Errors in Court (foreclosure cases): Foundation and Business Records

hat tip to summer chic

Ultimately, the claim made against the homeowner must make commmon sense.  But getting there requires litigation skills. But it is true that ANY lawyer that simply follows standard defense strategies can win these cases for homeowners. The key is always lack of foundation and hearsay objections.

But the standard error being made in court consists of (1) overlooking the requirement of foundation testimony and (2) acceptance of printed reports as business records.

I recently received a copy of the promotion from a large regional bank based in Cincinnati (i.e., 5th 3rd Bank). They were promoting their new “Wholesale Lockbox Network.” First, let me say that there is nothing illegal or immoral about a lockbox system. It is often a more efficient system of collecting payments than doing it in-house.

But in transactions with homeowners and the foreclosures that followed, there is a huge twist that virtually everyone is missing.

The places where these lockbox services operate are being called “Momentum places.” They give out an address. But here is where the problem starts. The address is frequently a forwarding place — like a website whose sole purpose is to forward the user to another website.

The sender is completely ignorant that their payments has not gone to the place that they sent it to. And as we shall see, it has not been deposited into the account of anyone with a right to receive any money from the homeowner. The sender is completely ignorant that their payments has not gone to the party whom they thought they were paying.

But because the sender/homeowner is ignorant of the real facts, they refer to the intended recipient as “the bank” or the “servicer.” Legally, by doing that, they are admitting the named party is a “bank,” implying “lender or successor lender or a “servicer,” implying that the named entity actually performs “servicing” functions relating to payments.

But just because the name of the entity named as creditor starts with US Bank as trustee does not mean that the bank is involved. This is a representation by the lawyer for which US Bank will claim plausible deniability if the scheme blows up.

By admitting the “bank,” the homeowner is implicitly admitting the ownership of the debt as shown on an accounting ledger of that bank as the unpaid “loan account” —  even though the account does not exist. The lawyer then does not need to produce that account since you have already admitted it —- even if you did not mean to do that.

By admitting the “servicer,” you are implicitly admitting the existence of the unpaid loan account on the named “bank” and the authority of the “servicer” to act for the bank in relation to the disposition of the unpaid loan account which you have never seen.

You are also admitting to the fact that the transaction was originally a loan and that it was sold to whoever is named as the creditor. In short, you are admitting to facts about which you know absolutely nothing unless you are educated, trained, and experienced in investment banking.

Here is why all this is so important. And this is why I have won so many cases, and so can any lawyer who follows standard protocol for litigation defense.

By testing and challenging every move made by the opposing lawyer, you will start approaching the truth of the matter asserted: that the named creditor has suffered a financial injury for which it is entitled to restitution. If that is not true, there is no case — i.e., the court has no power even to hear it.

Keep in mind that the opposing lawyer most likely has had no contact or instructions from the named creditor. The named creditor is most likely not the lawyer’s or his firm’s client. The lawyer knows nothing about the case except what has been received by electronic transmission from an unknown source. The pleadings and exhibits have already been prepared by a third party unknown source.

The exhibits are either valid or invalid. If they are valid, that means there really is an unpaid loan account, just like you thought. This is true about 0.01% of the time. If it isn’t true, there is no case, and that is why a lot of litigation has centered around the issue of “standing” but rarely presented cogently. Standing is a principle in use for millennia. It is a legal requirement that only someone with a justifiable issue can ask the court for a remedy.

That proposition is not true if the named creditor does not assert the claim presented by the lawyer. So you want an officer or employee of the “bank” (not the “servicer”) to testify that his employer is the owner of an unpaid account receivable due from the homeowner because they loaned money or purchased the account. This will never happen because nobody wants to go to prison for perjury. There is no such account.

BUT if someone from the “Servicer” or the lawyer’s office says it, then the bank can claim plausible deniability. The truth is the bank knows nothing about the case.

Let’s look at the so-called business records which are essential for the introduction of evidence to prove the truth of the matter asserted. It is always a “Payment History” and never a copy of the unpaid loan account on the ledger of the creditor. This fundamental requirement has been dropped from all foreclosure litigation and has resulted in moral hazard. It spawned decades of fabricated documents, forged, backdated, and falsely presented.

When caught red-handed (see 50-state settlement for $25 billion) the players promised not to do it again, but the millions of fake documents that had been used to foreclose on millions of properties fraudulently were left standing. And, of course, they did not stop. Nobody was asking why they were using fake documents. The reason is simple: there is no claim because there is no loan account.

Back to Lockbox technology and the rules of evidence:

The introduction of any report by a robowitness can only be accepted as evdience if it is a recognized exception to the hearsay rule. The exception to the hearsay rule that is commonly used is the “business records” exception.

