Opinion
Index No. 501282/2018
10-14-2021
WILMINGTON TRUST, NATIONAL ASSOCIATION, Not in Its Individual Capacity, but Solely in Its Capacity AS TRUSTEE FOR MFRA TRUST 2014-2, Plaintiff, v. Donald SALDICCO ; Jennifer Saldicco; John Doe and Jane Doe, said names being fictitious, it being the intention of Plaintiff to designate any and all occupants of premises being foreclosed herein, Defendants.
Henry DiStefano, Esq., Friedman Vartolo LLP, Attorneys for Plaintiff, 1325 Franklin Ave., Suite 160, Garden City, New York 11530 Patrick Binakis, Esq., Binakis Law, P.C., Attorneys for Defendants, 26-12 Borough Place, Woodside, New York 11377
Henry DiStefano, Esq., Friedman Vartolo LLP, Attorneys for Plaintiff, 1325 Franklin Ave., Suite 160, Garden City, New York 11530
Patrick Binakis, Esq., Binakis Law, P.C., Attorneys for Defendants, 26-12 Borough Place, Woodside, New York 11377
Victor G. Grossman, J.
In this foreclosure action, by Decision and Order entered on April 13, 2021, this Court determined Plaintiff's Complaint sufficiently set forth a valid cause of action in foreclosure and that Plaintiff established it had standing to prosecute this action by attaching the Note, which was endorsed in blank, to the Complaint. However, factual issues concerning compliance with RPAPL § 1304 compelled the Court to deny summary judgment and order a trial on that limited issue. RPAPL § 1304 requires that "a lender, an assignee or a mortgage loan servicing provider shall give notice." Here, the notice was sent by the service provider's third-party vendor acting as an agent for the provider. For the reasons set forth below, the Court concludes that the servicer's business records, including information provided by a third-party vendor on Plaintiff's behalf, establish compliance with the mailing requirements of RPAPL § 1304, and therefore, Plaintiff is entitled to judgment.
In reaching this decision, the Court concluded that the records of the third-party vendor and the servicer may be considered the servicer's records and consequently, constitute a business record exception to the hearsay rule ( Plymouth Rock Fuel Corp. v Leucadia, Inc. , 117 AD2d 727 [2d Dept 1986] ). Plaintiff's witness, Janet Gioello, testified to the creation, exchange, storage, and retrieval of records across multiple software platforms, which also enabled the servicer and the third-party vendor to share information. The procedure for inserting data and the use of built-in safeguards to ensure accuracy and to identify errors also serves to support compliance with CPLR §§ 4518, 4539, and Technology Law § 302.
TRIAL TESTIMONY
On August 5, 2005, Donald Saldicco and Jennifer Saldicco (hereinafter "Borrowers") secured $264,000.00 by executing and delivering a 30-year Note for said amount, the debt obligation having been secured by a mortgage of same amount which Borrowers agreed would encumber the premises located at 93 Tonetta Lake Way, Brewster, New York 10509 (hereinafter "Mortgaged Premises") until such time as it was satisfied. Said Note and Mortgage were ultimately transferred and assigned to Wilmington Trust, National Association, not in its individual capacity, but solely as Trustee for MFRA Trust 2014-2 (hereinafter "Plaintiff"), with Fay Servicing, LLC (hereinafter "Fay") having been authorized by Plaintiff to service the subject loan. Borrowers’ default, by failing to make monthly payments, is not in dispute.
Fay services loans and maintains a servicing account for each borrower. It accepts payments, handles bankruptcy issues and collections, and provides customer service. Payments received from borrowers are posted on their record system, known as MSP. Upon receipt of a borrower's payment, a Fay employee will enter the payment onto MSP. Once the payment is entered, the loan records are updated with the date and amount received, the next due date, and other information based on the loan's underlying note. Once the information is entered, it cannot be removed or changed. A "correction" will so state and will identify the credit or debit based on a new entry. If necessary, adjustments to insurance and escrow obligations would be made.
Janet Gioello was Plaintiff's only witness. She is employed by Fay Servicing, LLC as a trial and mediation specialist. Although Fay hired her shortly before trial, she has more than two decades of experience in the mortgage servicing industry, including 17 years at Bank of America in the corporate legal department, as well as time spent in the mortgage default servicing area. As a trial and mediation specialist, Ms. Gioello has a portfolio of defaulted loans that she manages and reviews for accuracy, including the documents, payment history, loss mitigation, bankruptcy, and any other factors affecting a loan's status. She is part of, and works with, Fay's legal team whose responsibilities include ensuring compliance with various statutes and regulations such as RPAPL § 1304. Ms. Gioello indicated her familiarity with MSP based on her training and working with it at other servicers. Her training includes understanding payment histories from other entities. Only Fay employees are involved in the maintaining and documenting when payments are received.
