May 6, 2014
by Patricia C. Lonzo
Gray & Associates, L.L.P. – USFN Member (Wisconsin)
Recently foreclosure defense attorneys have taken a new aim focusing their attack on the sufficiency of creditor affidavits. The specific target is whether the creditor’s affidavit lays a proper foundation for the business records hearsay exception. The creditor is unable to prove the default and win its case without laying the foundation for the business records hearsay exception. The attacks are frequently successful. In response to this success, the content of lender affidavits must become more detailed and do more than mirror the language of the business records hearsay exception.
The most significant upset to creditor affidavits occurred in Palisades Collection LLC v. Kalal, (Wis. Ct. App. 2010) 2010 Wis. App. 38, 324 Wis. 2d 180, 781 N.W.2d 503. In this case, a Wisconsin appeals court took a sharp deviation from the Federal Rules of Evidence by finding that a creditor who acquired defaulted credit card debt did not lay a sufficient business records foundation under Wis. Stat. § 908.03(6) to prove the amount of the debt owed. The basis for the finding in Palisades was that the plaintiff did not show that it had personal knowledge of how the prior credit card company created, kept, and maintained their business records. Initially, the case was narrowly applied. However, lately there has been a rash of decisions toughening the standards for personal knowledge of the affiant regarding the creditor’s own business records. The heightened scrutiny is no longer limited to records acquired from another creditor as in Palisades.
The latest in these decisions striking down creditor affidavits, and which cannot be viewed as an anomaly, is U.S. Bank, N.A. v. Nelson, 2013 AP755 (not recommended for publication). The affidavit at issue in Nelson is an affidavit of Allen, an employee of Wells Fargo Bank, N.A., the servicer of the loan for U.S. Bank. The Allen affidavit contained the following averment: “In the regular performance of my job functions, I am familiar with business records created and maintained by Plaintiff for the purpose of servicing mortgage loans. These records (which include data compilations, electronically imaged documents, and others) are made at or near the time by, or from information provided by, persons with knowledge of the activity and transactions reflected in such records, and are kept in the course of business activity conducted regularly by Plaintiff. It is the regular practice of Plaintiff’s mortgage servicing business to make these records. In connection with making this affidavit, I have acquired personal knowledge of the matters stated herein by personally examining these business records.”
The language used in the Allen affidavit is noticeably similar to the business records hearsay exception found in statutes around the country including Wisconsin’s Statute § 908.03(6). While the trial court found the language to be sufficient, the court of appeals dissected the language and found it to be deficient. The court of appeals relied on Palisades to hold that the affidavit lacked an averment to show that Allen had personal knowledge as to how the records were created or made by her employer.
In reaching this decision, the appellate court considered whether Allen’s position at Wells Fargo allowed the court to infer that she had knowledge of how the records were made. The court also contemplated whether it could infer that Allen had personal knowledge of how the records were made from Allen’s statement that she is “familiar” with the records. However, the court found that familiarity with the records themselves is not equivalent to having personal knowledge of how the records were made and, ultimately, concluded that it could not make that inference.
Conversely, there are recent examples in Wisconsin case law illustrating sufficient language that would establish the business records foundation. In Bank of America, NA v. Neis, 2013 Wis. App. 89, 349 Wis. 2d 461, 835 N.W.2d 527, general averments regarding personal knowledge in addition to language seeking to satisfy the elements of the business records exception were found to be sufficient. Central Prairie Financial, LLC v. Yang, 2013 Wis. App. 82, 348 Wis. 2d 583, 833 N.W.2d 866, is a case in which the plaintiff was able to prove the amount of credit card debt owed, even though the debt had been acquired from another lender, due to a detailed affidavit from the plaintiff along with affidavits from the prior servicer of the debt.
Although the bar has been raised in Wisconsin, it is not insurmountable. Affidavits are required to be made by a qualified witness. The qualified witness must be someone who can aver to very specific facts. Those facts are necessary to prove that the affiant has the essential personal knowledge to lay the foundation for the business records hearsay exception. This involves the affiant explaining the substance of his or her knowledge and, more importantly, how that knowledge was acquired. More than a mere parroting of the language found in the business records hearsay statute is necessary to overcome this line of attack in a foreclosure.
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