By Abigail Caplovitz Field | September 8, 2011
Yesterday the District Court of Appeal for the 4th District in Florida issued a wholly unremarkable ruling in Glarum v. LaSalle that nonetheless could massively complicate banks’ efforts to foreclose in Florida. When foreclosing, the court said, a bank has to use evidence, not hearsay. In this case, the hearsay was LaSalle’s claim about how much the homeowner owed it–the bank’s “affidavit of indebtedness.”
What is hearsay? Split the word in two and it’s obvious: the witness hears something, and then says it to the court. Hearsay’s prohibited for a basic reason: you can’t trust it to be true, as anyone who has played “telephone” knows. The hearsay rule has a 500+ year pedigree, so it’s not possible that any lawyer or judge in Florida thought it was okay to use hearsay to win a case.
The hearsay rule does have exceptions, allowing in information as evidence when external evidence of the information’s reliability. ” The exception the bank perfunctorily claimed allowed its affidavit of indebtedness to be treated as evidence was the “business records” exception. But even a cursory comparison of the affidavit and the exemption shows the affidavit doesn’t fit; the bank’s claim is pure hearsay.
Servicer Affidavits of Indebtedness Not Business Records
The common sense rationale behind the exception is this: information that a business records, real time, as a matter of regular practice (meaning not for the litigation), is likely to be accurate. Heck, if a business was regularly messing up its basic records, it wouldn’t be in business long.
To use the business record exemption to submit an affidavit, a business needs to do two things: a) actually be submitting a business record, and b) have a person who knows how the business records are made and maintained–a person who can explain why the information is reliable–be the person who swears out the affidavit. The LaSalle affidavit failed on both counts.
In the affidavit, LaSalle claimed the Glarums owed it $422,677.85. An employee of Home Loan Services Inc., Robert Orsini, signed the affidavit. Orsini told the court he got the information:
“from his company’s computer system. However, Orsini did not know who entered the data into the computer, and he could not verify that the entries were correct at the time they were made. To calculate appellants’ payment history, Orsini relied in part on data retrieved from Litton Loan Servicing, a prior servicer of appellants’ loan.”
Let’s stop there, because many will probably say, so what? That’s what the computer data said, it must be true–why does it matter who did the data entry or if some of the data were from a previous servicer? Surely this court is putting form over substance, letting homeowners off on a technicality.
Unfortunately for the banks, that bias doesn’t hold up under scrutiny: lots of evidence exists that bank databases aren’t accurate. For example, sworn testimony in another case says that employees of Lender Processing Services, who work for many big banks and mortgage servicers, possibly including the ones in this case, regularly mess up the banks’ databases. But don’t just take his word for it; consider that banks have foreclosed on homes bought with cash; sold homes they don’t own; tried to foreclose on people who always made their payments on time, in full… absolutely no one should assume that because a number appears on a bank’s computer screen that it’s true. And that’s without addressing the possibility that the numbers have been inflated by illegal fees. (The issue of lousy bank databases goes way beyond mortgage records, incidentally, consider what Linda Almonte said about Chase’s credit card records.)
Ruling that LaSalle’s affidavit of indebtedness was inadmissible hearsay was unremarkable as a matter of law. But in a state where some judges have displayed pro-bank bias so powerful they don’t require the banks to follow the rules, the decision is stunning. In fact, banks are likely to be far more than stunned by it; they may be stopped in their tracks for a long time.
That’s because the affidavit represented normal business practice: have an employee look at a piece of paper, look at a computer screen, and sign. By rejecting Orsini’s affidavit, the court is forcing the banks to overhaul their basic foreclosure processes. Don’t be too sympathetic to those poor banks, however. The hearsay nature of these affidavits is obvious, and the only way banks could think it would be alright to use them would be to think they are above the law.
That is, a business with a healthy respect for the rule of law would have said to itself at the very beginning: ‘hmm, we need to submit evidence, not hearsay, so let’s set up our business to allow us to do that. Let’s verify the data we get from previous servicers; let’s have quality control procedures that insure the data we enter is accurate and not altered later; let’s make sure that we have employees who really understand how we do all this make the affidavits we give courts. Instead, the banks said, ‘here’s how we do business. Courts better accept it.”
It’s taking a very long time, folks, but the banks are slowly being forced to follow the most basic of rules. (You just don’t get more basic than the prohibition on hearsay.) Now, if only we could get law enforcers to do their jobs.