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Second Amended Complaint
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IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF MISSOURI
WESTERN DIVISION
COMMERCE BANK, CEDAR HILL CAPITAL PARTNERS, LLC, CITIZENS BANK & TRUST COMPANY, PINNACLE BANK OF SOUTH CAROLINA, WELLS RIVER, and THOMASTON SAVINGS BANK, Plaintiffs, vs. U.S. BANK NATIONAL ASSOCIATION, Defendant.
Case No. 13-00517-CV-W-BCW SECOND AMENDED COMPLAINT
Plaintiffs Commerce Bank, Cedar Hill Capital Partners, LLC, Citizens Bank & Trust
Company, Pinnacle Bank of South Carolina, Wells River, and Thomaston Savings Bank
(collectively, “Plaintiffs”) complaining of the Defendant U.S. Bank, N.A. (“U.S. Bank” or
“Defendant”), allege and say that:
NATURE AND SUMMARY OF THIS ACTION 1. Plaintiffs are domestic banks and/or asset management companies with investments in
residential mortgage-backed securities (“RMBS”) trusts. Defendant, as Trustee of Plaintiffs’
investments, was in a position to stop certain illicit and illegal activities, as described below, but
did not because of an egregious conflict of interest: Defendant was engaged in the same
violations of law. Defendant’s inaction caused significant damage to Plaintiffs in the form of
dramatically increased costs, reduced borrower payments, and increased losses on distressed
properties. Plaintiffs seek monetary and injunctive relief.
Case 4:13-cv-00517-BCW Document 8 Filed 06/18/13 Page 1 of 29
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PARTIES
2. Plaintiff Commerce Bank (“Commerce”) is a Missouri bank with headquarters at 1000
Walnut Street, Kansas City, Missouri. Commerce has branches in Colorado, Kansas, Missouri,
Illinois, and Oklahoma. Commerce is owned by Commerce Bancshares, Inc.
3. Plaintiff Cedar Hill Capital Partners, LLC (“Cedar Hill”) is an exempted limited
partnership with an address of M & C Corporate Services Ltd., Ugland House, S Church Street,
George Town, Grand Cayman KY1-1104.
4. Plaintiff Citizens Bank & Trust Company (“Citizens Bank”) is an Arkansas bank with
headquarters at 3110 Alma Highway, Van Buren, Arkansas. Citizens Bank is owned by
FirstBank Corp.
5. Plaintiff Pinnacle Bank of South Carolina (“Pinnacle Bank”) is a South Carolina bank
with headquarters at 937 North Pleasantburg Drive, Greenville, South Carolina 29607. Pinnacle
Bank is a wholly-owned subsidiary of PBSC Financial Corporation.
6. Plaintiff Wells River is a Vermont mutual savings bank with headquarters at 34 Main
Street N, Wells River, Vermont.
7. Plaintiff Thomaston Savings Bank (“Thomaston Bank”) is a Connecticut mutual savings
bank with headquarters at 203 Main Street, Thomaston, Connecticut 06787.
8. Defendant U.S. Bank purports to be the fifth largest commercial bank in the United
States. U.S. Bank purports to maintain its main offices in Ohio. U.S. Bank is the Trustee for all
Trusts that are the subject of this lawsuit.
JURISDICTION AND VENUE
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9. This Court has subject matter jurisdiction over this action pursuant to 28 U.S.C. § 1332.
Complete diversity exists because Plaintiffs and Defendant are citizens of different states and the
amount in controversy exceeds $75,000.00, exclusive of interest and costs.
10. This Court has personal jurisdiction over Defendant because it acts as Trustee for
Missouri certificateholders, including Commerce, and therefore, this litigation arises, at least in
part, out of the transaction of business in the State of Missouri and specifically in the Western
District of Missouri. Many loans included in the Trusts at issue in this litigation are collateralized
by real property located in the State of Missouri. Defendant transacts business in the State of
Missouri by virtue of its operation of a number of branch banks in the state. Moreover,
Defendant previously accepted service of process of Plaintiffs’ Petition and Amended Petition
filed in the Circuit court of Jackson County, Missouri, at Kansas City, Case No. 1316-cv-10490,
prior to removal to this Court.
11. Venue is appropriate in this Court pursuant to 28 U.S.C. § 1391(b)(1) and (c)(2) because
Defendant resides in the Western District of Missouri based on its contacts with the District as
set forth in the preceding paragraph. In addition, venue is appropriate in this Court pursuant to 28
U.S.C. § 1391(b)(2) because a substantial part of the alleged acts giving rise to the dispute
occurred in this District.
BACKGROUND – THE TRUSTS
12. Plaintiff Commerce purchased beneficial interests (“Certificates”) in the CSAB 2007-1
Trust, JPMMT 2006-S2 Trust, MALT 2005-6 Trust, and the BAFC 2007-8 Trust.
13. Plaintiff Cedar Hill purchased Certificates in 20 separate trusts (attached as Exhibit A).
14. Plaintiff Citizens Bank purchased Certificates in the JPALT 2006-S1 Trust.
Case 4:13-cv-00517-BCW Document 8 Filed 06/18/13 Page 3 of 29
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15. Plaintiff Pinnacle Bank purchased Certificates in the CSFB 2005-3 Trust and WFMBS-
16 Trust.
16. Plaintiff Wells River purchased Certificates in the MALT 2007-1 Trust and CMLTI
2007-OPX1 Trust.
17. Plaintiff Thomaston Bank purchased Certificates in the CMALT 2006-A5 Trust, GSR
2006-8F Trust, GSR 2006-5F Trust, and RFMSI 2006-S5 Trust.