Ms. Gioello testified Fay acquired the subject loan from another servicer on September 1, 2017. The loan was "set up," meaning it was added to Fay's records in a "loan boarding process." The loan boarding process involves receiving data from a prior loan servicer and transferring it to the new servicer — here, Fay. The information is uploaded to a system known as Loan Level Boarding, or LLB. Once the information is received, it is entered in a test environment and checked for accuracy with the original information uploaded into a test system. Any discrepancies result in an exception report, which is reviewed by Fay's employees, vetted for accuracy, and cleared before the loan can be "boarded" onto Fay's operations through MSP.
Here, the subject loan was boarded on September 9, 2017, as reflected in page 8 of the document. Each entry was specified by dates and payments (cf. JPMorgan Chase Bank, N.A. v Pereira , 56 Misc 3d 1207[A] [Sup Ct, Westchester County 2017] ). The December 4, 2017 notices were based on the data as of November 16, 2017, the due date, and the date of default of October 1, 2017. The loan was never brought current.
On October 6, 2015, Plaintiff executed a Limited Power of Attorney appointing Fay Servicing LLC:
"as its true and lawful attorney-in-fact, to act in its place for the following purposes: (iii) pursuing, prosecuting and defending foreclosures (v) taking such further actions as are deemed necessary or required to service, administer, and endorse the terms of the Mortgage Loans and (vii) endorsing checks, drafts and other evidences of payment made payable to Trust 2014-2 in conjunction with any Mortgage Loan or REO Property, representing payments on accounts with all such amounts deposited in the Custodial Account or Escrow Account
The undersigned gives to said attorney-in-fact full power and authority to execute such instruments and to perform all things requisite, necessary, and proper to carry into effect the powers granted by or under this Limited Power of Attorney as fully, to all intents and purposes, as the undersigned might or could do, as if the undersigned were personally present, hereby ratifying and confirming all that said attorney-in-fact shall lawfully do or cause to be done by authority hereof. This Limited Power of Attorney is effective as of the date hereof, and shall continue in full force and effect until revoked in writing by the undersigned."
Ms. Gioello testified the Limited Power of Attorney has not been terminated or rescinded, and that Fay continues to have authority to act on Plaintiff's behalf. Pursuant to the Limited Power of Attorney, Fay has been the loan servicer for the subject loan since September 9, 2017. Ms. Gioello identified a certified copy of the Limited Power of Attorney, which was admitted into evidence. Defendants objected on the ground that the Limited Power of Attorney referred to a Joinder Agreement and a Flow Servicing Agreement, which were not produced, and consequently, according to Defendants, the Court could not conclude that Fay had the ability to service the loan on Plaintiff's behalf. Ms. Gioello testified the Flow Servicing Agreement was prepared by the corporate legal department, and she was not familiar with it.
The Court finds Defendant's objections missed the mark. Any conditions, limitations, or restrictions contained in the Flow Servicing Agreement or the Joinder Agreement pre-dated the express language of the Limited Power of Attorney that authorized and appointed Fay to act. Moreover, there was no showing that Defendants were harmed by the two agreements to which they are not parties.
According to Ms. Gioello, Fay has agency relationships with other vendors. One of these vendors is Walz. Ms. Gioello identified WALZ as "a third-party vendor that many servicers use to send out default letters on behalf of the servicer. The default letters are prepared from templates that are pre-approved by the servicer for the vendor to use." Ms. Gioello explained that Fay's legal department reviews the templates to ensure the documents meet the legal requirements and communicates its approval to the foreclosure group, which interacts with WALZ. Once a loan is in default, the servicer [Fay] sends the information to the vendor [WALZ] "pursuant to an agreement between the two entities that allow for the transfer of information to occur." The information is reviewed by Fay and forwarded back and forth on a trade-marked platform known as TrackRight™, which enables the servicer and vendor to communicate when sending out notices. The agreement between Fay and WALZ, authorizing WALZ to send letters pre-approved by Fay on Fay's behalf, was introduced into evidence.
WALZ is now known as Covius but will be referred to herein as WALZ.
