Servicers are Not Servicers: Their Reports Are Not Business Records

Since the reports presented in court are generally NOT made in the ordinary course of the “servicer’s” business they are inadmissible hearsay. 

By now it should come as no surprise that companies like Ocwen et al claim to be servicers but do not actually perform any “servicing” work. We all know what that means. A servicer is a company that is the bookkeeper for someone else. So they collect payments, correspond with the customer, and forward or deposit the payments for their principal in a relationship that can only be defined as an agency relationship.

When they go to court, the servicer designates a witness who is either the custodian of records who someone familiar with the actual records. Of course that never happens in foreclosures. The person who appears in court barely works for the servicer, is generally an “independent contractor” operating out of their living room, and has only one job — testifying in court.

In court, they produce a report in which they assert that the entries made on that report were made by someone familiar with an actual transaction at or near the time of that transaction. They present that report as the payment history but not as the ledger of the designated claimant, which would show the establishment of the debt on an actual accounting ledger and receipt of payments reducing the amount of the receivable.

There are several problems with this scenario but those who are not actually familiar with basic double-entry bookkeeping and accounting or auditing will always miss the mark.

The problem is that what is produced in court is a report, not an accounting ledger and that even if the named designated claimant were to come forward (something they will NEVER do) and say that the payment history is part of their general ledger, it isn’t the entire ledger which would show all transactions starting with the origination and ending with the last day any receipt or disbursement was made.

The objection to the admission of the Payment HIstory into evidence as a business record would be that it is not the entire record or even a report of the entire account, which would show ALL receipts and ALL disbursements.

Second, even if the payment history were to show the disbursement to a particular creditor (never will happen) it does not show the reduction of the claimed debt on the ledger of one claimed to own the debt for purposes of enforcement.

But here is the real problem. Servicers generally do not collect payments, so they can hardly produce a witness or person who made a bookkeeping or accounting entry on any record of receipt of payments. This happens because generally all payments are made to an address bearing the name of the servicer but totally controlled by a third party vendor who in turn makes deposits, not into a depository account owned by the servicer but rather an account owned or controlled by an investment bank who is not the owner of the debt.

While sometimes you can make some headway at trial in revealing the utter lack of any knowledge, even hearsay, on the part of the witness, it is far better to do so in discovery.

So you might want to ask for a description and production of the lockbox contract or perhaps something more specific like “JUNIOR PRIORITY INTERCREDITOR AGREEMENT  among  XYZ as the Borrower, the other Grantors party hereto,   ABC BANK, as First Priority Representative for the First Lien Credit Agreement Secured Parties,  DEF TRUST, NATIONAL ASSOCIATION, as Second Lien Collateral Agent  and  each additional Representative from time to time party hereto dated as of the ___ day of _____, 20xx.”

The key question you want to be answered is whether the lockbox deal (frequently with Black Knight) represents the duties of the lockbox operator to the “Servicer” or some third party who has no interest in the homeowner transaction which is always represented as a “loan” but which is most likely not a “loan” as described elsewhere on this blog.

If, as I suggest, the “Servicer” does not and cannot touch any of the money, then its record is not really a record at all. Nor is it admissible in evidence. The truth is, as we have previously disclosed, that the lockbox operator in conjunction with CoreLogic or some such company physically controls all receipts and deposits of those receipts into a financial account that is not owned by, known by, or managed by the “servicer.” The “Payment History” is therefore produced by access to a third-party computer server that is not owned, operated or maintained by the self-proclaimed servicer.

In short, the witness is not from the company who made the entries or created the record that is a “Payment History.” The only witness that is competent to testify is one who employed by and has knowledge of the practices of the third-party vendor.

The reason this is not done is that the investment banks don’t want to put such a witness on these and because that same witness would need to answer the essential question: who gets the money from payments and who will get the money from this foreclosure. If it is not the named designated claimant then the wrong Plaintiff or beneficiary has been named.

Since the reports presented in court are generally NOT made in the ordinary course of the “servicer’s” business they are inadmissible hearsay.

“Out-of-court statements offered to prove the truth of the matter asserted are inadmissible unless the statements fall under a recognized exception to the rule against hearsay. See § 90.802, Fla. Stat. (2004). ” Yisrael v. State, 993 So. 2d 952, 955 (Fla. 2008)
Florida’s business-records exception appears in section 90.803(6)(a), Florida Statutes (2004). To secure admissibility under this exception, the proponent must show that (1) the record was made at or near the time of the event; (2) was made by or from information transmitted by a person with knowledge; (3) was kept in the ordinary course of a regularly conducted business activity; and (4) that it was a regular practice of that business to make such a record. See, e.g., Jackson v. State738 So.2d 382, 386 (Fla. 4th DCA 1999). Additionally, the proponent is required to present this information in one of three formats. First, the proponent may take the traditional route, which requires that a records custodian take the stand and testify under oath to the predicate requirements. See § 90.803(6)(a), Fla. Stat. (2004). Second, the parties may stipulate to the admissibility of a document as a business record. See, e.g., Kelly v. State Farm Mut. Auto. Ins.720 So.2d 1145, 1146 (Fla. 5th DCA 1998) (holding that the parties stipulated to the admissibility of medical records under the business-records exception); but see Gordon v. State787 So.2d 892, 894 (Fla. 4th DCA 2001) (holding that the State and defense counsel’s stipulation regarding the defendant’s release date was not sufficient to relieve the State of its burden to prove the defendant’s release date by a preponderance of the evidence). Third and finally, since July 1, 2003, the proponent has been able to establish the business-records predicate through a certification or declaration that complies with sections 90.803(6)(c) and 90.902(11), Florida Statutes (2004). The certification — under penalty of perjury — must state that the record:
(a) Was made at or near the time of the occurrence of the matters set forth by, or from information transmitted by, a person having knowledge of those matters;
(b) Was kept in the course of the regularly conducted activity; and
(c) Was made as a regular practice in the course of the regularly conducted activity[.]
§ 90.902(11)(a)-(c), Fla. Stat. (2004).
Yisrael v. State, 993 So. 2d 952, 956-57 (Fla. 2008)
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Neil F Garfield, MBA, JD, 73, is a Florida licensed trial and appellate 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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