Following rulings from other appellate courts in other appellate districts, Florida’s Third District Court of Appeal recently reversed a trial court’s order involuntarily dismissing a mortgagee’s foreclosure against a borrower holding that the mortgagee’s witness from its current mortgage servicer laid a sufficient foundation at trial to admit business records from a prior mortgage servicer necessary to prove a default under Florida’s business records exception to hearsay.
A copy of the opinion is available at: Link to Opinion.
In 2006, a mortgagee provided the borrower with an adjustable rate note and mortgage that contained a negative amortization provision. The note gave the mortgagee the option to change the interest rate and to add any deficiency to the principal.
The borrower subsequently defaulted, and in 2011 the mortgagee filed a foreclosure complaint. The borrower answered the complaint and raised affirmative defenses, but the borrower did not assert as an affirmative defense that the mortgagee had failed to provide her evidence of a change in interest rate or the payment amount.
The trial court conducted a bench trial. The mortgagee presented a witness from its mortgage servicer at trial to prove its case. The witness testified in detail about the servicer’s loan “boarding process, verifications, the payment history, the notice of default and acceleration.” The trial court admitted the note and demand letter into evidence. The trial court also admitted the payment history into evidence by stipulation.
At the conclusion of the trial the mortgagee moved for final judgment and the borrower moved for involuntary dismissal. The trial court subsequently granted the borrower’s motion for involuntarily dismissal.
Although the trial court had already admitted the mortgagee’s documents into evidence during the trial, it concluded that the mortgagee’s testimony regarding the prior servicer’s records was hearsay. Further, despite noting that the note did not require the mortgagee to prove that the borrower received a notice of payment or interest change before it could trigger a default, the trial court found that the mortgagee had failed to prove this.
This appeal followed.
Initially, the Third DCA noted Florida’s business record exception to the hearsay rule. As you may recall, a party may introduce evidence that courts would ordinarily exclude as inadmissible hearsay if:
(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. Section 90.803(6), Florida Statutes (2016); Yisrael v. State, 993 So. 2d 952, 956 (Fla. 2008).
The Third DCA observed that a party may establish foundation to admit a business record through a records custodian or other qualified witness. The witness who authenticates the records does not have to be the person who created the business records. See Deutsche Bank Trust Co. Ams. v. Frias, 178 So. 3d 505 (Fla. 4th DCA 2015). Instead, the witness only has to be sufficiently acquainted with the activity to testify that the successor business relies on those records, and that the circumstances indicate the records are trustworthy.” Bank of New York v. Calloway, 157 So. 3d 1064 (Fla. 4th DCA 2015).
Moreover, in the mortgage servicing context after a loan service transferred, the foreclosing mortgagee does not have to present a witness “employed by the prior servicer or who participated in the boarding process.” Ocwen Loan Servicing, LLC v. Gundersen, 204 So. 3d 530 (Fla. 4th DCA 2016). This is because when “a business takes custody of another business’s records and integrates them within its own records, the acquired records are treated as having been ‘made’ by the successor business, such that both records constitute the successor business’s singular ‘business record.’” Calloway, 157 So. 3d 1064, 1071 (Fla. 4th DCA 2015).
Here, the Third DCA found that the witness demonstrated sufficient knowledge of the business record’s history to testify about the loan boarding process, the servicing platform, and the process for creating the default notice and demand letter.
Specifically, the witness testified that the mortgage servicer absorbed the prior servicer and that the servicer verified the accuracy of all the prior servicer’s records before incorporating those records into its own records. The Appellate Court held that the trial court therefore should have admitted the testimony concerning the third-party default letter and the loan payment history printout as an exception to the hearsay rule.
Thus, the Third DCA concluded that the witness authenticating the mortgagee’s records provided sufficient testimony to meet the requirements to admit the records under the business record exception to hearsay.
The Third DCA next addressed the trial court’s conclusion that it properly declined to admit the testimony and demand letter into evidence because the mortgagee’s witness was not sufficiently familiar with the practices and procedures of one of the servicer’s third-party vendors. However, the Third DCA rejected this rationale “because the business records exception does not contain such a requirement.” Cayea v. CitiMortgage, Inc., 138 So. 3d 1214, 1217 (Fla. 4th DCA 2014).
Instead, the witness only had to show that he was sufficiently familiar with the creation of the demand letter to authenticate it. Calloway,157 So. 3d 1064. Here, the witness met this requirement because he testified about the loan boarding process “and properly laid the foundation for the admissibility of the loan payment history and the demand letter.” As such, the Appellate Court held, the trial court erred when it excluded the demand letter from evidence after the mortgagee had laid the proper foundation to meet the business record exception.
The Third DCA next held that the trial court also should have admitted the payoff printout as a business records exception to the hearsay rule. A party may use the business records exception to hearsay to admit printouts of data prepared for trial even if the party does not keep the printout in the ordinary course of business “so long as a qualified witness testifies as to the manner of preparation, reliability, and trustworthiness.” Cayea, 138 So. 3d at 1217. Thus, the Appellate Court held, the mortgagee proved via the printout that the borrower did not make the June 2008 payment and all subsequent payments, and the trial court erred when it ruled that the mortgagee did not prove a default.
Finally, the Third DCA also concluded that the borrower waived any affirmative defense that the mortgagee had to prove that it provided notice of the interest rate and payment change to the borrower because the borrower never pleaded this affirmative defense. Moreover, the Appellate Court held, the note contains no such requirement to notify the borrower of any change in interest rate or payment amount.
Thus, the Third DCA reversed the involuntary dismissal and remanded to enter a final judgment of foreclosure in favor of the mortgagee.