Professional Documents
Culture Documents
v.
John L. Reed
TABLE OF CONTENTS
I. INTRODUCTION
Violations
APPENDIX
Supplemental Information
Exhibits
8. Wiring Instructions
9. Employment Verification
Disbursement Worksheet 2
Federal Statutes
FDIC Law, Regulations, Related Acts
R.C. § 1335.04.
Federal Statutes
RESEARCH LINKS
TABLE OF AUTHORITIES
Cases
Us District Court, Southern District of Ohio, Western Division, Judge: Thomas Rose
US District Court, Southern District, Eastern Division,
Judge: Christopher A. Boyko
US District Court, Southern District, Eastern Division, Judge: John D. Holschuh
Non Diversity
Abele v. Mid-Penn Consumer Discount. 77 B.R. 460, affirmed S45 F.2d 1009.
Bader vs. Williams, 61 A 2d 637
Bank of New York c Heath, 2001 WL 1771825, at *1 ( Ill. Cir. Oct. 26, 2001)
Barber, 266 B.R. 309 (Bankr. E.D. Pa. 2001)
Barnsdall Refining Corn. v. Birnam wood Oil Co., 92 F 2d 8
Basile v. H&R Block. Jlt(L. 897 F.Supp. 194.
Brophv v. Chase Manhattan Mortgage Co, 947 F.Supp. 879
Bryant v. Mortgage Capital Resource Corp., 2002 U.S. Dist. LEXIS1566, at **11-17 (N.D. Ga. Jan. 14 ,
2002
Chase Manhattan Mtge. Corp. v. Smith, Hamilton App. No. C-061069, 2007-Ohio-5874, at ¶18; Kramer v.
Millott (Sept. 23, 1994), Erie App. No. E-94-5…. 9, 16, 37, 73
Cole v. Am. Industries & Resources Corp. (1998), 128 Ohio App.3d 546, 552, 715 N.E.2d 1179
Standing Only
Cooper v. First Gov't Mortgage & Investors Corp., 238 F. Supp. 2d 50 (D.D.C. 2002)
Coyne, 183 F. 3d at 494 (quoting Pestrak v. Ohio Elections Comm’n, 926 F. 2d 573, 576 (6th Cir. 1991))
………. 13
Coyne, 183 F. 3d at 494; Valley Forge, 454 U.S. at 472…. 13
Coyne, 183 F. 3d at 494, quoting Pestrak v. Ohio Elections Comm’n, 926 F. 2d 573, 576 (6th Cir. 1991
Discover Bank v. Brockmeier, 12th Dist. No. CA2006-07-078, 2007-Ohio-1552, at ¶7, citing In re
Highland Holiday Subdivision (1971), 27 Ohio App.2d 237, 240, 273 N.E.2d 903.
Griggs v. Provident Consumer Discount. 680 F.2d 927, 503 F.Supp. 246, appeal dismissed 672 F2d 903,
appeal after remand 680 F.2d 927, certiorari granted, vacated 103 S.Ct, 400, 459 U.S. 56, 74
L.Ed.2d 225, on remand 699 F,2d 642.
Dash v. Firstplus Home Loan Trust 1996-2, 248 F. Supp. 2d 489 (M.D.N.C. 2003);
Daubert v. Merrill Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993)
First Union Natl. Bank v. Hufford (2001), 146 Ohio App.3d 673, 677, 679-680…. 9, 16
Fluehmann v. Associates Financial Services, 2002 U.S. Dist. LEXIS 5755 (D. Mass. March 29, 2002)
Ford Motor Credit v Milhollin, 444 U.S. 555, 565 (1980)
Guardian Agency v. Guardian Mutual. Savings Bank, 227 Wis 550, 279 NW 83 …36
In re Highland Holiday Subdivision (1971), 27 Ohio App.2d 237, 240……… 9
J. Strong, McCormick on Evidence § 337, 412 (5th ed. 1999)
Jackson, 245 B.R. 23 (Bankr. E.D. Pa. 2000)
Kramer v. Millott (Sept. 23, 1994), Erie App. No. E-94-5…… 8*********
Lopez v. Delta Funding Corp., 1998 U.S. Dist. LEXIS 23318 (E.D.N.Y. Dec. 23, 1998)
Mason v. Fieldstone Mortgage Co., U.S. Dist. LEXIS 16415 (N.D. Ill. 2001)
Menominee River Co. v. Augustus Spies L & C Co., 147 Wis 559, 572; 132 NW 1122
Midfirst Bank, SSB v. C.W. Haynes & Co., Inc., 893 F.Supp. 1304, 1312 (D.S.C. 1994)…… 10
Murray, 239 B.R. 728, 733 (Bankr. E.D. Pa. 1999).
Newton v. United Companies Financial Corp., 24 F. Supp. 2d 444, 451-57 (E.D. Pa. 1998) (improvident
lending).
Northland Ins. Co. v. Illuminating Co., 11th Dist. Nos. 2002-A-0058 and 2002-A-0066, 2004- Ohio-1529,
at ¶17 (internal quotations and citations omitted).
Nosek v. Ameriquest Mortgage Co., 386 B.R. 374 (Bankr. D. Mass 2008) Wells Fargo Sanction $250,000
Ochmanek, 266 B.R. 114, 120 (Bkrtcy.N.D. Ohio 2000) (citing Pinney v. Merchants’ National Bank of
Defiance, 71 Ohio St. 173, 177 (1904).1
Northland Ins. Co. v. Illuminating Co., 11th Dist. Nos. 2002-A-0058 and 2002-A-0066, 2004- Ohio-1529,
at ¶17 (internal quotations and citations omitted).
Predatory Lending, Securitization, and the Holder in Due Course Doctrine, 35 Creighton L. Rev. 503
(2002)
Pulphus v. Sullivan, No. 02 C 5794, 2003 U.S. Dist. LEXIS 7080, at *64 n.11 (N.D. Ill. April 25, 2003)
Quino v. A-I CreditCom. 635 F.Supp. 151
Ralls, 230 B.R. 508 ( Bankr E.D. Pa. 1999
Schaffer ex rel. Schaffer v. Weast, 546 U.S. 49 (2005)
Shealy v. Campbell (1985), 20 Ohio St.3d 23, 24…………….7,9
Short v. Wells Fargo Bank Minnesota, N.A.,
Smith v Encore Credit 4:08-cv-1462 USDC, N. Oh. W. Dist Judge McHargh
Soils v. Fidelity Consumer Discount Co., 58 B.R. 983,
State ex rel. Dallman v. Court of Common Pleas (1973), 35 Ohio St.2d 176, 298 N.E.2d 515, syllabus.
In Re Steinbrecher. 110 BR. 155, 116 A.L.R. Fed. 881.
Rodrigues, 278 B.R. 683 (Bankr. D.R.I. 2002)
Travelers Indemn. Co. v. R. L. Smith Co. (Apr. 13, 2001), 11th Dist. No. 2000-L-014.
UNITED STATES OF AMERICA, Plaintiff-Appellee,v. ý No. 01-4953 PATRICK LEROY CRISP
Valley Forge, 454 U.S. at 472 ….. 13
Vandenbroeck v. ContiMortgage Corp., 53 F.Supp. 965, 968 (W.D. Mich. 1999)
Washington Mut. Bank, F.A. v. Green (2004), 156 Ohio App.3d 461, the Seventh District Court of
Appeals…………. 10, 16
Whipp v. Iverson, 43 Wis 2d 166.
Whitaker v M.T. Automotive, Inc. 2006-Ohio-5481 …….. 36
Wells Fargo Bank, N.A. v. Byrd, 178 Ohio App.3d 285, 2008-Ohio-4603 ……sanctions
THE COURT OF APPEALS OF OHIO
SECOND APPELLATE DIVISION
Vs. Judge:
JOHN L. REED________________________,
Defendant
Now comes Defendant John A. Reed pro se to enter this Motion to Appeal the
Ruling of the Lower Court and to Rule on the Following. Plaintiff Wells Fargo Bank
(hereinafter “Bank” and/or “Plaintiff”), while lacking Legal Standing to initiate suit, did
cause to be filed against Defendant John L. Reed a foreclosure suit on February 27th,
2008 ultra vires. Defendant John A. Reed, son of the aforementioned Defendant John L.
Reed, was enjoined within this foreclosure action only for reason of his total and
complete ownership of the property referenced within the alleged Mortgage and note.
Plaintiff Wells Fargo Bank NA., claims to have become the alleged “possessor” or
“Holder” of the alleged Note and Mortgage after their initiation of this foreclosure
action.
documentation and improperly perfected alleged Mortgage and Note, Plaintiff’s counsel
did then act mens rea to set out to prove that the real owner of the property was the actual
creator of the aforesaid alleged Note and Mortgage, Defendant John A. Reed and not the
3. Defendant John A. Reed neither affirmed nor denied his position as creator of
the alleged Note and/or Mortgage, instead relying upon his rights of Burden of Proof of
Plaintiff to prove Defendant’s ownership of the Note & Mortgage. To this end, Plaintiff
did produce (and pay for) the Expert Testimony of a Ms. Vickie Williard, Handwriting
Analyst who testified she did not have a “measurable rate” of correct or incorrect analysis
results and that her profession was to appear in court and testify. She then proceeded to
testify that of the samples given to her to inspect (all but 1 of which were copies of
signatures of Defendants, which goes against CivR 1002), it did, in her opinion, appear to
her, that Mr. John A. Reed had signed the alleged Original Mortgage and Note.
4. Lower Courts have found, and Plaintiff has agreed, that the Principal named on
the alleged Note and Mortgage as the Creator of the alleged Mortgage and Note,
Defendant John L. Reed, Defendant John A. Reed’s Father, was in fact not the property
owner at the time of alleged Mortgage and Note creation nor the creator of the alleged
5. Plaintiff has averred and Defendant has denied, and no one has found, that
Defendant John A. Reed had broken into the Lending Agent’s facility in Tampa Florida,
6. Plaintiff has averred and Defendant has denied the above claim, and no one has
even proffered a reason why Defendant John A. Reed would substitute his Father’s name
on the alleged mortgaged property note for his own name, as would be necessary to
substantiate the Plaintiff’s claim, as statement of fact, of an alleged “forgery”. This claim
Note & Mortgage; then did, in violation of the U.S. Statue of Frauds, the U.S. Law of
Contracts and Civ.R. 17(A), with Judicial fiat, the court altered the alleged Mortgage &
Promissory Note, effectively destroying the original Mortgage and Note and their
representations of fact, to represent that Defendant John A. Reed was the true owner and
responsible party for the alleged Mortgage and Note. Then, without any formal notice of
suit against Defendant John A. Reed, as court proceeded to collectively and summarily
change ownership of the Note & Mortgage, they also immediately foreclose on same,
effectively denying Defendant John A. Reed of any proper recourse through Due Process.
"Every action shall be prosecuted in the name of the real party in interest." CivR. (17(A)
A real party in interest is one who is directly benefited or injured by the outcome of the
case. Shealy v. Campbell (1985), 20 Ohio St.3d 23, 24., State ex rel. Dallman v. Court of
Common Pleas (1973), 35 Ohio St.2d 176, 298 N.E.2d 515, syllabus, Northland Ins. Co.
v. Illuminating Co., 11th Dist. Nos. 2002-A-0058 and 2002-A-0066, 2004- Ohio-1529, at
¶17 (internal quotations and citations omitted)., Travelers Indemn. Co. v. R. L. Smith Co.
(Apr. 13, 2001), 11th Dist. No. 2000-L-014., Discover Bank v. Brockmeier, 12th Dist.
(1971), 27 Ohio App.2d 237, 240, 273 N.E.2d 903. and Article III, Section (4)(B) of the
Ohio Constitution which requires an actual controversy to exist in order for there be a
justiciable issue..
8. During the course of these pleadings Plaintiff’s Counsel did defame mens rea
the character of and/or did mens rea, libel, Defendant John A. Reed on numerous
occasions, and in a most public manner, in writing, that has since been disseminated
irretrievably and globally, stating, as fact, that Defendant John A. Reed had “forged” his
Father’s signature and “altered” Federal documents. And, as Defendant’s viability in his
chosen and previously distinguished profession, of Novell Networking Consultant
(hourly rate $100 per hr.), requires a “Top Security Clearance” to perform, Plaintiff’s
Counsel has effectively stripped Defendant of any chance of employment within his
profession, in perpetuity. Plaintiff’s Counsel committed this offense mens re, attempting
to alter the Court’s opinion of the Defendant to one of a lesser value and in so doing
attempted to prejudice the Court against Defendant. In so doing, Plaintiff did cause to be
published onto the Internet the charges indicated above and in the information technology
age we now live in, that same information was almost instantly disseminated globally by
data mining companies world wide, ie. Lexis-Nexus and many others, and is now,
carry imputations of criminal conduct and allegations, are not only injurious to Defendant
9. Based primarily upon testimony of the Plaintiff’s paid witness, notified of the
lack of standing, Plaintiff’s counsel then did proceed to foreclose against Defendant John
A. Reed, and seeking the property sold at Public Auction and unspecified damages, which
10. Defendant John A. Reed states Plaintiff Wells Fargo Bank did act ultra vires to
initiate this foreclosure suit and that the Court erred in judging this matter for lack of
subject matter jurisdiction to whit; Wells Fargo Bank NA. Brought the foreclosure action
against Defendant John L. Reed, naming Defendant John A. Reed only as true owner of
the property, on February 27th, 2008 , yet Assignment of Mortgage from Option One
Mortgage Corp. to Plaintiff Wells Fargo Bank NA. As Trustee For Securitized Asset
Backed Receivables LLC 2006-OP1 Mortgage Pass Through Certificates Series 2006-
OP1 (see exhibit “E”), did not occur until March 7th, 2008 and as such Plaintiff lacked
Legal Standing to initiate suit. “Every action shall be prosecuted in the name of the real
party in interest.” Civ.R. 17(A). A real party in interest is one who is directly benefited or
injured by the outcome of the case. Shealy v. Campbell (1985), 20 Ohio St.3d 23, 24. Kramer
v. Millott (Sept. 23, 1994), Erie App. No. E-94-5 First Union Natl. Bank v. Hufford (2001), 146
Ohio App.3d 673, 677, 679-680., Wells Fargo Bank, N.A. v. Byrd, 178 Ohio App.3d 285, 2008-Ohio-
4603 Please see attached “Previous Ohio Judgments For Lack Of Standing”, Exhibit “D”
titled Lack of Standing Positions Held and attached “Party in Interest Case Law”.
assuring that the parties to the action are the proper parties. According to the Supreme
Court of Ohio “a judgment rendered by a court lacking subject matter jurisdiction is void
ab initio.” Patton v. Diemer (1988), 35 Ohio St.3d 68, 70, 518 N.E.2d 941. As a result, if
the Court were to enter judgment without jurisdiction or without proper parties, the State
12. As stated in Buckeye Federal Sav. & Loan Ass’n v. Garlinger (1991), 62 Ohio
St. 3d 312, 315 (stating “promissory notes are negotiable instruments under R.C §
only the physical transfer of the instrument but also the indorsement, U.C.C §3-201, by
the holder to transferee, which of course, must be in writing. Id.; R.C. § 1303.22. The
Assignments and other documentation submitted by the Plaintiff fails to establish the
necessary link between the original lender and the Plaintiff. In just one instance of this
post foreclosure initiation) which allegedly transferred the alleged Note from Option One
Mortgage Corp. to Plaintiff, but documentation obtained through discovery proves no
legitimate transfer of the alleged Mortgage and Note from Originating Broker (H&R
Block) to Lender (Option One Mort.) until month’s after Lender (Option One) purports to
have already sold the alleged note and mortgage to Barclays Bank, gotten it back,
deposited it within a Trust, that had not yet been created, used it as collateral for the
sale of “asset backed securities”, and then, at time of default, the Lender (Option One)
takes back the alleged Mortgage & Note (contractually through the Pooling & Servicing
Agreement) and then, post foreclosure initiation, the Lender purportedly assigns that
alleged Note & Mortgage to Plaintiff Wells Fargo Bank N.A.. However, there is no
evidence that in each and every occurrence of transfer of the alleged note & mortgage
that there was ever proper recordation OR proper negotiation for the alleged Note &
Mortgage as per R.C. § 1303.22, therefore, Plaintiff Wells Fargo Bank N.A. not only
lacks Legal standing to initiate suit for reason of post assignment of note, Plaintiff Wells
Fargo Bank N.A. also lacks standing to initiate this suit because Plaintiff Wells Fargo
Bank Na. is not the rightful holder in Due Course of the alleged Note & Mortgage. Lower
court’s decision fails to acknowledge the missing links of negotiation, ie., lack of
indorsements R.C § 1303.22 lack of Assignments of the Note at issue prior to Plaintiff
initiating suit and lack of proper assignment and/or transference of the alleged Mortgage
& Note through each and every purported step of this alleged Note & Mortgage’s entire
chronology, from inception, and at each and every step in the mortgage chronology.
Plaintiff’s and Plaintiff’s Counsel’s lack of due diligence as defined by the Securities and
Exchange Act of 1934 SEC. 10A (a)(1)(2)(3), was detrimental and damaging to
Defendant as found in Securities and Exchange Act of 1934 SEC. 9(a) (1)(A)(B)(C), (2),
filing the Complaint and before the Plaintiff can establish that it has standing to invoke
jurisdiction to hear a case. Cain v. Calhoun (1979), 61 Ohio A.. 2d 240, 242 fn. 2 (citintg
State ex rel. Dallman v. Court of Common Pleas (1973), 35 Ohio St.2d 176).
13. Therefore, the appropriate time to establish that the Plaintiff is the holder of
the alleged Note and Mortgage is at the time of filing the Complaint, not at the time of
judgment rendered on the Complaint. Merely alleging it is the holder of the alleged Note
and Mortgage is insufficient where there is no written proof of the alleged interest in the
Note.
14. Having failed to establish that it holds an interest in the alleged Note and/or
Mortgage, the Plaintiff has failed to show that it suffered an injury in fact; therefore,
Plaintiff does not have standing to bring this action. A person lacking any right or interest
to protect may not invoke the jurisdiction of the court. State ex rel. Dallman v Court of
Common Pleas (1973), 35 Ohio St. 2d 176, 178, 298, N.E.2d 515. Therefore, having
failed to show that it is the holder of the alleged Note and/or Mortgage, Plaintiff’s action
15. The Lower Court’s decision fails to incorporate prior rulings of this Court on
identical issues. In fact, the Honorable Judge’s Rose S.D. Ohio Nov 2007 (where Judge
Rose addresses both diversity Jurisdiction and Standing separately), DLJ Mtge. Capital, Inc. v.
Parsons, 2008-Ohio-1177 (standing only), Wells Fargo Bank, N.A. v. Byrd, 178 Ohio
App.3d 285, 2008-Ohio-4603 (standing only), Boyko N.C. OH 31 Oct 2007 (standing and
diversity) and Holschuh N.D. OH 27 Dec 2007 (where Judge Holschuh addresses both diversity
Jurisdiction and Standing, but rules on lack of standing) have all ruled on numerous cases in
favor of the Defendant’s position within the past 16 months. This Court should not ignore
16. Plaintiff’s allege, through documents provided by Discovery, that the alleged
Mortgage and Note, after it’s creation on June 9th, 2005, had been sold by Option One to
Barclay’s Bank and there disassembled, without permission of the Defendant, separating
all risk associated with the mortgage & note from all interest proceeds gained through
ownership of same, without Defendant’s permission. The Mortgage and Note was then
repackaged, with interest income proceeds being re-directed to the Securitized Trust
Shareholders, but with all risk still owned by Option One Mortgage Co., (thereby,
without insurance licensure, or even the ability to obtain insurance licensure, “insuring”
the “Note”) and with 2/3rds of all other ownership responsibilities divided equally
between Mortgage Ramp Inc., and Wells Fargo Bank. Documentation provided by
Plaintiff through Discovery proves that not only through lack of signatures, dates,
1303.21, 1303.22, 5301.01 ORC (A), 5301.25, 5309.79 and UCC Article 3 & S.E.C. true
58 See,e.g., Midfirst Bank, SSB v. C.W. Haynes & Co., Inc., 893 F.Supp. 1304, 1312 (D.S.C. 1994)
(applying the HDC defense in a commercial context to hold that: “Article Three of the UCC controls
transfers of negotiable instruments, and the mortgage notes are clearly negotiable. If UCC Article Three
should not apply in this case and the holder in due course doctrine is no longer warranted, then any
abolishment of that body of law should come from the legislature, not the court”). See also Eggert,
supra note 12, at 560-70 (discussing cases where the HDC doctrine was applied against consumer
mortgage borrowers).
purporting to transfer the alleged Mortgage & note from one entity to another, but also,
the chronology and/or timeline of the alleged Mortgage & Note does not evidence a
viable sequence of events that would support Plaintiff’s allegations of Holder in Due
Course by a proper transfer of the alleged Mortgage and Note. Defendant alleges that
documentation clearly demonstrates their lack of Standing to initiate this suit from it’s
inception (see Exhibit “A” Tracking the Mortgage Chronology). When exhibits are
inconsistent with the plaintiff ’s allegations of material fact as to whom the real party in
R.C. § 1335.04. Ohio law holds that when a mortgage is assigned, moreover, the assignment is
subject to the recording requirements of R.C. § 5301.25. Creager v. Anderson (1934), 16 Ohio Law Abs.
400i (interpreting the former statute, G.C. § 8543). “Thus, with regards to real property, before an entity
assigned an interest in that property would be entitled to receive a distribution from the sale of the
property, their interest therein must have been recorded in accordance with Ohio law.” In re Ochmanek,
266 B.R. 114, 120 (Bkrtcy.N.D. Ohio 2000) (citing Pinney v. Merchants’ National Bank of Defiance, 71
Ohio St. 173, 177 (1904).1
17. Because Plaintiffs fail to meet Article III standing requirements, the Court
lacked subject-matter jurisdiction. Lack of jurisdiction may not be waived and may be
raised, by a party or sua sponte by the court, at any time. Without jurisdiction, the court
18. Plaintiffs’ wish the Court to believe that it does in fact have possession of the
Original Note and Mortgage. When confronted with request of delivery of each “Black
ink ball point pen signed original”, Plaintiff brings only a copy (against EvidR 1002 of
Best Evidence) of the Note and a forged Mortgage Document. Upon inspection of the
alleged “Original” Mortgage Document, and the signature which it bears, the signature
appears to have been placed on the document, or copy & pasted, using a computer and
ink jet printer. This red signature is in direct opposition to every other document
produced by Plaintiff through Discovery, which are all allegedly signed at the same place
and time with a black ink ball point pen and such red signature is in direct violation of
Plaintiff’s own Closing Agent’s explicit instructions that all closing documents must be
signed with a black ink ball point pen. See Exhibit “B”.
19. Mortgage, Note and loan creation documents contain many misrepresentations
(A) John L. Reed is represented as the party in interest upon the alleged
subject Mortgage and Note. Lower Courts have held and Plaintiff has
agreed that Defendant John A. Reed’s Father, John L. Reed, had no
interest or involvement in the creation of the alleged subject mortgage &
note.
(B). Option One Underwriter’s Worksheet, the Universal Residential Loan
Application and the Good Faith Estimate of Settlement Costs are all
misrepresenting Defendant’s fraudulent income to be $3,300.00 per month
(see exhibit “F”, “G” and “O”)
(C) Universal Residential Loan Application (see exhibit “G”) contains
multiple other misrepresentations of information;
(1) year house built is not 1990, it is actually 2000
(2) was sub-contractor, which Defendant has never been
(3) lists a completely blank employment history
(4) lists Defendant’s base income as $3,300 per month. Defendant, in
years 2001-2005 was only sporadically, “part time” employed, instead he
was spending the entirety of his working hours gathering materials and
constructing the subject property.
(5) No Interviewers signature
(6) U.S. Citizen? Says NO! Defendant is a natural born U.S. Citizen
(7) Child Support Obligations says NO. Plaintiff had knowledge of
Defendant’s three child support obligations until 2006. Information
provided by Plaintiff shows –0- obligations despite documents provided
from Plaintiff in Discovery (see Exhibits “T”, “U”, “V”, “Y” Child
Dependants & Defendants’Credit Report.) proving Plaintiff had
knowledge. see O.R.C. 1322.07(A),(B),(C),(E),(H)
20. Information contained on most of the rest of Plaintiff’s alleged transferences
of the alleged Mortgage and Note in their entirety (see Exhibit “A” Tracking the
legal transference took place of the alleged Mortgage and/or note between Plaintiff’s
named entities and/or co-conspirators. Plaintiff demonstrates near total disregard for
UCC and SEC Rules and Regulations and Ohio Revised Code, as they apply to Securities
Transfer and documentation. They also demonstrate the sales of securities based on NO
underlying Securitized assets actually held, and/or utter incompetence, and/or criminal
intention and execution. To Defendant’s belief and knowledge, Plaintiff Wells Fargo
Bank NA. has foreclosed on tens of thousands of properties within the borders of Ohio
and the United States using these same tactics and practices on a regular basis (see
Exhibit “D”) despite previous sanctions for the same actions (see also Exhibit “K” Wells
Fargo Sanctions and exhibit “Y” Maryland Sanctions Wells Fargo Bank). The Plaintiff’s
have demonstrated, in the case at bar, and created by exhibits provided, a well-
documented and clear history of violating every aspect of Due Diligence AND the “Clean
Hands Doctrine”. The attached exhibits prove not only the Plaintiff’s Lack of Standing in
the subject case at hand, but also their eager willingness to bring fraud, greed and
incompetence to the Courts in their attempts at unjust enrichment. Plaintiff’s Counsel also
21. Plaintiff Wells Fargo Bank, National Association As Trustee For Securitized
2006-OP1 is, as it’s name implies, merely a conduit, and a conduit can never suffer a loss
or injury as is required by the Real Party In Interest Rule. A Conduit can never “suffer a
loss” or “be injured” as it must immediately pass gains or losses to Investors who are (if
there are to be any at all) the true injured party—not the Servicer, not the Trustee and not
the Pass-Through Trust itself, and as such, not the Plaintiff Wells Fargo Bank NA.
Plaintiff fails to satisfy the U.S. Constitution Article III’s standing requirements that a
plaintiff must show: (a) it has suffered an injury in fact that is concrete and particularized
and actual or imminent, not conjectural or hypothetical; (b) the injury is fairly traceable
to the challenged action of the defendant; and (c) it is likely, as opposed to merely
22. The minimum constitutional requirements for standing are: proof of injury in
fact, causation, and redress ability (Valley Forge, 454 U.S. at 472). In addition, “the
plaintiff must be a proper proponent, and the action a proper vehicle, to vindicate the
rights asserted.” [Coyne, 183 F. 3d at 494, quoting Pestrak v. Ohio Elections Comm’n,
926 F. 2d 573, 576 (6th Cir. 1991)]. To satisfy the requirements of Article III of the United
States Constitution, the plaintiff must show he has personally suffered some actual
injury as a result of the illegal conduct of the defendant (emphasis added) (Coyne, 183 F.
3d at 494; Valley Forge, 454 U.S. at 472). In each of the above-noted complaints, the
named Plaintiff alleges it is the holder and owner of the alleged Note and Mortgage.
However, the attached alleged Note and Mortgage identify the alleged mortgagee and
promisee as other than Defendant John A. Reed, and the original lending institution as
other than the named Plaintiff. When exhibits are inconsistent with the plaintiff ’s
allegations of material fact as to whom the real party in interest is, such allegations cancel
each other out. Once again Plaintiff demonstrates their Lack of Standing to initiate this
foreclosure action.
23. Because Plaintiffs did not demonstrate, nor could they demonstrate, that their
members have suffered or were likely to suffer an injury in fact, they fail to meet Article
III standing requirements. Without standing, the Court did lack subject-matter
jurisdiction. Lack of jurisdiction may not be waived and may be raised, by a party or sua
sponte by the court, at any time. Without jurisdiction, the court must grant Defendants’
TO SUMMARIZE;
24. Plaintiff has failed to establish, within the confines of the rule of Law, that;
Defendant John A. Reed is the true maker and creator of the alleged Mortgage & Note
and, that the documentation supplied by Plaintiff is worthy and factual information
regarding the Defendant John A. Reed and, that Defendant John A. Reed is in fact a
“forger” and guilty of altering a Federally Regulated document(s) and that the
transference of the Mortgage and Note, from it’s inception and throughout it’s purported
assignment to Wells Fargo Bank NA., which occurs after the time of foreclosure
transference of title and/or is the legitimate Holder in Due Course of the alleged
Mortgage and/or Note and, that Plaintiff actually suffers any harm to satisfy the U.S.
Constitution Article III’s standing requirements to have the ability to initiate suit as is
25. Further, Defendant states that the lower courts’ summary of Plaintiff’s specific
monetary damages awards leaves Plaintiff free to charge any amount the Plaintiff deems
adequate, without specificity, stripping Defendant of any and all proper defense against
unwarranted charges. Defendant states that the lower courts decision, as stated, is so
vague that it is legally ambiguous. Defendant also states that the Civil Court failed in
their duty to present clarity as to respect of each and every counterclaim presented by
Defendant.
26. Therefore, in this part 1 of this pleading, Defendant states that should the
Court find the lower Court did err in their subject matter jurisdiction through Plaintiff’s
lack of standing position due to either/or ( 1.) the use of a post-dated assignment and/or,
other documentation provided by Plaintiff, exhibits which are inconsistent with the
plaintiff ’s allegations of material fact as to whom the real party in interest is and which
cancel each other out, ( 2.) Plaintiff’s inability to properly document and show and prove
legal and just transference of the alleged Mortgage and Note from any one entity to any
other entity within the chronology of the alleged Note and Mortgage AND failure to do
so within a viable chronology of the alleged Mortgage and Note from it’s inception to
present and/or, ( 3.) Plaintiff’s failure to satisfy Article III’s requirement of being the
injured party and/or ( 4.) the defacto conviction without trial of Defendant John A. Reed
of forgery and the alteration of Federal Documents without charge, trial or due process
and/or, ( 5.) Plaintiff’s exhibits of both unclean hands and lack of proper due diligence
and/or ( 6.) the lower court’s abuse of judicial fiat in altering the alleged Mortgage and
Note to change ownership of same from a Defendant John L. Reed to the Defendant John
A. Reed and/or ( 7.) the validity of the altered Mortgage and Note itself, and/or ( 8.) the
vagary used by the lower Court in granting Plaintiff carte blanche in monetary charges to
27. Wherefore, because the Plaintiff’s exhibits attached to their pleading are
Plaintiff has failed to establish itself as the real party in interest and court did lack subject
matter jurisdiction to hear same. Defendant John A. Reed does request this Court to (1)
dismiss this case with prejudice in it’s entirety, (2) sustain Defendant’s expressed
defamation and libel charges, stated elsewhere within this pleading, (3) award Defendant
any monetary reward the Court deems fit and proper for loss of employment (since
foreclosure inception in perpetuity) in his stated profession; plus for emotional, physical
and psychological pain & suffering; plus any and all costs associated with the defense of
this suit, and (4) order Plaintiff, with prejudice, to immediately cause to be released it’s
alleged mortgage against the subject property and award any and all cost and Legal Fee’s
(in their entirety) that Plaintiff’s Atty’s should/would have collected in the case to
Defendant.
PART II COUNTERCLAIMS:
28. Alternatively, should the Court find Plaintiff Wells Fargo Bank NA. to have
just cause and righteous ability to proceed with foreclosure action against Defendant and
rightful property owner John A. Reed, the Defendant is right and proper to bring, at this
time and within this Court, the following affirmative Counter Claims and Claims.
29. Defendant John A. Reed incorporates, by reference to this case from it’s
inception, all of the preceding and foregoing allegations and defenses proffered, in and to
the entirety of, and included within each and every of Defendant’s answers, pleadings and
Counterclaims, as in regard to the Complaint in it’s entirety and from it’s inception, and
respectfully requests answer on each and every claim and counterclaim in specificity.
30. Defendant John A. Reed asserts multiple cause of actions against Wells Fargo
Bank and it’s co-contributors/assigns/agents and counsel under the FDCPA, Ohio RICO,
Federal Fair Credit Reporting Act , Hoepa, TILA, FDIC Law, Regulations, Related Acts,
Ohio Revised Code and the Ohio Corrupt Activities Statute seeking relief as prescribed in
those acts. Such claims arise, not only from the mortgage loan transaction that was
subject of this Wells Fargo’s foreclosure action, but also from misrepresentations by
Wells Fargo Bank and its counsel during these foreclosure proceedings. Defendant states
and has repeatedly stated Plaintiff Wells Fargo Bank does lack standing to bring this suit
upon Defendant. Consequently, prior to the courts previous action, Defendant did not
even know who was the true “holder and owner” of the alleged Note & Mortgage, and
still does not, so like a claim for abuse of process, the FDCPA Ohio RICO, Federal Fair
Credit Reporting Act , Hoepa, TILA, FDIC Law, Regulations, Related Acts and the and
Ohio Corrupt Activities claims were not required to be raised during the foreclosure
actions (even assuming the foreclosure courts would have entertained them), but may be
To quote (and incorporate as if my own) Bert Ely, a longtime analyst of the financial
services industry and a scholar at the conservative Cato Institute who was among the first
to predict the S&L scandal of the 1980s, “this is well-established in bankruptcy practice,
that you have to properly perfect the security interest, and if you haven’t, you’re
screwed”.
“Securitization ostensibly provides a source of capital so that more home loans are available to
borrowers. However, the series of corporate and banking transactions that make up securitization
cannot be permitted to avoid liability by those who are actually providing the funding _ and often
controlling the transaction.” See Kurt Eggert, Held up in Due Course: Predatory Lending,
Securitization, and the Holder in Due Course Doctrine, 35 Creighton L. Rev. 503 (2002).
32. If such basic legalities aren’t adhered to, a homeowner could pay his or her
way out of a foreclosure jam only to wind up in another when a new plaintiff emerges
claiming to own the debt. Mortgage lending and servicing is “a matter of dotting the I’s
and crossing the T’s. … That’s what puts the discipline in the process.” Bert Ely.
33. Plaintiff attaches documents to its complaint that conflict with the allegations
of material facts in the complaint in which the plaintiff claims that it “owns the Note” and
conflict with the alleged mortgage and note attached to the complaint that identifies
Option One Mortgage Corporation, as the lender with the original security interest. These
inconsistencies please see attached; Exhibit “A” Tracking The Mortgage Chronology.
35.Plaintiff Wells Fargo Bank Na. brings fraud into the Court with it’s allegations
of ownership of alleged Mortgage & Note as per Legal requirement which states “U.C.C.
- § 3-203 (b)
such fraud being not only the fraudulent and libelous misrepresentation of Defendant by
Plaintiff in the creation of the Note and Mortgage, but the fraudulent misrepresentation as
it pertains to each and every purported transference of the subject note and mortgage and
is exemplified (singularly, but not wholly) by the sale, as is referenced within Plaintiff’s
evidence titled “Purchase Price and Terms Agreement” (Plaintiff’s Exhibit “25”) which
purports the transference of ownership of the mortgage and note from Option One
Mortgage Co. to Barclays Bank. This same document is dated June 10th, 2005. This date
is one day after the alleged creation of the mortgage & note, yet Plaintiff’s evidence of
assignment (see Exhibit “J”) from H&R Block to Option One Mortgage Co. is dated
four months AFTER Plaintiff alleges to have sold same mortgage and note to Barclays
Bank and AFTER Option One has that same note into the “TRUST” (which,
consequently wasn’t even created yet!) without yet having Legal possession of same at
time of sale as is evidenced by the date of Plaintiff’s Assignment from H&R Block to
36. Plaintiff Wells Fargo Bank N.A. brings fraud into the Court with it’s
allegations of ownership of alleged Mortgage & Note as per Legal requirements with “
Plaintiff’s Exhibit #25 titled “Purchase Price and Terms Agreement” which bears a
place for signature, but is unsigned and unindorsed as is required, U.C.C. 3-203 (c)
Unless otherwise agreed, if an instrument is transferred for value and the transferee does
not become a holder because of lack of indorsement by the transferor, the transferee has
negotiation of the instrument does not occur until the indorsement is made. As such,
37. Further, Plaintiff Wells Fargo Bank NA. claims to be the “holder in due
course” of the alleged Note & Mortgage referenced within this pleading and as such has
supplied much information that purports to verify same, yet Plaintiff’s own exhibit
submissions prove otherwise. In fact, Plaintiff’s document production proves only that
Plaintiff MAY have, at best, been pledged the alleged debt but had not actually yet
“transferred” the alleged debt and as such Plaintiff does lack Legal standing to initiate
this foreclosure suit and the Civil Court did lack the right to hear same case for lack of
subject matter Jurisdiction. SeeExhibit “A” Tracking the Chronology Of The Mortgage.
In foreclosure actions, the real party in interest is the current holder of the note and
mortgage.
Chase Manhattan Mtge. Corp. v. Smith, Hamilton App. No. C- 061069, 2007-Ohio-5874, at
¶18; Kramer v. Millott (Sept. 23, 1994), Erie App. No. E-94-5 (because the plaintiff did not prove that
she was the holder of the note and mortgage, she did not establish herself as a real party in interest). A
party who fails to establish itself as the current holder is not entitled to judgment as a matter of law.
First Union Natl. Bank v. Hufford (2001), 146 Ohio App.3d 673, 677, 679-680. Thus, in Hufford, the
Third District No. 07AP-615 5 Court of Appeals reversed a grant of summary judgment where a
purported mortgagee failed to produce sufficient evidence explaining or demonstrating its right to the
note and mortgage at issue. In that case, the record contained only "inferences and bald assertions" and
no "clear statement or documentation" proving that the original holder of the note and mortgage
transferred its interest to the appellee. Id. at 678. The failure to prove who was the real party in interest
created a genuine issue of material fact that precluded summary judgment. Id. at 679-680.
{¶13} Similarly, in Washington Mut. Bank, F.A. v. Green (2004), 156 Ohio App.3d 461, the Seventh
District Court of Appeals reversed the trial court's finding of summary judgment where the plaintiff
failed to prove that it was the holder of the note and mortgage. There, the defendant executed a note and
mortgage in favor of Check 'n Go Mortgage Services, not Washington Mutual Bank, F.A. Although
Washington Mutual Bank, F.A. submitted an affidavit alleging an interest in the note and mortgage, it
did not state how or when it acquired that interest. Id. at 467. The court concluded that this lack of
evidence defeated the purpose of Civ.R. 17(A) by exposing the defendant to the danger that multiple
"holders" would seek foreclosure based upon the same note and mortgage. Id.
38. The loan Originators also cannot appear in Court and claim their right to
foreclose because they would be in violation of securities laws for not transferring the
loan to the Trust when they were supposed to yet sold securities based on same.
39. Plaintiff, through pleadings and judicial fiat or other devices, has transferred
ownership of the Note & Mortgage from named Defendant John L. Reed (the alleged
Father of Defendant John A. Reed) to the owner of the property (Defendant John A.
Reed) by stating, as fact, that Defendant John A. Reed did forge his Father’s signature
on the Original Note & Mortgage and subsequent mortgage loan application. Defendant
John A. Reed refutes these allegations for these reasons (or lack thereof);
40. There is no motivation that would cause this action to be of any value
John A. Reed’s Credit Status and rating were solely used in the mortgage note creation
(Exhibit “C”) and Defendant John A. Reed’s Social Security number, used solely, appears
clearly be seen from the Credit Report of Defendant John A. Reed, there would be no
advantage in using Defendant John L. Reed’s “name” without also the use of Defendant
John L. Reed’s Credit Rating, which was not used, nor was Defendant John L. Reed’s
good name used as a Co-maker of the Note. Lower Courts have previously ruled and
Plaintiff’s have agreed that Defendant John A. Reed’s Father, Defendant John L. Reed,
41. Of key importance is the undisputed fact that all of the original loan
Plaintiff’s place of business “H&R Block Mortgage, 4520 Seedling Circle, Tampa,
Florida 33614, to which Defendant John A. Reed had no access in spite of Plaintiff’s
Counsel’s aspersions otherwise and thereby any accusations otherwise are unfounded and
libelous se to the Character of Defendant John A. Reed and carry imputations of criminal
conduct and allegations that are injurious to Defendant in his chosen and established
profession. Plaintiff’s Counsel committed this offense mens re, attempting to alter the
Court’s opinion of the Defendant to one of a lesser value and in so doing prejudice the
Court against Defendant, but in so doing, Plaintiff did cause to be published onto the
Internet the charges indicated above and within the information Technology age we now
live in, that same information was instantly disseminated Globally by data mining
Ohio October 31, 2007), Judge Boyko found the foreclosure process was “a quasi-
opponents,” disregard the requirements of the judicial process and instead “rush to
foreclose, obtain a default judgment and then sit on the deed, avoiding responsibility for
maintaining the property while reaping the benefits of interest running on the judgment.”
Id. at *2.
I. FAILURE OF PLAINTIFF TO PROVE OWNERSHIP OF THE NOTE
43. In trial Court, in the attempt to “prove” Defendant John A. Reed was in fact
the originator of the note, and had, in their own libelous words “forged his Father’s
signature” (see: Wells Fargo Bank Motion For Summary Judgment) Plaintiff produced
an alleged “Original Mortgage” document and then did ask Defendant John A. Reed if in
fact the signature affixed onto the document was indeed his signature, to which
Defendant John A. Reed did testify “with 23 years of computer graphics experience I can
not honestly say that this is my signature” ….. “it appears to have been made by either a
44. Defendant John A. Reed wish’s the Court’s to understand that within context
of the arena of Computer Graphics, this question and answer deserves examination
because if one’s signature is copied from one document and pasted onto another, it is not
45. Computer graphics software has been around for 20 or more years that gives
the user, even the most novice of user, the ability to cut or copy a picture and/or a piece of
a picture, any/or all or any part of any or all text or any part of or an entire signature
from any one piece of information and then to paste it onto any other piece of
information, in whole or in part (see Exhibit “B”, page 2 for an example of Copy/Pasted
Signatures). Such an act is a simple and routine part of today’s computing environment,
and every business class “Word Processing” program (i.e. Microsoft’s “Word” or Corel’s
Pro”) has this function embedded directly within them. Moreover, one must only go to
www.TuCows.com ) and do an in-site search for “Graphics” to find free software that
would allow any user to not only “Copy & Paste” a signature, but also to alter it in any
way imaginable, by the user, with such software being well within the budget of a close
46. Within the context of the above testimony and the experience level of
Defendant, Defendant’s answer remains the same, but wants the Courts to understand that
the signature on the document produced by Plaintiff was indeed a graphical reproduction
of what appears to be Defendant’s signature, and/but, like a copy & pasted counterfeit
dollar bill, the signature, which lacked even the impression of a ball point pen and which
was also “printed” in the color of red, both specifically against Closing Agents
instruction (see exhibit “B” Closing Agent Instructions line 6 “All Closing Documents
Must Be Signed In Black Ball Point Pen.”) and was unlike each and every other
were all signed in Black ink from a ball point pen, was also counterfeit.
