Securitization Experts Can’t Decide Foreclosure Standing (Citibank v. Olsak)

The Facts

In 2006, Orion Bank, since failed, lent the borrower $540,000 secured by a mortgage on property in Key West. After a missed payment, Citibank, as trustee of a mortgage securitization trust, sued to foreclose in 2009.

Before trial, the trust filed the original note. It was endorsed by the servicer, Wells Fargo, as Orion Bank’s attorney-in-fact, and then endorsed in blank. The trust also put in a 2006 mortgage assignment from Orion to Wells Fargo and a computer screen shot showing the loan going into the trust in 2007.

The borrowers called one witness, a non-lawyer securitization auditor whom the trial court treated as an expert. Over objection, he testified that the trust’s documents did not allow it to take a blank-endorsed note, that the endorsements violated IRS rules for mortgage trusts, and that the trust was not the holder, though he could not say who was. Relying only on that testimony, the trial court dismissed the case for lack of standing.

The Decision

The Third District reversed. Witnesses, even experts, generally can’t testify to legal conclusions; deciding the law is the judge’s job, and relying on an expert to decide a legal question is reversible error. The court found the auditor gave no facts to help the judge decide standing, only conclusory legal opinions of doubtful relevance. It noted the trial court had sustained the borrowers’ own objection when the auditor was asked whether a blank-endorsed note is transferable, because that called for a legal conclusion.

The court added that borrowers are not parties to the trust documents and can’t use them to defeat a foreclosure plaintiff’s standing. The IRS tax-treatment testimony said little about the only issue that mattered: whether the trust actually held the note when it filed suit. On remand, the trial court had to decide standing on competent, substantial evidence, not an expert’s legal conclusions.

The Law

A plaintiff that is not the original lender must have the note when it files suit and show either an assignment or a note endorsed in blank or specially to it. Under section 673.3011, the holder is a person entitled to enforce the note, and under section 673.2051, a blank endorsement makes the note payable to whoever holds it. Expert testimony is governed by section 90.702, and opinions on what the law means are generally for the court, not a witness.

The rule that borrowers can’t enforce trust agreements, such as pooling and servicing agreements, they didn’t sign comes from cases like Castillo v. Deutsche Bank, which this court followed. For residential foreclosures filed after July 1, 2013, section 702.015 also requires the plaintiff to certify possession of the original note at filing.

Lessons

• A securitization audit or expert who only offers opinions on what trust documents or tax rules allow is unlikely to defeat standing.
• Borrowers generally can’t use a trust’s pooling and servicing agreement to challenge whether the trust owns the loan.
• The real standing question is factual: who had the original note, endorsed how, when the suit was filed.
• Defense effort is better spent testing the plaintiff’s actual proof of possession and endorsement timing.

Source: Citibank, N.A. v. Olsak, No. 3D15-1032 — Fla. 3d DCA (November 30, 2016).

Watch the Oral Argument

This is the recording of the actual oral argument, posted on the channel. What lawyers and judges say at argument is not the ruling; the decision is summarized above.

Blank-Endorsed Note vs. Trust-Rules Expert: Who Has Standing? | Citibank v. Olsak, 3D15-1032

Go Deeper

• Foreclosure Standing on Appeal in Florida: Watch the Arguments Over Who Owns the Note
• Florida Foreclosure Trials: Business Records, the Original Note, and Preserving Defenses
• Florida's Robo-Signing Scandal: What Happened in 2010 and the Rules It Left Behind

Frequently Asked Questions

Can a securitization audit stop a foreclosure in Florida?

Usually not by itself. In Citibank v. Olsak, the Third District reversed a dismissal that rested only on a securitization auditor’s opinions. Experts can’t tell the court what the law is, and opinions about trust rules or tax treatment did not answer whether the trust held the note when it sued.

Can I challenge foreclosure because the loan wasn't properly put into the trust?

Florida courts have repeatedly held that borrowers lack standing to enforce the trust’s pooling and servicing agreement because they are not parties to it. Arguments that the trust violated its own rules generally fail. Challenges are stronger when aimed at proof of possession and endorsement of the note.

What does a bank need to prove standing to foreclose in Florida?

A plaintiff that wasn’t the original lender must show it had the note when it filed suit, plus an assignment or a note endorsed in blank or specially to it. Under section 673.3011, the holder of the note is entitled to enforce it. Standing must exist at filing and be proved at trial.

Can an expert witness testify that a bank lacks standing?

An expert can testify about facts and specialized knowledge, but not about legal conclusions such as whether a party has standing. Olsak held that relying on that kind of testimony to decide a legal question is reversible error. Expert opinions must rest on facts that help the judge decide.

Talk to a Florida foreclosure defense lawyer

Weidner Law, P.A. has defended Florida homeowners in foreclosure and foreclosure appeals for more than 25 years. If you need a foreclosure defense lawyer, call (727) 954-8752 or email weidner@mattweidnerlaw.com.

Read the law yourself, free: every Florida statute and court rule is on floridarules.net.

This article is general information about Florida law, not legal advice about your situation. Reading it, watching the videos, or contacting the firm does not create an attorney-client relationship. Every case turns on its own facts, and past results do not guarantee a similar outcome. The hiring of a lawyer is an important decision that should not be based solely upon advertisements.