18. The trusts specified in the foregoing Paragraphs 11–16 will be collectively referred to as
the “Trusts.”
BACKGROUND – RMBS TRUSTS
19. The corpus of RMBS Trusts, like the Trusts at issue here, consist primarily of residential
mortgage loans.
20. More specifically, in the securitization context when a borrower seeks and obtains a
home loan, the lender, called an “Originator”, typically sells the loan to an entity acquiring loans
for the purpose of selling the loans into a securitization trust, called a “Seller.” The Seller holds
the loan for a period of time, during which either the Seller (or the Originator or some other
designee on behalf of the Seller) collects payments from the borrower.
21. Once the Seller has obtained a sufficient number of loans, the Seller sells those loans to
an entity called a “Depositor,” which typically holds the loans for a brief period before
depositing the loans into a trust.
22. Upon each sale of the loans described above, the selling party is responsible for
delivering the loan documents, called the “Mortgage File” to the purchaser or its designee.
23. Based upon the assumption that the loans were deposited into each Trust, the borrowers
began making payments to each Trust through the Master Servicer (or its designee) for each
Case 4:13-cv-00517-BCW Document 8 Filed 06/18/13 Page 4 of 29
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Trust. As the Master Servicer is ultimately responsible for the servicing irrespective of whether
it utilizes a designee to service the loans, the remainder of the Complaint will refer to the
“Master Servicer” as performing the servicing functions, even if a designee performs some or all
of the servicing functions on a particular loan.
24. When the Master Servicer collects loan payments from borrowers, the Master Servicer
transfers those payments less allowable deductions to Defendant, who as Trustee of each Trust
distributes those payments to each Trust’s beneficiaries — the Certificateholders — such as
Plaintiffs. Thus, the Certificateholders are entitled to participation in the cash flow the Master
Servicer collects from borrowers relating to the mortgage loans each Trust holds on behalf of the
Certificateholders.
25. Therefore, each Trust is primarily administered by two entities: The “Trustee”, who is the
“face” of each Trust with the Trust beneficiaries such as Plaintiffs, and the “Master Servicer”,
who is the “face” of each Trust with borrowers. The entire process is graphically illustrated as
follows:
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26. Because the Trustee holds the trust corpus for the beneficiaries, the Master Servicer will
act in the name of the Trustee when taking action against borrowers, which includes the Master
Servicer in the name of a trustee bringing foreclosure actions against borrowers who are
allegedly delinquent on their loan payments.
BACKGROUND -- THE NATIONAL ECONOMIC CRISIS
27. A national financial and economic crisis beset the United States in 2008. It was caused in
large part by irresponsible lending practices of institutions such as Defendant, U.S. Bank, and
Master Servicer, Wells Fargo.
28. The crisis required an unprecedented bailout of the nation’s largest banks. Defendant
U.S. Bank received $6 billion.
BACKGROUND -- THE NATIONAL FORECLOSURE CRISIS
29. As this Court understands, a national foreclosure crisis accompanied the financial crisis.
According to RealtyTrac, a leading national database, a record 2,871,891 properties in the United
Mortgage File
Securitization
Depositor
Trustee Servicer
Seller
Payments
Payments
Trust for Loan Pool
Mortgage File
Mortgage File
Certificate Holders
AAA – First Paid
AA – Second Paid
A – Third Paid
BBB – Fourth Paid
Unrated – Last Paid
5th Loss
4th Loss
3rd Loss
2nd Loss
1st Loss Originator
Payments
After
Securitization
Mortgage File
Borrowers
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States received a foreclosure filing in 2010, which translates to approximately 1 in 45 U.S.
housing units, while in 2011 foreclosures were in “delay mode” with 1,877,777 properties
receiving a foreclosure filing.1
30. Losing a home to foreclosure can be one of the most serious, stressful, and devastating
events in a person’s life. During the foreclosure process, borrowers should be treated with
respect, and the foreclosure process should be performed in a manner that is honest, legal, and in
compliance with due process of law.
31. Unfortunately, as has been unquestionably documented in countless court cases,
governmental and regulatory investigations, academic studies, congressional hearings, and media
reports, many of the nation’s largest financial institutions have engaged in widespread
malfeasance, all in order to protect their profits at the expense of borrowers and investors,
including the Plaintiffs. As the Secretary of Housing and Urban Development Shaun Donovan
recently said,
You know the appalling way banks have treated families throughout this crisis – from lost paperwork when people were applying for help, to dropped calls to signing thousands of foreclosure documents that banks never verified or bothered to read. Our investigations at HUD revealed even more. We found homeowners – some of whom were only 30 days behind on their mortgage – never got a call from their lender about options that may have been available to them. Think about it: over and over, folks who never should have gotten into trouble – and who should have been able to get some help early on that was both good for them and for the lender, never got that help, help that in many cases banks were legally obligated to provide. Allowing some of our largest and most powerful institutions
1 The 2011 Year-End Foreclosure Market Report can be found at http://www.realtytrac.com/content/foreclosure-market-report/2011-year-end-foreclosure-market-report-6984. The 2010 Year-End Foreclosure Market Report can be found at http://www.realtytrac.com/content/foreclosure-market-report/record-29-million-us-properties-receive-foreclosure-filings-in-2010-despite-30-month-low-in-december-6309.
Case 4:13-cv-00517-BCW Document 8 Filed 06/18/13 Page 7 of 29
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to play by a different set of rules than everybody else – to commit forgery and perjury against ordinary families is not only appalling, it’s also illegal.2
In televised comments on March 5, 2012 Mr. Donovan further stated that the investigation into
the nations’ mortgage servicers showed that “as high as sixty percent of foreclosures were being
done wrong.”
