Appendix J

Sample Foreclosure Pleadings and Other Litigation Documents

J.1 Introduction
This appendix contains several sample pleadings used in foreclosure related actions. The pleadings are from actual cases and have been drafted by experienced attorneys. However, the pleadings in the text are for demonstration purposes only. Foreclosure is governed by local law and thus many of the pleadings contain state-specic legal claims. The pleadings and other documents must be adapted by a competent professional to t the circumstances of a given case and the requirements of local rules and practice.

AFFIRMATIVE DEFENSES Statement of Facts 1. Ms. Homeowner is a 72-year-old woman who has owned the property at 1234 W. Main Street (hereinafter, the home) for over thirty years. 2. The home was purchased for approximately $20,000 in 1970. 3. At all relevant times, Ms. Homeowner has resided in the home with her sons and grandchildren. 4. Ms. Homeowner, as a senior citizen with limited education and income, but substantial equity in her home, was a prime target for predatory mortgage lenders and brokers. 5. Ms. Homeowner was an unsophisticated borrower who did not understand many of the basic terms and costs of a typical mortgage loan transaction. For example, between 1995 and 1999, Ms. Homeowner entered into at least 4 costly home renance loans as follows: a. In July, 1995, Ms. Homeowner entered into a mortgage loan with Option One Mortgage Corporation, for a $48,750 loan amount at 12.85% Annual Percentage Rate, with closing costs of $4111. b. In November, 1996, Ms. Homeowner renanced the Option One loan with The Money Store, which paid off approximately $58,142 to Option One, paid off a few small credit card debts, and which purportedly gave her $16,327 cash to perform certain home improvements. She was charged approximately $7300 in closing costs for this loan, including almost $6000 in broker fees on a loan of approximately $80,000. c. In April or May, 1997, Ms. Homeowner renanced the Money Store loan with a mortgage lender/broker called Midwest America Financial Corp. Midwest paid The Money Store some $84,000, and charged Ms. Homeowner approximately $4000 in closing costs, a portion of which she was required to pay at the closing. The resulting loan was about $90,000, at 12.9% interest, with payments of $922 per month and a balloon after 15 years. In this transaction, Ms. Homeowner had received a preliminary Truth In Lending Disclosure which substantially differed from the nal loan terms, but did not realize the discrepancy due to her unsophistication. d. In May, 1999, Ms. Homeowner took the loan presently at issue, described in more detail below, with a principal balance of $120,000 and monthly payments exceeding 80% of her total household monthly income. e. In the space of four years, therefore, Ms. Homeowner increased the indebtedness secured by her home from

J.2 Affirmative Defenses to Foreclosure

J.2.1 Answer with TILA and RESPA Affirmative Defenses
IN THE CIRCUIT COURT OF COOK COUNTY, ILLINOIS COUNTY DEPARTMENT, CHANCERY DIVISION ) CHANCE BANK OF TEXAS, ) Plaintiff, ) ) v. ) No. 00 CH 0000 ) BERNICE HOMEOWNER, ) Defendant, ) ) SECOND AMENDED ANSWER AND AFFIRMATIVE DEFENSES TO COMPLAINT TO FORECLOSE MORTGAGE Now comes Defendant, by and through her attorneys, and answers Plaintiffs Complaint, as follows: [Answers 1-6 omitted.] WHEREFORE, Defendant prays that this Court enter an Order: Dismissing the Complaint in this case with prejudice and entering judgment in favor of Defendant and against Plaintiff.

Appx. J.2.1

Foreclosures
17. On information and belief, Saxon reviewed Ms. Homeowners application and prepared all the documents in connection with the loan. Moreover, Saxon had an arrangement or agreement with Victory whereby Victory referred borrowers to Saxon for mortgage loans. Therefore, Saxon authorized, approved, and/or ratied each document and procedure employed by Victory in connection with the making of the loan. 18. The transaction created a 15-year loan which increased Ms. Homeowners mortgage payments to $1142.79 (excluding taxes and insurance) with a balloon payment in the 180th month (when Ms. Homeowner is 84) of $101,686.62. 19. The loan also carried a prepayment penalty which would require Ms. Homeowner to pay an amount equal to six months interest if she paid off the loan within ve years. 20. Ms. Homeowner had no idea that she would still owe $101,686.62 after making payments for fteen years and would not have agreed to the loan had she known. 21. Ms. Homeowner relied on Victorys representation that the loan would provide her with $1600 for the roof and would lower the monthly payment and interest rate. She would not have entered into the transaction had she been aware of the true nature of the loan. 22. Ms. Homeowners reliance was reasonable under all of the circumstances, given her advanced age, limited education and lack of nancial sophistication, and the fact that Victory was a professional mortgage broker which undertook to assist and advise Ms. Homeowner in obtaining a loan. 23. According to the Itemization of Amount Financed attached to the Truth In Lending Statement, Victory received $7800 from the loan proceeds for arranging the loan. 24. Victory received at least $5597 from the loan proceeds. 25. Victory received an additional payment of $3750 from Saxon, denominated Brokers Compensation. 26. On information and belief, based on counsels familiarity with mortgage industry practices, the $3750 was measured or calculated based on the rate of interest which Victory was able to get Ms. Homeowner to sign for, i.e., Victorys compensation was increased by an amount corresponding to a higher rate of interest on the loan. The higher the rate, the more Victory could receive. Such a payment is sometimes known in the mortgage industry as a yield spread premium. 27. As part of the transaction, Ms. Homeowner paid thousands of dollars in fees to the mortgage broker for obtaining a balloon loan with an interest rate of 11%, that increased her mortgage payments without providing her with any real economic benet. 28. On information and belief, based on counsels familiarity with the mortgage industry, the 11% interest rate exceeded Saxons par rate on 15 year balloon loans for borrowers with similar credit histories to Ms. Homeowners. 29. Victory was more than adequately compensated for its services by Ms. Homeowner from the loan proceeds. The mortgage broker provided no goods or services for the additional yield spread premium fee. 30. Ms. Homeowner received no real economic benet from this transaction. 31. With respect to the loan transaction, Saxon was a creditor as that term is dened in the Truth-in-Lending Act, 15 U.S.C. 1602(f), and Regulation Z, 12 C.F.R. 226.2(a)(17).1

$48,750 to $120,000, and paid over $20,000 in closing costs and mortgage fees (not counting regular interest on the loans), but received the benet of only about $19,000 at most. 6. Each of the foregoing loans substantially reduced Ms. Homeowners equity in her home and increased her monthly mortgage payments without providing her with a proportionate economic benet. 7. In February 1999, Ms. Homeowner received a phone solicitation from Victory Mortgage (Victory), a mortgage broker. Victory explained to Ms. Homeowner that it could offer her a new loan that would reduce her mortgage payments and provide her with some extra cash. 8. Because Ms. Homeowner was struggling to make her monthly mortgage payments of approximately $990 a month and because she needed about $1600 to repair her roof, she agreed to meet with Victory. 9. Soon thereafter, a male Victory agent visited Ms. Homeowner at her home. Victorys agent repeated the assertions about the loans benets and urged Ms. Homeowner to complete loan application documents. In reliance on Victorys promises that the loan would provide her with additional cash and lower her monthly mortgage payments, Ms. Homeowner signed these documents. 10. In or around March 1999, Ms. Homeowner went to the office of Victory Mortgage near Central and Lawrence Avenue in Chicago and met with its agent, Wendy Smith. Ms. Smith again promised Ms. Homeowner that Victory could provide a new mortgage loan that would reduce her mortgage payments and provide her with the cash to repair her leaking roof. 11. In reliance on Ms. Smiths assertions, Ms. Homeowner completed additional documents relating to the loan application. 12. Subsequently, a Victory agent named Mira James contacted Ms. Homeowner and informed her that her loan was ready to close. On or about May 27, 1999, Ms. Homeowner went to an office in downtown Chicago where the closing was completed. 13. At the closing, Ms. Homeowner was presented with a myriad of loan documents to sign. A man showed Ms. Homeowner the documents and told her where to sign them. He stated that she did not need to read the documents because the signing was a mere formality. Ms. Homeowner, with limited education and little ability to understand the complicated nancial documents placed before her, signed all the documents. Mira James was present at the closing. 14. Upon completing the closing, Ms. Homeowner asked Mira James when she would receive the funds to repair her roof. James informed her that the loan they had arranged for her was insufficient to provide her with the $1600 in cash she had requested. Instead, James stated that Victory would to pay Ms. Homeowners rst monthly mortgage payment. 15. A few days later, James called Ms. Homeowner and said that Victory would not make the payment because they had just discovered some unpaid back taxes. Ms. Homeowner did not understand this because her previous mortgage company was supposed to pay the property taxes, and she was unaware of any tax arrearage. 16. The mortgage documents created a loan transaction between Ms. Homeowner and Saxon Mortgage, Inc. (Saxon) for the principal amount of $120,000 with an Annual Percentage Rate of 12.042%.

1 [Editors Note: Citations throughout answer as in original.]

Sample Foreclosure Pleadings and Other Litigation Documents

32. The transaction between Saxon and Ms. Homeowner was a consumer credit transaction as that term is dened in the Truth-in-Lending Act, 15 U.S.C. 1602(h), and Regulation Z, 12 C.F.R. 226.2(a). 33. The transaction between Saxon and Ms. Homeowner was a closed-end credit transaction as the term is dened in 12 C.F.R. 226.2(10), and is subject to the requirements for such transactions set forth in 15 U.S.C. 1638 and 12 C.F.R. 226.17226.24. 34. The transaction between Saxon and Ms. Homeowner was one in which a security interest was taken in Ms. Homeowners principal place of residence. 35. The transaction between Saxon and Ms. Homeowner was for the principal amount of $120,000. 36. The transaction between Saxon and Ms. Homeowner was for the Amount Financed of $111,705.66. 37. As such, the total loan amount for the transaction, as dened in 15 U.S.C. 1602(aa)(1)(B) and 12 C.F.R. 226.32(a)(1)(ii) was therefore a maximum of $111,705.66. 38. The total points and fees paid by Ms. Homeowner in connection with the loan exceeded 8% of the total loan amount. 39. When the total points and fees are greater than 8% of the total loan amount, the mortgage is dened as a high rate mortgage pursuant to 15 U.S.C. 1602(aa). 40. The transaction between Saxon and Ms. Homeowner was therefore a high rate mortgage. 41. Ms. Homeowner has suffered economic and emotional damages as a result of the Third-Party Defendants conduct described herein. She is faced with the possible loss of her home of over thirty years. First Affirmative Defense Plaintiffs Assignors Failure to Provide Required Truth in Lending Disclosures 42. As described above, the transaction between plaintiffs assignor and Ms. Homeowner was a high rate mortgage. 15 U.S.C. 1602(aa)(1)(B). 43. The transaction of May 27, 2000, between plaintiffs assignor and Ms. Homeowner, was therefore one in which the provisions of 15 U.S.C. 1639 and 12 C.F.R. 226.32 were applicable. 44. Plaintiffs assignor violated the Truth-in-Lending, inter alia, a. by failing to provide the disclosures to the consumer required by 15 U.S.C. 1639(a)(1) and (a)(2)(A) and 12 C.F.R. 226.32(c)(1)(3); b. by failing to provide the above disclosures to the consumer required at least three business days prior to the consummation of the transaction, in violation of 15 U.S.C. 1639(b)(1) and 12 C.F.R. 226.31(c). c. by failing to provide accurate disclosures as required by 15 U.S.C. 1638(a), and Reg. Z 226.17 and 226.18. 45. The failure to comply with any provision of 15 U.S.C. 1639 is deemed a failure to deliver material disclosures for the purpose of 15 U.S.C. 1635. See 15 U.S.C. 1639(j). 46. Pursuant to the Truth-in-Lending Act, Ms. Homeowner, had an absolute right to cancel the transaction for three business days after the transaction, or within three days of receiving proper disclosures from the plaintiff, after which she would not be responsible for any charge or penalty.

