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How a Mistake Cost Bank-of-America in Foreclosure Case

Bank of America made a costly mistake in a foreclosure case when it tripped up on its own paperwork.

The bank drafted a proposed judgment that its sole witness used to testify about loan balances in a foreclosure lawsuit against West Palm Beach homeowners Natacha and Angelo Peuguero.

But it never filed the document, persuading an appellate panel to toss out more than $196,000 in interest awarded in a $697,800 final judgment by then-Palm Beach Circuit Judge Robin Rosenberg, now a federal district judge.

In the end, the bank largely came out on the winning side after the Fourth District Court of Appeal found the bank owned the note but didn't provide sufficient evidence to support the full judgment.

At trial the bank called a single witness, attorney Michelle Words, an assistant vice president and mortgage resolution associate, to prove all elements of its case. When asked to confirm the amount owed on the mortgage, Words relied on the proposed judgment drafted by the bank but not entered into evidence to testify about both the principal and interest.

Based on that testimony, Rosenberg entered the final judgment for Bank of America.

On appeal, the homeowners successfully challenged the interest calculation, and the court reversed that part of Rosenberg's decision.

"The trial court erred by basing the amount of the final judgment on a document not in evidence," appellate Judge Alan Forst wrote in a unanimous decision July 15 with Judges Martha Warner and Robert Gross concurring.

Defense attorneys representing the Peugueros said the bank could not have entered the proposed judgment into evidence even if it wanted to. Unlike a payment history that might support the lender's claim, they said the draft simply outlined the lender's wishes and was not an admissible business record.

"I have never seen before in a foreclosure court the idea that you use your proposed judgment as evidence in the case," said attorney Thomas Ice, who teamed with Ice Legal colleague Amanda Lundergan and the Mills Firm's Thomas Hall to represent the homeowners. "Talk about circularity. It is absurd to think that could ever be evidence."

Ice Legal worked the Peuguero litigation pro bono along with 24 other cases against Palm Beach County homeowners at the height of the foreclosure crisis in 2011.

Hearsay?

Despite the six-figure hit on its interest calculations, Bank of America overcame two major hurdles in an appeal that painted its executive as an unqualified robo-witness with no firsthand knowledge of the loan, while also challenging its standing to foreclose on the mortgage.

Defense attorneys argued Words' testimony about the payment history was hearsay and inadmissible because the executive did not administer the loan but instead relied on secondhand information from other employees.

In court documents, they characterized Words as a "professional testifier hired and trained by the bank to read records about which she had no personal knowledge and then regurgitate them to the fact finder at trial."

That argument fizzled before the Fourth DCA, which addressed that issue in 2012 and ruled in favor of a lender whose witness did not routinely input payment data but testified about the "preparation, reliability and trustworthiness" of loan documents presented in court.

"Likewise, the witness in this case testified that even though she was not responsible for maintaining or updating the records, she was familiar with the bank's procedures for inputting payment information into the proper computer systems," Forst wrote, affirming Rosenberg's ruling on the admissibility of Words' testimony.

"Although she was unable to give the precise name for each group in the bank's structural hierarchy that was responsible for entering various events into the computerized records, she knew that events/transactions were processed at the time of their occurrence and placed into the bank's systems, as per the standard business practice of the bank," Forst wrote. "The trial court did not find any indication that the witness's testimony was unreliable," adding the lower court did not abuse its discretion in allowing the hearsay evidence.

Lost Note

The bank also scored a victory when the appellate panel found it owned the loan even though the original note had been lost.

The loan was issued in 2007, defaulted two years later and later changed hands multiple times with unsigned notes.

Court documents show the original lender, Diversified Mortgage, endorsed the note to Countrywide FSB, which in turn transferred it to a related entity, Countrywide Home Loans, which later conveyed it back to Countrywide FSB with a series of undated endorsements. Bank of America took over the failing parent, Countrywide Financial Corp. in 2008.

At trial, Bank of America offered the note, mortgage, allonge and notice-of-default letter into evidence. Although its witness was unable to specify the exactly date that Countrywide first held the note, the Fourth DCA found the homeowners began making payments to the bank shortly after the loan's closing. Evidence also showed "Countrywide, in various corporate forms, was a holder of the note" prior to the blank endorsement, the Fourth DCA found.

But Ice insisted the appellate ruling "glosses over the distinctions between different companies."

"This is a complete departure from longstanding law. The law has always been … that different companies are just that—different companies even if they have similar sounding names and even if they are owned by the same parent company."

The appellate court found that a look of the lenders' expenses further buoyed arguments about standing and showed who owned the delinquent mortgage.

"The loan payment history indicates that Countrywide paid taxes and other fees associated with the mortgaged property in the time prior to the filing of the original complaint," Forst wrote. "This is a noteworthy factor in determining standing as financial institutions are not known to incur expenses on behalf of properties for which they do not hold an interest."

Defense attorneys called the conclusion "startling," saying mortgage servicers routinely incur costs in the course of administering loans they don't own.

"This was perplexing because it seems to imply an unawareness of modern banking practices," Ice said. "This is exactly what all servicers do. They are paid to do that even though they have no ownership interest in the loan.

Bank of America spokesman Rick Simon declined comment.

"We appreciate the opportunity to respond. However, we'll let (the) ruling speak for itself," he said.



Article from daily business review. 

CASE RESULTS

$995,000

SETTLEMENT

Jacob S.
"Wrongful Foreclosure"

$1.2 MILLION

SAVINGS

Barbara W
"Short Sale"

$248,644

SETTLEMENT

John E.
"Wrongful Foreclosure"

$248,644

DISCHARGE

Peter G.
"BK Discharge"

$877,466

SETTLEMENT

Kavika K.
"Litigation Award"

$561,000

DISCHARGED

Luis A.
"Savings"

$200,000

SETTLEMENT

Masarion .
"Jury Settlement"

$1.4 Million

VERDICT

Amir K.
"Lender Litigation"

$197,212

SETTLEMENT

Albert M.
"Lender Litigation"

$88,000

AWARD

Georgina G.
"Lender Litigation"

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