A ruling issued today, 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.
Glarum v LaSalle Bank National Association
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.
Ouch.
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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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?
Oh, pish-posh. We all know that “[m]ost people involved [in finance] are very smart, diligent, hard working and passionate about what they do,” so what is the point of actually finding any of them?
If you are implying that these servicer types cannot keep down a job because they are not smart enough, diligent enough, hard working enough or diligent enough, how can we blame banks for hiring such bad (i.e., stupid and/or uneducated) apples? Charity can backfire, don’t you know?
We should put the banks out of business if they can’t or won’t comply with the law. The businesses are people after all. They should be punished just as people who break the law.
What is law
Baby don’t hurt me
Don’t hurt me
no more
Baby don’t hurt me
Don’t hurt me
no more
What is law
Yeah
I actually don’t need Foreigner or Bill Black to help me know what law is, or even to show me, but others reading (and contributing) to this site may need some help.
This is the version I am familiar with.
http://www.youtube.com/watch?v=-6g-Vh4vcD0
Quote from “what is love” by Haddaway. Nice one. nyquil762
Always an aerobics class favorite.
Good point. If banks are corporations and corporations are people, then banks can go to jail just like people. Just roll the bus up to the company picnic. . . .
They won’t need to find the exact people who entered the data. What they will have to produce is the person responsible for supervising data entry. That person will swear in an affidavit that they are familiar with the corporation’s policies and procedures and that these policies and procedures are and have always been to enter the data in so and so a way as soon as the check arrives or as soon as the due date for the check arrives sans check. The person will testify that the corporation has policy A and policy B in place to ensure that entries are made accurately, and that policy C is in place to double check to make sure things are accurate. The person will testify that the data, when entered, is put in such and such a folder kept under operating system D and can be accessed in such and such a way. The person will testify that this is all done, and has always been done, in the corporation’s ordinary course of business. And then that person will take the print out of that folder and testify that, yes, this is a true and correct copy of the contents of that folder.
In real litigation this wouldn’t be that difficult to remedy – there are many ways to get information in evidence besides business records. For example a bank could hire an accounting expert to go over the records and offer an opinion.
The problem, of course, is that foreclosures can’t be processed for a few hundred dollars a pop if the bank has to offer evidence that would be admissible in real litigation.
Oops.
But that is just one of dozens (maybe hundreds) of erroneous assumptions about cost that made the pre-crisis mortgage industry appear profitable. Each and every erroneous assumption is an independent reason why the for-profit mortgage industry can never be restarted at rates that today’s consumers would be willing and able to pay.
Housing game over dude.
“For example a bank could hire an accounting expert to go over the records and offer an opinion.”
Unfortunately, we’re rapidly entering an era in which there is only one side of paid expertise. Good luck finding the kind of expert you want when being that kind of expert means no more gainful employment.
That is what we’re approaching here on the elite side of the equation. That’s why this whole farce is going to explode.
Yes, to still have faith in any form of system “expertise” is to remain willing to submit to kleptocrat valuations and rules and play on their field.
“For example a bank could hire an accounting expert to go over the records and offer an opinion.”
No. Expert testimony is opinion evidence (such as whether the bank’s computer system design was adequate or secure). It would be irrelevant to establish a fact — i.e., the amount the debtor actually owes.
If a creditor could call an “expert” to testify that you did or did not make your loan payments on time, we’d all be facing foreclosure or in bankruptcy.
I would be happy to litigate that issue if somebody is willing to pay me, and I would give 8 to 1 odds that I can get the information I need into evidence.
Would you do it on contingency, hot shot…? Yeah right….!
Don’t make me laugh…..
I don’t think you’re right that the ‘housing game’ can’t be profitable and still maintain due process. It was and did for many years. However, there isn’t enough money in a legitimate game for hundreds of bankers to become extremely wealthy.
The mortgage business is a business that, when properly done, employs an enormous amount of moderately skilled people for the wages one makes in a skilled profession – EXACTLY the people that are out there looking for jobs. Underwriters and appraisers and records clerks would make a living wage instead of a bond trader walking off with all the goods.
It’s called theft, fraud, whatever.