32. In a 2003 Moody’s article on structured finance, entitled “Moody's Re-examines
Trustees’ Role in ABS and RMBS,” the author concluded that the trustees must bear some of the
blame for how the banks treated these families, and the investors who purchased securities
backed by their loans. The author wrote that the “trustees’ performance has fallen short of
expectations,” and that their review showed that the trustees were weak when it came to “taking
action when evidence of impropriety is presented” and “taking note of covenant breaches.”3
33. As to many trustees’ argument that their duties are “limited to strictly administrative
functions as detailed in the transaction documents” and that they have no “fiduciary” duty prior
to an event of default, Moody’s disagreed and noted that the “trustee’s role was [often]
considered a significant investor safeguard at the time the deal was rated.”
34. Moody’s also concluded that the trustee should oversee the servicer and implement
safeguards if the servicer appears to be charging too much or defrauding the investors or
mishandling funds. “In transactions involving weaker seller/servicers, the trustee’s role is much
more important to the rating analysis.” In other words, Moody’s concluded that the trustees had
duties to prevent much of the malfeasance that harmed families, investors, and the economy.
2 Remarks of Secretary Shaun Donovan to the 2012 National Action Network Convention, April 13, 2012 available at http://blog.hud.gov/index.php/2012/04/13/hud-secretary-shaun-donovan-addresses-2012-national-action-network-nan-convention-washington-d-c-2/. 3 Claire M. Robinson, Moody's Re-examines Trustees’ Role in ABS and RMBS, Moody’s Investors Service (February 2003).
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35. Borrowers who are working to save their homes from foreclosure include: (a) honest
borrowers experiencing difficult life events (“Good Faith Borrowers”); and (b) victims of
predatory lending activities who were misled or outright defrauded into obtaining a loan they
could not afford (“Predatory Lending Victims”); (c) dead-beat borrowers who never intended to
pay or choose to simply walk away from their obligations; and many others (some of whom are
listed in the following paragraph). With regard to Good Faith Borrowers, however, the Master
Servicer should provide a reasonable opportunity for these borrowers to stay in their homes
where that result exceeds the net present value of foreclosing. By failing to do so, the Master
Servicer has increased the losses borne by the Trusts. Further, the entities that sold the Trusts
loans made to a Predatory Lending Victim should repurchase all such loans from the Trusts as
they warranted they would upon sale and face the consequences of their wrongful acts against
the borrower under applicable law.
36. Borrowers losing homes to foreclosure also include: (a) borrowers who cannot make
meaningful payments under any circumstances and/or have abandoned the premises
(“Abandoned Properties”); and (b) borrowers who engaged in property-flipping schemes, straw-
man purchases, or other fraudulent acts, which often are accompanied by a failure to make any
payments to a Trust (“Fraudulent Borrowers”). Abandoned Properties and Fraudulent Borrowers
(who typically either abandon the property or start to destroy it) are a source of great concern to
local governments charged with maintaining quality of life in these neighborhoods. Some
foreclosures – including those involving Abandoned Properties and Fraudulent Borrowers – are
necessary from both a lending and societal perspective and these should be done quickly to
reduce the decay and decimation to a neighborhood that accompanies abandoned or vandalized
properties. When such foreclosures are not conducted in a timely manner, in addition to the
Case 4:13-cv-00517-BCW Document 8 Filed 06/18/13 Page 9 of 29
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harm suffered by borrowers, their communities, and society at large, investors such as Plaintiffs
are harmed by the concomitant increased costs charged to the Trusts.
BACKGROUND – THE FAILURE TO PROPERLY TRANSFER AND MAINTAIN THE NOTES
37. Legal commentators have written about the mortgage securitization industry’s failure to
ensure that mortgage documents were properly executed. Professor Alan M. White has written
about the evidence that “especially during the subprime lending boom of 2004-2007, notes were
neither endorsed nor delivered.”4 As Professor Dale A. Whitman explained, “[w]hile delivery of
the note might seem a simple matter of compliance, experience during the past several years has
shown that, probably in countless thousands of cases, promissory notes were never delivered to
secondary market investors or securitizers, and in many cases, cannot presently be located at all.
The issue is extremely widespread, and, in many cases, appears to have been the result of a
conscious policy on the part of mortgage sellers to retain, rather than transfer, the notes
representing the loans they were selling.”5 Indeed, as Professor Adam J. Levitin testified before
Congress, it was the practice of numerous originators to shred original notes rather than deliver
them according to the transaction documents.6
BACKGROUND – ROBO-SIGNING
4 Alan M. White, Losing the Paper – Mortgage Assignments, Note Transfers and Consumer Protection, Vol. 24:4 Loy. Consumer L. Rev. 468 (2012). 5 Dale A. Whitman, How Negotiability Has Fouled Up the Secondary Mortgage Market, and What to Do About It, 37 Pepp. L. Rev. 737 (2010)(internal citation omitted). 6 Robo-Signing, Chain of Title, Loss Mitigation and Other Issues in Mortgage Servicing: Hearing Before the Subcomm. On Hous. And Comty. Opportunity of the H. Fin.Serv. Comm., 111th Cong. 2d Sess. (2010) available at http://financialservices.house.gov/Media/file/hearings/111/Levitin111810.pdf. at p.24, n.99 citing Florida Bankers’ Ass’n Comment to the Florida Supreme Court on the Emergency Rule and Form Proposals of the Court Task Force on Residential Mortgage Foreclosure Cases, at 4 (“many firms file lost note counts as a standard alternative pleading in the complaint”… “because the physical document was deliberately eliminated to avoid confusion immediately upon its conversion to an electronic file.”).
