The following is a case update prepared by Dan Schechter, Professor Emeritus, Loyola Law School, Los Angeles, analyzing a recent decision of interest:
The Pennsylvania Supreme Court has held that a mortgage assignee’s litigation manager was able to authenticate the business records created by the original lender, depending on the circumstances. [Bayview Loan Servicing LLC vs. Wicker, 2019 Westlaw 1388516 (Pa.).]
Facts: A home mortgage was transferred from the original lender to an assignee. During the foreclosure action, the assignee’s litigation manager sought to testify concerning the business records generated by the original lender. The mortgagors objected on the ground that the litigation manager’s testimony was hearsay and without foundation. The trial court overruled the objection, reasoning that since the assignee entity routinely worked with the originating lender, the assignee’s litigation manager was competent to testify about the original lender’s recordkeeping practices. An intermediate appellate court affirmed, and the Pennsylvania Supreme Court granted limited review to consider whether the litigation manager could authenticate the underlying documents.
Reasoning: The mortgagors argued that the litigation manager did not have first-hand knowledge of the assignor’s business practices. The mortgagors also argued that clerical errors are rampant in the mortgage servicing business and that a strict application of the hearsay rules would ensure the reliability of the evidence submitted by lenders and their assignees.
The court ruled that under the circumstances, the assignee had satisfied the “business records” exception to the hearsay rule:
[The litigation manager] testified that he was personally acquainted with the recording process used by [the original lender] as it was the same process used by [the assignee], which allowed him to speak to whether the information was likely to have met the requirements of [the applicable statute], including that the record was made at or near the time of the event and that it was kept in the regular course of business. Additionally, [the litigation manager] explained that [the assignee] engaged in an extensive process of “boarding” the documents, during which it checked the various figures. It is also relevant that [the assignee] did not merely place [the original lender’s] documents in its files but relied upon the documents for its business.
The court later made it clear that it was not adopting a wholesale rule in favor of the admission of third-party hearsay under the business records exception:
[W]e neither adopt a bright line rule forbidding the authentication of documents recorded by a third party, nor do we endorse an automatic incorporation doctrine. Instead, we will continue to allow our trial courts to utilize their broad discretion in evidentiary matters by applying the business record exception . . . to determine if the witness “can provide sufficient information relating to the preparation and maintenance of the records to justify a presumption of trustworthiness” subject to the opponent rebutting the evidence with any other circumstances indicating a lack of trustworthiness.
Author’s Comment: I am troubled by this “facts and circumstances” application of the business records exception. Assignments of mortgages are ubiquitous. Therefore, this holding guarantees messy hearings into the way in which each assignee’s authenticating witness is (or is not) familiar with the record-keeping practices of the original lender. If this rule results in uncertainty and greatly increased litigation costs, I would not be surprised to see federal legislation preempting contrary state law (both statutory and case-made) and conferring blanket admissibility on third-party hearsay under the business records exception in the context of mortgage enforcement.
Would such a rule tilt the playing field too much in favor of the lending industry? No. There is a sharp difference between (1) the admissibility of the assignor’s business records and (2) the weight to be given to those records. Thus, for example, if a borrower wishes to challenge the contents of the original lender’s records proffered by the assignee, the borrower would still be free to do so, even if the threshold issue of admissibility were resolved in favor of the assignee.
Given the ongoing uncertainty surrounding this issue, assignees should demand an affidavit executed by the assignor authenticating the assignor’s business records. That sounds like a tall order, but it might not be: since mortgages are assigned in huge bundles (and are often part of an ongoing relationship between the assignor and the assignee), a comprehensive master declaration from the assignor should be sufficient to comply with the business records exception to the hearsay rule.
For discussions of cases dealing with related issues, see:
- 2016-48 Comm. Fin. News. NL 96, Declaration Filed by Bulk Debt Assignee Fails under Business Records Exception to Hearsay Rule Because Declarant Lacks Knowledge of Assignor’s Record-keeping Practices.
- 2015-39 Comm. Fin. News. NL 79, Assignee of Credit Card Debt Cannot Authenticate Business Records Created by Credit Card Issuer.
- 2015-52 Comm. Fin. News. NL 105, Declaration of Debt Buyer’s Custodian of Records is Sufficient to Satisfy Business Records Exception to Hearsay Rule, Even Though Custodian Lacks Personal Knowledge of the Original Transaction.
These materials were written by Dan Schechter, Professor Emeritus, Loyola Law School, Los Angeles, for his Commercial Finance Newsletter, published weekly on Westlaw. Westlaw holds the copyright on these materials and has permitted the Insolvency Law Committee to reprint them.