Appx. J.2.1

47. Plaintiffs assignors violations of 15 U.S.C. 1638, 1639 and 12 C.F.R. 226.17, 226.18, 226.31 and 226.32, which are considered to be a failure to give all material disclosures, give rise to a continuing right of rescission on the part of Ms. Homeowner. 48. Ms. Homeowner hereby elects to rescind the transaction between herself and plaintiffs assignor, pursuant to her continuing right of rescission. 49. When a consumer elects to rescind pursuant to the Truthin-Lending Act, any security interest taken in connection with the transaction becomes void. 15 U.S.C. 1635(b). 50. When a consumer elects to rescind pursuant to the Truthin-Lending Act, the consumer is not liable for any nance or other charge. 15 U.S.C. 1635(b). 51. The mortgage that is the subject of this foreclosure action was taken in connection with the transaction that Ms. Homeowner has elected to rescind. 52. Since the mortgage is now void, this foreclosure case is due to be dismissed. WHEREFORE, Ms. Homeowner prays that this Court dismiss plaintiffs complaint, with prejudice. Second Affirmative Defense Recoupment for Violation of the Real Estate Settlement and Procedures Act 53. The transaction between plaintiffs assignor and Ms. Homeowner was a federally related mortgage loan as that term is dened in the Real Estate Settlement and Procedures Act (RESPA), 12 U.S.C. 2602(1). 54. Plaintiffs assignors funding and origination of this transaction are settlement services as that term is dened in RESPA, 12 U.S.C. 2601(3). 55. As part of the transaction, Ms. Homeowner paid fees to the mortgage broker of at least $ for obtaining a balloon loan with an interest rate of 11%, that increased her mortgage payments without providing her with any real economic benet. 56. This interest rate exceeded plaintiffs assignors par rate on 15 year balloon loans. 57. In exchange for submitting an above par rate loan, plaintiffs assignor paid the mortgage broker $3,750. This payment was in addition to the money paid by Ms. Homeowner, and was not for any services provided by the mortgage broker to plaintiffs assignor or Ms. Homeowner. 58. The mortgage broker was more than adequately compensated for its services by Ms. Homeowner. 59. The mortgage broker provided no goods or services for this fee. 60. Plaintiffs assignors payment of this fee to the mortgage broker violates RESPAs prohibition against providers of settlement services from paying referral fees and kickbacks. 12 U.S.C. 2607. 61. Plaintiffs violation of RESPA is a violation that subjects Plaintiff to a civil penalty of three times the amount of any charge paid for settlement services. 12 U.S.C. 2607(d)(2). WHEREFORE, Bernice Homeowner, prays that this Court dismiss plaintiffs complaint, with prejudice, or, in the alternative, reduce the amount owed by Ms. Homeowner by the amount of damages available under RESPA.

Appx. J.2.1

Foreclosures
Third Affirmative Defense 81. Theses practices offend public policy. 82. As a result of plaintiffs assignors unfair practices, in violation of the Consumer Fraud Act, 815 ILCS 505, Ms. Homeowner suffered substantial injury in that she is now faced with the loss of her home. 83. Plaintiff, as holder of a high cost loan, is liable for all claims and defenses that can be raised against its assignor. 15 U.S.C. 1641(d)(1). 84. On information and belief, based on documents found in plaintiffs loan les, plaintiff knew that the terms of the loan had been misrepresented to Ms. Homeowner. 85. Plaintiff knew that the Truth In Lending disclosures given to Ms. Homeowner were inaccurate. Such inaccuracy was apparent on the face of the documents assigned to plaintiff. WHEREFORE, Bernice Homeowner prays that this Court dismiss Plaintiffs Complaint with prejudice, or in the alternative, reduce the amount owed by Ms. Homeowner by the amount of damages available under the CFA. Fourth Affirmative Defense Common Law Fraud 86. Ms. Homeowner incorporates paragraphs 174 above by reference herein. 87. Victory Mortgage, Wendy Mead, Mira James, and other unidentied employees and/or agents of Victory Mortgage made misrepresentations to Ms. Homeowner, as set forth above, including but not limited to statements that they would act in her best interest, obtain a loan which would be to her benet, lower her monthly payment, and provide additional cash to repair her roof. 88. Victory and its agents or employees also misrepresented the amount it was charging Ms. Homeowner for its purported services. 89. Saxon (plaintiffs assignor) misrepresented the terms and nance charges imposed on the loan. 90. Saxons closing agent misrepresented the import and contents of the documents which he asked Ms. Homeowner to sign, and concealed the terms of the loan while requiring Ms. Homeowner to sign the documents. 91. Saxon and Victory entered into a conspiracy to defraud Ms. Homeowner by agreeing to the payment of a kickback (the yield spread premium) from Saxon to Victory for the purpose of getting Ms. Homeowner to accept the loan at a higher rate than Saxon was prepared to impose, without disclosing to Ms. Homeowner the purpose and nature of the kickback. 92. The misrepresentations were material in nature, as they concerned the basic terms and benets of the loan. 93. Victory and its employee agents knew that their representations were false at the time they were made. 94. Saxon knew that its Truth In Lending disclosures were inaccurate. Saxons agent knew that representations to Ms. Homeowner at the closing were false. 95. The misrepresentations and omissions were made with the intent to induce Ms. Homeowners reliance and thereby to enter into the transaction. 96. Ms. Homeowner reasonably relied on Saxons and Victorys misrepresentations to her detriment. 97. Plaintiff knew that the loan terms had been misrepresented to Ms. Homeowner, and knew that the Truth In Lending disclosures given to Ms. Homeowner were inaccurate. Such inaccuracy was apparent on the face of the documents assigned to plaintiff.

Illinois Consumer Fraud and Deceptive Practices Act 62. Ms. Homeowner realleges paragraphs 150. 63. This defense is asserted pursuant to the Illinois Consumer Fraud and Deceptive Business Practices Act, 815 ILCS 505 et seq. 64. Victory Mortgage, Wendy Mead, Mira James, and other unidentied employees and/or agents of Victory Mortgage made misrepresentations to Ms. Homeowner, as set forth above, including but not limited to statements that they would act in her best interest, obtain a loan which would be to her benet, lower her monthly payment, and provide additional cash to repair her roof. 65. Victory and its agents or employees also misrepresented the amount it was charging Ms. Homeowner for its purported services. 66. Saxon (plaintiffs assignor) misrepresented the terms and nance charges imposed on the loan. 67. Saxons closing agent misrepresented the import and contents of the documents which he asked Ms. Homeowner to sign, and concealed the terms of the loan while requiring Ms. Homeowner to sign the documents. 68. Saxon and Victory entered into a conspiracy to defraud Ms. Homeowner by agreeing to the payment of a kickback (the yield spread premium) from Saxon to Victory for the purpose of getting Ms. Homeowner to accept the loan at a higher rate than Saxon was prepared to impose, without disclosing to Ms. Homeowner the purpose and nature of the kickback. 69. The misrepresentations were material in nature, as they concerned the basic terms and benets of the loan. 70. Victory and its employee agents knew that their representations were false at the time they were made. 71. Saxon knew that its Truth In Lending disclosures were inaccurate. Saxons agent knew that representations to Ms. Homeowner at the closing were false. 72. The misrepresentations and omissions were made with the intent to induce Ms. Homeowners reliance and thereby to enter into the transaction. 73. Ms. Homeowner reasonably relied on Saxons and Victorys misrepresentations to her detriment. 74. Plaintiffs assignor is a mortgage company with extensive experience and sophistication in transactions involving residential mortgages. 75. Conversely, Ms. Homeowner is a single family homeowner who is inexperienced and unsophisticated in matters involving consumer lending. 76. The fees charged to Ms. Homeowner far exceed the fees normally charged to consumers in home mortgage transactions. 77. In addition to the fees paid by Ms. Homeowner for the loan, plaintiffs assignor paid an illegal kickback to the mortgage broker of $3750 in violation of RESPA. 78. Furthermore, plaintiffs assignor failed to properly notify Ms. Homeowner about the high cost nature of the loan, and failed to provide accurate Truth In Lending disclosures. 79. Finally, the mortgage that plaintiffs assignor entered into with Ms. Homeowner increased her monthly mortgage payments by more than $150, left her with a balloon payment of $101,686.62 due when she is 84 years old and provided her with absolutely no real economic benet. 80. Plaintiffs assignors practices as described above are unfair, immoral, unethical, and unscrupulous.

Sample Foreclosure Pleadings and Other Litigation Documents

98. Plaintiff accepted assignment of the note with notice that the documents contained therein were inaccurate and that the loan violated TILA and RESPA. Therefore plaintiff is subject to the defense of fraud raised herein. 99. Plaintiff, as holder of a high cost loan, is liable for all claims and defenses that can be raised against its assignor. 15 U.S.C. 1641(d)(1). WHEREFORE, Bernice Homeowner prays that this Court dismiss Plaintiffs Complaint with prejudice, or in the alternative, reduce the amount owed by Ms. Homeowner by the amount of her damages. Fifth Affirmative Defense Violation of the Illinois Interest Act 100. This defense is asserted pursuant to the Illinois Interest Act, 815 ILCS 205. 101. The loan entered by plaintiffs assignor and Ms. Homeowner on May 27, 1999, was for the stated sum of $120,000. 102. The stated interest rate on the loan entered by plaintiffs assignor and Ms. Homeowner was 11.00%. 103. In addition to the stated interest, plaintiffs assignor charged Ms. Homeowner at least $12,044.34 in points and fees. 104. The points and fees paid by Ms. Homeowner are 10.04% of the principal amount of $120,000. 105. The points and fees charged to Ms. Homeowner are therefore in excess of 3% of the principal amount of the loan. 106. The loan made by plaintiffs assignor to Ms. Homeowner is secured by her home, which is residential real estate in the state of Illinois. 107. The loan requires the payment of interest at an interest rate in excess of 8% per annum. Section 4.1a of the Illinois Interest Act, 815 ILCS 205/4.1a(f), limits the amount of certain charges, including points service charge discounts commission or otherwise, in the case of loans with an interest rate in excess of 8% per annum that are secured by residential real estate, to not more than 3% of the principal amount. 108. Plaintiffs actions as described in paragraphs 6671 above were done knowingly as that term is used in Section 6 of the Interest Act. 815 ILCS, 205/6. A knowing violation of the Interest Act subjects the offender to a penalty of twice the total of all interest, discount and charges determined by the loan contract or paid by the obligor, whichever is greater. 815 ILCS 205/6. 109. The total of all interest, discounts, and charges determined by the loan contract in connection with the transaction far exceeds the payoff balance owed by Ms. Homeowner. 110. Pursuant to Section 6 of the Interest Act, Plaintiffs statutory liability is not less than twice the total of all interest, discounts or charges determined by the loan contract. Ms Homeowner is therefore entitled to a complete set-off against all amounts that Plaintiff claims are due, under the terms of the Mortgage. 815 ILCS 205/6. WHEREFORE, Bernice Homeowner prays that this Honorable Court dismiss plaintiffs complaint with prejudice. Attorney for the Defendant

Appx. J.2.2

J.2.2 Answer with Defense Based on Lenders Failure to Comply with Servicing Guidelines
IN THE CIRCUIT COURT, FOURTH JUDICIAL CIRCUIT, IN AND FOR DUVAL COUNTY, FLORIDA ) WELLINGTON MUTUAL ) BANK, F.A., ) Plaintiff, ) ) v. ) ) JOHN C. CONSUMER, et al., ) Defendants. ) ) SEPARATE DEFENDANT JOHN CONSUMERS SECOND AMENDED ANSWER TO AMENDED COMPLAINT, AFFIRMATIVE DEFENSES, COUNTERCLAIMS AND DEMAND FOR JURY TRIAL COMES NOW the separate Defendant John Consumer, and for his second amended Answer to Plaintiffs Amended Complaint led pursuant to the orders of April 29, 2005 and June 10, 2005, states: STATEMENT OF FACTS (for affirmative defenses and counterclaims) 1. On or about July 25, 2003, this defendant purchased the home which is the security for the mortgage which is the subject of this action. This loan has been serviced and the payments thereunder collected in the past by plaintiffs predecessor(s) in interest and/or by plaintiffs authorized agents for collecting and servicing the subject loan, not parties to this action. 2. After 7 1/2 years of steady employment with the same employer, this defendant sustained a loss of employment and income due to reasons beyond his control and became nancially unable to make his mortgage payment in or about June, 2004. 3. This defendant contacted the plaintiff or plaintiffs agent for servicing and collection of the subject loan and advised plaintiff or plaintiffs agent about his loss of employment due to reasons beyond his control and requested a temporary forbearance, loss mitigation assistance and/or a special repayment plan to avoid acceleration of the subject debt and the loss of his home through foreclosure. 4. In response, the plaintiff or plaintiffs agent advised this defendant that his only option was to bring his mortgage payments current in their entirety with a lump sum payment of the full arrearage amount. 5. This defendant affirmatively contacted the plaintiff and/or the plaintiffs agent on more than one occasion to work out a repayment or forbearance agreement, but each time this defendant was advised by the plaintiff or plaintiffs agent that nothing could be done to assist him to avoid the default, acceleration of the subject mortgage debt or foreclosure unless he had the ability to make

