September 13th, 2011

Foreclosure claim? Prove it!

by Peter Miller


Bank Owned Sale SignA few months back I received a letter from a defunct video store explaining that I owed $160. This demand letter received a suitable response which I sent to the debt collector by certified mail with a return receipt requested.

What was the response? In essence, it was: Prove it.

Unpaid bills can lead to credit report dings, so the video store claim required a proper and prompt response.

I owe you? Prove it!

A little online research suggested that under the Fair Debt Collection Practices Act and the Fair Credit Reporting Act, debt collectors have to do more than send a bill, they have to verify the debt and have a copy of the original signed contract. It’s not enough to simply have an account statement–a statement which could be wrong.

I bring this up because a Florida court has essentially ruled that mortgage lenders–like video stores–also have an obligation to validate debts.

The borrowers’ appeal

Anita and Gary Glarum are Florida homeowners facing foreclosure. Their lender says they owe a large amount of money.

A foreclosure affidavit was filed on behalf of the lender. The affidavit claimed that the homeowners owed more than $340,000–a figure which came from the loan servicer’s computer files.

Statements from Florida’s 4th District Court of Appeal said the following regarding the signer of affidavit, Ralph Orsini:

Orsini did not know who, how, or when the data entries were made into Home Loan Services’s computer system. He could not state if the records were made in the regular course of business. He relied on data supplied by Litton Loan Servicing, with whose procedures he was even less familiar. Orsini could state that the data in the affidavit was accurate only insofar as it replicated the numbers derived from the company’s computer system. Despite Orsini’s intimate knowledge of how his company’s computer system works, he had no knowledge of how that data was produced, and he was not competent to authenticate that data. 

OK, then the foreclosure cannot go forward without a few baseline specifics, such as how much is owed and which payments were missed.

We can’t trust the computer

We don’t know whether the Glarum decision will be reversed in some way or whether it’s a precedent that will be widely followed. It does, however, raise several interesting points:

First: We sure do depend on computers. They produce lots of nicely-formatted data and information. But how data originally got into the system is sometimes not so clear. In effect, if the entry data is wrong the output will also be wrong.

Foreclosures are much more complicated

Second: Foreclosures used to be automated affairs that sailed through the legal system in a few minutes. Lenders rarely lost. Did you pay or didn’t you?  Now the system is more complex: Does the “lender” actually own the note?

If yes, where is it? Did the borrowers fail to make their payments? Which payments? Did the lender charge the right mortgage rates? Were the borrowers offered a modification?

In many states one must also ask if the borrowers were offered the opportunity to mediate.

We need standards to prove foreclosures

The Florida decision, if it stands, is actually good for lenders. It sets out standards for lenders to prove their foreclosure claims–and it also says that a computer print-out by itself is not enough to throw someone out on the street.

Oh yes, about that defunct video store…About two weeks after sending our brief letter we got a note back from the good folks at the collection company. It was a lot less demanding. The claim was dropped.

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