Case 4:13-cv-00517-BCW Document 8 Filed 06/18/13 Page 10 of 29
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38. Litigation spawned by the national foreclosure crisis has revealed the widespread use by
mortgage servicers (including Wells Fargo, the Master Servicer of the Trusts) of what has
infamously become known as “robo-signing.” Robo-signing is the practice of signing mortgage
assignments, satisfactions and other mortgage-related documents in assembly-line fashion, often
with a name other than the affiant’s own, and swearing to personal knowledge of facts of which
the affiant has no knowledge.
39. In January 2012, Wells Fargo employee Stanley Silva testified that he routinely executed
notices of default without verifying the accuracy of the information contained therein. In March
2012 sworn deposition testimony, Wells Fargo employee Xee Moua revealed that she signed
between 300 and 500 foreclosure documents a day without first reviewing the figures for
accuracy and did not view verification of the information contained in affidavits as part of her
“job description.” Ms. Moua’s supervisor, Mr. H. John Kennerty of Wells Fargo Home
Mortgage, testified on May 10, 2010, that he signed 50 to 150 documents a day. His review of
such documents consisted only of verifying the date. He estimated that in approximately half of
the files he examined in his office an original assignment was in the file and not recorded.
40. In October 2010, following revelations regarding the widespread use of robo-signed
affidavits in foreclosure proceedings throughout the United States, state attorneys general formed
a coalition to investigate and address the problem. The state attorneys general subsequently
partnered with the federal government in investigating and negotiating a settlement with
mortgage servicers, including the Master Servicer of the Trusts, Wells Fargo.
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41. According to the Congressional Oversight Panel’s November Oversight Report,
“Affidavits such as the ones involved in the foreclosure irregularities are statements made under
oath and thus clearly fall within the scope of the perjury statutes.”7
42. On April 13, 2011, the Federal Reserve Board signed and published twelve consent
orders (the “Federal Reserve Consent Orders”), which found that Defendant and Master Servicer,
Wells Fargo, engaged in “unsafe or unsound practices.” 8 In addition, the United States
Comptroller of the Currency entered into consent orders with Defendant 9 and seven other
servicers, including the Trusts’ Master Servicer, Wells Fargo, 10 as well as LPS, DocX,
MERSCORP, and MERS Inc. (the “OCC Consent Orders”).11 In the OCC Consent Orders, the
government found that each of the servicers:
a. Filed or caused to be filed in state courts and federal courts affidavits executed by
its employees or employees of third-party service providers making various
assertions, such as the ownership of the mortgage note and mortgage, the amount
of principal and interest due, and the fees and expenses chargeable to the
borrower, in which the affiant represented that the assertions in the affidavit were
made based on personal knowledge or based on a review by the affiant of the
7 Congressional Oversight Panel, November Oversight Report, Nov. 16, 2010, at 42. 8 See http://www.federalreserve.gov/newsevents/press/enforcement/enf20110413a9.pdf (Defendant’s Federal Reserve Consent Order) . 9 http://www.occ.gov/news-issuances/news-releases/2011/nr-occ-2011-47j.pdf (Defendant’s OCC Consent Order). 10 The seven other servicers were Bank of America, N.A., Citibank, N.A., HSBC Bank USA, N.A., JPMorgan Chase Bank, N.A., MetLife Bank, N.A., PNC Bank, N.A., and Wells Fargo Bank, N.A. 11 http://www.occ.gov/news-issuances/news-releases/2011/nr-occ-2011-47.html.
Case 4:13-cv-00517-BCW Document 8 Filed 06/18/13 Page 12 of 29
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relevant books and records, when, in many cases, they were not based on such
knowledge or review;
b. Filed or caused to be filed in state and federal courts or in the local land record
offices, numerous affidavits and other mortgage-related documents that were not
properly notarized, including those not signed or affirmed in the presence of a
notary;
c. Litigated foreclosure proceedings and initiated non-judicial foreclosure
proceedings without always ensuring that either the promissory note or the
mortgage document were properly endorsed or assigned and, if necessary, in the
possession of the appropriate party at the appropriate time;
d. Failed to devote sufficient financial, staffing and managerial resources to ensure
proper administration of its foreclosure processes;
e. Failed to devote to its foreclosure processes adequate oversight, internal controls,
policies, and procedures, compliance risk management, internal audit, third-party
management, and training; and
f. Failed to sufficiently oversee outside counsel and other third-party providers
handling foreclosure-related services.12
43. Reuters published a special report on July 19, 2011, stating that notwithstanding the the
servicers’ obligations under the Federal Reserve and OCC Consent Orders, “Reuters has found at
12 From In the Matter of: Bank of America, N.A., AA-EC-11-12, available at http://bit.ly/xOXZGI. All of the OCC Consent Orders against the eight mortgage servicers have similar language in this respect.
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least five that in recent months have filed foreclosure documents of questionable validity
including the Trusts’ Master Servicer, Wells Fargo.”13
44. Defendant U.S. Bank, itself, has also engaged in filing flawed and misleading documents
relating to foreclosures on mortgages held in investment pools. In 2011, the Massachusetts
Supreme Court held that US Bank, as trustee for Structured Asset Securities Corporation
Mortgage Pass-Through Certificates, Series 2006-Z, could not foreclose on a loan, as a trustee
for a mortgage-backed securities trust, because the documentation U.S. Bank provided in support
of the foreclosure was inadequate, improper and incomplete.14
45. On information and belief, and as a result of U.S. Bank’s activities in other matters, U.S.
Bank itself or acting through the originators, sellers, servicers and the Master Servicer, filed
flawed, misleading and unlawful documents as set forth in the OCC and Federal Reserve
Consent Orders with regard to the Trusts.