Appx. J.2.2

Foreclosures
to recover from the nancial hardship he was suffering through no fault of his own. Such a plan can involve changing one or more terms of the subject mortgage in order to help this defendant bring the claimed default current thereby preventing foreclosure. 16. Plaintiffs failure to comply with the FHA repayment plan or special forbearance workout programs denied this defendant the required access to explore alternatives to avoid foreclosure prior to the addition of additional foreclosure fees and costs. 17. Further, pursuant to the terms of this defendants mortgage, the plaintiffs right to accelerate payments due under the terms of the subject mortgage is equitably limited by the above-referenced federal regulations. Paragraph 9(a) of the subject mortgage. 18. The subject mortgage does not authorize acceleration or foreclosure if not permitted by regulations of the Secretary. Paragraph 9(d) of the subject mortgage. 19. This defendant requested that plaintiff or plaintiffs agent give him access to options to help him save his home. The plaintiff was non-responsive and only answered this defendant requests for access to loss mitigation servicing with threats to foreclose if reinstatement in full with all claimed fees and costs was not made right away. 20. Plaintiff failed to comply with its mortgage servicing responsibilities and the terms of the subject mortgage and as a proximate result, this defendants delinquency has been improperly inated by mortgage foreclosure ling, service and other fees and inspections costs, and by foreclosure attorneys fees in amounts that this defendant can not afford to pay. Therefore, this defendant remains at the risk of losing his home. 21. This defendant made good faith efforts to access foreclosure prevention services and to pay the loan, however, the plaintiff or plaintiffs agents denied this defendant the opportunity to access and obtain the mortgage servicing options required by federal regulations and designed to avoid foreclosure of this HUD insured mortgage. 22. Plaintiff led the subject lawsuit in November, 2004 without rst allowing this defendant the right to pursue the federallyrequired loss mitigation opportunities. AFFIRMATIVE DEFENSES 1. This defendant incorporates herein his statement of facts set out above and affirmatively defends this foreclosure based on the Plaintiffs failure to comply with the forbearance, mortgage modication, and other foreclosure prevention loan servicing requirements imposed on Plaintiff and the subject FHA mortgage by federal regulations promulgated by HUD, pursuant to the National Housing Act, 12 U.S.C. 1710(a). As a result, Plaintiff has failed to establish compliance with a statutory and contractual condition precedent to this foreclosure because of Plaintiffs failure to comply with the federal regulations more particularly described below: a. Defendant defaulted on this residential mortgage which is the subject of this cause due to reasons beyond his control due to a period of unemployment. b. The Plaintiff is required under federal law to adapt its collection and loan servicing practices to this Defendants individual circumstances and failed to do so. c. The Plaintiff did not make a reasonable effort as required by federal law to arrange a face to face meeting with the Defendant before three full monthly installments were unpaid. 24 C.F.R. 203.604.

lump sum payments to get current on the mortgage in amounts that far exceeded his income or his ability to pay. 6. This defendant was advised by plaintiff and/or plaintiffs agent that partial payments toward the arrearage in the mortgage debt would not be accepted. 7. Defendants mortgage loan is an FHA-insured loan, therefore, the plaintiff must comply with the payment forbearance must comply with the payment forbearance, mortgage modication, and other foreclosure prevention loan servicing or collection requirements imposed on Plaintiff and the subject FHA mortgage by federal regulations promulgated by HUD, pursuant to the National Housing Act, 12 U.S.C. 1710(a). These requirements must be followed before a mortgagee may commence foreclosure. 24 C.F.R. Part 203(C), Servicing Responsibilities Mortgagee Action and Forbearance. 8. Plaintiff is required by HUD regulation to ensure that all of the servicing requirements of 24 C.F.R. Part 203(C) have been met before initiating foreclosure. 24 C.F.R. 203.606, published August 2, 1982, 47 FR 33252. 9. Plaintiff and/or its agent for servicing, failed to carry out its federally-imposed duties which are owed to this defendant and are also incorporated into the terms of his mortgage to adapt effective collection techniques designed to meet this defendants individual differences and take account of his peculiar circumstances to minimize the default in his mortgage payments as required by 24 C.F.R. 203.600. 10. Plaintiff and/or its agent for servicing, failed to make any reasonable efforts as required by federal regulation to arrange a face to face meeting with this defendant before three full monthly installments were unpaid to discuss his circumstances and possible foreclosure avoidance. 24 C.F.R. 203.604, published June 16, 1986, 51 FR 21866. 11. Plaintiff and/or its agent for servicing, failed to inform this defendant that it would make loan status and payment information available to local credit bureaus and prospective creditors, failed to inform this defendant of other assistance, and failed to inform him of the names and addresses of HUD officials to whom further communication could be addressed as required by federal law. 24 C.F.R. 203.604 12. Plaintiff and/or its agent for servicing, wholly failed to perform its obligation to explore foreclosure prevention strategies with this defendant; failed to determine the particular circumstances surrounding this defendants claimed default; his capacity to pay the monthly payment amount or a modied payment amount; to ascertain the reason for his claimed default, or the extent of his interest in keeping the subject property. 13. Plaintiff is required under federal law to adapt its collection and loan servicing practices to defendants individual circumstances and to re-evaluate these techniques each month after default and this plaintiff failed to do. 24 C.F.R. 203.605, effective August 2, 1996. 14. Plaintiff failed to perform its servicing duty to this defendant to manage the subject mortgage as required by FHAs special foreclosure prevention workout programs which must include and allow for the restructuring of the loan whereby the borrower pays out the delinquency in installments or advances to bring the mortgage current. 15. Plaintiff denied this defendant access to special forbearance in the form of a written agreement that would reduce or suspend her monthly mortgage payments for a specic period to allow him time

Sample Foreclosure Pleadings and Other Litigation Documents

d. The Plaintiff is required by federal law to evaluate all available loss mitigation techniques and to re-evaluate these techniques each month after default and failed to do so. 24 C.F.R. 203.605. e. The Department of Housing and Urban Development has determined that the requirements of 24 C.F.R. Part 203(C) are to be followed before any mortgagee commences foreclosure. f. Plaintiff has no valid cause of action for foreclosure unless and until Plaintiff can demonstrate compliance with the regulations in 24 C.F.R. Part 203(C). g. This Defendant made signicant efforts to access foreclosure prevention services from the plaintiff and to make payments but Plaintiff denied this Defendant the required opportunity to access and obtain mortgage servicing options designed to avoid foreclosure of this HUD insured mortgage. See Norwest Mortgage Inc. v. Rhoads, 5 Fla. L. Weekly 361 (Fla. 12th Judicial Circuit 1998). 2. The Plaintiff comes to Court with unclean hands as a result of its failures and omissions as set forth in the statement of facts set forth above and incorporated herein. Plaintiff is prohibited by reason thereof from obtaining the equitable relief of foreclosure from this Court. The Plaintiffs unclean hands result from the Plaintiffs intentional and reckless failure to properly service this mortgage pursuant to the federal regulations and specically, by ling this foreclosure before offering Defendant any of the federally required foreclosure avoidance options. As a matter of equity, this Court should refuse to foreclose this mortgage because acceleration of the note would be inequitable, unjust, and the circumstances of this case render acceleration unconscionable. This Court should refuse the acceleration and deny foreclosure because Plaintiff has waived the right to acceleration or is estopped from proceeding with this action because of misleading conduct and unfullled conditions. COUNTERCLAIMS COUNT IDECLARATORY AND INJUNCTIVE RELIEF 1. This is an action for declaratory and injunctive relief against the Plaintiff. 2. Defendant reasserts and alleges his statement of facts set forth hereinabove. 3. Defendant contends that the Plaintiff has no right to pursue this foreclosure because the Plaintiff has failed to provide servicing of this FHA insured residential mortgage in accordance with the federal regulations at 24 C.F.R. Part 203 Subpart C prior to ling this foreclosure action. 4. Defendant contends that he has a right to receive forbearance, mortgage modication, and other foreclosure prevention loan services from the Plaintiff pursuant to and in accordance with the federal regulations before the commencement or initiation of this foreclosure action. 5. Defendant is in doubt as to his rights and status as a borrower under the National Housing Act and the federal regulations made applicable to and incorporated in the subject mortgage because of the Plaintiffs failure to service the subject loan pursuant to the federal law and because the Defendant is now subject to this foreclosure action, all of which the Defendant contends are the result of the illegal acts and omissions of Plaintiff set forth herein.

Appx. J.2.2

6. Defendant is being denied and deprived by Plaintiff of his right to access the special mortgage servicing required under the federal statute and regulations and Defendant is being illegally subjected to this foreclosure action, being forced to defend same, being charged illegal and predatory court costs and related fees and attorney fees, and is having his credit slandered and negatively affected, all of which constitute irreparable harm to this Defendant for the purpose of injunctive relief. 7. As a proximate result of the Plaintiffs unlawful actions, Defendant continues to suffer the irreparable harm described above for which monetary compensation is inadequate. 8. Defendant has a right to access the special servicing prescribed by the federal regulations which is being denied by the Plaintiff. 9. There is a substantial likelihood that Defendant will prevail on the merits of his counterclaim. WHEREFORE, Defendant requests the Court dismiss the Plaintiffs Complaint with prejudice, enter a judgment pursuant to Fla. Stat. 86 declaring that the Plaintiff is legally obligated and must provide Defendant with access to the special servicing provided in the applicable federal regulations and enjoining the Plaintiff from charging foreclosure fees and costs and from commencing or pursuing this foreclosure until such servicing is provided and for all other relief to which this Defendant proves himself entitled including an award of reasonable attorney fees and costs in this action. COUNT IICONSUMER COLLECTIONS ACT VIOLATION 10. Defendant is a consumer and the obligation between the parties which is the debt owed pursuant to the subject note and mortgage is a consumer debt as dened in Fla. Stat. Section 559.55(1). 11. Fla. Stat. Section 559.72(9) provides: 559.72 Prohibited Practices generally: In collecting consumer debts, no person shall (9) claim, attempt, or threaten to enforce a debt when such person knows that the debt is not legitimate or assert the existence of some other legal right when such person knows that the right does not exist 12. Plaintiff has engaged and continues to engage in consumer collection conduct which violates Fla. Stat. Section 559.72(g) in the following and other particulars: a. Plaintiff continues to enforce this debt and pursue this foreclosure action even though the Plaintiff knows no such right exists and this foreclosure action is threatening and premature because the Plaintiff has not serviced this federally insured home loan pursuant to or in compliance with the special foreclosure prevention loan servicing federal regulations. b. The Plaintiff continues to claim, attempt, and threaten to enforce this debt through acceleration and foreclosure when the Plaintiff knows that such conduct is premature and in bad faith because such right does not yet exist as Plaintiff has failed to meet the contractual and statutory conditions precedent to asserting its right to collect this home loan debt through foreclosure contained in the subject mortgage and in 12 U.S.C. 1710(a) and 24 C.F.R. Part 203 Subpart C.

Appx. J.2.3

Foreclosures
22. Pursuant to 768.72 (2002), Fla. Stat., this defendant reserves the right to amend this complaint to add a prayer for punitive damages upon a showing by evidence in the record providing a basis for recovery of such damages. 23. Defendant has been required to retain the services of the undersigned counsel to pursue his claims against plaintiff for violations of the Act. Counsel will incur costs and attorneys fees as a result of their representation of this defendant. WHEREFORE, this defendant requests this Court enter judgment in his favor and against the plaintiff pursuant to the Act as follows: A. Declare the plaintiffs practices about which this defendant complains to be in violation of the Act as provided by the Act, 501.211 (1), Fla. Stat. and that the plaintiff must provide this defendant with access to the special servicing provided in the applicable federal regulations; B. Enjoin the plaintiff from engaging in deceptive and unfair trade practices as provided by 501.211 (1), Fla. Stat. and enjoining plaintiff from charging foreclosure fees and costs and from commencing or pursuing this foreclosure until such servicing is provided; C. Award this defendant actual damages as provided by 501.211 (2), Fla. Stat.; D. Award attorneys fees and costs to this defendants counsel pursuant to the Act; and E. Grant such other and further relief as this Court deems equitable.