Wachovia, now Wells Fargo, had a standing policy where everyone in the retail branches became notaries. The bank paid for everything, filed everything, to make sure everyone was properly credentialed. All tellers, managers, specialists, everyone, was a notary. The bank’s loan volume for its retail, not its mortgage corporation (which did the conventional Fannie Mae, FHA/VA residential loans) regularly competed for first mortgages, whether refis, HELOCS, as well as 2nds, etc. The point is, they added this duty to all of the others handled in the branch, to perfect their position with their loans. The notarized docs could then be courier delivered to county court houses for registration of liens. The notes were held on the books of the retail operation, and generally not sold off. No commissions to loan brokers, no lengthy underwriting, but credit score driven lending with an appraisal. All internally done by employees on payroll. This was a classic vertically controlled, high volume, low cost process. Unless this kind of management practice was in place, you would have a costly series of third parties involved with no oversight among the disparate vendors, to get everything done, all the time, in order to stay in compliance.
The whole outsourcing mania, with sub contractors, vendors and the MERS frankestein broke away from the paper trail monitored vertical operation that could sort out mistakes and fraud quickly.
I am assuming that was started under the old Wachovia before they were bought/merged by the wretched First Union.
When you think of the Wachovia bust, you should really be thinking of First Union. A Bank with such a stirling reputation that they took Wachovias name.
I assume you are referring to what we knew as “First Onion”, and that derisively.
What a paragon of virtue Wells Fargo was. Strangely they ended up buying my mortgage from MERS and probably don’t have a legally enforceable claim of ownership to it. Did I mention what angels the Wells Fargo bankers are ? I can imagine their farts smell like sweet honey, fresh as the morning dew.
Use their own words to hang them. The top MERS boneheads have sworn depositions in which they deny ever purchasing any mortgages. Other than their seedy greedy part in all this, they do not own, or have an interest, in anything, ever.
They simply keep some dubious “records” that can be “updated” at any time by any member, including whatthef, and the other, usual suspects.
Now they’re pointing to nonexistent sales to establish ownership.
Sue the bejeezus out of these people!
Wells Fargo Bank, NA did/does vertically integrate on loan origination, but it did seriously short the process as well by using “automated valuation modeling” and “alternative title products,” the later of which followed the credit score driven model of originating. (See also “Alt-A”). The idea was the “60-second origination,” where a HELOC up to $250k could be executed while waiting in line to deposit a paycheck, which in my opinion, was an attempt to copy McDonald’s drive-up window goal of the 60-second order-to-bag-o-food. See http://www.courthousenews.com/2011/07/22/Insure.pdf for a description of another large bank originator experience with this.
While the brokered loan model deserves the scorn it gets, my opnion is that it is isn’t inherently worse than the bank lender directly originated loan. Direct-lending banks mighty and small are notorious for wanting everything for nothing from their vendors, and then suing them when they get what they pay for.
Back in the day, Wells had three sort of competiting origination sources: Well Fargo Bank, Wells Fargo Home Mortgage Corp., and Wells Fargo Financial (the sub-est of sub-prime).
As for Yves’s post, I have yet to check this out, but my sense is that this is not just a Florida thing. The statute cited resonates with my recollection of the hearsay rule, or more particularly the business record exception to the hearsay rule. Lacking time this morning to compare the Federal rule and a few state rules, I wouldn’t swear to this, but my hunch at the moment is that this is not peculiar to Florida and could be a huge problem in all judicial foreclosure states.
Furthermore, Yves’s subtext makes it look like a problem for ANY assembly-line payment processing system, including most bank’s who pay very poorly for these jobs.
There’s a local legend around here that one notoriously tight-fisted small bank’s CEO reviews all loans personally, many of which are on snowmobiles, motorcycles and BobCats. The lending VPs’ are charged with managing the servicing personally and calls to delinquent borrowers happen in his office on speaker phone. He is known for “saddle-bagging” (see Tom Wolfe’s “Man if Full”) both his originators and the borrowers).
All that said, I really don’t know if overall his servicing is better or if his overall porfolio performance is superior.
You are correct that “this is not just a Florida thing.” Pennsylvania Superior Court recently ruled that financial records kept by third parties are not admissible evidence under the business records exception to the hearsay rule because they are untrustworthy. The Pennsylvania court cited an Ohio decision dismissing a foreclosure action based in inherently unreliable computer records. Commonwealth Financial Systems v. Smith 2011 PA Super 30 (Pa. Super. February 14, 2011) citing In Re Foreclosure Cases, Judge Boyko, District Court for the Northern District of Ohio.
