Plaintiff as Servicer? I Think Not.

I observed a foreclosure trial today, and one aspect of it in particular really bothered me.  The plaintiff prosecuting the case was not the owner of the Note, but merely the servicer.  Many judges and, of course, plaintiffs’ attorneys, seem to think this is fine, arguing the servicer can foreclose because it’s the “holder” of the Note, even though, by its own admission, it’s not the owner.  In other words, the plaintiff/servicer concedes it does not “own” the Note, i.e. it’s not the plaintiff’s Note, but because it has the Note in its possession, and the Note is indorsed in blank, it can foreclose. 

I’ve thought about this argument a lot, read a lot of case law, and see some fatal problems.  Frankly, I’m frustrated these problems are largely being ignored and hope that everyone starts arguing and adjudicating this issue appropriately.   

First off, taking the plaintiff’s argument to its logical extreme, anyone can steal a Note with a blank indorsement – literally, be a thief – but because he possesses the Note, and the Note is indorsed in blank, he could foreclose simply because he’s the holder.  That sounds insane, but once you accept the argument that the plaintiff need only be the “holder,” and that ownership is irrelevant, that’s what you’re allowing – a thief can foreclose.  Anyone can foreclose.  Come to court with a Note with a blank indorsement, and how you obtained that Note is irrelevant – you can foreclose. 

Respectfully, that’s just not the law.  It can’t be the law.  There’s no way the law can allow or would allow a thief to foreclose.  Undoubtedly, this is why Rule 1.944 requires the plaintiff be the “owner and holder.”  

I can hear the plaintiffs’ attorneys now.  “But many Florida cases say being a holder is sufficient; they don’t have an ownership requirement.”  To a limited extent, I suppose that is true, but read those cases.  For example, Riggs v. Aurora Loan Services, 36 So. 3d 942 (Fla. 4th DCA 2010), talks at length about whether the plaintiff was the holder, and plaintiffs’ lawyers love to cite Riggs for the proposition that being the “holder” is all that matters.  However, the issue of ownership wasn’t a question in Riggs – in that case, the plaintiff showed it was the “owner and holder.”  Respectfully, it is totally misguided to take a case where ownership was not in question and use that case for the proposition that ownership is immaterial.  It may have been immaterial in that case because ownership wasn’t disputed, but that certainly doesn’t mean ownership is immaterial in all cases

Consider, again, my thief example.  Once you accept that a thief cannot foreclose, you necessarily accept that the plaintiff who forecloses must own the Note. 

Again, I can hear the plaintiffs’ lawyers.  “But a servicer can foreclose because the servicer is the holder and has a servicing agreement with the owner, so it’s foreclosing with the consent of the owner of the Note.”   This was the argument being espoused at the trial I observed today – the servicer doesn’t own the Note, but is foreclosing with the consent of the owner. 

This argument may sound unique or complicated, but it’s one the Florida courts have adjudicated for many years in a number of contexts – that of principal and agent.  Here, the plaintiff is saying that it, the servicer, is acting as the agent of the owner, the principal, by prosecuting the foreclosure case.  This is the dynamic we see in thousands of foreclosure cases – the servicer alleges it can prosecute the case for the owner under a theory of agency. 

In my view, this begs the question of when can an agent bind the principal?  Let’s say that again: 

Under what circumstances can an agent bind a principal?

There are zero Florida cases that discuss this concept in the context of foreclosure cases, so let’s look to case law in other contexts. 

In Fla. State Oriental Med. Ass’n v. Slepin, the First District ruled an attorney was not entitled to collect attorneys’ fees incurred representing a corporation because the attorney (the alleged agent) did not have the authority to act on behalf of the corporation (the alleged principal).  971 So. 2d 141 (Fla. 1st DCA 2007).  The attorney said he was acting on the corporation’s behalf, and he purported to act on its behalf, but the First District ruled he wasn’t, in fact, an agent and didn’t have the authority to bind the corporation.  In so ruling, the court explained:

A finding of actual authority would require evidence that a principal acknowledged an agent’s power, that the agent accepted the responsibility of representing the principal, and that the principal retained control over the agent’s actions.

Similarly, the Florida Supreme Court has explained:

Essential to the existence of an actual agency relationship is (1) acknowledgment by the principal that the agent will act for him, (2) the agent’s acceptance of the undertaking, and (3) control by the principal over the actions of the agent.

Villazon v. Prudential Health Care Plan, 843 So. 2d 842 (Fla. 2003). 

Let’s read those requirements closely, and break them down, one by one. 

1.  The principal acknowledged the agent’s power. 

2.  The agent accepted the responsibility of representing the principal.

3.  The principal retained control over the agent’s actions. 

In the trial I observed today, the plaintiff/servicer admitted it did not even know who the owner of the Note was.  Think about that for a minute.  The servicer was supposed to be acting on behalf of the owner, with the owner’s consent, but it didn’t even know who the owner was.  On these facts, how on earth could the servicer possibly prove the owner/principal “acknowledged the agent’s power”?  Clearly, it couldn’t, and it didn’t.  The servicer couldn’t even identify the owner, much less prove the owner authorized the servicer’s actions. 

