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Wells Fargo Bank, N.A. v. Sheikha

Florida Court of Appeals, Fourth District

June 14, 2017

WELLS FARGO BANK, N.A., Appellant,

         Not final until disposition of timely filed motion for rehearing.

         Appeal from the Circuit Court for the Seventeenth Judicial Circuit, Broward County; Barry Stone, Senior Judge; L.T. Case No. CACE 13-013367.

          Kimberly S. Mello, Jonathan S. Tannen, and Danielle M. Diaz of Greenberg Traurig, P.A., Tampa, and Michele L. Stocker of Greenberg Traurig, P.A., Fort Lauderdale, for appellant.

          Jonathan Kline of Jonathan Kline, P.A., Weston, for appellee.

          Gross, J.

         As the successor in interest to the original mortgagee, appellant Wells Fargo, N.A. had possession of the underlying note at the time it filed a foreclosure action. On the back of the note was a special indorsement- "PAY TO THE ORDER OF FANNIE MAE WITH RECOURSE WORLD SAVINGS BANK, FSB" with the signature of the "assistant custodian of records" of the original lender, World Savings Bank.[1] Over the indorsement was stamped the word "Cancelled."

         At a bench trial, it was established that appellee executed the note and mortgage in favor of World Savings Bank. Prior to the filing of the foreclosure action, World Savings Bank changed its name to Wachovia and later merged with Wells Fargo. Wells Fargo established appellee's default and evidence of damages.

         The trial court granted appellee's motion for involuntary dismissal for the bank's failure to show that Fannie Mae had taken some action to transfer the note back to Wells Fargo. This was error, because Wells Fargo was entitled to cancel the special indorsement.

         Possession of the original note is a significant event under the Uniform Commercial Code. For example, a "negotiation" requires "a transfer of possession, whether voluntary or involuntary, of an instrument by a person other than the issuer to a person who thereby becomes the holder." § 673.2011(1), Fla. Stat. (2014). Here, there are two realistic possibilities of what happened to the note after the special indorsement was placed upon it. Under either possibility, Wells Fargo was entitled to cancel the note.

         First, the most likely scenario is that because it had possession of the original note, Wells Fargo reacquired the note from Fannie Mae, "by negotiation or otherwise." § 673.2071, Florida Statutes (2014). As a former holder of the note, Wells Fargo was entitled to cancel indorsements made after it first became a holder of the note. This is the procedure authorized by section 673.2071:

Reacquisition.-Reacquisition of an instrument occurs if it is transferred to a former holder, by negotiation or otherwise. A former holder who reacquires the instrument may cancel indorsements made after the reacquirer first became a holder of the instrument. If the cancellation causes the instrument to be payable to the reacquirer or to bearer, the reacquirer may negotiate the instrument. An indorser whose indorsement is canceled is discharged, and the discharge is effective against any subsequent holder.

Id. As the Uniform Commercial Code Comment explains, the section 673.2071 procedure is an exception to the rule in section 673.2051(1) that the person identified in a special indorsement must indorse the note to allow a later transferee to acquire the status of a holder:

Reacquisition refers to cases in which a former holder reacquires the instrument either by negotiation from the present holder or by a transfer other than negotiation. If the reacquisition is by negotiation, the former holder reacquires the status of holder. Although Section 3-207 allows the holder to cancel all indorsements made after the holder first acquired holder status, cancellation is not necessary. Status of holder is not affected whether or not cancellation is made. But if the reacquisition is not the result of negotiation the former holder can obtain holder status only by striking the former holder's indorsement and any subsequent indorsements. The latter case is an exception to the general rule that if an instrument is payable to an identified person, the indorsement of that person is necessary to allow a subsequent transferee to obtain the status of holder.

         Uniform Commercial Code Comment to Section 673.2071 (italics supplied). The Comment explains that section 673.2071 implements "a rule of convenience" which relieves the reacquirer of "the burden of obtaining an indorsement that serves no substantive purpose. The effect of ...

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