The crux of the Pennsylvania decision was that computer screen shots are unreliable and are not admissible under the business records exception to hearsay. A bank employee may offer the screen shot information in an affidavit or testimony if he/she knows who, where, when and how the information was entered. In other words it’s not necessary for the person who input the information into the computer system to testify, but it is necessary for bank employees to know where the information came from.
Where it came from + how it was handled and maintained (Could the data be altered improperly so that it’s not a “trustworthy”record of what transpired?)
yes, Adrian Loften made that point in his certification to New Jersey court investigating foreclosure irregularities. Loften stated, as a former LPS employee, that LPS records could be and were altered willy nilly by employees with perverse incentives to alter records using a different pass code, if I recall correctly.
He expects the decision to further snarl Florida’s courts.
This kind of phraseology is wrong and needs to be rejected.
No one but the banksters is snarling anyone’s courts. If anything makes it harder for them to do what they want, so that their action becomes more tortuous in some way, it’s still 100% their action which is the cause.
The same applies to all system crimes.
Right on.
Exactly. And thank you for pointing it out. We need to keep pointing it out until we crowd out all the stupid self-serving memes to the contrary.
About 10 years ago, I had a dispute with Wachovia over the balance on a commercial loan to finance church construction. Despite several requests, they seemingly couldn’t produce an amortization schedule that supported their loan balance which I thought was several thousand dollars too high. After I sent a rough outline of what I thought the amortization schedule should look like, they finally relented and changed the balance. They never provided a reasonable explanation of how such an error could have occurred.
At the time I wanted to give them the benefit of the doubt but after more reflection it seems clear that such servicing errors were part of their standard business practice – that’s how they really made money. I’ll bet very few loan amortizations are ever challenged by customers and I wonder how carefully external auditors or regulators look at them.
I recall something similar with my car loan at BB&T, in Maryland. Somehow making every payment on time, never being late, never missing a payment, still resulted in a one or two payment “overhang” at the end. When I queried I was told, “compound interest” was to blame, as if compounding wasn’t a factor in the original schedule.
This appears to be part of the business practice of most banks nowadays — outright fraud on the borrowers.
Credit card companies do the simplest version, claiming that they haven’t received payments when they have.
The mortgage companies prefer to fake their accounting, knowing that most people don’t understand computation of amortization schedules. (I do, and of course I’d compute my own with my own spreadsheet if I had such a loan.) They’ve also taken to inventing fees, knowing that most people didn’t read their original mortgage contract.
“Investment” companies usually invent illegal, undisclosed fees.
It’s amazing that we live in a world where forcing a bank to use evidence instead of hearsay is a big victory. http://abigailcfield.com/?p=297
It’s a big deal because judges will have to evaluate the quality of the evidence being offered by the bank, not just automatically admit it. Not every judge wants to do the work.
Abigail, I just read your article on the wapo baloney against schneiderman and one of your commenters offered some interesting information about how the originating banks kited checks to the mortgagor which the banks then posted as cleared when they didn’t have the cash at all. So effectively the originating lender loaned its own credit and arranged to charge interest on it. Which is illegal. Any comment on this stuff. And can the records be examined?
Check this out from yesterday’s NC:
Randy Wray: Helicopter Ben – How Modern Money Theory Responds to Hyperinflation Hyperventilators
[…]
Banks do not lend reserves. Indeed, they cannot—there is no balance sheet operation that allows banks to lend reserves to anyone except to another bank that has an account at the Fed. The reason is quite simple: reserves are an entry on the balance sheet of the Fed. When a bank lends reserves, the Fed debits that bank’s account and credits another bank’s account. You and I do not have accounts at the Fed. No bank can lend reserves to us. Period.
What do banks actually lend? Their own IOUs. Let us say that you are credit worthy (maybe a stretch, given the state of the economy—perhaps like many Americans you’ve lost your job and are delinquent in your house payments). You go to your bank and ask for a loan—for a car, a boat, a house, a TV. You provide your IOU to the bank (promising to make payments) and the bank provides you with a check (its IOU) that you hand over to the seller. The seller deposits the check and gets a credit to a demand deposit. (If it is a different bank, there is a clearing of accounts using reserves—we’ll get back to that.) In other words, banks make loans by crediting demand deposits—which are the IOUs of banks. As we MMTers say “loans make deposits”.
(When you repay a loan, the deposits are debited, or “destroyed”. You write a check, the bank debits your demand deposit and your IOU to the bank is simultaneously debited. The process is the reverse of bank lending.)
So to be clear: banks create demand deposits when they make loans; they do not lend reserves.
