The missing second witness —Attacking the Business Records of A Servicer: Start with the fact that the company is self-proclaimed servicer with no proof of authority and then pivot to the absence of records establishing the debt as an asset.

Excellent article written by attorneys at Blank Rome on the issue of Business Record exceptions to the hearsay rule. The hearsay rule is simple. It excludes from evidence any statement that is uttered out of court — whether that statement is in writing or was made orally.


So here is what it looks like in a typical old-fashioned foreclosure trial.

The witness testifies that he or she is the records custodian of a bank. He/she says she has the records of the homeowner/borrower from the bank and he/she testifies that he/she knows from his/her own personal knowledge that those records were made at or near  the time of every transaction between the borrower and the bank.

The witness testifies that he/she has the actual records with handwritten entries showing the establishment of the loan as an asset through purchase of the promissory note in a transaction in which the borrower received money or in which money was paid on behalf of the borrower.

The written record is admitted into evidence as proof of two matters asserted: (1) establishment of the debt or underlying obligation and (2) the borrower’s payment history.

The witness goes on to testify that he/she holds in his/her hand the original promissory note and mortgage executed by the borrower and that is ahs been under lock and key, under his/her supervision since the time of origination of the loan.

The note and mortgage are accepted into evidence as proof of the terms of repayment and the establishment of a lien.

The Judge compares the obligation (promise to pay) as set forth on the note with the payment history and arrives at a factual conclusion as to whether the homeowner is in breach of the agreement and renders a final judgment for the bank, assuming the homeowner has not made payments that were promised by the homeowner to the bank.

Now let’s look at the modern day nontraditional foreclosure. First of all nobody from the bank or “lender” makes any appearance.

My point is that a foundation objection should be made and preserved if this is the case.

If a witness is a person other than the employee or officer of the named claimant or plaintiff in the foreclosure case, he/she cannot testify about records, payment history or anything else relating to the foreclosure claim without someone else first testifying that the witness is authorized to do so and that the company for whom the witness works maintains the records that establish the debt as owned by the claimant and that said company is in fact the servicer of the account.

That second witness must be an authorized employee or officer of the named claimant/plaintiff. In plain language if BONY/Mellon is named as trustee of a trust, and that they are filing on behalf of certificate holders of the trust, no evidence should be admitted without first establishing the foundation for the inferences that the foreclosure mill wishes to raise.

And frankly the court should on its own reject any attempt to work around this requirement. But as a practical matter, the way it is currently working, if you don’t object continuously to the absence of such foundation then you will be treated as having waived the issue and with that, you will effectively be treated as though you had waived your defenses.

So if securitization was real, the witness would come in and say that they are the authorized representative of BONY Mellon and that they are the trust officer in charge of record keeping for BONY Mellon in relation to this named trust and the certificate holder.

The witness would produce the trust agreement authorizing BONY/Mellon to act as trustee and a certificate indenture in which the holders of the certificates have been granted ownership shares of a pool of mortgages owned by the trust and which explicitly grant to BONY/Mellon the right to represent the certificate holders in connection with the enforcement of loans owned by teht rust for their benefit. The witness would establish that the certificate holders are beneficiaries.

The bank trustee witness would produce business records of BONY/Mellon that show the transaction in which the loans were established, having acquired same from the originator in a specific transaction in which value was paid for ownership of the debt, note and mortgage.

Or, the witness would testify that pursuant to some agreement, BONY/Mellon had outsourced functions to some other company that is acting as servicer. And the witness would testify that the servicer was operating in compliance with the servicing agreement by tendering the required payments in the certificate indenture to BONY/Mellon as trustee who in turn makes payments to the certificate holders.

You will never see such testimony because none of these things happen in what is loosely described as “Securitization.” Certificate holders own nothing but an unsecured IOU from an investment bank doing business under the name of a nonexistent trust. No servicer even has access to any information, data or entries on any record establishing the debt as an asset of anyone. In fact, no “servicer” knows or pays any money to anyone in a transaction that would even imply they are working for the owner of the debt. That is where aggressive discovery will tip the scales.