47. Plaintiff failed in their legal requirement to prove beyond a reasonable doubt
and with a clear and convincing preponderance of evidence that Plaintiff Wells Fargo
Bank did truly own the Promissory Note & Mortgage at the time of Foreclosure initiation
evidence shows beyond any reasonable doubt that Plaintiff Wells Fargo Bank did not, at
the time of the Foreclosure inception and/or, even at present have/has any legal right to
begin foreclosure proceeding against Defendant John A. Reed res ipsa loquitur. Wells
48. The Supreme Court discussed how courts should allocate the burden of proof
(i.e., the burden of persuasion) in Schaffer ex rel. Schaffer v. Weast, 546 U.S. 49 (2005).
The Supreme Court explained that if a statute is silent about the burden of persuasion, the
court will “begin with the ordinary default rule that plaintiffs bear the risk of failing to
prove their claims.” In support of this proposition, the Court 2 J. Strong, McCormick on
“The burdens of pleading and proof with regard to most facts have been and should be assigned to
the plaintiff who generally seeks to change the present state of affairs and who therefore naturally
should be expected to bear the risk of failure of proof or persuasion.”
of Option One Mortgage Corporation and NOT an employee of now defunct alleged
mortgage originator H&R Block Mortgage Co., who did testify that there was indeed, on
the books and records of Option One Mortgage Corp., a Mortgage and Note listed
referencing one John L. Reed at the subject property address but could find no same
listing in the name of John A. Reed and because he was not in the employ or present at
the subject mortgage creation, such said testimony is, in this instance irrevalant and
50. In trial, Plaintiff also called on “Hand Writing Expert” witness Vickie Willard
who then did testify that in her opinion the signatures occupying the alleged Mortgage &
Note were indeed that of Defendant John A. Reed. Upon cross-examination though, Ms.
Willard testified that there is no statistical evaluation of probability of her expertise and
that her occupation is more an art than a quantified science. This fails the standard of
Daubert v. Merrill Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993) which is best stated in;
UNITED STATES OF AMERICA, Plaintiff-Appellee,v. ý No. 01-4953 PATRICK LEROY CRISP
“The opinions of experts upon handwriting, who testify from comparison only, are regarded by
the courts as of uncertain value, because in so many cases where such evidence is received witnesses of
equal honesty, intelligence and experience reach conclusions not only diametrically opposite, but always
in favor of the party who called them. “ Please See attached “The Daubert Factor”
51. Plaintiff’s Wells Fargo Bank has failed, in their legal requirement of burden
of proof, to prove beyond a reasonable doubt and with a clear and convincing
methodology that fails the Daubert factors, and is therefore impermissible and unreliable.
53. This Mortgage debt case before the Court, missing both testimony of a
competent fact witness, one present at the time of loan origination, and authenticated,
“best evidence”, denies the Court the ability to identify just what kind of case is before it,
and therefore it’s powers have not been properly invoked. It lacks subject matter
Jurisdiction. Proceeding from this point would constitute a fraud and the Judge would be
a party to it. Plaintiff has failed in his burden of proof, that Defendant John A. Reed was,
in fact, the actual Mortgager. Subject Matter Jurisdiction to hear a particular case comes
from sufficiency of the pleadings. Additionally, to be allowed to precede the Court does
COUNT ONE
FDCPA
Federal Fair Debt Collection Practices Act
does allege that Wells Fargo Bank and its Counsel violated the Federal Fair Debt
corrupt activity in violation of the Ohio Corrupt Activities statute, Ohio Rev. Code §
56. Federal Law prohibits the use of “any false, deceptive, or misleading,
representation or means in connection with the collection of any debt…” including the
“false representation of … the character, amount, or legal status of any debt…” and the “
threat to take any action that cannot legally be taken… “ 15 U.S.C. 1692e.
file an assignment of the alleged note or mortgage of the named Defendant until after the
note was in default, for no consideration and also until after it had filed suit in its own
name as the holder and/or owner of the note and mortgage; and that same alleged
assignment came not from the true and actual holder in due course of ownership of the
alleged Mortgage and Note, thereby making same assignment nothing more than a
59. These violations of the FDCPA entitle Defendant to recover the actual
damages they have sustained as a result of the improper filing of foreclosure suits, or
alternative damages as are permitted by law, and costs and reasonable attorney fees.
COUNT TWO
Violations of the Ohio Rico Act
A. Wells Fargo Bank NA., acting as trustee for holders of mortgages and
mortgage-backed securities, has filed thousands of foreclosure actions
under false pretenses, without standing and without complying with Ohio
law.
B. Defendant alleges an improper taking of their real property through the
Plaintiff’ use of intentional nondisclosure, material misrepresentation, and
the creation of fraudulent loan documents in violation of the RICO Statute,
and continuing injury and damages including the auction of their home
and future overpayment of fraudulent charges.
C. These activities are a pattern of corrupt and illegal activity and in violation
of Ohio RICO law.
62. Wells Fargo Bank N.A., has received millions, maybe Billions of dollars in
distributions from the sale of foreclosed properties without possessing properly perfected
and recorded assignments/transference’s of the mortgages. Wells Fargo Bank N.A. 's
"pattern and practice of seeking and obtaining foreclosure judgments in state and federal
courts without a duly perfected and recorded assignment, without a true and accurate
without the right to engage in the trust business in Ohio" constitutes a "false, deceptive
violation of the Federal Fair Debt Collection Practices Act as is referenced within the
above two quotes, 15 USC Sec 1692e. 51. In addition, this suit alleges Wells Fargo Bank
NA has failed to comply with Ohio requirements for a trust company or national bank to
do business in Ohio. That the two named Ohio foreclosure law firms have also violated
the FDCPA and RICO by acting on behalf of Wells Fargo Bank NA in the foreclosure
process.
63. Defendant John A. Reed is seeking unspecified actual and statutory damages,
including treble damages under Ohio RICO law, as well as attorney's fees and costs.
Defendant John A. Reed also seeks the appointment of a receiver to recover from Wells
Fargo Bank NA all charges it has collected from Defendant John A. Reed and any
interests in real property it acquired illegally, and to collect fees that Wells Fargo Bank
64. The suit also names two Ohio foreclosure law firms as defendants: Plunkett
Cooney 300 E. Broad St., Columbus, Ohio 43235 & Lerner Sampson & Rothfuss P.O.
Cooney 300 E. Broad St., Columbus, Ohio 43235 & Lerner Sampson & Rothfuss P.O.
66. The action stems from foreclosure of Defendant John A. Reed’s property
located at 7940 Guilford Dr., Dayton, Ohio 45414 whose alleged mortgage had been
allegedly sold, securitized, divided and then pooled without Defendants permission.
67. Ohio RICO states that “No person, through a corrupt pattern of corrupt
activity … shall acquire or maintain, directly or indirectly, any interest in, or control of,
Revised Code.
69. Section 2921.03 of the revised Code states that “No person, knowingly and
70. Defendant states the Plaintiff has violated Section 2921.03 by knowingly
filing complaints which do allege Wells Fargo Bank’s ownership of promissory notes and
mortgages when in fact it does not own the alleged notes or mortgages, and by knowingly
filing multiple complaints (see Exhibits “D”, “K”) as trustee in reckless disregard of the
fact that Plaintiff Wells Fargo Bank was not authorized to engage in such activities both
as trustee in Ohio and for lack of standing. These filings were made in a wanton and
reckless manner in an attempt to influence state and federal judges and judicial officers in
Ohio to enter judgments against Defendant(s) on the alleged mortgage and Note,
including for principal, interest, late fee’s, penalties, costs and attorney fees, and to
have maintained more than two lawsuits under the fraudulent and misleading
72. Through the filing of foreclosure actions under false pretense and in violation
of U.S. Law, U.C.C., SEC and Ohio Law, and/or any other applicable and\or Local Laws,
Plaintiff Wells Fargo Bank, with the active assistance and participation of the plaintiff law
firms herein named, has acquired an interest in real property, including obtaining a
73. As a result of Plaintiff and Plaintiff’s Counsel’s conduct, the Defendant has
been injured in many various ways, including loss of time to conduct Defendant’s
available Legal Counsel and Defendant’s forced placement into Defending himself pro
se, through penalties and court costs and attorney fees charged against their account(s) on
lawsuit(s) filed under false and misleading circumstances, and from other incidental and
74. Section 2923.34 of the Revised Code entitles Defendant John A. Reed who
has established the elements of Ohio RICO violation to an order divesting Wells Fargo
Bank NA of its interest in Defendant’s real property and to actual damages Defendant has
sustained, which may be tripled if proved by clear and convincing evidence, and to costs
75. The Defendant further states, and does move the Court, pursuant to sec.
2929.34(B)(1) of the Ohio RICO Statute, to order Wells Fargo Bank NA divestiture in
any interest in Defendant’s real property and also moves the court, pursuant to sec.
2929.34(D) of the Statute, for an order of injunctive relief and a temporary injunction.
76. It is without dispute or issue that a claim under the Ohio RICO statute was
not presented by Defendant John A. Reed or litigated in the civil-court foreclosure action,
mortgage and note, Defendant could have not brought such claim in civil court.
Defendants have properly brought the claim as part of their Appellate action herein
1367(a). The Ohio RICO statute is a state law, which authorizes the specific relief
requested by the Defendant. As such, Defendant’s claims which attack the foreclosure are
not barred by the Rooker-Feldman doctrine. Smith v Encore Credit 4:08-cv-1462 USDC,
COUNT THREE
77. Defendant John A. Reed incorporates by reference all of the proceeding and
foregoing allegations in the entirety of Defendant’s answers & pleadings as in regard to the
motions, filed fraudulently, in bad faith, and with the purpose of harassment,
necessitated entirely by their own lack of Due Diligence and other stated actions,
under this title and is liable to Defendant in an amount equal to the sum of
Plaintiff’s exhibits, throughout each and every proposed change of ownership of the
alleged mortgage & note Plaintiff exhibits no evidence whatsoever of proper and final
Indorsement of note from or to any other person or entity. Defendant states that
throughout the entirety of the purported passage of this alleged mortgage and note from
any one entity to another, there is not one signature properly indorsing any of the
documents thereby voiding any and all purported transference of same to any and/or all
of Plaintiff’s assign’s and even to Plaintiff themselves. Plaintiff’s act of delivering into
the Court these fraudulent documents constitutes misrepresentation and fraud and in
Defendants knowledge and belief Plaintiff has constituted this same fraud upon the
Courts in thousands if not tens of thousands of cases and as such Plaintiff’s callous and
repeated action does fall within the guidelines of the RICO (racketeering) act.
80. Plaintiff Wells Fargo Bank N.A., brings fraud into the Court with it’s
allegations of ownership of Proper Mortgage & Note through it’s disassembly and
subsequent division of Note between the varying entities, Option One Mortgage Corp.,
Mortgage Ramp Inc., the “Trust” and Wells Fargo Bank in violation of U.C.C. - § 3-203
(d) “If a transferor purports to transfer less than the entire instrument, negotiation of the
instrument does not occur. The transferee obtains no rights under this Article and has
only the rights of a partial assignee.” Defendant states the very act of splitting the
Original Note & Mortgage, so that the maker Bank, Option One, “insure’s to investers”
by guaranteeing to replace the note in the event of a “Credit event” as described and
required in section 2.03 of The Pooling & Servicing Agreement Exhibit “J” (plaintiff’s
Exhibit 18)
Option One Mortgage Corporation, in its capacity as Servicer, hereby makes the
representations and warranties set forth in Schedule II hereto to the Depositor and
the Trustee, as of the Closing Date.”
And as such did effectively act to void and destroy the original note and mortgage, as it
was created between Defendant and Original Lender, and as such does render it, from that
point forward, to become null and void and Defendant moves the court to find same.
81. The above does indeed show that, If Plaintiff’s representation of chain of
ownership occurred as represented, the mortgage and note did have the risk removed
and/or separated at the time of placement of the Note into “The Trust” by Option One in
the promise that said Risk would be retained by Option One, in their attempt at
between the Defendant (as maker of the alleged note) and Plaintiff, and in fact, do void
the alleged note in it’s entirety and also clearly demonstrate insurance fraud being
82. Additionally plaintiff makes allegations in its complaint that conflict with the
documents attached thereto as to who owned the subject note and at which particular
time.
83. When exhibits are inconsistent with the plaintiff ’s allegations of material fact
as to whom the real party in interest is, such allegations cancel each other out.
84. Because the facts revealed by Plaintiff ’s exhibit are inconsistent with
Plaintiff ’s allegations as to its ownership of the subject note and mortgage, those
85. The Plaintiff in this action meets none of the required criteria. Because the
ownership of the subject alleged promissory note and mortgage, Plaintiff has failed to
establish itself as the real party in interest and has failed to state a cause of action.
86. The Defendants recognize the precedent set in regarding the assignment of a
mortgage. However as the Second District Court of Appeals has noted, standing
requires that the party prosecuting the action have a sufficient stake in the outcome and
that the party bringing the claim be recognized in the law as being a real party in interest
entitled to bring the claim as of the date of the commencement of the action. The plaintiff
misrepresentation as to who the Plaintiff really is. The assignment cannot post date the
filing of this action if assignment does not relate back to the commencement of the
litigation.
87. The Plaintiff, in its complaint alleges that it “owns the Note and
Mortgage” however it has failed to produce the material evidence required to support its
claim. In the absence of this evidence the Plaintiff is clearly and fraudulently
misrepresenting themselves as the real party in interest and the holder in due course with
88. The Plaintiff alleges that it is the holder in due course on the subject
alleged mortgage and note, yet it is the belief of the Defendant that the note was part of a
larger securitizations process and sold to several un-named parties and beneficial owners,
and any claims by Plaintiff, in the absence of true, just, legal and convincing evidence
that proves Plaintiff is the true holder in due course of the Mortgage and Note AND holds
the original alleged Mortgage and Note, endorsed to Plaintiff, are a clear
misrepresentation of the material facts and are fraud brought into the Court.
89. It is the position of the Defendant that if the courts were to allow a
Plaintiff to bring a cause of action in a scenario where the Plaintiff alleges that it owns a
certain note and mortgage but fails to provide required evidence to the courts that this, in
fact is true, the courts would be forced to open the door to incredible harm to any
90. If the court were to allow the Plaintiff in this case to prevail in light of
serious misrepresentation and fraud upon the court, it would result in a major and
unconscionable injustice to the Defendant. The Court should not and cannot be in a
felony crimes.
COUNT FIVE
92. Plaintiff Wells Fargo Bank Na. and/or their assigns/co-conspirators have
damaged Defendant while violating chapter 4165: Deceptive Trade Practices Act by;
creation of the alleged mortgage and in the subsequent improper filings, pleadings and
motions, which are fraudulently filed in bad faith, and filed with the purpose of
harassment, and necessitated entirely by their own lack of Due Diligence and other stated
actions, has damaged Defendant by willfully violating chapter 4165.01 of the Deceptive
trade practices Act, and as such, Defendant is entitled to an award of injunctive relief as
is stated in R.C. 4165.03. Plaintiff did fail to comply with the requirements imposed
under this title and is liable to Defendant to an award of attorney’s fees and pursuant to
R.C. 4165.03 C, “The civil relief provided in this section is in addition to civil or criminal
remedies otherwise available against the same conduct under the common law or other
COUNT SIX
Violations of Ohio Consumer Sales Practices Act
R.C. Chapter 1345, the Ohio Consumer Sales Practices Act (CSPA)
Violations
94. Defendant John A. Reed incorporates by reference all of the proceeding and
95. Plaintiff Wells Fargo Bank NA. did violate Defendant John A. Reed’s rights
“Good,. Fair, Just & Legal Mortgage Loan offering” and then
Mortgage & Note as being just a temporary step, with the promise of
from same and then in the failing of that refinancing action, which
96. Plaintiff has forced Defendant to endure thousands of hours of research and
defense document preparation time, thus depriving Defendant of his most valued
possession, that of his time, which he then could have and would have converted to the
pursuit of maintaining his daily normal and routine lifestyle. And also the degradation of
Defendants emotional, mental, psychological and physical health through the enormous
stress and emotional strain of fighting a predatory giant such as Wells Fargo N.A..
COUNT SEVEN
97. Defendant John A. Reed incorporates by reference all of the proceeding and
within the definition of ORC 1345.03 (A) by bringing this foreclosure suit against
within the definition of ORC 1345.03(B)(1), (2), (3), (4), (5), (6). Further, as in 2005-
of thousands of publicly known instances of same and as such I attach exhibit “L & “Y”
titled Previous Sanctions against Wells Fargo Bank N.A. and exhibits, “P”, “Q”, “T”, “U”
COUNT EIGHT
101. Because Plaintiffs did not demonstrate, nor could they demonstrate, that their
members suffered or were likely to suffer an injury in fact, they fail to meet U.S. Const.
Article III standing requirements which read; a plaintiff must show: (1) it has suffered an
injury in fact that is concrete and particularized and actual or imminent, not
conjectural or hypothetical; (2) the injury is fairly traceable to the challenged action of
the defendant; and (3) it is likely, as opposed to merely speculative, that the injury will be
Conduit can never “suffer a loss” or “be injured” as it must immediately pass gains or
losses to Investors who are (if there are to be any at all) the true injured party—not the
Servicer, not the Trustee and not the Pass-Through Trust itself. (NOTE: lack of standing,
103. Defendant John A. Reed incorporates by reference all of the proceeding and
foregoing allegations in the entirety of Defendant’s answers & pleadings as in regard to the
Complaint in it’s entirety and from it’s inception.
104. Under the facts otherwise identified elsewhere within this action and at hand
Defendant did correctly, reasonable and legally rely on the mortgage broker and the
Plaintiff to act fairly with him. Defendant has been harmed and Plaintiff has patently
violated not only the Truth in Lending Act, at all relevant times, but also the spirit of the
Truth and Lending Act . The Plaintiff’s broker, closing agent and the Lender/Bank each,
in their own parts, has misled, obfuscated, shirked from their proper Due Diligence and
attempted to confuse Defendant in their practice and pattern and pursuit of their own
unjust enrichment, to whit;
i. The Plaintiff has caused injury to Defendant and did not
provide appropriate disclosure as required by the Truth in Lending Act in a
substantive and technical manner,
Pursuant to regulations promulgated under Truth in Lending Act, violator
of disclosure requirements is held to standard of strict liability, and
therefore, borrower need not show that creditor in fact deceived biro by
making substandard disclosures. Truth in Lending Act, Sections 102-186, as
amended, 15 U.S.C. Section 1601-1667(e); Truth in Lending Regulations,
Regulation Z, Section 226,8(b-d), 15 U.S.C. Section 1700 Soils v. Fidelity
Consumer Discount Co., 58 B.R. 983,
viii. The Bank’s closing Agent did rush Defendant through the
“closing process” with a claim of being late to “catch her plane”, thus
depriving Defendant of any available time to review closing documents.
Once a creditor violates the Truth In Lending Act, no matter how technical
violation appears, unless one of statutory defenses applies, Court has no
discretion in imposing liability. Truth in Lending Act, Sections 102-186 as
amended, 15 U.S.C. Section 1601-1667e. Solis v. Fidelity Consumer
Discount Co. 58 BR, 983.
105. For more Pertinent TILA case Law, see attached “Truth In Lending Act Case
Law”
COUNT TEN
Home Owners Equity Protection Act
HOEPA Violations
106. Defendant John A. Reed incorporates by reference all of the proceeding and
107. In General -The Home Ownership and Equity Protection Act of 1994
(HOEPA or the Act) amended TILA by adding Section 129 of TILA, 15 U.S.C. §
1639, and has been implemented by Sections 226.31 and 226.32 of Regulation Z.
the predatory lending practices of certain sub-prime lenders. Generally, the Act
provides added protections to borrowers who obtain more high-cost loans in the
sub-prime market.
Fargo Bank through their assigns, specifically Option One Mortgage Co., and
H&R Block mortgage Corp. (now defunct) has caused injury to Defendant and
Truth in Lending Act was passed to prevent unsophisticated consumer from being
misled as to total cost of financing. Truth in Lending Act, Section 102, 15 U.S.C. Section
1601. Griggs v. Provident Consumer Discount. 680 F.2d 927, certiorari granted, vacated
103 S.Ct. 400, 459 U.S. 56, 74 L.Ed.2d 225, on remand 699 F.2d 642.
F. Plaintiff did violate and cause to initiate HOEPA protection rights and
Defendants rights by requiring Defendant to pay an annual percentage
rate at consummation which did exceed an interest rate “more than 8
percentage points for fist lien loans”…based on the yield on Treasury
securities having comparable periods of maturity”…….as is required
by Regulation Z, 12 C.F.R Section 226.32 (a)(1)(i)(ii), see exhibit”N”
Plaintiff failed in their requirements under rules (c)(1)to provide Defendant
proper documentation as required,(c)(2) ,(3),(4) in providing Defendant any
and all proper notices as is required. (d)(1),(2),(4),(5),(6),(7)(i)(ii)(iii)(iv) .
COUNT ELEVEN
Real Estate Settlement and Procedures Act Violations
RESPA
109. Defendant John A. Reed incorporates by reference all of the proceeding and
110. In the course of offering and extending alleged credit to Defendant, Wells
Fargo Bank through their assigns, specifically Option One Mortgage Co., and H&R
Block mortgage Corp. (now defunct) have caused injury to Defendant and violated
COUNT TWELVE
Violations of Ohio Corrupt Activities statute O.R.C. 1315.55 (A)(1-5110.
111. Defendant John A. Reed incorporates by reference all of the proceeding and
foregoing allegations in the entirety of Defendant’s answers & pleadings as in regard to the
Complaint in its entirety and from its inception.
112. In the course of offering and extending credit to Defendant, Wells Fargo
Bank through their assigns, specifically Option One Mortgage Co., and H&R Block
mortgage Corp. (now defunct) has caused injury to Defendant and have violated O.R.C.
1315.53 by;
COUNT THIRTEEN
Violations of Federal Trade Commission Act (FTC Act)
113. Defendant John A. Reed incorporates by reference all of the proceeding and
foregoing allegations in the entirety of Defendant’s answers & pleadings as in regard to the
114. In the course of offering and extending credit to Defendant, Wells Fargo
Bank through their assigns, specifically Option One Mortgage Co., and H&R Block
mortgage Corp. (now defunct) has caused injury to Defendant and have perpetrated
concerning costs, risks, and/or other terms and conditions that do violate the prohibition
Lending, at 4-6. See 12 CFR 25.28(c). See also Interagency Questions and Answers
12, 2001). A bank that engages in credit without assessing the borrower’s ability to repay
meet the credit needs of the community consistent with safe and sound operations, and
has acted contrary to the OCC’s safety and soundness regulatory guidelines. See 12 CFR
30, Appendix A. Such an activity or practice also may adversely affect the OCC’s
evaluation of the bank’s CRA performance. See OCC Guidelines to Guard Against
See also United States Department of Housing and Urban Development, Mortgagee
recorded, un-intelligible, and post dated documentation, have revealed the engagement of
the location, source, nature, ownership or control of property derived from either
gained money appear to be from a legal source or to avoid a reporting requirement as are
Money, sections 1315.53, 1315.54, 1315.55 and 1315.99 and as such show a pattern of
either and/or corrupt or unlawful activity as defined within O.R.C. 2923.31 (1)(1,2,a-f)
practices meant to unjustly enrich themselves while forcing homeowners into foreclosure.
118. For the reasons stated above, and based on the case law previously submitted
memorandum, the Defendant, John A. Reed respectfully asks this Court to sustain these
objections to the Lower Courts Decision and to support the other judges who have set
precedents by deciding against such predatory plaintiffs, including this one, with
prejudice.
119. I ask you humbly and respectfully to dispense justice against such predatory
victimizers by finding compensatory and punitive damages for the Defendant. Since
previous sanctions in similar cases seem not to have altered this Plaintiffs’ conduct,
financial institutions such as this one, which have brought our country to ruin.
Nosek v. Ameriquest Mortgage Co., 386 B.R. 374 (Bankr. D. Mass 2008)
118. The defendant John A. Reed requests the following from the court:
(1) Under Count One, violations of the Federal Fair Debt Collection Practices
Act, award of damages and other compensatory relief as the Court deems proper in the
maximum amount allowed by law.
(2) Under Count Two, violations of the Ohio RICO Statutes,
attorney’s fee’s as if tried singly and damages, both substantive and punitive, economic
and non-economic and in addition to any civil or criminal remedies otherwise available
against the same conduct under the common law or other sections of the Revised Code
and any and all other compensatory relief as the Court deems proper in the maximum
(5) Under Count Five, Ohio Deceptive Trade Practices Act, Defendant is
reasonable attorney’s fee’s as if tried singly and any and all relief pursuant to R.C.
4165.03 C, which states “The civil relief provided in this section is in addition to civil or
criminal remedies otherwise available against the same conduct under the common law or
(6) Under Count Six, Ohio Consumer Sales Practices Act violations, an award
of attorney’s fee’s as if tried singly and damages, both substantive and punitive, economic
and non-economic and in addition to any civil or criminal remedies otherwise available
against the same conduct under the common law or other sections of the Revised Code
and any and all other compensatory relief as the Court deems proper in the maximum
(7) Under Count Seven, O.R.C. 1345.0 violations, an award of attorney’s fee’s
as if tried singly and both economic and non-economic damages, both substantive and
punitive and any and all other compensatory relief as the Court deems fit and proper in
the maximum amount allowed by law and Defendant states that treble damages are
warranted as this is one of thousands of publicly instances of this same behavior and as
such I attach exhibit “K” titled Previous Sanctions against Wells Fargo Bank N.A.
(8) Under Count Eight, Article III violations, an award of attorney’s fee’s as if
tried singly and damages, both substantive and punitive, economic and non-economic in
addition to any civil or criminal remedies otherwise available against the same conduct
under the common law or other sections of the Revised Code and any and all other
compensatory relief as the Court deems proper in the maximum amount allowed by law.
(9) Under Count Nine, Truth In Lending Act (TILA) 15 U.S.C § 1601
U.S.C. § 1640(a)(1), declaratory relief, establishment of criminal liability on any and all
persons the Court finds who did willfully and knowingly violate the statute, 15 U.S.C. §
1611, statutory damages, which may be assessed in addition to any actual damages
awarded. 15 U.S.C. § 1640 (a)(2)(A), see Section 130(a) of TILA, an amount equal to the
sum of all finance charges and fees paid by the consumer 15 U.S.C. § (a)(4), and under
indebtedness; and the total amount paid by the consumer in connection with the
transaction with the all above trebled within the scope and jurisdiction of the Law to the
(10) Under Count Ten, Home Owners Equity Protection Act (HOEPA) (or
remedies available to borrowers where a HOEPA violation is present include all those
under TILA, Defendant seeks an award duplicative of each and every award listed in the
above TILA violations listed within this complaint. Additionally, since Plaintiff’s
of 12 CFR § 226.32, Defendant also seeks an additional award of all finance fee’s paid,
and a duplicative award, in the entirety, against each and every entity within Plaintiff’s
representation as their chain of “holder In Due Course” of the alleged Mortgage and
(11) Under Count Eleven Real Estate Settlement and Procedures Act
(RESPA) violations, an award of attorney’s fee’s as if tried singly and damages, both
substantive and punitive, economic and non-economic and in addition to any civil or
criminal remedies otherwise available against the same conduct under the common law or
other sections of the Revised Code and any and all other compensatory relief as the Court
attorney’s fee’s as if tried singly and damages, both substantive and punitive, economic
and non-economic and in addition to any civil or criminal remedies otherwise available
against the same conduct under the common law or other sections of the Revised Code
and any and all other compensatory relief as the Court deems proper in the maximum
award of attorney’s fee’s as if tried singly and damages, both substantive and punitive,
economic and non-economic and in addition to any civil or criminal remedies otherwise
available against the same conduct under the common law or other sections of the
Revised Code and any and all other compensatory relief as the Court deems proper in the
Plaintiff and Plaintiff’s Counsel, in recompense for the loss of Defendant’s chosen career
(in perpetuity), damages (both statutory and punitive) for Libel, Defamation of
the Law and Court is allowed and deems just, fit and reasonable and with extreme
prejudice. Also, an award of Attorney’s fee’s, and any and every other possible
fine/sanction/injunction possible and available to the Defendant in the Law and to which
interests, as well as well as reasonable attorney’s fees and other costs and disbursements
of this litigation, and an award for any and all other relief as this Court deems just, fit and
proper, plus an award for any and all Tax encumbrance’s that would be incurred by
Defendant on same previously mentioned awards. Given that (a) this Case has cost me
year-plus of my all-day, every-day time to refute this case which cost me approximately
health through the enormous stress of fighting a predatory giant such as Wells Fargo
N.A., and (d) the additional strain on Defendants mental, psychological and physical
health while simultaneously having to help, consult, console and reiterate over and over
again not only my own innocence, but also their own lack of culpability and
and father were worried not only about my Mother’s fatal bought with cancer day and
night (she passed away March 18th, 2008. 1 month after foreclosure initiation) but also
worrying about the threat of losing their own home and everything they owned because
of Plaintiff’s allegations against them. Defendant also request’s all charges made against
(14) Defendant retains all rights and remedies to prosecute any and all other
violations against Plaintiff and their Counsel as they become apparent and available.
115. Finally, I sincerely thank Your Honor for his/her time and patience in
reviewing this lengthy document and I ask you humbly and respectfully, not only
for justice for myself, but for the necessary sanctions and/or injunctions and/or
other actions that would serve to prevent further predatory practices, such as
those used against me, to be utilized against other unsuspecting home owners.
Respectfully,
_______________
John A. Reed pro se
7940 Guilford Dr.
Dayton, Ohio 45414
937-890-2576
Yotraj@Yahoo.com
SERVICE
A true and exact copy of the foregoing has been served this 14st day of April, 2009 as
follows:
Thomas W. Kendo
7925 Paragon Rd.
Dayton, Ohio 45459
Via email @ tkendo@midam-title.com
*******************************************
***********************************
Each servicer of any federally related mortgage loan shall notify the
borrower in writing of any assignment, sale, or transfer of the servicing of
the loan to any other person.
Except as provided under subparagraphs (B) and (C), the notice required
under paragraph (1) shall be made to the borrower not less than 15 days
before the effective date of transfer of the servicing of the mortgage loan
(with respect to which such notice is made).
The notice required under paragraph (1) shall be made to the borrower not
more than 30 days after the effective date of assignment, sale, or transfer of
the servicing of the mortgage loan (with respect to which such notice is
made) in any case in which the assignment, sale, or transfer of the servicing
of the mortgage loan is preceded by--
(i) termination of the contract for servicing the loan for cause;
(ii) commencement of proceedings for bankruptcy of the servicer;
or
(iii) commencement of proceedings by the Federal Deposit
Insurance Corporation or the Resolution Trust Corporation for
conservatorship or receivership of the servicer (or an entity by
which the servicer is owned or controlled).
The provisions of subparagraphs (A) and (B) shall not apply to any
assignment, sale, or transfer of the servicing of any mortgage loan if the
person who makes the loan provides to the borrower, at settlement (with
respect to the property for which the mortgage loan is made), written notice
under paragraph (3) of such transfer.
The notice required under paragraph (1) shall include the following
information:
(A) The effective date of transfer of the servicing described in such
paragraph.
(B) The name, address, and toll-free or collect call telephone number of the
transferee servicer.
(C) A toll-free or collect call telephone number for (i) an individual employed
by the transferor servicer, or (ii) the department of the transferor servicer,
that can be contacted by the borrower to answer inquiries relating to the
transfer of servicing.
(D) The name and toll-free or collect call telephone number for (i) an
individual employed by the transferee servicer, or (ii) the department of the
transferee servicer, that can be contacted by the borrower to answer
inquiries relating to the transfer of servicing.
(E) The date on which the transferor servicer who is servicing the mortgage
loan before the assignment, sale, or transfer will cease to accept payments
relating to the loan and the date on which the transferee servicer will begin
to accept such payments.
(F) Any information concerning the effect the transfer may have, if any, on
the terms of or the continued availability of mortgage life or disability
insurance or any other type of optional insurance and what action, if any,
the borrower must take to maintain coverage.
(G) A statement that the assignment, sale, or transfer of the servicing of the
mortgage loan does not affect any term or condition of the security
instruments other than terms directly related to the servicing of such loan.
(c) Notice by transferee of loan servicing at time of transfer
(A) In general
Except as provided in subparagraphs (B) and (C), the notice required under
paragraph (1) shall be made to the borrower not more than 15 days after
the effective date of transfer of the servicing of the mortgage loan (with
respect to which such notice is made).
The notice required under paragraph (1) shall be made to the borrower not
more than 30 days after the effective date of assignment, sale, or transfer of
the servicing of the mortgage loan (with respect to which such notice is
made) in any case in which the assignment, sale, or transfer of the servicing
of the mortgage loan is preceded by--
(i) termination of the contract for servicing the loan for cause;
(ii) commencement of proceedings for bankruptcy of the servicer;
or
(iii) commencement of proceedings by the Federal Deposit
Insurance Corporation or the Resolution Trust Corporation for
conservatorship or receivership of the servicer (or an entity by
which the servicer is owned or controlled).
The provisions of subparagraphs (A) and (B) shall not apply to any
assignment, sale, or transfer of the servicing of any mortgage loan if the
person who makes the loan provides to the borrower, at settlement (with
respect to the property for which the mortgage loan is made), written notice
under paragraph (3) of such transfer.
Any notice required under paragraph (1) shall include the information described in
subsection (b)(3) of this section.
During the 60-day period beginning on the effective date of transfer of the
servicing of any federally related mortgage loan, a late fee may not be
imposed on the borrower with respect to any payment on such loan and no
such payment may be treated as late for any other purposes, if the payment
is received by the transferor servicer (rather than the transferee servicer who
should properly receive payment) before the due date applicable to such
payment.
Not later than 60 days (excluding legal public holidays, Saturdays, and
Sundays) after the receipt from any borrower of any qualified written request
under paragraph (1) and, if applicable, before taking any action with respect
to the inquiry of the
borrower, the servicer shall--
(A) make appropriate corrections in the account of the borrower,
including he crediting of any late charges or penalties, and transmit to
the borrower a written notification of such correction (which shall
include the name and telephone number of a representative of the
servicer who can provide assistance to the borrower);
(B) after conducting an investigation, provide the borrower with a
written explanation or clarification that includes--
(i) to the extent applicable, a statement of the reasons for which
the servicer believes the account of the borrower is correct as
determined by the servicer; and
(ii) the name and telephone number of an individual employed by,
or the office or department of, the servicer who can provide
assistance to the borrower; or
During the 60-day period beginning on the date of the servicer's receipt
from any borrower of a qualified written request relating to a dispute
regarding the borrower's payments, a servicer may not provide information
regarding any overdue payment, owed by such borrower and relating to such
period or qualified written request, to any consumer reporting agency (as such
term is defined under section 1681a of title 15).
(1) Individuals
In the case of any action by an individual, an amount equal to the sum of--
(A) any actual damages to the borrower as a result of the failure; and
(B) any additional damages, as the court may allow, in the case of a
pattern or practice of noncompliance with the requirements of this
section, in an amount not to exceed $1,000.
(3) Costs
In addition to the amounts under paragraph (1) or (2), in the case of any
successful action under this section, the costs of the action, together with any
attorneys fees incurred in connection with such action as the court may
determine to be reasonable under the circumstances.
(4) Nonliability
If the terms of any federally related mortgage loan require the borrower to
make payments to the servicer of the loan for deposit into an escrow account
for the purpose of assuring payment of taxes, insurance premiums, and other
charges with respect to the property, the servicer shall make payments from
the escrow account for such taxes, insurance premiums, and other charges in
a timely manner as such payments become due.
(i) Definitions
The term ``effective date of transfer'' means the date on which the
mortgage payment of a borrower is first due to the transferee servicer of a
mortgage loan pursuant to the assignment, sale, or transfer of the servicing of
the mortgage loan.
(2) Servicer
The term ``servicer'' means the person responsible for servicing of a loan
(including the person who makes or holds a loan if such person also services
the loan). The term does not include—
(A) the Federal Deposit Insurance Corporation or the Resolution Trust
Corporation, in connection with assets acquired, assigned, sold, or
transferred pursuant to section 1823(c) of this title or as receiver or
conservator of an insured depository institution; and
(B) the Government National Mortgage Association, the Federal
National Mortgage Association, the Federal Home Loan Mortgage
Corporation, the Resolution Trust Corporation, or the Federal Deposit
Insurance Corporation, in any case in which the assignment, sale, or
transfer of the servicing of the mortgage loan is preceded by--
(i) termination of the contract for servicing the loan for cause;
(ii) commencement of proceedings for bankruptcy of the servicer;
or
(iii) commencement of proceedings by the Federal Deposit
Insurance Corporation or the Resolution Trust Corporation for
conservatorship or receivership of the servicer (or an entity by
which the servicer is owned or controlled).
(3) Servicing
(j) Transition
A person who makes a federally related mortgage loan shall not be liable to
a borrower because of a failure of such person to comply with subsection (a)
of this section with respect to an application for a loan made by the borrower
before the regulations referred to in paragraph (3) take effect.
The Secretary shall, by regulations that shall take effect not later than April
20, 1991, establish any requirements necessary to carry out this section. Such
regulations shall include the model disclosure statement required under
subsection (a)(2) of this section.
(Pub. L. 93-533, Sec. 6, as added Pub. L. 101-625, title IX, Sec. 941, Nov. 28, 1990,
104 Stat. 4405; amended Pub. L. 102-27, title III, Sec. 312(a), Apr. 10, 1991, 105 Stat.
154; Pub. L. 103-325, title III, Sec. 345, Sept. 23, 1994, 108 Stat. 2239; Pub. L. 104-
208, div. A, title
II, Sec. 2103(a), Sept. 30, 1996, 110 Stat. 3009-399.)
Prior Provisions
A prior section 2605, Pub. L. 93-533, Sec. 6, Dec. 22, 1974, 88 Stat. 1726,
related to advanced itemized disclosure of settlement costs by the lender and
liability of the lender for failure to comply, prior to repeal by Pub. L. 94-205,
Sec. 5, Jan. 2, 1976, 89 Stat. 1158.
Amendments
1996--Subsec. (a). Pub. L. 104-208 amended heading and text of subsec. (a)
generally. Prior to amendment, text consisted of pars. (1) to (3) relating to
requirements for lenders of federally related mortgage loans to disclose to applicants
whether servicing of such loan may be assigned, sold, or transferred, directed
Secretary to develop model disclosure statement, and required signature of applicant
on all such disclosure statements.
1994--Subsec. (a)(1)(B). Pub. L. 103-325 substituted ``(B) at the choice of the person
making a federally related mortgage loan—``(i) for each of the most recent'' for ``(B)
for each of the most recent'', redesignated cls. (i) and (ii) as subcls. (I) and (II),
respectively, and realigned margins, substituted ``or'' for ``and'' at end of subcl. (II),
and added cl. (ii). 1991--Subsec. (j). Pub. L. 102-27 added subsec. (j).
This section is referred to in sections 2609, 2610, 2614 of this title; title 15 section
1641.
U.S. Code Title 15, Chapter 41, subchapter 1, Part B § 1639. Requirements for
certain mortgages
Disclosures
(K) Make a covered loan if, at the time the loan was consummated, the consumer's total monthly debt,
including amounts owed under the loan, exceed fifty per cent of the consumer's monthly gross income, as
verified by the credit application, the consumer's financial statement, a credit report, financial information
provided to the person originating the loan by or on behalf of the consumer, or any other reasonable means,
unless the consumer submits both of the following:
“Because the Plaintiff has failed to demonstrate either that its handwriting evidence satisfies
the Daubert factors or that it is otherwise reliable, I would reverse the district court’s decision
to admit it as an abuse of discretion. See Starzecpyzel, 880 F. Supp. at 1028 ("The Daubert
hearing established that forensic document examination, which clothes itself with the
trappings of science, does not rest on carefully articulated postulates, does not e ploy rigorous
methodology, and has not convincingly documented the accuracy of its determinations.").”
3. Using proceeds from any source to conduct a transaction with the purpose of
promoting, managing, establishing, carrying on or facilitating corrupt activity.
1315.55(A)(3)
Example: Buying a car to be used in a bank robbery.
O.R.C. 1315.53
Keeping Records, Money Laundering Prohibitions
SECTION 1315.53 (F)(1a,1b,1c)
OHIO LAW
Ohio’s money laundering prohibitions can be found under Title 13: Commercial
Transactions
Chapter 1315, Transmitters of Money, sections 1315.53, 1315.54, 1315.55 and 1315.99.
It is important to note that to charge under these statutes, in most situations you are
required to prove a predicate crime that can either be an unlawful or a corrupt activity,
depending on the specific statute.
Anyone who engages in or attempts any of the prohibitions cited in section 1315.55 can
be charged. This includes anybody who assists the criminals in these efforts, while
knowing or having reasonable cause to know that the funds involved are the proceeds of
unlawful activity. This may include a jeweler, accountant, attorney, car dealer, real
estate agent or stock broker. A person may be charged even though they themselves are
not involved in the criminal activity that produces the profits and did not receive any
benefit.
IMPORTANCE OF O.R.C. 1315.55
Section 1315.55 is important to Ohio law enforcement in money laundering cases
because it:
Empowers state and local officers.
Helps to reach the “untouchables.”
Has a broader unlawful activity base than R.I.C.O.
Allows a predicate crime to be determined a misdemeanor or felony.
Does not require that the facilitator participate in the predicate crime.
Under 1315.55 (B), may allow treble damages to apply.
Does not require a minimum threshold, except for 1315.55 (A-4).
Qualifies for wiretapping.
Can eliminate a criminal power base.
Designates money laundering as a third degree felony.
Provides “liberal construction clause” in section 1315.52.
Allows anyone or everyone to be charged (criminal, facilitator, transmitter, etc.)
Allows each transaction to be treated as a separate charge.
Provides a “sting provision” in section 1315.55 (A-5).
In foreclosure actions, the real party in interest is the current holder of the note
and mortgage. Chase Manhattan Mtge. Corp. v. Smith, Hamilton App. No. C-
061069, 2007-Ohio-5874, at ¶18;
Kramer v. Millott (Sept. 23, 1994), Erie App. No. E-94-5 (because the plaintiff
did not prove that she was the holder of the note and mortgage, she did not
establish herself as a real party in interest).