Now, what about check clearing? When a bank gets a check from another bank, it credits a demand deposit and sends the check to the Fed for clearing; the Fed credits that bank’s reserves and debits the reserves of the bank on which the check was written. The reserves “move” from one bank to another. Again, no reserves have escaped into the economy—they are all safely locked up at the Fed. They cannot get out except through ATM machines, in the form of cash. When you make a withdrawal of cash from your demand deposit, your bank debits your account and the Fed debits the bank’s reserves. Of course, you could just have well spent using a demand deposit—you took out the cash for convenience (perhaps to finance illegal purchases?).
Why would that be a victory?
The law is what you can get away with. Always has been, always will be. Shady dealing is legal until it’s proven illegal, and it’s the victim’s job to prove it.
– if he can.
I’m confused about the scope of the Hearsay Rule as articulated in Florida. If a valid, court-enforced collection requires proof that the amount owed ” was made by or from information transmitted by a person with knowledge”, it seems to me that almost no modern computer-driven record system can meet this standard. How could AT&T prove in court what a business owes them? The amounts are accrued by computers monitoring phone usage and entered into billing computers without human involvement. The sweep of this requirement seems to make it vulnerable to being narrowed by appeals courts.
This is not to say that there aren’t unique problems of records reliability with mortgages, many of which flow from the division of responsibility between servicers and loan owners.
If a valid, court-enforced collection requires proof that the amount owed ” was made by or from information transmitted by a person with knowledge”, it seems to me that almost no modern computer-driven record system can meet this standard. How could AT&T prove in court what a business owes them? The amounts are accrued by computers monitoring phone usage and entered into billing computers without human involvement.
They’re the ones who intentionally set up a system where no one in particular is responsible for anything. So they should be the ones who have to bear the full consequences of that.
ATT would offer testimony from its IT staff about how the computerized tracking and billing system operates AND expert testimony that the system (both human and computer) has characteristics Yves noted: “well designed from the standpoint of data integrity (for instance, entry verification, password control, and audit trails)” and security. This evidence could, of course, be challenged by opposing counsel.
Indeed, it’s easy enough to use a database which logs all transactions, with logged-in usernames, datestamps, and exact details of what was done on that transaction — with it being impossible to delete transactions without hacking. You can get such a database for free (there are multiple open-source ones). It’s straightforward to routinely burn the logged data onto non-editable media.
Hell, this is what banks are supposed to do when they send you *bank statements*.
At that point, falsifying the records involves a lot of *work*.
This is basic computer data integrity stuff, which is done by most computer projects for tracking changes to the programming code for God’s sake — you can pinpoint exactly who made every single change and when. It should be de rigeur for financial institutions.
Yet apparently it isn’t. This shows that the banks were either irredemably sloppy, or trying to get away with something (and I vote for both).
And based on Sarbanes-Oxley and other laws, all banks are required to have such control procedures in place, and their CEO/CFOs attest to the fact that this is true in their annual statements.
So unless this bank can provide such proof, then this proves that their accounting and control structure is flawed at least since the origination of this loan.
(How could you not know this if you are a fraud guy? I think you should choose a different name by now, and leave my nom de plume alone.)
Note that Orsini was not providing evidence based on his own databases or computer network.
He was offering information that he had read from the screen served up by a 3rd party’s setup. Basically, he may as well have been reading from the front page of the Wall Street Journal. He doesn’t really have any control or authority over how * that* system works or functions. He has no real knowledge of the security features or the database design. He’s just looking at a screen full of content. Then he is telling the court what he saw on the screen. That’s hearsay.
If he had built or overseen the system himself, then he could claim authority. He would be an expert and he could offer evidence.
But he didn’t.
All he can offer is hearsay, and that is not evidence in this case.
The fact that Orsini blurred the boundaries is quite interesting.
The court certainly focused on the distinction between evidence and hearsay.
That’s an interesting point — but how to get the SarBox violation cases into court, given that the DOJ is in the pocket of the bankers?
This is a messed up statement:
“So many entries are made into the computer systems regarding consumer mortgages that the data integrity may not be up to snuff” Get out of the Banking business then!