In reality the “records” submitted by the servicer are proffered as the payment history but there is never any direct testimony that the payment history constitutes business records of the claimant. That is because they are not business records of the claimant. They are only reports issued for the purpose of foreclosure. And that is not allowed. Such reports are not admissible in evidence and if excluded, the case fails.

In one form or another, every case I have won for homeowners and every case I know that was won for a homeowner has turned on the absence of foundation for the evidence sought to be admitted into evidence — without which no legal presumptions can arise or be used in the case against the homeowner.

Bottom Line: In virtually all foreclosure cases there is an absence of the required second witness because there is no such witness — i.e., a person with personal knowledge that the facts assumed or presumed are true.

Here are some important quotes from the above cited article:

On July 2, 2020, the Florida Supreme Court issued its written opinion[i] in Jackson v. Household Finance Corporation, III, 236 So. 3d 1170 (Fla. 2d DCA 2016) to resolve a conflict with a case decided by the Fourth District Court of Appeal (Maslak v. Wells Fargo Bank, N.A., 190 So. 3d 656 (Fla. 4th DCA 2016). Specifically, the issue concerned whether the predicates were met for admissions of records into evidence under the business records exception to the hearsay rule during the course of a bench trial in a residential foreclosure case. The Florida Supreme Court held that the proper predicate for admission can be laid by a qualified witness testifying to the foundation elements of the exception set forth in Section 90.803(6) of the Florida Evidence Code.

a party has three options to lay the foundation to meet that exception: (1) offering testimony of a records custodian, (2) presenting a certification that or declaration that the elements have been established, or (3) obtaining a stipulation of admissibility. If the party elects to present testimony, the applicable case law explains that it does not need to be the person who created the business records. The witness may be any qualified person with knowledge of each of the elements.

Neil F Garfield, MBA, JD, 73, is a Florida licensed trial attorney since 1977. He has received multiple academic and achievement awards in business and law. He is a former investment banker, securities broker, securities analyst, and financial analyst.


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8 Responses

  1. Before Freddie/Fannie (F/F) sold NPL in bulk, they sold them individually by whatever the servicer told F/F. If the servicer informed F/F that the borrower has missed payments, F/F would “charge-off” and sell the collection rights to servicers – the big banks. Borrower is never told. The big banks, as servicers, then put on their “security underwriter” hat and securitized the claimed defaulted loans via refinance – which is actually just a reinstatement. That is is why you will never see the PLMBS derived from a loan asset on anyone’s balance sheet. Neil is correct on this. What is really sold is “collection rights,” and once the big banks did the fake securitization on the manufactured defaults, they sold the top tranches in the fake securitization back to Freddie/Fannie. When this was discovered, that is what caused the Great Financial Crisis to explode..

    Java and Bob G are correct. Since that time, NPL are sold in bulk by Freddie/Fannie. Bob G explains why the collection rights are purchased (cannot purchase a charged off loan and claim as an asset, but collection rights are sold all the time).

    Ricco Pitts — is correct. If you have a claimed PLMBS “trust” – it is the servicer, and no one else, that is the claimed owner. They reap the benefits. And, they are debt collectors from the beginning – just like those that purchase NPL in bulk.

    In all cases, title cannot be cured. I cannot understand, however, why the government allows a process that goes through hoops to get the borrower out of the home. Why not work with the borrower? I will assume that the debt buying industry is huge (largest business in the world) and that their power is immense. Also, trillions of dollars have written the government – the GSEs. Freddie/Fannie acted as private entities before before the government became conservator. So who allows all? The government.

    The situation will get worse with the effect of Covid-19. Suddenly, the government has trillions to temporarily help the people. As I recall, at the time of the financial crisis, Bernanke told Congress — “There is no money to help the people.” .Hmmmm

    (and to Shelly — I had a small second mortgage taken out decades ago – was supposed to be paid off at a “refinance.” also decades ago. Years later – I find out from SPS — it was never paid off by ME. My Cancelled check did not match the amount SPS claimed they received a month before the actual “refinance.” And SPS had added fees to the “account” for years.after the “refinance.” I was never told — I don’t find this out until a couple of years ago – I was able to get the servicing records. SPS represents itself – not DB. And, who was formally SPS?
    Fairbanks Capital — they got in trouble for – you guessed it – manufactured defaults. Once a default is manufactured – no one will accept any payment from the borrower — they only want your house). .