A party who fails to establish itself as the current holder is not entitled to
judgment as a matter of law. First Union Natl. Bank v. Hufford (2001), 146 Ohio
App.3d 673, 677, 679-680.
Thus, in Hufford, the Third District No. 07AP-615 5 Court of Appeals reversed a
grant of summary judgment where a purported mortgagee failed to produce
sufficient evidence explaining or demonstrating its right to the note and mortgage
at issue. In that case, the record contained only "inferences and bald assertions"
and no "clear statement or documentation" proving that the original holder of the
note and mortgage transferred its interest to the appellee. Id. at 678. The failure to
prove who was the real party in interest created a genuine issue of material fact
that precluded summary judgment. Id. at 679-680. Similarly, in Washington Mut.
Bank, F.A. v. Green (2004), 156 Ohio App.3d 461, the Seventh District Court of
Appeals reversed the trial court's finding of summary judgment where the plaintiff
failed to prove that it was the holder of the note and mortgage. There, the
defendant executed a note and mortgage in favor of Check 'n Go Mortgage
Services, not Washington Mutual Bank, F.A. Although Washington Mutual Bank,
F.A. submitted an affidavit alleging an interest in the note and mortgage, it did not
state how or when it acquired that interest. Id. at 467. The court concluded that
this lack of evidence defeated the purpose of Civ.R. 17(A) by exposing the
defendant to the danger that multiple "holders" would seek foreclosure based
upon the same note and mortgage. Id.
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http://www.state.wv.us/WVSCA/Docs/Fall05/32611c2.htm
Securitization ostensibly provides a source of capital so that more home loans are
available to borrowers. However, the series of corporate and banking
transactions that make up securitization cannot be permitted to avoid
liability by those who are actually providing the funding _ and often
controlling the transaction. See Kurt Eggert, Held up in Due Course:
Predatory Lending, Securitization, and the Holder in Due Course Doctrine, 35
Creighton L. Rev. 503 (2002).
http://www.plol.org/Pages/Secure/Document.aspx?d=fQED24LICaIX8utVyusxBQ%3d
%3d&l=Cases&rp=4
(a) To entitle any party to give a notice as hereinafter prescribed and to make such
foreclosure, it is requisite:
(i) That some default in a condition of such mortgage has occurred by which the
power to sell became operative;
(ii) That no suit or proceeding has been instituted at law to recover the debt then
remaining secured by such mortgage, or any part thereof, or if any suit or proceeding has
been instituted, that the same has been discontinued, or that an execution upon the
judgment rendered therein has been returned unsatisfied in whole or in part; and
(iii) That the mortgage containing the power of sale has been duly recorded; and
if it has been assigned, that all assignments have been recorded; and
(iv) That written notice of intent to foreclose the mortgage by advertisement and sale
has been served upon the record owner, and the person in possession of the mortgaged
premises if different than the record owner, by certified mail with return receipt, mailed
to the last known address of the record owner and the person in possession at least ten
(10) days before commencement of publication of notice of sale. Proof of compliance
with this subsection shall be by affidavit.
Although Mr. Bitker complains on appeal that the assignment of the mortgage was never
recorded, he did not argue this to the district court, and marshaled no evidence to prove
this allegation. Regardless, First National Bank wrote Mr. Bitker a letter on March 24,
1998, which constituted actual notice of the assignment of the promissory note and the
pending foreclosure on the property, which satisfied § 34-4-103(a)(iii) and (iv). Having
failed to present any facts in support of his allegations of fraudulent foreclosure,
summary judgment was appropriate on that claim.
Allegedly, Defendant signed loan papers when the loan was made. A representative of the
Mortgage Co. signed as well, but the ONLY capacity in which H&R Block Mortgage
Co.’s representative signed is so as to certify that the borrower’s signature is valid and
correct. Put another way, the representative of H&R Block Mortgage Co. does NOT
append his signature in a mode or manner that created a contract between the alleged
Defendant and H&R Block Mortgage Co. The reason that the H&R Block Mortgage
Co.’s representative does not sign in order to create a contract is that the H&R Block
Mortgage Co. is aware that it is not giving the alleged borrower ANYTHING AT ALL.
When the borrower signs the documentation, what he or she is doing is creating a new
negotiable piece of paper which, provided the bank or another party accepts it as such,
can be converted into a LOAN. But it is a loan to H&R Block Mortgage Co., not to the
borrower.
H&R Block Mortgage Co.’s books will show the transaction as a credit, as banks are
privileged institutions which enjoy the right to create money by monetising promissory
notes. The bank then places the amount that THE BORROWER loaned to them via the
loan document into the borrower’s account (deposit account), or else issues a certified
check or some other payment method from the transaction book entry account. That
process creates a debit on the bank’s books.
‘That means that the loans are clearly in default at the time of any eventual transfer of the
ownership of the mortgage loans to the trusts. This means that the loans are being held by
the originating lenders after the alleged ‘sale’ to the trust, despite what it says per the
pooling and servicing agreements and despite what the securities laws require’.
This means that many securitized trusts don’t really, legally, own these bad loans’.
‘In my cases, many of the trusts try to argue equitable assignment that predates the filing
of the foreclosure, but a securitized trust cannot take an equitable assignment of a
mortgage loan. It also means that the securitized trusts own nothing’.
First, because of the way mortgages have been securitized, it’s often unclear who actually
owns the debt, she said. “What we see is that systematically, the originating lenders only
pledged these loans and didn’t actually transfer them” to the trusts that are supposed to
hold them and issue the securities, she explained.
But only the true debt owner has the legal standing to be a plaintiff in a foreclosure, she
continued. “That’s first-year law school stuff. If you’re Joe and the debt doesn’t belong to
you, it belongs to Marjorie, then Marjorie better be in court, not Joe. Don’t come in as Joe
and tell me you have the right to be there when you know full well you don’t.”
Yet, time and again, loan servicers and others have sought plaintiff status, often by using
affidavits stating that the actual notes had been lost, she said. “I’ve seen paperwork filed
by lawyers saying, ‘We anticipate assignment’” of the debt, she said with a scoff.
And the loan originators can’t appear in court and claim the right to foreclose because
they would be in violation of securities laws for not transferring the loan to the trust when
they were supposed to, she said.
The partial dissent argues that the Herrods should not be able to pursue their
unconscionability claim against Washtenaw because the Herrods presented no evidence
that Washtenaw employees unconscionably induced the Herrods into the contract.
However, the West Virginia Consumer Credit and Protection Act provides that a loan or
any portion thereof may be voided if a court concludes that the loan was induced by
unconscionable conduct or the loan contains unconscionable terms:
(b) Any term or part of the agreement or transaction to have been unconscionable
at the time it was made, the court may refuse to enforce the agreement, or may enforce
the remainder of the agreement without the unconscionable term or part, or may so limit
the application of any unconscionable term or part as to avoid any unconscionable result.
In order to obtain equitable relief under this statute, it is not necessary that the
Herrods establish that in addition to unconscionable terms or inducement, Washtenaw
itself must have engaged in affirmative acts to unconscionably induce the loan. Though
the affirmative acts of a participant are relevant to the measure of additional damages
recoverable from a particular party, W. Va. Code, 46A-5-101(1), the identity of the party
or parties who entered into an unconscionable agreement is not a determining fact for
entitlement to equitable relief.
Additionally, it is apparent from the record, that with respect to the Herrods'
unconscionability claim, Washtenaw is not without blame. Among other things, the
Herrods claim the fees in the loan were unconscionable. Washtenaw was a signatory to
the contract and clearly was aware that the fees (1) were on their face excessive; (2)
rendered the loan a high cost loan under federal law; and (3) violated its agreement not to
originate loans for assignment to Fannie Mae that contained more than 5% in fees.
As the majority correctly concludes, there was substantial evidence already in the
record, and the Herrrods were entitled to an opportunity to present that evidence in
support of their unconscionability claim. Indeed, in contrast to virtually all other types of
claims, the statute mandates an opportunity to fully present evidence. See W. Va. Code,
46A- 2-121(2).
The circuit court found that summary judgment was appropriate in favor of
Washtenaw on t
In discussing the question of fraud and misrepresentation, the dissenting and the circuit
court focused on an asserted lack of direct evidence of any direct misrepresentations by
Washtenaw. This case, however, concerns whether Washtenaw can use brokers who do
engage in fraud, suppressions, and misrepresentations to induce borrowers into predatory
loans _ and then enforce the predatory loans against the borrowers.
There appears to be some confusion in the dissent and the circuit court's opinions
between the concepts of fraudulent misrepresentation as a defense to contract, and the
concept of fraud as a tort. The Restatement (Second) of Contracts notes the difference
between fraud as a contractual defense and fraud as a tort:
A misrepresentation may also be the basis for an affirmative claim for liability for
misrepresentation under the law of torts. Such liability for misrepresentation is dealt with
in the Restatement, Second, Torts. See Restatement, Torts chs. 22, 23. The rules stated
there conform generally to those stated here. However, because tort law imposes liability
in damages for misrepresentation, while contract law does not, the requirements imposed
by contract law are in some instances less stringent. Notable, under tort law a
misrepresentation does not give rise to liability for fraudulent misrepresentation unless it
is both fraudulent and material, while under contract law a misrepresentation may make a
contract voidable if it is either fraudulent or material.
The question of whether a party was fraudulently induced into a contract may go
to the formation of the contract. A party that is misled as to the essential terms of a
contract does not technically agree to the contract, as no assent to its terms has been
formulated due to the misrepresentation. In this situation, it is irrelevant whether the
misrepresentation was made by the other party to the contract or a third person. See
Restatement (Second) Contracts § 163 (1981) (“It is immaterial under the rule stated in
this Section whether the misrepresentation is made by a party to the transaction or by a
third person.”).
If a misrepresentation does not prevent a party from assenting to the contract, the
misrepresentation, whether it be fraudulent or material, may render the contract merely
voidable. See Restatement (Second) Contracts 164 (1981). A misrepresentation by a third
party may render the contract voidable. See id. 164(2).
Article 3 of the Uniform Commercial Code governs the claims and defenses a
party may make arising out of negotiable instruments. The UCC provides that the right to
enforce an obligation arising out of a negotiable instrument is subject to “[a] claim in
recoupment of the obligor against the original payee of the instrument if the claim arose
from the transaction that gave rise to the instrument; but the claim of the obligor may be
asserted against a transferee of the instrument only to reduce the amount owing on the
instrument at the time the action is brought.” W.Va. Code, 46-3-305 (emphasis added).
Under this provision, it is clear that any claim an obligor may have arising out of the
transaction may be asserted defensively against the original payee in the transaction in an
action for recoupment.
To the extent that borrowers are defrauded, as a matter of contract law, they have
defenses against the holder of the obligation in an action for recoupment. (See footnote 1)
There is no basis for Washtenaw to wipe out the Herrods' contractual defense of fraud,
regardless of whether the fraud was directly induced by a third person.
A securitization model _ a system wherein parties that provide the money for
loans and drive the entire origination process from afar and behind the scenes _ does
nothing to abolish the basic right of a borrower to assert a defense to the enforcement of a
fraudulent loan, regardless of whether it was induced by another party involved in the
origination of the loan transaction, be it a broker, appraiser, closing agent, or another.
Thus, the Herrods may assert these equitable claims in recoupment. Moreover to
the extent the Herrods can prove that Washtenaw was engaged in a joint venture, agency,
or conspiracy with the broker and/or appraiser, they may pursue their actual and punitive
damages under tort theories. See Muzelak v. King Chevrolet, 179 W.Va. 340, 345, 368
S.E.2d 710, 715 (1988); Restatement (Second) Contracts, ch. 7, Introductory Note
(1981).
In this case, the Herrods presented substantial evidence that they were
fraudulently induced into the loan. The evidence, taken in a light most favorable to the
Herrods, tended to show the broker and the appraiser had an arrangement _ arguably a
conspiracy _ to provide inflated appraisals to justify predatory loans. The evidence of this
scheme was sufficient enough for the circuit court to deny summary judgment to the
appraiser. (See footnote 2) While the Herrods have produced no evidence to hold
Washtenaw directly liable for fraud as a tort, they nonetheless have the ability to maintain
an action for recoupment for fraudulent misrepresentation in contract, and for damages in
joint venture, conspiracy, or agency, as explained by the Opinion of the Court.
The Herrods also allege the broker engaged in unfair and deceptive acts or
ractices in the origination of the loan in violation of W.Va. Code, 46A-6-101 et seq. These
claims were made against the broker, not the lender. To be sure, the UDAP provisions do
not apply to lending activities, but only apply to the sale of services _ in this case, broker
services. See W.Va. Code, 46A-6-102(d). I agree with the majority that the Herrods
asserted no claims for unfair and deceptive acts or practices against Washtenaw. This
Court has not passed on the Herrods' UDAP claims, to the extent they may be asserted
against the broker in connection with the sale of broker services.
The Opinion of the Court also affirms the right of the Herrods to pursue liability
against Washtenaw for any wrongdoing that they are able to prove against the broker.
Though direct claims for fraud, failure to provide a proper broker agreement, and
UDAP were properly dismissed, actual and punitive damages may nevertheless be
pursued against the lender. Participation in a joint venture with a broker or other party in
a predatory lending context gives rise to liability for such claims under a claim of joint
venture.
See Short v. Wells Fargo Bank Minnesota, N.A., ___ F. Supp. 2d ___, available in 2005
WL 3091873, at 14-15 (S.D.W.Va. Nov. 18, 2005); see also generally Armor v. Lantz,
207 W. Va. 672, 677-78, 535 S.E.2d 737, 742-43 (2000); Simple v. Starr, 205 W.Va. 717,
725, 520 S.E.2d 884, 892 (1999); Price v. Halstead, 177 W.Va. 592, 594, 355 S.E.2d 380,
384 (1987). Similarly, if one party is directing or exercising control over loan
origination in the circumstance of securitized lending, it is a factual question as to
whether there is a principal/agency relationship sufficient to impose such liability on all
the participants. See Short v. Wells Fargo Bank Minnesota, N.A., supra, 2005 WL
3091873, at 14-15; England v. MG Investments, Inc., 93 F. Supp. 2d 718, 723 (S.D.W.Va.
2000); Arnold, 204 W.Va. at 240, 511 S.E.2d at 865.
The dissent contends that the Herrods presented no more than a scintilla of
evidence in support of their claims for joint venture, agency, and conspiracy. While the
Opinion of the Court states that the evidence presented by the Herrods was inferential,
this by no means suggests that the evidence was not sufficient for a jury to find there was
a relationship between Washtenaw and the broker. This Court has previously held
“'[p]roof of an express contract of agency is not essential to the establishment of the
relation. It may be inferred from facts and circumstances, including conduct.'” Arnold,
204 W.Va. at 239, 511 S.E.2d at 864 (quoting General Elec. Credit Corp. v. Fields, 148
W.Va. 176, 181, 133 S.E.2d 780, 783 (1963)) (emphasis added).
“It is the purpose of this subchapter to assure a meaningful disclosure of credit terms so
that the consumer will be able to compare more readily the various credit terms available
to him and avoid the uninformed use of credit, and to protect the consumer against
inaccurate and unfair credit billing and credit card practices.” 15 U.S.C. 1601(a) 1.
Truth in Lending Act was passed to prevent unsophisticated consumer from being
misled as to total cost of financing. Truth in Lending Act, Section 102, 15 U.S.C. Section
1601. Griggs v. Provident Consumer Discount. 680 F.2d 927, certiorari granted, vacated
103 S.Ct. 400, 459 U.S. 56, 74 L.Ed.2d 225, on remand 699 F.2d 642.
5. Truth in Lending Act must be strictly construed and liability imposed for any violation,
no matter how technical. Truth in Lending Act Section 102 et seq., as amended, 15 U.S.C.
Section 1601 et seq, Abele v. Mid-Penn Consumer Discount. 77 B.R. 460, affirmed S45
F.2d 1009.
6. To qualify for protection of Truth in Lending Act [15 U.S.C. Section 1601 et seq.],
plaintiff must show that disputed transaction was a consumer credit transaction not a
business transaction, Truth b Lending Act, Section 102 et seq., 15 U.S.C. Section 1601 et
seq. Quino v. A-I CreditCom. 635 F.Supp. 151
7. Requirements of Truth in Lending Act are highly technical, but full compliance is
required; even minor violations of Act cannot be ignored, Truth in Lending Act, Section
102 et seq. as amended, 15 U.S.C. Section 1601 et seq.; Truth in Lending Act
Regulations, Regulation Z Section 226.1 et seq., 15 U.S.C. foil. Section 1700. Griggs v.
Providence Consumer Discount Co. 503 F.Supp. 246, appeal dismissed 672 F2d 903,
appeal after remand 680 F.2d 927, certiorari granted, vacated 103 S.Ct, 400, 459 U.S. 56,
74 L.Ed.2d 225, on remand 699 F,2d 642.
8. Under truth in lending regulation providing that disclosure of consumer credit loan
shall not be "stated, utilized or placed so as to mislead or confuse" consumer, placement
of disclosures is to be considered along with their statement and use. TILA Regulation Z,
Section 226.6(c), 15 U.S.C. following section 1700 .Geimuso v. Commercial Bank &
Trust Co. 566 F.2d 437.
9. Any violation of the Truth in Lending Act, regardless of technical nature, must result in
finding of liability against lender. TILA Regulation Z Section 226.1 et seq., 15 U.S.C.
Section 1700; Truth in Lending Act Section 130 (a, e), IS U.S.C. Section 1640 (a, e). In
Re Steinbrecher. 110 BR. 155, 116 A.L.R. Fed. 881.
10. Question of whether lender's Truth in Lending Act disclosures are inaccurate,
misleading or confusing ordinarily will be for fact finder; however, where confusing,
misleading and inaccurate character of disputed disclosure is so clear that it cannot
reasonably be disputed, summary judgment for plaintiff is appropriate. TILA Section 102
et seq; Truth in Lending Regulations, Regulation Z, Section 226.1 et seq., 15 U.S.C.
Section 1700. Griggs v. Provident Consumer Discount Co. 503 F, Supp 246, appeal
dismissed 672 F.2d 903, appeal after remand 680 F.2d 927, certiorari granted, vacated
103 S.Ct, 400, 459 U.S. 56, 74 L.Ed.2d 225, on remand 699 E2d 642.
12. Once a creditor violates the Truth In Lending Act, no matter how technical violation
appears, unless one of statutory defenses applies, Court has no discretion in imposing
liability. Truth in Lending Act, Sections 102-186 as amended, 15 U.S.C. Section 1601-
1667e. Solis v. Fidelity Consumer Discount Co. 58 BR, 983.
Under the facts at hand the Plaintiff Bank has patently violated the Truth in Lending Act,
At all relevant times the Bank misled and attempted to confuse Defendant. The Bank did
not provide appropriate disclosure as required by the Truth in Lending Act in a
substantive and technical manner.
“It is not necessary for recession of a contract that the party making the misrepresentation
should have known that it was false, but recovery is allowed even though
misrepresentation is innocently made, because it would be unjust to allow one who made
false representations, even innocently, to retain the fruits of a bargain induced by such
representations.” Whipp v. Iverson, 43 Wis 2d 166.
“If any part of the consideration for a promise be illegal, or if there are several
considerations for an unseverable promise one of which is illegal, the promise, whether
written or oral, is wholly void, as it is impossible to say what part or which one of the
considerations induced the promise.” Menominee River Co. v. Augustus Spies L & C Co.,
147 Wis 559, 572; 132 NW 1122
“Any false representation of material facts made with knowledge of falsity and with
intent that it shall be acted on by another in entering into contract, and which is so acted
upon, constitutes ‘fraud,’ and entitles party deceived to avoid contract or recover
damages.” Barnsdall Refining Corn. v. Birnam wood Oil Co., 92 F 2d 817.
Sources of law: 15 USC 1601 et seq Regulation Z ( 12C.F.R. 226) The Federal Board
Reserve Board’s Official Staff Commentary on Regulation Z ( 12 C.F.R. 226.36,
Supplement I) Ford Motor Credit v Milhollin, 444 U.S. 555, 565 (1980) (“Unless
demonstrably irrational, the Federal Reserve Board staff opinions construing the Act or
Regulation should be dispositive.”)
Every loan charge must be properly disclosed as either part of the “amount financed”
which represents “the amount of credit provided to you or on your behalf,” 12 C.F.R.
226.18(b), or as part of
The finance charge is computed according to the rules set forth 12 C.F.R. 226.4 and
includes; any charge paid directly or indirectly by the creditor as an incident to or a
condition of the extension of credit. Exclusions, “if reasonable and and bona fide in
amount” are, title fees, document prep, credit report, appraisal, and escrow fees. ” Find
fair market rate for title insurance, the court should look to Fair market rate, and a refi
rate should be cheaper then a purchase-money mortgage. Where information as to
reasonability of the rate is more likely to be in the control of the lender, the lender has the
burden of proof on that issue.
Relief requested: Due to failure to make clear consistent, conspicuously made and
accurate material disclosures full loan recission meaning the security interest is void
minus all the payment made on the loan.
Material disclosures are: Incorrect APR, interest rate, and amount financed.
The difference in finance charge is more then $100 difference ($35 if borrower is in
foreclosure) request recission and statutory damgages. CFR 226.18(d)(1) Statutory
damages of $2000
The extended right of recission lasts for 3 years from the date of closing the loan. 12
CFR 226.23 (a)(3) Semar v Platte Valley Fed. S&L Assn. 791 F. 2d 699 ( 9th Cir. 1986)
The recission remendy runs against any assignee:
“ Any consumer who the right to rescind a transaction under section 1635 of this title may
rescind the transaction against any assignee of the obligation. “ 15 USC 1641 (c) Mount v
La Salle Bank Lake View 926 F. Supp. 759 (N.D. Ill. 1996)
Relief Requested: Actual damages, and statutory damages $2000, and Attorneys fees and
costs. 15U.S.C. 1640
(a) 1. To fulfill the congressional purpose of TILA, material violations, as set forth above
are to be “strictly construed; ”there is no such thing as a mere”technical” violation which
does not give rise to liability. “The Seventh Circuit, like most courts interpreting TILA,
maintains that disclosures made pursuant to the statute should be viewed from the
vantage point of an ordinary consumer as opposed to that of a skilled or informed
business person. TILA is aimed at deceptive practices by lenders, not the subjective
beliefs or actions of borrowers. Moreover, a plaintiff need not show actual harm to
recover from a technical violations of TILA., as they are strict liability offenses. Adams v
Nationscredit Financial Services Corp. 351 F. Supp. 2d 829 (N.D. Ill. 2004) ( citations
ommited). Statute 1 year for affirmative claims 15 USC 1640 3 Years for Recission
First, the notice of rescission must be sent within 3 years of the loan closing. – no
exceptions.
Second, you should send the notice of recisssion both (1) to the original creditor whose
name is on the 3-Day Right to Rescind, and (2) to the current holder of the loan or to its
attorney, if you’re in foreclosure or to the loan servicer (the current holder’s servicing
agent) if you don’t know who the holder is).
Upon recission,” the security interest giving rise the right of recission becomes void and
the consumer shall not be liable for any amount, including any finance charge”( step
one)” CFR226.23(d)
(1) Within 20 days the creditor must take action required to cancel the security interest
and must return any money paid on the loan. (step two) 12CFR226.23(d)
(2) If and when the creditor does so, the consumer must tender to the creditor the value of
the money or property received. (step three) 12CFR 226.23 (d) The tender amount is
reduced by any amount paid on the loan. (unless previously returned) White v WMC
Mortgage 2201 US District . LEXIS 15907, at * 5 (E.D. Pa. July 31, 2001): Williams v
Gelt, 237 B.R. 590, 598-99 ( E.D. Pa. 1999) Once the right to rescind is affirmed by the
court and the amount owed (the “tender”) is determined, borrower must pay tender within
timeframe set by the court.
All loan payments previously made by the borrower will reduce the tender amount. The
more payments made the better the case. Because tender is inevitable “( the borrower
doesn’t get to just walk away from the loan)” you have to start working on your proposed
tender strategy from the very beginning of the case.
Failure to respond to the recission notice as spelled out above results in another violation
and an additional award of statutory damages. $2000 White v WMC Mortgage 2001 US
District . LEXIS 15907, at * 5 (E.D. Pa. July 31, 2001 Mayfield v Vanguard Savings &
Loan, 710 F. Supp. 143, 145 ( E.D. Pa. 1989)
Our discussion will be limited to those provisions of TILA that relate specifically to the
mortgage lending process, namely: (1) Early and Final Regulation Z Disclosure
Requirements (Part B); (2) Right of Rescission (Part B); and (3) TILA’s Enforcement
Provisions. b. TILA’s Disclosure Requirements TILA requires lenders to make certain
"material disclosures" on loans subject to the Real Estate Settlement Procedures Act
(RESPA) within three business days after their receipt of a written application. This early
disclosure statement is partially based on the initial information provided by the
consumer.
The term "material disclosures" means the disclosure of the annual percentage rate, the
method of determining the finance charge and the balance upon which a finance charge
will be imposed, the amount of the finance charge, the amount to be financed, the total of
payments, the number and amount of payments, the due dates or periods of payments
scheduled to repay the indebtedness, and the disclosures required by Section 1639(a) of
this title. A final disclosure statement is provided at the time of loan closing. The
disclosure is required to be in a specific format.
While the "annual percentage rate" and the "finance charge" are to be disclosed more
conspicuously than other terms, the Disclosure typically includes much information
concerning the lender, the loan and its terms. TILA’s Enforcement Provisions (1) Civil
Remedies
Any consumer harmed by a violation of TILA may bring a civil suit against the lender.
Generally, TILA provides for the following civil remedies:
(1) actual damages;
(2) damages twice the amount of any finance charge in connection with the transaction;
(3) damages not less than $200 or greater than $2,000; and
(4) Reasonable Attorney Fees. 15 U.S.C. § 1640(a).
Correction of Errors A lender or assignee has no criminal, administrative, or civil
liability under TILA for any failure to comply with its requirements, if within sixty days
after discovering an error, whether pursuant to a final written examination report, or a
notice issued by a federal agency under section 1607(e)(1) that the annual percentage rate
or finance charge was inaccurately disclosed to the borrower, or through the lender’s or
assignee’s own procedures, and prior to the institution of an action under this section or
the receipt of written notice of the error from the obligor, the lender or the assignee
notifies the person concerned of the error and makes whatever adjustments in the
appropriate account are necessary to assure that the person will not be required to pay an
amount in excess of the charge actually disclosed, or the dollar equivalent of the annual
percentage rate actually disclosed, whichever is lower. 15 U.S.C. § 1640(b).
Defenses: Unintentional Violations; Bona Fide Errors A lender or assignee may not be
held liable in any action for inadequate disclosure or defect in the right of recision if the
lender or assignee shows by a preponderance of evidence that the violation was not
intentional and resulted from a bona fide error notwithstanding the maintenance of
procedures reasonably adapted to avoid any such error. Examples of a bona fide error
include, but are not limited to, clerical, calculation, computer malfunction and
programing, and printing errors. However, an error of legal judgment with respect to a
person's TILA obligations is not considered a bona fide error.
(1) help consumers become better shoppers for settlement services and
(2) eliminate kickbacks and referral fees that unnecessarily increase the costs of certain
settlement services.
To accomplish these ends, RESPA requires that borrowers receive disclosures at various
times. In addition, RESPA prohibits certain practices that increase the cost of settlement
services. It also prohibits home sellers from requiring home buyers to purchase title
insurance from a particular company.
When borrowers apply for a mortgage loan, RESPA requires mortgage brokers
and/or lenders to give the borrowers:
A Good Faith Estimate (GFE) of settlement costs, which lists the charges the buyer is
likely to pay at settlement. This is only an estimate and the actual charges may differ. If a
lender requires the borrower to use a particular settlement provider, then the lender must
disclose this requirement on the GFE.
A Mortgage Servicing Disclosure Statement, which discloses to the borrower whether the
lender intends to service the loan or transfer it to another lender. This Statement also
provides information about complaint resolution.
Unless the borrower’s loan application is turned down within three days, a lender must
mail these documents to the borrowers if they did not receive them at the time of their
application.
Except in cases where a lender refers a borrower to an attorney, credit reporting agency or
real estate appraiser to represent the lender's interest in the transaction, the referring party
may not require the consumer to use the particular provider being referred.
(b) HUD-1 Settlement Statement RESPA permits the borrower to request a copy of the
HUD-1 Statement one day before the actual settlement. The settlement agent must then
provide the borrowers with a completed HUD-1 Settlement Statement based on
information known to the agent at that time.
(a) "Thing of Value" The term "thing of value" includes any payment, advance, funds,
loan, service, or other consideration. 12 U.S.C. § 2602(2).
(b) "Payment" While prohibiting kickbacks, fee splitting, and unearned fees, RESPA does
not prohibit:
The payment of a fee to attorneys at law for services actually rendered; or
The payment of a fee by a title company to its duly appointed agent for services actually
performed in the issuance of a policy of title insurance; or
The payment of a fee by a lender to its duly appointed agent for services actually
performed in the making of a loan; or
The payment of a bona fide salary or compensation or other payment for goods or
facilities actually furnished or for services actually performed; or
3. Facts: A, a real estate broker, obtains all necessary licenses under state law to act as a
title insurance agent. A refers individuals who are purchasing homes in transactions in
which A participates as a broker to B, an unaffiliated title company, for the purchase of
title insurance services. A performs minimal, if any, title services in connection with the
issuance of the title insurance policy (such as placing an application with the title
company). B pays a commission to A (or A retains a portion of the title insurance
premium) for the transactions or alternatively B receives a portion of the premium paid
directly from the purchaser. Comments: The payment of a commission or portion of the
title insurance premium by B to A, or receipt of a portion of the payment for title
insurance under circumstances where no substantial services are being performed by A is
a violation of section 8 of RESPA. It makes no difference whether the payment comes
from B or the purchaser. The amount of the payment must bear a reasonable relationship
to the services rendered. Here A really is being compensated for a referral of business to
B. * * *
5. Facts: A, a real estate broker, refers title business to B, a company that is a licensed
title agent for C, a title insurance company. A owns more than 1% of B. B performs the
title search and examination, makes determinations of insurability, issues the
commitment, clears underwriting objections, and issues a policy of title insurance on
behalf of C, for which C pays B a commission. B pays annual dividends to its owners,
including A, based on the relative amount of business each of its owners refers to B.
Comments: The facts involve an affiliated business arrangement. The payments of a
commission by C to B is not a violation of section 8 of RESPA if the amount of the
commission constitutes reasonable compensation for the services performed by B for C.
The payment of a dividend or the giving of any other thing of value by B to A that is
based on the amount of business referred to B by A does not meet the affiliated business
agreement exemption provisions and such actions violate section
The statute does enumerate one defense to the failure to provide the CBA Disclosure. If
the failure to provide the Disclosure was not intentional and resulted from a bona fide
error, notwithstanding maintenance of procedures that are reasonably adapted to avoid
such error, that person is not liable under the Act.
http://www.kttlaw.com/images/news/keyfetz_home_ownership_equity_protection.pdf
The destructive incentives in the origination of subprime mortgage loans are encouraged
by a legal construct known as the Holder in Due Course (“HDC”) doctrine, which allows
assignees of mortgage notes to circumvent lending regulations by “laundering” abusive
loans. Specifically, the HDC doctrine frees assignees of liability for many claims and
defenses which the borrower would have against the original lender. As a result, the HDC
doctrine makes the current system “perfect for washing everybody’s hands of any
responsibility [. . .]. At each step, it gets harder and harder to hold anybody
accountable.”53 This lack of accountability for lending violations encourages subprime
mortgage financiers to supply mortgage brokers with capital with which to push
Subprimemortgages. As bluntly stated by a spokesman for Lehman Brothers when asked
about the investment bank’s role in financing the activity of a predatory lender, Lehman
Brothers is an “underwriter, not a regulator.”54 Given secondary-market players’ passive
view of their role, Congress recognized the need to subject them to liability for the
misconduct of their primary-market counterparts to restore accountability to the subprime
mortgage market.
A. Laundering Lending Abuses through the Holder in Due
Course Doctrine
It is a general principle of contract law that claims and defenses to a contract survive any
transfer of the agreement to a new party. However, an exception to this general principle,
the HDC doctrine, developed as one of commercial law’s primary mechanisms for
encouraging the flow of credit.55 Statement of Margot Saunders, supra note 13, at 13-14.
The doctrine permits assignees of “negotiable instruments” to protect themselves from
many claims and defenses to payment that a borrower would have against the original
lender, as long as the assignee did not have knowledge of the claims and defenses at the
time of transfer of the instrument.56
The modern HDC doctrine is codified in section 3-305(b) of the Revised Article Three of the Uniform
Commercial Code:
Defenses and Claims in Recoupment. . . . The right of a holder in due course to enforce the obligation of a
party to pay the instrument is subject to defenses of the obligor stated in subsection
(a)(1) [that is “ (i)infancy of the obligor to the extent it is a defense to a simple contract,
(ii) duress, lack of legal capacity, or illegality of the transaction which,under
other law, nullifies the obligation of the obligor,
(iii) fraud that induced the obligor to sign the instrument with neither
knowledge nor reasonable opportunity to learn of its character or its
essential terms, or
(iv) discharge of the obligor in insolvency proceedings”], but is not subject to
defenses of the obligor stated in subsection
(a)(2) [that is, defenses of the obligor stated in another section of Article 3 or “that would be
available if the person entitled to enforce the instrument were enforcing a right to payment under a
simple contract”] or claims in recoupment stated in subsection (a)(3) [that is claims “of the obligor
against the original payee of the instrument if the claim arose from the transaction that gave rise to
the instrument”] against a person other than the holder.
Without the HDC rule, assignees of negotiable instruments step into the shoes of their
seller, and would be liable for any claims or defenses that could have been brought
against the seller (“assignee liability”). The HDC rule, therefore, seeks to encourage
transferability of negotiable instruments by eliminating assignee liability.57 Statement of
Margot Saunders, supra note 13, at 13-14.
58 See,
e.g., Midfirst Bank, SSB v. C.W. Haynes & Co., Inc., 893 F.Supp. 1304, 1312 (D.S.C. 1994)
(applying the HDC defense in a commercial context to hold that: “Article Three of the UCC controls
transfers of negotiable instruments, and the mortgage notes are clearly negotiable. If UCC Article
Three should not apply in this case and the holder in due course doctrine is no longer warranted,
then any abolishment of that body of law should come from the legislature, not the court”). See also
Eggert, supra note 12, at 560-70 (discussing cases where the HDC doctrine was applied against
consumer mortgage borrowers).
Several courts have recognized the applicability of the HDC doctrine to mortgage notes.58
In the context of a securitization, the HDC defense often prevents borrowers from suing
or defending against claims brought by the securitization entity.59 In fact, the entities that
structure securitizations of residential mortgages are often “coached” in the means to
transfer ownership such that the buyer can become a Holder in Due Course.60 While a
borrower maintains all claims against the loan originator under the HDC rule, the
originator is often an under-capitalized, “fly-by-night” mortgage broker or finance
company, against whom the borrower cannot get recourse.61 Id. at 508; 522-27; 553-59
(exploring the problem of the “Boom, Bust, and Bankruptcy Cycle” of predatory lenders through a case
study of the Diamond Mortgage mortgage-backed securities fraud).
HOEPA RESEARCH
HOEPA applies where "the total point and fees payable by the consumer at or before the
closing will exceed the greater of -- (i) 8 percent of the total loan amount; or (ii) $400."
15 U.S.C. § 1602 (aa)(1)(B). Generally, points and fees include all items included in the
finance charge, all compensation paid to mortgage brokers, and all enumerated section
1605(e) charges.
If the total points and fees exceed the greater of 8 percent or $400, section 1604 of the
Act requires additional disclosures. These specific HOEPA disclosures are enumerated in
section 1639(a)-(b) of TILA. Where inadequate disclosure occurs, the borrower has the
right of rescission. 15 U.S.C. § 1635.
Disclosure requirements:
A special HOEPA disclosure notice must be delivered to the
consumer at least three business days prior to the closing of the
loan. 15 U.S.C. § 1639(b); 12 C.F.R. 226.31(c).
As of October 1, 2002, the notice must also state the total amount
borrowed. 66 Fed. Reg. 65,618 (2001).
Prohibited terms:
The following terms are prohibited (or limited) by the statute and
Regulation Z: prepayment penalties, default interest rate, balloon
payments, negative amortization, prepaid payments, improvident
lending, direct payments to home improvement contractors. 15
U.S.C. § 1639(c)-(h); 12 C.F.R. 226.32(d). Lopez v. Delta Funding
Corp., 1998 U.S. Dist. LEXIS 23318 (E.D.N.Y. Dec. 23, 1998)
(default interest rate); Newton v. United Companies Financial
Corp., 24 F. Supp. 2d 444, 451-57 (E.D. Pa. 1998) (improvident
lending).
FTC RESEARCH
PREPARED STATEMENT of the FTC
on EFFORTS TO COMBAT UNFAIR AND DECEPTIVE SUBPRIME LENDING
The Commission’s Legal Authority The FTC has jurisdiction over lenders in or affecting
interstate commerce, other then banks, S&L’s, and federal credit unions.
2 As part of its consumer protection mandate, the Commission enforces Section 5 of the
(“FTC Act”), which broadly prohibits unfair and deceptive acts or practices.
3 That section has provided the basis for most of the Commission’s enforcement activity
in this area. The Commission also enforces a number of laws that address specific aspects
of mortgage lending and servicing practices, including the HOEPA.
“Empirical evidence suggests that subprime loans are different from prime loans in terms
of the variety, complexity and level of risks they pose.11 Several cases have resulted in
large monetary judgements, including Ameriquest, HFC, Citigroup, The Associates,
Fairbanks Capital.
September 2002 – Landmark case. The FTC charged Citigroup Inc’s subsidiaries,
Associates First Capital Corp., and Associates Corp of North America(“The
Associates”) engaged in systematic and widespread deception and other illegal lending
practices. “ they lured customers into high-cost loans through false and misleading
statements and half-truths about loan costs, and violated numerous federal laws,
including the TILA, the FCRA, and the FDCPA.
The defendants paid $215 million for consumer redress to resolve the charges, in addition
to a concurrent $25 million class action settlement. First Alliance Mortgage Co. - THE
FTC and others, including six states, private plaintiffs, and the AARP, reached a major
settlement with mortgage lender First Alliance Mortgage Co. in March 2002. The
complaint alleged that the defendants loan officers in their sales presentations made
blatantly deceptive claims about monetary and other loan terms.
The settlement required the defendants to pay an amount equal to virtually the entirety of
the corporate assets, as well as a $20 Million payment from the individual who founded
and ran the company. Recently the FTC announced that the redress fund will ultimately
total about $65 million for nearly 20,000 borrowers.
July 2002 – The FTC, HUD, State of Illnois, jointly settled a case against a regional sub-
prime lender, Mercantile Mortgage Company Inc., charging violations of the FTC Act,
TILA, HOEPA, and the RESPA. The FTC alleged that the company’s employees, and
one mortgage broker who was acting as an agent in soliciting and closing loans on it’s
behalf, misrepresented key loan terms to borrowers. The settlement required the the
company to make a $250,000 payment for consumer redress and create a program to offer
refinanced loans on favorable terms to certain borroweres. At the same time, the
Commission and the State of Illinois jointly sued the mortgage broker involved and
ultimately reached a settlement providing for and additional $270,000 in consumer
redress.
FAIRBANKS CAPITAL CORP. Nov. 2003- The FTC along with HUD, announced a
settlement with Fairbanks Capital Corp. and its parent company. 15 U.S.C. 45(a) 15
U.S.C. 1639 HOEPA TILA 15 USC 1601 et seq ECOA 15 USC 1691 et seq FCRA 15
USC 1681 et seq FDCPA USC 1692 et seq Harsh Mortgage terms, pre payment
penalties, broker kickbacks,
(3) As part of its mandate to protect consumers, the Commission enforces the Federal
Trade Commission Act ("FTC Act"), which broadly prohibits unfair or deceptive acts or
practices in or affecting commerce.
(4) The Commission also enforces a number of laws specifically governing lending
practices, including the Truth in Lending Act ("TILA"),
(6) which, as part of the TILA, provides special protections for consumers in certain non-
purchase, high-cost loans secured by their homes; and the Equal Credit Opportunity Act
("ECOA"),
(7) which prohibits discrimination against applicants for credit on the basis of age, race,
sex, marital status, or other prohibited factors. In addition to our enforcement duties, the
Commission also responds to many requests for information about credit issues and
consumer credit laws from consumers, industry officials, state law enforcement agencies,
and the media.
(9) In 1999 alone, subprime lenders originated over $160 billion in home equity loans,
(11) During the last five years, Wall Street investment banks have played an
increasingly important role in raising funds for subprime loans. In 1995, $18.5 billion in
subprime loans was securitized and by 1999, that figure reached almost $60 billion.
(12) The secondary market's expansion has, in turn, helped to sustain growth in the
industry by enabling lenders to raise funds on the open market to expand their subprime
lending activities.
(13) The enormous growth of the subprime mortgage industry has enabled many
consumers to obtain home loans who previously would have had much more limited
access to the credit market. The Commission is aware, however, of practices in the
subprime mortgage market that take advantage of the most vulnerable consumers.
Predatory lending practices often exploit lower-income and minority borrowers.
(14) In many cases, those living in lower-income and minority neighborhoods -- where
traditional banking services continue to be in short supply -- tend to turn to subprime
lenders regardless of whether they would qualify for less expensive loans. Subprime
loans are three times more likely in low-income neighborhoods than in high-income
neighborhoods.
(16) Significantly, these disparities still existed when borrowers in black and white
neighborhoods were compared while controlling for the income levels of the
neighborhood.
(17) Elderly homeowners, in particular, are frequent targets of some subprime home
equity lenders, because they often have substantial equity in their homes, yet have fixed
or declining incomes.
(18) While subprime lenders may expand access to credit for individuals who otherwise
would be shut out of the market, unethical lenders may take advantage of consumers in
the weakest bargaining position. Predatory lending in the subprime mortgage market
covers a wide range of practices. While the practices are quite varied, there are common
traits: they generally aim either to extract excessive fees and costs from the borrower or
to obtain outright the equity in the borrower's home. This is often accomplished through a
combination of aggressive marketing, high-pressure sales tactics, and loan terms, such as
prepayment penalties, that inhibit a borrower's ability to go elsewhere for credit.