13. Defendant, as a proximate result of Plaintiffs acts and conduct described above, has sustained economic damage for which the Defendant is entitled to compensation from the Plaintiff pursuant to Fla. Stat. Section 559.77. WHEREFORE, Defendant requests this Court dismiss the Plaintiffs complaint with prejudice and award this Defendant actual or statutory damages, whichever is greater, attorney fees and costs, and for all other relief to which this Court nd Defendant entitled. COUNT IIIFLORIDA DECEPTIVE AND UNFAIR TRADE PRACTICES ACT 14. Defendant realleges and incorporates herein his statement of facts set forth hereinabove and the allegations contained in paragraphs 10 through 13 of count II of his counterclaims herein. 15. This is an action for injunctive and declaratory relief and for damages pursuant to the Florida Deceptive and Unfair Trade Practices Act, Florida Statutes 501.201, et seq. (hereinafter the Act). 16. At all times relevant, this defendant was a consumer as dened by F.S. 501.203 (7). 17. At all times relevant, plaintiff was engaged in trade or commerce as dened by F.S. 501.203 (8). 18. A violation of the Act may be based on [a]ny law, statute, rule, regulation, or ordinance which proscribes unfair methods of competition, or unfair, deceptive, or unconscionable acts or practices. See 501.203 (3)(c), Fla. Stat. 19. The provisions of the Act are to be liberally construed to promote the following policies: (1) To simplify, clarify, and modernize the law governing consumer protection, unfair methods of competition, and unconscionable, deceptive, and unfair trade practices. (2) To protect the consuming public and legitimate business enterprises from those who engage in unfair methods of competition, or unconscionable, deceptive, or unfair acts or practices in the conduct of any trade or commerce. 501.202(1) and (2), Fla. Stat. 20. Plaintiff has violated the Act by engaging in unfair and deceptive acts and practices including, but not limited to failing to provide this defendant with the Loss Mitigation opportunities required by his mortgage contract and federal law as more particularly stated in the statement of facts and paragraphs 10 through 13, inclusive, above, adding a layer of foreclosure related fees and costs which should not have been incurred without rst providing this defendant with the pre-foreclosure options set out in the federal laws referenced herein and required by the subject mortgage and by breaching plaintiffs duty of good faith and fair dealing based upon standards imposed by the residential mortgage lending and servicing industries. 21. As a direct result of the plaintiffs unfair and deceptive actions and practices, this defendant has been damaged and such damages have been proximately caused by the plaintiffs failure to allow the defendant to participate in effective pre-foreclosure counseling and options provided by federal law and the subject mortgage, directly resulting in the defendant being threatened with the loss of his homestead and the equity therein because he was not given the opportunity to resolve the default before foreclosure was instituted and an additional layer of foreclosure fees and costs were added to the delinquency and reinstatement balance.

J.2.3 Discovery Requests and Request to Admit

IN THE CIRCUIT COURT OF COOK COUNTY, ILLINOIS COUNTY DEPARTMENT, CHANCERY DIVISION ) CHANCE BANK OF TEXAS, ) Plaintiff, ) ) v. ) No. 00 CH 0000 ) BERNICE HOMEOWNER, ) Defendant. ) ) BERNICE HOMEOWNERS FIRST DISCOVERY REQUEST Defendant, Bernice Homeowner, hereby requests that plaintiff Chance Bank of Texas (Chance), respond to the following interrogatories and document requests within 28 days after service hereof, in accordance with Illinois Supreme Court Rule 201.2 Unless otherwise stated, the time period of these requests is from January, 1999, to the present. Instructions and Denitions A. Throughout this request, You or Your refers to the answering party or parties, and their owners, officers, agents,
2 [Editors Note: Citations throughout discovery and requests for admissions as in original.]

Sample Foreclosure Pleadings and Other Litigation Documents

representatives, independent contractors, employees, attorneys, and/or anyone acting on their behalf. B. Please furnish all information in your possession and control. If you cannot answer the requests in full after exercising due diligence to secure the information to do so, state the answer to the extent possible specifying your inability to answer the remainder, and state whatever information or knowledge you have concerning the unanswered portion. C. Each request and interrogatory is considered continuing, and if you obtain information which renders its answers or any of them incomplete or inaccurate, you are obligated to serve amended answers on the undersigned. D. Insofar as may be applicable, and except as otherwise indicated, the term document or documents shall refer to any and all writings and recorded materials, of any kind whatsoever, that is or has been in your possession, control or custody or of which you have knowledge, whether originals or copies, including but not limited to contracts, documents, notes, rough drafts, interoffice memoranda, memoranda for the les, letters, research materials, correspondence, logs, diaries, forms, bank statements, tax returns, card les, books of account, journals, ledgers, invoices, blueprints, diagrams, drawings, computer print-outs, discs or tapes, reports, surveys, statistical computations, studies, pictures, maps, graphs, charts, minutes, manuals, pamphlets, or books of any nature or kind whatsoever; and all other materials handwritten, printed, typed, mimeographed, photocopied or otherwise reproduced; and slides or motion pictures, television tapes; all tape recordings (whether for computer, audio or visual replay) or other written, printed or recorded matter or tangible things on which words, phrases, symbols or information are affixed. E. A request to identify a document is a request to state (insofar as may be applicable): 1. The date of such document. 2. The type of document or written communication it is. 3. The names and present addresses of the person or persons who prepared such document and of the signers, senders and addressees of such document. 4. The name of any principal whom or which the signers, senders and preparers of such document were thereby representing. 5. The present location of such document. 6. The name and present address of the person now having custody of the document. 7. Whether you possess or control the original or a copy thereof and if so, the location and name of the custodian of such original or copy. 8. A brief description of the contents of such document. F. A request to describe any oral statement or communication is a request to state: 1. The name and present address of each individual making such statement or communication. 2. The name of any principal or employer whom or which such individual was thereby representing and the position in which such individual was then employed or engaged by such principal or employee. 3. The name and present address of the individual or individuals to whom the oral statement or communication was made, and the name of any principal or employer whom such person or persons were representing at the time of and in connection with such oral statement or communication, as well as the

Appx. J.2.3

employment position in which they were then employed or engaged. 4. The names and present addresses of any other individuals present when such oral statement or communication was made or who heard or acknowledged hearing the same. 5. The place where such oral statement or communication was made. 6. A brief description of the contents of such oral statement or communication. G. A request to cite portions or provisions of any document is a request to state, insofar as applicable with reference to such portion or provision, the title, date, division, page, sheet, charge order number, and such other information as may be necessary to accurately locate the portion or provision referenced. H. The term person shall include a natural person, partnership, corporation, association, or other group however organized. I. Whenever a request is made to identify a natural person, it shall mean to supply all of the following information: 1. His/her full name. 2. His/her employer and position at the time. 3. The name of any person or entity (natural or articial) whom she/he is claimed to have represented in connection with the matter to which the interrogatory relates. 4. His/her last known address, telephone number, and employer. 5. His/her present employer. J. A request to explain fully any answer, denial or claim is a request (insofar as may be applicable) to: 1. State fully and specically each fact and/or contention in support of your answer, denial or claim; and 2. For each such fact or contention, to identify each person who has knowledge relative to that fact or contention, each document that tends to support that fact or contention; and each document that tends to dispute that fact or contention. K. Unless otherwise specied, the terms subject account or subject transaction means the transaction(s) described in the complaint(s), including any prior or ongoing contract or communication relating to the transaction and/or account, up to and including the date of your answers to these interrogatories. Specically, subject transaction includes each and every agreement, contract, communication or transaction between Ms. Homeowner and Chance and/or its assignor (Saxon Mortgage), agents, representatives and employees, between Chance and its assignor, and between Ms. Homeowner and Victory Mortgage and/or its agents, representatives and employees. L. A request in any of the enclosed interrogatories to identify any document is a request to attach said document to answers to these interrogatories. If documents are attached to answers to these interrogatories, they must be marked to identify which interrogatory they refer to. In identifying documents you are also requested to produce, you need to supply only so much of the requested information as is not readily apparent from the face of the document. If any paragraph of this request is believed to be ambiguous or unduly burdensome, please contact the undersigned and an effort will be made to remedy the problem. Requests to Admit 1. Defendant, Bernice Homeowner, (hereinafter Ms. Homeowner) is a 70-year-old woman who has owned the property at 1234 W. Main Street (hereinafter home) since 1970.

Appx. J.2.3

Foreclosures
24. The total loan amount for the transaction, as dened in 15 U.S.C. 1602(aa)(1)(B) and 12 C.F.R. 226.32(a)(1)(ii), was not more than $111,705.66. 25. The points and fees disclosed by plaintiffs assignor in the Itemization of Amount Financed was $8294.34. 26. The prepaid nance charges disclosed by plaintiffs assignor in the Itemization of Amount Financed was $8294.34. 27. The brokers origination fee was $7800, as disclosed in the Itemization of Amount Financed issued in connection with he subject transaction. 28. The total points and fees imposed in connection with the subject loan transaction was $12,044.34. 29. The total points and fees were at least 10.78% of the total loan amount. 30. The interest rate on the subject transaction was above the par rate of plaintiffs assignor at the time of the transaction. 31. The interest rate on the subject transaction was above Chances par rate for borrowers similarly situated to Ms. Homeowner at the time of the transaction. 32. No Truth In Lending Act disclosures were provided to Ms. Homeowner prior to her signing the loan documents. 33. Plaintiffs assignor did not provide Ms. Homeowner with any Truth In Lending disclosures three days prior to the time when she signed the loan documents. Interrogatories 1. State the name, job title, and business address of each person providing information in response to these discovery requests. 2. Provide the following information for all employees and agents of Chance and/or its assignor and/or Victory Mortgage who had any involvement in the transaction with plaintiff or in the administration of her account, including but not limited the origination, underwriting, disbursement and assignment of the subject account: full name, present or last known home and business addresses and telephone numbers; date rst employed by you; whether presently employed by you; all job title(s) and dates during which each job was held; and if not presently employed, Social Security number and exact date of birth. State, generally, each individuals involvement (e.g., preparation of documents, notarizing signatures, approval of nancing terms, communications with the borrower; sending of notices, disbursement of funds, etc.). 3. State the date and subject matter of each communication (oral or written): (a) between or among any of the parties to this action, and (b) between you and any other person or entity (other than your counsel), relating to the subject account and/or transaction. Identify all documents reecting or relating to such communications, including but not limited to letters, faxes, notes, internal memoranda, calendars, computer data, and credit applications, etc. 4. State the date and amount of each payment (a) disbursed from the loan proceeds of the subject transaction and/or account; (b) received by you from anyone in connection with the subject account; and (c) paid to or received by anyone else in connection with the subject account (regardless of whether the payment came from the loan proceeds or another source). Identify the payor and payee of each such payment made or received, including but not limited to payments made to brokers, appraisers, title companies, credit reporting agencies, couriers and contractors, and identify all documents relating to same, including all canceled checks and receipts.

2. Ms. Homeowner currently resides in the home with her two sons and four grandchildren. 3. At the time of the subject transaction, Ms. Homeowner, was a senior citizen with limited education and income, but substantial equity in her home. 4. Between 1995 and 1998, Ms. Homeowner entered into at least 3 home renance loans. Each loan substantially reduced Ms. Homeowners equity in her home and increased her monthly mortgage payments without providing her with a proportionate economic benet. 5. In February 1999, Ms. Homeowner received a phone solicitation from Victory Mortgage (Victory), a mortgage broker. 6. Some time thereafter, a Victory Mortgage agent visited Ms. Homeowner at her home, where Ms. Homeowner signed documents in connection with a loan application. 7. On or about May 27, 1999, the loan closing was completed at the offices of Victory Mortgage, where Ms. Homeowner signed numerous documents in connection with the transaction. 8. The loan did not provide for a cash payment to Ms. Homeowner in the amount of $1600 or any other amount. 9. Ms. Homeowner did not receive any disbursement from the subject loan. 10. Victory Mortgage did not pay the rst monthly payment on the subject loan. 11. Victory Mortgage received at least $7800 in connection with the subject transaction. 12. Victory Mortgage received at least $7532 in connection with the subject transaction. 13. Victory Mortgage received at least $7032 in connection with the subject transaction. 14. Victory Mortgage received at least $7032 from the loan proceeds in connection with the subject transaction. 15. Victory Mortgage received a payment of $3750 from Saxon in connection with the subject transaction. 16. The amount of the $3750 payment from Saxon to Victory Mortgage was based on or calculated from the interest rate of the loan. 17. The $3750 payment from Saxon to Victory Mortgage would have been lower if the interest rate of the subject loan was lower. 18. As a normal industry practice, Broker Compensation payments by mortgage lenders to mortgage brokers paid outside closing are based on the size of the interest rate, i.e., the Broker Compensation may be higher if the interest rate is higher. 19. As a normal industry practice, Broker Compensation payments by mortgage lenders to mortgage brokers paid outside closing may be referred to by one or more of the following terms: yield spread premiums, yield spread, fee, yield differential, service release fee, service release premium, bonus upsell points, and/or back-end points. 20. Victory Mortgage received a total of at least $10,782 in connection with the subject transaction. 21. Victory Mortgage provided no goods or services of value to Ms. Homeowner in connection with the subject transaction. 22. The Truth In Lending Disclosure issued in connection with Ms. Homeowners loan accurately states that the Amount Financed was $111,705.66. 23. The Truth In Lending Statement issued in connection with the subject transaction did not accurately disclose the Amount Financed.

