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62 Legal Industry Update State Focus FLORIDA FLORIDA FORECLOSURE LITIGATION CONTINUES TO EVOLVE With a rate almost three times the national average1, Florida continues to lead the country in foreclosure filings. Lenders and servicers should be aware of the follow- ing recent trends in litigating Florida foreclosures. Michael W. Smith, Baker, Donelson, Bearman, Caldwell & Berkowitz, PC Admitting Prior Servicer Records Into Evidence A vital part of any foreclosure case is provid- ing evidence that the loan is in default. If the case goes to trial, this is ordinarily done by intro- ducing the loan payment records into evidence. However, payment records are generally classi- fied by the court as hearsay and must therefore be authenticated by a witness who can testify that: (1) the records are kept in the normal course of the servicer; (2) it is the regular practice of the servicer to keep such records; (3) the records are made at or near the time that the payments are received; and (4) the records are made by a person with knowledge of the payments being made. When the same loan servicer has serviced the loan from origination, this is generally a simple ex- ercise that requires procuring a records custodian, loan analyst, or other knowledgeable employee of the loan servicer as a witness who can testify as how the records are maintained. However, in instances in which the default occurred with a prior servicer, the process of getting payment records into evidence can become much more complicated. A recent Florida appellate decision, Hunter v. Aurora Loan Services2, has held that an employee of the current servicer who has no direct knowledge as to how the former servicer created its payment records cannot give testimony regard- ing the former servicer's payment records, even if the current servicer is in actual possession of the former servicer's records. is is also true even if it can be shown that the former servicer used the same servicing platform as the current servicer or utilized other industry-accepted record-keeping standards. e net effect is that, in this type of scenario, the lender will be unable to prove the default and the case will be dismissed. Judges are dismissing cases with increased regularity due to this issue, which is causing lenders to incur additional costs by having to restart the entire foreclosure action and, due to the reciprocal fee provisions provided by Florida law, to possibly have to pay the borrower's attorney's fees as well. Recognizing these issues well ahead of time will allow the lender to make arrangements to avoid these pitfalls at trial. One option is to obtain a witness from each servicer that ser- viced the loan. is option allows the lender to provide live testimony as to each set of business records, but it can obviously be cost- prohibitive. A second option is to locate a loan analyst or records custodian employed by the current servicer who also previously worked for the prior servicer. is is frequently a viable option due to portability of employees between servicers. Lastly, Florida law provides for a third option by which the current servicer can present a certification of the prior payment records which has been executed by a records custodian of the former servicer. e law requires the lender to give plenty of advance notice if such a certification is going to be used at trial, but with foresight and preparation, this option can provide a cost-effective way to successfully introduce prior payment records into evidence. Liability For Past-Due Association Assessments Due to the large number of condominium associations and homeowners' associations in Florida, foreclosing lenders are often faced with issues regarding liability for past-due assess- ments. Typically, borrowers in default on their mortgage obligations are also not current on their obligations to the association. Once a foreclosure is completed, it is not uncommon for the association dues to be delinquent by several years. Florida law provides a statutory "safe harbor" procedure that limits the liability of a first mortgagee for past due association assess- ments. Assuming the lender properly named the association in the underlying foreclosure action, liability for past-due assessments is gen- erally limited to the lesser of (1) twelve months' worth of dues or (2) one percent of the original mortgage. On their face, these provisions can save the lender tens of thousands of dollars in past-due association costs. However, despite this seemingly straightfor- ward statutory scheme, lenders who obtain title through foreclosure are being increasingly pre- sented with estoppel letters from associations that demand far more than the statute seems to allow. e basis for these inflated estoppel letters is usu- ally that the foreclosing lender did not first obtain an assignment of mortgage prior to foreclosure, so the association contends there is no "record proof " that the lender is the first mortgagee. e associations argue that a recorded assignment of mortgage is required to obtain safe harbor protec- tion. ese disputes often lead to additional litigation over the total amount owed. Fortunately, a recent appellate case, Beltway Capital, LLC v. e Greens COA, Inc.3 has clarified that a lender who held a mortgage when the lender acquired title to the secured property is entitled to the safe harbor provisions as a first mortgagee regardless as to whether there is also a recorded assignment of mort- gage in the public records. is recent case law should drastically reduce the number of disputes over the proper payoff amounts in estoppel letters, although best business practices support the continued filing of assignments of mortgage prior to filing a foreclosure.

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