Depending on the particular facts, some of these predatory lending practices may be
illegal under various federal or state laws, including the FTC Act, the TILA (including
HOEPA's extra protections triggered by high-rate and high-fee loans), or the ECOA.
(19) Additionally, if a lender targets borrowers for predatory practices based on age, race,
and/or sex, such targeting, depending on the facts, also could violate the ECOA.
(20) III. THE COMMISSION'S RESPONSE Given this background, the Commission
is taking a variety of steps to address abuses in the subprime market. First, the
Commission is increasing its enforcement activities to halt illegal lending practices
engaged in by subprime lenders. At the same time, the Commission has been working
with other federal agencies and the states to increase and coordinate enforcement efforts.
In addition, the Commission has been participating in the interagency task force
convened by the Board to examine the issue of predatory lending. The Commission also
is educating consumers to help them avoid predatory lending practices.
In March 2000, the Commission, in conjunction with the United States Department of
Justice ("DOJ") and the Department of Housing and Urban Development ("HUD"),
announced a settlement with Delta Funding Corporation, a national subprime mortgage
lender. In addition to the allegations brought by DOJ and HUD, the Commission alleged
that Delta had engaged in a pattern or practice of asset-based lending and other practices
in violation of HOEPA.
(21) In July 1999, as part of "Operation Home Inequity," the Commission settled cases
against seven subprime mortgage lenders for violations of HOEPA, the TILA, and
Section 5 of the FTC Act. The HOEPA violations alleged included failure to provide
required disclosures, asset-based lending, and use of prohibited terms (such as balloon
payments on loans with less than five-year terms, increased interest rates after default,
and prohibited prepayment penalties). The settlement agreements provide for substantial
remedies and protections for past and future borrowers, including consumer redress
totaling $572,500, and, in the case of one lender, a ban against any future involvement
with high-cost loans secured by consumers' homes.
(22) More recently, the Commission settled a case of this type against a Washington State
lender, Nu West, Inc. That case also included an additional allegation that the lender
violated HOEPA by making direct payments to home improvement contractors, and the
settlement required the defendants to pay more than $160,000 in consumer redress.
(23) In July 1999, the Commission settled charges that another mortgage lender, Fleet
Finance, Inc., had failed to provide accurate, timely disclosures of the costs and terms of
home equity loans to consumers and had failed to provide or accurately provide
consumers with information about their right to cancel their transactions, in violation of
the TILA and Section 5 of the FTC Act. The settlement provides for $1.3 million in
consumer redress as well as injunctive relief.
(24) In January 1998, the Commission filed a complaint in the United States District
Court for the District of Columbia against Capital City Mortgage Corporation, a
Washington, DC-area mortgage lender, and its owner, alleging numerous violations of
various federal laws resulting in serious injury to borrowers, including the loss of their
homes.
(25) The company allegedly made home equity loans to minority, elderly, and low-
income borrowers at interest rates as high as 20-24 percent. Many borrowers faced
foreclosure on their properties, after which the company would allegedly buy the
properties at auction for prices much lower than their appraised value. The Commission's
complaint in this matter, which remains in litigation, alleges violations of the FTC Act,
the TILA, the ECOA, and the Fair Debt Collection Practices Act.
(26) In the area of loans sold with credit insurance (a practice known as "packing"), the
Commission has a long enforcement history. The Commission settled a case in 1997
against The Money Tree, a Georgia-based consumer finance lender, and its president.
The case involved, in part, allegations that the company required consumers to purchase
credit-related insurance and other "extras" along with their loans, without disclosing to
consumers the true cost of their credit. The settlement, among other things, requires The
Money Tree to offer refunds of certain insurance premiums to customers whose loans
were open at the time the settlement became final. It also mandates that the company
approve borrowers' loan applications prior to any discussion with the borrower regarding
credit insurance and requires that the company provide expanded disclosures.
(27) In 1992, the Commission approved a consent agreement with Tower Loan of
Mississippi settling similar charges regarding its consumer loans.
(29) have provided an important foundation for the Commission in its investigations of
potential packing practices in home equity lending. For example, most recently the
Commission jointly settled a case, along with HUD, against Action Loan Company,
Inc., of Louisville, Kentucky, and its owner and president, requiring the defendants to
pay a $350,000 civil penalty and up to a total of $37,000 in consumer redress. The
complaint included allegations that the defendants violated the TILA and Regulation Z
by failing to include the cost of accident and health insurance in their disclosure of the
finance charge and annual percentage rate (APR) of a consumer loan and that they
violated Section 5 of the FTC Act by misrepresenting that consumers were purchasing
only credit life insurance when, in fact, they were also purchasing accident and health
insurance.
(30) In addition to its ongoing investigations, the Commission is sharing its knowledge
and experience with other enforcement agencies and with consumers. In 1997, the
Commission's Bureau of Consumer Protection held joint law enforcement sessions on
home equity lending abuses with state regulators and law enforcers in six cities around
the country. These training sessions were conducted to assist states in exercising their
relatively new enforcement authority under HOEPA
(31) and to share information about recent trends. The Commission has implemented an
aggressive consumer education program and has published a series of free publications
specifically for homeowners and potential home buyers. For example, in 1996, the
Commission first produced "High-Rate, High-Fee Loans (Section 32 Mortgages)" to alert
homeowners about their rights under HOEPA.
In 1998, in conjunction with the filing of the Capital City complaint, the Commission
issued two publications to help consumers recognize and avoid home equity scams and
abuses: "Avoiding Home Equity Scams" and "Home Equity Loans: Borrowers Beware."
In January 1999, the Commission, along with ten other federal agencies, including the
Board, produced "Looking for the BEST Mortgage - Shop, Compare, Negotiate" to help
consumers shop for home loans. During the first annual National Consumer Protection
Week in February 1999, which highlighted credit fraud and abusive lending practices, the
Commission distributed more than 500,000 credit-related publications. As part of
"Operation Home Inequity" in July 1999, the Commission partnered with AARP to
produce "Need a Loan? Think Twice About Using Your Home as Collateral."(32) In
fiscal year 2000, the Commission distributed approximately 200,000 free publications on
home equity lending, including over 50,000 online publications.
(33) Pursuant to this authority, the Board enacted Regulation Z, which implements the
TILA.
(34) With the HOEPA amendment to the TILA, Congress gave the Board two types of
additional regulatory authority. First, Congress granted the Board the authority to prohibit
by regulation or order acts or practices in connection with mortgage loans that the Board
finds to be unfair, deceptive, or designed to evade the provisions of HOEPA.
(35) The legislative history of HOEPA indicates that Congress intended that the Board
look to the standards employed by the Commission in defining unfair or deceptive acts or
practices under the FTC Act.
(36) Second, Congress gave the Board the authority to prohibit acts or practices in
connection with the refinancing of mortgage loans that the Board finds to be associated
with abusive lending practices or that are otherwise not in the interest of the borrower.
(37) Based on our enforcement experience, the Commission recommends that the Board
further restrict certain acts and practices under HOEPA and change the HOEPA triggers to
expand HOEPA's coverage. These recommendations are interrelated. As discussed below,
a very small percentage of subprime mortgage loans are currently covered by HOEPA
and the Commission has observed problem lending practices in subprime loans where the
rates or fees fall below the current triggers. As a result, the protections offered by
HOEPA, which we strongly support, will help relatively few borrowers unless HOEPA is
expanded to cover more loans. In addition, the Board should provide additional
clarification of certain HOEPA provisions. A. Restricting Certain Acts or Practices under
HOEPA 1. Credit Insurance and Other "Extra" Products Recommendation: Prohibit the
Financing of Single-Premium Credit Insurance and Other Loan Extras. As discussed
above, the Commission has a long enforcement history in the area of loans sold with
credit insurance and other "extras."
(38) Predatory lenders stand to make significant profits from credit insurance, not only
because the premium itself is very profitable but also because the premium is typically
financed as part of the loan, resulting in extra fees and interest.
(39) Thus, lenders have strong incentives to induce consumers to buy credit insurance as
part of the loan.
(40) Typically, credit insurance is sold for all or a substantial part of the loan term with a
single premium, payable up front and financed as part of the loan. However, borrowers
are not able to evaluate the costs and benefits of the insurance purchase because it is often
included automatically with the loan and its terms are not explained. As a result,
consumers may spend thousands of dollars for credit insurance in connection with loans
without having made an independent decision to buy the insurance. A single-premium
payment scheme that commits consumers up front to long-term credit insurance
precludes them from ever making a separate, fully-informed decision about insurance.
And, it requires them to finance the premium, and the points on the premium for the life
of the loan. We recommend that the Board use its authority under HOEPA to prohibit the
practice of financing lump-sum credit insurance (as well as other loan "extras") for
HOEPA loans. The Commission has recommended that Congress adopt this same
prohibition.
(41) The Board could prohibit this practice in connection with the "refinancing of
mortgage loans that the Board finds to be associated with abusive lending practices, or
that are not otherwise in the best interest of the borrower."
(42) In the alternative, the Board should consider prohibiting the financing of single-
premium credit insurance and extras pursuant to its authority under HOEPA to regulate
unfair or deceptive acts or practices.
(44) The Departments of Treasury and Housing and Urban Development, in Curbing
Predatory Home Mortgage Lending: A Joint Report, United States Department of the
Treasury and United States Department of Housing and Urban Development, June 2000
("HUD/Treasury Report"), support a prohibition on the financing of single-premium
credit insurance in mortgage transactions. When making this recommendation, the
agencies stated that lump-sum products that are paid for in advance and financed over the
life of the loan,
(45) such as single-premium credit insurance, "provide the borrower no net benefit," and
for that reason, "are almost always not in the interest of the borrower."
(46) As the HUD/Treasury Report also states, the sale of such products at closing is
arguably inherently deceptive "because so many borrowers conclude that they must
purchase the products in order to close the loan, or fail at all to notice the products among
the lengthy settlement documents."
(48) Recommendation: If the Board Does Not Prohibit the Financing of Single-Premium
Credit Insurance, It Should Separate the Sale of Credit Insurance from the Credit
Transaction. The Board asks whether, if the practice is not prohibited, the Board should
regulate the conditions under which single-premium credit insurance is sold or financed.
It states that such regulation might include prohibiting creditors from selling single-
premium credit insurance until after loan closing. If the Board does not prohibit the
financing of single-premium credit insurance and other extra products sold with loans,
the Board should adopt regulations that unpack the two transactions in HOEPA loans as
much as possible.
(49) The Board should require that the offer and sale of credit insurance and extras be
separated from the credit transaction. The most effective and simplest way to do that
would be to prohibit creditors from selling single-premium credit insurance until after
closing a HOEPA loan. Alternatively, if the Board does not prohibit the sale of single-
premium credit insurance until after loan closing, the Board should, with regard to
HOEPA loans: (1) declare it to be an unfair or deceptive act or practice for a creditor to
quote loan terms (such as the amount of the monthly payment) to a consumer with the
cost of credit-related insurance or other extras automatically included; (2) require that the
creditor notify the consumer that she has been approved for credit prior to marketing
credit insurance and extras in order to dispel any impression on the part of the consumer
that the purchase of credit insurance or extras are required for loan approval;
(50) (3) specify that information about the cost and terms of credit insurance and extras
must be separate from the credit cost information; and (4) if the credit insurance and
extras are financed, require the creditor to provide separate documentation relating only
to that transaction. Alternatively, the Board could require that two cost disclosures, one
with and one without the cost of credit insurance and extras, be provided as part of the
HOEPA disclosures given to the borrowers three days in advance, if it has not been
prohibited as discussed previously. 2. Mandatory Arbitration Agreements in HOEPA
Loans Recommendation: The Board Should Ban Mandatory Arbitration Agreements in
HOEPA Loans. Over the last few years, there has been a significant increase in the use of
mandatory arbitration clauses in consumer credit contracts, in particular in the subprime
industry. In many contexts, alternative dispute resolution, including arbitration, may
benefit consumers. However, the Commission is troubled by the use of mandatory
arbitration in the context of HOEPA loans. Mandatory arbitration clauses require, as a
condition of receiving the loan, that the borrower agree to resolve any dispute arising out
of the loan through mandatory arbitration rather than litigation. Consumers may be
presented with an arbitration agreement for the first time at loan closing, with no prior
notice of the requirement, and among a stack of other complicated loan documents. At
that time, even if consumers have an opportunity to read the agreement, consumers are
unlikely to inquire about it out of fear they will lose the loan.
(51) Consumers are focused on getting a loan, and not on the unanticipated event of
default. In addition, borrowers may not understand the significance of agreeing to
arbitration and various associated terms, such as cost allocation.
(52) In fact, arbitration may be more costly and inconvenient for the borrower and thus be
a disincentive to pursuing legal rights.
(53) Moreover, there are significant procedural and substantive distinctions between
arbitration proceedings and litigation that might have an adverse effect on a consumer's
ability to pursue her remedies for HOEPA violations. By signing a mandatory arbitration
agreement, borrowers waive their right to a jury trial and the ability to pursue claims
through class action litigation. In arbitration, there is also limited factual discovery and
remedies such as punitive damages and injunctive relief are typically unavailable.
(54) A decision by an arbitrator in one case has no precedential value; indeed, there is no
requirement that the decision-maker give any reasons for the decision. Thus, predatory
lenders can shield their abusive practices from public scrutiny. Perhaps most importantly,
mandatory arbitration agreements undermine consumers' ability to exercise statutory
rights conferred by the TILA, HOEPA, ECOA, and other laws which were passed to
protect consumers in the credit marketplace.
(55) Review of arbitration awards is very limited. "Arbitrators can misconstrue contracts,
make erroneous decisions of fact, and misapply law, all without having their awards
vacated."
(57) For these reasons, the Commission has recommended to Congress a prohibition of
mandatory arbitration clauses in HOEPA loans.
(58) While the Commission recognizes the benefits of alternative dispute resolution, it
does not support mandatory arbitration agreements imposed in HOEPA loans where
consumers and their homes are most vulnerable. With regard to Board action in this area,
the Commission recommends that the Board consider using its authority to prohibit the
use of mandatory arbitration clauses in HOEPA loans under the Board's authority to
prohibit acts or practices in connection with the "refinancing of mortgage loans that the
Board finds to be associated with abusive lending practices, or that are not otherwise in
the best interest of the borrower."
(60) Among lenders in Atlanta that report HMDA data, the overall share of foreclosures
attributable to subprime lending increased from 5 percent in 1996 to 16 percent in 1999.
(61) In Baltimore, the subprime share of foreclosures is much higher than the subprime
share of mortgage originations; while subprime loans accounted for 45 percent of the
foreclosure petitions, the subprime share of mortgage originations was 21 percent in
1998.
(62) Under HOEPA, a creditor may not engage in a "pattern or practice" of extending
credit based on the consumer's collateral without regard to the consumer's repayment
ability (including the consumer's current and expected income, current obligations, and
employment status).
(63) Regulation Z, implementing this provision, prohibits such extensions of credit if the
consumer will be unable to make the scheduled loan payments.
(64) The Board asks whether additional interpretive guidance on the "pattern or practice"
requirement would be useful, and, if so, what elements of the requirement the guidance
should address. The Board also asks what regulatory standard it could adopt for
determining whether a creditor has actually considered the consumer's ability to repay the
loan. Recommendation: The Board Should Adopt the Fair Housing Act Standard for
Defining "Pattern or Practice." Additional guidance on the meaning of "pattern or
practice" is needed. We believe that the appropriate "pattern or practice" standard should
be the same as that under the Fair Housing Act ("FHA").
(65) The FHA, as amended, authorizes the Attorney General of the United States to bring
an enforcement action if she has reasonable cause to believe that a person or group of
persons is engaged in a "pattern or practice" of resistance to the full enjoyment of any of
the rights granted by the FHA.
(66) To fulfill the "pattern or practice" requirement, the discrimination must result from
more than a mere isolated, accidental or peculiar event.
(68) and courts have awarded relief based on as few as six incidents of discrimination.
(69) Moreover, the construction adopted by the Courts suggests that a wide range of
evidence may be used to prove a "pattern or practice" of discrimination under the FHA.
(70) Similar latitude should be available to agencies seeking to establish that a creditor
has engaged in a pattern or practice of asset-based lending in violation of HOEPA.
(71) For a variety of reasons, it may not always be possible to prove a pattern or practice
of asset-based lending through an "empirical analysis of a representative sample of all of
the lender's loans."
(72) There are often other ways, however, to establish a practice of a lender, such as
through the lender's marketing materials or other documents or testimony from the
lender's employees and borrowers. The Board should clarify that the "pattern or practice"
requirement under HOEPA has the same meaning as the "pattern or practice"
requirement under the Fair Housing Act. Recommendation: The Board Should Adopt
Standards Regarding the Determination of the Consumer's Ability to Pay Without a
Definitive Safe Harbor and Should Require Creditors to Document Information
Considered in Determining Ability to Repay. The Board has also asked for comment as to
what regulatory standard it could adopt for determining whether a creditor has considered
a consumer's ability to repay.
The Commission has brought a number of enforcement actions in which it has alleged
that creditors have not met this legal requirement. In these cases, the Commission has
based allegations of HOEPA violations on a variety of facts that established the creditor's
failure to consider ability to repay. In some cases, the lenders were not considering
income at all, were not verifying income or employment, or were not even obtaining
credit reports to determine and verify current obligations. The Commission also alleged
HOEPA violations where other factors demonstrated that the lender did not sufficiently
consider ability to repay, such as loans where the borrower's debt payments left her with
insufficient income for living expenses, or loans that caused monthly debt payments to
increase, even though the borrower was already in default and there was no change in
financial circumstances.
(73) Further clarification by the Board of the standards creditors should meet would
ensure that they are adequately considering ability to repay. However, since we are still
learning about the various ways lenders have not adequately considered ability to repay,
we encourage the Board not to carve out an absolute safe harbor at this time, but to leave
room for proof of overall failure to consider ability to repay. Further, we have
encountered extremely poor documentation by lenders regarding what factors were
considered in determining ability to pay. While Regulation B, which implements the
ECOA, requires a creditor to retain "written or recorded information used in evaluating
the application," it does not generally require that such information be created in the first
instance.
(74) Requiring such documentation would assist the Commission and others in their
efforts to evaluate the occurrence of unlawful asset-based lending. 4. Refinancing Lower
Rate Loans Recommendation: The Board Should Prohibit Creditors from Representing
Falsely or Without Substantiation That a Loan Will Save the Consumer Money. The
Board notes that, when a consumer seeks a second mortgage to consolidate debts or
finance home improvements, some creditors require the existing first mortgage to be paid
off as a condition of providing the new funds. Requiring a lower rate first mortgage to be
paid off in connection with a higher rate debt consolidation or home improvement loan,
increases substantially the cost to the borrower. The Board asks what regulatory action is
appropriate to protect consumers from refinancing abuses without restricting legitimate
transactions. The Commission would likely regard it as a deceptive practice in violation
of the Federal Trade Commission Act for a creditor to represent falsely or without
substantiation that refinancing will save the consumer money. The Commission recently
announced a settlement with a lender who, in advertising debt consolidation loans,
allegedly made such representations in violation of the FTC Act.
(75) The Commission urges the Board to consider using its authority under HOEPA to
prohibit such false or unsubstantiated representations as deceptive or unfair. This
approach would help to prevent abuse by providing an added remedy without restricting
the types of transactions available to consumers. B. Adjusting the HOEPA Triggers 1.
APR Trigger Recommendation: The Board Should Lower the HOEPA APR Trigger to 8
%. One measure of whether a loan is a HOEPA loan is whether it has an APR of ten
percentage points or more above Treasury rates for securities with comparable maturities
("the APR trigger"). The Board has the authority under HOEPA to reset the APR trigger
as high as twelve percent and as low as eight percent. According to the HUD/Treasury
Report, due to the high thresholds that a loan must exceed for HOEPA to apply, very few
consumers in the subprime market benefit from the law's provisions.
(76) According to the Report, anecdotal evidence suggests that abuses often occur in
loans priced just below the HOEPA triggers.
(77) Based on these findings, the HUD/Treasury Report recommends that Congress lower
the HOEPA APR trigger to 6 percentage points above Treasury securities for first liens
and 8 percentage points above Treasury securities for second liens. The Report also
recommends that the Board lower the APR trigger to 8%.
(78) Lowering the APR trigger below 8 percentage points would require a statutory
change. Based on the Commission's experience to date in investigating predatory lending
practices, only a small portion of subprime loans are HOEPA loans. Many lenders price
their loans just below the HOEPA triggers, yet we have found abusive lending practices
often occur in loans that fall below the triggers. Thus, we recommend that the Board
exercise its authority to lower the APR trigger to 8 percentage points to ensure maximum
consumer protection.
(79) 2. The Points and Fees Trigger Recommendation: Credit Insurance Premiums
Should be Included in the HOEPA Points and Fees Trigger. The Commission has
recommended to Congress that credit insurance premiums be included in the HOEPA
points and fees trigger.
(80) Similarly, the Commission recommends to the Board that lump-sum financed credit
insurance premiums (and other loan extras) be included in HOEPA's fees-based trigger.
(81) Under current law, credit insurance costs, unless required, are not included in
calculating whether a loan is covered by HOEPA. A creditor can use the means described
above to effectively bundle the insurance with the loan, and still exclude the insurance
costs from the fee calculation. A creditor can thereby keep the interest rate and closing
fees just below HOEPA's triggers for coverage but achieve a higher total return, and
consumers will pay costs that, in practice, are above HOEPA's triggers. Including all
lump-sum financed credit insurance premiums and loan extras in HOEPA's fees-based
trigger will prevent predatory lenders from avoiding HOEPA's requirements simply by
shifting loan costs to credit insurance. C. Other Issues On Which the Board Has
Requested Comment 1. HOEPA Disclosures The Board seeks comments as to how to
make the HOEPA-required advance disclosures more effective. The Commission
generally supports any change to the HOEPA notice that would increase its effectiveness
in notifying consumers three days before closing of certain critical terms.
Recommendation: The Board Should Require Disclosure of Prepayment Penalty Terms in
the HOEPA Disclosure. Specifically, we believe that the effect of any prepayment
penalty, where permitted, should be added to the HOEPA disclosure. This is an additional
item of information that could significantly affect a consumer's judgment as to whether to
proceed with the loan. Creditors sometimes make high cost loans palatable to a consumer
experiencing financial difficulty by promising that the consumer will be able to refinance
the loan on more favorable terms within a short period of time.
(83) The complaints also alleged, because the loans were, in fact, HOEPA loans, that the
creditors failed to comply with HOEPA. These cases provide evidence that lenders are
using spurious open-end credit lines to evade HOEPA. They also demonstrate that the
practice can successfully be attacked, at a minimum, as a violation of HOEPA. Thus, it is
not clear that it is necessary to prohibit such a practice expressly because, in our
experience, we have been successful in asserting that the practice is already prohibited.
ENDNOTES
1. This comment represents the views of the Federal Trade Commission. Responses to
any questions you have are my own and do not necessarily reflect the Commission's
views or the views of any individual Commissioner. 2. See 65 Fed. Reg. 42,889 (2000).
3. See, e.g., 15 U.S.C. § 45(a); 15 U.S.C. § 1607. 4. See 15 U.S.C. § 45(a). 5. See 15
U.S.C. § 1601-1667(f). 6. See 15 U.S.C. § 1639. 7. See 15 U.S.C. § 1691. 8. A number of
the remarks in this testimony are based on the Commission's administrative and
enforcement experience in the area of home equity lending, including consultations with
individual consumers, consumer groups, and industry officials. 9. See Curbing Predatory
Home Mortgage Lending: A Joint Report, United States Department of the Treasury and
United States Department of Housing and Urban Development, June 2000
("HUD/Treasury Report") at 27-28. 10. See Top 25 B & C Lenders in 1999, Inside B & C
Lending, Feb. 14, 2000, at 2. 11. See Top 25 B & C Lenders in 1997, Inside B & C
Lending, Feb. 16, 1998, at 2. 12. See HUD/Treasury Report, supra note 9, at 40. 13. See
Martin Wahl and Craig Focardi, The Stampede, Mortgage Banking, Oct. 1997, at 26, 29.
Growth in subprime originations also has been aided somewhat by the increasing
availability of warehouse lines of credit, which provide short-term funding to lenders for
the purpose of loan financing. See Warehouse Lines of Credit: Limited for B & C
Lenders?, Inside B & C Lending, Feb. 17, 1997, at 9. 14. See Complaint, F.T.C. v. Capital
City Mortgage Corp., No. 1:98-CV-00237 (D.D.C. filed Jan. 29, 1998); Anastasia
Hendrix, Oakland Widow: They Stole My House, S.F. Examiner, Apr. 13, 1997, at A-1;
Kay Stewart & David Heath, High-Cost Loans Trap Those Least Able To Afford It,
Louisville Courier-Journal, Feb. 16, 1997, at 16-17; Lucille Renwick, Wolf at the Door,
L.A. Times, Mar. 14, 1993, at 16. 15. See HUD/Treasury Report, supra note 9, at 45. 16.
Id. Home Mortgage Disclosure Act (HMDA) data indicate that borrowers in black
neighborhoods are five times as likely to refinance in the subprime market than
borrowers in white neighborhoods. Id. at 45. 17. Id. at 45-46. 18. For example, the
Department of Justice announced a settlement in September 1996 with Long Beach
Mortgage Company addressing allegations, inter alia, that the company discriminated
against the elderly, African Americans, Latinos, and women by charging higher rates than
were offered to other similarly-qualified borrowers. The combination of these factors was
alleged to be crucial. For example, African American females over the age of 55 were 2.6
times more likely than white males under age 56 to be charged fees and points that
amounted to 6% or more of the loan amount. See Complaint, United States v. Long
Beach Mortgage, Civ. No. 96-6159DT (CWX) (C.D. Cal. filed Sept. 5, 1996). 19. See id.
for a discussion of the Department of Justice's settlement with Long Beach Mortgage. 20.
See Brief of the United States As Amicus Curiae, Hargraves v. Capital City Mortgage
Corp., Civ. Action No. 98-1021 (D.D.C. 1998). 21. The complaint alleged that higher
broker fees were charged to African American females than to white males in violation of
the ECOA and the Fair Housing Act, 42 U.S.C. § § 3601-3619, and that few or no
services were performed in exchange for certain broker charges in violation of the Real
Estate Settlement Procedures Act, 12 U.S.C. § 2607. See United States v. Delta Funding
Corp. and Delta Financial Corp. Civ. Action No. 00 1872 (E.D.N.Y.) (April 2000). 22.
See Federal Trade Commission, Home Equity Lenders Settle Charges That They Engaged
in Abusive Lending Practices; Over Half Million Dollars To Be Returned to Consumers,
Press Release, July 29, 1999. 23. See Federal Trade Commission, Sub-prime Lender
Agrees to Settle FTC Charges of Violating Federal Lending and Consumer Protection
Laws, Press Release, July 18, 2000. 24. See FTC v. Fleet Fin., Inc., C3899 (F.T.C. Oct. 5,
1999). 25. See Complaint, Capital City Mortgage, supra note 14. 26. See 15 U.S.C. §
1692. 27. See The Money Tree, 123 F.T.C. 1187 (1997). 28. See Tower Loan of Miss.,
115 F.T.C. 140 (1992). 29. See, e.g., Matter of Commercial Credit Co., 82 F.T.C. 1841
(1973), order reopened and modified, 98 F.T.C. 783 (1981). 30. See Federal Trade
Commission, Sub-prime Lender Agrees to Pay $350,000 Civil Penalty to Settle Charges
of Violating Federal Lending Laws, Press Release, Aug. 24, 2000. 31. State Attorneys
General also have authority to enforce HOEPA. See 15 U.S.C. § 1640 (e). 32. Additional
housing-related brochures issued by the Commission include: After a Disaster: Hiring a
Contractor; Reverse Mortgages: Cashing in on Home Ownership; and Home Equity
Loans: The Three Day Cancellation Rule. 33. See 15 U.S.C. § 1604(a). 34. See 12 C.F.R.
§ 226. 35. See 15 U.S.C. § 1639(l)(2)(A). 36. See H.R. Conf. Rep. No. 103-652, at 365
(1994). This history is consistent with Section 18 of the FTC Act, which, in order to
prevent unfair or deceptive acts or practices by banks not subject to the FTC's
jurisdiction, directs the Board to prescribe "regulations defining with specificity such
unfair or deceptive acts or practices." Section 18 requires the Board, whenever the FTC
issues a trade regulation rule pursuant to its authority to prohibit unfair or deceptive acts
or practices, to promulgate substantially similar regulations for banks. The Board is not
required to prescribe such similar regulations only if the Board determines that such acts
or practices by banks are not unfair or deceptive or that the implementation of such a
regulation with respect to banks would seriously conflict with essential monetary and
payments systems policies of the Board. The Board must publish any such determination,
and the reason for it, in the Federal Register. See 15 U.S.C. § 18(f)(1). 37. See 15 U.S.C.
§ 1639(l)(2)(B). 38. Loan "extras" can be any products added to the cost of a loan, for
example the cost of insurance that is not related to the credit or membership in an
automobile or shopping club. See Money Tree, supra note 27 (complaint alleged that
Money Tree required consumers to purchase credit-related insurance, non-credit-related
insurance and auto club memberships but failed to disclose to consumers the true cost of
credit). 39. The guidelines established by the National Association of Insurance
Commissioners suggest that lenders and insurers may retain up to 40 cents on the dollar
from premiums paid by borrowers, with 60% of premium payments paid out for claims.
In most states, however, lenders and insurers retain more than 40% of premium monies;
in some states, they keep up to 70% or 80% of the proceeds. See Jane Bryant Quinn,
Credit Life Insurance Often Overpriced, Wash. Post, Feb. 9, 1997, at H2. 40. The
National Consumer Law Center recently recited the experience of one borrower who paid
$2,200 for a credit life insurance policy sold to her in connection with a home-secured
loan with a principal of $40,606.26. The cost of this insurance added over 5% to the cost
of the loan. The National Consumer Law Center proposes prohibiting the lump-sum
financing of credit insurance premiums. See National Consumer Law Center, Proposal
For Predatory Mortgage Reform, March 20, 2000. 41. See Predatory Lending Practices in
the Subprime Industry: Hearings before the House Comm. on Banking and Fin. Servs.,
106th Cong. 16-17 (2000) (statement of David Medine, Associate Director for Financial
Practices, Bureau of Consumer Protection, Federal Trade Commission). In their
TILA/RESPA report, the Federal Reserve Board and the Department of Housing and
Urban Development also recommended prohibiting the advance collection of lump-sum
credit insurance premiums for HOEPA loans. See Joint Report to the Congress
Concerning Reform to the Truth and Lending Act and the Real Estate Settlement
Procedures Act, July 1998. See also HUD/Treasury Report, supra note 9, at 88. 42. See
15 U.S.C. § 1639(l)(2)(B). 43. See 15 U.S.C. § 1639(l)(2)(A). 44. The HUD/Treasury
Report recommends that the Board "also require lenders to disclose to consumers any
right they may have to cancel [credit] insurance." See HUD/Treasury Report, supra note
9, at 88. 45. Any such product, the cost of which is paid in advance in connection with a
subprime mortgage loan, will inevitably be financed as consumers who obtain subprime
loans will unlikely be able to afford paying the high cost of such products in cash. 46. See
HUD/Treasury Report, supra note 9, at 88. Not surprisingly, the Commission in its
investigations has not seen credit insurance offered as a way to lower the loan's interest
rate. 47. Id. 48. See FTC Trade Regulation Rule on Credit Practices, 16 C.F.R. § 444
(1995) and accompanying Statement of Basis and Purpose and Regulatory Analysis, 49
Fed. Reg. 7740, 7787-7788 (1984). See also FTC Trade Regulation Rule on Funeral
Industry Practices, 16 C.F.R § 453 (1994) and accompanying Statement of Basis and
Purpose 47 Fed. Reg. 42260 (1982). 49. To that end, the HUD/Treasury Report
recommends that the sale of non-mortgage products such as credit insurance be restricted
to post-closing. See HUD/Treasury Report, supra note 9, at 88. 50. Creditors are free to
require the purchase of credit insurance as a condition of loan approval. If they do,
however, the TILA and Regulation Z require that the cost of the insurance be included in
the finance charge and APR disclosed to the consumer. See 12 C.F.R. § 226.4(d). 51. Cf.
American Fin. Servs. v. FTC, 767 F.2d 957 (D.C. Cir. 1985), cert. denied, 475 U.S. 1011
(1986) (describing a number of factors in credit transactions that hinder consumer ability
to compare and bargain over remedial provisions in standard form contracts). 52. The
Supreme Court has granted certiorari in a case in which the lower court declared a
mandatory arbitration clause unenforceable "because it fails to provide the minimum
guarantees required to ensure [the borrower's] ability to vindicate her statutory rights will
not be undone by steep filing fees, steep arbitrators' fees, or other high costs of
arbitration." Randolph v. Green Tree Fin., 178 F.3d 1149, 1158 (11th Cir. 1999), cert.
granted, 68 U.S.L.W. 3629 (U.S. April 3, 2000) (No. 99-1235). See also Johnson v. Tele-
Cash Inc., 82 F. Supp. 2d 264, 271 (D. Del. 1999) (order denying motion to compel
arbitration citing an "inherent conflict" between compelling arbitration and the
underlying purposes of TILA). 53. See Jean R. Sternlight, Panacea or Corporate Tool?:
Debunking the Supreme Court's Preference for Binding Arbitration, 74 Wash. L.Q. 637
(1996). 54. See Overview of Contractual Mandatory Binding Arbitration: Hearings
Before the Senate Subcommittee on Administrative Oversight and the Courts of the
Senate Judiciary Committee, 106th Cong. (2000) (statement of Patricia Sturdevant,
Executive Director and General Counsel, National Association of Consumer Advocates).
55. This principle is similar to the Commission's determination that Spiegel's policy of
using state long-arm statutes to sue distant mail order customers in Illinois was an unfair
practice. Spiegel, Inc. v. F.T.C., 540 F.2d 287, 293 (7th Cir. 1976). In that case, the
Commission determined that Spiegel's practice was "contrary to clearly articulated public
policy, intended to guarantee all citizens a meaningful opportunity to defend themselves
in court." Id. 56. See 4 Ian R. Macneil et al., Federal Arbitration Law: Agreements,
Awards & Remedies Under the Federal Arbitration Act § 40.61 (1994). 57. See
HUD/Treasury Report, supra note 9, at 96. 58. See Predatory Lending Practices in the
Subprime Industry: Hearings before the House Comm. on Banking and Fin. Servs., 106th
Cong. 16-17 (2000) (statement of David Medine, Associate Director for Financial
Practices, Bureau of Consumer Protection, Federal Trade Commission). 59. See 15
U.S.C. § 1639(l)(2)(B). 60. See HUD/Treasury Report at 47. 61. Id. at 48. 62. Id. at 48-
49. 63. See 15 U.S.C. § 1639(h). 64. See 12 C.F.R. § 226.32(e)(1). 65. See 42 U.S.C. §
3601. The HUD/Treasury Report also recommends that the Board adopt the Fair Housing
Act standard for interpreting the "pattern or practice" requirement." See HUD Treasury
Report, supra note 9, at 75-76. Further, the Report recommends that Congress repeal the
"pattern or practice" standard under HOEPA and create a safe harbor. See HUD/Treasury
Report at 75. 66. 42 U.S.C.A. § 3614 (1994). 67. See United States v. Pelzer Realty Co.,
484 F.2d 438, 444-45 (5th Cir. 1973), cert denied, 416 U.S. 936 (1974); United States v.
Balistrieri, 981 F.2d 916, 929 (7th Cir. 1992), cert denied, 510 U.S. 812 (1993) ("isolated
or sporadic acts of discrimination [do] not suffice to prove a pattern or practice"). 68.
United States v. West Peachtree Tenth Corp., 437 F.2d 221, 227 (5th Cir. 1971); United
States v. Real Estate Dev. Corp., 347 F. Supp. 776, 783 (D.Miss. 1972); cf. United States
v. Hunter, 459 F.2d 205, 217 (4th Cir. 1972), cert denied, 409 U.S. 934 (1972) (where
only two allegedly discriminatory advertisements appeared in a newspaper, the first being
published before the Act and the second in error, no "pattern or practice" was shown
through these sporadic and unintentional violations of the Act); United States v, Saroff,
377 F. Supp. 352, 362 (E.D. Tenn. 1974) (no "pattern or practice" where very few agents
of a realtor made isolated remarks about the race of prospective buyers). 69. See
Balistrieri, supra note 67, at 929. 70. See, e.g., United States v. Reddoch, 467 F.2d 897,
898-99 (5th Cir. 1972) (court found the existence of a discriminatory "pattern or practice"
on the basis of the testimony of the resident manager, two former assistant resident
managers, and former and prospective black and white tenants); United States v. Big D
Enterprises., 184 F.3d 924, 930 (8th Cir. 1999) (court found "pattern or practice" based on
the testimony of several apartment managers). 71. It is troubling that the one court to
address the "pattern or practice" requirement under HOEPA has held that it requires an
"empirical analysis of a representative sample of all of the lender's loans." Newton v.
United Cos. Fin. Corp., 24 F. Supp. 2d 444, 457 (E.D. Pa. 1998). In the Commission's
view, this court ignored the well-established analogous case law under the FHA, and
imposed an unreasonably high burden to prove "pattern or practice" for HOEPA
violations. 72. See Newton, supra, note 71, at 457. 73. See Complaint, Delta Funding
Corp., supra note 21. 74. See 12 C.F.R. § 202.12(b)(1)(i). Regulation B does require that
creditors take written applications for credit to be secured by the applicant's residence,
but does not require that other information such as that relating to credit history or
income verification be in writing. See 12 C.F.R. § 202.5(e). 75. See Federal Trade
Commission, FirstPlus Financial Group, Inc. Agrees to Settle FTC Charges that Ads for
debt Consolidation Loans were False and Misleading, Press Release, August 17, 2000.
76. The Report estimates that, during the period July through September 1999, only
"0.7% of subprime loans . . . would have met the HOEPA APR threshold." The estimate
is derived from calculations using the note rate, rather than the APR, so the actual number
may be higher. See HUD/Treasury Report, supra note 9, at 82. 77. Id. at 82. 78. Id. at 83.
79. It is estimated that an additional 5% of subprime mortgage loans would come under
HOEPA if the Board lowered the APR trigger to 8%. The estimate is derived from
calculations using the note rate, rather than the APR, so the actual number may be higher.
Id. at 84. 80. See Predatory Lending Practices in the Subprime Industry: Hearings before
the House Comm. on Banking and Fin. Servs., 106th Cong. 16-17 (2000) (statement of
David Medine, Associate Director for Financial Practices, Bureau of Consumer
Protection, Federal Trade Commission). 81. The HUD/Treasury report recommends to
Congress and the Board that single-premium credit insurance, if it is not prohibited,
should be included in the points-and-fees trigger under HOEPA. See HUD/Treasury
Report, supra note 9, at 84. 82. See Complaint, Hargraves, supra note 20. 83. See
Complaints, F.T.C. v. CLS Fin. Servs., Inc., Civ. No.C99-1215Z (W.D. Wash. 1999); and
F.T.C. v. Wasatch Credit Corp., Civ No.2-99 CV579G (D. Utah 1999).
A deed, mortgage, land contract as referred to in division (B)(2) of section 317.08 of the
Revised Code, or lease of any interest in real property and a memorandum of trust as
described in division (A) of section 5301.255 of the Revised Code shall be signed by the
grantor, mortgagor, vendor, or lessor in the case of a deed, mortgage, land contract, or
lease or shall be signed by the settlor and trustee in the case of a memorandum of trust.
The signing shall be acknowledged by the grantor, mortgagor, vendor, or lessor, or by
the settlor and trustee, in the presence of two witnesses, who shall attest the signing
and subscribe their names to the attestation. The signing shall be acknowledged by the
grantor, mortgagor, vendor, or lessor, or by the settlor and trustee, before a judge or
clerk of a court of record in this state, or a county auditor, county engineer, notary
public, or mayor, who shall certify the acknowledgement and subscribe his name to the
certificate of the acknowledgement
In layman’s terms, a bank, mortgage co and/or Legal Trust, in the process of securitizing
it’s portfolio loans is required to “endorse” the loan each and every time it changes hands.
It is very much like a check endorsement. They slap a stamp on the back of the note that
says “pay to the order of (endorsee) without recourse (endorsor) by (person) it’s (officers
title),” under which is “signature”. Each subsequent time a loan changes hands, a new
endorsement is made from the previous endorsee to the new endorsee. When loans are
securitzed, the last endorsement is often “in blank,” meaning that the new endorsee is not
named. The entire original note goes into the physical custody of the new endorsee or its
legal custodian with that blank endorsement, that can be subsequently competed if
necessary by the security sponsor. This a very common and uncontroversial practice.
(C) Make or use a false or misleading representation in the offer or sale of the
services of the organization, including either of the following:
(2) Guarantying or otherwise stating that the organization is able to obtain an
extension of credit regardless of the buyer’s previous credit problems or credit history,
unless the representation clearly discloses the eligibility requirements for obtaining an
extension of credit.
In knowledge and Truth, Plaintiff Wells Fargo Bank lacks material standing and
because Plaintiff lacks the ability to show they are the true “holder in due
proven Mortgage Document and Promissory note nor which has been, through
201 of the Uniform Commercial Code. And, significantly, Most of all of the
Wells Fargo Bank from Option One Mortgage Corp. was not even dated until
after foreclosure filing was initiated thus removing from Plaintiff legal standing
in which to initiate suit and removing courts right to hear same case for lack of
section 3-305(b) of the Revised Article Three of the Uniform Commercial Code
SEC. 9. ø78i¿ (a) It shall be unlawful for any person, directly or indirectly, by the
use of the mails or any means or instrumentality of interstate commerce, or of any facility
of any national securities exchange, or for any member of a national securities exchange
—
(1) For the purpose of creating a false or misleading appearance of active trading
in any security registered on a national securities exchange, or a false or misleading
appearance with respect to the market for any such security, (A) to effect any transaction
in such security which involves no change in the beneficial ownership thereof, or (B) to
enter an order or orders for the purchase of such security with the knowledge that an
order or orders of substantially the same size, at substantially the same time, and at
substantially the same price, for the sale of any such security, has been or will be entered
by or for the same or different parties, or (C) to enter any order or orders for the sale of
any such security with the knowledge that an order or orders of substantially the same
size, at substantially the same time, and at substantially the same price, for the purchase
of such security, has been or will be entered by or for the same or different parties.