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Sample Foreclosure Pleadings and Other Litigation Documents

5. Describe your policy and practice relating to the origination, approval or underwriting, preparation, disbursement and acceptance of assignment of a residential mortgage loan such as the subject transaction(s), including but not limited to all agreements with brokers, lenders, title companies, assignors, etc. Identify all documents relating to or reecting such policy, practices and agreements, including all documentation required to be in assigned account les, and all forms given or sent to borrowers, information or forms which borrowers are requested to provide in order to obtain a loan, and all instructions, policy and procedure manuals, memoranda and guidelines given to brokers, title companies, lenders and/or closing agents, and any persons who review account les for approval and/or acceptance of assignment. 6. If your response to any of the foregoing Requests To Admit is anything other than an unqualied admission, state in detail all facts upon which you rely on in denying the request, state whether any investigation was made to determine your response and describe any such investigation, and identify all documents reviewed or relied upon. 7. If you are declining to produce any document or respond to any paragraph in whole or in part because of a claim of privilege, please: identify the subject matter, type (e.g., letter, memorandum), date, and author of the privileged communication or information, all persons that prepared or sent it, and all recipients or addressees; identify each person to whom the contents of each such communication or item of information have heretofore been disclosed, orally or in writing; state what privilege is claimed; and state the basis upon which the privilege is claimed. 8. If any document requested was, but no longer is, in your possession or subject to your control, please state: the date of its disposition; the manner of its disposition (e.g., lost, destroyed, or transferred to a third party); and an explanation if the circumstances surrounding the disposition of the document. 9. With respect to each expert or opinion witness whom you will or may call upon to give evidence in connection with this case, please state: his or her name, address, telephone number, occupation, and current employment; the subject matter of his or her expertise; any matters which you contend qualify him or her as an expert; the substance of all facts and opinions to which he or she could testify if called as a witness; a summary of the grounds for each such opinion, and identify all documents, reports or statements made by any such expert. 10. Describe and dene all charges listed in Exhibits A, B and C to Homeowners Affirmative Defenses, and explain any discrepancies in the listed gures, i.e., explain why the Itemization of Amount Financed states that the Brokers Origination Fee was $7800, and that $500 was paid to Thomas Appraisals, while the HUD-1 Settlement Statement states that a $7032.63 loan origination fee plus $500 for an appraisal was paid to Victory Mortgage. 11. If you believe that other or different amounts were paid to Victory Mortgage in connection with the subject transaction (other than what is disclosed in the Exhibits to Homeowners Affirmative Defenses), please state what amounts were paid and explain the discrepancy. Identify each and every service or goods you believe were provided by Victory Mortgage to Ms. Homeowner in connection with the transaction and the reasonable fair market value of those goods and services. 12. State the amount that you believe is the total loan amount and the total points and fees involved in the subject transaction and explain how you arrived at those gures.

Appx. J.2.3

13. Explain the basis and/or the manner in which the payments made to Victory Mortgage were calculated (e.g., percentage of loan amount, interest rate of loan, specic services provided). 14. State the name, residence and business addresses and phone numbers, and job position of all person(s) and/or entities not identied in response to any preceding Interrogatory, who had any involvement in or has knowledge of any facts relating to matters alleged in Homeowners Affirmative Defenses, and/or who may testify as witnesses at the trial or any hearing hereof. Identify each and every written or recorded statement made by such potential witnesses. 15. Identify all agreements between Chance and Saxon Mortgage. State the number of residential mortgage loans assigned by Saxon to Chance in the last three years, and identify those in which Victory Mortgage was the broker. Of these loans, state how many were in default of at least one month, within the rst three years after they were made. State whether Chance has received any complaints (oral or written, whether or not led with any judicial or administrative forum or consumer protection agency) from other borrowers in transactions in which either Saxon or Victory Mortgage was involved, and identify all individuals who made such complaints. Requests for Production of Documents 1. Please produce all documents (including all computer or digital media-stored data) relating to Ms. Homeowner, the property located at 1234 W. Main Street, Chicago, Illinois, and the subject transaction and/or account, or which are indexed, led or retrievable under her name or any number, symbol, designation or code (such as a transaction number or Social Security number) assigned to her or to the subject transaction(s), including but not limited to all documents relating to the origination, approval, disbursement, assignment and administration of the loan(s), all agreements between Chance and Saxon, and all correspondence related to the subject transaction. 2. All documents relating or referring to your policy and practice relating to the origination, approval or underwriting, preparation, disbursement and acceptance of assignment of a residential mortgage loan such as the subject transaction(s), including but not limited to all agreements with brokers, lenders, title companies, assignors, etc. Identify all documents relating to or reecting such policy, practices and agreements, including all documentation required to be in assigned account les, and all instructions, policy and procedure manuals, memoranda and guidelines given to brokers, title companies, lenders, closing agents, and/or any persons who review account les for approval and/or acceptance of assignment. 3. All documents relating to any judicial or administrative proceeding, public or private consumer protection agency or office, and all customer complaints in which Chance, Saxon or Victory Mortgage were alleged to have made misrepresentations or violated any consumer protection statutes, rules or regulations relating to mortgages, mortgage brokers, or consumer credit. 4. Copies of all insurance policies which may afford coverage as to the matters complained of, or under which a claim was made. Include any policy which refers to consumer protection coverage and any comprehensive general liability policy. 5. All documents identied in response to the above Interrogatories, and all documents referred to or reviewed in preparing the

11

Appx. J.3

Foreclosures
3. Defendant, R & B Funding Group, Inc., D/B/A National Builders (hereinafter R & B) is, upon information and belief, a North Carolina Corporation and originated Plaintiffs mortgage loan together with a mortgage broker, Royal Mortgage & Financial Service Centers, Inc., pursuant to arrangements made by R & B. 4. Defendant, J.P. Morgan Chase Bank (hereinafter J.P. Morgan), is, upon information and belief, the creditor and/or the trust administrator of a trust that is assignee of Plaintiffs loan, or otherwise holds Plaintiffs loan. 5. Defendant Royal Mortgage & Financial Service Centers, Inc. (hereinafter Royal Mortgage), is, upon information and belief, a corporation organized under the laws of North Carolina and performed mortgage brokerage and/or loan origination services pursuant to arrangements made by R & B at times pertinent to the events referenced in this complaint. 6. Defendants Elizabeth B. Weld and David W. Smith are parties to this action only in their capacity as Substitute Trustees of Plaintiffs Deed of Trust, and the only relief sought against Defendant Weld and/or Smith is injunctive relief enjoining foreclosure of the deed of trust. Factual Allegations 7. Plaintiff Betty Consumer is an 82-year-old widow. She is in failing health and has limited understanding of nancial transactions, including the instant transaction. 8. Consumer lives in a modest home on Main Road in Consumerville, in Orange County, North Carolina. She and her late husband purchased this home almost fty years ago, and she has lived there ever since. 9. In the spring of 2002, Consumers son, John Consumer contacted a mortgage broker about renancing Consumers existing mortgage. At that time, Consumers home was secured by a mortgage with Bank of America, Inc. 10. On information and belief, John Consumer contacted an individual named Steve Smith, who, upon information and belief, was employed by Defendant mortgage broker Royal Mortgage. 11. Sometime in March or April 2002, Steve Smith contacted Consumer by calling her on the telephone and informed her that he would arrange for the renancing of Plaintiffs home loan. 12. Steve Smith took information from Plaintiff over the telephone concerning her nances, and upon information and belief, prepared loan application documents for Plaintiff in order to secure a loan with Defendant R & B. 13. At all times relevant hereto, Steve Smith was an employee and agent of defendant Royal Mortgage. 14. Upon information and belief, all contacts with Steve Smith and/or Royal Mortgage, were transacted over the telephone. 15. On approximately April 18, 2002, a loan closing was conducted in Consumers living room. On information and belief, a representative from the law rm of Brock, Scott & Ingersoll went to Consumers home and asked her to sign many documents. Upon information and belief, Defendant R & B, and not Consumer, selected this law rm to be the settlement agent in this transaction. 16. At the time that the loan closed, Consumer signed a HUD-1 Settlement Statement dated April 18, 2002, which listed the various loan related expenses. 17. The amount of the loan was $37,000.00. 18. Among the various fees charged in connection with Plaintiffs loan included a loan origination fee of $395, a mortgage

response to the above Interrogatories, not otherwise called for in these document production requests.

J.3 Action to Enjoin Foreclosure and Bring Affirmative Causes of Action

J.3.1 Complaint
STATE OF NORTH CAROLINA ORANGE COUNTY IN THE GENERAL COURT OF JUSTICE SUPERIOR COURT DIVISION ) ) Plaintiff, ) ) v. ) ) R & B FUNDING GROUP, ) INC., d/b/a National Builders, ) J.P. MORGAN CHASE BANK, ) 02-CVS-0000 as Trustee, ROYAL ) 02-SP-000 MORTGAGE & FINANCIAL ) (Jury Trial Requested) SERVICE CENTERS, INC., ) and ELIZABETH B. WELD ) and DAVID W. SMITH, as ) Substitute Trustees, ) Defendants. ) ) BETTY CONSUMER,

COMPLAINT Plaintiff, complaining of the defendants and in support of her motion for injunctive relief, alleges as follows: Nature of Action 1. Plaintiff brings this action for damages and to enjoin a foreclosure proceeding instituted against her by the current holder of her mortgage loan, J.P. Morgan Chase Bank. She contends that the originator of the loan in question, R & B Funding Group, Inc. acted unlawfully in connection with the origination of a mortgage loan made to her in April, 2002 by failing to comply with North Carolina laws prohibiting the nancing of fees in excess of ve percent of the loan amount, and by failing to ensure that she was provided with nancial counseling prior to consummating this high cost loan. Plaintiff further contends that Royal Mortgage & Financial Service Centers, Inc. which served as her mortgage broker, breached its duciary duty to her. Plaintiff further alleges that the practices of R & B Funding Group, Inc. as well as Royal Mortgage & Financial Service Centers, Inc. constituted unfair and deceptive practices. Parties 2. Plaintiff is a citizen and resident of the town of Consumerville in Orange County, North Carolina.

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Sample Foreclosure Pleadings and Other Litigation Documents

broker fee of $1424.50, a settlement fee of $100, a title search fee of $425, a lender amount of $35, and a doc prep fee of $100. 19. According to the Federal Truth-in-Lending Act Disclosure Statement signed at the closing, Consumer was to pay monthly payments of $298.50 for 30 years. The total of payments as disclosed is $107,460.00. 20. The total of points and fees paid by plaintiffs at or before the loan closing exceeded 5% of the total loan amount, as that term is dened by N.C.G.S. 24-1.1E,3 and were nanced within the loan. 21. The loan was secured against title to plaintiffs principal dwelling, located at Main Road, Consumerville, North Carolina, by a Deed of Trust which is recorded in Book 00 at Page 00 of the Orange County Registry. 22. The proceeds of the loan were primarily for personal, family, or household purposes. 23. Plaintiff was not advised that the loan was a high costhome loan as dened in N.C.G.S. 24-1.1E. 24. Upon information and belief, no party to the transaction received a certication from a counselor approved by the North Carolina Housing Finance Agency verifying that plaintiff had been counseled as to the advisability of the loan transaction. 25. Plaintiff was not counseled by a counselor approved by the North Carolina Housing Finance Agency as to the advisability of the loan transaction. 26. Defendant, R & B had a duty to inform plaintiff that the loan transaction was a high-cost home loan and, as such, that this loan required the various counseling protections and safeguards embraced by Chapter 24 of the North Carolina General Statutes. 27. Defendant, R & B breached this duty and the plaintiff was directly, proximately and foreseeably damaged by the breach of this duty. 28. Upon information and belief, defendant Royal Mortgage did not provide bona de or legitimate mortgage broker services to plaintiff, even though plaintiff was charged $1424.50 by defendant, Royal Mortgage, for mortgage broker services. 29. The loan transaction in question was intended to renance Plaintiffs then existing rst mortgage with Bank of America in the amount of $26,635.37, as indicated by line 1513 on the HUD-1 Settlement Statement. On information and belief, a check was disbursed by the closing agent three days after the loan closing to Bank of America, but said check was neither cashed nor applied to Plaintiffs mortgage account at Bank of America. Bank of America did not satisfy the deed of trust, but instead continued to withdraw monthly payments from Plaintiffs checking account and applied them to her old mortgage account. Plaintiff attempted to make payments to the servicer of the mortgage that is the subject of this action, but as money was being withdrawn from her checking account each month by Bank of America, her checks on the new mortgage bounced. 30. On or about October 17, 2002, Defendant J.P. Morgan Chase Bank as Trustee, through its substitute trustee, Defendants Weld and/or Smith, led a foreclosure action against the plaintiff, alleging that the plaintiff is in default in payments under the terms of the April 2002 loan contract. The foreclosure action is led as 02 SP 000. 31. Plaintiff, who is unsophisticated, did not realize the banks error. After getting several collection calls and letters, she nally
3 [Editors Note: Citations throughout complaint as in original.]

