Archive for July 21st, 2014

Evidentiary Issues at Trial After a Change of Servicer

This one’s for you, Tony – and for everyone else trying to find ways to beat those evil banksters. ;)

Homeowners can win a foreclosure trial in a variety of ways. One of my favorites is when the bank is unable to prove its case because it is unable to get information from the prior servicer into evidence. Let me explain.

By the time a foreclosure case gets to trial, it’s rare that the plaintiff prosecuting the case was the same bank that loaned the money. Typically, these loans have changed hands many times by the time trial rolls around. Often, the servicer of the loans change even from the time the foreclosure lawsuit was first filed. Even if you have no legal training, it’s not hard to imagine the evidentiary problems this poses for plaintiffs at a foreclosure trial.

For example, suppose Bank of America was the servicer at the time the paragraph 22 letter was sent, but Nationstar is the servicer at the time of trial. In a normal lawsuit, when the plaintiff goes to trial, it would subpoena any third-party witnesses to trial (e.g. a records custodian or employee of Bank of America) to ensure they can testify. In foreclosure-world, though, that virtually never happens. If Nationstar is the Plaintiff/servicer, you can almost rest assured that one witness will come to trial – an employee of Nationstar (and by “employee,” I mean someone whose sole job entails robo-perjuring, I mean testifying, at foreclosure trials). Well, just think about it. If the only witness at trial is from Nationstar, but Bank of America is the company that allegedly sent the paragraph 22 letter, then how can the employee of Nationstar testify that the paragraph 22 letter was sent?  “I work for Nationstar, and I’ve never worked for Bank of America, but I’m here today under oath to say that Bank of America sent this letter.”  Huh?

Likewise, if the payment history was a Bank of America payment history up until the time the loan was service transferred to Nationstar, then how can the Nationstar witness testify about the payment history for a company that he/she never worked for?

There is no easy answer to these questions. This is, frankly, one of the most hotly-contested legal issues in foreclosure-world nowadays. To illustrate, take a look at Hunter v. Aurora Loan Svcs., LLC, 137 So. 3d 570 (Fla. 1st DCA 2014). In that case, Florida’s First District Court of Appeal reversed a final judgment of foreclosure, finding the bank was unable to properly admit into evidence business records from the prior servicer.  Here’s the portion of that decision I highlight for judges when I take this case to trial:

Here, Mr. Martin’s testimony failed to establish the necessary foundation for admitting the Account Balance Report and the consolidated notes log into evidence under the business records exception. Mr. Martin was neither a current nor former employee of MortgageIT, and otherwise lacked particular knowledge of MortgageIT’s record-keeping procedures. Absent such personal knowledge, he was unable to substantiate when the records were made, whether the information they contain derived from a person with knowledge, whether MortgageIT regularly made such records, or, indeed, whether the records belonged to MortgageIT in the first place. His testimony about standard mortgage industry practice only arguably established that such records are generated and kept in the ordinary course of mortgage loan servicing. … The Account Balance Report and consolidated notes log Aurora relied on were incorrectly admitted into evidence as business records, and therefore, could not serve to establish Aurora’s standing to sue Mr. Hunter in foreclosure

I recently prevailed at a foreclosure trial with precisely this argument.  The witness was a records custodian for Cenlar, the plaintiff, and never worked for the prior servicer.  When Cenlar tried to introduce the loan history of that prior servicer into evidence, the judge did not allow it.  As a result, Cenlar was unable to prove the amount due – an essential requirement for banks in foreclosure cases in Florida – and ultimately entered judgment for my client.  If that sounds odd, just think about it.  Without the prior servicer’s loan history in evidence, how could Cenlar prove the principal balance owed on the Note?  It couldn’t.  Sure, Cenlar’s payment history had a principal balance listed on it.  But that principal balance was taken from the prior servicer’s records, which were excluded from evidence.  Unable to prove the amount due, Cenlar lost that trial.

Cenlar tried to argue otherwise in this Motion for Rehearing, but my response to that motion prompted the Court to enter this Order Denying Rehearing.

This sounds foolproof, right?  If the plaintiff/servicer changes in most foreclosure cases, and the banks only bring one witness to trial, i.e. a corporate representative for the current plaintiff/servicer, then banks are systematically unable to prove their cases … so homeowners should win all the time, right?  Just think about it.  If the Paragraph 22 letter is on Bank of America letterhead and the witness is from Nationstar – ha!  Nationstar can’t prove the letter was sent; homeowner wins.  The first half of the payment history was maintained by Bank of America, but the witness at trial is from Nationstar – ha!  Nationstar can’t prove the amount due.   This sounds great, but, unfortunately, it’s not that simple.

In Wamco XXVIII, Ltd. v. Integrated Electronic Environments, Inc., Florida’s Second District Court of Appeal allowed a current servicer to testify about the prior servicer’s business records.  903 So. 2d 230 (Fla. 2d DCA 2014).  In my everyday foreclosure practice, banks regularly cite this case in conjunction with testimony about the “boarding process.”  According to these robo-perjurers (I’m sorry, I mean persons whose sole job it is to testify at foreclosure trials), the current bank/servicer has a process where they “verify” the accuracy of the information from the prior servicer’s records.  And since that information has been “verified,” the current servicer can incorporate that information into its records, adopting it as its own, and use that information to testify at trial.  Hence, the information might be generated by a different company, but the current plaintiff can testify about it.  Nationstar has an employee at trial with a Bank of America payment history in hand?  That’s just fine – Nationstar incorporated that payment history into its records via a “boarding process,” ensuring the accuracy of that information before doing so.  Never mind, of course, that it is necessarily impossible for Nationstar to actually verify any of that information without actually talking to Bank of America and/or obtaining the underlying information … but I digress.  That’s the bag of rocks the banks are regularly selling our courts … and as we saw in Wamco, it sometimes works.

So how do I handle this situation?  Which case is right, Hunter or Wamco?  Are those decisions in conflict?  Personally, I show judges Hunter, and I distinguish Wamco because the witness in that case personally “overs[aw] collections” of loans and was “personally involved” in the servicing of the loans.  In my trials, the witnesses almost never fit the criteria in Wamco, so Hunter is more analogous, I argue.

Some judges don’t like this argument.  They don’t want homeowners who haven’t paid their mortgage to win on “technicalities” like this.  My response?  The evidence code is not a technicality, and the rules aren’t different for foreclosure cases.  In fact, I rarely give an opening statement in foreclosure trials, but when I do, it’s usually that.  “Judge, I simply remind the court that the rules of evidence are not different just because this is a foreclosure case.”  Plus, I find little reason to cater to banks on evidentiary issues when they could issue subpoenas to these third-party witnesses; they just systematically refuse to do so.  Why?  In my view, it’s because they know the court system is, more often than not, going to bail them out, allowing them to get away with bending the rules to facilitate their foreclosures.  Rules be damned – we’ve got foreclosures to process!

Like most things in foreclosure-world, my evidentiary objections on issues like this sometimes work and sometimes don’t.  But hey, we’re talking about homeowners in foreclosure.  Anything that works even some of the time is another tool for the toolbox.  And if your judge doesn’t like it, make sure you remind the Court.  “The rules of evidence aren’t different just because this is a foreclosure case.”


Mark Stopa

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