(2) To effect, alone or with one or more other persons, a series of transactions in
any security registered on a national securities exchange or in connection with any
security-based swap agreement (as defined in section 206B of the Gramm-Leach-Bliley
Act) with respect to such security creating actual or apparent active trading in such
security, or raising or depressing the price of such security, for the purpose of inducing
the purchase or sale of such security by others.
(3) If a dealer or broker, or other person selling or offering for sale or purchasing
or offering to purchase the security or a security-based swap agreement (as defined in
section 206B of the Gramm-Leach-Bliley Act) with respect to such security, to induce the
purchase or sale of any security registered on a national securities exchange or any
security-based swap agreement (as defined in section 206B of the Gramm-Leach-Bliley
Act) with respect to such security by the circulation or dissemination in the ordinary
course of business of information to the effect that the price of any such security will or is
likely to rise or fall because of market operations of any one or more persons conducted
for the purpose of raising or depressing the price of such security.
(4) If a dealer or broker, or the person selling or offering for sale or purchasing or
offering to purchase the security or a security- based swap agreement (as defined in
section 206B of the Gramm-Leach-Bliley Act) with respect to such security, to make,
regarding any security registered on a national securities exchange or any security-based
swap agreement (as defined in section 206B of the Gramm-Leach-Bliley Act) with
respect to such security, for the purpose of inducing the purchase or sale of such security
or such security-based swap agreement, any statement which was at the time and in the
light of the circumstances under which it was made, false or misleading with respect to
any material fact, and which he knew or had reasonable ground to believe was so false or
misleading.
(5) For a consideration, received directly or indirectly from a dealer or broker, or
other person selling or offering for sale or purchasing or offering to purchase the security
or a security-based swap agreement (as defined in section 206B of the Gramm-Leach-
Bliley Act) with respect to such security, to induce the purchase of any security registered
on a national securities exchange or any security-based swap agreement (as defined in
section 206B of the Gramm-Leach-Bliley Act) with respect to such security by the
circulation or dissemination of information to the effect that the price of any such security
will or is likely to rise or fall because of the market operations of any one or more
persons conducted for the purpose of raising or depressing the price of such security.
(6) To effect either alone or with one or more other persons any series of
transactions for the purchase and/or sale of any security registered on a national securities
exchange for the purpose of pegging, fixing, or stabilizing the price of such security in
contravention of such rules and regulations as the Commission may prescribe as
necessary or appropriate in the public interest or for the protection of investors.
(b) It shall be unlawful for any person to effect, by use of any facility of a national
securities exchange, in contravention of such rules and regulations as the Commission
may prescribe as necessary or appropriate in the public interest or for the protection of
investors—
e. any transaction in connection with any security whereby any party to
such transaction acquires (A) any put, call, straddle, or other option or
privilege of buying the security from or selling the security to another
without being bound to do so; or (B) any security futures product on
the security; or
f. (2) any transaction in connection with any security with relation to
which he has, directly or indirectly, any interest in any (A) such put,
call, straddle, option, or privilege; or (B) such security futures product;
or
g. (3) any transaction in any security for the account of any person who
he has reason to believe has, and who actually has, directly or
indirectly, any interest in any (A) such put, call, straddle, option, or
privilege; or (B) such security futures product with relation to such
security.
(c) It shall be unlawful for any member of a national securities exchange directly
or indirectly to endorse or guarantee the performance of any put, call, straddle, option, or
privilege in relation to any security registered on a national securities exchange, in
contravention of such rules and regulations as the Commission may prescribe as
necessary or appropriate in the public interest or for the protection of investors.
(d) The terms ‘‘put’’, ‘‘call’’, ‘‘straddle’’, ‘‘option’’, or ‘‘privilege’’ as used in this
section shall not include any registered warrant, right, or convertible security.
(e) Any person who willfully participates in any act or transaction in violation of
subsection (a), (b), or (c) of this section, shall be liable to any person who shall purchase
or sell any security at a price which was affected by such act or transaction, and the
person so injured may sue in law or in equity in any court of competent jurisdiction to
recover the damages sustained as a result of any such act or transaction. In any such suit
the court may, in its discretion, require an undertaking for the payment of the costs of
such suit, and assess reasonable costs, including reasonable attorneys’ fees, against either
party litigant. Every person who becomes liable to make any payment under this
subsection may recover contribution as in cases of contract from any person who, if
joined in the original suit, would have been liable to make the same payment. No action
shall be maintained to enforce any liability created under this section, unless brought
within one year after the discovery of the facts constituting the violation and within three
years after such violation.
(f) The provisions of subsection (a) shall not apply to an exempted security.
(g)(1) Notwithstanding any other provision of law, the Commission shall have the
authority to regulate the trading of any put, call, straddle, option, or privilege on any
security, certificate of deposit, or group or index of securities (including any interest
therein or based on the value thereof), or any put, call, straddle, option, or privilege
entered into on a national securities exchange relating to foreign currency (but not, with
respect to any of the foregoing, an option on a contract for future delivery other than a
security futures product).
(2) Notwithstanding the Commodity Exchange Act, the Commission
shall have the authority to regulate the trading of any
security futures product to the extent provided in the securities
laws.
(h) LIMITATIONS ON PRACTICES THAT AFFECT MARKET
VOLATILITY.— It shall be unlawful for any person, by the use of the mails or any
means or instrumentality of interstate commerce or of any facility of any national
securities exchange, to use or employ any act or practice in connection with the purchase
or sale of any equity security in contravention of such rules or regulations as the
Commission may adopt, consistent with the public interest, the protection of investors,
and the maintenance of fair and orderly markets—
(1) to prescribe means reasonably designed to prevent manipulation of price
levels of the equity securities market or a substantial segment thereof; and
(2) to prohibit or constrain, during periods of extraordinary market volatility, any
trading practice in connection with the purchase or sale of equity securities that
the Commission determines (A) has previously contributed significantly to
extraordinary levels of volatility that have threatened the maintenance of fair and
orderly markets; and (B) is reasonably certain to engender such levels of volatility
if not prohibited or constrained.
In adopting rules under paragraph (2), the Commission shall, consistent with the purposes
of this subsection, minimize the impact on the normal operations of the market and a
natural person’s freedom to buy or sell any equity security.
(i)The authority of the Commission under this section with respect to security-
based swap agreements (as defined in section 206B of the Gramm-Leach-Bliley Act)
shall be subject to the restrictions and limitations of section 3A(b) of this title.
SEC. 10. ø78j¿ It shall be unlawful for any person, directly or indirectly, by the use of
any means or instrumentality of interstate commerce or of the mails, or of any facility of
any national securities exchange—
(a)(1) To effect a short sale, or to use or employ any stoploss order in connection
with the purchase or sale, of any security registered on a national securities exchange, in
contravention of such rules and regulations as the Commission may prescribe as
necessary or appropriate in the public interest or for the protection of investors.
(2) 1 Paragraph (1) of this subsection shall not apply to security futures products.
(b) To use or employ, in connection with the purchase or sale of any
security registered on a national securities exchange or any security not so
registered, or any securitiesbased swap agreement (as defined in section 206B of
the Gramm-Leach-Bliley Act), any manipulative or deceptive device or
contrivance in contravention of such rules and regulations as the Commission
may prescribe as necessary or appropriate in the public interest or for the
protection of investors.
Rules promulgated under subsection (b) that prohibit fraud, manipulation, or insider
trading (but not rules imposing or specifying reporting or recordkeeping requirements,
procedures, or standards as prophylactic measures against fraud, manipulation, or insider
trading), and judicial precedents decided under subsection (b) and rules promulgated
thereunder that prohibit fraud, manipulation, or insider trading, shall apply to security-
based swap agreements (as defined in section 206B of the Gramm-Leach-Bliley Act) to
the same extent as they apply to securities. Judicial precedents decided under section
17(a) of the Securities Act of 1933 and sections 9, 15, 16, 20, and 21A of this title, and
judicial precedents decided under applicable rules promulgated under such sections, shall
apply to security-based swap agreements (as defined in section 206B of the Gramm-
Leach-Bliley Act) to the same extent as they apply to securities.
a. Waiver provisions
Any condition, stipulation, or provision binding any person to waive compliance with any
provision of this title or of any rule or regulation thereunder, or of any rule of an
exchange required thereby shall be void.
Every contract made in violation of any provision of this title or of any rule or regulation
thereunder, and every contract (including any contract for listing a security on an
exchange) heretofore or hereafter made, the performance of which involves the violation
of, or the continuance of any relationship or practice in violation of, any provision of this
title or any rule or regulation thereunder, shall be void (1) as regards the rights of any
person who, in violation of any such provision, rule, or regulation, shall have made or
engaged in the performance of any such contract, and (2) as regards the rights of any
person who, not being a party to such contract, shall have acquired any right thereunder
with actual knowledge of the facts by reason of which the making or performance of such
contract was in violation of any such provision, rule, or regulation: Provided, (A) That no
contract shall be void by reason of this subsection because of any violation of any rule or
regulation prescribed pursuant to paragraph (3) of subsection (c) of section 15, and (B)
that no contract shall be deemed to be void by reason of this subsection in any action
maintained in reliance upon this subsection, by any person to or for whom any broker or
dealer sells, or from or for whom any broker or dealer purchases, a security in violation
of any rule or regulation prescribed pursuant to paragraph (1) or (2) of subsection (c) of
section 15, unless such action is brought within one year after the discovery that such sale
or purchase involves such violation and within three years after such violation. The
Commission may, in a rule or regulation prescribed pursuant to such paragraph (2) of
such section 15(c), designate such rule or regulation, or portion thereof, as a rule or
regulation, or portion thereof, a contract in violation of which shall not be void by reason
of this subsection.
Nothing in this title shall be construed (1) to affect the validity of any loan or
extension of credit (or any extension or renewal thereof) made or of any lien created
prior or subsequent to the enactment of this title, unless at the time of the making of
such loan or extension of credit (or extension or renewal thereof) or the creating of
such lien, the person making such loan or extension of credit (or extension or renewal
thereof) or acquiring such lien shall have actual knowledge of facts by reason of
which the making of such loan or extension of credit (or extension or renewal thereof)
or the acquisition of such lien is a violation of the provisions of this title or any rule or
regulation thereunder, or (2) to afford a defense to the collection of any debt or
obligation or the enforcement of any lien by any person who shall have acquired such
debt, obligation, or lien in good faith for value and without actual knowledge of the
violation of any provision of this title or any rule or regulation thereunder affecting
the legality of such debt, obligation, or lien.
Legislative History
June 6, 1934, c. 404, Title I, § 29, 48 Stat. 903; June 25, 1938, c. 677, § 3, 52 Stat. 1076; Oct. 15, 1990,
Pub.L. 101-429, Title V, § 507, 104 Stat. 956.
TRACKING THE MORTGAGE CHRONOLOGY
Exhibit “A”
H&R Block Originates the alleged Mortgage Dated; June 9th, 2005
Later, in a post dated “Assignment” Plaintiff wants us to believe it again transfers the
Note & Mortgage from the same entity (H&R Block) to the same above mentioned entity
(Option One). ). When exhibits are inconsistent with the plaintiff ’s allegations of
material fact as to whom the real party in interest is, such allegations cancel each other
out.
On June 9th, 2005, 4 days after the creation of the alleged mortgage & Note we see the
appearance of one Ms. Kristy Canizio. Ms Canizio does sign the following documents,
acting in many different positions and acting for both H&R Block & Option One
Mortgage Corporation.
6/9/05 Allonge to Note as Assistant Secretary for Option One Mortgage Corp.
(INVESTORS)
Probably most interesting is that Ms Canizio holds the position of Assistant Secretary to
two separate Corporate Entities and also lets pass, until 4 days AFTER the alleged
Mortgage Loan closing takes place AND 3 days AFTER the below titled Execution
Copy purportedly sold the alleged, but now certified as properly vetted by Option One
Mort. as good and fraud free, Mortgage and Note to Barclays Bank, to verify the income
of the Defendant who has no income, but who does have witness’s who are willing to
testify that they were present and heard Defendant tell Plaintiff’s Agent of that fact during
Defendant’s alleged Mortgage application…… see attached exhibit Kristy 9!
Titled “EXECUTION COPY” RE: Purchase Price and Terms Agreement” Dated
“As of June 10, 2005” One day after the alleged Mortgage creation! Purporting to
explain how Barclay’s Bank has bought the alleged Mortgage Note and debt from Option
One after Option One had combined that same note and debt into “The Trust”. Yet next,
you will notice that the alleged Mortgage has yet to be assigned to Option One. That will
not occur for another 140 days (over 4 months!), (it’s either that or Plaintiff has brought
fraud into the Court’s with it’s “Assignment of Mortgage to Option One from H&R
Block! ”) It should also be noted that Plaintiff’s Exhibit #25 lacks any signatures or
authentication by either “Buyer” or “Seller” clearly in violation of U.C.C., SEC., O.R.C.
Rules & Regulations and Contract & Securities Laws and as such represents NOT a
legally binding Contract as previously noted.
WARRANTIES AGREEMENT” Dated August 15th, 2005 (2 Months and 5 days after
the above referenced exhibit #25 but still months before the The Assignment from H&R
Block (alleged Mortgage Originator) to Option One. Plaintiff’s Exhibit “10”
This document catalogs the purchase of the “Trust” from the “Company & Seller” Option
One Mortgage to the “Purchaser”, Barclay’s Bank, PLC.
Again, it should be noted that Plaintiff’s Exhibit #26 lacks proper signatures or
authentication by “Seller” clearly in violation of U.C.C., SEC., O.R.C. Rules &
Regulations and Contract & Securities Laws and as such represents NOT a legally
binding Contract.
That said, the conclusion so far is that the alleged Note & Mortgage could not have been
included into the “Trust” nor into the ownership of Barlays Bank PLC until at least the
day of or after the day of the Assignment from H&R Block to Option One Mortgage
Corporation dated November 22nd, 2005.
This document does purportedly represent the Assignment and Conveyance of the “Trust”
from Option One to Barclays Bank PLC, Again, it should be noted that Plaintiff’s
Exhibit #27 any lacks proper signatures or authentication by either “Buyer” or
“Seller” clearly in violation of U.C.C., SEC, O.R.C., and Contract & Securities Laws and
as such represents NOT a legally binding Contract as previously noted. Also, Assignment
from H&R Block to Option One does not happen until October 27th, 2005, nearly 2
months AFTER the alleged assignment and conveyance of the “Trust” that Plaintiff
would have us believe already contained the mortgage, yet they submit proof it could not
have had.
see assignment dated: October 27, 2005 & Recorded November 22nd, 2005
Plaintiff’s Exhibit “10”
Here we have a “Bill of Sale” that represents that “BARCLAYS BANK PLC (“the
Seller”), in consideration of (i) the sum of $1,214,208,.30” …………………………
Let me write that out…. One Million, two hundred and fourteen thousand, two
hundred and eight dollars (I guess) then a coma(!) and then a decimal point (I
guess) and 30 cents (I guess) dollars. This NOT a typographical error on my part
(see Plaintiff’s Exhibit 28). Naming Option One as the Servicer, Mortgage Ramp,
Inc. as loan performance advisor and Wells Fargo Bank, National Association , as
trustee as of January 26, 2006.
In Summary; Barklays Bank PLC sells the Mortgage Loans from the “Trust” to
SECURITIZED ASSET BACKED RECEIVABLES LLC as Purchaser & Depositor, to
Option One Mortgage Corporation, as servicer and responsible party,
MortgageRamp, Inc., as loan performance advisor, and Wells Fargo Bank, National
Association, as trustee, as of January 26, 2006 for an undecipherable amount and for
Class X, P & R Certificates issued pursuant to ““a” Pooling and Servicing Agreement”
and then divides ownership between the four in whatever ethereal undisclosed manner
….. as it does not specify.
Please note this document is accompanied by an unspecified signature page and is signed
by one Paul Menefee “Director” from SECURITIZED ASSET BACKED
RECEIVABLES LLC, and one John Cuccoli (probably misspelled but close!), Managing
Director of BARCLAYS BANK PLC , and that there is no authentication given
for either signatures power to enter into this contract and also no Power of Attorney
Stamp and Seal accompanying this document and no signature date, clearly in violation
of U.C.C., SEC., O.R.C. rules & Regulations and Contract & Securities Laws and as such
represents NOT a legally binding Contract as previously noted.
Please note also the date of January 26th, 2006 as the day of this transaction.
As per Pooling & Servicing Agreement section; 2:03 (d) “Within 30 days of the earlier
of either discovery by or notice to the Responsible Party that any Mortgage Loan does
not conform to the requirements”….”of any breach of a representation or
warranty”….”that materially and adversely affects the value of any Mortgage Loan”…
the Responsible Party shall”…..” remove such Mortgage Loan (a “Deleted Mortgage
Loan”) from the Trust and substitute in its place a Substitute Mortgage
Loan”………………..
So, contractually, according to the alleged Pooling & Servicing Agreement supplied by
Plaintiff (Plaintiff’s exhibit 18) , 90 days after the alleged default which occurred
September, 2007 as of Plaintiff’s exhibit “20” (Payment History) , otherwise stated as
January 2008, Option One Regained sole possession of the Note and Mortgage (with no
assignment or any other authentication provided) and supplied a substitute Note &
Mortgage to take it’s place as is evidenced by Plaintiff’s own sworn evidentiary
production of the Assignment from Option One Mortgage Corporation to Wells
Fargo Bank N.A. (Plaintiff’s exhibit “11”)dated March 3, 2008 and recorded March
27th, 2008, such date being AFTER recordation of Foreclosure action and as such
voiding Plaintiff’s argument of singular “Note” holdership at time of foreclosure
initiation and also voiding Plaintiff’s standing in this action!
It should be noted that the signatory page(s) given at the rear of the Pooling & Servicing
Agreement each contain only One signature, with empty signatory spaces for each other
and that there is no one Signatory page containing all signatures, no authentication of any
signatures, no dates of signatures and no certification of any signatures by Power of
Attorney clearly in violation of U.C.C., SEC., O.R.C. Rules & Regulations and Contract
& Securities Laws and as such represents NOT even a legally binding Contract.
Please note date of Re-Possession of Mortgage Note to Option One as January 2008.
Option One then assigns Note & Mortgage to Wells Fargo to act as Foreclosure
Special Servicer.
See Assignment (Plaintiff’s Exhibit “11” dated; March 7th, 2008 and recorded
March 27th, 2008. Signed by a Ms Topaka Love who purports herself as “assistant
Secretary”, who “personally appeared” for signature somewhere in Minnesota, and that
ROTHFUSS located in Cincinnati, Ohio. Mortgage was assigned from Option One to
Wells Fargo Bank for NO CONSIDERATION. Contract Law states there is no value
established unless there is a “meeting of the minds and consideration is passed”, again,
Of special Interest is the date the “TRUST” is Legitimized, January 1st, 2006.
This is many month’s AFTER the Mortgage Companies have supposedly sold, dissected,
securitized, and transferred the subject mortgage in and out of the “TRUST”, that isn’t
illegalities that unless each and every one is “proved”, then the Plaintiff Wells Fargo
Bank can NOT be deemed the “Holder in Due Course” of the subject Mortgage and
Promissory Note and in fact, close scrutiny of documents provided by Plaintiff seem
more to be representative of a meeting of men in Stuttgart Germany which resulted in the
formation of the Nazi party OR a meeting of men in Palermo that resulted in the
formation of the Mafia, much more than it supposedly resembles the actions taken by
Montgomery County
probability % % of Population possible Forgers
85% 447,469 78,965
90% 473,791 52,643
95% 500,112 26,322
96% 505,377 21,057
97% 510,641 15,793
98% 515,905 10,529
99% 521,170 5,264
Tampa, Florida
probability % % of Population possible Forgers
85% 257,930 45,517
90% 273,102 30,345
95% 288,275 15,172
96% 291,309 12,138
97% 294,344 9,103
98% 297,378 6,069
99% 300,413 3,034
(a) Coverage. (1) Except as provided in paragraph (a)(2) of this section, the requirements of
this section apply to a consumer credit transaction that is secured by the consumer's principal
dwelling, and in which either:
{{8-29-08 p.6670.04-F}}
(i) The annual percentage rate at consummation will exceed by more than 8 percentage
points for first-lien loans, or by more than 10 percentage points for subordinate-lien loans, the
yield on Treasury securities having comparable periods of maturity to the loan maturity as of the
fifteenth day of the month immediately preceding the month in which the application for the
extension of credit is received by the creditor; or
(ii) The total points and fees payable by the consumer at or before loan closing will exceed
the greater of 8 percent of the total loan amount, or $400; the $400 figure shall be adjusted
annually on January 1 by the annual percentage change in the Consumer Price Index that was
reported on the preceding June 1.
(2) This section does not apply to the following:
(i) A residential mortgage transaction.
(ii) A reverse mortgage transaction subject to § 226.33.
(iii) An open-end credit plan subject to subpart B of this part.
(b) Definitions. For purposes of this subpart, the following definitions apply:
(1) For purposes of paragraph (a)(1)(ii) of this section, points and fees mean:
(i) All items required to be disclosed under § 226.4(a) and 226.4(b), except interest or the
time-price differential;
(ii) All compensation paid to mortgage brokers; and
(iii) All items listed in § 226.4(c)(7) (other than amounts held for future payment of taxes)
unless the charge is reasonable, the creditor receives no direct or indirect compensation in
connection with the charge, and the charge is not paid to an affiliate of the creditor; and
(iv) Premiums or other charges for credit life, accident, health, or loss-of-income insurance,
or debt-cancellation coverage (whether or not the debt-cancellation coverage is insurance under
applicable law) that provides for cancellation of all or part of the consumer's liability in the event of
the loss of life, health, or income or in the case of accident, written in connection with the credit
transaction.
(2) Affiliate means any company that controls, is controlled by, or is under common control
with another company, as set forth in the Bank Holding Company Act of 1956 (12 U.S.C. 1841 et
seq.)
(c) Disclosures. In addition to other disclosures required by this part, in a mortgage subject to
this section, the creditor shall disclose the following in conspicuous type size:
(1) Notices. The following statement: "You are not required to complete this agreement merely
because you have received these disclosures or have signed a loan application. If you obtain this
loan, the lender will have a mortgage on your home. You could lose your home, and any money
you have put into it, if you do no meet your obligations under the loan."
(2) Annual percentage rate. The annual percentage rate.
(3) Regular payment; balloon payment. The amount of the regular monthly (or other periodic)
payment and the amount of any balloon payment. The regular payment disclosed under this
paragraph shall be treated as accurate if it is based on an amount borrowed that is deemed
accurate and is disclosed under paragraph (c)(5) of this section.
(4) Variable-rate. For variable-rate transactions, a statement that the interest rate and monthly
payment may increase, and the amount of the single maximum monthly payment, based on the
maximum interest rate required to be disclosed under § 226.30.
(5) Amount borrowed. For a mortgage refinancing, the total amount the consumer will borrow,
as reflected by the face amount of the note; and where the amount borrowed includes premiums
or other charges for optional credit insurance or debt-cancellation coverage, that fact shall be
stated, grouped together with the disclosure of the amount borrowed. The disclosure of the
amount borrowed shall be treated as accurate if it is not more than $100 above or below the
amount required to be disclosed.
(d) Limitations. A mortgage transaction subject to this section shall not include the following
terms:
(1)(i) Balloon payment. For a loan with a term of less than five years, a payment schedule
with regular periodic payments that when aggregated do not fully amortize the outstanding
principal balance.
(ii) Exception. The limitations in paragraph (d)(1)(i) of this section do not apply to loans with
maturities of less than one year, if the purpose of the loan is a "bridge" loan
{{8-29-08 p.6670.04-G}}connected with the acquisition or construction of a dwelling intended to
become the consumer's principal dwelling.
(2) Negative amortization. A payment schedule with regular periodic payments that cause
the principal balance to increase.
(3) Advance payments. A payment schedule that consolidates more than two periodic
payments and pays them in advance from the proceeds.
(4) Increased interest rate. An increase in the interest rate after default.
(5) Rebates. A refund calculated by a method less favorable than the actuarial method (as
defined by section 933(d) of the Housing and Community Development Act of 1992, 15 U.S.C.
1615(d)), for rebates of interest arising from a loan acceleration due to default.
(6) Prepayment penalties. Except as allowed under paragraph (d)(7) of this section, a
penalty for paying all or part of the principal before the date on which the principal is due. A
prepayment penalty includes computing a refund of unearned interest by a method that is less
favorable to the consumer than the actuarial method, as defined by section 933(d) of the Housing
and Community Development Act of 1992, 15 U.S.C. 1615(d).
(7) Prepayment penalty exception. A mortgage transaction subject to this section may
provide for a prepayment penalty (including a refund calculated according to the rule of 78s)
otherwise permitted by law if, under the terms of the loan:
(i) The penalty will not apply after the two-year period following consummation;
(ii) The penalty will not apply if the source of the prepayment funds is a refinancing by the
creditor or an affiliate of the creditor;
(iii) At consummation, the consumer's total monthly debt payments (including amounts owed
under the mortgage) do not exceed 50 percent of the consumer's monthly gross income, as
verified in accordance with § 226.34(a)(4)(ii); and
(iv) The amount of the periodic payment of principal or interest or both may not change
during the four-year period following consummation.
(8) Due-on-demand clause. A demand feature that permits the creditor to terminate the loan in
advance of the original maturity date and to demand repayment of the entire outstanding balance,
except in the following circumstances:
(i) There is fraud or material misrepresentation by the consumer in connection with the loan;
(ii) The consumer fails to meet the repayment terms of the agreement for any outstanding
balance; or
(iii) There is any action or inaction by the consumer that adversely affects the creditor's
security for the loan, or any right of the creditor in such security.
[Section 226.32 added at 60 Fed. Reg. 15472, March 24, 1995, effective March 22, 1995, but
compliance is optional until October 1, 1995; as amended at 66 Fed. Reg. 65617, December 20,
2001, effective December 20, 2001, but compliance mandatory as of October 1, 2002; 73 Fed.
Reg. 44603, July 30, 2008, effective October 1, 2009]
http://www4.law.cornell.edu/uscode/
U.S. Code collection – Cornell University Law School
While each of the complaints for foreclosure pleads standing and jurisdiction, evidence
submitted either with the complaint or later in the case indicates that standing and/or
subject matter jurisdiction may not have existed at the time certain of the foreclosure
complaints were filed. Further, only one of these foreclosure complaints thus far was filed
in compliance with this Court’s General Order 07-03 captioned “Procedures for
Foreclosure Actions Based On Diversity Jurisdiction.
Standing
Federal courts have only the power authorized by Article III of the United States
Constitution and the statutes enacted by Congress pursuant thereto. Bender v.
Williamsport Area School District, 475 U.S. 534, 541 (1986). As a result, a plaintiff must
have constitutional standing in order for a federal court to have jurisdiction. Id.
Plaintiffs have the burden of establishing standing. Loren v. Blue Cross & Blue Shield of
Michigan, No. 06-2090, 2007 WL 2726704 at *7 (6th Cir. Sept. 20, 2007). If they cannot
do so, their claims must be dismissed for lack of subject matter jurisdiction. Id. (citing
Central States Southeast & Southwest Areas Health and Welfare Fund v. Merck-Medco
Managed Care, 433 F.3d 181, 199 (2d Cir. 2005)).
Because standing involves the federal court’s subject matter jurisdiction, it can be raised
sua sponte. Id. (citing Central States, 433 F.3d at 198). Further, standing is determined as
of the time the complaint is filed. Cleveland Branch, NAACP v. City of Parma, Ohio, 263
F.3d 513, 524 (6th Cir. 2001), cert. denied, 535 U.S. 971 (2002). Finally, while a
determination of standing is generally based upon allegations in the complaint, when
standing is questioned, courts may consider evidence thereof. See NAACP, 263 F.3d at
523-30; Senter v. General Motors, 532 F.2d 511 (6th Cir. 1976), cert. denied, 429 U.S.
870 (1976).
To satisfy Article III’s standing requirements, a plaintiff must show: (1) it has suffered an
injury in fact that is concrete and particularized and actual or imminent, not conjectural or
hypothetical; (2) the injury is fairly traceable to the challenged action of the defendant;
and (3) it is likely, as opposed to merely speculative, that the injury will be redressed by a
favorable decision. Loren, 2007 WL 2726704 at *7.
To show standing, then, in a foreclosure action, the plaintiff must show that it is the
holder of the note and the mortgage at the time the complaint was filed. The foreclosure
plaintiff must also show, at the time the foreclosure action is filed, that the holder of the
note and mortgage is harmed, usually by not having received payments on the note.
Diversity Jurisdiction
In addition to standing, a court may address the issue of subject matter jurisdiction at any
time, with or without the issue being raised by a party to the action. Community Health
Plan of Ohio v. Mosser, 347 F.3d 619, 622 (6th Cir. 2003). Further, as with standing, the
plaintiff must show that the federal court has subject matter jurisdiction over the
foreclosure action at the time the foreclosure action was filed. Coyne v. American
Tobacco Company, 183 F.3d 488, 492-93 (6th Cir. 1999). Also as with standing, a federal
court is required to assure itself that it has subject matter jurisdiction and the burden is on
the plaintiff to show that subject matter jurisdiction existed at the time the complaint was
filed. Id. Finally, if subject matter jurisdiction is questioned by the court, the plaintiff
cannot rely solely upon the allegations in the complaint and must bring forward relevant,
adequate proof that establishes subject matter jurisdiction. Nelson Construction Co. v.
U.S., No. 05-1205C, 2007 WL 3299161 at *3 (Fed. Cl., Oct. 29, 2007) (citing McNutt v.
General Motors Acceptance Corp. of Indiana, 298 U.S. 178 (1936)); see also Nichols v.
Muskingum College, 318 F.3d 674, (6th Cir. 2003) (“in reviewing a 12(b)(1) motion, the
court may consider evidence outside the pleadings to resolve factual disputes concerning
jurisdiction…”).
The foreclosure actions are brought to federal court based upon the federal court having
jurisdiction pursuant to 28 U.S.C. § 1332, termed diversity jurisdiction. To invoke
diversity jurisdiction, the plaintiff must show that there is complete diversity of
citizenship of the parties and that the amount in controversy exceeds $75,000. 28 U.S.C.
§ 1332.
Conclusion
While the plaintiffs in each of the above-captioned cases have pled that they have
standing and that this Court has subject matter jurisdiction, they have submitted evidence
that indicates that they may not have had standing at the time the foreclosure complaint
was filed and that subject matter jurisdiction may not have existed when the foreclosure
complaint was filed.
Further, this Court has the responsibility to assure itself that the foreclosure plaintiffs
have standing and that subject-matter-jurisdiction requirements are met at the time the
complaint is filed. Even without the concerns raised by the documents the plaintiffs have
filed, there is reason to question the existence of standing and the jurisdictional amount.
See Katherine M. Porter, Misbehavior and Mistake in Bankruptcy Mortgage Claims 3-4
(November 6, 2007), University of Iowa College of Law Legal Studies Research Paper
Series Available at SSRN: http://ssrn.com/abstract-1027961 (“[H]ome mortgage lenders
often disobey the law and overreach in calculating the mortgage obligations of
consumers. … Many of the overcharges and unreliable calculations… raise the specter of
poor recordkeeping, failure to comply with consumer protection laws, and massive,
consistent overcharging.”)
Therefore, plaintiffs are given until not later than thirty days following entry of this order
to submit evidence showing that they had standing in the above-captioned cases when
the The Court views the statement “the complaint must be accompanied by the
following” to mean that the items listed must be filed with the complaint and not at some
time later that is more convenient for the plaintiff.
complaint was filed and that this Court had diversity jurisdiction when the complaint
was filed. Failure to do so will result in dismissal without prejudice to refiling if and
when the plaintiff acquires standing and the diversity jurisdiction requirements are met.
See In re Foreclosure Cases, No. 1:07CV2282, et al., slip op. (N.D. Ohio Oct. 31, 2007)
(Boyko, J.)
Federal Rule of Civil Procedure 83(a)(2) provides that a “local rule imposing a
requirement of form shall not be enforced in a manner that causes a party to lose rights
because of a nonwillful failure to comply with the requirement.” Fed. R. Civ. P. 83(a)(2).
The Court recognizes that a local rule concerning what documents are to be filed with a
certain type of complaint is a rule of form. Hicks v. Miller Brewing Company, 2002 WL
663703 (5th Cir. 2002).
However, a party may be denied rights as a sanction if failure to comply with such a local
rule is willful. Id. General Order 07-03 provides procedures for foreclosure actions that
are based upon diversity jurisdiction. Included in this General Order is a list of items that
must accompany the Complaint.1 Among the items listed are: a Preliminary Judicial
Report; a written payment history verified by the plaintiff’s affidavit that the amount in
controversy exceeds $75,000; a legible copy of the promissory note and any loan
modifications, a recorded copy of the mortgage; any applicable assignments of the
mortgage, an affidavit documenting that the named plaintiff is the owner and holder of
the note and mortgage; and a corporate disclosure statement. In general, it is from these
items and the foreclosure complaint that the Court can confirm standing and the The
Sixth Circuit may look to an attorney’s actions in other cases to determine the extent of
his or her good faith in a particular action. See Capital Indemnity Corp. v. Jellinick, 75 F.
App’x 999, 1002 (6th Cir. 2003). Further, the law holds a plaintiff “accountable for the
acts and omissions of [its] chosen counsel.” Pioneer Inv. Services Co. v. Brunswick
Associates Ltd. Partnership, 507 U.S. 380, 397 (1993). existence of diversity jurisdiction
at the time the foreclosure complaint is filed.
Conclusion
To date, twenty-six (26) of the twenty-seven (27) foreclosure actions based upon
diversity jurisdiction pending before this Court were filed by the same attorney. One of
the twenty-six (26) foreclosure actions was filed in compliance with General Order 07-
03. The remainder were not.2 Also, many of these foreclosure complaints are notated on
the docket to indicate that they are not in compliance. Finally, the attorney who has filed
the twenty-six (26) foreclosure complaints has informed the Court on the record that he
knows and can comply with the filing requirements found in General Order 07-03.
Therefore, since the attorney who has filed twenty-six (26) of the twenty-seven (27)
foreclosure actions based upon diversity jurisdiction that are currently before this Court is
well aware of the requirements of General Order 07-03 and can comply with the General
Order’s filing requirements, failure in the future by this attorney to comply with the filing
requirements of General Order 07-03 may only be considered to be willful. Also, due to
the extensive discussions and argument that has taken place, failure to comply with the
requirements of the General Order beyond the filing requirements by this attorney may
also be considered to be willful.
A willful failure to comply with General Order 07-03 in the future by the attorney who
filed the twenty-six foreclosure actions now pending may result in immediate dismissal
of the foreclosure action. Further, the attorney who filed the twenty-seventh foreclosure
action is hereby put on notice that failure to comply with General Order 07-03 in the
future may result in immediate dismissal of the foreclosure action.
This Court is well aware that entities who hold valid notes are entitled to receive timely
payments in accordance with the notes. And, if they do not receive timely payments, the
entities have the right to seek foreclosure on the accompanying mortgages. However,
with regard the enforcement of standing and other jurisdictional requirements pertaining
to foreclosure actions, this Court is in full agreement with Judge Christopher A Boyko of
the United States District
Court for the Northern District of Ohio who recently stressed that the judicial integrity of
the United States District Court is “Priceless.”
DONE and ORDERED in Dayton, Ohio, this Fifteenth day of November, 2007.
s/Thomas M. Rose
____________________________________
THOMAS M. ROSE
UNITED STATES DISTRICT JUDGE
Copies provided:
Counsel of Record
Exhibit “Q”
Northern District of Ohio Ruling
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF OHIO
EASTERN DIVISION
IN RE FORECLOSURE CASES ) CASE NO. NO.1:07CV2282
) 07CV2532
) 07CV2560
) 07CV2602
) 07CV2631
) 07CV2638
) 07CV2681
) 07CV2695
) 07CV2920
) 07CV2930
) 07CV2949
) 07CV2950
) 07CV3000
) 07CV3029
)
) JUDGE CHRISTOPHER A. BOYKO
)
)
)
) OPINION AND ORDER
Plaintiff-Lenders shall take note, furthermore, that prior to the issuance of its
October 10, 2007 Order, the Court considered the principles of “real party in interest,”
and examined Fed. R. Civ. P. 17 — “Parties Plaintiff and Defendant; Capacity” and its
associated [*5] Commentary. The Rule is not apropos to the situation raised by these
Foreclosure Complaints. The Rule’s Commentary offers this explanation: “The provision
should not be misunderstood or distorted. It is intended to prevent forfeiture when
determination of the proper party to sue is difficult or when an understandable mistake
has been made. ... It is, in cases of this sort, intended to insure against forfeiture and
injustice ...” Plaintiff-Lenders do not allege mistake or that a party cannot be identified.
Nor will Plaintiff-Lenders suffer forfeiture or injustice by the dismissal of these defective
complaints otherwise than on the merits.
Moreover, this Court is obligated to carefully scrutinize all filings and pleadings
in foreclosure actions, since the unique nature of real property requires contracts and
transactions concerning real property to be in writing. R.C. § 1335.04. Ohio law holds
that when a mortgage is assigned, moreover, the assignment is subject to the recording
requirements of R.C. § 5301.25. Creager v. Anderson (1934), 16 Ohio Law Abs. 4001
(interpreting the former statute, G.C. § 8543). “Thus, with regards to real property, before
an entity assigned an interest in that [*6] property would be entitled to receive a
distribution from the sale of the property, their interest therein must have been recorded
in accordance with Ohio law.” In re Ochmanek, 266 B.R. 114, 120 (Bkrtcy.N.D. Ohio
2000) (citing Pinney v. Merchants’ National Bank of Defiance, 71 Ohio St. 173, 177
(1904).1
This Court acknowledges the right of banks, holding valid mortgages, to receive
timely payments. And, if they do not receive timely payments, banks have the right to
1
1 Astoundingly, counsel at oral argument stated that his client, the purchaser from the original mortgagee,
acquired complete legal and equitable interest in land when money changed hands, even before the
purchase agreement, let alone a proper assignment, made its way into his client’s possession.
properly file actions on the defaulted notes — seeking foreclosure on the property
securing the notes. Yet, this Court possesses the independent obligations to preserve the
judicial integrity of the federal court and to jealously guard federal jurisdiction. Neither
the fluidity of the secondary mortgage market, nor monetary or economic considerations
of the parties, nor the convenience of the litigants supersede those obligations.
Despite Plaintiffs’ counsel’s belief that “there appears to be some level of
disagreement and/or misunderstanding amongst professionals, borrowers, attorneys and
members of the judiciary,” the Court does not require instruction and is not operating
under any misapprehension. The “real party in interest” rule, to which the Plaintiff-
Lenders continually refer in their responses or motions, is clearly comprehended by the
Court and is not intended to assist banks in avoiding traditional federal diversity
requirements.2 Unlike Ohio State law and procedure, as Plaintiffs perceive it, the federal
judicial system need not, and will not, be “forgiving in this regard.”3
Case 1:07-cv-02282-CAB Document 11 Filed 10/31/2007 Page 4 of 6
2 Plaintiff’s reliance on Ohio’s “real party in interest rule” (ORCP 17) and on any Ohio case citations
is misplaced. Although Ohio law guides federal courts on substantive issues, state procedural law
cannot be used to explain, modify or contradict a federal rule of procedure, which purpose is clearly
spelled out in the Commentary. “In federal diversity actions, state law governs substantive issues and
federal law governs procedural issues.” Erie R.R. Co. v. Tompkins, 304 U.S. 63 (1938); Legg v. Chopra,
286 F. 3d
286, 289 (6th Cir. 2002); Gafford v. General Electric Company, 997 F. 2d 150, 165-6 (6th Cir. 1993).
3 Plaintiff’s, “Judge, you just don’t understand how things work,” argument reveals a condescending
mindset and quasi-monopolistic system where financial institutions have traditionally controlled, and
still control, the foreclosure process. Typically, the homeowner who finds himself/herself in financial
straits, fails to make the required mortgage payments and faces a foreclosure suit, is not interested in
testing state or federal jurisdictional requirements, either pro se or through counsel. Their focus is
either, “how do I save my home,” or “if I have to give it up, I’ll simply leave and find somewhere else
to live.”
In the meantime, the financial institutions or successors/assignees rush to foreclose, obtain a default
judgment and then sit on the deed, avoiding responsibility for maintaining the property while
reaping the financial benefits of interest running on a judgment. The financial institutions know the
law charges the one with title (still the homeowner) with maintaining the property.
There is no doubt every decision made by a financial institution in the foreclosure process is driven
by money. And the legal work which flows from winning the financial institution’s favor is highly
lucrative. There is nothing improper or wrong with financial institutions or law firms making a profit
— to the contrary , they should be rewarded for sound business and legal practices. However,
unchallenged by underfinanced opponents, the institutions worry less about jurisdictional
requirements and more about maximizing returns. Unlike the focus of financial institutions, the
federal courts must act as gatekeepers, assuring that only those who meet diversity and standing
requirements are allowed to pass through. Counsel for the institutions are not without legal argument
to support their position, but their arguments fall woefully short of justifying their premature filings,
and utterly fail to satisfy their standingand jurisdictional burdens. The institutions seem to adopt the
attitude that since they have been doing this for so long, unchallenged, this practice equates with
legal compliance. Finally put to the test, their weak legal arguments compel the Court to stop them at
the gate.
The Court will illustrate in simple terms its decision: “Fluidity of the market” — “X” dollars,
“contractual arrangements between institutions and counsel” — “X” dollars, “purchasing mortgages
in bulk and securitizing” — “X” dollars, “rush to file, slow to record after judgment” — “X” dollars,
“the jurisdictional integrity of United States District Court” — “Priceless.”
CONCLUSION
For all the foregoing reasons, the above-captioned Foreclosure Complaints are
dismissed without prejudice.
IT IS SO ORDERED.
DATE: October 31, 2007
S/Christopher A. Boyko
CHRISTOPHER A. BOYKO
United States District Judge
Exhibit “T”
LA Federal Court Denies Wells Fargo
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF LOUISIANA
MONDONA RAFIZADEH, ET AL CIVIL ACTION
VERSUS NO. 075194
WELLS FARGO BANK, N.A., ET AL
SECTION "J" (4)
Before the Court is Plaintiff Mondona Rafizadeh’s
Motion for New Trial Under Rule 59 of Federal Rules of Civil
Procedure and Rule 60 of Federal Rules of Civil Procedure with
Regards to Decision Rendered by this Court on November 13,
2007 Dismissing Plaintiff’s Petition (Rec. Doc. 45). This motion,
which is opposed, was set for hearing on January 9, 2008 on
the briefs.