Appx. J.3.1

sought the help of a social worker from the Orange County Department of Aging, who in turn sought assistance from the North Carolina Attorney Generals Consumer Protection Division. As a result of these inquiries, the closing agent resubmitted a check to Bank of America on October 29, 2002, and upon information and belief, Plaintiffs prior mortgage was satised shortly thereafter. 32. Despite being apprised of the circumstances surrounding the failure of the April 2002 lender to pay off Plaintiffs prior mortgage, the substitute trustee refused to delay or stop the foreclosure proceedings. The foreclosure hearing before the clerk was scheduled for November 18, 2002. Count One VIOLATION OF CHAPTER 24 OF THE NORTH CAROLINA GENERAL STATUTES (Against Defendant R & B, and against J.P. Morgan Chase Bank as Trustee in its capacity as assignee or holder of interest in Plaintiffs loan) 33. All paragraphs of this complaint are incorporated herein as if fully restated. 34. The loan transaction in question was: a high-cost home loan which did not exceed the lesser of (i) the conforming loan size limit for a single family dwelling as established by FNMA or (ii) three hundred thousand dollars; and was incurred by natural persons primarily for personal, family, or household purposes; and was secured by a deed of trust against property occupied as the borrowers principal dwelling as dened in N.C.G.S. 24-1.1E. With willful and corrupt intent, the lender, Defendant, R & B, and/or its agents, made and/or arranged the loan without the counseling required under Chapter 24 of the North Carolina General Statutes and specically under N.C.G.S. 24-1.1E9(c). The loan was made without certication from a counselor approved by the North Carolina Housing Finance Agency that the borrowers received counseling on the advisability of the loan transaction and the appropriate loan for the borrowers. These acts and practices entitle Plaintiff to the remedies set out in N.C.G.S. 24-1.1E9d. Defendant R & B, together with Defendants J.P. Morgan, as Trustee, are liable as holders of interests in Plaintiffs loan. Count Two UNFAIR AND DECEPTIVE ACTS AND PRACTICES AS DEFINED IN N.C.G.S. 75-1.1 (Against Defendant R & B, and against J.P. Morgan Chase Bank as Trustee in its capacity as assignee or holder of interest in Plaintiffs loan) 35. All paragraphs of this complaint are incorporated herein as if fully restated. 36. Defendants acts as described above, and particularly those acts specically set out in Count One, proximately damaged Plaintiff, are in and affecting commerce, violate public policy, have the capacity to deceive an ordinary consumer, are unscrupulous, immoral, and oppressive, and constitute unfair and deceptive trade practices under N.C.G.S. 75-1.1, thereby entitling Plaintiff to three times her actual damages plus a reasonable attorneys fee pursuant to N.C.G.S. 75-16 and 75-16.1. The remedy requested pursuant to this count which relates to acts or practices described in Count One

13

Appx. J.3.2

Foreclosures
3. That Plaintiff be awarded, pursuant to Counts Three, an Order that Defendant Royal Mortgage disgorge and pay to Plaintiff all proceeds paid to it and by any party in connection with the transaction. 4. That Plaintiff be awarded, pursuant to Count Four, three times her actual damages plus a reasonable attorneys fee to be paid by Defendant Royal Mortgage; 5. That the foreclosure action brought by the substitute trustees on behalf of Defendant JP Morgan Chase Bank against the Plaintiff be temporarily and preliminary enjoined pending a nal adjudication of this action; 6. That the Court award such other relief as it deems just and proper; 7. That this case be tried by a jury. This the day of November, 2002.

is plead in the alternative to the relief requested pursuant to Count One, as prescribed in N.C.G.S. 24-1.1E(d). Defendant R & B, together with Defendants J.P. Morgan are liable as holders of interests in Plaintiffs loan. Count Three BREACH OF FIDUCIARY DUTIES (Against Defendant Royal Mortgage) 37. All paragraphs of this complaint are incorporated herein as if fully restated. 38. Defendant, Royal Mortgage, upon information and belief, was the employer of and had as its agent Steve Smith, who solicited and intentionally induced the trust, condence and reliance of Plaintiff as her mortgage loan counselor and guide, and Smith and Royal Mortgage occupied the position of Plaintiffs mortgage broker. The position of trust, condence and reliance that Steve Smith and Royal Mortgage occupied with respect to Plaintiff and the position they occupied as Plaintiffs mortgage broker created duciary duties owed by Smith and Royal Mortgage to Plaintiff which were breached by the conduct set forth above, that was done for the sake of self dealing and unjustied prots taken by Smith and Royal Mortgage through the broker fee of $1424.50. 39. Plaintiff is entitled to remedies that include imposition of a constructive trust upon the proceeds of the transaction as were paid to Defendant, Royal Mortgage and Steve Smith, to an order requiring disgorgement of all proceeds paid to Royal Mortgage and Smith and to other legal and equitable remedies to be imposed jointly and severally upon Defendant Royal Mortgage. Count Four UNFAIR AND DECEPTIVE ACTS AND PRACTICES AS DEFINED IN N.C.G.S. 75-1.1 (Against Defendant Royal Mortgage) 40. All paragraphs of this complaint are incorporated herein as if fully restated. 41. The acts of Defendant Royal Mortgage as described above, and particularly those acts specically set out in Count Three, proximately damaged plaintiff, are in and affecting commerce, violate public policy, have the capacity to deceive an ordinary consumer, are unscrupulous, immoral, and oppressive, and constitute unfair and deceptive trade practices under N.C.G.S. 75-1.1, thereby entitling plaintiff to three times her actual damages plus a reasonable attorneys fee pursuant to N.C.G.S. 75-16 and 75-16.1. Request for Relief WHEREFORE, Plaintiff requests: 1. That Plaintiff be awarded, pursuant to Count One, monetary damages in the amount of double recovery of any interest paid on this loan together with a Declaratory Order that the remaining interest due under the loan is forfeited. 2. That Plaintiff be awarded, pursuant to Count Two, three times her actual damages plus a reasonable attorneys fee pursuant to N.C.G.S. 75-16 and 75-16.1, upon the condition that the remedy pursuant to Count Two, is in the alternative to the relief requested pursuant to Count One, as may be required by N.C.G.S. 241.1E(d);

J.3.2 Memorandum in Support of Motion for Preliminary Injunction

STATE OF NORTH CAROLINA ORANGE COUNTY IN THE GENERAL COURT OF JUSTICE SUPERIOR COURT DIVISION ) ) Plaintiff, ) ) v. ) ) R & B FUNDING GROUP, ) INC., d/b/a National Builders, ) J.P. MORGAN CHASE BANK, ) 02-CVS-0000 as Trustee, ROYAL ) 02-SP-000 MORTGAGE & FINANCIAL ) SERVICE CENTERS, INC., ) and ELIZABETH B. WELD ) and DAVID W. SMITH, as ) Substitute Trustees ) Defendants. ) ) BETTY CONSUMER,

PLAINTIFFS MEMORANDUM IN SUPPORT OF MOTION FOR PRELIMINARY INJUNCTION Facts Plaintiff is an unsophisticated, 82-year-old widow. She lives in a modest home on Main Road in Carrboro, in Orange County, North Carolina where she has lived since she and her late husband purchased it almost fty years ago. In the spring of 2002, Consumers son contacted a mortgage broker employed by Defendant Royal Mortgage about renancing Consumers existing mortgage with Bank of America. This mortgage broker called Consumer, took the necessary information from Consumer over the phone and prepared the loan application documents that eventually secured a loan by Consumer with Defendant R & B Funding Group (hereinafter R & B) on approximately April 18, 2002 when the attorneys conducting the closing appeared at Consumers residence to obtain her signature. Defendant R & B rather Consumer selected the law

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Sample Foreclosure Pleadings and Other Litigation Documents

rm that settled this transaction. When the loan was closed, Consumer signed a HUD-1 Settlement Statement, a copy of which is attached to the complaint. According to the Statement, in addition to the loan amount of $37,000.00 and Consumer was nanced a loan origination fee of $395, a mortgage broker fee of $1424.50, a settlement fee of $100, a title search fee of $425, a lender amount of $35, and a doc prep fee of $100. According to the Federal Truth-in-Lending Act Disclosure Statement Consumer also signed at the closing, Consumer was to pay monthly payments of $298.50 for 30 years. The total of payments as disclosed is $107,460.00. The total of these fees paid by Consumer exceeded 5% of the total loan amount, as dened by N.C. Gen. Stat. 24-1.1E4 and such fees were nanced within her loan. Consumer was not advised that the loan was a high cost-home loan as dened in N.C. Gen. Stat. 24-1.1E and was not provided the requisite counseling required by the statute as to the advisability of the loan transaction. The loan transaction in question was intended to renance Plaintiffs then existing rst mortgage with Bank of America in the amount of $26,635.37. Her deed of trust, however, for reasons unknown to Consumer, was not satised. Bank of America continued to withdraw monthly payments from Plaintiffs checking account and applied them to her old mortgage account. As a result of these automatic monthly withdrawals, Consumer was unable, due to her limited xed income, to pay on her new mortgage that is the subject of this action. Plaintiff, who is unsophisticated, did not realize the banks error. After getting several collection calls and letters, she nally sought the help of a social worker from the Orange County Department of Aging, who in turn sought assistance from the North Carolina Attorney Generals Consumer Protection Division. As a result of these inquiries, the closing agent resubmitted a check to Bank of America on October 29, 2002, and upon information and belief, Plaintiffs prior mortgage was satised shortly thereafter. On October 17, 2002, a foreclosure action was led against Consumer, alleging that the plaintiff is in default in payments under the terms of the April 2002 loan contract. Despite being apprised of the circumstances surrounding the failure of the April 2002 lender to pay off Plaintiffs prior mortgage, the substitute trustee refused to delay or stop the foreclosure proceedings. The foreclosure hearing before the clerk was scheduled for November 18, 2002, and an order allowing the sale to proceed was entered that day. A sale of Consumers property is scheduled for . Argument STANDARD FOR ENJOINING FORECLOSURE ACTIONS The statutory scheme of the foreclosure proceedings, N.C. Gen. Stat. 45-21.1 et seq. requires the Court to grant a restraining order when there is bona de controversy as to the debt which should be resolved before a foreclosure sale. The hearing provided for in N.C. Gen. Stat. 45-21.16 is designed to be a summary proceeding, at which the mortgagor may only contest four narrow factual issues (existence of a valid debt, existence of default, trustees right to foreclose, and sufficiency of the notice). It was not intended to settle all matters in controversy between the parties. Golf Vistas, Inc. v. Mortgage Investors, 39 N.C. App. 230, 249 S.E. 2d 815
4 [Editors Note: Citations throughout memorandum as in original.]

Appx. J.3.2

(1978). If a mortgagor feels that equitable or legal defenses to the foreclosure exist, they should be asserted in an action to enjoin the foreclosure sale under N.C. Gen. Stat. 45-21.34. In re Helms, 55 N.C. App. 68, 284 S.E. 2d 553 (1981), cert. denied, 305 N.C. 300, 291 S.E.2d 149 (1982). This statute permits any owner of real estate to apply to a Superior Court judge to enjoin a foreclosure sale upon any legal or equitable ground which the Court may deem sufficient. N.C. Gen. Stat. 45-21.34. Otherwise, a mortgagor will lose his property interest without a full opportunity to defend and could suffer irreparable loss. The standard against which a request for a preliminary injunction to enjoin a foreclosure sale is measured is clear: It is the rule with us that in actions of this character, the main purpose of which is to obtain a permanent injunction, if the evidence raises serious question as to the existence of facts which make for Plaintiffs right, and sufficient to establish it, a preliminary restraining order will be continued to the hearing. If the Plaintiff has shown probable cause or it can reasonably be seen that he will be able to make out his case at the nal hearing, the injunction will be continued. . . . Little v. Wachovia Bank and Trust Co. 208 N.C. 726, 182 S.E. 491 (1935). All benet of the doubt should be accorded to the Plaintiffs in these actions. As the Supreme Court emphasized in Princeton Realty Corp. v. Kalman, 272 N.C. 201, 159 S.E.2d 193, 196 (1967): It is generally proper, when the parties are at issue concerning the legal or equitable right, to grant an interlocutory injunction to preserve the right in status quo until the termination of the controversy, and especially is this the rule when the principal relief sought is in itself an injunction, because a dissolution of a pending interlocutory injunction, or the refusal of one. . . . will virtually decide the case upon its merits, and deprive the Plaintiff of all remedy or relief, even though he should be afterwards able to show ever so good a case. The courts have granted injunctions against a foreclosure sale when there is a serious question as to the amount due or to default. The concern of the court in equity is to preserve the status quo. Moreover, the courts have held the dissolution of an injunction or restraining order before trial on the merits to be reversible error. See, e.g., Princeton Realty Corp. v. Kalman, 272 N.C. 201, 159 S.E.2d 193 (1967) (the lower court erred in dissolving a temporary restraining order prior to a nal hearing on the merits when a serious question as to default coupled with a reasonable apprehension of irreparable injury to the plaintiff exists and when the record indicates the existence of a bona de controversy in which plaintiff may prevail); Golf Vistas, Inc. v. Mortgage Investors, supra (the trustor is entitled to restrain the foreclosure proceeding pursuant to N.C. Gen. Stat. 45-21.34 where questions are raised to default and partial release); Superscope, Inc. v. Kincaid, 56 N.C. App. 673, 289 S.E.2d 595 (1982) (when the record reveals a bona de controversy that should be resolved before the foreclosure sale of corporate property, an order denying a preliminary injunction is reversed).

