DS News

DS News January 2021

DSNews delivers stories, ideas, links, companies, people, events, and videos impacting the mortgage default servicing industry.

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Page 43 of 99

42 transferred." e federal statute further states, within subsection (c), that, "if requested by a person against which enforcement is sought, the person seeking to enforce the transferable record shall provide reasonable proof that the person is in control of the transferable record. Proof may include access to the authoritative copy of the transferable record and related business records sufficient to review the terms of the transferable record and to establish the identity of the person having control of the transferable record." e difficulty begins with the admission of the "related business records" to prove the control of the transferable record at the time of the commencement of the subject foreclosure action. In New York, business records are governed by CPLR 4518(a), which defines such a record as "any writing or record, whether in the form of an entry in a book or otherwise, made as a memorandum or record of any act, transaction, occurrence or event, shall be admissible in evidence in proof of that act, transaction, occurrence or event, if the judge finds that it was made in the regular course of business and that it was the regular course of such business to make it, at the time of the act, transaction, occurrence or event, or within a reasonable time thereafter." e statute further enumerates the admissibility requirements of electronic records by stating that, "an electronic record, used or stored as such a memorandum or record, shall be admissible in a tangible exhibit that is a true and accurate representation of such electronic record. e court may consider the method or manner by which the electronic record was stored, maintained, or retrieved in determining whether the exhibit is a true and accurate representation of such electronic record." While the path to admissibility is clearly enumerated, there are obstacles along the way. For example, what if the loan servicer and/or the plaintiff did not create these records because they were not involved in the origination of the loan nor the transfer process through the MERS registry? If a prior entity was involved, the current servicer will not have the requisite knowledge as to how the record was created, stored, or maintained before the loan was transferred to the current plaintiff and/ or servicer. is lack of knowledge is a hurdle to proving the plaintiff 's standing and to the plaintiff 's entitlement to judgment. Recently, the Second Department of New York's Appellate Division held that a loan servicer could testify to the records that were created by a different entity provided that the servicer proved that the records were incorporated into its system(s) of records and relied upon in the daily servicing of the subject loan. In Bank of N.Y. Mellon v. Gordon, 171 A.D.3d 197 (2nd Dept. 2019), the court specifically held that "such records may be admitted into evidence if the recipient can establish personal knowledge of the maker's business practices and procedures or establish that the records provided by the maker were incorporated into the recipient's own records and routinely relied upon by the recipient in its own business." is holding is supported by New York's Court of Appeals in People v. Cratsley, 86 N.Y.2d 81 (1995), as well as the other Appellate Divisions in previous decisions. While the initial benefit of these decisions was to allow new servicers to testify to the records that were created by prior servicers, they also serve as an outline as to how to properly admit eNotes and the MERS registry without requiring a witness and/or affidavit from MERS. Upon receipt of the servicing rights, the loan servicer should upload a copy of the eNote and the MERS registry to its own systems. ese documents should be reviewed to ensure the existence of the obligation, as well as the plaintiff 's standing. is review serves as the plaintiff 's/servicer's reliance on the incorporated records for the daily servicing of the loan. e witness will be asked to discuss his/her knowledge and training on the servicer's systems of record to build the proper foundation to admit the records into evidence. Once the foundation is laid, the witness will have to discuss the onboarding process that is undertaken when the records are received, and the ensuing review process, including the incorporation of the records into the servicer's systems, and the servicer's reliance on the records in the subsequent servicing of the loan. It is important that the witness testify that corrections would be sought if any errors or omissions are discovered during the onboarding process. is testimony creates an indicium of reliability of the records and contributes to the admissibility of the records. ese statutes and cases apply only to New York State. If your state does not allow the incorporation/reliance testimony, the plaintiff will have to produce a witness who has personal knowledge of the MERS' registry and how entries are made and maintained within the registry. Otherwise, the records will be deemed as inadmissible hearsay. As technology, statutes, and case law continuously change, it is incumbent upon the default servicing industry to remain vigilant as to such changes. e increased knowledge and ability to use technology to the industry's advantage will inevitably result in shorter timelines, fewer undue delays, and a greater rate of success in the litigation process. Aboout the Legal leage 100 Special Initiatives Working Group: For more information about this report or Legal League 100, please contact: Rachel Williams, Executive Director of Memberships, at Rachel.Williams@eFiveStar.com. e Legal League would like to recognize the following members of the Special Initiatives Working Group for their contribution to this project. Ryan Bourgeois Michelle Gilbert Brian Goldberg Marissa Yaker and Seth Greenhill Legal Industry Update

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