241 So. 3d 882
Fla. Dist. Ct. App.2018Background
- Borrowers Joseph and Margaret Buset executed a $192,000 promissory note (2005) secured by a mortgage; MERS was named mortgagee. Borrowers defaulted by 2010.
- Originator packaged the loan into Fremont Home Loan Trust 2005-B under a Pooling and Servicing Agreement (PSA); the Originator indorsed the note in blank as required by the PSA.
- The note was later converted (undated/unsigned) from a blank indorsement to a special indorsement naming HSBC (Trustee) as payee; MERS recorded an assignment of the mortgage to HSBC in 2012.
- HSBC sued to foreclose in 2012 and attached copies of the note and mortgage; at trial the Bank relied on servicer business records (payment history, default letters, payoff) which the trial court excluded for lack of foundation.
- Borrowers presented an out-of-state securitization expert (Kathleen Cully) who testified to legal conclusions (e.g., note non-negotiable, PSA violations, lack of standing). The trial court credited that testimony and dismissed the foreclosure.
- The appellate court reversed, holding the trial court erred in admitting legal opinion testimony, misapplied negotiable-instrument law, and improperly excluded business records.
Issues
| Issue | Plaintiff's Argument (HSBC) | Defendant's Argument (Buset) | Held |
|---|---|---|---|
| Admissibility of expert testimony on legal questions | Trial court should exclude legal conclusions; law controls legal issues | Expert may explain securitization practice and factual background | Reversed: expert testimony on legal conclusions was improper; legal questions are for the court |
| Whether the note is a negotiable instrument | Note is negotiable under Florida law despite mortgage reference or defined "Note Holder" language | Note non-negotiable because it references mortgage, and Note Holder definition limits negotiability | Reversed: note is negotiable; reference to mortgage does not destroy negotiability absent express incorporation; Note Holder language does not negate negotiability |
| Standing / Person entitled to enforce | HSBC is the holder entitled to enforce (blank indorsement converted to special indorsement) | Lack of a complete chain of endorsements or chain of title defeats standing | Reversed: standing established by holder status; possession of a blank-indorsed note and special indorsement suffices; ownership chain is irrelevant to standing |
| PSA/Trust violations as defense | PSA noncompliance (e.g., endorsements) invalidates Bank’s standing | Borrowers may enforce PSA terms to defeat foreclosure | Reversed: Borrowers are not parties or third-party beneficiaries of the PSA and cannot use trust-document breaches to defeat standing |
| Admissibility of servicer business records | Servicer’s records are business records admissible with foundation testimony | Bank failed proper foundation; records should be excluded | Reversed: servicer testimony provided adequate foundation; records admissible; borrowers offered no evidence challenging accuracy |
| Assignment of mortgage effect | Recorded MERS assignment to HSBC valid or unnecessary because mortgage follows note | Assignment defective/illegal for non-specific language referencing "successors and assigns" | Reversed: assignment language acceptable and, in any event, mortgage follows the note so assignment was surplus to standing |
| Unclean hands / fraud on the court | Dismissal warranted due to alleged fraudulent conduct by Bank | No record evidence of fraud; dates and documents reflect 2012 assignment; court’s concern was form, not fraud | Reversed: no support for unclean-hands finding in record |
Key Cases Cited
- Downing v. The First Nat’l Bank of Lake City, 81 So. 2d 486 (Fla. 1955) (promissory notes governed by negotiable-paper rules)
- OneWest Bank, FSB v. Nunez, 193 So. 3d 13 (Fla. 4th DCA 2016) (mere reference to mortgage does not render note non‑negotiable; express incorporation is required)
- Horvath v. Bank of New York, N.A., 641 F.3d 617 (4th Cir. 2011) (note language defining "Noteholder" does not destroy negotiability)
- Jepson v. Bank of New York Mellon, 816 F.3d 942 (7th Cir. 2016) (borrower is not an intended beneficiary of a loan trust and cannot assert PSA noncompliance to defeat foreclosure)
- McKesson Medication Mgmt., LLC v. Slavin, 75 So. 3d 308 (Fla. 3d DCA 2011) (expert testimony may not be used to state conclusions of law)
- Fed. Nat’l Mortg. Ass’n v. McFadyen, 194 So. 3d 418 (Fla. 3d DCA 2016) (recognition that promissory notes are negotiable instruments)
- Bank of New York v. Calloway, 157 So. 3d 1064 (Fla. 4th DCA 2015) (records integrated from an acquired servicer can meet trustworthiness foundation for business-records admissibility)