January 29, 2016
by Graham H. Kidner
Hutchens Law Firm
USFN Member (North Carolina, South Carolina)
A growing body of case law supports the qualification of a prior servicer’s loan records as a business records exception to the hearsay rule under the “adoptive business records” doctrine. Perhaps not surprisingly, given the sheer volume of foreclosure activity and resulting litigation, Florida courts have led the way in allowing a servicer to rely on a prior servicer’s records.
In WAMCO XXVIII, Ltd. v. Integrated Electronic Environments, Inc., 903 So. 2d 230 (Fla. 2d DCA 2005), the servicer’s witness had personal knowledge of how his company kept its records and was personally involved in servicing loans. He was familiar with the computer record-keeping system of the prior servicer and the generally accepted policies and procedures of servicing companies. He reviewed the records being transferred and was involved in checking for errors and omissions when the records were transferred. His testimony, relying on information gathered and maintained by the transferor servicer, was found admissible under the business records exception.
A more recent case is Sas v. Federal National Mortgage Association, 165 So. 3d 849, 2015 WL 3609508 (Fla. 2d DCA, June 10, 2015). Seterus’s records custodian testified that he was familiar with its business practices in making and maintaining business records, with Fannie Mae’s record-keeping requirements for mortgage loan servicers, as well as with the servicer industry’s general practices in making and maintaining business records. He explained that the prior servicer, Chase, was bound by the same Fannie Mae requirements in maintaining mortgage loan records and that Seterus thoroughly reviewed Chase’s records at the time of transfer and found no discrepancies.
Another 2015 case is Nationstar Mortgage, LLC v. Berdecia, 2015 WL 3903568 (Fla. 5th DCA 2015). In Berdecia, the witness had not personally participated in the “boarding” process to ensure the accuracy of the records acquired from CitiMortgage (when Nationstar took over servicing the subject loan); however, she demonstrated a sufficient familiarity with the “boarding” process to testify about it. Her testimony not only satisfied the requirements for admitting the mortgage documents under the business records exception to the hearsay rule, her testimony also demonstrated knowledge of the accuracy of the records.
Conversely, a poor choice of witness — or a poorly prepared one — can lead to the exclusion of the testimony. This was the case in Holt v. Calchas, LLC, 155 So. 3d 499 (Fla. 4th DCA 2015). In Holt, the above-referenced WAMCO case was distinguished because the witness lacked sufficient detailed knowledge as to how the prior servicers kept their records. Also, see Burdeshaw v. Bank of New York Mellon, 148 So. 3d 819 (Fla. 1st DCA 2014) and Hunter v. Aurora Loan Services, LLC, 137 So. 3d 570 (Fla. 1st DCA 2014), review denied, 157 So. 3d 1040 (Fla. 2014). In both Holt and Burdeshaw, the servicer’s records custodian failed to testify that the successor loan servicer independently verified the accuracy of the payment histories received from the prior servicer, or to detail the procedures used for such verification.
The Supreme Judicial Court of Massachusetts ruled favorably on the subject more than ten years ago: “Given the common practice of banks buying and selling loans, we conclude that it is normal business practice to maintain accurate business records regarding such loans and to provide them to those acquiring the loan. … Therefore, the bank need not provide testimony from a witness with personal knowledge regarding the maintenance of the predecessors’ business records. The bank’s reliance on this type of record keeping by others renders the records the equivalent of the bank’s own records. To hold otherwise would severely impair the ability of assignees of debt to collect the debt due because the assignee’s business records of the debt are necessarily premised on the payment records of its predecessors.” [Beal Bank, SSB v. Eurich, 444 Mass. 813, 831 N.E. 2d 909, 914 (Mass. 2005)].
While not overtly adopting the adoptive business records doctrine, a recent case suggests that the appellate courts would be receptive to the concept. In State v. Hamlin, 2015 WL 4429684 (N.C. App. July 21, 2015), the court ruled as admissible the testimony (and the computer printouts offered into evidence) from a grocery store security chief. The evidence was based on records of the store’s gift cards’ usage, where those records and the printouts from the computer system were created and maintained for the store by a third-party server company.
Missouri, Kansas, Nebraska
Unfortunately, as with many legal concepts, there is no uniformity across the states. In CACH, LLC v. Askew, 358 S.W.3d 58 (Mo. 2012), for example, the Supreme Court of Missouri reviewed that state’s judicial precedent relating to the foundation requirement for admissible business records. The court reviewed and cited to numerous cases; the quotation below, excerpted from the CACH decision, is consistent with the ultimate holding that reversed the circuit court’s judgment, which had been entered in favor of the plaintiff debt collector.
‘“The business records exception to the hearsay rule applies only to documents generated by the business itself. ... Where the status of the evidence indicates it was prepared elsewhere and was merely received and held in a file but was not made in the ordinary course of the holder’s business it is inadmissible and not within a business record exception to the hearsay rule under § 490.680, RSMo 1986.’ A custodian of records cannot meet the requirements of § 490.680 by simply serving as ‘conduit to the flow of records’ and not testifying to the mode of preparation of the records in question. C & W Asset, 136 S.W. 3d at 140.”
Courts in Kansas and Nebraska have also refused to follow the adoptive business records doctrine. See State of Kansas v. Guhl, 3 Kan. App. 2d 59 (1979), and State of Nebraska v. Hill, 2003 Neb. App. LEXIS 156 (2003).
Federal Circuit Decisions
Allowing a litigant to introduce records it relies on in its business operations, where those records were created by a third party, is not a new phenomenon. Indeed, several federal circuit courts have ruled favorably on the subject, including the following:
First Circuit — determined that the head of a bank’s consumer loan department was qualified to introduce a service bureau’s computer-generated “loan histories” as the bank’s business records, where the bank could and did retrieve information from the service bureau. [U.S. v. Moore, 923 F.2d 910, 914-15 (1st Cir. 1991)].
Eighth Circuit — has expressly agreed with other courts that “a record created by a third party and integrated into another entity’s records is admissible as the record of the custodian entity, so long as the custodian entity relied upon the accuracy of the record and the other requirements of Rule 803(6) [of the Federal Rules of Evidence] are satisfied.” [Brawner v. Allstate Indemnity Co., 591 F.3d 984, 987 (8th Cir. 2010)].
Tenth Circuit — “Put simply, if it can be established that a given document was relied on by a business and incorporated into that business’s records in the ordinary course, it is irrelevant that the record was generated by a third party so long as Rule 803(6) [of the Federal Rules of Evidence] is otherwise satisfied.” [United States v. Irvin, 2011 U.S. App. LEXIS 18087 (10th Cir. 2011)].
D.C. Circuit — “[S]everal courts have found that a record of which a firm takes custody is thereby ‘made’ by the firm within the meaning of the rule [902(11) of the Federal Rules of Evidence, or under Rule 803(6), which Rule 902(11) extends by allowing a written foundation in lieu of an oral one] (and thus is admissible if all the other requirements are satisfied). We join those courts.” [United States v. Adefehinti, 510 F.3d 319 (D.C. Cir. 2007)]. The Adefehinti opinion discussed a series of other federal cases supporting its holding — from the Second, Fifth, Ninth, Tenth, and Eleventh Circuits.
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