.¹ See Fla. R. Civ. P. 1.530(a).

Background

In 2006, the Borrowers executed a promissory note to Fremont Investment & Loan to purchase a home. The Borrowers also delivered to Mortgage Electronic Registration Systems, Inc. (MERS), as Fremont's nominee, an executed mortgage securing payment of the note. The mortgage conferred upon MERS "the right to foreclose and sell the [p]roperty."

Shortly thereafter, in December 2007, LaSalle Bank, N.A., filed a foreclosure complaint against the Borrowers.² The trial court entered a 2009 final judgment against the Borrowers. Several months later, the trial court vacated the final judgment and directed the clerk to return the original note and mortgage to LaSalle's attorney.³ Apparently, the note never made its way back to LaSalle's attorney. If it did, it was misplaced.

Over the ensuing years, the note and mortgage wended their way through the secondary mortgage market. In 2013, FOY, claiming entitlement to enforce the note, filed its first foreclosure complaint; it sought to reestablish the lost note. FOY alleged that the Borrowers failed to make any loan payments since August 2007. Eventually, the trial court entered a 2014 final judgment in favor of the Borrowers. The trial court "f[ound] that [FOY] failed to re-establish [sic] the lost promissory note under [section] 673.3091, Fla. Stat. [ (2013),] thus precluding entry of a judgment of foreclosure." The judgment dismissed FOY's complaint.

Undeterred, FOY filed a second foreclosure action in 2017. Again, FOY sought to reestablish the lost note. FOY alleged that the Borrowers had not made a loan payment since September 2012. The Borrowers’ defenses included res judicata, collateral estoppel, and lack of standing. The trial court conducted a nonjury trial in the summer of 2018. The evidence demonstrated that the debt had been commoditized and transferred several times. We need not recount the details of each transaction, save one.

In January 2012, MERS executed an assignment of mortgage to Stonecrest Income Opportunity Fund I, LLC.⁴ MERS transferred "[a]ll its right, title[,] and interest in and to a certain Mortgage from [Borrowers] to [MERS] as nominee for [Fremont]." However, "[t]he assignment made nary a mention of the note." See Scott v. Strategic Realty Fund, 45 Fla. L. Weekly D1137, ––– So.3d ––––, 2020 WL 2464807 (Fla. 2d DCA May 13, 2020). In August 2012, FOY purportedly purchased the mortgage from Stonecrest.

At the conclusion of the 2018 bench trial on FOY's second foreclosure lawsuit, the trial court, again, entered final judgment for the Borrowers. The written final judgment provided as follows:

[FOY] established all facts and conditions, including reestablishment of the lost note, necessary to support a judgment of foreclosure in the amounts claimed and would be entitled to judgment except as follows. [FOY] has failed to establish it has standing to enforce the note because an assignment necessary to its standing fails to transfer the note. [FOY]'s establishment of the lost note in this case may not be relied on because that issue is barred by res judicata/collateral estoppel. That issue was previously litigated in a prior case between the same parties and the court made a specific finding that [FOY] failed to establish the lost note. The fact this is a different cause of action will not permit the relitigation of that finding.

(Emphasis added.) Thus, the final judgment involuntarily dismissed FOY's second attempt to foreclose. And, it did so apparently with prejudice, thus preventing FOY from pursuing any recourse.

FOY filed a "Motion for rehearing and/or to re-open case to permit plaintiff to present additional evidence and testimony." See Fla. R. Civ. P. 1.530. Despite a break in the chain of assignments, FOY argued that it had presented sufficient evidence to prove standing. Alternatively, FOY asked the trial court to reopen the case to allow "additional testimony to affirmatively establish the complete chain of transfers of the note" and "to present additional newly-discovered evidence." The trial court denied the motion.

Analysis

I. FOY's standing, or lack thereof

Standing is a necessary predicate to secure a foreclosure judgment. Scott, 45 Fla. L. Weekly at D1137, ––– So.3d at ––––, 2020 WL 2464807 ("The plaintiff must have standing to foreclose a mortgage. To have standing, the plaintiff must be legally entitled to enforce the note to which the mortgage relates."). We review de novo the trial court's ruling on standing. See Peters v. Bank of N.Y. Mellon, 227 So. 3d 175, 178 (Fla. 2d DCA 2017) ("Our review of a trial court's ruling regarding whether a foreclosure plaintiff has standing is de novo.").

