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Lender’s Summary Judgment Affidavit Flawed - Business Records Inadmissible

Lesson.  For lenders and servicers filing motions for summary judgment, always remain mindful of the elements of the Evidence Rule 803(6) business records exception to the hearsay rule.  An insufficient supporting affidavit could doom the motion.     

Case citeHolmes v. National Collegiate Student Loan Trust, 94 N.E.3d 722 (Ind. Ct. App. 2018)

Legal issue.  Whether, on a motion for summary judgment, the lender proved it owned the subject loan and thus had standing to bring the claim. 

Vital facts.  This case involved what appeared to be a straightforward default under a school loan.  The original lender sold a pool of loans to National Collegiate Funding LLC, which then sold the pool to the plaintiff lender.  The defendant in the case was the student’s father, who co-signed the loan.  There seemed to be no question that the loan was in default.      

Procedural history.  Lender filed a motion for summary judgment.  The trial court granted the motion and ordered the father to pay the debt, plus interest and costs.  The father appealed.

Key rules

To make a prima facia case  for summary judgment, the plaintiff lender in Holmes was required to show that the defendant father executed a contract for a loan and that the lender was the assignee of the loan - and thus the owner of the debt.  Indiana law also required the lender to establish that the defendant owed the original lender the amount alleged.

Indiana Trial Rule 56(E) states that affidavits on summary judgment “… shall be made on personal knowledge, shall set forth such facts as would be admissible in evidence, and shall show affirmatively that the affiant is competent to testify as to the matters stated….”

Inadmissible hearsay contained in an affidavit may not be considered in ruling on a summary judgment motion.

Indiana Evidence Rule 803(6) discusses the “business records” exception to the general hearsay rule and outlines the elements of admissibility.

Holding.  The Indiana Court of Appeals reversed the summary judgment for the lender and concluded that it failed to make a prima facia case.   

Policy/rationale

The defendant in Holmes contended that the lender’s designated evidence (documents) constituted inadmissible hearsay and, as a result, the lender failed to show that it was entitled to summary judgment.  The Court’s opinion is a technical lesson in evidence and provides an example of how an assignee (a successor-in-interest) can get tripped up in a simple loan enforcement claim.

When Holmes first came down last year, some thought the ruling may have created a real problem for servicers to obtain summary judgment in cases involving loan assignments.  In reality, the plaintiff in the case simply failed to dot the I’s and cross the T’s.  There is favorable case law in Indiana, and across the country, concerning how assignees and successors-in-interest can establish a prima facia case pursuant to the Rule 803(6) business records exception.  But the affidavit in Holmes was deficient as to several key elements, according to the Court: 

Here, the [affidavit] provided no testimony to support the admission of the contract between [defendant] and [original lender] or the schedule of pooled loans sold and assigned to National Collegiate Funding, LLC, and then to [plaintiff], as business records pursuant to Evidence Rule 803(6). There was no testimony to indicate that [the witness] was familiar with or had personal knowledge of the regular business practices or record keeping of [the loan originator or that of plaintiff] regarding the transfer of pooled loans, such that she could testify as to the reliability and authenticity of those documents. Indeed, [the witness] offered no evidence to indicate that those records were made at or near the time of the business activities in question by someone with knowledge, that the records were kept in the course of the regularly conducted activities of either [original lender or plaintiff], and that making the records was part of the regularly conducted business activities of those third-party businesses.

Also noteworthy is that Holmes was not a mortgage foreclosure case.  The school loan in Holmes was not secured, and the opinion does not address one way or another whether there was a UCC negotiable instrument at issue.  Thus the Court did not analyze some of the more conventional ways of proving standing, such as the possession of an original promissory note and/or the recording of an assignment of mortgage.     

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My practice includes representing lenders, as well as their mortgage loan servicers, in contested mortgage foreclosure cases.  If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@woodenlawyers.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.

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