Wallace v. Nationstar Mortg.

378 So.3d 674

James Daniel WALLACE and Alice Sedena Allen, Appellants,

v.NATIONSTAR MORTGAGE LLC d/b/a Mr. Cooper, Successor by Merger to Pacific Union Financial, LLC, Appellee.

No. 2D23-926

District Court of Appeal of Florida, Second District.

January 17, 2024

Appeal from the Circuit Court for Pinellas County; Thomas M. Ramsberger, Judge.

Malcolm E. Harrison and Michelle Moore of Law Office of Malcolm E. Harrison, P.A., Wellington, for Appellants.

Amber Kourofsky of Troutman Pepper Hamilton Sanders LLP, Atlanta, Georgia; and Alec Hayes of Troutman Pepper Hamilton Sanders LLP, Atlanta, Georgia (substituted as counsel of record) for Appellee.

MORRIS, Judge.

James Wallace and Alice Allen (the borrowers) appeal a final judgment of foreclosure entered against them and in favor of Nationstar Mortgage LLC after a bench trial. We reverse the final judgment because the trial court erred in admitting an inadmissible business record that constituted the only evidence that Nationstar had complied with a condition precedent to filing suit.

The borrowers executed a note and mortgage in August 2017. The holder of the note, Pacific Union Financial, LLC, filed a foreclosure complaint against the borrowers in August 2018, alleging that the borrowers had defaulted on their loan in March 2018. Pacific Union later merged with Nationstar. After a bench trial in November 2022, the trial court entered a judgment of foreclosure in favor of Nationstar in April 2023.

On appeal, the borrowers raise several issues. We find merit only in their argument that the trial court erred in admitting a record that was inadmissible under the business records hearsay exception to show that Nationstar fulfilled a condition precedent to foreclosure.

[1–3] In their answer to the complaint, the borrowers asserted that Nationstar failed to comply with 24 CFR § 203.604 (2018), a condition precedent to foreclosure of their FHA loan. That regulation provides in relevant part:

(b) The mortgagee must have a face-to-face interview with the mortgagor, or make a reasonable effort to arrange such a meeting, before three full monthly installments due on the mortgage are unpaid. If default occurs in a repayment plan arranged other than during a personal interview, the mortgagee must have a face-to-face meeting with the mortgagor, or make a reasonable attempt to arrange such a meeting within 30 days after such default and at least 30 days before foreclosure is commenced

….

(c) A face-to-face meeting is not required if:

….

(5) A reasonable effort to arrange a meeting is unsuccessful.

(d) A reasonable effort to arrange a face-to-face meeting with the mortgagor shall consist at a minimum of one letter sent to the mortgagor certified by the Postal Service as having been dispatched. Such a reasonable effort to arrange a face-to-face meeting shall also include at least one trip to see the mortgagor at the mortgaged property, unless the mortgaged property is more than 200 miles from the mortgagee, its servicer, or a branch office of either, or it is known that the mortgagor is not residing in the mortgaged property.

24 CFR § 203.604.¹ "[A] mortgagee’s ability to foreclose upon an FHA-backed loan is cabined by these federal regulations." Kuhnsman v. Wells Fargo Bank, N.A., 311 So. 3d 980, 981-82 (Fla. 2d DCA 2020). "[T]he face-to-face interview [is] a condition precedent to foreclosure." Id. at 984 (relying on Derouin v. Universal Am. Mortg. Co., 254 So. 3d 595 (Fla. 2d DCA 2018)). However, "a lender complies with the regulation [requiring a face-to-face interview], despite not conducting the interview, so long as it demonstrates its ‘reasonable efforts’ to do so." Id. at 985. As laid out in § 203.604(d), a "reasonable effort" consists of one letter sent to the mortgagor and at least one trip to see the mortgagor at the property. See Kuhnsman, 311 So. 3d at 982 (quoting § 203.604(d)).

The dispute in this case centers on whether a trip was made to see the borrowers at their home. At trial, Nationstar introduced a record to show that a field agent conducted a trip to the borrowers’ home. The record is a document titled "Pacific Union F2F Results." The document notes that contact was attempted but was not made with the borrowers at their home on April 25, 2018, at 7:22 p.m. The borrowers’ counsel objected to this document on the basis of hearsay, lack of foundation, and lack of personal knowledge. He argued that the witness, an employee for Nationstar, was unable to explain how the field agent notes were verified and that the record was therefore not trustworthy. The trial court ruled that the record was admissible based on the "onboarding process as testified by the witness."