46. The Defendant’s failure to take corrective action has made it costly, and in some cases
nearly impossible, for anyone to effectively and efficiently pursue foreclosures on residential
mortgages within the Trusts, causing substantial damages to Plaintiffs. In fact, no foreclosure
can take place at the cost anticipated when Plaintiffs invested in the Trusts, because the costs
associated with preparing foreclosure documentation and participating in the enhanced
foreclosure processes have increased exponentially.15
13 http://www.reuters.com/article/2011/07/19/foreclosure-banks-idUSL3E7IJ2IF20110719. 14 US Bank Nat’l Assoc. v. Ibanez, 941 N.E.2d 40 (Mass. 2011). “The judge did not err in concluding that the securitization documents submitted by [US Bank] failed to demonstrate that [it] was the holder[] of the . . . mortgages. . . .” Id. at 53. 15 As the Honorable Arthur M. Schack of the New York State Supreme Court explained to Congress, courts are experiencing a “logjam” in foreclosures due to the heightened requirements, because many bank lawyers are reluctant to file the requisite affirmations under the penalty of perjury. Testimony of Hon. Arthur M. Schack before the Committee on Oversight and
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47. Because Defendant U.S. Bank was itself engaged in massive robo-signing with regard to
other deals, the Defendant failed to prevent, remedy or even address the robo-signing within the
Trusts at issue.
48. As a result, Defendant U.S. Bank has caused substantial damages, and will continue to
cause substantial damages to Plaintiffs through loss and injury to the Trusts caused by the
increased costs of foreclosure and the additional costs and burdens set forth above.
49. In addition to robo-signing, government investigations and reports have revealed other
wide-spread servicing breaches and abuses involving misconduct by the servicers of the Trusts at
issue in this action.
50. Beginning in October of 2010, the Office of the Inspector General, U.S. Department of
Housing and Urban Development, conducted a foreclosure and claims process review in
conjunction with its national effort to review the foreclosure practices of the nation’s five largest
Federal Housing Administration mortgage servicers, which included Wells Fargo, the Trusts’
Master Servicer. 16 On March 12, 2012, the agency issued its memorandums of review
(hereinafter “OIG Audits”).17
51. The OIG Audits concluded that affiants routinely signed foreclosure documents
certifying that they had personal knowledge of the facts when they did not. The affiants neither
reviewed the supporting documentation referenced in the documents nor verified the accuracy of
the documents. Further, notaries public also routinely notarized documents without witnessing
affiant signatures and properly recording the documents they notarized.
Government Reform on March 19, 2012, available at http://oversight.house.gov/wp-content/uploads/2012/03/Schack-Testimony-and-CV.pdf. 16 Bank of America, Wells Fargo Bank, CitiMortgage, JPMorgan Chase, and Ally Financial, Incorporated. 17 http://www.hudoig.gov/reports/featured_reports.php.
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52. In response to the revelations regarding the foreclosure scandal, in October 2010, the
Attorneys General of all 50 states formed the Mortgage Foreclosure Multistate Group. In a joint
statement issued on October 13, 2010, the group opined that robo-signing “may constitute a
deceptive act and/or an unfair practice or otherwise violate state laws.” Following a 16-month
investigation led by Iowa Attorney General Tom Miller, a coalition of 49 State Attorneys
General, the Departments of Justice, Treasury, and Housing and Urban Development reached a
settlement with the country’s five largest mortgage servicers: Bank of America Corp., CitiGroup,
Inc., JPMorgan Chase & Co., Ally Financial, Inc., and, the Trusts’ Master Servicer, Wells Fargo
& Co. In its complaint18 the coalition alleged that these mortgage servicers committed the
following unfair and deceptive practice in the discharge of their loan servicing activities:
a. Failing to timely and accurately apply payments made by borrowers and failing to
maintain accurate account statements;
b. Charging excessive or improper fees for default-related services;
c. Failing to properly oversee third-party vendors involved in servicing activities on
behalf of the Banks;
d. Imposing force-placed insurance without properly notifying the borrowers and
when borrowers already had adequate coverage;
e. Providing borrowers false or misleading information in response to borrower
complaints; and
f. Failing to maintain appropriate staffing, training, and quality control systems.
18 See https://d9klfgibkcquc.cloudfront.net/Complaint_Corrected_2012-03-14.pdf (providing copy of Complaint in United States, et al., v. Bank of America, et al., Civil Action No. 1:12-cv-00361-RMC (D.D.C. Mar. 14, 2012).
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53. The complaint further alleges, inter alia, that these servicers, including Wells Fargo, the
Master Servicer for the Trusts, engaged in wrongful conduct related to foreclosures including,
but not limited to, the following unfair and deceptive practices:
a. Failing to properly identify the foreclosing party;
b. Charging improper fees related to foreclosures;
c. Preparing, executing, notarizing or presenting false and misleading documents,
filing false and misleading documents with courts and government agencies, or
otherwise using false or misleading documents as part of the foreclosure process
(including, but not limited to, affidavits, declarations, certifications, substitutions
of trustees, and assignments);
d. Preparing, executing or filing affidavits in foreclosure proceedings without
personal knowledge of the assertions in the affidavits and without review of any
information or documentation to verify the assertions in such affidavits;
e. Executing and filing affidavits in foreclosure proceedings that were not properly
notarized in accordance with applicable state law;
f. Misrepresenting the identity, office, or legal status of the affiant executing
foreclosure-related documents;
g. Inappropriately charging servicing, document creation, recordation and other
costs and expense related to foreclosures; and
h. Inappropriately dual-tracking foreclosure and loan modification activities, and
failing to communicate with borrowers with respect to foreclosure activities.
