Tuesday, September 13, 2011

Florida Foreclosure Shambles

The website naked capitalism has been cooking with gas lately and this essay discussing a new ruling likely to bog Florida banks even deeper in the mire of foreclosure comes in the wake of all the other excellent reporting on that site.

A ruling issued last week, Glarum v. LaSalle Bank, by the court of appeals for Florida’s fourth district, may have thrown a really big wrench in the foreclosure machinery state-wide. I say “may” because this ruling has such big implications that the bank has good reason to appeal to try to get the decision reversed or narrowed.

The ruling itself is remarkably straightforward and damning. The trial court had issued a summary judgment for foreclosure. The appeals court reversed it because the evidence submitted by LaSalle Bank to establish the amount due and owing was inadequate under Florida’s rules of civil procedure.

How did the bank try to prove what the borrowers owed? A La Salle staffer, Ralph Orsini looked at the computer records and provided a deposition. That doesn’t cut it. From the ruling:

Pursuant to section 90.803(6)(a), Florida Statutes, documentary evidence may be admitted into evidence as business records if the proponent of the evidence demonstrates the following through a record’s custodian:

(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.

Yisrael v. State, 993 So. 2d 952, 956 (Fla. 2008).

Orsini did not know who, how, or when the data entries were made into Home Loan Services’s computer system. He could not state if the records were made in the regular course of business. He relied on data supplied by Litton Loan Servicing, with whose procedures he was even less familiar. Orsini could state that the data in the affidavit was accurate only insofar as it replicated the numbers derived from the company’s computer system. Despite Orsini’s intimate knowledge of how his company’s computer system works, he had no knowledge of how that data was produced, and he was not competent to authenticate that data. Accordingly, Orsini’s statements could not be admitted under section 90.803(6)(a), and the affidavit of indebtedness constituted inadmissible hearsay.


You can see what a mess this ruling creates. So many entries are made into the computer systems regarding consumer mortgages that the data integrity may not be up to snuff. In other areas of their retail businesses, banks process high volumes of transactions with considerable attention to data accuracy, but that discipline seems to be remarkably weak in the servicing business. In addition, even if the systems were well designed from the standpoint of data integrity (for instance, entry verification, password control, and audit trails), its procedures may not map well onto the requirements of the court’s evidentiary requirements.

At a minimum, this ruling makes foreclosures in Florida more costly. It may create insurmountable hurdles in many cases. From the Palm Beach Post (hat tip Lynn Szymoniak):

Tom Ice, whose firm Ice Legal represents the homeowner, said Wednesday’s decision hits at the essence of the nation’s foreclosure robo-signing scandal in which tens of thousands of foreclosure court documents were signed by people swearing that they had personal knowledge of cases when they did not….

“Bank officers cannot simply regurgitate what they read off computer printouts,” Ice said. “This has been a major battleground in foreclosure cases.”…

The appeals court ruling was called “rock solid” by Sarasota-based attorney Henry Trawick, an expert on Florida’s judicial rules and author of Trawick’s Florida Practice and Procedure.

He said a valid affidavit of indebtedness would have to be sworn to by the person who actually entered the information into the computer system. He expects the decision to further snarl Florida’s courts.

Given the turnover at servicers, tell me the odds that people who made the entries are still in the employ of the banks. And how, pray tell, will they find the ones who quit? I suspect that if this ruling stands, well see Son of Robosigning. Despite the very high level of turnover in servicing (one expert estimated it at 40% annually), people who made data entries years ago will still miraculously be in the employ of the bank and able to make the needed affidavits. entries in servicing, which has a very high turnover

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