FLORIDA COURT REJECTS BORROWERS’ COLLATERAL | Key Points

1. The Trinidads executed a note and mortgage in 2007, defaulted in 2009 and were sued by FNMA in 2012. In the 2012 foreclosure proceeding the court found FNMA lack of standing because one of the allonges to the note predated the note. Since the allonge predated the note, the trial court surmised the allonge (and endorsements thereon) were invalid and FNMA lacked standing. The court entered judgment in favor of the Trinidads and FNMA failed to appeal it. Years later, FNMA requested the clerk return the original documents which were filed in the 2012 case, but the originals were lost in transit.

2. In 2018, FNMA initiated a second foreclosure against the Trinidads which included a count to re-establish the lost note. The matter proceeded to trial and the court admitted a copy of the note which reflected the same endorsements as in the 2012 action. During closing argument, the Trinidads argued for the first time that “the law of the case” mandated a finding that the endorsements were invalid based on the lack of standing finding in the 2012 judgment. FNMA objected based on waiver since the Trinidads did not raise collateral estoppel as an affirmative defense and waited until closing argument to raise it at all. The trial court, ostensibly compelled to enforce the findings in the 2012 judgment, concluded that FNMA could not prove standing since the endorsements on the note had already been determined to be invalid. Therefore, FNMA could not prove it was entitled to enforce the note when it was lost, a required element for re-establishing a lost note. Judgment was again entered in favor of the Trinidads. This time FNMA appealed.

3. The Fourth DCA reversed the judgment finding the Trinidads waived any defense based on collateral estoppel by failing to plead it. The DCA also held that the findings in the 2012 judgment that the endorsements were invalid was “clearly erroneous” and therefore enforcing the 2012 judgment would be “manifestly unjust.” The Court relied on its recent holdings wherein it found “that an allonge is not invalid simply because it predates the note to which it is attached.” The DCA found FNMA “proved all the elements to establish a lost note,” reversed the judgment for the borrowers and remanded the matter “for further proceedings on the mortgage foreclosure.”

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