Editor: David Reiss
Brooklyn Law School

May 9, 2016

Mortgage Servicers’ Unclean Hands

By David Reiss

Judge Butchko

Judge Butchko

Judge Butchko, sitting in a Florida Circuit Court, granted a homeowner’s motion for involuntary dismissal of a foreclosure because of the servicer’s unclean hands. There is a lot of interest in the order, but it is worth quoting at length the Court’s discussion of the testimony of Sherry Keeley, the current servicer’s employee. Ms. Keeley is an employee of Ocwen, a servicer that has been in a lot of trouble recently.

Ms. Keeley was produced by the plaintiff to introduce Ocwen’s business records, including those of Litton Loan Servicing, a prior servicer:

30.  Ms. Keeley testified the loan boarding process involved two steps. [“Loan boarding” refers to the process of moving loan information from the previous servicer’s system to the new servicer’s system.] First, Ocwen confirmed that the categories for each column of financial data from the prior servicer matched or corresponded to the same name Ocwen used for that same column of financial data. Second, Ocwen confirmed the figures from the prior servicer transferred over such that the top figure from Litton became the bottom figure for Ocwen. The court notes that when testifying about Ocwen’s boarding process, Ms. Keeley appeared to be merely repeating a mantra or parroting what she learned the so called boarding process is without being able to give specific details regarding the procedure itself. Her demeanor at trial although professional, was hesitant and lacking in confidence in this court’s estimation as the trier of fact.

32. Ms. Keeley admitted there was absolutely no math done to check the accuracy of the prior servicer’s records or numbers. The loan boarding process’ verification to ensure the trustworthiness of the prior servicer’s records is therefore a legal fiction. In this case, Ocwen simply accepted the prior servicer’s numbers as true without any effort to audit or confirm their accuracy. The only confirmation appears to have been the check a carryover of figures from one servicer’s columns to the columns of another.

33. Moreover, Ms. Keeley testified loans with “red flags” would never be allowed to board onto Ocwen’s system until the prior servicer resolved them. However, Ms. Keeley also admitted she has witnessed loans that went through the boarding process that had misapplied payments and substantially incomplete loan payment histories from the prior servicer.

34. The existence of misapplied payments and incomplete payment histories in loans that went through the loan boarding process contradicts any suggestion that the boarding process identifies red flags and/or clears them, such that Courts can trust the reliability of their records.

35. To support the court’s concern regarding the lack of foundation of the so called boarded records in this case, the Court takes Judicial Notice of the Consent Order entered in the matter of Ocwen Financial Corporation, Ocwen Loan Servicing, LLC by the New York State Department of Financial Services dated December 22, 2014. This Consent Order documents Ocwen’s practice of backdating business records that it failed to fully resolve “more than a year after its initial discovery.”

36. Therefore, the Court finds Plaintiff failed to inquire into the accuracy, reliability or trustworthiness of the prior servicer’s payment history. Ocwen’s own payment history merely accepts the prior servicer’s records as accurate without question unless the numbers were challenged at some point after the loan boarding process. That is simply not enough to for this court to accept the prior servicer’s records as trustworthy and admit them into evidence here. A mere reliance by a successor business on records created by others, although an important part of establishing trustworthiness, without more is insufficient. As such, this Court exercised its discretion to sustain Defendant’s objections to both payment histories as inadmissible hearsay. Therefore Plaintiff lacked evidence of an essential element of proof, damages, warranting an involuntary dismissal. (7-8, footnote and citation omitted, emphasis added)

This passage contains within it a microcosm of what is remains wrong with the servicing industry, notwithstanding massive settlements and increased regulatory attention being paid to this this hidden corner of the mortgage industry:

  • employees who recite from scripts instead of understanding the records before them
  • feeble attempts confirm the accuracy of the amounts that borrowers are told that they owe
  • contradictory statements that tend to hide facts that benefit the servicer
  • history of missapplied payments and incomplete payment histories
  • backdated business records
  • failure to resolve identified problems, such as backdated business records

Ultimately, the Court said that it found the servicer was not trustworthy. That is a big problem for homeowners. In this case, at least, it is also a big problem for a servicer. The servicer industry as a whole remains untrustworthy. Regulators have a lot more to do before distressed homeowners should feel that they are being treated fairly by them.


HT April Charney

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