54. Much of the wrongful conduct enumerated damages investors such as Plaintiffs. For
example, it is unusual for a borrower to pay improper fees related to foreclosure and default-
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related services, because the borrower is in default and lacks the resources to pay. Instead, the
improper fees are passed along to investors such as Plaintiffs. Similarly, the actions that push a
borrower into default or prevent a net-present value positive modification from taking place
reduce the proceeds to investors.
55. Therefore, Plaintiffs have been harmed, because, based on the consent orders, findings
and allegations above, Wells Fargo robo-signed documents, executed false documents and
engaged in the specific servicing violations alleged in this section with regard to the Trusts.
And, U.S. Bank sat idly by, ignoring its duties as Trustee.
BACKGROUND – IMPACT ON FORECLOSURES
56. The nation’s courts have responded to the servicers’ notoriously flawed paperwork by
instituting new procedures in foreclosure matters in an effort to insure the integrity of the
process. For example:
a. The New York Court of Appeals implemented a new rule on October 20, 2010,
requiring that every attorney handling a foreclosure matter sign a form verifying
that the documentation presented to the court is valid.
b. On November 8, 2010, the Cuyahoga County Court of Common Pleas (covering
Ohio’s largest county including the Cleveland metro area) announced a new
residential mortgage foreclosure affidavit policy that will require attorneys to
provide details of their communication with the representative of the party
seeking foreclosure and certify that, to the best of their knowledge, the pleadings
and other court filings are complete and accurate.
c. In Maryland, the state’s highest court approved new emergency measures that
provide for examiners and/or special masters to scrutinize the documentation in
foreclosure matters. The new rules specifically allow the courts to pass on the
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cost of the examinations to the firms foreclosing on debtors.
57. On July 11, 2012, Governor Brown signed the California Homeowner Bill of Rights into
law. Among the law’s provisions, the recording and filing of multiple unverified documents will
be subject to civil penalties of up to $7,500 per loan. In addition, according to the Wall Street
Journal, 25 additional states are currently contemplating changes to various laws concerning the
foreclosure process.19
58. Due to Defendant’s and the Master Servicer’s failings, no foreclosure can take place at
the cost anticipated when Plaintiffs invested in the Trusts, because the costs associated with
preparing foreclosure documentation and participating in the enhanced foreclosure processes
have increased exponentially. As the Honorable Arthur M. Schack of the New York State
Supreme Court explained to Congress earlier this spring, the courts are experiencing a “logjam”
in foreclosures due to the heightened requirements, because many bank lawyers are reluctant to
file the requisite affirmations under the penalty of perjury.20
59. According to recent Congressional testimony by Legal Services NYC, even when
participating in the aforementioned court mandated settlement procedure in New York, Master
Servicers are routinely engaging in delay tactics such as repeatedly asking for borrower
paperwork that has already been provided or is not required under the modification guidelines,
failing to review applications within the required timelines, failing to provide complete and
accurate information to borrowers and failing to provide explanations when denying a
modification request. Further, payment histories are “almost universally incomprehensible” with
19 Nick Timiraos, Banks Face Foreclosure Regulation By States, The Wall Street Journal, July 2, 2012, at A3. 20 Testimony of Hon. Arthur M. Schack before the Committee on Oversight and Government Reform on March 19, 2012 available at http://oversight.house.gov/wp-content/uploads/2012/03/Schack-Testimony-and-CV.pdf.
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assessments ranging from hundreds to a few thousand dollars in fees labeled simply as “other” or
“miscellaneous.” Improper denials of modifications based on servicer miscalculations of
borrower income, home value date or true amounts owed continue unabated. To add insult to
injury, the master servicers routinely and untruthfully blame their denials of modifications on
investors such as the Plaintiffs.21
60. Further, with regard to the Trusts, Defendant’s and the Master Servicer’s failings give
rise to additional expenses associated with foreclosures. Such expenses include, but are not
limited to: (a) sanctions for misconduct in legal proceedings; (b) attorneys’ fees and costs of
filing a foreclosure complaint dismissed or delayed due to improper documentation; (c)
attorneys’ fees and costs of re-filing or amending a foreclosure complaint or affidavit; (d)
attorneys’ and other professional fees related to defenses against government investigations and
claims; (e) costs of evaluating servicing procedures to ensure compliance with law; (f) the
payment to borrowers and/or government entities of settlements, fines, penalties, or judgments
related to this issue; (g) increased costs of future foreclosures; (h) “carrying costs” associated
with delaying Valid Foreclosures such as force-placed insurance, default-related services, and
taxes; and (i) costs associated with additional foreclosure requirements and procedures
implemented as a result of Defendant’s and the Master Servicer’s prior misconduct.
61. Defendant’s and the Master Servicer’s actions have harmed Plaintiffs, because their
actions have destroyed the value of the Trusts and Plaintiff’s investments in the Trusts.
BACKGROUND – IMPACT ON SALES OF FORECLOSED-UPON PROPERTIES
21 Testimony of Meghan Faux, Legal Services NYC before the Committee on Oversight and Government Reform on March 19, 2012 available at http://oversight.house.gov/wp-content/uploads/2012/03/3-19-12-Faux.pdf.