Also before the Court is Rodney D. Tow, Chapter 7
Trustee’s (the “Trustee”) Motion to Intervene (Rec. Doc. 41)
and the Trustee’s Motion for New Trial and/or for
Reconsideration of Judgment (Rec. Doc. 42). Both motions
were set for hearing on January 9, 2008 on the briefs;
however, only the Motion for New Trial is opposed.
For the reasons that follow, the Court finds that
Plaintiff’s and the Trustee’s motions should be granted, and
this matter remanded.
On December 23, 2004, after a fourday trial, the 24th
Judicial District for the Parish of Jefferson entered
judgment for Plaintiff Wells Fargo Bank, by and through its
Master and Special Servicer, ORIX Capital Markets
(hereinafter “Orix”) for approximately $10.8 million against
debtors Mondona Rafizadeh, Cyrus II Partnership, and Bahar
Development (hereinafter “Debtors”). The judgment entered
was based upon certain events of default by Debtors (coupled
with fraud), which warranted Orix’s foreclosure. The
litigation is now on appeal before the
State Fifth Circuit in Gretna, Louisiana.
In June 2005, Debtors filed for Chapter 7 bankruptcy
relief in the United States Bankruptcy Court for the
Southern District of Texas. Orix filed a proof of claim and
reached a settlement agreement with the Bankruptcy Trustee
on March 29, 2006. By October 2006, through discovery in the
bankruptcy proceedings, Debtors claim they learned of
certain information integral to the 2004 litigation, which
was not disclosed despite discovery
requests in the earlier action. Thus, Debtors filed a
counterclaim against Orix in the bankruptcy proceeding. On
January 5, 2007, the Bankruptcy Court dismissed the
counterclaim,holding that Debtors had no standing to attack
Orix’s claim against the bankruptcy estate.
Then on August 14, 2007, Rafizadeh alone filed the
current action in the 24th Judicial District, asking that
court to annul its 2004 judgment. On August 29, 2007, the
now Defendant Orix filed a notice of removal with the intent
to transfer the case to the United States District Court for
the Southern District of Texas for referral to the
Bankruptcy Court. Plaintiff then filed a motion to remand to
the 24th Judicial District. Defendant contemporaneously
filed a 12(b) motion to transfer and/or
dismiss. This Court dismissed the claim based on the
preclusive effect of the bankruptcy court’s earlier ruling.
On November 29, 2007, Rafizadeh filed a motion for a
new trial, which is now before this Court. The Chapter 7
Trustee Rodney Tow (“Trustee”) also filed a motion for a new
trial in addition to a motion to intervene.
The Parties’ Arguments
In support of the motion for a new trial, Plaintiff
argues that this Court misinterpreted the bankruptcy court’s
earlier ruling. Plaintiff argues that the bankruptcy court’s
refusal to hold Plaintiff in contempt for filing this action
and the bankruptcy court’s recommendation that the Trustee
join the current action, implies that the bankruptcy court
did not see its
previous rulings as having barred this nullity action.
Plaintiff relies in support on the bankruptcy court’s later
clarification of its ruling in which that court denies claim
preclusive effect.
The Trustee supports Plaintiff’s argument, adding that
the parties’ bankruptcy settlement agreement includes a
reservation of rights and the bankruptcy court has stated
that it has not ruled on the merits of Plaintiff’s nullity
action. Furthermore, upon motion for clarification by the
Trustee, on December 26, 2007, the bankruptcy court stated
that “no prior Order of this Court precludes Mondona
Rafizadeh or the Trustee from asserting the Nullity Action
within a Louisiana State Court or Federal
Court to which such action has been removed or to take such
action within such court as to preserve the Nullity Action
as a basis for an objection to the claim or ORIX within this
court.”
In addition to supporting Plaintiff’s argument
regarding the nonpreclusive effect of the bankruptcy
court’s ruling, the Trustee further asserts additional
arguments for a new trial, specifically attacking federal
jurisdiction over the matter. First, the Trustee argues that
under the RookerFeldman doctrine, federal district courts
lack subject matter jurisdiction to entertain collateral
attacks on state court judgments. The Trustee acknowledges
that the applicability of this doctrine to
this action is unclear as the action originated in state
court. However, the Trustee contends that in dismissing this
action, under RookerFeldman the parties may be unable to
commence suit in bankruptcy court. Alternatively, the
Trustee argues that this Court did not have subject matter
jurisdiction over the nullity action when it dismissed based
on res judicata. The Trustee cites a number of cases
following Barrow v. Hunton, 99 U.S. 80
(1878), where a federal court remanded a nullity action to
state court.
Finally, the Trustee argues that this case should be
remanded under principles of abstention. The Trustee states
that it would be inequitable for him to comply with the
bankruptcy court’s directive that he join the current
action, only for it to be dismissed based on res judicata.
Also under the doctrines of RookerFeldman and Barrow, this
Court or the bankruptcy court may be unable to exercise
jurisdiction, leaving the Trustee without a
remedy.
In opposition to Plaintiff’s and the Trustee’s
motions,Defendant argues that the Court was correct in
determining that the suit is barred under res judicata. The
claims in the current action should have been alleged in the
dischargeability suit dismissed by the bankruptcy court. The
bankruptcy court’s denial of Plaintiff’s motion to amend
does not alter the claim preclusive effect. Defendant then
likens the bankruptcy court’s clarification order to an
impermissible advisory opinion, arguing that the bankruptcy
court does not have the authority to determine the effect of
its own judgments.
Regarding the Trustee’s jurisdictional claims,
Defendant argues that RookerFeldman does not apply because
Plaintiff is not asserting any legal wrong. Plaintiff’s
claim is not based upon an error of the court, but rather on
the harm caused by Defendant’s actions.
In reply, the Trustee argues that the bankruptcy court’s
earlier order does not preclude the present action because
the 1 Despite arguing that this Court’s previous order
dismissing Plaintiff’s claim was likely the result of access
to an incomplete bankruptcy court record, no party has yet
furnished to this Court the bankruptcy court’s January 5,
2007 order dismissing Plaintiff’s counterclaim.
prior judgment was not final and on the merits. The
bankruptcy court dismissed Plaintiff’s counterclaim for lack
of standing.1 Lack of standing evidences a lack of subject
matter jurisdiction, and thus the dismissal is not
considered a ruling on the merits of the claim. Also, the
Trustee refutes Orix’s characterization of the bankruptcy
court’s clarification order as an advisory opinion. The
Trustee likens the clarification order to an exception to
the common law doctrine of functus officio. The exception
provides that when an arbiter’s award is incomplete or
ambiguous, a federal court may seek clarification from the
arbiter.
Discussion
A. New Trial
Determining whether to grant a new trial depends on the
res judicata effect of the bankruptcy court’s earlier order.
In its November 13, 2007 Order and Reasons, this Court
dismissed Plaintiff’s claims because the bankruptcy court’s
January 5, 2007 order both denied Plaintiff’s motion to
amend her counterclaim, an amendment that is similar in
substance to the current action,and also subsequently
dismissed Plaintiff’s claims against
Defendants.
Both Plaintiff and the Trustee argue that the bankruptcy
court did not consider its denial of Plaintiff’s
counterclaim to be res judicata as to the validity of this
action. Specifically, the bankruptcy court’s January 5, 2007
order, which dismissed2 Plaintiff’s motion to amend her
counterclaim to include the charges of fraud present in this
action, did not rule on the merits of the proposed
amendment. The Trustee argues that these earlier orders of
the bankruptcy court do not bar the current action as they
were not final and on the merits.
A bankruptcy judgment bars a subsequent suit if:
(1) both cases involve the same parties;
(2) the prior judgment was rendered by a court of
competent jurisdiction;
(3) the prior decision was a final judgment on the
merits;
and
(4) the same cause of action is at issue in both cases.
In re Baudoin, 981 F.2d 736, 740 (5th Cir. 1993).
Plaintiff’s bankruptcy counterclaim against Orix, which
attempted to assert the same issues as the current action,
was dismissed for lack of standing. Therefore, because
dismissal on jurisdictional grounds2 is not considered a
dismissal “on the merits,” it does not serve as res judicata
on the substance of the claim.3 Boone v. Kurtz, 617 F.2d
435, 436 (5th Cir. 1980).
Therefore, because the bankruptcy court’s January 2007
order was not “a final judgment on the merits,” the current
action is not barred under res judicata. As a result, this
Court now turns to the merits of Plaintiff’s Motion to
Remand (Rec. Doc. 11) and Defendant’s Consolidated 12(b)
Motion to Transfer and/or Dismiss
2
2
“It is well settled that unless a plaintiff has standing,
(Rec. Doc. 21).
a federal district court lacks subject matter jurisdiction
to address the merits of the case.” Minvielle, L.L.C. v.
Atlantic Refining Co., No. 051312, 2007 WL 2668715, *4
(W.D. La.).
3 However, the January 2007 judgment does have res judicata
effect to the extent of the determination of standing; that
is, Plaintiff cannot seek to relitigate the same
jurisdictional claims. See Minvielle, 2007 WL 2668715, at
*5. Despite this Court’s earlier determination of
Plaintiff’s standing, though,
because the Trustee now seeks to intervene in the matter,
there is no longer a dispute regarding standing.
B. Remand or Transfer
After finding that dismissal is not appropriate, this Court
must now determine whether to remand the case to state court
or transfer to the Southern District of Texas for referral
to the bankruptcy court.
The United States Supreme Court has held that where a
nullity action to set aside a state court judgment is “a
supplementary proceeding so connected with the original suit
as to form an incident to it,” the federal district court
may decline removal jurisdiction. Barrow v. Hunton, 99 U.S.
80, 82 (1879). In Our Lady of the Lake Hospital, Inc. v.
Carboline Co., the plaintiff brought an action in state
court to have an earlier judgment declared null due to the
fraudulent practices of the defendant, specifically the
withholding of documents during an earlier trial. 847
F.Supp. 452, 452 (M.D. La. 1994); see also Taylor v. Taylor,
No. 011886, 2001 WL 1491026, *1 (E.D. La. Nov.
21, 2001). The defendant removed the action to the Middle
District of Louisiana; however, the court subsequently
granted the plaintiff’s motion to remand. Id. at 453.
Applying Barrow, the court held that the nullity action was
so connected with the original state suit as to form a
continuation of the earlier litigation. Id.
In this case, Plaintiff effectively seeks to overturn
the state court’s earlier judgment based on Orix’s non
compliance with the discovery orders in that suit. Like in
Our Lady of the Lake Hospital, this action forms a
continuation of the earlier state suit. Plaintiff’s proposed
remedy would serve to overturn the state court judgment, in
effect allowing this Court to exercise appellate
jurisdiction. See Taylor, 2001 WL 1491026, at
*1. Therefore, this case should be remanded. Accordingly,
IT IS ORDERED that Plaintiff’s Motion for New Trial Under
Rule 59 of Federal Rules of Civil Procedure and Rule 60 of
Federal Rules of Civil Procedure with Regards to Decision
Rendered by this Court on November 13, 2007 Dismissing
Plaintiff’s Petition (Rec. Doc. 45) is hereby GRANTED.
(a) Except as provided in subsections (c) and (d), "negotiable instrument" means an
unconditional promise or order to pay a fixed amount of money, with or without interest
or other charges described in the promise or order, if it:
(1) is payable to bearer or to order at the time it is issued or first comes into
possession of a holder;
(3) does not state any other undertaking or instruction by the person promising or
ordering payment to do any act in addition to the payment of money, but the
promise or order may contain (i) an undertaking or power to give, maintain, or
protect collateral to secure payment, (ii) an authorization or power to the holder to
confess judgment or realize on or dispose of collateral, or (iii) a waiver of the
benefit of any law intended for the advantage or protection of an obligor.
(c) An order that meets all of the requirements of subsection (a), except paragraph (1),
and otherwise falls within the definition of "check" in subsection (f) is a negotiable
instrument and a check.
(d) A promise or order other than a check is not an instrument if, at the time it is issued
or first comes into possession of a holder, it contains a conspicuous statement, however
expressed, to the effect that the promise or order is not negotiable or is not an instrument
governed by this Article.
(f) "Check" means (i) a draft, other than a documentary draft, payable on demand and
drawn on a bank or (ii) a cashier's check or teller's check. An instrument may be a check
even though it is described on its face by another term, such as "money order."
(g) "Cashier's check" means a draft with respect to which the drawer and drawee are the
same bank or branches of the same bank.
(h) "Teller's check" means a draft drawn by a bank (i) on another bank, or (ii) payable at
or through a bank.
(i) "Traveler's check" means an instrument that (i) is payable on demand, (ii) is drawn on
or payable at or through a bank, (iii) is designated by the term "traveler's check" or by a
substantially similar term, and (iv) requires, as a condition to payment, a countersignature
by a person whose specimen signature appears on the instrument.
(j)"Certificate of deposit" means an instrument containing an acknowledgment by a bank
that a sum of money has been received by the bank and a promise by the bank to repay
the sum of money. A certificate of deposit is a note of the bank.
(a) Negotiation is effective even if obtained (i) from an infant, a corporation exceeding
its powers, or a person without capacity, (ii) by fraud, duress, or mistake, or (iii) in breach
of duty or as part of an illegal transaction.
(b) To the extent permitted by other law, negotiation may be rescinded or may be subject
to other remedies, but those remedies may not be asserted against a subsequent holder in
due course or a person paying the instrument in good faith and without knowledge of
facts that are a basis for rescission or other remedy.
(a) An instrument is transferred when it is delivered by a person other than its issuer for
the purpose of giving to the person receiving delivery the right to enforce the instrument.
(b) Transfer of an instrument, whether or not the transfer is a negotiation, vests in the
transferee any right of the transferor to enforce the instrument, including any right as a
holder in due course, but the transferee cannot acquire rights of a holder in due
course by a transfer, directly or indirectly, from a holder in due course if the
transferee engaged in fraud or illegality affecting the instrument.
(c) Unless otherwise agreed, if an instrument is transferred for value and the transferee
does not become a holder because of lack of indorsement by the transferor, the transferee
has a specifically enforceable right to the unqualified indorsement of the transferor, but
negotiation of the instrument does not occur until the indorsement is made.
(d) If a transferor purports to transfer less than the entire instrument, negotiation of the
instrument does not occur. The transferee obtains no rights under this Article and has
only the rights of a partial assignee.
§ 3-204. INDORSEMENT.
(a) "Indorsement" means a signature, other than that of a signer as maker, drawer, or
acceptor, that alone or accompanied by other words is made on an instrument for the
purpose of (i) negotiating the instrument, (ii) restricting payment of the instrument, or
(iii) incurring indorser's liability on the instrument, but regardless of the intent of the
signer, a signature and its accompanying words is an indorsement unless the
accompanying words, terms of the instrument, place of the signature, or other
circumstances unambiguously indicate that the signature was made for a purpose other
than indorsement. For the purpose of determining whether a signature is made on an
instrument, a paper affixed to the instrument is a part of the instrument.
(b) "Indorser" means a person who makes an indorsement.
(c) For the purpose of determining whether the transferee of an instrument is a holder, an
indorsement that transfers a security interest in the instrument is effective as an
unqualified indorsement of the instrument.
(d) If an instrument is payable to a holder under a name that is not the name of the
holder, indorsement may be made by the holder in the name stated in the instrument or in
the holder's name or both, but signature in both names may be required by a person
paying or taking the instrument for value or collection.
(c) The holder may convert a blank indorsement that consists only of a signature into a
special indorsement by writing, above the signature of the indorser, words identifying the
person to whom the instrument is made payable.
(d) "Anomalous indorsement" means an indorsement made by a person who is not the
holder of the instrument. An anomalous indorsement does not affect the manner in which
the instrument may be negotiated.
(b) An indorsement stating a condition to the right of the indorsee to receive payment
does not affect the right of the indorsee to enforce the instrument. A person paying the
instrument or taking it for value or collection may disregard the condition, and the rights
and liabilities of that person are not affected by whether the condition has been fulfilled.
(2) A depositary bank that purchases the instrument or takes it for collection when so
indorsed converts the instrument unless the amount paid by the bank with respect to the
instrument is received by the indorser or applied consistently with the indorsement.
(3) A payor bank that is also the depositary bank or that takes the instrument for
immediate payment over the counter from a person other than a collecting bank converts
the instrument unless the proceeds of the instrument are received by the indorser or
applied consistently with the indorsement.
(4) Except as otherwise provided in paragraph (3), a payor bank or intermediary bank
may disregard the indorsement and is not liable if the proceeds of the instrument are not
received by the indorser or applied consistently with the indorsement.
(1) Unless there is notice of breach of fiduciary duty as provided in Section 3-307, a
person who purchases the instrument from the indorsee or takes the instrument from the
indorsee for collection or payment may pay the proceeds of payment or the value given
for the instrument to the indorsee without regard to whether the indorsee violates a
fiduciary duty to the indorser.
(2) A subsequent transferee of the instrument or person who pays the instrument is
neither given notice nor otherwise affected by the restriction in the indorsement unless
the transferee or payor knows that the fiduciary dealt with the instrument or its proceeds
in breach of fiduciary duty.
(e) The presence on an instrument of an indorsement to which this section applies does
not prevent a purchaser of the instrument from becoming a holder in due course of the
instrument unless the purchaser is a converter under subsection (c) or has notice or
knowledge of breach of fiduciary duty as stated in subsection (d).
(f) In an action to enforce the obligation of a party to pay the instrument, the obligor has
a defense if payment would violate an indorsement to which this section applies and the
payment is not permitted by this section.
§ 3-207. REACQUISITION.
(a) Subject to subsection (c) and Section 3-106(d), "holder in due course" means the
holder of an instrument if:
(1) the instrument when issued or negotiated to the holder does not bear such apparent
evidence of forgery or alteration or is not otherwise so irregular or incomplete as to call
into question its authenticity; and
(2) the holder took the instrument (i) for value, (ii) in good faith, (iii) without notice that
the instrument is overdue or has been dishonored or that there is an uncured default with
respect to payment of another instrument issued as part of the same series, (iv) without
notice that the instrument contains an unauthorized signature or has been altered, (v)
without notice of any claim to the instrument described in Section 3-306, and (vi) without
notice that any party has a defense or claim in recoupment described in Section 3-305(a).
(c) Except to the extent a transferor or predecessor in interest has rights as a holder in
due course, a person does not acquire rights of a holder in due course of an instrument
taken (i) by legal process or by purchase in an execution, bankruptcy, or creditor's sale or
similar proceeding, (ii) by purchase as part of a bulk transaction not in ordinary course of
business of the transferor, or (iii) as the successor in interest to an estate or other
organization.
(d) If, under Section 3-303(a)(1), the promise of performance that is the consideration for
an instrument has been partially performed, the holder may assert rights as a holder in
due course of the instrument only to the fraction of the amount payable under the
instrument equal to the value of the partial performance divided by the value of the
promised performance.
(e) If (i) the person entitled to enforce an instrument has only a security interest in the
instrument and (ii) the person obliged to pay the instrument has a defense, claim in
recoupment, or claim to the instrument that may be asserted against the person who
granted the security interest, the person entitled to enforce the instrument may assert
rights as a holder in due course only to an amount payable under the instrument which, at
the time of enforcement of the instrument, does not exceed the amount of the unpaid
obligation secured.
(f) To be effective, notice must be received at a time and in a manner that gives a
reasonable opportunity to act on it.
(g) This section is subject to any law limiting status as a holder in due course in
particular classes of transactions.
Exhibit “H”
Note: This is Ohio’s “UDAP” law. It generally covers the legal aspects of any
transaction between a consumer and most businesses and makes it illegal for any
business to do anything that is unfair or deceptive or unconscionable to a consumer.
The exact text of the important parts of the law follow:
To download the Ohio Consumer Sales Practices Act in PDF Format, click here.
TABLE OF CONTENTS
§1345.01 Definitions
§1345.02 Unfair or deceptive consumer sales practices prohibited
§1345.03 Unconscionable consumer sales practices
§1345.09 Private remedies.
§1345.11 Effect of Good faith error; receiver for supplier; suspension or revocation of
license
§1345.12 Exceptions to application of chapter
§1345.13 Effect on other remedies
§1345.01 Definitions.
(A) "Consumer transaction" means a sale, lease, assignment, award by chance, or other
transfer of an item of goods, a service, a franchise, or an intangible, to an individual for
purposes that are primarily personal, family, or household, or solicitation to supply any of
these things. "Consumer transaction" does not include transactions between persons,
defined in sections 4905.03 and 5725.01 of the Revised Code, and their customers;
transactions between certified public accountants or public accountants and their clients;
transactions between attorneys, physicians, or dentists and their clients or patients; and
transactions between veterinarians and their patients that pertain to medical treatment but
not ancillary services.
(B) "Person" includes an individual, corporation, government, governmental subdivision
or agency, business trust, estate, trust, partnership, association, cooperative, or other legal
entity.
(C) "Supplier" means a seller, lessor, assignor, franchisor, or other person engaged in the
business of effecting or soliciting consumer transactions, whether or not the person deals
directly with the consumer.
(D) "Consumer" means a person who engages in a consumer transaction with a supplier.
(E) "Knowledge" means actual awareness, but such actual awareness may be inferred
where objective manifestations indicate that the individual involved acted with such
Deceptive Trades & Practices Act
(A) “Certification mark” means a mark used in connection with the goods or services of a
person other than the certifier to indicate geographic origin, material, mode of
manufacture, quality, accuracy, or other characteristics of the goods or services or to
indicate that the work or labor on the goods or services was performed by members of a
union or other organization.
(C) “Mark” means a word, name, symbol, device, or combination of a word, name,
symbol, or device in any form or arrangement.
(E) “Service mark” means a mark used by a person to identify services and to distinguish
them from the services of others.
(F) “Trademark” means a mark used by a person to identify goods and to distinguish
them from the goods of others.
(G) “Trade name” means a word, name, symbol, device, or combination of a word, name,
symbol, or device in any form or arrangement used by a person to identify the person’s
business, vocation, or occupation and distinguish it from the business, vocation, or
occupation of others.
(I) “Local telephone directory” means a telephone classified advertising directory, or the
business section of a telephone directory, that is distributed by a telephone company or a
directory publisher to subscribers who are located in one or more local exchanges
covered by the directory. “Local telephone directory” includes a telephone classified
advertising directory, or the business section of a telephone directory, that includes
listings of more than one telephone company.
(J) “Local telephone number” means a telephone number that has a three-number prefix
that is used by a telephone company in connection with telephones that are physically
located within an area covered by a local telephone directory in which the telephone
number is listed. “Local telephone number” does not include long distance telephone
numbers that are listed as long distance telephone numbers in a local telephone directory,
or 800-, 888-, or 900- telephone numbers that are listed in a local telephone directory.
(K) “Telephone company” has the same meaning as in section 4905.402 of the Revised
Code.
Effective Date: 03-30-1999
(A) A person engages in a deceptive trade practice when, in the course of the person’s
business, vocation, or occupation, the person does any of the following:
(5) Lists a fictitious business name in a local telephone directory that is published on or
after the effective date of this amendment, in circumstances in which all of the following
apply:
(a) The person’s fictitious business name is not registered as a trade name with, or its use
as a fictitious name has not been reported to, the secretary of state under sections 1329.01
to 1329.10 of the Revised Code.
(b) The person’s listed fictitious business name misrepresents the geographic location of
the person, because that name includes a reference to a political subdivision or another
geographic area of this state, the person does not have business premises in that political
subdivision or other geographic area from which the person sells, leases, rents, or
otherwise provides particular goods or services in this state, and the person’s use of that
name causes a likelihood of confusion or misunderstanding by consumers as to the
geographic location with which the consumers are dealing in the purchase, lease, rental,
or other provision of, or will be dealing in the resolution of problems that may arise in
connection with, particular goods or services.
(c) The local telephone directory listing of the person’s fictitious business name does not
identify the political subdivision and, if the person is not located in this state, the state in
which are located the person’s business premises with which consumers are dealing in the
purchase, lease, rental, or other provision of, or will be dealing in the resolution of
problems that may arise in connection with, particular goods or services.
(d) Telephone calls to the local telephone number listed for the person’s fictitious
business name routinely are forwarded or otherwise transferred to business premises of
the person that are located outside the calling area covered by the local telephone
directory.
(6) Lists a fictitious business name in a directory assistance database on or after the
effective date of this amendment, the circumstances described in divisions (A)(5)(a) and
(b) of this section apply regarding the person’s listed fictitious business name, and
telephone calls to the local telephone number listed for the person’s fictitious business
name routinely are forwarded or otherwise transferred to business premises of the person
that are located outside the local calling area;
(8) Represents that goods are original or new if they are deteriorated, altered,
reconditioned, reclaimed, used, or secondhand;
(9) Represents that goods or services are of a particular standard, quality, or grade, or that
goods are of a particular style or model, if they are of another;
(10) Disparages the goods, services, or business of another by false representation of fact;
(11) Advertises goods or services with intent not to sell them as advertised;
(12) Makes false statements of fact concerning the reasons for, existence of, or amounts
of price reductions;
(13) Advertises goods or services with intent not to supply reasonably expectable public
demand, unless the advertisement discloses a limitation of quantity.
(B) In order to prevail in a civil action under section 4165.03 of the Revised Code that
seeks injunctive relief or an award of damages and that is based on one or more deceptive
trade practices listed in division (A) of this section, a complainant need not prove
competition between the parties to the civil action.
(C) This section does not affect unfair trade practices that are otherwise actionable at
common law or under other sections of the Revised Code.
(A)(1) A person who is likely to be damaged by a person who commits a deceptive trade
practice that is listed in division (A) of section 4165.02 of the Revised Code may
commence a civil action for injunctive relief against the other person, and the court of
common pleas involved in that action may grant injunctive relief based on the principles
of equity and on the terms that the court considers reasonable. Proof of monetary damage
or loss of profits is not required in a civil action commenced under division (A)(1) of this
section.
(2) A person who is injured by a person who commits a deceptive trade practice that is
listed in division (A) of section 4165.02 of the Revised Code may commence a civil
action to recover actual damages from the person who commits the deceptive trade
practice.
(B) The court may award in accordance with this division reasonable attorney’s fees to
the prevailing party in either type of civil action authorized by division (A) of this
section. an award of attorney’s fees may be assessed against a plaintiff if the court finds
that the plaintiff knew the action to be groundless. An award of attorney’s fees may be
assessed against a defendant if the court finds that the defendant has willfully engaged in
a trade practice listed in division (A) of section 4165.02 of the Revised Code knowing it
to be deceptive.
(C) The civil relief provided in this section is in addition to civil or criminal remedies
otherwise available against the same conduct under the common law or other sections of
the Revised Code.
Effective Date: 03-30-1999
4165.04 Exceptions.
(1) Conduct that is in compliance with the orders or rules of, or a statute administered by,
a federal, state, or local governmental agency;
(2) Publishers, broadcasters, printers, or other persons who are engaged in the
dissemination of information or reproduction of printed or pictorial matter and who
publish, broadcast, or reproduce material without knowledge of its deceptive character.
(B) Divisions (A)(2) and (3) of section 4165.02 of the Revised Code do not apply to the
use of a service mark, trademark, certification mark, collective mark, trade name, or other
trade identification that was used and not abandoned before September 25, 1969, if the
use was in good faith and otherwise is lawful except for this chapter.
Effective Date: 03-30-1999
Top
Previous Ohio Judgments For Lack Of Standing
________________________________________________________________________
OPINION AND ORDER
________________________________________________________________________
The first private foreclosure action based upon federal diversity jurisdiction was filed in
this Court on February 9, 2007. Since then, twenty-six (26) additional complaints for
foreclosure based upon federal diversity jurisdiction have been filed.
Plaintiffs have the burden of establishing standing. Loren v. Blue Cross & Blue
Shield of Michigan, No. 06-2090, 2007 WL 2726704 at *7 (6th Cir. Sept. 20, 2007). If
they cannot do so, their claims must be dismissed for lack of subject matter jurisdiction.
Id. (citing Central States Southeast & Southwest Areas Health and Welfare Fund v.
Merck-Medco Managed Care, 433 F.3d 181, 199 (2d Cir. 2005)).
Because standing involves the federal court’s subject matter jurisdiction, it can be
raised sua sponte. Id. (citing Central States, 433 F.3d at 198). Further, standing is
determined as of the time the complaint is filed. Cleveland Branch, NAACP v. City of
Parma, Ohio, 263 F.3d 513, 524 (6th Cir. 2001), cert. denied, 535 U.S. 971 (2002).
Finally, while a determination of standing
is generally based upon allegations in the complaint, when standing is questioned, courts
may consider evidence thereof. See NAACP, 263 F.3d at 523-30; Senter v. General
Motors, 532 F.2d 511 (6th Cir. 1976), cert. denied, 429 U.S. 870 (1976).
To satisfy Article III’s standing requirements, a plaintiff must show: (1) it has
suffered an injury in fact that is concrete and particularized and actual or imminent, not
conjectural or hypothetical; (2) the injury is fairly traceable to the challenged action of
the defendant; and (3) it is likely, as opposed to merely speculative, that the injury will be
redressed by a favorable decision. Loren, 2007 WL 2726704 at *7.
To show standing, then, in a foreclosure action, the plaintiff must show that it is
the holder of the note and the mortgage at the time the complaint was filed. The
foreclosure plaintiff must also show, at the time the foreclosure action is filed, that the
holder of the note and mortgage is harmed, usually by not having received payments on
the note.
Diversity Jurisdiction
In addition to standing, a court may address the issue of subject matter jurisdiction at any
time, with or without the issue being raised by a party to the action. Community Health
Plan of Ohio v. Mosser, 347 F.3d 619, 622 (6th Cir. 2003). Further, as with standing, the
plaintiff must show that the federal court has subject matter jurisdiction over the
foreclosure action at the time the foreclosure action was filed. Coyne v. American
Tobacco Company, 183 F.3d 488, 492-93 (6th Cir. 1999). Also as with standing, a federal
court is required to assure itself that it has subject matter jurisdiction and the burden is on
the plaintiff to show that subject matter jurisdiction existed at the time the complaint was
filed. Id. Finally, if subject matter jurisdiction is questioned by the court, the plaintiff
cannot rely solely upon the allegations in the complaint and must bring forward relevant,
adequate proof that establishes subject matter jurisdiction. Nelson Construction Co. v.
U.S., No. 05-1205C, 2007 WL 3299161 at *3 (Fed. Cl., Oct. 29, 2007) (citing McNutt v.
General Motors Acceptance Corp. of Indiana, 298 U.S. 178 (1936)); see also Nichols v.
Muskingum College, 318 F.3d 674, (6th Cir. 2003) (“in reviewing a 12(b)(1) motion, the
court may consider evidence outside the pleadings to resolve factual disputes concerning
jurisdiction…”).
The foreclosure actions are brought to federal court based upon the federal court having
jurisdiction pursuant to 28 U.S.C. § 1332, termed diversity jurisdiction. To invoke
diversity jurisdiction, the plaintiff must show that there is complete diversity of
citizenship of the parties and that the amount in controversy exceeds $75,000. 28 U.S.C.
§ 1332.
Conclusion
While the plaintiffs in each of the above-captioned cases have pled that they have
standing and that this Court has subject matter jurisdiction, they have submitted evidence
that indicates that they may not have had standing at the time the foreclosure complaint
was filed and that subject matter jurisdiction may not have existed when the foreclosure
complaint was filed. Further, this Court has the responsibility to assure itself that the
foreclosure plaintiffs have standing and that subject-matter-jurisdiction requirements are
met at the time the complaint is filed. Even without the concerns raised by the documents
the plaintiffs have filed, there is reason to question the existence of standing and the
jurisdictional amount. See Katherine M. Porter, Misbehavior and Mistake in Bankruptcy
Mortgage Claims 3-4 (November 6, 2007), University of Iowa College of Law Legal
Studies Research Paper Series Available at SSRN: http://ssrn.com/abstract-1027961
(“[H]ome mortgage lenders often disobey the law and overreach in calculating the
mortgage obligations of consumers. … Many of the overcharges and unreliable
calculations… raise the specter of poor recordkeeping, failure to comply with consumer
protection laws, and massive, consistent overcharging.”)
Therefore, plaintiffs are given until not later than thirty days following entry of this order
to submit evidence showing that they had standing in the above-captioned cases when
the complaint was filed. Failure to do so will result in dismissal without prejudice to
refiling if and when the plaintiff acquires standing and the diversity jurisdiction
requirements are met. See In re Foreclosure Cases, No. 1:07CV2282, et al., slip op. (N.D.
Ohio Oct. 31, 2007) (Boyko, J.)
General Order 07-03 provides procedures for foreclosure actions that are based
upon diversity jurisdiction. Included in this General Order is a list of items that must
accompany the Complaint.1 Among the items listed are: a Preliminary Judicial Report; a
written payment history verified by the plaintiff’s affidavit that the amount in
controversy exceeds $75,000; a legible copy of the promissory note and any loan
modifications, a recorded copy of the mortgage; any applicable assignments of the
mortgage, an affidavit documenting that the named plaintiff is the owner and holder of
the note and mortgage; and a corporate disclosure statement. In general, it is from these
items and the foreclosure complaint that the Court can confirm standing and the
1The Court views the statement “the complaint must be accompanied by the following” to mean that
the items listed must be filed with the complaint and not at some time later that is more convenient
for the plaintiff.
Conclusion
To date, twenty-six (26) of the twenty-seven (27) foreclosure actions based upon
diversity jurisdiction pending before this Court were filed by the same attorney. One of
the twenty-six (26) foreclosure actions was filed in compliance with General Order 07-
03. The remainder were not.2 Also, many of these foreclosure complaints are notated on
the docket to indicate that they are not in compliance. Finally, the attorney who has filed
the twenty-six (26) foreclosure complaints has informed the Court on the record that he
knows and can comply with the filing requirements found in General Order 07-03.
Therefore, since the attorney who has filed twenty-six (26) of the twenty-seven (27)
foreclosure actions based upon diversity jurisdiction that are currently before this Court is
well aware of the requirements of General Order 07-03 and can comply with the General
Order’s filing requirements, failure in the future by this attorney to comply with the filing
requirements of General Order 07-03 may only be considered to be willful. Also, due to
the extensive discussions and argument that has taken place, failure to comply with the
requirements of the General Order beyond the filing requirements by this attorney may
also be considered to be willful.
A willful failure to comply with General Order 07-03 in the future by the attorney
who filed the twenty-six foreclosure actions now pending may result in immediate
dismissal of the
2The Sixth Circuit may look to an attorney’s actions in other cases to determine the extent of his or
her good faith in a particular action. See Capital Indemnity Corp. v. Jellinick, 75 F. App’x 999, 1002
(6th Cir. 2003). Further, the law holds a plaintiff “accountable for the acts and omissions of [its]
chosen counsel.” Pioneer Inv. Services Co. v. Brunswick Associates Ltd. Partnership, 507 U.S. 380, 397
(1993).
foreclosure action. Further, the attorney who filed the twenty-seventh foreclosure action
is hereby put on notice that failure to comply with General Order 07-03 in the future may
result in immediate dismissal of the foreclosure action.
This Court is well aware that entities who hold valid notes are entitled to receive
timely payments in accordance with the notes. And, if they do not receive timely
payments, the entities have the right to seek foreclosure on the accompanying mortgages.
However, with regard the enforcement of standing and other jurisdictional requirements
pertaining to foreclosure actions, this Court is in full agreement with Judge Christopher A
Boyko of the United States District Court for the Northern District of Ohio who recently
stressed that the judicial integrity of the United States District Court is “Priceless.”
DONE and ORDERED in Dayton, Ohio, this Fifteenth day of November, 2007.
s/Thomas M. Rose
____________________________________
THOMAS M. ROSE
UNITED STATES DISTRICT JUDGE
****************************************************
OVERVIEW: The court noted it responsibility to assure itself that plaintiff mortgage and
note holders in each of the foreclosure cases had standing and that subject-matter-
jurisdiction requirements were met at the time the complaint is filed. Even without the
concerns raised by the documents the holders had filed, the court held that there was
reason to question the existence of standing and the jurisdictional amount. Twenty-six of
the 27 foreclosure actions based upon diversity jurisdiction pending before the court were
filed by the same attorney. One of the 26 foreclosure actions filed by that attorney was
filed in compliance with S.D. Ohio Gen. Ord. 07-03 which provided procedures for
foreclosure actions based upon diversity jurisdiction. The remaining 25 cases were not.
LexisNexis(R) Headnotes
Constitutional Law > The Judiciary > Case or Controversy > Standing > General
Overview
[HN1] Federal courts have only the power authorized by U.S. Const. art. III and the
statutes enacted by Congress pursuant thereto. As a result, a plaintiff must have
constitutional standing in order for a federal court to have jurisdiction.
Constitutional Law > The Judiciary > Case or Controversy > Standing > Elements
[HN4] To satisfy U.S. Const. art. III's standing requirements, a plaintiff must show: (1) it
has suffered an injury in fact that is concrete and particularized and actual or imminent,
not conjectural or hypothetical; (2) the injury is fairly traceable to the challenged action
of the defendant; and (3) it is likely, as opposed to merely speculative, that the injury will
be redressed by a favorable decision.
Civil Procedure > Jurisdiction > Diversity Jurisdiction > General Overview
Constitutional Law > The Judiciary > Jurisdiction > Diversity
Evidence > Procedural Considerations > Burdens of Proof > Allocation
Real Property Law > Financing > Mortgages & Other Security Instruments >
Foreclosures > General Overview
[HN6] A court may address the issue of subject matter jurisdiction at any time, with or
without the issue being raised by a party to the action. Further, the plaintiff must show
that the federal court has subject matter jurisdiction over the foreclosure action at the time
the foreclosure action was filed. A federal court is required to assure itself that it has
subject matter jurisdiction and the burden is on the plaintiff to show that subject matter
jurisdiction existed at the time the complaint was filed. Finally, if subject matter
jurisdiction is questioned by the court, the plaintiff cannot rely solely upon the allegations
in the complaint and must bring forward relevant, adequate proof that establishes subject
matter jurisdiction
UNITED STATES DISTRICT COURT FOR THE
NORTHERN DISTRICT OF OHIO, EASTERN DIVISION
1 Astoundingly, counsel at oral argument stated that his client, the purchaser from the original mortgagee, acquired complete
legal and equitable interest in land when money changed hands, even before the purchase agreement, let alone a proper
assignment, made its way into his client's possession.
This Court acknowledges the right of banks, holding valid mortgages, to receive
timely payments. And, if they do not receive timely payments, banks have the right to
properly file actions on the defaulted notes -- seeking foreclosure on the property
securing the notes. Yet, this Court possesses the independent obligations to preserve the
judicial integrity of the federal court and to jealously guard federal jurisdiction. Neither
the fluidity of the secondary mortgage market, nor monetary or economic considerations
of the parties, nor the convenience of the litigants supersede those obligations.
Despite [*7] Plaintiffs' counsel's belief that "there appears to be some level of
disagreement and/or misunderstanding amongst professionals, borrowers, attorneys and
members of the judiciary," the Court does not require instruction and is not operating
under any misapprehension. The "real party in interest" rule, to which the Plaintiff-
Lenders continually refer in their responses or motions, is clearly comprehended by the
Court and is not intended to assist banks in avoiding traditional federal diversity
requirements. Unlike Ohio State law and procedure, as Plaintiffs perceive it, the federal
2
judicial system need not, and will not, be "forgiving in this regard." 3
2 Plaintiff's reliance on Ohio's "real party in interest rule" (ORCP 17) and on any Ohio case citations is misplaced. Although
Ohio law guides federal courts on substantive issues, state procedural law cannot be used to explain, modify or contradict a
federal rule of procedure, which purpose is clearly spelled out in the Commentary. "In federal diversity actions, state law
governs substantive issues and federal law governs procedural issues." Erie R.R. v. Tompkins, 304 U.S. 64, 58 S. Ct. 817, 82
L. Ed. 2d 1188 (1938); Legg v. Chopra, 286 F. 3d 286, 289 (6th Cir. 2002); [*8] Gafford v. General Electric Company, 997
F. 2d 150, 165-6 (6th Cir. 1993).
3 Plaintiff's, "Judge, you just don't understand how things work," argument reveals a condescending mindset and quasi-
monopolistic system where financial institutions have traditionally controlled, and still control, the foreclosure process.
Typically, the homeowner who finds himself/herself in financial straits, fails to make the required mortgage payments and
faces a foreclosure suit, is not interested in testing state or federal jurisdictional requirements, either pro se or through
counsel. Their focus is either, "how do I save my home," or "if I have to give it up, I'll simply leave and find somewhere else
to live."
In the meantime, the financial institutions or successors/assignees rush to foreclose, obtain a default judgment and then sit on
the deed, avoiding responsibility for maintaining the property while reaping the financial benefits of interest running on a
judgment. The financial institutions know the law charges the one with title (still the homeowner) with maintaining the
property.
There is no doubt every decision made by a financial institution in the foreclosure process is driven by money. And the [*9]
legal work which flows from winning the financial institution's favor is highly lucrative. There is nothing improper or wrong
with financial institutions or law firms making a profit -- to the contrary , they should be rewarded for sound business and
legal practices. However, unchallenged by underfinanced opponents, the institutions worry less about jurisdictional
requirements and more about maximizing returns. Unlike the focus of financial institutions, the federal courts must act as
gatekeepers, assuring that only those who meet diversity and standing requirements are allowed to pass through. Counsel for
the institutions are not without legal argument to support their position, but their arguments fall woefully short of justifying
their premature filings, and utterly fail to satisfy their standing and jurisdictional burdens. The institutions seem to adopt the
attitude that since they have been doing this for so long, unchallenged, this practice equates with legal compliance. Finally
put to the test, their weak legal arguments compel the Court to stop them at the gate.
The Court will illustrate in simple terms its decision: "Fluidity of the market" -- "X" dollars, "contractual arrangements
[*10] between institutions and counsel" -- "X" dollars, "purchasing mortgages in bulk and securitizing" -- "X" dollars, "rush
to file, slow to record after judgment" -- "X" dollars, "the jurisdictional integrity of United States District Court" --
"Priceless."
CONCLUSION
v.
APPEARANCES:
For Plaintiff-Appellee Attorney Angela D. Marshall, Manley, Deas, Kochalski, LLC P.O.
Box 165028 Columbus, Ohio 43215-5028
JUDGES: Hon. Gene Donofrio, Hon. Joseph J. Vukovich, Hon. Mary DeGenaro
OPINION
DONOFRIO, J.
