By: Adam B. Brandon
In special assets litigation, a bank offers into evidence its own loan records as well as the records of other lenders who previously serviced the loan. However, Florida courts treat these records as inadmissible hearsay until the lender demonstrates that the records satisfy the business records exception to the hearsay rule. A recent decision, Holt v. Calchas, LLC , from Florida’s Fourth District Court of Appeal highlights how to do this.
The Business Records Exception to the Hearsay Rule
To satisfy Florida’s business records exception, a bank must show: (1) that the records were created near the time of the event; (2) that a person with knowledge created the records; (3) that the records were maintained in the ordinary course of business; (4) and that it was the regular practice of the bank to keep such records. While it is not difficult for a loan officer to testify about how a bank maintains its own records, authenticating files or data created by another lender can pose a special challenge.
In Holt , the Fourth District Court of Appeals rejected a bank’s attempt to enter a borrower’s payment history into evidence. During trial, the bank’s asset manager could not authenticate the borrower’s payment history which was based on the records of two prior lenders. The witness had not worked for the previous lenders and lacked personal knowledge about how the lenders serviced the loan. While the trial court judge admitted the payment history into evidence, the Fourth District Court of Appeals reversed this decision because the asset manager could not authenticate the prior lender’s records as business records.
At first glance, Holt appears unhelpful for lenders. It can be challenging for a bank to find a witness with personal knowledge about how a prior lender handled a loan. However, Holt suggests other ways to authenticate loan records from prior lenders.
Ways to Authenticate Loan Files Created by Prior Note Holders
As a threshold matter, a bank should establish procedures to double-check the accuracy of each loan file acquired from another lender. At the time a bank purchases a loan, the bank should double-check the balance information received from the prior lender, carefully review the loan file to understand the payment history, and contact the borrowers and guarantors as necessary. If these steps are taken, a loan officer may testify that the bank has mechanisms in place to verify information received from other lenders.
In Holt , the Fourth District Court of Appeals approvingly noted a case from the Second District Court of Appeals, WAMCO XXVIII, Ltd. v. Integrated Electronic Environments, Inc. , where a witness testified that he personally oversaw the collection of the loans that the bank acquired, that the bank had a process in place to verify the accuracy of the data the bank received from the prior lender, and that the bank meticulously reviewed the loan file to see if anything seemed unusual. This type of testimony allowed the Court to determine that the witness had sufficient personal knowledge to attest to the accuracy of the prior lender’s files.
The Fourth District Court of Appeals in Holt also noted that lender may use self-authenticating documents to satisfy the business records exception pursuant to Section 90.902(11), Florida Statutes. To be self-authenticating, a document must be accompanied by a declaration made under penalty of perjury by custodian of the record that the document: (1) was made at or near the time of occurrence of the matters set forth by, or from information transmitted by, a person having knowledge of those matters; (2) was kept in the course of the regularly conducted activity; and (3) was made as a regularly practice in the course of the regularly conduct activity. Certifications like this satisfy the personal knowledge requirement for records kept by the previous note holder.
There are other ways to authenticate the records of prior lenders. However, Holt affirms the value of using self-authenticating documents and establishing institutional policies to verify information received from prior lenders.