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62. When a homeowner loses a home to foreclosure, title to the home passes to the lender
before the property is marketed and sold to a third party. At this stage in the process, the
property is called “Real Estate Owned” (i.e., real estate owned by the lender). During this time,
the property is typically vacant – the homeowner no longer lives at the property. Real Estate
Owned has certain “costs of carry”, which are necessary to preserve the value of the property and
get the best possible price from a buyer to reduce the deficiency owed by the borrower and
maximize the return to the Trusts. Such “carrying costs” include property maintenance, force-
placed insurance coverage, taxes, and other expenses.
63. Further, once a property becomes Real Estate Owned, it cannot be allowed to deteriorate
so that it becomes unsellable and a public nuisance. Such practices damage both the borrower
and the investor by increasing the deficiency owed by the borrower on the loan and the loss
associated with the property, as well as the community at large.
64. According to a Brookings Institution Senior Fellow, the “impact of an REO property that
sits vacant and boarded up for a year after a foreclosure sale is far more damaging than that of a
property that is quickly fixed up and sold at an affordable price to a homebuyer. […] The
magnitude of that impact, as noted above, is largely a function of how long the property sat
vacant prior to resale. The shorter the period from initial notice to foreclosure sale, and from then
until the property is resold and reoccupied, the less the impact.”22
22 Alan Mallach, REO Properties, Housing Markets, and the Shadow Inventory, REO and Vacant Properties: Strategies for Neighborhood Stabilization (Federal Reserve Banks of Boston and Cleveland and the Federal Reserve Board), at 16.
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65. By contrast, according to the president of the National Community Stabilization Trust, a
“quick sale” of Real Estate Owned property “means lower carrying and marketing costs, less
property deterioration and vandalism, and other savings.”23
66. Plaintiffs, through their investments in the Trusts, have been harmed by the Defendant
and the Master Servicer, because their practices have caused properties in the Trusts to become
Real-Estate Owned, thus harming Plaintiffs and their investments further.
COUNT I – BREACH OF CONTRACT IMPLIED CONTRACTUAL DUTY TO AVOID CONFLICT OF INTEREST
67. Plaintiffs incorporate by reference the preceding paragraphs of this Complaint.
68. As Trustee, Defendant has an unwaivable duty to avoid conflicts of interest.
69. Under the PSA for the Trusts, Defendant holds the loans for the benefit of Plaintiffs and
the other investors in the Trusts.
70. Under the PSA, Defendant had the discretion to prevent the Master Servicer from
engaging in illicit and/or illegal acts with respect to any loans that Defendant held for the benefit
of Plaintiffs.
71. As alleged in detail above, Master Servicer, Wells Fargo engaged in numerous illicit and
illegal acts with regard to its servicing of the mortgage in the Trusts.
72. However, according to the April 13, 2011 consent order signed and released by the
Federal Reserve Board, Defendant, U.S. Bank, was engaged in the exact same activities with
regard to other mortgages and RMBS trusts for which it was a master servicer.
23 Craig Nickerson, Acquiring Property for Neighborhood Stabilization: Lessons Learned from the Front Lines, REO and Vacant Properties: Strategies for Neighborhood Stabilization (Federal Reserve Banks of Boston and Cleveland and the Federal Reserve Board), at 92.
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73. Due to the fact that Defendant itself was engaging in the same illicit and/or illegal acts,
Defendant failed to exercise that discretion for Plaintiff’s benefit with regard to the Trusts at
issue here.
74. For example, as part of robo-signing by the Master Servicer, its employees would forge
the signature of purported officers of Defendant.
75. Defendant could have: (a) demanded that this forgery cease; (b) sought a Court order
enjoining the forgery; and/or (c) reported the forgery to law enforcement.
76. However, Defendant could not exercise any of these remedies, as Defendant was
committing the same crime.
77. Defendant had an individual interest in preventing illegal acts committed in Defendant’s
own name. Defendant’s conflict of interest was so acute that Defendant could not act to protect
itself, let alone Plaintiffs.
78. Defendant’s conflict of interest severely damaged Plaintiffs in the manner set forth in this
Complaint. The damages from Defendant’s conflict of interest continue to accrue.
79. Plaintiffs have incurred substantial damages, most of which are attributable to losses
from the very foreclosure-related, robo-signing and servicing violations alleged in this
Complaint.
80. These losses, however, continue to mount as the costs of foreclosure and carrying costs
on empty homes increase each day.
81. Defendant’s demonstrated conflict of interest prevents Defendant from using its
discretionary powers to prevent LPS, DOCX, or the Master Servicer from engaging in illicit
and/or illegal acts with respect to any loans that Defendant holds for the benefit of Plaintiffs.
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82. Plaintiffs should be compensated for the damages caused by Defendant’s conflict of
interest.
COUNT II – TRUSTEE’S DUTY TO AVOID CONFLICT OF INTEREST
83. Plaintiffs incorporate by reference the preceding paragraphs of this Complaint.
84. As Trustee, Defendant has an unwaivable duty to avoid conflicts of interest.
85. Under each PSA or Indenture, Defendant holds the loans for the benefit of Plaintiffs and
the other investors in that Trusts.
86. Under each PSA or Indenture, Defendant had the discretion to prevent the Master
Servicer from engaging in illicit and/or illegal acts with respect to any loans that Defendant held
for the benefit of Plaintiffs.
87. Due to the fact that Defendant itself was engaging in the same illicit and/or illegal acts,
Defendant failed to exercise that discretion for Plaintiffs’ benefit.
88. Defendant had an individual interest in preventing illegal acts committed in Defendant’s
own name. Defendant’s conflict of interest was so acute that Defendant could not act to protect
itself, let alone Plaintiffs.
89. Defendant’s conflict of interest severely damaged Plaintiffs in the manner set forth in this
Complaint. The damages from Defendant’s conflict of interest continue to accrue and Plaintiffs
should be compensated for the damages caused by Defendant’s conflict of interest.
