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Univ. of South Carolina School of Law

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Monday, January 31, 2011

A Loan Tonight: WDNC Finds Evidence of Bank's Discontiuing Of Non-Income Verification Loans Inadmissible Under Rule 407

Federal Rule of Evidence 407 provides that

When, after an injury or harm allegedly caused by an event, measures are taken that, if taken previously, would have made the injury or harm less likely to occur, evidence of the subsequent measures is not admissible to prove negligence, culpable conduct, a defect in a product, a defect in a product's design, or a need for a warning or instruction.  This rule does not require the exclusion of evidence of subsequent measures when offered for another purpose, such as proving ownership, control, or feasibility of precautionary measures, if controverted, or impeachment.

And, as the recent opinion of the United States District Court for the Western District of North Carolina in Suntrust Mortg., Inc. v. Busby, 2011 WL 251201 (W.D.N.C. 2011), makes clear, this Rule excludes not only evidence of changes to instrumentalities after they allegedly caused accidents (e.g., adding a handrail to stairs that a victim fell down) but also evidence of, say, a bank discontinuing the use of non-income verification loans.

In Busby, SunTrust officials  accused 14 property owners in a controversial North Carolina real estate development of falsifying their income when they obtained mortgages totaling more than $20-million. These 14 property owners were given non-income verification (NIV) loans (NIV loans require less documentation than traditional conforming loans; lenders often advertise these programs as "no doc" loans, meaning the borrower does not have to come up with any documentation other than a credit report and a loan application).

The property owners sought to present evidence that Suntrust discontinued its use of non-income verification loans after giving the loans at issue to prove that "had Suntrust discontinued that use earlier, the events giving rise to this litigation would not have occurred." SunTrust responded that this was inadmissible evidence of a subsequent remedial measure under Federal Rule of Evidence 407. The property owners countered that they wanted to use this evidence to properly prove the feasibility of the measure under the Rule.

The United States District Court for the Western District of North Carolina agreed with Suntrust, concluding that

From the arguments of counsel it appears that the inference that Defendants wish to advance with this evidence is that Plaintiff was culpable for its own losses by having employed the practice of non-income verification loans. This, of course, is excludable under Rule 407. Even if Defendants were able to articulate some manner in which this evidence were relevant under Rule 401 that does not come within the prohibition of Rule 407, the Court finds that the probative value of this evidence is substantially outweighed by its unfair prejudicial effect. "It would be extremely difficult for the jury to hear the [evidence related to discontinuation of the non-income verification loans] without inferring that those measures were admissions of [culpable conduct]. This, of course, is exactly the inference that Rule 407 is designed to prevent."

-CM

http://lawprofessors.typepad.com/evidenceprof/2011/01/407-suntrust-mortg-inc-v-busbyslip-copy-2011-wl-251201wdnc2011.html

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Comments

I also think that all of the property owners sought to present evidence that Suntrust discontinued its use of non-income verification loans after giving the loans at issue to prove.

Posted by: quickcash | Sep 26, 2012 4:33:02 AM

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