Thursday, November 12, 2015

FYI: Fla App Ct (5th DCA) Holds Trial Court Improperly Failed to Allow Prior Servicer's Records Into Evidence

The District Court of Appeal of the State of Florida, Fifth District, recently reversed the entry of a judgment in favor of two borrowers in a foreclosure action, and confirmed that a current servicer does not need to present testimony from an employee of a prior servicer to in order to admit the business records of the prior servicer into evidence at trial.

 

A copy of the opinion is available at:  Link to Opinion

 

The borrowers obtained their mortgage loan in 2006.  They defaulted, and the prior servicer brought a foreclosure action in 2009.  At that time, the borrowers sent a letter to the prior servicer acknowledging they were in default and asking for a loan modification.  While the foreclosure action was pending, a new servicer began handling the loan.

 

At the trial for the case, the new servicer wanted to admit into evidence: (1) a computer printout from its system showing the loan was in default, (2) the payoff quote, and (3) the breach letter sent by the prior servicer. 

 

To admit these records, the new servicer offered the testimony of a default case specialist it employed, who had also worked for the prior servicer.  The default specialist testified that the new servicer makes and maintains the records in the ordinary course of its business, that the data entries are made at or near the time the event took place, that the entries are made from a person with knowledge, and the records are kept pursuant to procedures to be relied upon at a later date.

 

Next, the employee testified about how the new servicer received information from the prior servicer and incorporated the information into the new servicer's system.  She testified that the new servicer verified the accuracy of the prior servicer's payment history before integrating it into the new servicer's system. 

 

She also testified at length about the "boarding process" the new servicer used whenever it purchased a loan from another company.  During that process, the new servicer reviews the loan information to ensure it is correct and matches the information on the original loan documents.  She testified that they do not board a loan if it has inaccuracies or if there is a gap in the payment history.

 

Regardless, the trial court refused to admit the documents into evidence.  The basis for this appeared to be that the witness had not personally boarded the loan, and because several of the documents were prepared by the prior servicer.

 

The Appellate Court reversed the trial court.  It started by describing the basic four-part predicate for the business records exception codified by Florida Statute § 90.803(6):  i.e., the record  (1) was made at or near the time of the event, (2) was made by or from information transmitted by a person with knowledge, (3) was kept in the ordinary course of regularly scheduled business activity, and (4) was made as part of the regular practice of the servicer.  Then, the Court turned to the application of the business records exception to situations involving the mortgage industry.

 

First, the Fifth District noted that the authenticating witness need not be the person who actually prepared the business record.  Rather, the authenticating witness need only establish the proper foundation.  To do so, the witness must demonstrate that he or she is familiar with the record-keeping system and how data is uploaded into the system.

 

The Appellate Court noted that "in a perfect world," the plaintiff in a foreclosure action would present testimony from an employee of the prior servicer.  However, the Court also noted that this is "neither practical or necessary in every situation."  And the Court cited to a recent ruling where it held that a current note holder need not present testimony from the previous note holder to admit the previous holder's records.  See Le v. U.S. Bank, 40 Fla. L. Weekly D1214c (Fla. 5th DCA May 22, 2015) (finding it was not error to allow a witness employed by bank's current loan servicer to testify about payment history information contained in records obtained from a prior servicer, where the witness's testimony met all the necessary foundational requirements for admission under section 90.803(6)).

 

The Appellate Court also quoted, at length, a recent Fourth District opinion holding that:  "Where a business takes custody of another's business records and integrates them within its own records, the acquired records are treated as having been 'made' by the successor business, such that both records constitute the successor business's singular 'business record.'" In that situation, the successor business (here, the new servicer) need only show that the other requirements of the business records exception are met, and the records are trustworthy.

 

The Fifth District also provided guidance on how a company can meet this "trustworthiness" requirement. 

 

First, the successor business cannot simply rely on the original business's records.  Instead, the successor business needs to show how its relationship or contractual obligations with the original business "ensures a substantial incentive for accuracy."  Or, the successor business can meet this requirement by showing it has independently confirmed the accuracy of the records.

 

Applying this reasoning to the mortgage context, the Appellate Court held that "a mortgage servicer enforcing a note it has acquired from another entity can lay the proper predicate under section 90.803(6) for admitting the records of the previous entity, so long as all the requirements of the business records exception are satisfied, the witness can testify that the successor business relies upon those records, and the circumstances indicate the records are trustworthy."