This argument is so simple it’s ridiculous. 

“I have authority to foreclose.” 

“Who gave you authority?”

“I don’t know, but I have authority.” 

I can just see my kids making this argument to me and my wife. 

“I have permission to stay up until 10:00.  That’s my new bedtime.” 

“Who gave you that permission?”

“I don’t know, but it’s allowed.”

These arguments don’t even begin to make sense, but that’s what the servicer was arguing today.  “I don’t know who gave me authority, but I have authority.” 

As I see it, to prove the requisite authority, the servicer must either (a) introduce a servicing agreement into evidence; or (b) provide testimony from the owner as to the servicer’s authority.  Without one of those two things, I just don’t see how the servicer can possibly show the owner of the note authorized the servicer to foreclose.  Do you disagree?  You tell me … without a servicing agreement or testimony from the owner as to the servicer’s authority, how can the servicer prove the owner “acknowledged the servicer’s power”?  Once you conclude there is no such answer, then you necessarily agree that a servicer cannot foreclose without such proof.   

Similarly, in the trial I observed, the plaintiff/servicer failed to show the owner of the Note “retained control over the agent’s actions.”  After all, how could the servicer possibly show the owner of the Note “retained control over the servicer’s actions” when the servicer couldn’t even identify the owner?   Clearly, the servicer was acting as its own boss here, answering to nobody. 

I realize that some of the arguments being espoused by servicers in foreclosure cases seem unique, and there appears to be an absence of case law setting forth these issues.  However, once you realize a servicer purports to act on behalf of the owner, and is hence just another fancy word for an agent, it should become clear that basic principles of law regarding agents and principals must apply, as quoted above.  This requires proof in foreclosure cases that, many times, is simply not forthcoming.

Mark Stopa

Posted in Main | 20 Comments »

20 Responses to Plaintiff as Servicer? I Think Not.

  1. Stupendous Man – Defender of Liberty, Foe of Tyranny says:

    You might want to bone up on 3-301 and see about getting it repealed.

    “Person entitled to enforce” an instrument means (i) the holder of the instrument, (ii) a nonholder in possession of the instrument who has the rights of a holder, or (iii) a person not in possession of the instrument who is entitled to enforce the instrument pursuant to Section 3-309 or 3-418(d). A person may be a person entitled to enforce the instrument even though the person is not the owner of the instrument or is in wrongful possession of the instrument.

    Official Comment § 3-301
    This section replaces former Section 3-301 that stated the rights of a holder. The rights stated in former Section 3-301 to transfer, negotiate, enforce, or discharge an instrument are stated in other sections of Article 3. In revised Article 3, Section 3-301 defines “person entitled to enforce” an instrument. The definition recognizes that enforcement is not limited to holders. The quoted phrase
    Legal Information Institute, Cornell Law School (Mar. 2004 ed.)
    includes a person enforcing a lost or stolen instrument. Section 3-309. It also includes a person in possession of an instrument who is not a holder. A nonholder in possession of an instrument includes a person that acquired rights of a holder by subrogation or under Section 3-203(a). It also includes both a remitter that has received an instrument from the issuer but has not yet transferred or negotiated the instrument to another person and also any other person who under applicable law is a successor to the holder or otherwise acquires

  2. triumphant says:

    Thanks for this post.

    An important, yet absurd, result flowing from this “holder can foreclosure without being the owner” argument is the double jeopardy the homeowner faces on the note, even after having been foreclosed by a thief or pretender. If courts allow a note’s thief to foreclose, then the true owner of the note can still demand full payment from the note’s maker. Under this scenario, the homeowner can have the home stolen via judicial foreclosure, but may still be obligated on the full amount of the note, plus interest, etc., because the true note owner has received nothing.

    The pending fraudclosure bill in the Florida Senate, SB 1890, even attempts to codify this absurdity in its “Finality of Foreclosure” section (BOLD):

    “(3) After foreclosure of a mortgage based upon the enforcement of a lost, destroyed, or stolen note, a person who is not a party to the underlying foreclosure action but who claims to be the actual holder of the promissory note secured by the foreclosed mortgage does not have a claim against the foreclosed property after it has been conveyed for valuable consideration to a person not affiliated with the foreclosing lender or the foreclosed owner. This section does not preclude the actual holder of the note from pursuing recovery from any adequate protection given under s. 673.3091 by the person who enforced the note or from the party who wrongfully claimed to be the owner or holder of the promissory note OR THE MAKER OF THE NOTE or from any other person against whom the actual holder of the note may have a claim relating to the note.”

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  4. george trado says:


    • Mark Stopa Mark Stopa says:

      I don’t think our courts will ever have a blanket prohibition on servicers foreclosing.
      But I absolutely think the servicers should have to prove they’re acting with the authority of the actual owner.
      To me, there’s a big difference.

