Admissibility of Loan Payment Histories in Florida Foreclosures

Melbourne Florida Foreclosure Attorney, Beau Bowin, submitted the following memorandum to the Circuit Court in and for Brevard County Florida. It can be used as a guide for all foreclosure defense attorneys seeking to exclude the bank's Loan Payment History and other documents from evidence.

RE: Memorandum Regarding the Admissibility of Loan Payment Histories

Focus: Kimberly Le v. U.S. Bank, 5D14-578 (May 22, 2015) (Fla 5th DCA 2015)

• Introduction

As this Court is aware, a major issue in every contested foreclosure trial is the admissibility of the Plaintiff's Loan Payment History used to establish the homeowner's default and the amount of the alleged debt. Many times these Loan Payment Histories contain information transmitted by one or more prior loan servicers, with only the current servicer present at trial. The question in each of these cases is to what extent are these Loan Payment Histories admissible, and to what extent are they inadmissible hearsay within hearsay.

On May 22, 2015, the Fifth District Court of Appeal released an opinion on the admissibility of Loan Payment Histories containing information transmitted by prior loan servicers. See Kimberly Le v. U.S. Bank, 5D14-578 (May 22, 2015) (Fla 5th DCA 2015). Because the Kimberly Le case will govern almost every contested foreclosure trial before this Court, an understanding of the opinion and how it fits within the larger context of Florida appellate cases and statutes is important.

Like almost every other Florida appellate court decision discussing this issue, save one discussed below, the Kimberly Le Court appears to adopt a two prong test for the admissibility of the Loan Payment History. To admit the Loan Payment History, the proponent of the record must testify (i) as to some knowledge of the prior servicer's record keeping procedures and (ii) that the proponent verified the accuracy of the information it received from the prior servicer. Without meeting both of these prongs, the Loan Payment History is inadmissible.

I believe this two prong test, if applied correctly, is not only in accord with the majority of appellate cases around the state, but also complies with the business records exception to hearsay, § 90.803(6), and the rule regarding hearsay within hearsay, § 90.805.

• Discussion

Pursuant to Fla. Stat. §90.805, hearsay within hearsay is admissible only if both parts of the combined statement conforms to a hearsay exception. In the case of a mortgage foreclosure, hearsay within hearsay may arise when a current mortgage servicer seeks to introduce a loan payment history that incorporates the records from a prior servicer. When the record being introduced contains information transmitted by a prior servicer, the party introducing those records must satisfy a hearsay exception for the information transmitted by the prior servicer as well as an exception for the information recorded by the current servicer. See Hunter v. Aurora Loan Services, LLC, 137 So.3d 570 (Fla. 1st DCA 2014) (holding that an "Account Balance Report" was inadmissible because it contained information transmitted by a prior servicer for which no hearsay exception was satisfied). Absent a hearsay exception for the prior servicer's records, the records are inadmissible under § 90.805.

For a current servicer to establish the business records exception for information transmitted by a prior servicer under § 90.803(6), the testifying witness must not only testify that the current servicer verified the information it received, but must also have knowledge of the prior servicers' record keeping procedures. See Kimberly Le v. U.S. Bank, 5D14-578 (May 22, 2015) (Fla 5th DCA 2015). In Kimberly Le, this Court held that a payment history was admissible where the bank's witness testified that her company's loan boarding process (i) verifies the accuracy of the information it received from the prior servicer and (ii) confirms that the prior servicer's entries conformed to industry standards. Id. at p.3. Unless the witness can testify to both elements, the information transmitted by the prior servicer does not satisfy the business records exception to hearsay.

What makes this case so important is that, in the past, many plaintiffs would argue that as long as a witness testified about her company's "verification," "auditing," or "boarding" process, she need not have any knowledge of the prior servicer's record keeping procedures. With the Kimberly Le opinion clearly requiring some testimony regarding the prior servicer's record keeping procedures before the Loan Payment History may be admitted, banks can no longer rely solely on their testimony as to their "auditing" or "verification" process without reference to the prior servicer's procedures. This is a problem for many servicers since many times their witness has no knowledge of the prior servicer's procedures. Without such knowledge, the witness is unable to substantiate when the prior servicer's records were made, whether the information they contain derived from a person with knowledge, whether the prior servicer regularly made such records, whether the records comply with industry standards or, indeed, whether the records belonged to the prior servicer in the first place. Absent such knowledge of the prior servicer's records, the Loan Payment History must be excluded under Kimberly Le.

The plaintiff's argument that they can rely solely on testimony regarding their servicer's verification process also misapplies the plain reading of §90.803(6). Under § 90.803(6),verification of the truthfulness of the business record is not grounds for including evidence that does not otherwise satisfy the four elements of the § 90.803(6), but rather is grounds for excluding evidence that otherwise does meet the four elements of the exception. If the predicate cannot be laid for the prior servicer's records, the current servicer's verification process is irrelevant under § 90.803(6). This is why every Florida appellate court, save one discussed below, has required the witness to have particular knowledge of the prior servicer's record keeping procedures. Without such knowledge, the proponent cannot lay the proper predicate and the record is inadmissible. See e.g., WAMCO XXVIII, Ltd. v. Integrated Electronic Environments, Inc., 903 So.2d 230 (Fla. 2DCA 2005) (holding that a loan payment history was admissible where the bank's witness testified that he personally verified the information transmitted by the prior loan holder and had personal knowledge that the prior holder's procedures were "bank acceptable accounting systems."); Burdeshaw v. Bank of New York Mellon, 148 So.3d 819, 823 (Fla. 1st DCA 2014) ("Proper authentication by a witness requires that the witness demonstrate familiarity with the record-keeping system of the business that prepared the document and knowledge of how the data was uploaded into the system." ); Hunter v. Aurora Loan Services, LLC, 137 So.3d 570, 573(Fla. 1st DCA 2014) (holding that, absent personal knowledge of the prior servicer's procedures, the witness could not lay a predicate for the business records exception);Glarum v. LaSalle Bank Nat. Ass'n, 83 So.3d 780, 783 (Fla.4th DCA 2011) (reversing summary judgment where the bank's witness relied, in part, on data supplied by a prior servicer with whose procedures the witness was not familiar).