Did Banksters intentionally f$%k data integrity? The next obvious rhetorical question – why would they do this? I applaud this ruling, the more obstacles to land theft the better. The corrupt attorneys at Fannie Mae’s discretion should lose their jobs, be disbarred or at the very least fined for the amount equal to the so-called indebtedness. Perhaps a creative number of minstrels can counter attack tapping into the widely abhorrent practice of “an eye for an eye”, such as is common in the “law” where “revenge” apparently equals “justice”. This would mean that Ken Lewis, Timmy Geithner, Moynihan, Blankfein, every executive at a TBTF Information Hoarder would have their land seized, and a sale date, with a violent eviction – if necessary.
(Such is the power of dreams!)
You raise a compelling point, if Banks freely lie in court with fraudulent affidavits, why wouldn’t they freely manipulate and lie concerning all other kinds of information? In other words, it is amazing that they are trusted to be honest about anything, in court or in real life. If their charge is to seize houses “at all costs” that potentially raises the bar into criminality that hasn’t been seen before. The courts are impotent.
Proprietary databases, code and so forth. Who would ever call an individual’s unfortunate interaction with an information technology empire a “contract”? Would we then claim a hungry tiger vs a human is a fair fight? It needs to be shown conclusively that Banksters set out to wage war, which is what they did and are doing.
…why wouldn’t they freely manipulate and lie concerning all other kinds of information?
Like the information in their financial statements, for instance? Mark-to-make-believe and other fantasies and other bed time stories for the gullible and greedy.
Then in another better dream, there is the power of forgiveness, which wipes away all debt.
Well, my understanding of Hammurabi is that his code focused on reciprocity. Instead of everyone going blind, limiting the payback to the original and fraction–a single eye in exchange for his single eye–was an improvement upon everyone going blind.
But there is plenty of circumstantial evidence that bankers screwed with the data. Following Yves posts, as well as other sources about MERS, it is almost impossible to believe this set up with legitimate or met any reasonable security standards.
By bankers, I do not mean every single banker in America.
Obviously, there have been and still are good people in the banking industry. The problem is that the securitization business and the incentives were increasingly skewed for transactional profits.
If you read “EConned’s” section about Magnetar, you can guess that there were plenty of people who had enormously powerful incentives to ensure that large portions of CEO traunches filled with bad mortgages would default. If you read “The Big Short”, you’ll see the same dynamic. And if you read Michael Hudsons “The Monsters”, about predatory lending and particularly Mozilo and countrywide you will see rampant, institutional fraud. And if you read Ritholtz’s “Bailout Nation”, you’ll see that the institutions of government have become increasingly captive to forms of fraud and abuse.**
So in answer to your rhetorical question about whether bank sisters deliberately and intentionally screwed with data: yes. Unequivocally.
Not all bankers. But without any question, an entire industry was infected by fraud and made entire fortunes from perpetrating fraud.
It is small but important decisions like the one reported in this post they give me some hope this disaster will be cleaned up, and that the fraudsters will be exposed, and perhaps someday appropriately punished.
– – – – – – – – – – –
** I realize that this sounds like a lot of time spent reading, but at least one of these books is available on audible.com. The others can be skimmed pretty quickly.
Bah!
Way too many typos In that comment!
“original and fraction” should be ‘original INfraction.
And CEO should be CDO.
Time for me to take a break… Apologies!
While I’m tempted to laugh – ha-ha, I actually think this ruling is not good for us – it gives the banks a bit of a strawman to carve up for public opinion and political support. I have no interest in making it too hard for banks to obey the law – I simply want to encourage prosecutors to go after their black-letter crimes. Yes, I know foreclosures are civil law matters, but it would not surprise me to see them use this case as evidence of overzealous courts, further reducing the incentives for criminal prosecutions. Let’s be clear here, the banks have committed an astounding number of crimes, from suborning fraud at origination (liar’s loans), to all the crimes in securitization (nothing but AAA here, Mr. Paulson), to lying to their own investors about their solvency (gee, Mr. Bernanke, please hand us a few billion under the table, thank you). I don’t want a minor court case in Florida to give them any cover. They are crooks and belong in jail.
I don’t know why victims are not retaliating by evicting Banksters from their homes. They lied, they stole from you, you offered to work something out, they destroyed you, and they took your house. Folks, these are acts of violence. I know what you’re saying: “But they own the police, they have the judges in their back pockets, they own the Government, they own most of everything, including web sites that harvest data and pretend they are anti-bank” Have no fear, those sound like good odds for revolution!
Way to go! anything to stop foreclosure… but when it is best to just get rid of the debt all together to avoid foreclosure, there is nothing like a short sale.
Check out http://www.shortsalespeople.com for free short sale help and information.