The business records exception rule basically provides that any record of business conducted by the company that generates the report is generally allowed into evidence, if it is supported by foundation from the witness that he or she is familiar with the record keeping of his or her employer and that it is a record of business done by the company.

Absent from all testimony in any foreclosure is testimony that these records represent business conducted by the employer with the homeowner. That is because the employer did not conduct any business with the homeowner and did nothing on behalf of the named creditor. Failure to reveal that gap is one of the key errors in foreclosure litigation.

Virtually all payments that are labeled as “mortgage payments” are collected through central facilities (lockbox) and then processed, deposited and reported by the lockbox operator. The records of the lockbox operator are admissible as business record, not the party to whom it owes a contractual duty. But I can find no case in wihch a wintess from the lockbox operator has ever been offered.

The reason is simple. When asked who their employer works for they would be requried to testify that the party to whom their employer is contractually bound is yet another undisclsoed party and that they have no idea whether the undisclosed party (i.e., an investment bank) owns any right, title or interest in the payments, debt,, note or mortgage of the homeowner.

They would also be reuired to testify that their employer deposits the payments received from hoemowners into a bank account controlled by the udnsclosed party and ot to the named “servicer” or “Bank” in the pending legal proceeding. In short the claim for foreclosure would collapse for insufficiency of evidence.

That is because the business records exception ONLY covers the business conducted by the entity named as producing the report. If it is not a report of business conducted by that company it remains hearsay and therefore inadmissible.

The fact that the “report” is in the hands of the “servicer” is irrelevant, since the “servicer” could have altered anything  for unknown reasons or instructions received from third parties. By law, the court only want to hear from the party who did business with the homeowner — not some party who has heard about business with the homeowner and has interpreted what they heard (Hearsay).

In May, 2022 the CFPB recategorized financial technolgy companies as “servicers” since they were the parties who performed those functions. But the lawyers keep coming to court with reports supposedly generated by a “servicer” who has not done any business with the homeowner. Generally this can only be revealed through objections or cross examination (and sometimes on voir dire).

Further, the “Payment History” report, if admitted by accident or otherwise, is only proof of the matters asserted in the report — i.e. the payments made by the homeowner.  It is not proof of the existence of the unpaid account — something that can ONLY be attested by the named creditor.

That means that introduction of the Payment History report is only admissible AFTER the foundation has been laid. Someone employed by the named creditor must testify from personal knowledge that the creditor owns an unpaid account due from the homeowner and produce the unpaid account in court. Therefore, the objection should be lack of foundation in addition to hearsay. The Payment History is irrelevant if the unpaid account has not been established by the owner.

Of course if the homeowner fails to raise objections in a timely and proper fashion it is treated as a stipulation and all of these issues go away.

All of this is based on one premise: securitization, as practiced in relation to transactions with homeowners, pays off the debt contemporaneusly with creating the appearance of a debt. There is no unpaid account, there is no owner, and there can be no servicer. But payments are being made anyway unde the BIG LIE: That payments are due from homeowners even if there is no longer any debt.

Courts have dropped the centuries old requirement that if a claim was to be recognized, the creditors had to come to court, and that they must produce a copy of the unpaid loan account together with testimony from an officer or employee of the creditor as to the existence and authenticity of the creditor’s records.

In doing so, they opened the door to extreme moral hazard that devastated the lives, property and wealth of hoemowners, and virtually everyone else when the system had a hiccup in 2008 resulting in a sustained economic crash.

The remedy is simply: “show me the loan account.” (Not the payment history)


Nobody paid me to write this. I am self-funded, supported only by donations. My mission is to stop foreclosures and other collection efforts against homeowners and consumers without proof of loss. If you want to support this effort please click on this link and donate as much as you feel you can afford.

Please Donate to Support Neil Garfield’s Efforts to Stop Foreclosure Fraud.

Neil F Garfield, MBA, JD, 76, is a Florida licensed trial and appellate attorney since 1977. He has received multiple academic and achievement awards in business, accounting and law. He is a former investment banker, securities broker, securities analyst, and financial analyst.
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But challenging the “servicers” and other claimants before they seek enforcement can delay action by them for as much as 14 years or more. In addition, although currently rare, it can also result in your homestead being free and clear of any mortgage lien that you contested. (No Guarantee).

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2 Responses

  1. Great job Summer Chic!!!! Can I hire you as an editor!! Thanks Neil this is a really simple, but powerful undercurrent of the entire financial crimes.

  2. Good to understand and not acknowledge fake creditor, beneficiary but makes no common sense that deceived homeowner simply referring to “bank”, “servicer” somehow creates the fact in court. It’s the courts and laws that need to be changed or are part of the deception.

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