Hawaii Supreme Court clarifies rules on the introduction of business records in foreclosure proceedings

On June 21, 2021, the Supreme Court of Hawaii in U.S. Bank Tr., N.A. as Tr. for LSF9 Master Participation Tr. v. Verhagen, No. SCWC-17-0000746 (Haw. June 21, 2021) settled several questions related to the introduction of evidence and business records critical to the mortgage foreclosure process, most of which will be good news to mortgagees.

The current holder of a mortgage loan moved for summary judgment in its mortgage foreclosure action. Supporting the motion was a declaration from a representative of the mortgagee’s servicer that she was familiar with the servicer’s business records and the way those records were maintained. She inspected a copy of the note and attached a “true and correct” copy to her declaration. She further declared that the servicer’s records concerning the Note included records incorporated from the prior loan servicer. Those records were kept and maintained in the ordinary course of business for the purpose of maintaining an accounting of the amounts paid and received on the loan and were relied upon by the current servicer in the regular course of its business.

The mortgagor argued foreclosure was not warranted because the mortgagee did not demonstrate its ownership and possession of the note at the time it filed suit. The trial court entered summary motion and the mortgagor appealed.

The appellate court first remanded the case to allow the mortgagor to supplement the record in light of recent court decisions addressing the qualifications of witnesses to testify as to the familiarity with a servicer’s record-keeping system. On remand the mortgagee moved for ratification of the circuit court’s prior judgment, accompanied by additional certifications from the servicer’s representatives. The representatives submitted additional testimony that the information regarding the transfer from the prior servicer was validated by a due diligence review, a review of the hard copy documents, and a review of the payment history and accounting of other charges to the loan by the prior servicer. It was the servicer’s regular practice, after these phases were complete, to integrate the prior servicer’s records into the current servicer’s own business records at the time of acquisition. Once integrated, the current servicer maintained and relied on those business records in the ordinary course of its servicing business. The representative also testified that the mortgagee was in possession of the original note when the foreclosure was filed.

The appellate court was not satisfied and vacated the circuit court’s order finding the mortgagee lacked standing because the copies of the note submitted were inadmissible hearsay and the declarations did not exhibit a familiarity with the record-keeping practices of the prior servicer. The Supreme Court of Hawaii accepted four questions on certiorari and its answers resulted in a reversal of the court of appeals decision and the affirmation of the circuit court ruling.

First, the Court held that promissory notes are not hearsay, but self-authenticating documents, because they have independent legal significance of the parties’ written agreement. It also held that, although original notes are self-authenticating, copies are not. The policy considerations justifying the special treatment of commercial paper do not apply to duplicate promissory notes. An original note is particularly trustworthy because it allows for the direct inspection of all its inscriptions. But it is impossible to definitively match a copy of a given note’s frontside with a copy of the same note’s backside.

Third, the Court found that the mortgagee had properly authenticated the copies of the note by the statements in the declarations that they had inspected the note and that “true and correct” copies were attached to the declarations. Finally, the Court concluded that the appellate court erred in its application of the “incorporated records doctrine” by ignoring that the records created by the prior servicer were incorporated into the current servicer’s own records and were not merely in its custody. The declarations adequately established that the records were incorporated into the servicer’s own records and kept and maintained in the ordinary course of its business. The declarations both further established that the servicer used and relied on the incorporated records in the regular course of its loan servicing business. And although one of declarants did not describe circumstances that would indicate the trustworthiness of the incorporated documents, the other declarant stated that the prior servicers information was validated through due diligence, a review of hard copy documents, and a review of the payment history and accounting of the charges to the loan by the prior servicer. This indicates the trustworthiness of the documents. The evidence, taken together, showed that the mortgagee was in possession of the note at the time the foreclosure was filed and thus had standing. The judgment of foreclosure was affirmed. (Note that the Hawaii Supreme Court also decided U.S. Bank, N.A., v. Compton, SCWC-18-0000699 the same day on the same issues).


  • James Noonan

    Jim is a founding partner of Noonan & Lieberman. Jim has more than 25 years of experience in civil litigation on behalf of creditors, servicers, business and real estate owners.

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