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When the Owner’s Away, the Holders Will Play

One of the more increasingly common (and bothersome) practices making its way through foreclosure cases is when the plaintiff is not the owner of the note, but only the servicer. The argument goes that the servicer is entitled to foreclose because it’s the holder of the note. In this telling, mere possession of the note, indorsed in blank, permits the holder to foreclose.

This approach raises a number of questions, however. Is ownership effectively rendered irrelevant? And if possession of the note was all that mattered, could one logically conclude that a thief, someone who stole the note, is in fact entitled to foreclose? Are we simply to accept that anyone can foreclose if you hold the note?

To adjudicate these matters, what do Florida laws and case decisions have to say?

Florida rules require that the plaintiff be both “owner and holder.” (See Rule 1.944) And as far as case law is concerned, despite its oft recitation by plaintiffs’ attorneys that the decision renders holding the note—and not ownership—as paramount, the ruling in Riggs v. Aurora Loan Services, 36 So. 3d 943 (Fla. 4th DCA 2010), didn’t concern ownership since that matter was not at issue. The plaintiff in Riggs had demonstrated that it was both “owner and holder.” So, the claims of plaintiffs’ attorneys notwithstanding, just because ownership in that case was not in question doesn’t mean that the issue is immaterial.

Another tack plaintiffs have been taking to justify prosecution is under the theory of agency. Here, they argue, even if the holder isn’t the owner, because of the servicer’s agreement with the owner, it can now foreclose with the owner’s consent. The plaintiff effectively acts as agent of the principal by prosecuting the case. But this raises the question of when an agent can bind a principal.

Because there’s no foreclosure case law in Florida that addresses this agency issue, we can look to other areas of the law that have taken up the theory. Villazon v. Prudential Health Care Plan, 843 So. 2d 842 (Fla. 2003), laid out certain requirements of when an agent can bind a principal. The principal must acknowledge the agent’s power; the agent has accepted the responsibility of representing the principal; and the principal retains control over the agent’s actions.

Applying these principles to foreclosure cases, we can judge whether the plaintiff-servicer has met its burden of establishing agency. A big problem appears immediately, however, when the plaintiff-servicer admits it doesn’t know the identity of the actual owner. How can the agent be acting, by supposed consent, on behalf of the principal when that agent doesn’t even know the identity of the principal? This seems to undermine the first and third requirements established by Villazon. How would the servicer show that the owner of the note authorized the servicer to foreclose? The servicer would have to prove the owner acknowledged the servicer’s power. And absent introducing he servicing agreement into evidence, or providing testimony by the owner as to the servicer’s authority, the servicer should not be able to unilaterally foreclose.

Once these plaintiff-servicers purport to act on behalf of the owners of the note, basic principles of law regarding agents and principals must apply. See, again, Villazon. That case obtains and requires some burden of proof on the part of the foreclosing party.

Tip of the cap to Mark Stopa’s blog for writing about this issue recently.

Please be advised that this article does not constitute legal advice nor does it provide any basis to form an attorney-client relationship. Nothing in this article should be copied without the express permission of the author.

Mr. Hounchell has a law degree from The University of Florida College of Law and he is a principal in The Law Offices Charles A. Hounchell, P.A., in Tampa, Florida. Mr. Hounchell earned his undergraduate degree from The George Washington University in Washington D.C. and he obtained his MBA in International Management from the American Graduate School of International Management (“Thunderbird”) in Glendale, Arizona.

Mr. Hounchell is a licensed title insurance agent and a real estate agent with Smith and Associates, Inc. http://www.smithandassociates.com/; http://www.livecasanova.com/. He has lived in many different countries, including Spain, Brazil, Argentina, Mexico and Germany and he speaks Spanish and Portuguese. A significant portion of Mr. Hounchell’s law practice is concentrated on Real Estate Law. He can be reached at 813-230-3376 or charlie@flpropertylaw.com.