From the Agreement between Fay and Walz (Post-Trial Memo of Law; Exh. 3), TrackRight™ is a WALZ web-based, secure dashboard to view Client communication history. Clients have complete access to images of correspondence, returned mail, Return Receipts and firm mailing books, as well as advanced reporting and search capabilities for individual mail pieces or batches. TrackRight™ allows the client to have detailed account/loan level, reconciliation of letters, returned mail and account history. These functions are archived daily via real-time exports in XML format, that produce a non-reputable audit trail of mailing transactions, in addition to providing images of unclaimed letters, returned Return Receipts and firm mailing books. TrackRight™ is available 24x7x365 and features search and reporting capabilities for all mail types (Certified Mail, Certificate of Mail, First Class Mail, Registered Mail and Return Receipt). Searches can be performed using Various parameters that include date, return status, USPS status or file number, as well as recipient and sender identifying information. TrackRight™ reporting provides the following capabilities:
• Data updated in real-time with digital images of letters as they are processed in WALZ facilities, as well as USPS data as mail is inducted into and traverses the mail stream
• Access automated reporting with all detailed transaction history
• View images of a particular letter, returned mail, or account history
• Create custom reports for accounts, Client pools by policy type, etc.
• Reduce administrative, notification, and call center costs
• Increase transparency, accountability, and monitoring
• Improve servicing of assets and accounts
• Reduce cost and time of carrying non-performing assets
The Master Agreement between Fay and WALZ was amended in 2017 to provide for automatic renewals for successive one-year terms (Post-Trial Memo of Law; Exh. 4).
Ms. Gioello was familiar with WALZ. In 2017, Mr. Walz trained her personally at the California WALZ facility, which she also toured, observing how the process works. Ms. Gioello also testified she does continuous training with Mr. Walz, and she did similar training with other servicers.
When a loan goes into default, Fay will send that information to WALZ through TrackRight™, the shared application. Access to TrackRight™ is limited to individuals with sign-on and password access. Those with access can transfer the information from Fay to WALZ. WALZ then creates the document, notice, or letter that needs to be mailed. The document, with the information provided by Fay, is uploaded into TrackRight™, where it will be verified for accuracy, approved by Fay, and sent by WALZ by first class or certified mail, or both, as required. The mailing information is uploaded into TrackRight™. Once mailed, it becomes part of Fay's records.
The Borrowers’ payment history was introduced into evidence. Fay provided some of this information to WALZ, including default dates, amount due, borrowers’ names and address(es), and other required information such as due date, principal balance, escrow advance, and payment amount, which WALZ included as required in the notice pursuant to RPAPL § 1304.
The 90-day notices required by RPAPL § 1304 were offered as a business record. WALZ generated the notices with the information it received from Fay. Once the notice was executed, it was uploaded to TrackRight™ and reviewed by Fay employees to ensure the required information was uploaded to the pre-approved template. The letters are prepared in batches and a Fay employee compares the information that was sent to WALZ with the prepared letter in a side-by-side comparison. If the letters are approved, they are mailed, but if one letter is denied for any reason, the entire batch is destroyed.
A business record is admissible if that record "was made in the regular course of any business and ... 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" ( One Step Up, Ltd. v Webster Bus. Credit Corp. , 87 AD3d 1 [1st Dept 2011] ; CPLR § 4518[a] ). While "the mere filing of papers received from other entities is insufficient to qualify the documents as business records, such records may be admitted into evidence if the recipient can establish personal knowledge of the maker's business practices and procedures, or that the records provided by the maker were incorporated into the recipient's own records or routinely relied upon by the recipient in its business" ( Deutsche Bank Natl. Trust Co. v Monica , 131 AD3d 737 [3d Dept 2015], quoting State of New York v 158th St. & Riverside Dr. Hous. Co., Inc., 100 AD3d 1293 [3d Dept 2017], citing People v Cratsley 86 NY2d 81, 90-91 [1995] ).