 

Accordingly, due to the testimony offered in the lower court, the Appellate Court held that the trial judge should have admitted the records.  Even though the witness did not personally participate in the "boarding" process, the Fifth District held, she showed she was familiar enough with the process to testify about it.

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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Tuesday, November 10, 2015

FYI: Fla App Ct (2nd DCA) Confirms Substituted Foreclosure Plaintiff Must Prove Standing of Original Plaintiff

The District Court of Appeal of Florida, Second District, recently reversed a final judgment of foreclosure where a substituted plaintiff failed to prove the original plaintiff had standing when suit was filed.

 

In so ruling, the Appellate Court confirmed that that it is not enough for a plaintiff to prove standing when the case is tried, it must also prove standing when the complaint was filed.

 

A copy of the opinion is available at:  Link to Opinion

 

A mortgagee initiated a residential foreclosure action after borrowers defaulted, and the borrowers responded that the mortgagee lacked standing.  An assignee was then substituted as plaintiff and served requests for admissions that the assignee was the owner and holder of the note and mortgage, which the borrowers failed to answer.

 

Thereafter, the borrowers twice moved to dismiss alleging the assignee lacked standing because the original mortgagee plaintiff lacked standing at the time suit was filed, which the trial court denied.

 

The trial court held a bench trial wherein the assignee's account representative testified, but did not provide testimony regarding the original mortgagee plaintiff's entitlement to foreclosure when suit was filed.

 

The borrowers again moved to dismiss for lack of standing at the close of the assignee's case.  The trial court denied the motion and granted judgment in favor of the assignee, and the borrowers appealed.

 

The Appellate Court reversed the judgment and held the assignee failed to prove that the original mortgagee plaintiff had standing when filing suit.

 

As you may recall, in Florida and other states, a foreclosure plaintiff is required to show that it is the holder of the note or a person acting on behalf of the holder.  If the foreclosure plaintiff is not the original lender, it may establish standing by submitting a note with a blank or special indorsement, an assignment confirming the transfer of rights to enforce the note, or with a sworn statement otherwise demonstrating the plaintiff's status as the person entitled to enforce the note.

 

In addition, a plaintiff that is not a holder, such as a mortgage servicer, can establish standing through proof that it is authorized to enforce the note on behalf of the holder.

 

The Appellate Court held that the action was indistinguishable from Russell v. Aurora Loan Servs., LLC, 163 So. 3d 639 (Fla. 2d DCA 2015), in which a substituted foreclosure plaintiff failed to show that an original plaintiff servicer had standing either as a holder or as a servicer authorized by the holder to enforce the note.

 

The Appellate Court also rejected the assignee's argument that the borrower's failure to respond to requests for admissions regarding the assignee's status as owner and holder of the note and mortgage proved its standing.  According to the Court, such admissions, at most, only proved that the assignee had standing when suit was filed, not the servicer.

 

Accordingly, the Appellate Court reversed final judgment in favor of the assignee, and remanded with instructions to enter an order of involuntary dismissal.

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

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and

 

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Sunday, November 8, 2015

FYI: CFPB Issues Supervisory Highlights (Fall 2015), Including Discussion of Fair Lending Compliance

The federal Consumer Financial Protection Bureau (CFPB) recently released its Supervisory Highlights (Issue 9, Fall 2015), a copy of which is available at:

 

http://files.consumerfinance.gov/f/201510_cfpb_supervisory-highlights.pdf

 

The CFPB reported that, among other things, its "supervisory activities have either led to or supported six recent public enforcement actions, resulting in $764.9 million being returned to consumers and $50.7 million in civil money penalties," plus supervisory resolutions resulting in "restitution of approximately $107 million to more than 238,000 consumers."

 

In addition, the CFPB provided a summary discussion of its fair lending and ECOA compliance examination methodologies, as well as a number of steps lenders may take to limit the risk of ECOA violations due to disparate outcomes in underwriting (at pp. 27-32).