2 On April 18, 2006, appellee filed a foreclosure complaint against appellants. The
complaint alleged that appellants were in default on their promissory note secured by a
mortgage on their residence on Read Street in Lowellville. The complaint alleged a
balance of $64,530.23, plus 9.9 percent interest from March 1, 2003, late charges,
advances for taxes and insurance, and all other expenditures recoverable. Attached to the
complaint were copies of the promissory note and mortgage. From these documents, it is
apparent that The CIT Group/Consumer Finance, Inc. (CIT) issued the promissory note
and mortgage on February 22, 2001.
3 On August 22, 2006, appellee moved for summary judgment seeking a finding of
default on the promissory note and a decree of foreclosure. Appellee stated that since
appellants defaulted on the loan, they were entitled to acceleration of the loan and
foreclosure. Attached to the motion for summary judgment was an affidavit regarding the
account from Jon Menz, an employee of Fidelity National Foreclosure & Bankruptcy
Solutions (FNF) and an officer of Select Portfolio Servicing, Inc. FNF provides mortgage
and foreclosure related services to appellee. In addition, FNF maintains the records
pertaining to this account. The affidavit stated that appellee is the holder of the note and
mortgage referenced in the complaint. No other evidence was submitted regarding an
assignment of the mortgage to appellee.
4 Appellants filed a response asserting that appellee is not the real party in interest.
Appellants attached Mrs. Parsons' affidavit in support. Mrs. Parsons stated that payments
made by appellants were not reflected in the payment history/account evidence submitted
by appellee and that the monthly mortgage payments exceed the amount shown on the
original note and mortgage. In addition, appellants argued that appellee could not show a
chain of title establishing it as the holder of the note and mortgage in question.
5 On November 22, 2006, the trial court granted summary judgment in favor of
appellee and issued a decree of foreclosure. However, the judgment was not delivered to
the parties at this time.
7 A review of the docket reveals that the clerk of courts did not serve a copy of the
court's summary judgment entry to appellee's counsel until December 27, 2006, and did
not serve appellants' counsel with a copy until January 4, 2007.
11 Appellants argue that the mortgage in question was assigned twice and that the
current holder of record is "U.S. Mortgage, 5825 West Sahara Avenue, Las Vegas, NV."
Appellants contend that the titled assignee of the mortgage is not the same party listed as
the plaintiff in this case. Therefore, appellants assert that there is a genuine issue of
material fact concerning the identity of the real party in interest making summary
judgment inappropriate.
12 Appellee contends that the mortgage was assigned after the initiation of the
foreclosure action and that it is now the owner of the mortgage in question. Appellee
argues that its late recording of the assignment does not create a genuine issue of material
fact as to who the real party in interest is.
14 Appellants rely on this court's decision in Washington Mut. Bank, F.A. v. Green,
156 Ohio App.3d 461, 806 N.E.2d 604, 2004-Ohio-1555, for support as this case is very
similar. In that case, Linda Green entered into a note and mortgage with Check `n Go
Mortgage Services. Green allegedly defaulted on the note. Washington Mutual filed a
complaint of foreclosure against her. In its complaint, Washington Mutual stated that it
was the current owner of the note and mortgage. Green filed a motion to dismiss, alleging
a lack of evidence that Washington Mutual was the real party in interest. Washington
Mutual then filed a motion for summary judgment and attached the affidavit of its vice-
president. In the affidavit, the vice-president stated that she had personal knowledge of
the account, which was under her supervision, and that the account was in default. During
the course of the proceedings, Green received correspondence from another institution
that seemed to assert a right to the proceeds of the note and mortgage. However, the trial
court granted Washington Mutual's motion for summary judgment.
16 We noted that the First Union court held, "`Though inferences could have been
drawn from this material, inferences are inappropriate, insufficient support for summary
judgment and are contradictory to the fundamental mandate that evidence be construed
most strongly in favor of the nonmoving party.'" Id. at ¶29, quoting First Union, at ¶21.
We further held that the trial court's grant of summary judgment and the denial of the
right to file a third-party complaint exposed Green to multiple judgments on the same
subject matter. Id. at ¶32. Thus, we concluded that summary judgment was not proper.
17 There are many similarities between this case and Washington Mutual. Specifically,
appellants have stated throughout the proceedings that they do not believe appellee to be
the party in interest. Additionally, documents from the recorder's office show that the
mortgage and note were assigned to Olympus Servicing LP. There is no document, on the
record, showing an assignment to appellee. The only evidence on the record of an
assignment to appellee is the affidavit of Jon Menz. However, the affidavit fails to
mention how, when, or whether appellee was assigned the mortgage and note. As in
Washington Mutual and First Union, the evidence in this case likewise did not establish
that appellee is the owner of the note and mortgage.
20 The trial court should have denied summary judgment. A genuine issue of material
fact existed as to whether or not appellee was the real party in interest since there was no
evidence on the record of the assignment. Accordingly, appellant's first assignment of
error has merit.
21 For the reasons stated above, the trial court's judgment is hereby reversed and the
matter is remanded for further proceedings pursuant to law and consistent with this
opinion.
OH
OH Unpublished App.
[Cite as Wells Fargo Bank, N.A. v. Byrd, 2008-Ohio-4603.]
: Plaintiff-Appellant,
and :
vs. :
COUNTY, Defendants. :
-1-
Civil Appeal From: Hamilton County Court of Common Pleas Judgment Appealed From
Is: Affirmed in Part as Modified in Part and Reversed in Part
The Law Offices of John D. Clunk, Jason A. Whitacre, Michael L. Wiery, and Laura C.
Landor, for Appellants, Legal Aid Society of Southwest Ohio, Noel M. Morgan, and
Elizabeth Tull, for Appellees.
We have removed this case from the accelerated calendar.
-2-
DINKELACKER, Judge.
Since plaintiff-appellant Wells Fargo was not a real party in interest at the time it
filed suit in this foreclosure action, the trial court properly dismissed the case. But
the dismissal should have been without prejudice. Further, the trial court lacked authority
to sanction counsel by requiring counsel to adhere to additional pleading requirements in
future cases.
On January 23, 2007, Wells Fargo filed a foreclosure action against defendants-appellees
Gloria and Ellsworth Byrd. Wells Fargo claimed that it was "the holder and owner of a
certain promissory note" and "the owner and holder of a certain mortgage deed, securing
the payment of said note." But both the note and the mortgage identified in the complaint
named WMC Mortgage Corp. as the lender.
Wells Fargo filed a motion seeking summary judgment. Attached to the motion for
summary judgment was an "Assignment of Note and Mortgage" that acknowledged that
WMC had sold, assigned, transferred, and set over the mortgage deed and promissory
note to Wells Fargo. The assignment was dated March 2, 2007--over a month after the
complaint had been filed.
The case was referred to a magistrate who entered summary judgment for Wells Fargo.
The trial court sustained the Byrds' subsequent objections to that decision. The trial court
then took two additional steps not requested by the Byrds: (1) it dismissed the case with
prejudice, and (2) it ordered the law firm representing Wells Fargo, appellant Law Offices
of John D. Clunk Co., LPA, to submit "proof that their client is, in fact, a real party in
interest at the time of the filing" of any future foreclosure complaints that the firm might
file.
-3-
Wells Fargo requested findings of fact and conclusions of law. In response, the trial court
issued an entry titled "Findings of Fact, Conclusions of Law, and Amended Judgment
Entry" in which it said that the dismissal was "not a dismissal on the merits." The trial
court explained the Clunk firm's future obligations to the court by stating that "at the time
of the filing of a foreclosure action, [the Clunk firm must] file documentation showing
that their client is the real party in interest as of the date of the filing of the lawsuit."
Both Wells Fargo and the Clunk firm have appealed. Wells Fargo argues that (1) the trial
court erred in dismissing the case with prejudice on jurisdictional grounds; (2) the trial
court erred in dismissing the case without notice; (3) the trial court should have adopted
the decision of the magistrate granting its motion for summary judgment; (4) the trial
court misapplied Civ.R. 17; (5) the trial court lacked authority to convert its original
dismissal with prejudice to a dismissal without prejudice; and (6) the trial court
improperly used its subsequent entry to modify the substance of its prior decision. The
Clunk firm argues, in two assignments of error, that the trial court improperly sanctioned
it.
There is little case-law guidance on the issue whether Wells Fargo, which was clearly
not a real party in interest when the suit was filed, could later have cured the defect
by producing an after-acquired interest in the litigation. We hold that the defect
could not have been cured in that way.
Civ.R. 17(A) says that "[e]very action shall be prosecuted in the name of the real
party in interest. * * * No action shall be dismissed on the ground that it is not
prosecuted in the name of the real party in interest until a reasonable time has
-4-
been allowed after objection for ratification of commencement of the action by, or joinder
or substitution of, the real party in interest. Such ratification, joinder, or substitution shall
have the same effect as if the action had been commenced in the name of the real party in
interest."
A party lacks standing to invoke the jurisdiction of a court unless he has, in an individual
or a representative capacity, some real interest in the subject matter of the action.1 The
Eleventh Appellate District has held that "Civ.R. 17 is not applicable when the plaintiff is
not the proper party to bring the case and, thus, does not have standing to do so. A person
lacking any right or interest to protect may not invoke the jurisdiction of a court."2 The
court also noted that "Civ.R. 17(A) was not applicable unless the plaintiff had standing to
invoke the jurisdiction of the court in the first place, either in an individual or
representative capacity, with some real interest in the subject matter. Civ.R. 17 only
applies if the action is commenced by one who is sui juris or the proper party to bring the
action."3
The Twelfth Appellate District agrees. In 2007, the court held that "[t]he `real party in
interest is generally considered to be the person who can discharge the claim on which
the suit is brought * * * [or] is the party who, by substantive law, possesses the right to
be enforced.' "4 Unless a party has some real interest in the subject matter of the action,
that party will lack standing to invoke the jurisdiction of the court. The court concluded
that, "[i]n a breach of contract claim,
1 State ex rel. Dallman v. Court of Common Pleas (1973), 35 Ohio St.2d 176, 298 N.E.2d
515, syllabus.
2 Northland Ins. Co. v. Illuminating Co., 11th Dist. Nos. 2002-A-0058 and 2002-A-0066,
2004- Ohio-1529, at ¶17 (internal quotations and citations omitted).
3 Travelers Indemn. Co. v. R. L. Smith Co. (Apr. 13, 2001), 11th Dist. No. 2000-L-014.
-5-
only a party to the contract or an intended third-party beneficiary of the contract may
bring an action on a contract in Ohio."5
Such a rule would seem to be in the spirit of Civ.R. 17, which only allows a plaintiff to
cure a real-party-in-interest problem by (1) showing that the real party in interest has
ratified the commencement of the action, or (2) joining or substituting the real party in
interest.6
Since WMC was not joined or substituted in this case, the only argument Wells Fargo
could have made was that WMC had ratified its actions.
Ratification is a way that an agent can bind a principal.7 But ratification will not apply
when the actor is not acting as the agent of the principal.8
In this case, Wells Fargo admitted to the trial court that it was not the real party in interest
when the suit was filed. Wells Fargo filed suit on its own behalf and acquired the
mortgage from WMC later. It was not acting as WMC's agent.
There was no evidence that WMC had "ratified" the commencement of the action-- only
that it had sold the mortgage to Wells Fargo. None of the documents indicated that WMC
even knew about this case. For ratification to occur, the ratifying party must know what
actions it is ratifying.9 While Wells Fargo repeatedly argued that ratification had
occurred, it seemed to be confused as to which party had to ratify.
Below, it argued that "Plaintiff, being a real party in interest, did ratify the
5 Id., citing Grant Thornton v. Windsor House, Inc. (1991), 57 Ohio St.3d 158, 161, 566
N.E.2d 1220.
6 Civ.R. 17(A).
7 See Morr v. Crouch (1969), 19 Ohio St.2d 24, 249 N.E.2d 780 8 See Alban Equipment
Co. v. MPH Crane, Inc. (June 2, 1989), 4th Dist. No. 424 ("Ratification does not result
from the affirmance of a transaction with a third person unless the one acting purported to
be acting for the ratifier."), quoting 1 Restatement of the Law 2d, Agency (1958), 217,
Section 85; see, also, Williams v. Stearns (1898), 59 Ohio St. 28.
9 See Lithograph Bldg. Co. v. Watt (1917), 96 Ohio St. 74, 85, 117 N.E. 25 (before the
principal can be held to ratify the unauthorized acts of his agent, it must appear that he
had knowledge of all material facts).
-6-
commencement of this action * * * ." But Civ.R. 17 makes clear that it was WMC, not
Wells Fargo, that had to ratify the commencement of the action.
Wells Fargo has found one decision that holds to the contrary. In Bank of New York v.
Stuart,10 the Ninth Appellate District held that a bank that had filed a foreclosure action
could cure a real-party-in-interest problem by subsequently obtaining the mortgage.11
But the only authority for this holding was two federal cases from 1966 and 1979. And
the two cases are distinguishable. In the first case, the plaintiff was the one who had done
all the work that was the subject of the litigation, and the "real party in interest" was "a
mere straw man throughout."12 In the second case, the plaintiff was already a party in his
own right and was assigned the claims of another plaintiff.13
We find instructive a more recent federal case addressing the application of the rule (but
in the context of a statute of limitations).14 In that case, the party suing did not have a
claim at the time suit was filed, but received an assignment of the claim after it had
commenced the litigation. The court held that "Rule 17(a) does not apply to a situation
where a party with no cause of action files a lawsuit to toll the statute of limitations and
later obtains a cause of action through assignment."15 In that case, the court concluded
that "B & K's assignment to the Wulffs of its claim against CMA cannot ratify the Wulffs'
commencement of suit on a claim which theretofore did not exist."16
11 Id. at ¶12.
12 Campus Sweater and Sportswear Co. v. M. B. Kahn Constr. Co. (D.S.C.1979), 515
F.Supp. 64, 84-85 13 Dubuque Stone Prods. Co. v. Fred L. Gray Co. (C.A.8, 1966), 356
F.2d 718, 723-724.
14 United States v. CMA, Inc. (C.A.9, 1989), 890 F.2d 1070, 1074.
15 Id.
16 Id. See, also, Feist v. Consolidated Freightways Corp. (E.D.Pa.1999), 100 F.Supp.2d
273, 274 (plaintiff's filing of suit in his own name after his Chapter 7 case was closed,
and after having failed to list injury claim as estate asset, was not result of honest mistake
and thus warranted dismissal rather than substitution of bankruptcy trustee as real party in
interest); Automated Information Processing, Inc. v. Genesys Solutions Group, Inc.
(D.N.Y.1995), 164 F.R.D. 1, 3 (The
-7-
In light of the foregoing authority, we must respectfully disagree with the Ninth
Appellate District. We hold that, in a foreclosure action, a bank that was not the
mortgagee when suit was filed cannot cure its lack of standing by subsequently
obtaining an interest in the mortgage. Wells Fargo's third, fourth, and sixth
assignments of error are overruled.
Having determined that the trial court could have properly dismissed the case for lack of
standing when the suit was filed, we must next determine if dismissal was proper when,
as here, it was not requested by the Byrds. Sua sponte dismissals ordinarily prejudice
appellants, as they deny any opportunity to respond to the alleged insufficiencies.17 But
here, both parties argued the real-party-in- interest issue, and the facts were clear in the
record. Wells Fargo did not have standing at the time the complaint was filed. The record
unequivocally indicates that WMC did not assign its rights under the mortgage to Wells
Fargo until March 2, 2007. Under these circumstances, there was nothing left for the trial
court to address. We overrule Wells Fargo's second assignment of error.
A dismissal of a claim other than on the merits should be a dismissal without prejudice.18
We agree with Wells Fargo that a dismissal that is premised on jurisdiction "operates as a
failure otherwise than on the merits" and should be a
rule permitting substitution of real party in interest when necessary to avoid injustice did
not permit substitution of newly formed corporation as plaintiff after it was discovered
that corporation that originally brought action had been dissolved.).
17 MBNA Am. Bank, N.A. v. Canfora, 9th Dist. No. 23588, 2007-Ohio-4137, at ¶ 14.
18 See Chadwick v. Barba Lou, Inc. (1982), 69 Ohio St.2d 222, 226, 431 N.E.2d 660.
-8-
dismissal without prejudice.19 The dismissal of an action because one of the parties is not
a real party in interest or does not have standing is not a dismissal on the merits.20
But the trial court dismissed this case with prejudice. While it attempted to correct this
with a subsequent entry, a trial court is without jurisdiction to modify an order dismissing
a cause with prejudice to one without prejudice, unless the requirements of Civ.R. 60 are
met.21
In this case, the requirements of Civ.R. 60 were not met, and, therefore, the trial court
could not have changed its final decision from a dismissal with prejudice to one without
prejudice. We sustain Wells Fargo's first and fifth assignments of error. But since the case
should have been dismissed without prejudice, we modify the decision of the trial court
from a dismissal with prejudice to a dismissal without prejudice. Wells Fargo, now a
proper party to initiate a foreclosure action against the Byrds, is free to do so.
There is no authority for what the trial court did. The Byrds did not seek sanctions, there
was no notice of the possibility that this firm would be sanctioned, and there was no
hearing on sanctions. The trial court did not limit the
20 See State ex rel. Coles v. Granville, 116 Ohio St.3d 231, 2007-Ohio-6057, 877 N.E.2d
968, at ¶51.
21 Young v. Ohio Adult Parole Auth. (Apr. 27, 2001), 2nd Dist. No. 2001 CA 3.
-9-
sanction to this case, but sanctioned the firm for all of its future conduct. In essence, the
trial court crafted an additional pleading requirement that would apply only to one law
firm. Apart from the vexatious-litigator statute, there is no authority that would allow a
trial court to impose additional pleading requirements on an individual--let alone a law
firm--in future litigation. The Byrds have cited no such authority and, in fact, have not
addressed these assignments of error in their brief.
Conclusion
The trial court properly dismissed the foreclosure complaint filed by Wells Fargo in this
case because, at the time the complaint was filed, it did not own the mortgage that was
the basis for the suit. Acquiring the mortgage by assignment after the suit was
commenced could not have cured the jurisdictional defect arising from the fact that, at the
time the lawsuit was filed, Wells Fargo had no claims to make against the Byrds. But
while the dismissal was proper, it should have been, and is now ordered to be, without
prejudice.
The trial court lacked authority to order the Clunk firm, upon the filing of future
foreclosure complaints, to present additional documentation demonstrating that its clients
are the real parties in interest.
The judgment of the trial court is affirmed in part as modified with respect to dismissal of
the action, and reversed in part with respect to the imposition of sanctions.
Judgment accordingly.
The court has recorded its own entry on the date of the release of this opinion.
UNITED STATES DISTRICT COURT FOR THE
SOUTHERN DISTRICT OF OHIO, EASTERN DIVISION
IN RE FORECLOSURE CASES.
OPINION
following reasons, the above listed cases are DISMISSED without prejudice.
1 The Order to Show Cause was docketed at different numbers in each case, as was Plaintiffs'
Memorandum of Law. For convenience, all citations to the record are to the record in 07-cv-166.
I. Background
Plaintiffs are various banks and lending institutions that have filed these
foreclosure actions to recover on defaulted notes and mortgages that the Plaintiffs
allegedly hold. While such foreclosure actions have not typically been brought in federal
court, the attorney of record for each Plaintiff ("Counsel") has begun filing a large
number of these foreclosure actions in both the Southern and Northern Districts [*2] of
Ohio on the basis of diversity jurisdiction. In response to this increase in foreclosure
filings, the Southern District issued General Order No. 07-03 (the "Order"), which
establishes uniform procedures required for the processing of all foreclosure actions.
Relevant to this Memorandum Opinion & Order, the Order states that a foreclosure
complaint "must be accompanied" by, among other things, "[a] full recorded copy of . . .
any applicable assignments," Gen. Order No. 07-03 P 1.2.4, and "[a]n affidavit
documenting that the named plaintiff is the owner and holder of the note and mortgage."
Id. at P 1.2.5.
After a review of the record in these cases revealed issues related to Plaintiffs'
standing and compliance with a court order, on November 27, 2007 this Court issued an
Order to Show Cause directing Plaintiffs to show cause why these cases should not be 2
dismissed. (R. at 24.) The Order to Show Cause identified two separate grounds that
could justify dismissal; 1) lack of standing; or 2) failure to comply with the Order.
Plaintiffs have filed a Memorandum of Law in response to the Order to Show Cause (R.
at 25), and these issues are now ripe for adjudication.
2 This Court's Order to Show Cause included cases not covered by this Memorandum Opinion &
Order. Nos. 07-cv-670, 07-cv-714, and 07-cv-1091 have all been voluntarily dismissed and are no
longer on this Court's docket. Additionally, the debtors in 07-cv-999 have filed for bankruptcy,
resulting in an automatic stay of that case. Thus, these cases are not covered by this Memorandum
Opinion [*4] & Order.
II. Standing
Standing "is a qualifying hurdle that [a plaintiff] must satisfy," Community First
Bank v. National Credit Union Admin., 41 F.3d 1050, 1053 (6th Cir. 1994), and "is to be
assessed under the facts existing when the complaint is filed." Lujan v. Defenders of
Wildlife, 504 U.S. 555, 570 n. 4, 112 S. Ct. 2130, 119 L. Ed. 2d 351 (1992). A party
seeking to bring a case into federal court "bears the burden of demonstrating standing and
must plead its components with specificity." Coyne v. American Tobacco Company, 183
F.3d 488, 494 (6th Cir. 1999); Valley Forge Christian College v. Americans United for
Separation of Church and State, Inc., 454 U.S. 464, 102 S. Ct. 752, 70 L. Ed. 2d 700
(1982). Standing is commonly divided into two different sets of requirements -
constitutional and prudential.
The minimum constitutional requirements for standing, derived from Article III,
are 1) proof of injury in fact; 2) causation; and 3) redressability. Valley Forge, 454 U.S. at
472. To satisfy the requirements of Article III, a plaintiff must show that he has
personally suffered some actual injury as a result of the defendant's illegal conduct that
most likely would be redressed by a favorable ruling from a court. Id.; Coyne, 183 F.3d at
494. To satisfy [*5] the prudential standing requirements; 1) a plaintiff must assert their
own legal rights and interests, not those of a third party; 2) a plaintiff's claim must be
more than a generalized grievance that is widely shared by others; and 3) when the right
to sue is granted by statute, a plaintiff's claim must fall within the "zone of interests"
regulated by the statute in question. Coyne, 183 F.3d at 494. Standing issues may be
raised sua sponte by a court, see, e.g., Juidice v. Vail, 430 U.S. 327, 97 S. Ct. 1211, 51 L.
Ed. 2d 376 (1977); Community First Bank, 41 F.3d at 1053, because the "core
component" of the constitutional standing inquiry is rooted in Article III's Case or
Controversy requirement and concerns a court's subject matter jurisdiction. Lujan, 504
U.S. at 560.
In their Memorandum of Law, Plaintiffs point out that standing may exist as a
matter of law when issues of statutory standing and the merits of a plaintiff's cause of
action merge. (p. 12, R. at 25.) See Bell v. Hood, 327 U.S. 678, 681-82, 66 S. Ct. 773, 90
L. Ed. 939 (1946). "When the basis of federal jurisdiction is intertwined with the
plaintiff's federal cause of action, the court should assume jurisdiction over the case and
decide the case on the merits . . . 'The question[s] [*6] of [standing] and the merits will
normally be considered intertwined where the [same] statute provides both the basis of
federal court subject matter jurisdiction and the cause of action.'" Moore v. LaFayette
Life Ins. Co., 458 F.3d 416, 444 (6th Cir. 2006) (quoting Clark v. Tarrant County, Texas,
798 F.2d 736, 742 (5th Cir. 1986)). While the Court agrees with that general proposition,
it is inapplicable to Plaintiffs' cases.
Plaintiffs argue that, in the present cases, standing exists as a matter of law
because the question of whether Plaintiffs held the notes in question relates to both
standing and the merits, and the two issues merge. Plaintiffs rely on two cases for this
argument. However, both of those cases, Gentek Bldg. Prods. v. Sherwin-Williams Co.,
491 F.3d 320 (6th Cir. 2007) and Moore, 458 F.3d at 416, were brought on the basis of
federal question jurisdiction and concerned questions of prudential statutory standing
under the Magnusson-Moss Act and ERISA, respectively. Plaintiffs concede that there are
two differences between these foreclosure cases and Gentek and Moore. First, the Court's
Order to Show Cause raised an issue of constitutional standing [*7] - whether Plaintiffs
were the ones who actually suffered the injury in fact. (Memorandum of Law p. 12, R. at
25.) Second, these cases were filed on the basis of diversity jurisdiction, not federal
question jurisdiction. (Id. at p. 14.)
As the Sixth Circuit recognized in Moore, standing and the merits most frequently
merge only when the same federal statute creates both a cause of action and federal
question jurisdiction. That is not the case here. Plaintiffs' cause of action is created by
state law, not a federal statute, and jurisdiction is based on diversity, not a federal
question. Plaintiffs argue that
there is no reason why the principle applied in [Gentek and Moore] should not also apply to
a case filed on the basis of diversity jurisdiction. In fact, where the citizenship of the parties
and the amount in controversy are not at issue, an even stronger argument can be made that a
federal district court has jurisdiction to decide the case on the merits. Every case that
invokes the Court's diversity jurisdiction, regardless of the type, presents the question
whether the plaintiff is asserting its own legal rights or is the one who suffered an injury.
These questions are resolved on [*8] the merits. Thus, if the requirements of 28 U.S.C. §
1332 are satisfied, there should be little question that the Court has jurisdiction to resolve the
case on the merits.
(Id.) To say the least, this statement is overbroad. Plaintiffs are correct that every
case presented to this Court involves the preliminary question of whether the plaintiff is
the one who suffered an injury. This is why standing is considered a "qualifying hurdle."
Community First Bank, 41 F.3d at 1053. This question, however, is separate from the
question of whether diversity jurisdiction exists. The § 1332 requirements (diversity of
citizenship and an amount in controversy exceeding $ 75,000) say absolutely nothing
about the Article III standing requirements of injury in fact, causation, and redressability.
The doctrine of standing would become a nulity in diversity cases if simply satisfying the
requirements of § 1332 sufficed to establish standing. Furthermore, the constitutional
standing question of whether Plaintiffs actually suffered an injury in fact at the time these
respective cases were filed is distinct from the element of Plaintiffs' claims requiring
them to hold the note in order to enforce it.
Having [*9] determined that the question of standing cannot be resolved as a matter of
law because it does not merge with the Plaintiffs' cause of action, the Court moves on to
determine if, in fact, the Plaintiffs have standing. The Court evaluates the question of
standing by reference to the "facts existing when the complaint is filed." Lujan, 504 U.S.
at 570 n. 4. The Court is not required, however, to accept Plaintiffs' factual allegations as
true.
generally come in two varieties: a facial attack or a factual attack. A facial attack on the
subject-matter jurisdiction alleged in the complaint questions merely the sufficiency of the
pleading. When reviewing a facial attack, a district court takes the allegations in the
complaint as true, which is a similar safeguard employed under 12(b)(6) motions to dismiss.
If those allegations establish federal claims, jurisdiction exists.
Where, on the other hand, there is a factual attack on the subject-matter jurisdiction alleged
in the complaint, no presumptive truthfulness applies to the allegations. When a factual
attack . . . raises a factual controversy, the district court must weigh [*10] the conflicting
evidence to arrive at the factual predicate that subject-matter jurisdiction does or does not
exist.
Gentek, 491 F.3d at 330 (internal citations omitted). This Court's Order to Show Cause
made a factual attack on Plaintiffs' standing, not a facial one. The Court noted that
Plaintiffs had introduced evidence of formal assignments of mortgages executed after the
respective complaints were filed, and that Plaintiffs had not submitted any evidence
indicating that the notes and/or mortgages were assigned, legally or equitably, before the
respective complaints were filed. The Court concluded by noting that this evidence, or
lack thereof, "indicate[d] to the Court that Plaintiffs may not have been the holders of the
respective notes and mortgages under valid assignments at the time the respective
[c]omplaints were filed." (Order to Show Cause p. 6-7, November 27, 2007, R. at 24.)
This is clearly a factual attack questioning whether Plaintiffs actually held the notes and
mortgages in question, not whether Plaintiffs adequately pled that fact. Thus, the Court is
not required to credit Plaintiff's factual allegations, but instead must weigh the evidence
for itself to determine [*11] if Plaintiffs, in fact, have standing to bring these foreclosure
cases. See Gentek, 491 F.3d at 330.
Plaintiffs offer three main arguments supporting the conclusion that they in fact
held the note and mortgage at the time the respective complaints were filed and thus have
standing. First, Plaintiffs lean most heavily on the affidavit filed in each foreclosure case.
This affidavit states that "Plaintiff is the owner and holder of the promissory note and
mortgage referenced in the Complaint and has standing to enforce its rights under the
note and mortgage." (Memorandum of Law p. 16, R. at 25.) Second, Plaintiffs argue that
the mortgage assignments filed in these cases, while executed after the respective
complaints were filed and containing present tense language, support the conclusion that
Plaintiffs held the note prior to the filing of the respective complaints. Plaintiffs argue
that the mortgage assignment only conveys the legal interest in the note, not the equitable
interest, and that this equitable interest was assigned prior to the assignment of the
mortgage. (Id. at p. 17-19.) Third, Plaintiffs note that they have filed copies of the
promissory notes and up-to-date pay histories, [*12] which are not public records.
Plaintiffs assert that "[t]he fact that Plaintiffs were able to produce a copy of the note and
an up-to-date pay history supports a finding that Plaintiffs hold the note and mortgage."
(Id. at p. 18.)
The Court is not convinced by these arguments. The affidavit language that
Plaintiffs point to is unclear as to when Plaintiffs became the holder of the note and
mortgage. Despite Plaintiffs' reliance on their "sworn testimony," this does not indicate
that Plaintiffs held the notes and mortgages at the time the respective complaints were
filed, especially in light of the fact that the recorded assignments of mortgage all indicate
that the mortgages were assigned after the respective complaints were filed. Turning to
the mortgage assignments, the Court agrees that the mortgage assignment only conveys a
legal interest, and that an equitable interest may have been transferred at another time.
Plaintiffs, however, simply have not offered any evidence that an interest in the respective
note was assigned prior to the filing of the respective complaint. The only evidence the
Court does have relating to when the notes and mortgages were actually assigned are the
assignments [*13] of mortgage, which uniformly indicate that the mortgages were
assigned after the respective complaints were filed. Finally, the fact that the Plaintiffs
were able to introduce copies of the promissory notes and pay histories is undercut by the
fact that those promissory notes indicate that another entity held the note, and that the
payments were not made to Plaintiffs.
Weighing the evidence presented, the Court finds that Plaintiffs have not
established that they in fact owned the notes and mortgages in question at the time these
respective complaints were filed. Because Plaintiffs apparently did not own the notes and
mortgages at the time the complaints were filed, Plaintiffs suffered no injury in fact from
the debtors' default. Plaintiffs thus do not have standing to bring these actions, and these
cases should be dismissed for lack of standing.
However, Rule 83(a)(2) restrains a district court's enforcement of its rules and
orders. That section provides that "[a] local rule imposing a requirement of form shall not
be enforced in a manner that causes a party to lose rights becaue of a nonwillful failure to
comply with the requirement." FED. R. CIV. P. 83(a)(2). The Advisory Committee Note
makes clear that this limitation "is narrowly drawn - covering only violations attributable
to nonwillful failure to comply and only those involving local rules directed to matters of
form." FED. R. CIV. P. 83(a)(2) Advisory Committee Note to 1995 Amendments. Willful
failures to comply do not fall within Rule 83(a)(2)'s prohibition.
Local rules and orders also cannot conflict with the Federal Rules of Civil
Procedure. Tiedel v. Northwestern Michigan College, 865 F.2d 88, 91 (6th Cir. 1988).
Interpreting General Order No. 07-03's command that the complaint "must" include
certain materials as authorizing a district court to dismiss [*15] the complaint with or
without prejudice for failure to do so cannot conflict with Rule 41(b), governing
involuntary dismissal of suits.
Rule 41(b) provides that "[f]or failure of the plaintiff to prosecute or to comply
with these rules or any order of court, a defendant may move for dismissal of an action."
FED. R. CIV. P. 41(b). Despite its seemingly clear language, the Sixth Circuit "has
recognized that Rule 41(b) provides courts the authority . . . to dismiss [sua sponte] a
claim for 'failure of the plaintiff to prosecute or comply with these rules, or any order of
the court.'" Sexton v. Uniroyal Chemical Co. Inc., 62 F. App'x 615, 618 (6th Cir. 2003)
(unpublished) (quoting Harmon v. CSX Transp. Co., 110 F.3d 364, 366-67 (6th Cir.
1997).
While district courts have discretion to dismiss cases under Rule 41(b), the Sixth
Circuit has identified four factors for courts to analyze when deciding whether to dismiss
a complaint under Rule 41(b). Courts should consider "(1) whether the party's failure is
due to willfulness, bad faith, or fault; (2) whether the adversary was prejudiced by the . . .
party's conduct; (3) whether the . . . party was warned that failure to cooperate could lead
[*16] to dismissal; and (4) whether less drastic sanctions were imposed or considered
before dismissal of the action." Mulbah v. Detroit Bd. of Ed., 261 F.3d 586, 589 (6th Cir.
2001). When dismissing with prejudice, the Sixth Circuit generally urges restraint and
frowns upon dismissing cases under Rule 41(b) for failure to comply with court orders.
Dismissal without prejudice, however, is a more lenient sanction, and the controlling
standards are relaxed. Muncy v. G.C.R., Inc., 110 F. App'x 552, 555-56 (6th Cir. 2004).
Thus, dismissing a complaint with prejudice for failure to comply with the Order would
most likely violate Rule 41(b) as well as Rule 83(a)(2) because of the loss of Plaintiffs'
rights. Dismissal without prejudice, however, would be within this Court's power under
Rule 41(b).
Counsel states that he believed in good faith that his actions complied with the
Order. Counsel represents that he has brought "hundreds" of these foreclosure cases, and
that "[u]ntil recently, no judge . . . had questioned" his practice of bringing such cases
without filing the required documents, such as an affidavit, with the complaint.
(Memorandum of Law p. 21, R. at 25.) Counsel also argues that the [*17] Order's
requirements are susceptible to more than one interpretation.
Paragraph 1.2 of the Order states that "[t]he complaint must be accompanied by"
such documents as an affidavit and a recorded copy of applicable assignments. Counsel
argues that the phrase "accompanied by" usually means "with." "With," in Counsel's
view, can mean either a contemporaneous filing, or "filed within a reasonable period of
time." (Memorandum of Law p. 22, R. at 25.) Counsel argues that he reasonably believed
that the Order's phrase "accompanied by" meant that the accompanying documents could
be filed within a reasonable period of time after the complaint was filed, and that this
reasonable belief excuses his noncomplaince with the Order.
The Court does not agree with Counsel's arguments. As an initial matter, the fact
that other judges have not questioned Counsel's practice, or have only recently begun
questioning it, is immaterial to the fact that this Court is questioning his practice in filing
these cases. Counsel's "that's the way I've always done it" argument is not persuasive.
Furthermore, the Court does not believe that the phrase "accompanied by" can bear the
interpretation Counsel puts on it. The [*18] plain meaning of "accompanied by" or
"with" is "contemporaneously with" or "at the same time." When a doctor tells a patient
to "come with your insurance card" or "accompanied by your insurance card," the doctor
is telling the patient to bring their insurance card to doctor's office at the same time as the
patient's visit, not three days later. Counsel's strained and unusual interpretation of the
phrase "accompanied by" does not excuse noncompliance.
The Court finds that Counsel's failure to comply with the Order's requirements
was willful. As noted in the Order to Show Cause, Counsel is responsible for filing all the
foreclosure cases currently on this Court's docket, and all such cases, in some way,
violate the Order. This is strong evidence of a willful disregard of the Order, of which
Counsel had notice. The affidavits and assignments of mortgage in question were
typically filed shortly after the respective complaints were filed, and there is no good
explanation as to why Counsel simply could not have waited to file the complaint until all
the required documents were available. These cases, therefore, should be dismissed for
failure to comply with the Court's Order.
IV. Conclusion
For [*19] these reasons, the Court DISMISSES these foreclosure cases without
prejudice. Plaintiffs and Counsel are hereby advised that, if these cases are refiled,
Plaintiffs must establish their standing, and Counsel must comply with the Order's
requirements. Failure to do so a second time may result in a dismissal with prejudice.
IT IS SO ORDERED.
Date: December 27, 2007
/s/ John D. Holschuh
John D. Holschuh, Judge
United States District Court
Exhibit “M”
Barclays Bank Bill of Sale
Exhibit “K”
Previous Sanctions Against Wells Fargo Bank
United States Bankruptcy Court
District of Massachusetts
In re: )
)
JACALYN S. NOSEK, ) Chapter 13
DEBTOR. ) Case No. 02-46025 -JBR
____________________________________)
)
JACALYN S. NOSEK, ) Adversary Proceeding
PLAINTIFF, ) No. 04-4517 and
) No. 07-4109
v. )
AMERIQUEST MORTGAGE COMPANY, )
et al )
DEFENDANTS )
)
This matter came before the court for a hearing on the Court’s Order to Show
Cause why sanctions should not be imposed for apparent misrepresentations as to the
status of Ameriquest Mortgage Company as the holder of the note and mortgage at issue
FACTS
The facts surrounding the dispute between the Debtor and Ameriquest Mortgage
Company (“Ameriquest”) as found by the Court after trial in adversary proceeding 04-
4517 are set forth in In re Nosek, 2006 WL 1867096 at *6 (Bankr. D. Mass. June 30,
2006). The facts pertinent to the issues now before the Court can be summarized as
follows. On October 2, 2002 the Debtor filed a voluntary petition pursuant to Chapter 13
of the United States Bankruptcy Code. On November 1, 2002 she filed her schedules,
including Schedule D on which she listed a secured, albeit disputed, debt owed to
Company Representing: Norwest Bank Minnesota, NA, Tr” and “Buchalter, Nemer,
Fields et al Representing: Norwest Bank Minnesota, NA, Tr” and their respective
addresses. Ameriquest, Norwest Bank Minnesota, NA, Tr. and the Buchalter firm are
listed on the amended creditor matrix. Throughout the course of the bankruptcy case and
Adversary Proceeding 04-4517, Ameriquest and its attorneys have represented that
Ameriquest was the “holder” of a note and mortgage given by the Debtor/Plaintiff to
On July 27, 2007 the Debtor commenced Adversary Proceeding 07-4109 against
Ameriquest and the two standing Chapter 13 Trustees for the District of Massachusetts
and sought, among other things, an order for trustee process. On September 27, 2007
Ameriquest filed an opposition [# 20] and in it, for the first time in this case, informed the
Court that “Ameriquest merely collects these funds [which the Debtor sought to attach]
on behalf of their owners. It does not own these funds....” The Affidavit of Eileen Driscoll
parties.
1 As discussed below, the term “holder” has a specific meaning when used in connection
with a promissory note.
2 Ms. Rubens identifies herself as “a Senior Counsel for ACC Holdings Corporation
(“ACC”) and the Assistant Secretary for the ACC subsidiaries Ameriquest Mortgage
Company (“Ameriquest”) and AMC Mortgage Services, Inc. (“AMC Mortgage
Services”).” Rubens Affidavit at ¶ 1.
A flurry of motions and cross-motions ensued, including Ameriquest’s cross-motion to
dismiss Adversary Proceeding 07-4109 on the grounds that the Court lacked jurisdiction
because of the pending appeal and the Debtor’s motion to amend the complaint in
Adversary Proceeding 07-4109 to add Norwest Bank, Minnesota, N.A. (“Norwest”) as a
defendant.3 Ameriquest opposed the motion to amend the complaint on the grounds that
the Plaintiff had elected to sue Ameriquest instead of Norwest, its allegedly disclosed
principal. The complaint was dismissed as to Ameriquest but the Debtor was permitted to
amend her complaint to add Norwest as the Defendant.
On January 9, 2008 Norwest Bank, Minnesota, N.A., now known as Wells Fargo
Bank, N.A., as Trustee for Amresco Residential Securities Corp. Mortgage Loan Trust,
Series 1998-2 filed a Request for Judicial Notice, which, along with its attached exhibits,
evidence the following:
1. On November 25, 1997 the Debtor gave Ameriquest a note and mortgage on
her principal residence to secure the note.
2. On November 30, 1997, five days after Ameriquest originated the loan,
Ameriquest assigned the note and mortgage to Norwest.
3. On May 22, 2000 the assignment of the note and mortgage was recorded.
78. On March 31, 2005 an assignment of the servicing rights in connection with
the November 30, 1997 note and mortgage were assigned by Ameriquest to
AMC Mortgage Services.4
3The Debtor also sought to add Citi Residential Lending, Inc. as a trustee defendant. Citi
Financial is not a party to this Order to Show Cause.
Despite the above chronology which indicates that Ameriquest was the loan
originator and had not held the note since November 30, 1997 and despite the fact that
Ameriquest ended its servicer role as of March 31, 2005, the Court noted that Ameriquest
and its attorneys made contrary representations as to Ameriquest’s status. For example
• On February 13, 2003, Ameriquest filed a proof of claim [Claim # 1], which was
amended by a proof of claim dated April 22, 2003 [Claim #16] and signed by one
John Teston, to which the note and mortgage were attached without any reference
to the assignment.
•I n the February 17, 2003 Response to Debtor’s Objection to Ameriquest’s Proof
of Claim, attorney Jennifer G. Haskell of the law firm of Ablitt & Caruolo, P.C.
signed the pleading containing the following statement: “That Ameriquest is the
holder of the first mortgage on real property known as 60 Bolton Road, South
Lancaster, Massachusetts, and [sic] was recorded in the Worcester County
(Worcester District) registry of Deeds in Book 19404, Page 164.” (Emphasis
added).
• By letter dated October 26, 2002 Ameriquest’s Customer Service Department sent
the debtor a letter in which Ameriquest stated “Ameriquest Mortgage Company
(AMC) holds an Adjustable Rate Note secured by a mortgage (or Deed of Trust)
4 The trial in Adversary Proceeding 04-4517 began on November 28, 2005. At that time
Ameriquest, while it could be held accountable for its past behavior, had no role with
respect to the note and mortgage, a fact not disclosed to the Court.
against the residential real property....”5
• On or about February 24, 2003 attorney Jennifer G. Haskell signed a Motion for
Relief in the Debtor’s bankruptcy case on behalf of Ameriquest and represented
that “[t]he movant is the holder of a first mortgage ....”6
• On January 3, 2005 attorney William J. Amann of the law firm of Ablitt &
Caruolo P.C. signed an answer to the complaint in Adversary Proceeding 04-4517
in which he admitted the allegation in the complaint filed December 2, 2004 that
Ameriquest “is” the holder of the first position mortgage.