A loan servicer may testify as to payment defaults and other matters relevant to a foreclosing plaintiff's prima facie case based on records it maintains in the regular course of its business as servicer of the subject mortgage loan (see Central Mtge. Co. v Davis , 149 AD3d 898, 899-900 [2d Dept 2017] ; Pennymac Holdings, LLC v Tomanelli , 139 AD3d 688 [2d Dept 2016] ; Deutsche Bank Natl Trust Co. v Naughton , 137 AD3d 1199 [2d Dept 2016] ; Deutsche Bank Natl Trust Co. v Abdan , 131 AD3d 1001 [2d Dept 2015] ; Wells Fargo Bank, N.A. v Arias , 121 AD3d 973 [2d Dept 2014] ; see also Deutsche Bank Natl Trust Co. v Monica , 131 AD3d 737 ; HSBC Bank USA N.A. v Sage , 112 AD3d 1126 [3d Dept 2013] ; Aames Capital Corp v Ford, 294 AD2d 134 [1st Dept 2002] ). Further, an assignee or other transferee of the loan documents may rely upon the business records of the loan originator or other predecessors-in-interest to establish such transferee's claims for recovery of amounts due from the debtor so long as it establishes that it relied upon those records in the regular course of its business (see Landmark Capital Ins., Inc. v Li-Shan Wang , 94 AD3d 418 [1st Dept 2012] ; see also Portfolio Recovery Assoc LLC v Lall , 127 AD3d 576 [1st Dept 2015] ). Significantly, as to the separate issue of a predecessor loan servicer or owner, in People v. Cratsley (86 NY2d at 90 ), the Court of Appeals explained that, "[w]hile not an ... employee, [the declarant] was also not a complete outsider" to the enterprise. The records of a predecessor loan servicer or owner cannot be deemed to be "a complete outsider" to the enterprise of loan servicing, of the very same loan. Mortgage loan servicers are licensed and regulated under New York State Banking Law § 590(1)(h). There is no apparent reason to limit the information flow to assignors or predecessors-in-interest and exclude third-party vendors, such as WALZ, and the Court declines to do so.
A third-party's records are not generally admissible via the testimony of an employee of another company when the latter does not create the records, and there is no showing that the latter's employee is familiar with the specific record-keeping procedures of the third-party ( Matter of Carothers v GEICO Indem. Co. , 79 AD3d 864, 864-865 [2d Dept 2010], overruled on other grounds Viviane Etienne Medical Care, P.C. v Country-Wide Ins. Co , 114 AD3d 33 [2d Dept 2013], affd 25 NY3d 498 [2015] ). "[T]he mere filing of papers received from other entities, even if they are retained in the regular course of business, is insufficient to qualify the documents as business records" ( Std. Textile Co., Inc. National Equip. Rental , 80 AD2d 911 [2d Dept 1981] ). However, a party's records are admissible as business records of another party when such records are used in the preparation of the proponent's business records such that they are fully incorporated into the proponent's business records ( Matter of Carothers , 79 AD3d at 864-865 ; Plymouth Rock Fuel Corp. v Leucadia , 117 AD2d 727, 728 [2d Dept 1986] ; see also People v DiSalvo , 284 AD2d 547, 548 [2d Dept 2001] ).
Here, Ms. Gioello, an employee of Fay, Plaintiff's servicer, successfully laid a foundation for WALZ's mailing records when she stated that Fay, on Plaintiff's behalf, incorporated WALZ's records into Plaintiff's records and maintained them in the ordinary course of Plaintiff's and Fay's business. Moreover, the process of preparing the mailings, with the requisite exchange and verification of information, suggests that the records are as much Fay's own records, as they are WALZ's, especially when combined with Ms. Gioello's knowledge of the WALZ system.
In People v Kennedy , 68 NY2d 569, 579 (1986), the Court of Appeals stated:
As with other hearsay exceptions, the business records exception grew out of considerations of necessity and trustworthiness--the necessity for alternatives to permit large and small businesses to prove debts by their records of account, and the unusual degree of trustworthiness and reliability of such records owing to the fact that they were kept regularly, systematically, routinely and contemporaneously (5 Wigmore, Evidence §§ 1421, 1422, 1546 [Chadbourn rev 1974]; see also, Note, Business Records Rule: Repeated Target of Legal Reform, 36 Brooklyn L.Rev. 241). The element of unusual reliability is supplied by systematic checking, by regularity and continuity which produce habits of precision, by actual experience of business in relying upon them, or by a duty to make an accurate record as part of a continuing job or occupation ( McCormick, Evidence § 306 [Cleary 3d ed.] ). The essence of the business records exception to the hearsay rule is that records systematically made for the conduct of a business as a business are inherently highly trustworthy because they are routine reflections of day-to-day operations and because the entrant's obligation is to have them truthful and accurate for purposes of the conduct of the enterprise (see , Williams v. Alexander , 309 NY 283, 286, 129 NE 417).
(see also Bank of New York Mellon v Gordon , 171 AD3d 197, 204, 209 [2d Dept 2019] ).
Ms. Gioello testified the 90-day letters were sent to each of the Borrowers at the property address; in fact, based upon her review of Fay's systems, all the notices to the Borrowers were sent to the property address. Some of the letters were sent by first class mail, and others were sent by certified mail. The information denoting the way the letter was sent is contained at the bottom of the page. The batch is identified by a bar code and the template for New York is also identified. If the information lacks a certified mail designation, it is sent by first-class mail. From this information, Ms. Gioello identified which letter was sent by first class mail and which letter was sent by certified mail. She also recounted her visit to the WALZ facility where she saw different machines used to generate first class letters and certified mail letters. The certified mail machine had a separate system where the green cards were printed and assembled, with an individual whose duties included making sure the card was attached to the correct mail piece and mailed. The TrackRight™ system also receives the certified mail receipt number when the letter and envelope is prepared, and again when the letter is mailed. In addition, the United States Postal Service will provide a printout to WALZ of all letters sent via certified mail, and that printout is also uploaded to TrackRight™.