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  6. I find it interesting that Florida Retirement System (FRS) lost over a trillion dollars to the banks and yet legislators haven’t the foggiest idea that robo-signed docs, FRS, lost notes and UMBS (un-mortgage backed securities) are so intertwined that they are passing up the opportunity to claw back losses and shore up the retirement fund like New York and other states have done.

    State pension funds are not being made whole because the entities that submit fake papers to the courts and make credit bids on foreclosure sales are committing forgery, perjury and grand theft.

    We need the judicial branch to step up here and call it like it is. We need them to ask the tough questions and require absolute proof of ownership in each and every foreclosure proceeding.

    If we follow the laws that have been on the books for many years then the foreclosure crisis should naturally work it’s way through the system. There’s no need to make up new laws that make it easier for crooks to take houses by telling folks to stop making payments or losing their paperwork over and over and over again.

    When you look at the lies and deceit and tricks being played on homeowners by loan servicers in order to push them into default (aka manufactured foreclosure) and then add the robo-signed docs it shows at least criminal intent on a massive scale.

    We should NEVER allow crooks to get away with disobeying the rule of law, vandalizing the court system with fraudulent documents & displacing millions of people in order to support their title-washing business plan. It is criminal and should be treated as such.

    FRS bank losses:

    p. 28 Bank of America -316,327,012.67
    p. 28 Bank of New York Mellon -2,434,291.60
    p. 29 Barclays -19,997,665.40
    p. 30 BB&T -6,569,393.34
    p. 35 BNP Paribas -9,066,142.18
    p. 54 Citigroup -279,818,109.26
    p. 57 Comerica -2,278,503.78
    p. 57 Commerzbank AG -6,822,118.11
    p. 62 Credit Suisse -18,329,819.84
    p. 68 Deutsche Bank -9,714,840.03
    p. 85 Fifth Third -10,408,342.63
    p. 86 First Horizon -5,467,194.12
    p. 97 Goldman Sachs +26,938,736.08 (crime pays)
    p. 111 HSBC -17,738,931.24
    p. 127 JPMorgan Chase +81,243,480.18 (counterfeit notes anyone?)
    p. 131 KeyCorp -11,463,736.62
    p. 142 Lloyds Banking -29,960,919.23
    p. 148 Marshall & Ilsley -9,304,517.53
    p. 156 Mitsubishi UFJ -44,427,571.00
    p. 156 Mizuho Financial -16,939,349.47
    p. 157 Morgan Stanley -28,447,723.45
    p. 161 National Bank of Greece -9,867,787.03
    p. 183 PNC Financial -6,615,206.45
    p. 184 Popular Inc (Banco Popular) -8,749,458.66
    p. 192 Regions Financial -26,949,789.25
    p. 196 Royal Bank of Scotland -36,487,662.12
    p. 205 Shakespeare Acquisition LLC -75,041,843.23
    *Wow – Shakespeare Acquisition sure lost a ton of money, did they not have any collateral?
    **I wonder what kind of things they acquired?
    p. 212 SLM Corp -16,749,909.42
    p. 213 Societe Generale -6,461.618.08
    p. 218 State Street Corp -2,971,628.24
    p. 221 Suntrust Banks -15,027,002.97
    p. 224 Synovus Financial -4,759,832.76
    p. 241 UBS AG -36,008,160.39
    p. 242 Unicredit -44,097,685.52
    p. 252 Wells Fargo -72,717,515.80
    p. 254 Wilmington Trust -3,887,941.84
    p. 260 Zions Bancorporation -3,864,265.08

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  8. john says:

    Thank you, sir, for all you and your firm are doing to assist the homeowner in this nationwide nightmare of fraudclosure….

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  11. The servicer can produce a servicing agreement, but then I would think it would have the burden of proof to show that the loan in question was perfected to the “owner” (probably a trust).

    The other point to bring up might be lack of joinder?

    Thank you!

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  13. DAVID BLACK says:

    it is the bondholder argument. bearer bonds are negotiable who ever posseses them..same idea. if you have the note in your hand you have theright to redeem your property .

    dont agree with it but it seems that is the analogy.

    bet new york state law wouldnt allow this crap. my bet is the state law is so weak or non existent and more likely not educated and dominated by bank bribe money to state officials that this crap goes on.

    best regards
    David B.

  14. Dan Gaffney says:

    Absolutely. And, of course, it begs one more question: where is the blue-ink Note? I can see the resolution of this, in future cases, coming down to a supposed note “owner” not actually being the note owner, and merely stipulating that it is without proof. Securitization should have “destroyed” the note. Stockholders’ trustees actually have other remedies for ensuring performance of a quantum piece of a trust, or two, or three. (Not an attorney)

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  16. Dan Schramm says:

    Kind of old thread, but still… There is lots I could say, like mortgage assignments that go from the originator directly to the trust, which is a legal impossibility. Notes that are not endorsed at all, much less through the 4 parties necessary for it to be in a REMIC trust.

    A promissiory note is a negotiable instrument except when its not. Once it goes into the trust, which is permanent and it can’t be sold, loaned or traded, does it not then become a non-negotiable instrument? It is not a bond equivalent then. The REMIC security is a bond in effect.

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