15

Appx. J.3.3

Foreclosures
DEFENDANT ROYAL MORTGAGE BREACHED FIDUCIARY DUTIES TO PLAINTIFF Plaintiff has alleged that Defendant Royal Mortgage owed Plaintiff a duciary duty by its position as registered mortgage broker/lender. In Johnson v. Insurance Company, 300 N.C. 247, 266 S.E.2d 610 (1980), the Supreme Court described the nature of the relationship between borrower and mortgage broker. The court noted that the broker is manifestly engaged in the business of selling his services in procuring a loan which is most favorable to the needs and resources of the potential borrower, who, in turn, has sought to obtain a broker who can best represent his interests in securing proper nancing. Id., at 261-62. The Court further noted that an exchange of value does occur as the result of this process of securing broker as the representative of the potential borrower. Id. Plaintiff has alleged that these duciary duties were breached by Defendant Royal Mortgages inducing Plaintiff to enter into a loan contract when they knew or should have known of Plaintiffs lack of capacity, and by inducing her to enter into a loan contract with high points and fees. Mortgage Broker Registration Act, N.C. Gen. Stat. 53-238 against Defendant. Plaintiff has also alleged that both Defendants have committed unfair and deceptive trade practices in conjunction with entering into this loan transaction. Conclusion Plaintiff contends that he states a meritorious equitable defense to Defendants R & B and Royal Mortgages claim that she is liable for payment under the promissory note. She has raised several defenses and claims with respect to the transaction. For these reasons, Plaintiffs respectfully request that a preliminary injunction be issued enjoining the foreclosure proceeding pending a nal adjudication of this action. This, the day of 1999

PLAINTIFF HAS RAISED SUBSTANTIAL CLAIMS AGAINST THE DEFENDANTS In the case at bar, the Plaintiff has alleged several separate claims for relief against the Defendants. In 1999, the North Carolina General Assembly enacted Plaintiffs First Cause of Action in her Complaint asserts a claim and seeks damages for Defendant R & Bs violation of Chapter 24 of the North Carolina General Statutes, specically N.C. Gen. Stat. 24-1.1E(c)1. Plaintiffs Second Cause of Action asserts a claim and seeks damages for Defendant R & Bs unfair and deceptive trade practices. Plaintiff bases both claims upon R & Bs nancing of fees in excess of ve percent of the loan amount and failure to ensure that Plaintiff receive nancial counseling prior to consummating a high-cost home loan. Plaintiff also asserts claims and seeks damages for Defendant Royal Mortgages breach of duciary duty and unfair and deceptive trade practices. Should Plaintiff prevail on any one of these grounds, the foreclosure action should be permanently enjoined. Clearly the Plaintiff has raised serious questions and established probable cause to allow the injunction prohibiting the foreclosure sale to continue until a full trial on the merits of Plaintiffs numerous claims can be heard. DEFENDANTS VIOLATION OF CHAPTER 24 OF THE NORTH CAROLINA GENERAL STATUTES A lenders nancing of fees in excess of ve percent of the loan amount is a legal defense to foreclosure. N.C. Gen. Stat. 241.1E(c)(3) provides, In making a high-cost home loan, a lender may not directly or indirectly nance: a. Any prepayment fees or penalties payable by the borrower in a renancing transaction if the lender or an affiliate of the lender is the noteholder of the note being renanced; b. Any points and fees; or c. Any other charges payable to third parties. Given evidence contained in the attached HUD1 Settlement Statement, attached to Plaintiffs complaint, of points and fees paid by Plaintiff, their inclusion within renanced amount and their sum as exceeding ve percent of the loan amount, Plaintiff submits that there is a substantial likelihood that she will prevail on the merits of her claim that Defendant R & B renanced points and fees in excess of ve percent of loan amount within Plaintiffs loan. A lenders failure to ensure that a borrower receive nancial counseling prior to consummating a high-cost home loan is a violation of North Carolinas predatory lending act. N.C. Gen. Stat. 24-1.1E(c)(1) provides, A lender may not make a high-cost home without rst receiving certication from a counselor approved by the North Carolina Housing Finance Agency that the borrower has received counseling on the advisability of the loan transaction and the appropriate loan for the borrower. Given Plaintiff was not advised that the loan was a high-cost home loan or counseled by a counselor approved by the North Carolina Housing Finance Agency as to the advisability of the loan transaction, Plaintiff submits that there is a substantial likelihood that she will prevail on the merits of her claim that Defendant R & B failed to ensure that she receive nancial counseling prior to consummating her highcost home loan.

J.3.3 Memorandum in Support of Application for Preliminary Injunction

CIVIL DISTRICT COURT PARISH OF ORLEANS STATE OF LOUISIANA ) ) ) ) ) ) ) ) v. ) ) BERNICE HOMEOWNER ) AND INEZ HOMEOWNER II ) AS TUTRIX OF ARTHUR ) HOMEOWNER II AND ) AMINA HOMEOWNER II ) Defendants. ) ) DUTCH BANK NATIONAL TRUST COMPANY AMERICAS AS TRUSTEE FOR SOUTH BEACH MORTGAGE LOAN TRUST Plaintiff,

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Sample Foreclosure Pleadings and Other Litigation Documents

MEMORANDUM IN SUPPORT OF APPLICATION FOR PRELIMINARY INJUNCTION I. INTRODUCTION There are four separate, independent reasons why this court should enjoin the pending foreclosure sale and permit Bernice Homeowner to save her home: (1) The loan on which plaintiff has sued was induced by fraudulent misrepresentations, thus vitiating her consent to the loan; (2) Bernice Homeowner signed for the loan only under duress, thus vitiating her consent to the loan; (3) The loan violated the Truth in Lending Act, entitling Ms. Consumer to rescind the loan; and (4) One of the co-owners of the property did not consent to mortgage his interest, and the tutrix for the other co-owners was not authorized to consent to the mortgage at the time of the loan, so this court may not order the sale of the entire property. While all four of these grounds are solidly grounded in fact and law, this court need only agree with any one of them to warrant enjoining the pending sale of Ms. Consumers home. II. FACTS In June, 2000, Defendant Bernice Homeowner inherited a onethird interest in the home her parents had lived in for many years, located at [Address], New Orleans, LA 70118. Her brother, Clarence Consumer also inherited a one-third interest, as did the two surviving minor children of their deceased brother, Arthur Consumer. See the Judgment of Possession, attached hereto as Exhibit 1. Defendant Inez Homeowner II is the natural tutrix of said minors. After residing alone in the family home for some time, Bernice Homeowner was contacted by a loan broker, Northern Mortgage Financing, offering to get her a loan to help her pay for renovations to the home and pay off the existing mortgage loan and a car note. Northern Mortgage took a loan application over the telephone, but falsied on this application key information Ms. Consumer gave to them verbally. Specically, Northern Mortgage put down on the application that Ms. Consumer was employed by Economy Tax Service at a monthly salary of $2,150, whereas in fact she had never been employed by such a company. She was working for a staffing agency, A-1 Medical Staffing, on an as needed basis. At an hourly rate of $8.00-$9.50 per hour, working on average three days a week, her monthly income was less than $1,000 per month. Plaintiffs assignee, South Beach Mortgage, knew or should have known that the alleged income was inated as there was no documentary proof to support it. South Beach Mortgage, however, did not care if her income was inated because it intended to assign the loan, and in any event, the loan was secured and protected by a rst mortgage on the property. As a result of this solicitation by Northern Finance, Bernice Homeowner became another victim of predatory lending practices. On March 26, 2001, under duress and as a result of fraudulent misrepresentations, she took out a high cost, adjustable rate loan for $36,000 from South Beach Mortgage Company. South Beach Mortgage Company is the predecessor in interest of Plaintiff Dutch Bank National Trust Company Americas (hereinafter Dutch Bank). In addition to being assessed fees of approximately $2,500 in up

Appx. J.3.3

front charges for the loan, Ms. Consumer was saddled with a minimum interest rate of 12.75%. As an inducement to entering into this high-cost, high-interest loan, an agent for South Beach Mortgage Company, plaintiffs alleged assignee, informed Ms. Consumer that if she made her monthly payments in a timely fashion for a year, her interest rate on this adjustable rate loan would go down. Despite that promise and without further notice or warning, the promissory note presented to her along with myriad other documents at the closing, provides that the interest rate can only go up from the initial rate of 12.75%, but never down. As a result of this fraud, plaintiff received a loan she could not afford and is now at risk of losing her home. Defendant Bernice Homeowner was also the victim of duress during the closing. Her brother Clarence Consumer, a one-third owner of the property under the Judgment of Possession referenced in paragraph IV of this Petition for Injunction, had walked out of the closing after refusing to sign any papers granting a mortgage on the property. Defendant Bernice Homeowner, who had not yet executed the loan documents, decided to do the same and to withdraw from making the loan. She had every right to do this without cost because, under federal law, she could cancel the loan without cost or fees for up to three days after making it. 15 U.S.C. 1635(a); Regulation Z 226.23(a)(3). When she informed the agents of South Beach Mortgage Company who were present at the closing that she did not want to proceed with the loan, they falsely claimed that they had already paid off the then-existing mortgage against the property, and threatened to le criminal embezzlement charges against her if she did not proceed with the loan. Absent this threat, defendant Bernice Homeowner would not have proceeded with the loan, as she had every right to do without payment of any fees or costs. The mortgage securing the loan from South Beach Mortgage is also defective. It was signed by Bernice Homeowner and Inez Homeowner II, as tutrix, but not by the third owner of the property, Clarence Consumer. Plaintiff Dutch Bank has asserted to the undersigned attorney that Clarence Consumer donated his interest to Bernice Homeowner on the very same day as the mortgage. This assertion is false. As shown by the attached affidavits, Exhibits 2 and 3, the printed signature on the donation is not that of Clarence Consumer, and he was not in Laplace, the alleged location of the signing of the donation, on that date (the closing, which he attended before walking out without signing any documents, was in Metairie at the offices of Goldmine Title). In addition, the mortgage does not identify Ms. Homeowner II as a mortgagor and she had not received authority from the Court to grant such a mortgage at that time. The mortgage was executed on March 26, 2001, but this Court through Judge Smith did authorize her to mortgage the property until two days later, on March 28, 2001. See Exhibit 4, attached hereto. This court order did not purport to grant any retroactive authority to the tutrix. Even if Bernice Homeowner had voluntarily and knowing entered into this loan transaction, and if all formalities had been proper, the pending sale should nevertheless be enjoined because Ms. Consumer has properly rescinded the loan by sending a letter to that effect to South Beach Mortgage Company. (See Exhibit 5, attached hereto.) This notice of rescission is effective under the federal Truth in Lending Act, as is further explained below.