 

The issues the CFPB reported in this Supervisory Highlights bulletin include:

 

Mortgage Servicing:

 

-       Failures to maintain adequate policies and procedures to identify and communicate with successors in interest of deceased borrowers

-       Failures to identify with specificity all loss mitigation options available, including soliciting loan mod applications when servicer's records showed borrower did not qualify

-       Failures to evaluate loan mod applications for all options available based on loan owner's requirements

-       Failures to share and update information with all relevant servicer personnel, and with foreclosure counsel

-       Failures to maintain schedules of fees and servicing data in manner that facilitates compilations within 5 days

-       Proving 30 days for borrowers to submit missing loan mod application documents but then denying the application within the 30 days

-       Loan mod application denial letters that failed to state the particular borrower had a right to appeal, rather than merely providing a generic disclosure

-       Loan modifications that required borrowers to sign waivers, releases, or statements as to defenses, set-offs, or counterclaims

-       Failures to automatically terminate PMI for borrowers that are current on their loans on the termination date, in alleged violation of the Homeowners Protection Act (HPA)

-       Incorrectly telling borrowers seeking to cancel PMI that they had to wait until the mortgage balance reached 75 percent of the property's current value, and until 24 months after origination to cancel PMI, in alleged violation of the HPA

-       Holding unearned PMI premiums, or keeping unearned PMI premiums in borrower escrow accounts indefinitely, rather than returning them directly to borrowers within 45 days, in alleged violation of the HPA

-       Charging pay-by-phone fees when such charges not allowed under mortgage loan instruments or by state law

-       Listing debt amounts in debt validation letters that servicer could not verify as accurate, instead on only accurate and verifiable debt amounts

-       Failures to provide timely debt validation notices

 

Mortgage Origination:

 

-       Settlement charges exceeding amounts stated in GFE, by allowed tolerances or when not allowed at all

-       Failures to properly document changes in circumstances to support increases in settlement charges beyond allowable tolerances

-       Inadequate or inaccurate descriptions of purpose and amount of fees in settlement statements

-       Failures to timely provide disclosures as to homeownership counseling organizations, or at all

-       Failures to provide accurate information about the loan originator's intent to retain, assign, sell or transfer servicing

-       Failures to reimburse borrowers for understated APRs and finance charges

-       Multiple and inconsistent privacy notices used company-wide or as to same loan

-       Privacy notices that did not identify affiliates or that information was shared with the affiliates

-       Employees performing loan originator activities without being registered with the NMLSR

 

Consumer Reporting:

 

-        Failures to "establish and implement reasonable written policies and procedures regarding the accuracy and integrity of information furnished" to consumer reporting agencies (CRAs), including as to both loans and deposit accounts

-       Failures to include in adverse actions notices "the name, address, and telephone number of the CRA that provided the information relied upon when the adverse action was taken."

-       Weaknesses in "processes, policies, and procedures for ensuring proper handling of disputes in compliance with their obligations under the FCRA," including failures to distinguish FCRA disputes from other types of disputes, and failures to monitor and track direct and indirect FCRA disputes

-       Policies and procedures that required deleting disputed trade lines, rather that conducting an investigation as to the dispute

 

Debt Collection:

 

-       Failures to "always state during subsequent phone calls that the calls were from debt collectors"

-       Failures to maintain adequate systems to prevent direct contact with consumers represented by counsel, and to prevent calls at the consumer's place of work when not allowed by the employer

-       Failures to remove or block unwanted calls in dialer systems

-       Notes being placed in only one of several places in account systems

 

 

 

 

 

Ralph T. Wutscher
Maurice Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct:  (312) 551-9320
Fax: (312) 284-4751

Mobile:  (312) 493-0874
Email: rwutscher@MauriceWutscher.com

 

Admitted to practice law in Illinois

 

 

 

California   |   Florida   |   Illinois   |   Indiana   |   Massachusetts   |   New Jersey   |   New York   |   Ohio   |   Pennsylvania   |   Texas   |   Washington, DC

 

 

NOTICE: We do not send unsolicited emails. If you received this email in error, or if you wish to be removed from our update distribution list, please simply reply to this email and state your intention. Thank you.


Our updates and webinar presentations are available on the internet, in searchable format, at:

 

Financial Services Law Updates

 

and

 

The Consumer Financial Services Blog

 

and

 

Webinars

 

and

 

California Finance Law Developments

 

and

 

Insurance Recovery Services