Earlier this year, the Fourth District Court of Appeals affirmed this requirement of knowledge of the prior servicer's record keeping procedures. See Holt v. Calchas, LLC 155 So.3d 499 (Fla. 4th DCA 2015). In Holt, the court examined all the relevant Florida appellate cases on this issue, including Hunter, Glarum and WAMCO, and recognized that in each case, the courts required the witness to have particular knowledge of the prior servicer's record keeping procedures. Id. Without such knowledge, the witness is unable to lay a predicate for the business records exception. Id. The Holt court further held that the witness' knowledge of "common standards and practices" is not enough to lay the proper foundation for the business records exception. Id. at 505. Without the particular knowledge of the prior servicer's record keeping procedures, the witness could not state when the records were made, whether the information they contain derived from a person with knowledge, whether the prior servicer regularly made such records, or, indeed, whether the records belonged to the prior servicer in the first place. Id. (quoting Hunter with favor). Without such knowledge, the proponent of the record cannot meet the business records exception under § 90.803(6) or the requirements of §90.805 regarding hearsay within hearsay.[1]

The only case departing from the well-established requirement that the testifying witness possess some personal knowledge of the prior service's records keeping procedures is Bank of New York v. Calloway, 157 So.3d 1064 (Fla. 4th DCA 2015). In Calloway, the court held that a loan payment history was admissible even though the testifying witness did not testify as to any knowledge of the prior servicer's record keeping procedures. Incredibly, the Calloway court further held that the witness need not even check the accuracy of the prior servicer's records for those records to be admissible. In so holding, the Calloway court stated, again somewhat incredibly, that even if the witness did not testify as to accuracy of the prior servicer's records, "the circumstances of the loan transfer itself would have been sufficient to establish trustworthiness given the business relationships and common practices inherent among lending institutions acquiring and selling loans. Id. at 1072. The Calloway court did not cite to any record evidence to support its conclustion that common practices among lending institutions cloaks these transfers in a blanket of reliability without the need for testimony. Indeed, such a statement cannot be reconciled with the documented "robo-signing" scandle in which these same lending institutions were caught filing tens of thousands of false affidavits a month swearing to the accuracy of these same loan transfers. Nor can it be reconciled with the Florida Supreme Court's expressed concern with the practices of these lending institutions when it adopted Fla. R. Civ. P. 1.110(b), which was a direct result of the robo-signing scandal. Ironically, the Calloway court itself uses the term "robo" witness, an obvious reference to the nationwide "robo signing" scandal, within the same opinion it declares these loan transfers to be inherently trustworthy. The Calloway decision even contradicts two other Fourth DCA panels on the same issue, Holt and Glarum, each of which required the witness to testify about her personal knowledge of the prior servicer's record keeping procedures and about her company's procedures for verifying the accuracy of the prior servicer's records.

The Calloway opinion is an outlier case, even within its own district, that has no support anywhere in Florida law and conflicts with what every court knows about the "inherent reliability" of the lending industry's records. With all due respect to the Calloway court, to follow the Calloway decision would be to turn hundreds of years of legal jurisprudence on its head by allowing any business record of a prior business to be admitted without the need to verify its accuracy or to have any personal knowledge of how the records were created. That cannot be the law.

To further illustrate the faulty reasoning of Calloway, imagine that the prior servicer was testifying at court and its witness testified that she (i) did not know how the record was created, (ii) did not know whether it was maintained in the ordinary course of her company's business, (iii) did not know whether the record was made contemporaneously with the events it records, and (iv) did not know whether it was recorded by a person whose job it was to record such information. There is no doubt that the trial court could not admit that servicer's record into evidence under the business records exception. Yet, under the Calloway decision, the subsequent servicer can testify the exact same way regarding her knowledge of the prior servicer's records, and the records must be admitted as inherently reliable, without ever allowing the defendant to cross examine the business that created the record sought to be admitted. It's as if the transfer of the record acted as some sort of magic wand, turning inadmissible evidence into inherently admissible evidence without the need for verification or knowledge of the prior servicer's record keeping procedures. Such a result defies logic.

• Conclusion

With the Kimberly Le opinion clearly requiring some testimony regarding the prior servicer's record keeping procedures before the Loan Payment History may be admitted, banks can no longer rely solely on their testimony as to their "auditing" or "verification" process. Unless the current servicer's witness can provide testimony as to the prior servicer's record keeping procedures, the witness is unable to substantiate when the prior servicer's records were made, whether the information they contain derived from a person with knowledge, whether the prior servicer regularly made such records, whether the records comply with industry standards or, indeed, whether the records belonged to the prior servicer in the first place. Absent such knowledge of the prior servicer's records, the Loan Payment History must be excluded.