The bar code at the top of the envelope and on the letter, itself, also indicates it was sent by certified mail. Thus, Ms. Gioello can discern which letter was sent by first class mail and which was sent by certified mail. The process used for certified mail is repeated for first class mail. WALZ is also provided with a list of letters mailed and the information is inputted into TrackRight™. Using this process, the 90-day notices were sent by first class mail and by certified mail to each of the Borrowers.
Fay also prepares and maintains a record, or log, of letters mailed by its employees, who input information into Fay's system when a letter is sent and do so as an ongoing system entry into MSP. Of course, each letter is made and entered at separate and independent times, and the information is then stored in the MSP system. Once the information is entered on the MSP system, it cannot be altered. The letter log contains information entered by Fay from TrackRight™, identifying the letter mailed. A copy of the letter is also scanned into Fay's imaging system. The letter log serves to confirm the existence, and mailing, of the letters. Only mailed letters mailed may be entered in the log. The log also indicates if WALZ mailed the letter. Here, the letter log confirmed WALZ's mailing of the 90-day notices by first class mail and certified mail to each of the Borrowers. The log would also show if a notice letter was returned, cancelled, or rescinded, and here, none of the Borrowers’ letters were returned, cancelled, or rescinded.
WALZ also prepares a transaction report as part of the audit trail. The transaction report identifies the letter created on Fay's behalf, the mailing of the letter, the reference numbers, and the record indicators. The transaction report also confirms the mailing of the 90-day notices by first class mail and by certified mail to each of the Borrowers. It is also based on the TrackRight™ information from the Unites States Postal Service. The entries set forth in the report are made after verification that the letters were mailed. The transaction report also contains a certified mail delivery confirmation from the certified mail receipt. The transaction report and other indicia of mailing are supported by a certified mail list from TrackRight™ for Fay. The list identifies the items mailed by certified mail and the fees paid. Here, those items include the certified mail to each of the Borrowers. The certified mail numbers are identical to the pieces of certified mail introduced into evidence and confirmed on other documents. The document bears a stamp of the United States Postal Service and the date of December 4, 2017, which corresponds to the certified mail sent on that date and reflected on other records. There was no objection to the receipt of this document into evidence.
Fay also completed and provided filing information with the New York State Department of Financial Services and received a Proof of Filing Statement, in compliance with RPAPL § 1306, stating the notices were sent to each of the Borrowers. The proof of filing attests that filing took place on a specific date based on information by Fay, including the tracking information and date of mailing. When received by Fay as a receipt for filing, it was scanned into Fay's imaging system, known as DocVelocity. Ms. Gioello testified she had been trained on the DocVelocity software system. It is used in addition to TrackRight™ and MSP.
On cross-examination Ms. Gioello was asked about the Flow Servicing Agreement. She stated she had not seen the document and she was not familiar with it. She stated "these are documents handled by our corporate legal department. There are certain people that handle creating, signing, reviewing, and approving these documents. This Limited Power of Attorney was, as you know, created with others that reviewed the document." People other than the witness reviewed the Flow Servicing Agreement before it was included in Fay's record system. While Ms. Gioello could not attest to the content of the Flow Servicing Agreement (which had not been produced), she stated that based on her experience, the Limited Power of Attorney confers the right (and obligation) to service the loan on Plaintiff's behalf and that includes hiring third parties to send out notices with information provided by Fay. Such practices, in her experience, are followed by other servicers if they choose to do so. She explained, for example, that a servicer can send a third party out to do a property inspection as part of the obligation to service the loan. The source of that authority is the Limited Power of Attorney, which confers the right to service the loan including the right to hire third parties. At no time was the witness advised that Fay was not authorized to retain an agent or third-party vendor, such as WALZ, nor was there any limitation in the Limited Power of Attorney that restricted Fay from retaining the services of an agent to perform some of its duties.
Based on the testimony and the documents introduced into evidence, Plaintiff established its entitlement to judgment as a matter of law. Accordingly, Plaintiff shall submit a proposed Order of Reference noticed for settlement within 20 days of the date of this Decision and Order with Notice of Entry.
The foregoing is the Decision and Order of the Court.