• Attorney Robert F. Charlton defended Ameriquest in the 8-day trial in Adversary
Proceeding 04-4517 without advising the Court that Ameriquest was neither the
noteholder nor mortgagee.7
• Attorney Jeffrey K. Garfinkle of the law firm of Buchalter Nemer filed an
appearance in Adversary Proceeding 04-4517 on July 17, 2006 and failed to
advise the Court until the pleadings of January 9, 2008 filed in Adversary
Proceeding 07-4109 of Ameriquest’s true role in these proceedings.
Consequently the Court issued its Order to Show Cause requiring Ameriquest;
John Teston, who
5Ameriquest sent more than one letter containing this language. See for example,
Ameriquest’s letter of April 26, 2003.
6Failure to identify Norwest as the subsequent holder of the obligation and identify
Ameriquest as the agent for the holder violates the current iteration of MLBR 4001-1(b)
(2)(F), a requirement not contained in the local rules then in effect. There is nothing in
MLRB 4001-1, as it existed when the motion was filed, that permits the
misrepresentation of the movant’s role, however.
7At the time of the trial, Ameriquest was no longer the servicer.
signed proofs of claim on behalf of Ameriquest; the law firm of Ablitt & Caruolo, PC;8
Attorney Jennifer G. Haskell; Attorney William Amann, Attorney Robert F. Charlton; the
law firm of Buchalter Nemer Fields & Younger (“Buchalter”); Attorney Jeffrey K.
Garfinkle; Kirkpatrick & Lockhart Preston Gates Ellis (“K&L Gates”); and Norwest to
show cause why they should not be sanctioned for their apparent misrepresentations. In
addition. Attorney R. Bruce Allensworth was ordered to provide evidence for his
representation during the November 28, 2007 hearing on the Motion to Amend the
Complaint in Adversary Proceeding 07-4109 that “following whatever initial pleadings
may have been followed [sic] in this case, it is the case that in the course of
discovery there was testimony at deposition that these loans had been sold.”9 He was also
ordered to provide support for his contention that Norwest’s identity was disclosed by
virtue of the 2000 recordation of the assignment of the note and mortgage when
Ameriquest’s own counsel improperly referred to Ameriquest as the holder of the note
and mortgage throughout the bankruptcy and adversary proceedings until January 9,
2008. .
Shortly after the Order to Show Cause entered on the docket, Citi Residential
Lending, Inc., in its capacity as loan servicer for the note, through attorneys David Liu
and Jason E.Goldstein of the Buchalter Nemer firm, filed a “Transfer of Claim Other than
for Security” andlisted Ameriquest as the transferor of the claim evidenced by claim
number 16.10 The Debtor has
8At some point prior to the trial in Adversary Proceeding 04-4517, the law firm of
Ablitt & Caruolo, P.C. became Ablitt & Charlton, P.C. A response was filed on behalf of
Ablitt & Charlton, P.C. (The “Ablitt Firm”).
9The Debtor’s attorney had advised the Court that he was also unaware of the
assignment until learning of it in the most recent adversary proceeding.
10 The Transfer of claim form indicates that claim # “16 (Amended #1)” was transferred.
There is no amended proof of claim regarding claim #16.
7
requested that the Court take judicial notice of the fact that Ameriquest is listed as the
transferor; Ameriquest responded that it was entitled to file the proof of claim in its own
name pursuant to a “Pooling and Servicing Agreement” dated June 1, 1998, a copy of
which was filed at the hearing on the Order to Show Cause on February 21, 2008 [docket
#214].
All of the individuals and entities named in the Order to Show Cause, with the
exception of John Teston, filed written responses as required by the Order.11 The
responses focused on several common themes: first, nobody intended to mislead the
Court; second, the Debtor and her attorney knew that Ameriquest was not the noteholder
and thus she was not harmed; third, notes and mortgages are bought and sold so
frequently, that it is difficult to know at any given moment who holds the note and
mortgage; and fourth, that the Pooling and Service Agreement permitted
Ameriquest to undertake some actions in its own name. In addition, Ablitt & Caruolo and
its attorneys urged the Court to find that their reliance on representations of individuals at
the Buchalter firm was reasonable. The Court held a hearing on the Order to Show Cause
at which these same points were reiterated and took the matter under advisement.
DISCUSSION
Throughout most of these proceedings, Ameriquest and its attorneys represented
that Ameriquest was the “holder” of the note of the note and mortgage. The word
“holder” has a very specific definition when used in connection with a negotiable
instrument such as a note.
_______________________________
11 Ameriquest advised the Court that Mr. Teston was no longer employed by
Ameriquest and that his current whereabouts are unknown. Although Ameriquest mailed
a copy of the Order to Show Cause to Mr. Teston’s last known address, Ameriquest is
unsure whether he received the Order. The Court will not proceed against Mr. Teston
given this uncertainty and in light of Buchalter’s acceptance of responsibility for the
preparation of the proofs of claim.
“Holder” with respect to a negotiable instrument, means the person
in possession if the instrument is payable to bearer or, in the case
of an instrument payable to an identified person, if the identified
person is in possession....
M.G.L.A. 106 § 1-201(20). The term “holder” is similarly defined when used in
connection with a mortgage. See BLACK’S LAW DICTIONARY, 1034 (8th ed. 2004)
(mortgage-holder or mortgagee is “one to whom property is mortgaged; the mortgage
creditor or lender”).
Unfortunately the parties’ confusion and lack of knowledge, or perhaps
sloppiness, as to their roles is not unique in the residential mortgage industry. In re
Maisel, 378 B.R. 19 (Bankr.D. Mass. 2007); In re Schwartz, 366 B.R. 265 (Bankr. D.
Mass. 2007). See also In re Foreclosure Cases, 2007 WL 3232430 (N.D. Ohio 2007). Nor
are “mistakes” and misrepresentations limited to the identification of roles played by
various entities in this industry. In re Schuessler, 2008 WL 1747935, *3 (Bankr. S.D.N.Y.
2008) (movant’s motion misrepresented debtor’s equity); Porter, Katherine M.,
“Misbehavior and Mistake in Bankruptcy Mortgage Claims” (November 6, 2007).
University of Iowa Legal Studies Research Paper No. 07-29. Available at SSRN:
http://ssrn.com/abstract=1027961. As this Court has noted on more than one occasion,
those parties who do not hold the note or mortgage and who do not
service the mortgage do not have standing to pursue motions for relief or other actions
arising from the mortgage obligation. Schwartz, 366 B.R. at 270. The Court has had to
expend time and resources, as have debtors already burdened in their attempts to pay
their mortgages, because of the carelessness of those in the residential mortgage industry
and the bombast this Court and others have encountered when calling them on their
shortcomings. In re Foreclosure Cases, 2007 WL 3232430 at *3, n.1.
“The purpose of Rule 9011 is to deter baseless filings in bankruptcy and thus avoid the
expenditure of unnecessary resources by imposing sanctions on those found to have
violated it.” In re MAS Realty Corp., 326 B.R. 31, 37 (Bankr. D. Mass. 2005). Pursuant to
Fed. R. Bankr. 9011(b), an attorney or unrepresented party who signs “a pleading, written
motion, or other paper” is, among other things, certifying to the Court that “the
identified, are likely to have evidentiary support after a reasonable opportunity for further
however; the rule expressly permits the representations to be based upon the signer’s best
knowledge, information, and belief “formed after an inquiry reasonable under the
under the circumstances.” Cruz v. Savage, 896 F.2d 626, 631 (1st
Cir. 1990). “Courts, therefore, must inquire as to whether ‘a reasonable attorney in like
circumstances could believe his actions to be factually and legally justified.’” Cabell v.
Petty, 810 F.2d 463, 466 (4th Cir.1987). Cullen v. Darvin, 132 B.R. 211, 215 (D. Mass.
When Fed. R. Civ. P. 11 was amended in 1983,13 the Advisory Committee noted
12All parties, except Mr. Teston, who did not respond, submitted affidavits. None of the
parties requested an evidentiary hearing.
13In determining whether the imposition of sanctions is appropriate in [a] case, the Court
may look to authorities interpreting Fed. R. Civ. P. 11 as a guidepost. In re M.A.S. Realty
Corp. 326 at 38, n.7.
under Rule 9011 is a very serious matter. The decision regarding whether they should be
imposed requires a great deal of thought and care. Only those actions deemed to fall
squarely within the purview of Rule 9011 will result in a finding that it has been violated
and the concomitant imposition of sanctions by this Court.” In re M.A.S. Realty Corp.,
326 B.R. at 37.If sanctions are imposed, “the Court must limit the amount imposed to
similarly situated.’ Fed. R. Bankr. P. 9011(c)(2); Arcari v. Marder, 225 B.R. 253, 257 (D.
With these tenets as a guide, the Court must examine the conduct of each party
required to show cause but before doing will dispense with some common arguments.
Virtually all of parties argue that there was no intent to mislead the Court. Because the
standard to be applied is an objective one, the Court may quickly dispatch this argument.
Intent is irrelevant. The argument that the assignment of the note and mortgage was a
matter of public record and therefore the Debtor knew or should have known of
Norwest’s identity is relevant but disingenuous, indeed even arrogant, since many of
these same parties asserting this position allege they had no way of knowing about the
assignment. They seek to bind the Debtor to one standard and themselves to a much
lower one. Moreover the attorneys and law firms’ argument that notes and mortgages
frequently change hands multiple times, often with written documentation executed later,
to rely on the representations of their clients should provide little shelter when they insist
that the Debtor should have known better than to take their pleadings literally. This Court
will not countenance creditors and creditors’s attorneys holding themselves to a different
and clearly lower standard than what they expect of the Debtor. It will not tolerate a
lender’s or servicer’s disregard for the rules that govern litigation, including contested
matters, in the federal courts. It is the creditor’s responsibility to keep a borrower and the
Court informed as to who owns the note and mortgage and is servicing the loan, not the
AMERIQUEST
Ameriquest attempts to portray itself as the victim; in its view, the Debtor knew the true
identity of the mortgage holder and that Ameriquest was the servicer. As proof it cites to
the Debtor’s schedules and amended matrix. Of course this argument has two major
flaws. First, the Order to Show Cause was not issued to deal with misrepresentations to
the Debtor and her counsel but rather to determine whether the misrepresentations to the
practice at worst. Second, as noted above, that these obligations are frequently bought
and sold imposes a responsibility to know and correctly represent the status of the loan.
That Ameriquest had no role after March 2005 -- well before the trial in Adversary
during a deposition of one of its employees misses the mark and, as noted above, so does
the argument that the assignment of the note and mortgage ultimately became a matter of
public record. Ameriquest argues that assignments of notes and mortgages frequently
occur with documentation of the transfers recorded, and even executed, at a later time.
Moreover Ameriquest represents that it is not uncommon for the original noteholder or
mortgagee to take back the note and/or mortgage when a borrower defaults. Using these
understandable against the current commercial climate. If the transfer of such negotiable
instruments occurs at such a fast pace and without timely recorded evidence of the
transfers, why should the Court and Debtor’s counsel be expected to know the roles of
Ameriquest also seeks to hide behind the Pooling and Servicing Agreement by
arguing that the document gave Ameriquest the power to act in its own name, including
for the purpose of filing proofs of claim. That may be true but proofs of claim filed under
a written power of attorney MUST have the power of attorney attached. Fed. R. Bankr. P.
3001 and Official Form 10. No part of the agreement was attached to the proof of claim.
It is worth repeating as a warning to lenders and servicers that the rules of this Court
apply to them. Their private agreements and the frenzied trading market for mortgages do
not excuse compliance with the Bankruptcy Rules any more than they would justify
This Court finds that Ameriquest made repeated misrepresentations and its
behavior in failing to properly disclose its role was unreasonable under the
circumstances. Although Ameriquest has informed the Court that it is no longer engaged
in originating and servicing loans and therefore presents no danger to misrepresent its
status in the future, it ignores the fact that it could reenter the residential mortgage arena
deter future actions not only those of the offending party but also “comparable conduct
sanctioned $250,000.
By its express terms Rule 9011 applies to law firms as well as attorneys. Fed. R.
Bankr. P. 9011(c). The Ablitt Firm and its attorneys, Jennifer Haskell and William
Amann, filed a joint response in which they assert that they had no knowledge of any
mistaken or incomplete information, that their filings and statements were based upon
and consistent with Ameriquest’s proof of claim and the information they received from
Ameriquest and its national counsel, the Buchalter Firm. They also state that notes and
mortgages are frequently sold back to the originator when the notes are in default. The
Ablitt Firm also submitted the affidavit of Attorney Steven Ablitt, who testified that the
firm “relied upon the direction of its institutional clients regarding what name relief
of unrecorded transfers.” He cites to Title Standard No. 58 of the Real Estate Bar
Association of Massachusetts, which opines that a title is not defective solely because a
foreclosure is done in the name of an assignee even though the assignment of mortgage is
assignment of the mortgage is not the operative document by which mortgages are sold.
referral is an accepted practice. Neither Attorney Ablitt nor the response addresses the
fact that, prior to the Debtor’s current bankruptcy, the Ablitt firm had been retained to
commence foreclosure proceedings and seek relief from stay in the Debtor’s prior
all those actions were undertaken in the name of Norwest. So the question becomes
reviewing its own files. At a time when mortgages and notes are bought and sold at a
pace so swiftly that the assignor and assignee cannot keep up with the paperwork, had the
attorneys at the Ablitt firm checked the firm’s file, they would have seen that Norwest
was perhaps the real party in interest, at least when prior actions were taken, and thus
sought additional information. The firm cannot shield itself from its institutional
the firm.
Attorneys Haskell and Amann aver that they were both associates at the firm at
the time of their involvement in these matters. They assert essentially that they were
carrying out the bidding of their client, Ameriquest, and its national counsel, the
Buchalter firm. Nevertheless they had an independent obligation to the Court pursuant to
Rule 9011. Yet the Court is mindful that young associates are often not in a position to
question the assignments given to them. Because the affidavits are unclear as to what
each associate was told when given the assignment, the Court will not impose monetary
sanctions on Attorneys Haskell and Amann but will let this decision serve as a warning
that in the future the Court expects associates will be cognizant of and fulfill their
Attorney Charlton was a partner at the Ablitt firm at the time he conducted the
trial in this matter but in his response he avers that he had not been involved in this matter
since October 2006 and that he never heard of Norwest. The response begs the question;
should he have known about Norwest. For the same reasons that the Ablitt firm knew of
Norwest, so should Attorney Charlton. Therefore Attorney Charlton is sanctioned
$25,000.
“K&L GATES” AND ATTORNEY R. BRUCE ALLENSWORTH
K&L Gates did not enter this matter until February 2008. The Court finds that the
conduct of the K&L Gates attorneys did not violate Rule 9011.
THE BUCHALTER FIRM AND ATTORNEY JEFFREY GARFINKLE
The Buchalter firm is one of the prime sources of the problem in this case. One of
its unnamed paralegals prepared the proof of claim forms and by its own admission, the
firm cannot determine whether it had information as to the identity of the owner at the
time the forms were prepared, although it was aware of the Pooling and Servicing
Agreement. But as the Court has noted, that agreement cannot change the requirements
for filings proofs of claim in accordance with the Bankruptcy Rules or Official Form 10.
The Buchalter firm’s response blithely ignoresthe role it played in setting the series of
14 The Court notes that the Buchalter firm and Attorney Garfinkle filed pleadings on
behalf of Norwest/Wells Fargo in Adversary Proceeding 07-4109. None of the pleadings
filed in response to the Order to show cause address the firm’s current and historical
relationship with Norwest or Wells Fargo. It would be curious indeed if the firm was
national counsel to both yet incapable of distinguishing between the roles each played in
a given case.
responsibility to know its client’s role in a case.14 It cannot rely on the representations of
its client; it has a responsibility to question and probe to the extent necessary to ensure
that it has elicited correct information. The firm fell far short of what was required.
Attorney Garfinkle became involved after the trial in Adversary Proceeding 04-4517 was
concluded. His and the firm’s response argues that there was no reason for him to
question Ameriquest’s role. Given that the court had awarded damages against
Ameriquest, there was nothing inherently improper about Attorney Garfinkle’s
judgment and opposing the imposition of costs and attorney’s fees. Thus attorney
Garfinkle was dealing with the facts as they had historically been presented to the Court,
and made no representations of Ameriquest’s then current status. Therefore the Court
Norwest/Wells Fargo seeks to hide behind the Pooling and Servicing Agreement.
Its position is that it turned all responsibilities over to Ameriquest and it knew nothing
about what Ameriquest was doing. The Court notes, however, that it knew nothing about
what Ameriquest was doing because it chose not to know. It has attempted to bifurcate
the benefits of the note, namely its right to receive repayment of the loan, from all
Fargo wishes to engage servicers, as it is certainly free to do, it cannot turn a blind eye to
the actions of the servicers. Had Norwest/Wells Fargo shown even a modicum of
oversight or review of Ameriquest’s behavior, it should have been able to correct the
misrepresentations. The Court does not accept that one can simply by
contract sever the benefits and burdens associated with residential mortgage lending. The
Parsley, 2008 WL 622859 at * 19 (Bankr. S.D.Tex. 2008) (“Tracing the steps leading up
to the filing of the Motion shows that this is an assembly line process.”). The link
(“Notwithstanding Chase Home Finance’s [the apparent servicer] disingenuous claim that
its system is designed to protect debtors, it primarily exists to protect Chase Home
Finance and JPMorgan Chase Bank [the apparent noteholder and mortgagee].”). Under
the guise of creating a complex structure to suit their needs, Wells Fargo and Ameriquest
have attempted to jettison the obligation to be forthright and diligent with the Court and
the Debtor. This Court will not allow Wells Fargo or any other mortgagee to shirk
continues as a participant in the mortgage industry, the Court is cognizant that the
sanction must be sufficient to deter its cavalier behavior in the future. Therefore the Court
will impose a sanction of $250,000 on Wells Fargo. In imposing the sanction on Wells
Fargo, the Court is not limiting the sanction against Wells Fargo solely and to the extent
that there are assets in the AMERESCO Residential Securities Corporation Mortgage
Loan Trust 1998-2, which was established under the Pooling and Servicing Agreement.
Norwest, is simply another example of the layers interposed between borrower and lender
Wells Fargo.
CONCLUSION
For the reasons set forth herein, sanctions will be imposed as set forth above on
• Ablitt & Charlton, P.C., formerly known as Ablitt & Caruolo, P.C., in the
amount of $25,000;
Ellis.
Joel B. Rosenthal
“The contract is void if it is only in part connected with the illegal transaction and the
promise single or entire.” Guardian Agency v. Guardian Mutual. Savings Bank, 227 Wis 550, 279 NW 83.
“If any part of the consideration for a promise be illegal, or if there are several
considerations for an unseverable promise one of which is illegal, the promise, whether written or
oral, is wholly void, as it is impossible to say what part or which one of the considerations induced the
promise.” Menominee River Co. v. Augustus Spies L & C Co., 147 Wis 559, 572; 132 NW 1122
“In the federal courts, it is well established that a national bank has not power to lend its
credit to another by becoming surety, indorser, or guarantor for him.” Farmers and Miners Bank v.
Bluefield Nat ‘l Bank, 11 F 2d 83, 271 U.S. 669.
“It has been settled beyond controversy that a national bank, under federal law being
limited in its powers and capacity, cannot lend its credit by guaranteeing the debts of another. All
such contracts entered into by its officers are ultra vires” Howard & Foster Co. v. Citizens Nat’l Bank
of Union, 133 SC 202, 130 SE 759(1926)
“It is not necessary for recession of a contract that the party making the misrepresentation
should have known that it was false, but recovery is allowed even though misrepresentation is
innocently made, because it would be unjust to allow one who made false representations, even
innocently, to retain the fruits of a bargain induced by such representations.” Whipp v. Iverson, 43
Wis 2d 166.
“It is not within those statutory powers for a national bank, even though solvent, to lend its
credit to another in any of the various ways in which that might be done.” Federal Intermediate Credit
Bank v. L ‘Herrison, 33 F 2d 841, 842 (1929)
“Mr. Justice Marshall said: The doctrine of ultra vires is a most powerful weapon to keep
private corporations within their legitimate spheres and to punish them for violations of their
corporate charters, and it probably is not invoked too often. Zinc Carbonate Co. v. First National Bank,
103 Wis 125, 79 NW 229.” American Express Co. v. Citizens State Bank, 194 NW 430.
Truth in Lending Act was passed to prevent unsophisticated consumer from being
misled as to total cost of financing. Truth in Lending Act, Section 102, 15 U.S.C. Section 1601.
Griggs v. Provident Consumer Discount. 680 F.2d 927, certiorari granted, vacated 103 S.Ct. 400,
459 U.S. 56, 74 L.Ed.2d 225, on remand 699 F.2d 642.
Truth in Lending Act must be strictly construed and liability imposed for any
violation, no matter how technical. Truth in Lending Act Section 102 et seq., as amended, 15
U.S.C. Section 1601 et seq, Abele v. Mid-Penn Consumer Discount. 77 B.R. 460, affirmed S45
F.2d 1009.
To qualify for protection of Truth in Lending Act [15 U.S.C. Section 1601 et seq.],
plaintiff must show that disputed transaction was a consumer credit transaction not a
business transaction, Truth b Lending Act, Section 102 et seq., 15 U.S.C. Section 1601 et seq.
Quino v. A-I CreditCom. 635 F.Supp. 151
Requirements of Truth in Lending Act are highly technical, but full compliance is
required; even minor violations of Act cannot be ignored, Truth in Lending Act, Section 102 et
seq. as amended, 15 U.S.C. Section 1601 et seq.; Truth in Lending Act Regulations, Regulation Z
Section 226.1 et seq., 15 U.S.C. foil. Section 1700. Griggs v. Providence Consumer Discount Co.
503 F.Supp. 246, appeal dismissed 672 F2d 903, appeal after remand 680 F.2d 927, certiorari
granted, vacated 103 S.Ct, 400, 459 U.S. 56, 74 L.Ed.2d 225, on remand 699 F,2d 642.
A valid rescission of a "credit sale" contract does not render inoperative the
disclosure requirements of the Truth in Lending Act, as creditor's obligations to make
specific disclosures arises prior to consummation of transaction. Truth in Lending Act Section
102 et seq., 15 U.S.C. Section 1601 et seq.; Truth in Lending Regulations, Regulation Z, Sections
226.2(c) 226.8(a), 15 U.S.C., following section 1700. O'Neil c^ 484 F.Supp. 18.
Under truth in lending regulation providing that disclosure of consumer credit loan
shall not be "stated, utilized or placed so as to mislead or confuse" consumer, placement of
disclosures is to be considered along with their statement and use. Truth in Lending
Regulations, Regulation Z, Section 226.6(c), 15 U.S.C. following section 1700 .Geimuso v.
Commercial Bank & Trust Co. 566 F.2d 437.
Any violation of the Truth in Lending Act, regardless of technical nature, must
result in finding of liability against lender. Truth in Lending Regulations, Regulation Z Section
226.1 et seq., 15 U.S.C. Section 1700; Truth in Lending Act Section 130 (a, e), IS U.S.C. Section
1640 (a, e). In Re Steinbrecher. 110 BR. 155, 116 A.L.R. Fed. 881.
Once a creditor violates the Truth In Lending Act, no matter how technical violation
appears, unless one of statutory defenses applies, Court has no discretion in
imposing liability. Truth in Lending Act, Sections 102-186 as amended, 15 U.S.C.
Section 1601-1667e. Solis v. Fidelity Consumer Discount Co. 58 BR, 983.
“A national bank has no power to lend its credit to any person or corporation.”
Bowen v. Needles Nat. Bank, 94 F 925, 36 CCA 553, certiorari denied in 20 S.Ct 1024, 176 US
682, 44 LED 637.
“A bank can lend its money, but not its credit.” First Nat ‘I Bank of Tallapoosa v.
Monroe, 135 Ga 614, 69 SE 1124, 32 LRA (NS) 550.
“. . . the bank is allowed to lend money upon personal security; but it must be money
that it loans, not its credit.” Seligman v. Charlottesville Nat. Bank, 3 Hughes 647, Fed Case
No.12, 642, 1039.
"Banking Associations from the very nature of their business are prohibited from lending credit." St.
Louis Savings Bank vs. Parmalee 95 U. S. 557
Ms. Willard’s report is included with this submission as Exhibit “B” and the Courts
should note that all except one of Defendant’s signature’s used to identify Defendant John
A. Reed with all other document signatures are taken strictly from copies of copies, in
violation of EvidR 1002 and as such all testimony of Plaintiff’s expert is subject to and
should be stricken from the record as inconclusive and irrelevant. Defendant John A.
Reed also asks the Court whether Plaintiff’s handwriting identification evidence was
sufficiently reliable to be admissible pursuant to Rule 702 and Daubert. 3 The problems
and concerns relating to the evidence of and writing experts exist for example in the
USA. Michael J. Saks3 gives the following background to the evidence of handwriting
experts in the USA:
The opinions of experts upon handwriting, who testify from comparison only,
are regarded by the courts as of uncertain value, because in so many cases where such
evidence is received witnesses of equal honesty, intelligence and experience reach
conclusions not only diametrically opposite, but always in favor of the party who called
them.
No forensic technique has taken more hits than handwriting analysis. In one
particularly devastating federal ruling, United States v. Saelee (2001), the court noted
that forensic handwriting analysis techniques had seldom been tested, and that what
testing had been done "raises serious questions about the reliability of methods
currently in use." The experts were frequently wrong - in one test "the true positive
accuracy rate of laypersons was the same as that of handwriting examiners; both
groups were correct 52 percent of the time." The most basic principles of
handwriting analysis - for example, that everyone's handwriting is unique - had
never been demonstrated. "The technique of comparing known writings with
questioned documents appears to be entirely subjective and entirely lacking in
controlling standards," the court wrote. Testimony by the government's
handwriting expert was ruled inadmissible. In fact, two events have occurred in
recent years which combined to stimulate a re-evaluation of handwriting
identification expertise. The first was the 1989 publication of an article in the
University of Pennsylvania Law Review, pointing out the lack of empirical
validation of the claims of the expertise. The other was the U.S. Supreme Court's
1993 decision in Daubert v. Merrell Dow Pharmaceuticals,4 Inc., which rejected
previous approaches to the acceptability of scientific expertise under the Federal
Rules of Evidence.
As the Supreme Court explained in Daubert and Kumho Tire, under Rule 702, the district
judge must ensure that the expert's testimony is both relevant and reliable before it may
be admitted, regardless of whether the testimony is scientific or based on technical or
other specialized knowledge.5. When the expert's testimonyies "factual basis, data,
principles, methods, or their application are called sufficiently into question, the trial
judge must determine whether the testimony has a reliable basis in the knowledge and
experience of the relevant discipline." Kumho, 526 U.S. at 14 (quoting Daubert, 509
U.S. at 592).
3
Science and nonscience in the courts: Daubert meets Handwriting identification expertise Iowa
Law Review 82 IALR 21 October, 1996
3
See Fed. R. Evid. 702; Daubert, 509 U.S. at 579.
4
Supra.
5
See Kumho, 526 U.S. at 147; Daubert 509 U.S. at 589.
(1) Whether a theory or technique can be or has been tested;
(2) Whether it has been subjected to peer review and publication;
(3) Whether, in respect to a particular technique, there is a high known or
potential rate of error and whether there are standards controlling the technique's
operation; and
(4) Whether the theory or technique enjoys general acceptance within a relevant
scientific community.
526 U.S. at 149-50(citing Daubert, 509 U.S. at 592-94) (internal quotations marks
and alterations omitted). These various factors are not an exhaustive list of all
possible ways to assess reliability, nor must all of the factors be applied in every
case. 526 U.S. at 150. Depending on the facts of the case and the type of
testimony being challenged, it may very well be unreasonable to apply all of
these factors. Id. at 151. Accordingly, the trial judge is given discretion in
determining how and in what manner to make reliability determinations pursuant
to Daubert.
Where, however, the Daubert factors are reasonable measures of the testimony's
reliability, the Supreme Court has instructed that the trial judge should consider them. Id.
at 152. While district courts have considerable leeway in determining how to assess
reliability, they do not have the discretion to simply abandon their gate-keeping function
by foregoing a reliability analysis. Id. at 158-59. (Scalia, J., concurring). Significantly, "in
a particular case the failure to apply one or another of [the Daubert factors] may be
unreasonable, and hence an abuse of discretion." Id. (Scalia, J., concurring).
Sanction Against Wells Fargo N.A.
A Silver Spring woman who defaulted on a subprime loan has been awarded $1.25
million in damages from her lender, Wells Fargo Bank N.A. The borrower, Kimberly
Thomas, was awarded $250,000 in damages and $1 million in punitive damages in
Montgomery County Circuit Court July 31. A six-member jury convicted Wells Fargo of
fraud, negligence and other charges for inflating Thomas’ income and assets on her
mortgage application, and locking her into a bigger loan than she had applied for — one
she couldn’t afford.
Thomas’ case dates back to June 2006. At the time she was considering separating from
her husband, so Thomas, a mother of two, decided to leave Silver Spring and buy a
$505,000 house in Burtonsville. Her sister referred her to a Wells Fargo Home Mortgage
office in Westminster, Md., where Thomas applied for a $535,000 loan, with a 7.13
percent interest rate.
Roughly two to three weeks later, her loan agent submitted the application with a string
of incorrect information, according to court documents. This included the Social Security
number of Thomas’ sister, who had a higher credit rating; a monthly income of $14,000,
which was nearly double Thomas’ actual income; and assets that included $30,000 cash
at Constellation Federal Credit Union. According to the suit, Thomas never claimed to
have this much money socked away, at Constellation or elsewhere.
Thomas soon learned that her loan was at 10.625 percent interest, with a monthly
payment of roughly $4,600, well above the $3,000 she was expecting. She signed the
contract anyway, at the urging of her attorney at the time, figuring it was an honest
mistake and Wells Fargo would correct it. http://www.baltimoresun.com/business/bal-
bz.hancock08aug08,0,5770641.column
Kimberly Thomas says she couldn't believe it when it came time to sign for the $505,000
house she had agreed to buy in Burtonsville.
The interest rate on the Wells Fargo mortgage was 10.65 percent, not the 7.13 percent she
says she agreed to. It was a risky adjustable rate, not the fixed rate that had been on a
previous document she had seen. And instead of the interest-only loan she expected, the
mortgage required immediate principal payments.
The surprises boosted her monthly payment from an expected $3,000 to $4,667, leaving
little left from her salary for gas, food and the rest.
"The mortgage amount was so ridiculous that I thought it was a mistake," she said. "I was
depending on Wells Fargo to do the right thing. I make about $5,000 a month" after taxes.
"My mortgage amount can't be what I make," she remembers thinking. "That would be
wrong."
Last week it awarded Thomas damages of $1.25 million, agreeing with her contentions
that Wells Fargo changed mortgage documents at the last minute, altered her declared
income and stuck her with an obligation that she didn't qualify for and that the bank
should have known she couldn't meet.
Blogs and traditional media have been full of talk about "predatory borrowers" who lie
about their income, gleefully default on mortgages, live rent-free while lenders try to
foreclose and presumably get belly laughs from being portrayed as victims.
The case of Thomas v. Wells Fargo is an antidote to all that. In this instance - assuredly it
stands for others - convincing evidence and a jury of six said that the bank, not Kimberly
Thomas, is to blame for making her life hell, jeopardizing her top security clearance,
wrecking her credit record and costing her tens of thousands in lawyer fees.
It erodes the oft-repeated defense that banks would never knowingly make a bad loan.
"We believe the jury's decision in this case was a reaction to the negative attention the
mortgage industry has received," spokeswoman Teri Schrettenbrunner said. "This
decision runs counter to how we do business."
The credit record of Kimberly Thomas, 41, was fine before she met Wells Fargo. She
worked as a federal contractor on sensitive security matters and made $88,000 a year.
In June 2006 she decided to separate from her husband, Gary Thomas, now 51, and move
out of their Silver Spring house. The three-bedroom, two-story home she agreed to buy in
Burtonsville was a stretch, but she thought the 7.13 percent rate and $3,000-a-month
payment Wells Fargo showed her was doable even though it represented a huge portion of
her income.
Soon, however, she began to have second thoughts. In mid-July Gary had a minor stroke.
Kimberly renewed her commitment to him and decided not to move out. The couple is
still together.
But her Wells Fargo loan agent, she said in an interview, said she couldn't cancel the deal
without lots of litigation.
In court testimony, Wells Fargo denied telling Thomas she was locked in.
At least she could handle the payments, she figured. She could resell the house. But when
she came to the closing table at the end of July 2006, all her assumptions got trashed.
Staring at her were mortgage documents with drastically different terms from the ones
she said she expected. Neither her real estate agent nor the Wells Fargo loan agent made
it to the closing, both sides agreed in court. It was 6 p.m. She couldn't get them on the
phone. She didn't have a lawyer.
Don't worry, said the title company guy overseeing the settlement. If Thomas hadn't
signed a "truth in lending" disclosure with these new terms, she remembers him saying,
then she wasn't bound by the contract. Wells Fargo could amend it later.
That made sense. She hadn't agreed to this. And why would Wells Fargo issue a mortgage
she couldn't afford? Banks were in business to get paid back.
"She honestly believed there was a mistake in the terms that could be fixed after the fact,"
said Brian M. Maul, her Frederick-based lawyer.
She signed dozens of documents that day, including many she didn't read carefully. One,
if she had only known it, was a truth-in-lending consent with the higher mortgage terms,
according to documentary evidence.
In court, Wells Fargo said that Thomas had repeatedly been told about changes in her
loan terms in previous weeks - in a fax, in the mail and on the phone. She denies that.
Even so, her signature on the closing documents showed she approved, Wells Fargo
argued.
Both sides agree that she immediately and repeatedly contacted the bank to correct the
problem, belying any notion that she intended to default all along or was on a joy ride.
But what she and many others didn't understand was that Wells Fargo and other
companies weren't especially worried about whether the loans would be repaid.
In what turned out to be the hallmark of the Great 2000s Real Estate Bubble, they were
immediately reselling the notes, booking fat profits on origination fees and ignoring what
happened later. (It's unclear whether Thomas' mortgage was sold.)
The Wells Fargo loan officer, according to court testimony, made between $2,000 and
$3,000 on each mortgage she issued, whether it turned out good or bad.
Thomas later discovered the bank had listed her monthly income on loan documents as
$14,000 - far more than she really made, she said in an interview.
In court, Wells Fargo argued - correctly - that she was contemplating taking a new job at
higher pay. Even so, the new job wouldn't have paid close to $14,000 a month, said Maul,
her lawyer. And Wells Fargo knew before closing that she didn't accept the job, he added.
In any event, the lack of actual payroll records proving these things wasn't a problem in
the insane mortgage market of 2006.
The 10.65 percent, $4,667-a-month Wells Fargo note never got modified. To the contrary,
Thomas said, Wells Fargo referred her to another company that could supposedly extend
a new mortgage to pay it off.
"How on earth did you ever get a loan of this size?" said the new loan officer, she
recalled. "We can't refinance you because you don't make enough. You should never have
gotten a loan this size."
"At that point," Thomas says, "I knew I was messed up."
She never moved into the house. She never made a single mortgage payment. She ended
up spending more than $50,000 on lawyers and expert witnesses to fend off foreclosure
and seek legal redress from Wells Fargo. And it took her more than a year to sell the
house - at a $95,000 loss.
Her heart began racing. She couldn't sleep. Her credit record was a shambles. When she
and Gary refinanced their Silver Spring house, they had to leave her name off the
mortgage.
The keepers of the nation's secrets are naturally reluctant to share them with deadbeats,
and that's what she had become. She worried about her security clearance.
The court victory brings Kimberly Thomas vindication and compensation, although Wells
Fargo vows to "aggressively appeal." For everybody else, it sheds light on just how dicey
and questionable the mortgage business became before the whole thing imploded.
jay.hancock@baltsun.com
http://www.lawyersandsettlements.com/articles/11075/Brian-Maul-Wins-Sub-Prime-
Mortgage.html
Attorney Brian Maul Wins Big for Sub Prime Mortgage Victim
August 13, 2008. By Brenda Craig
Frederick, MD: Attorney Brian Maul says he has had several phone calls
this week from people who would like his help, after he won a whooping
$1.25 million in compensatory and punitive damages at trial against the
Wells Fargo Bank on behalf of woman who was a victim of the sub prime
mortgage debacle.
“I am sure there are others out there who went through the same or
similar situations. It probably goes without saying that there are other
lenders that had the same kind of lending practices,” says Brian Maul
from his office in Frederick, Maryland.
If there are other stories that match Kimberly Thomas’s situation, 28-year-
old Brian Maul may turn out to be a very busy young lawyer.
Kimberly Thomas works as an independent contractor doing research for
the federal government, and earns about $90 thousand a year. When she
approached the Wells Fargo Bank in 2006 to get a mortgage, she made
several things clear. She wanted a fixed rate mortgage, and she could not
afford monthly payments in excess of $3000 a month.
“From the bank documents we have seen,” says Brian Maul, “there is no
way she would have qualified for any kind of mortgage under those
terms.”
The case shines a light on just how the sub prime mortgage industry
strangled so many Americans. Loan officers worked strictly on
commission at Wells Fargo,” says Maul. “Some of them, in the sub prime
heyday, would typically close three to six deals a month. For each
mortgage they sold, they earned $2000.”
In other words, loan officers had a big incentive to make sure people
qualified for mortgages, even when it was clear they did not. “In
Kimberley Thomas’s case,” says Maul “the loan officer recorded her
income as $157 thousand a year, and even though Thomas only had $3000
in her bank account, the loan officer wrote down $30 thousand.”
The 2005 tax return that Kimberly Thomas provided, showing her income
to be $85 thousand dollars a year, was disregarded.
The day she went to sign the mortgage, Thomas saw that the interest
would be ten percent, not the seven percent she was expecting. The
payments would be $4700 a month, not the $3000 she told the bank she
could afford.
“She thought there must be some mistake,” says Maul, “but everyone was
urging her to sign the papers, and so she did.”
The next day, Thomas called the bank and said she thought there must be
some mistake. “They said they would look into it,” says Maul, “But they
never did.”
Thomas never moved into the house, and a week after she signed the
mortgage, she put the house up for sale. “She knew she couldn’t make the
payments,” says Maul.
After a year, with the bank constantly threatening to foreclose, and making
repeated collection calls, Thomas finally managed to sell the house, but
for $90 thousand less than she paid for it.
Thomas clearly went through the sub prime mortgage meat grinder. She
was under so much pressure from the situation she was taking medication
and receiving counseling. The jury awarded her $250 thousand in
compensatory damages for her pain and suffering. The $1 million was for
punitive damages.
“These mortgages were being sold on the secondary mortgage market,”
says Maul, “so banks didn’t really care whether the person could afford to
pay or not.”
Brian Maul received his B.A. with Distinction from the University of
Delaware in 1997. He earned his J.D. from the Washington College of
Law of American University in 2000. He became an associate with
Gordon & Simmons in 2003.http://www.gordonsimmons.com/news.htm
Recent News:
Highlights 2008
Ruling on the Jan Pottker, et al. v. Kenneth J. Feld, et al. motions for summary
judgment
• On August 14, 2008, the Honorable Brook Hedge for the Superior Court for the District
of Columbia Superior Court’s civil division ruled on motions that had been pending for
several years, clearing a path for the almost nine-year-old case, Jan Pottker, et al. vs.
Kenneth J. Feld, et al., to go to trial. The Court ruled that Jan Pottker had presented
evidence leading to “undisputed facts [that] form a sufficient basis to deny judgment to
the defendants on all of the counts brought by Pottker and WCI [her writing company]
against the Feld defendants.” These undisputed facts are the following:
(1) [Kenneth] Feld did not want Pottker to write about his family or the circus;
(2) Feld wanted Pottker diverted from writing about the circus;
(3) Feld contacted [Clair] George [former Deputy Director of (covert) Operations at the
Central Intelligence Agency] to commission the writing of a favorable book about the
circus to be used if Pottker appeared able to publish her proposed book on the circus;
(4) George, with Feld’s knowledge, consent and money, hired [Robert] Eringer to carry
out the twin goals to see to the production of the shadow book and to divert Pottker from
writing about the circus;
(5) Eringer sought out and befriended Pottker to obtain information about her writing and
plans to secure her trust as to his value to her in the publishing world so that he could
provide information to Feld;
(6) Eringer reported his information and findings to George through memoranda and
dixcussions;
(7) Eringer received the money he needed to carry out plans to divert, such as securing
the money from Feld entities to partner with National Press Books to co-publish the Mars
family book, Crisis in Candyland, by providing PPB the money that went for Pottker’s
advance and securing the right to edit the book, but all in confidence with NPB without
Pottker’s knowledge;
(8) Eringer entered into a written agreement with Pottker to publish Celebrity
Washington, but made editorial suggestions that, under any reasonable interpretation,
were designed, at best, to impede or delay the publication; and
(9) Eringer had to listen to “all of Pottker’s life plans” because he was paid to do that.
Roger Simmons | August 2008 |
| Dirty secrets under the big top | By Steven T. Jones | August 13, 2008 |
• On July 31, a civil jury in Montgomery County, Maryland, Kimberly Thomas v. Wells
Fargo Bank, N.A., Civ. No. 279370-V, rendered a verdict for $1,250,000 in damages
($250,000 compensatory and $1,000,000 punitive) against Wells Fargo Bank, N.A., for
defrauding a home buyer who was seeking a mortgage loan. Wells Fargo Bank, N.A.,
made an excessive loan at a higher than promised interest rate to Ms. Kimberly Thomas.
In the course of the loan approval, Wells Fargo Bank, N.A., was found to have engaged in
fraudulent activity by misrepresenting income and assets of Ms. Thomas in order to
justify a loan that she could not afford and could not repay in order to earn a commission
on the transaction.
• In conducting its deliberations, the jury was provided evidence from which it could find
that Wells Fargo Bank, N.A., did not comply with its own consumer mortgage loan
policies, its own ethical standards and requirements and abused its position with respect
to commonly used banking practices governing loan standards in the consumer area.
• Representing Ms. Thomas in the trial was Brian Maul of the Frederick, Maryland law
firm of Gordon & Simmons, LLC. Other counsel at Gordon & Simmons who worked on
the case were lead counsel, Roger C. Simmons, and Karen H. Alegi.
| Brian Maul | July 2008 |
Exhibit “L” Acculink Documents 1
Exhibit “L” Acculink Documents 2
Exhibit “L” Acculink Documents 3
Exhibit “L” Acculink Documents 4
i