On July 13, 2016, Florida’s Fourth District Court of Appeal held that summary judgment was improperly entered because an affidavit filed by a substitute plaintiff conflicted with the mortgage foreclosure complaint as to what entity possessed the note at the time the complaint was filed. Craven-Lazarus v. PennyMac Holdings, LLC, No. 4D15-1292, 2016 BL 224435 (Fla. 4th DCA July 13, 2016). The court reasoned that the substitute plaintiff failed to refute the borrower’s affirmative defense of lack of standing and, as a result, reversed summary judgment.

Specifically, the original plaintiff alleged in the initial complaint, that it was "entitled to enforce the Note as a holder in possession," and attached a copy of the note with a blank endorsement to the complaint. Thereafter, the plaintiff was substituted out of the action, and the substituted plaintiff moved for final summary judgment, attaching supporting affidavits.

One of those affidavits stated, "[Substitute] Plaintiff holds the promissory note for this Loan and held the note prior to the filing of this foreclosure action." After a hearing, the trial court granted summary judgment in favor of the substituted plaintiff.

On appeal, the borrower highlighted the conflict between the allegation in the complaint and the affirmation in the substituted plaintiff’s affidavit, arguing that summary judgment was improper. The appellate court agreed. It reversed the trial court’s order, holding that the conflict between the complaint and the affidavit precluded summary judgment. The court relied on the general rule that a foreclosure plaintiff must prove that it is the holder of the note both at the time the complaint is filed and at the disposition of the case. By not correctly identifying "the identity of the party who held the note at the time the complaint was filed," the affidavit precluded the application of the general rule that allows a foreclosure plaintiff to establish standing by "attaching a copy of a note endorsed in blank to the complaint and filing the original note in the same condition as the copy attached to the complaint."

Promissory notes are negotiable instruments. As such, it is common for the original holder of a note to negotiate (i.e., transfer) the note to a third party. The decision in Craven-Lazarus highlights the need for precision and clarity regarding the identity of the parties when such a transfer occurs in the middle of a mortgage foreclosure action.

Substitute plaintiffs who obtain a note that is the subject of a foreclosure action should consider filing an amended or supplemental complaint. Employing this strategy will allow a substitute plaintiff to accurately allege that it was the (sole) holder of the note at the time the operative complaint was filed, while avoiding conflicts with the original complaint. By doing so, a substitute plaintiff can increase its chances to prevail on summary judgment and insulate itself from an appellate challenge based on standing.