Over the last few years, financial institutions have been forced to modify their policies and procedures to ensure that they are able to demonstrate compliance with notice provisions contained in residential mortgages prior to initiating foreclosure actions. Several recent decisions have addressed the issue of whether sufficient evidence was presented to establish that the creditor had satisfied the condition precedent under the mortgage requiring that the creditor provide the borrower with a written notice of acceleration. These recent decisions make it clear that financial institutions must formulate policies and procedures to ensure that they are able to present suitable evidence of compliance with the standard notice provisions of residential mortgages.
In Allen v. Wilmington Trust, N.A., the Florida Court of Appeals recently addressed the issue of whether a creditor had presented evidence sufficient to establish compliance with a provision in a residential mortgage that required the creditor to give written notice of acceleration. During the trial, the creditor presented the testimony of a case manager employed by the current loan servicer regarding the boarding process the servicer used to verify the records of the prior servicer in order to establish that notice of acceleration was mailed. At the close of the evidence, the trial court rejected the borrower’s argument that the creditor had failed to establish that it met the condition precedent of giving notice of acceleration and concluded that the case manager’s testimony was sufficient to establish that the acceleration letter was mailed.
The Second District Court of Appeals reversed, finding that the servicer did not offer proof that the letter had in fact been mailed. The appellate court held that a creditor must present additional evidence to establish that the notice was actually mailed, such as proof of regular business practices by a person with personal knowledge of such practices, an affidavit swearing that the letter was mailed, or a return receipt. The case manager, who was never employed by the predecessor servicer, admitted that she was not familiar with its predecessor’s mailing practices. Thus, the appellate court held that because neither the boarded documents nor the case manager’s testimony established mailing, the creditor did not meet its burden of proving it satisfied the condition precedent of giving notice of acceleration and remanded for dismissal.
Similarly, in Edmonds v. U.S. Bank N.A., among the documents introduced at trial were several acceleration letters identifying the prior servicer as the entity giving such notice. A default specialist for the successor servicer testified that he knew the letters had been mailed because they were addressed to the borrowers at the property address, adding that it “is the business practice to send letters on loans that are delinquent and these letters are sent every month.” Significantly, the default specialist, who had never been employed by the prior servicer, conceded that he had no knowledge of the prior servicer’s mailing practices. At the conclusion of the creditor’s case, the trial court rejected the borrower’s argument that the creditor had failed to establish that that the acceleration letters had in fact been mailed and entered a final judgment of foreclosure. On appeal, the court reversed the judgment after finding that the creditor had failed to show that the acceleration letters were mailed in accordance with the terms of the mortgage.
In another recent case, JPMorgan Chase Bank N.A. v. Jean Pierre, the creditor sought to introduce the acceleration letter sent to the borrowers by its predecessor. At trial, the plaintiff produced a witness that was a case manager for the loan servicer who “was extensively trained” as to both the original lender and the creditor’s record-keeping policies and procedures. The case manager testified that it was the regular business practice of the original lender to have its collections department create an acceleration letter, print and mail out the letter to the borrower, and then upload the letter into its imaging system. She also testified that the loan servicer’s boarding department verified the acceleration letter’s accuracy and that it was actually mailed by checking with the prior servicer and/or cross-referencing the collection and servicing notes. After the trial court excluded the acceleration letter based on the borrowers’ hearsay objection and entered judgment in favor of the borrowers, the Fourth District Court of Appeals found that the trial court erroneously excluded the notice of acceleration. Citing another recent decision, the appellate court determined that the notice of acceleration should have been admitted, because the witness was “well enough acquainted with the activity to provide testimony.” Significantly, the appellate court highlighted the witness’ familiarity with how the original lender and servicer created, delivered, and stored default letters within its normal course of business. Additionally, she made clear that the current servicer’s boarding department verified the default letter’s accuracy and that it was actually mailed by checking with the prior servicer and/or cross-referencing the collection and servicing notes. In doing so, the appellate court appears to have provided creditors with a roadmap for the type of evidence that will be necessary to satisfy a condition precedent under the mortgage requiring that the creditor provide the borrower with a written notice of acceleration prior to the initiation of a foreclosure action.
These recent decisions highlight the need for successor creditors and servicers to review their policies and procedures related to boarding service transferred loans and focus on taking the steps necessary to avoid evidentiary issues related to proving that required notice was actually mailed by the prior servicer. Because direct evidence of mailing, such as a return receipt, mailing log, or affidavit of mailing, is not always available, successor creditors and servicers must ensure that they have a witness who is familiar with and has personal knowledge of their predecessor servicer’s customs and practices related to mailing required notices. To be sure, creditors that fail to consider these future evidentiary issues in formulating their policies and procedures do so at the risk of significant litigation and regulatory costs.