COUNT III – TRUSTEE’S BREACH OF FIDUCIARY DUTY
90. Plaintiffs incorporate by reference the preceding paragraphs of this Complaint.
91. As Trustee, Defendant has an unwaivable duty to avoid conflicts of interest.
92. Under each PSA or Indenture, Defendant holds the loans for the benefit of Plaintiffs and
the other investors in the Trusts.
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93. Under each PSA or Indenture, Defendant had the ability and duty to prevent the Master
Servicer from engaging in illicit and/or illegal acts with respect to any loans that Defendant held
for the benefit of Plaintiffs.
94. By at least April 13, 2011, the abuses by the Master Servicer, robo-signers and other
third-parties became so prevalent, and so well known, that the Defendant, as Trustee for the
Trusts herein, was imputed with the knowledge and facts set forth in this Complaint and should
have acted to protect the Plaintiffs as required by its contractual and common law duties.
95. Defendant engaged, and continues to engage, in the same illicit and/or illegal acts
committed by the Master Servicer to the Trusts. Because of this conflict, Defendant, as Trustee
for the Trusts, failed to act for Plaintiffs’ benefit.
96. Defendant’s actions have harmed and continue to harm the Plaintiffs by proximately
causing substantial and unwarranted losses to the investments in the Trusts. These losses
continue to mount as the costs of foreclosure and carrying costs on empty homes increase each
day.
97. As a result of Defendant’s breach of its implied duty of loyalty and duty to remain
conflict-free, Plaintiffs has been severely damaged in the matter set forth in the Complaint.
98. Defendant is incapable of serving as Trustee for the Trusts and should be removed as
Trustee.
COUNT IV – NEGLIGENCE
99. Plaintiffs incorporate by reference the preceding paragraphs of this Complaint.
100. At a minimum, Defendant had a duty to perform its ministerial duties with due care.
101. As set forth in this Complaint, Defendant failed to perform its ministerial duties with due
care.
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102. As an example, Defendant was required to execute certain documents associated with the
Trusts exercising its right to foreclose on a property. Defendant instead allowed the Master
Servicer to sign those documents, often allowing an employee of another company to sign as an
officer of Defendant under oath and outside the presence of a notary public.
103. As a result of Defendant’s negligence, Plaintiffs have been severely damaged in the
manner set forth in this Complaint.
104. Plaintiffs have incurred substantial damages, most of which are attributable to losses
from the very foreclosure-related, robo-signing and servicing violations alleged in this
Complaint.
105. These losses, however, continue to mount as the costs of foreclosure and carrying costs
on empty homes increase each day.
COUNT V – BREACH OF EXPRESS CONTRACT
106. Plaintiffs incorporate by reference the preceding paragraphs of this Complaint.
107. Defendant had a duty to hold the loans for the benefit of the Certificateholders, such as
Plaintiffs.
108. As set forth in this Complaint, Defendant did not hold the loans for the benefit of
Certificateholders.
109. As an example, certain loans were held for the benefit of affiliates of the Master Servicer
whose interests in maximizing their own profits conflicted with the interests of the
Certificateholders such as Plaintiffs.
110. As a result of Defendant’s breach of contract, Plaintiffs have been severely damaged in
the manner set forth in this Complaint.
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111. Plaintiffs have incurred substantial damages, most of which are attributable to losses
from the very foreclosure-related, robo-signing and servicing violations alleged in this
Complaint.
112. These losses, however, continue to mount as the costs of foreclosure and carrying costs
on empty homes increase each day.
PRAYER FOR RELIEF
WHEREFORE, Plaintiffs respectfully request that this Court enter an Order that:
1. Awards Plaintiffs damages;
2. Enjoins Defendant against allowing robo-signing for any loans in the Trusts; and
3. Grants such other and further relief as the Court deems just and proper.
DATED: June 18, 2013 TALCOTT FRANKLIN P.C. Leawood, KS _/s/_Paul D. Snyder___________________ Paul D. Snyder (#43067) 13401 Mission Road, Suite 207 Leawood, KS 66209 Tel: 913.948.7480 FAX: 913.440.0724 Attorney for Plaintiffs
OF COUNSEL: Talcott J. Franklin* TALCOTT FRANKLIN P.C. 208 North Market Street Suite 200 Dallas, Texas 75202 214.736.8730 phone 877.577.1356 facsimile [email protected] * Licensed only in North Carolina, South Carolina (inactive), and Texas. Pro hac vice
application to be submitted.
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CERTIFICATE OF SERVICE
The undersigned hereby certifies that a true and correct copy of the foregoing
document was or will be duly served upon the following party via the court’s CM/ECF electronic
notice on this 18th day of June, 2013:
Anna M. Bradford Morgan, Lewis & Brockius, LLP 5 Park Plaza, Suite 1750 Irvine, CA 92614-3508 Attorney for Defendant U.S. Bank National Association /s/ Paul D. Snyder Paul D. Snyder
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EXHIBIT A
Holdings of Cedar Hills Partners, LLC CMLTI 2007-WFH2 HEAT 2007-1 SABR 2006-NC1 MABS 2006-FRE2 MABS 2006-HE4 HEAT 2006-8 CMLTI 2007-AHL1 HEAT 2006-6 SASC 2006-BC2 ARMT 2006-3 JPALT 2006-S3 CMLTI 2006-HE2 CMLTI 2006-NC2 MABS 2006-FRE2 MABS 2006-NC3 SAIL 2006-3 HEAT 2006-2 MLMI 2005-A6 BAFC 2007-A HEAT 2005-4
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