The foreclosure plaintiff must either be a holder of the note or a nonholder in possession of the note with the rights of a holder. Creadon v. U.S. Bank N.A., 166 So. 3d 952, 954 (Fla. 2d DCA 2015) ("An entity can establish standing to foreclose a note secured by a mortgage by showing that it is the holder of the note or a nonholder in possession of the note who has the rights of a holder." (citing Mazine v. M & I Bank, 67 So. 3d 1129, 1131 (Fla. 1st DCA 2011) )). Without diving into the weeds concerning these alternatives, suffice it to say that the note is the instrument from which standing springs.

"Standing to foreclose by one other than the original lender can be established through evidence of an assignment or equitable transfer of the note ... completed before the complaint is filed." Sorrell v. U.S. Bank Nat'l Ass'n, 198 So. 3d 845, 847 (Fla. 2d DCA 2016). Here, FOY had to establish its right to sue through a valid chain of assignments of the note. See, e.g., Geweye v. Ventures Tr. 2013-I-H-R, 189 So. 3d 231, 232-33 (Fla. 2d DCA 2016) (holding that despite original plaintiff's standing at suit's inception, Ventures Trust 2013-I-H-R lacked standing as a substituted plaintiff to foreclose where, despite introducing an assignment of mortgage at trial, "[t]he assignment ... did not purport to assign any interest in the note"). "An assignment of the mortgage without an assignment of the debt creates no right in the assignee." Vance v. Fields, 172 So. 2d 613, 614 (Fla. 1st DCA 1965).

The January 2012 assignment from MERS to Stonecrest failed to mention the note. See, e.g., Morroni v. Wilmington Sav. Fund Soc'y FSB, 292 So. 3d 514, 519 (Fla. 2d DCA 2020) (stating that chain of "assignments transferred only the mortgage, not the note. It is by now well established that an assignment that transfers only the mortgage and not the note is insufficient to show standing." (citing Verizzo v. Bank of N.Y. Mellon, 220 So. 3d 1262, 1266 (Fla. 2d DCA 2017) )); Partridge v. Nationstar Mortg., LLC, 224 So. 3d 839, 841-42 (Fla. 2d DCA 2017) (holding that an assignment of mortgage made to loan servicer failed to establish servicer's standing to foreclose where there was no evidence that servicer acquired an interest in the note); Verizzo, 220 So. 3d at 1266 ("[T]he assignments do not purport to transfer the note, and our court has held that an assignment of mortgage that does not also transfer the note, at least standing alone, does not prove that a foreclosure plaintiff has the rights to enforce the note."); Eaddy v. Bank of Am., N.A., 197 So. 3d 1278, 1280 (Fla. 2d DCA 2016) (holding that plaintiff failed to prove standing where "the assignment of mortgage attached to [the] amended complaint reflects only the transfer of the mortgage and not the note"); Caballero v. U.S. Bank Nat'l Ass'n, 189 So. 3d 1044, 1046 (Fla. 2d DCA 2016) ("[T]he assignment was insufficient to show standing because it only purported to assign the mortgage, not the note."); Bristol v. Wells Fargo Bank, Nat'l Ass'n, 137 So. 3d 1130, 1133 (Fla. 4th DCA 2014) ("The bank relies on the ‘Assignment of Mortgage’ from MERS to support standing, but the ‘assignment of mortgage reflects transfer of only the mortgage, not the note.’ The bank argues that the note followed the mortgage when the mortgage was assigned to the bank. This argument is flawed. The mortgage follows assignment of the note." (first quoting Vidal v. Liquidation Props., Inc., 104 So. 3d 1274, 1277 (Fla. 4th DCA 2013) ; then citing Taylor v. Bayview Loan Servicing, LLC, 74 So. 3d 1115, 1118 (Fla. 2d DCA 2011) )); Lamb v. Nationstar Mortg., LLC, 174 So. 3d 1039, 1041 (Fla. 4th DCA 2015) ("Nationstar did not prove its standing to enforce the note through evidence of an assignment because the assignment at bar assigns only the mortgage.").

Stonecrest's August 2012 assignment to FOY could not transfer the note; Stonecrest could not transfer an interest it did not hold. Thus, "one of the pieces is missing" from this "foreclosure puzzle." See Murray v. HSBC Bank USA, 157 So. 3d 355, 356 (Fla. 4th DCA 2015). Because of this break in the assignment of the note, we are compelled to affirm the trial court's entry of final judgment for the Borrowers for lack of standing.

II. Res judicata did not...