  2. In my case DBNTC v Erickson DBNTC never did a declaration of any kind and now I have an answer in another case I filed against the servicier and lawyers for the servicer SPS that states they represented Select Portfolio Sericing for DBNTC. First time in six years of litigation Stoel and Rives admits they have been representing SPS. See DBNTC v Barclay Bank PLC NY appeals court Nove 2019.

  3. Bob G. You are absolutely correct.

    I’m now fighting Truman Capital who allegedly purchased 355 NPLs from Freddie Mac for approximately $55,000 each. As the person bloc record shows on business journals posted in October 2019 and closed in January 2020.

    Where it gets messy is their new law firm is trying to get USBank NA as Trustee for Truman Trust SC-2106 as the new plaintiff in the Fraudclosure, with a motion to switch plaintiff from Specialized Loan Servicing , who had no rights to assign any mortgage and or note, as just a Servicer for Freddie Mac and then used some outfit in Idaho to do the fraudulent AOM. The new law firm is also trying to say to court their clients are all of SLS, Rushmore Servicing, USBank NA and Truman Trust. When it’s clearly Mitchell Samberg and only Mitchell Samberg at Truman Capital. They work for. Did I make myself clear Mitchell Samberg ???
    So why am I not able to purchase from Freddie Mac for the same $55,000 !!!!

    Bob G. Please contact me at your earliest at
    Need to ask a few questions you may have guidance with.
    Many thanks.

  4. Ricco

    You are not well informed about this business. There are private equity funds that buy portfolios of nonperforming notes from the banks and from freddie and fannie. google it. they may pay 50%-75% of the unpaid principal balance. so if the unpaid principal balance is $200,000, they may pay $100,000-$150,000 for the nonperforming note. if the house is worth $300,000 they hope to score a gross profit on the foreclosure before expenses and taxes of $150,000-$200,000. that’s why they buy these defaulted notes.

    Secondly, judges don’t want to hear NG’s arguments about fraud, and failure to pay value, when the defendant cannot specify with particularity the actual fraud or failure to pay value, and prove it up with admissible documentary evidence. Judges have hundreds of foreclosure cases on their dockets. And in 99% of those cases, neither the defendant nor his attorneys know how to argue these cases. And If a homeowner defendant puts in an Answer to the Complaint denying the plaintiff’s allegations and putting in affirmative defenses, he will not be able to allege and prove fraud.

    It is just that simple.

  5. You see a lot of mortgage assignments recorded at the courthouses after the so called default by the homeowner and right before the forecloses process starts. You can be sure no one paid value for the note due to the simple fact that it is a loan that has went into default, ie a bad loan. Good luck with getting the “new” owner of the loan to tell the court why they would buy a loan that was already in default, a loan that will require more money in the form of legal expense just to collect on. How do they determine the value to pay for a bad loan that is already in default. A loan that IS NOT being paid as agreed to? The truth is they are not paying any value for the loan. It’s all a paper fraud. The servicer is the one calling all the shots. There is no owner of the loan. The servicer by the way of their lawyers are claiming to be the owners of the loan, but they never paid one dime for the loan. The credit bid submitted at the courthouse on the day of the forecloses should only be submitted by someone who has real skin in the game, someone who funded the loan or paid real value for the loan, but it’s all a fraud. The forecloses is a total windfall for the servicer who never loaned any money, and never suffer a financial lost due to the homeowners default.

  6. Glad to see you back Bob G.

    Can I add that representation should be questioned at the onset. For example — U.S. Bank, N.A., trustee, for BS Trust Series 2007 XYZ — is really the servicer. The “Bank” is not there from the onset. But judges believe that that they are.

    This is this the real deal.

  7. In the last couple of weeks Neil has posted articles to which I have given little weight, because I felt that the arguments that he was making were a stretch, a waste of time, and would just diminish the defendant’s credibility with the court. But this one is the real deal. I’ve been using this approach for the past year. If done properly, it will work. In essence, if you do this right, you will be turning the business records exception to the hearsay rule back on the plaintiff. If the servicers’ records are readily available, then so too should be the general journal and general ledger accounting records establishing that someone paid value for the note.

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