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HSBC Bank USA, N.A. v. Buset

Florida Court of Appeals, Third District

February 7, 2018

HSBC Bank USA, National Association, etc., Appellant,
Joseph T. Buset, etc., et al., Appellees.

         Not final until disposition of timely filed motion for rehearing.

         An Appeal from the Circuit Court for Miami-Dade County Lower Tribunal No. 12-38811, Beatrice Butchko, Judge.

          Greenberg Traurig, P.A., and Kimberly S. Mello, Jonathan S. Tannen, and Vitaliy Kats (Tampa), for appellant.

          Jacobs Keeley, PLLC, and Bruce Jacobs and Court Keeley, for appellee Joseph T. Buset.

          Levine Kellogg Lehman Schneider Grossman LLP, and Stephanie Reed Traband and Victor Petrescu, for Federal National Mortgage Association and Federal Home Loan Mortgage Corporation, as amici curiae.

          Before LOGUE, LUCK, and LINDSEY, JJ.

          LOGUE, J.

         HSBC Bank USA, National Association appeals a final judgment dismissing its mortgage foreclosure complaint in favor of the Borrowers, Joseph and Margaret Buset. At first blush, this case appears straightforward: the Borrowers stipulated to the note, mortgage, and default. And at the time the complaint was filed, the Bank was the holder of the note with an indorsement in blank that had been modified to a special indorsement to the Bank. At some point, however, the focus of this case shifted from foreclosure to securitization. Relying heavily on expert legal testimony of an out-of-state lawyer who specialized in securitization, the trial court dismissed the foreclosure after the trial. For the reasons described below, we reverse and direct the trial court to enter judgment for the Bank.


         In October 2012, HSBC Bank as Trustee for Fremont Home Loan Trust 2005-B filed a foreclosure action against the Busets. The complaint alleged that the Bank held the note and mortgage, the Busets had failed to pay, and the Bank had complied with all conditions precedent. Copies of the note and mortgage were attached to the complaint.

         The evidence at trial indicated that on February 16, 2005, the Busets borrowed $192, 000 from Fremont Investment & Loan (the Originator). The loan was secured by a mortgage on a residential condominium. The mortgage named Mortgage Electronic Registration Systems, Inc. (MERS) as "mortgagee."

         Within a few months, the Originator packaged the note with others for purposes of securitization and sale to investors. In this regard, the Originator entered into a Pooling and Servicing Agreement for the "Fremont Home Loan Trust 2005-B Mortgage Backed Certificates Series 2005-B." The parties to the Agreement included the Originator, another entity as Depositor, and the Bank as Trustee.

         The Pooling and Servicing Agreement required the Originator to sign blank indorsements in the following form: "Pay to the order of, without recourse." The note contains an undated, signed, blank indorsement in exactly that form signed by the Senior Vice President of the Originator. As required by the Agreement, the Note was transferred from the Originator, to the Depositor, to the Bank. In July 2008, the Originator entered into a voluntary liquidation. At an unknown date, the Originator's blank indorsement was converted to a special indorsement to the Bank as payee. This handwritten change was undated and unsigned.

         In 2012, after the Borrowers defaulted on the note, MERS executed a recorded assignment of the mortgage to the Bank which reads "This assignment is from . . . MERS as nominee for Fremont Investment & Loan, . . . its successors and assigns . . . to HSBC Bank."

         Over the course of its history, the loan had three servicers. To prove the amount of the default at trial, the Bank offered the testimony of the current servicer who proffered as business records the payment history, default letters, and payoff printout. These records indicated the Borrowers had stopped making payments by September 1, 2010. The trial court, however, excluded the documents from evidence, concluding that the Bank failed to present a sufficient foundation.

         The Borrowers presented one witness, Kathleen Cully, who is admitted to the Bar of New York but not Florida. She is an expert in securitizing income flows for sale to investors, but she acknowledged she was "not an expert in Florida law." Over the Bank's objection, Ms. Cully testified to numerous legal opinions, including her opinions that the note at issue was not negotiable; that the Bank lacked standing; and that the Pooling and Servicing Agreement was violated.

         After trial, the trial court dismissed the case. Throughout the final judgment, the trial court emphasized that its legal conclusions were based on Cully's opinions, mentioning Cully by name at least seven times. Regarding Cully's legal opinions, the final judgment included statements such as the trial court "gives great weight as the trier of fact to the testimony of Defendant's expert witness, Kathleen Cully, " suggesting Cully's opinions presented questions of fact subject to credibility determinations rather than legal issues controlled by Florida law. The final judgment holds in relevant part that (1) the note was not a negotiable instrument; (2) the Bank lacked standing; (3) the Bank violated the Pooling and Servicing Agreement; (4) the Servicer's business records were inadmissible; and (5) the Bank had unclean hands. The Bank timely appealed.


         (1) The trial court erred by admitting expert ...

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