[4–9] "The standard of review for the admissibility of evidence is abuse of discretion." Deutsche Bank Nat’l Tr. Co. v. Sheward, 245 So. 3d 890, 892 (Fla. 2d DCA 2018) (first citing Channell v. Deutsche Bank Nat’l Tr. Co., 173 So. 3d 1017, 1018 (Fla. 2d DCA 2015); and then citing Bayview Loan Servicing, LLC v. Kay, 227 So. 3d 779, 781 (Fla. 1st DCA 2017)). But "the question of whether evidence meets the statutory definition of hearsay is a matter of law and thus subject to de novo review." Id. (citing Burkey v. State, 922 So. 2d 1033, 1035 (Fla. 4th DCA 2006)).

To be admissible [as business records under section 90.803(6)(a), Florida Statutes], the movant is required to establish the following:

(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.

Yisreal v. State, 993 So. 2d 952, 956 (Fla. 2008) (citing Jackson v. State, 738 So. 2d 382, 386 (Fla. 4th DCA 1999)).

Additionally, in those instances where a business takes custody of another business’s records and integrates them within its own records, "the acquired records are treated as having been ‘made’ by the successor business, such that both records constitute the successor business’s singular ‘business record.’ " Bank of N.Y. v. Calloway, 157 So. 3d 1064, 1071 (Fla. 4th DCA 2015) (quoting United States v. Adefehinti, 510 F.3d 319, 326 (D.C. Cir. 2007)). "[A] witness can lay the foundation for business records of another company," Bayview Loan Servicing, 227 So. 3d at 781, and "[t]here is no requirement that the records custodian have personal knowledge of the manner in which the prior servicer maintained and created its business records." Sas v. Fed. Nat’l Mortg. Ass’n, 165 So. 3d 849, 851 (Fla. 2d DCA 2015) (citing WAMCO XXVIII, Ltd. v. Integrated. Elec. Env’ts, Inc., 903 So. 2d 230, 233 (Fla. 2d DCA 2005)). What is required, however, is independent verification of the loan payment history. WAMCO XXVIII, 903 So. 2d at 233; Holt v. Calchas, LLC, 155 So. 3d 499, 504 (Fla. 4th DCA 2015). A successor business may establish the trustworthiness of records "by independently confirming the accuracy of the third-party’s business records upon receipt." Bank of N.Y., 157 So. 3d at 1072.

Id. at 893 (second and third alterations in original) (holding that witness’s "testimony set forth the procedures utilized by [servicer] to independently verify the accuracy of the payment history records from the prior loan servicer" and that trial court therefore erred in excluding payment history).

[10, 11] A record does not constitute an admissible business record if "the sources of information or other circumstances show lack of trustworthiness." § 90.803(6)(a), Fla. Stat. (2022).

Given this trustworthiness threshold, mere " ‘reliance by the [incorporating business] on records created by others, although an important part of establishing trustworthiness, without more is’ " insufficient. State v. Fitzwater, 122 Hawai’i 354, 227 P.3d 520, 532 (2010) (quoting 2 Kenneth S. Broun et al., McCormick on Evidence § 292, at 318 (6th ed. 2006)). In most instances, a proponent will clear this hurdle by providing evidence of a business relationship or contractual obligation between the parties that ensures a substantial incentive for accuracy. See, e.g., Matter of Ollag Constr. Equip. Corp., 665 F.2d 43, 46 (2d Cir. 1981) ("[B]usiness records are admissible if witnesses testify that the records are integrated into a company’s records and relied upon in its day-to-day operations." (citations omitted)); White Indus., Inc. v. Cessna Aircraft Co., 611 F. Supp. 1049, 1061 (W.D. Mo. 1985) (finding the "indicia of trustworthiness" apparent "where the reporting duty arises by way of a continuing business relationship between two independent business entities"). In the alternative—as tacitly applied in WAMCO—the successor business itself may establish trustworthiness by independently confirming the accuracy of the third-party’s business records upon receipt. See, e.g., Simien v. Unifund CCR Partners, 321 S.W.3d 235, 243 (Tex. App.-Houston [1 Dist.] 2010) ("[A] document created by one business may become the records of a second business if the second business ‘determines the accuracy of the informa-tion generated by the first business.’ " (quoting Martinez v. Midland Credit Mgmt., Inc., 250 S.W.3d 481, 485 (Tex. App.-El Paso 2008, no pet.))).

Calloway, 157 So. 3d at 1071-72 (alterations in original).

Courts have held that records from a prior servicer or bank are admissible as business records when the witness for the current servicer or bank specifically testifies regarding the current servicer’s or bank’s process of verifying the information from the prior servicer or bank. See, e.g., WAMCO XXVIII, 903 So. 2d at 233 (holding that the loan payment histories of a prior servicer are admissible under section 90.803(6) when they are relied on by a successor servicer who establishes that it independently verified the accuracy of the payment histories and its verification procedures demonstrate that the records are trustworthy); Azran Miami 2 LLC v. Deutsche Bank...