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Foreclosures
III. ARGUMENT how reasonable persons would react to the circumstances. Averette v. Industrial Concepts, Inc., 673 So.2d 642 (La. Ct. App. 1996); see La. Civ. Code art. 1959. Here, plaintiff only signed the mortgage out of fear of prosecution for a criminal offense, a threat which was fabricated from whole cloth. As an unsophisticated consumer, she would not be expected to know that a lender never pays off an existing mortgage until the borrower signs a new one. Her fear of prosecution was real and reasonable. Furthermore, even if the duress had been exerted by someone else at the closing, and not directly by the lender, such third party duress also vitiates Ms. Consumers consent. La. Civ. Code art. 1961. The loan agreement should therefore be rescinded on this basis alone. La. Civ. Code art. 1964. 3. Bernice Homeowner Was Entitled Under the Federal Truth in Lending Act to Rescind the Loan Because South Beach Failed to Deliver Two Copies of a Notice of Right to Cancel As part of the above-referenced consumer credit transaction, Ms. Consumer was entitled to receive from South Beach two copies of a Notice of Right to Cancel within three business days. This notice is required by federal law in order to allow for buyers remorse because the security for the loan is the borrowers home. Semar v. Platte Valley Fed. Sav. & Loan Assn, 791 F.2d 699, 701 (9th Cir. 1986). Mrs. Consumer did not receive two copies of such a Notice. Indeed, if she had, she would have immediately rescinded the transaction because she had wanted to back out of the loan at the time of closing and only proceeded with it under duress. South Beach Mortgage violated 15 U.S.C. 1635(a) (Exhibit 6) and Regulation Z 226.23(b) (Exhibit 7) by failing to comply with the statutory requirement that it deliver to the Plaintiff two copies of the notice of the right to cancel which clearly and conspicuously disclosed the date the rescission period expired. Pursuant to 15 U.S.C. 1635(a) and Regulation Z 226.23(a)(3), Plaintiff has a continuing right to rescind these transactions until the third business day after receiving this notice, for up to three years after the date of consummation of the transaction. 15 U.S.C. 1635(f); see, e.g., Williams v. Gelt Fin. Corp. (In re Williams), 232 B.R. 629 (Bankr. E.D. Pa. 1999), affd, 237 B.R. 590 (E.D. Pa. 1999) (debtor has three years to rescind where creditor failed to give the disclosure statement or notice of right to rescind to her); Smith v. Wells Fargo Credit Corp., 713 F. Supp. 354, 355 (D. Ariz. 1989). In November, 2003, she in fact exercised this right to cancel by causing undersigned counsel to send to South Beach Mortgage by certied U.S. Mail, postage prepaid, return receipt requested, a proper notice of rescission. (See Exhibit 5, attached hereto) This rescission was thus effective and proper, and Plaintiffs right of rescission should be enforced by this court.5 Because the loan upon which this foreclosure action has been led has been rescinded as

This court is urged to grant a preliminary and permanent injunction against the subject foreclosure for four different, independent reasons, each of which individually justies the injunction: (1) The loan on which plaintiff has sued was induced by fraudulent misrepresentations, thus vitiating her consent to the loan; (2) Bernice Homeowner signed for the loan only under duress, thus vitiating her consent to the loan; (3) The loan violated the Truth in Lending Act, entitling her under the Act to rescind the loan; and (4) One of the co-owners of the property did not consent to mortgage his interest, and the tutrix for the other co-owners was not authorized to consent to the mortgage at the time of the loan, so this court may not order the sale of the entire property. 1. This Home Loan Was Induced by Fraudulent Misrepresentations There were two separate and independent acts of fraud here. First, as an inducement to proceeding with this loan, Bernice Homeowner was promised the potential for a reduced interest rate, while in fact the adjustable rate loan she was given provided that rates could only go one wayup. Second, her income was greatly inated to about twice her actual earnings in order to make her appear to qualify for a loan she could not afford. Fraud exists where, as here, material misrepresentations have been made with the intention to obtain an unjust advantage, and the misrepresentations were relied on to the detriment of another. La. Civ. Code art. 1953; see, e.g., Greene v. Gulf Coast Bank, 580 So.2d 712 (La. App. 3 Cir. 1991); Allen v. Noble Drilling, 93-2383 (La. App. 4 Cir. 5/26/94); 637 So.2d 1298. Bernice Homeowner would not have proceeded with this loan if either of the two fraudulent misrepresentations had not been made. She is entitled to rescind this transaction as it was based upon such fraud, and she may also recover damages. La. Civ. Code art. 1958. Even if the two fraudulent misrepresentations were made by the loan broker, Northern Mortgage, and not the lender, South Beach Mortgage, they nevertheless vitiate Ms. Consumers consent to the loan for at least three reasons. First, the broker was acting as agent for South Beach. Second, South Beach had a duty to seek some conrmation of Ms. Consumers income, yet failed to request any documentation whatsoever. And third, under La. Civ. Code art. 1956, Fraud committed by a third person vitiates the consent of a contracting party if the other party knew or should have known of the fraud. 2. Ms. Consumer Signed for the Loan Only Under Duress Which Vitiates Her Consent Consent is vitiated when it has been obtained by duress of such a nature as to cause a reasonable fear of unjust and considerable injury to a partys person, property, or reputation. La. Civ. Code art. 1959. Legal duress is determined by applying subjective as well as objective standards. The subjective element is the partys personal reaction to the circumstances, and objective elements are reasonableness of the fear and unjustness of the injury based on

5 Further, the failure of Dutch Bank to rescind the transaction within 20 days of receipt of the notice of rescission mailed to it on behalf of Plaintiff constitutes an additional violation of the Act and Regulation Z. See, e.g., Gerasta v. Hibernia Natl Bank, 575 F.2d 580 (5th Cir. 1978); Abel v. Knickerbocker Realty Co., 846 F. Supp. 445 (D. Md. 1994); Gill v. Mid-Penn Consumer Discount, 671 F. Supp. 1021 (E.D. Pa. 1987, affd mem., 853 F.2d 917 (3d Cir. 1988); Elliott v. ITT Corp. 764 F. Supp. 102 (N.D. Ill. 1991); Williams v. Gelt Fin. Corp. (In re Williams),

18

Sample Foreclosure Pleadings and Other Litigation Documents

a matter of law, Plaintiff should be preliminarily and permanently enjoined from proceeding with this foreclosure. 4. Plaintiffs Mortgage Is Effective Only with Respect to Bernice Homeowners One-third Interest in the Property and Not with Respect to the Other Two-thirds of the Property Plaintiff Dutch Bank seeks in this foreclosure action to have the entire property located at 123 Main Street, New Orleans, La sold to satisfy the debt of Bernice Homeowner only. Yet Clarence Consumer, one of the three owners of the property, did not borrow money from plaintiff and did not mortgage his interest nor donate it to Bernice Homeowner. In addition, the tutrix for the minor children who own the nal one-third interest did not have authority to mortgage the interest of those minors on the date she purported to sign the mortgage for them. Each of these defects is discussed below. a. A one-third owner did not mortgage his interest Plaintiff Dutch Bank has asserted to the undersigned attorney that, on the very same day as the mortgage, Clarence Consumer donated the interest he inherited in the family home to Bernice Homeowner. The signature on the document purporting to be his donation, however, is forged. As the attached affidavits, Exhibits 2 and 3, show, the printed signature on the donation is not that of Clarence Consumer. Indeed, he was not in Laplace, the alleged location of the signing of the donation, on that date; the closing on the loan, which he walked out of, took place in Metairie, and he proceeded from there to New Orleans. Not surprisingly, the signature of the notary and witnesses on the alleged donation are illegible. Since one of the three co-owners did not sign the mortgage nor donate his interest in the property, this foreclosure action is defective. Further, Plaintiff has failed to name Clarence Consumer as a party to this action even though adjudication of the action in his absence will impair his ability to protect his interest in the property and he is therefore a party needed for just adjudication under La. C.C.P. art. 641(2)(a). b. The tutrix for the other one-third owners did not have authority to mortgage their interest The loan and mortgage were consummated on March 26, 2001. On that date, Inez Homeowner II did not have authority to mortgage the interest of the minors for whom she was tutrix. This authority was subsequently granted by Judge Carolyn Smith on March 28, 2001, but the application for such authority did not reveal that Ms. Homeowner II had already signed a mortgage, and the order did not grant the authority retroactively. (Exhibit 4, attached hereto) The mortgage is thus defective for this reason too. CONCLUSION The mortgage on which plaintiff proceeds was induced by fraud, infected by duress in consummating the loan, contains violations of

Appx. J.3.3

the Truth in Lending Act, and is based on a fraudulent donation and an ineffective grant of authority to mortgage. Any one of these defects justies dismissal of this foreclosure action. At a minimum, a preliminary injunction is clearly warranted. A preliminary injunction is designed to preserve the status quo until a determination can be made on the merits of the controversy. Picard v. Choplin, 306 So.2d 918, 919 (La. App. 3d Cir. 1975). An applicant for injunctive relief is required only to make a prima facie showing that she is entitled to the relief sought and that she will suffer irreparable injury if the relief is not granted. Jo Ellen Smith Psychiatric Hospital v. Harrell, 546 So. 2d 886, 891 (La. App. 1st Cir. 1989); Picard, 306 So. 2d at 919. The preliminary injunction requires less proof than is required in an ordinary proceeding for permanent injunction. Kenner v. New Orleans Aviation Board, 603 So.2d 220, 223 (La. App. 5th Cir.), writ denied, 604 So. 2d 1314 (La. 1992). The trial judge in a preliminary injunction hearing has great discretion to grant or deny the relief sought. Kenner, 603 So.2d at 227; Picard, 306 So.2d at 919. It is apparent that if Ms. Consumer were to lose her home to a foreclosure sale, it would be irreparable injury as she would not be able to obtain an identical dwelling even if she later recovered damages for wrongful foreclosure and eviction. Moreover, where, as here, the actions of the defendant are forbidden by law, no showing of irreparable injury is even needed. Louisiana Associated General Contractors, Inc. v. Calcasieu Parish School Board, 586 So.2d 1354, 1359 (La. 1991); Legislation in Support of Animals v. Vermilion Parish Police Jury, 617 So. 2d 1243, 1247 (La. App. 3d Cir. 1993); Quachita Parish Police July v. American Waste and Pollution Control Company, 606 So. 2d 1341, 1345 (La. App. 2d Cir.), writ denied, 609 So. 2d 234 (La. 1992), cert. denied, 1135 S.Ct. 2339 (U.S. 1993). WHEREFORE, defendant/petitioner Bernice Homeowner respectfully urges this honorable court to dismiss this action or, in the alternative, to issue a preliminary injunction enjoining the Sheriff of Orleans Parish from proceeding with the sale of the property described above, without bond, as provided in La. C.C.P. art. 2753(A)(1). Petitioner further requests judgment in her favor and against plaintiff, making permanent the preliminary injunction, revoking the order of seizure and sale issued on April 25, 2002, and ordering that the Civil Sheriff of Orleans parish restore the quiet possession of the above-described property to petitioner. Respectfully submitted, [Attorney for Defendants]

232 B.R. 629 (Bankr. E.D. Pa. 1999), affd, 237 B.R. 590 (E.D. Pa. 1999). Since, however, this additional violation entitles plaintiff to damages but not injunctive relief, the issue need not be decided by this court at this time.

19

Appx. J.3.4

Foreclosures
obtain information which renders its answer or one of them incomplete or inaccurate, you are obligated to serve amended or supplementary answers on the undersigned. D. For the purposes of these interrogatories, identify, when used with reference to a document or documents, means to state as applicable, the type of document (e.g., installment contract, credit application, letter, memorandum, notes, etc.); the date of the document; the name, address and phone number of its present custodian; and, if a document is no longer in existence, the date and circumstances under which it was destroyed or lost. E. For the purposes of these interrogatories, the terms document or documents refer to all writings and recorded materials, of any kind, that are or have been in possession, control or custody of Defendant or of which Defendant has knowledge, whether originals or copies. Such writings or recordings include, but are not limited to, contracts, documents, notes, rough drafts, inter-office memoranda, memoranda for the les, letters, research materials, correspondence, logs, diaries, forms, bank statements, tax invoices, diagrams, drawings, computer printouts or tapes, reports, statistical computations, studies, graphs, charts, minutes, manuals, pamphlets, or books of all nature and kind whether handwritten, typed, printed, mimeographed, photocopied or otherwise reproduced, all tape recordings (whether for computer, audio or visual replay) or other written, printed and recorded matter of tangible things on which words, phrases, symbols or information are recorded. F. For the purposes of these interrogatories, identify, when used with reference to a person, means to provide the following information for each person: 1. Full name; 2. Whether such person is or was ever an employee of Defendant; 3. Social security number; 4. Job title; 5. Date of initial employment; 6. Professional licenses held; 7. Whether the person has terminated employment with Defendant and, if so, the date each person terminated employment; and 8. The last known address of each person. G. For the purposes of these interrogatories, loan transaction refers to the loan transaction entered into between Plaintiff and Defendant R & B Funding Group, Inc., on approximately April 18, 2002. I. For the purposes of these Interrogatories, the term Defendant refers to Royal Mortgage and Financial Service Centers, Inc. J. For the purposes of these Interrogatories, the term high-cost loan refers to a mortgage loan for more than $20,000, the total points and fees for which exceeds 5% of the total loan amount. Interrogatories 1. Identify the person(s) who answered or participated in answering each of these interrogatories for Defendant. Include the position held by the respondent for Defendant, including the length of time the respondent has held this position, and the duties performed for Defendant. 2. Please state the Defendants correct legal name. 3. Please state any other names which the Defendant uses to identify itself, whether such names are registered with any official, and the date and place of such registration.

J.3.4 Interrogatories and Requests for Production of Documents from Broker

STATE OF NORTH CAROLINA ORANGE COUNTY IN THE GENERAL COURT OF JUSTICE SUPERIOR COURT DIVISION ) ) Plaintiff, ) ) v. ) ) R & B FUNDING GROUP, ) INC., d/b/a National Builders, ) J.P. MORGAN CHASE BANK, ) 02-CVS-0000 as Trustee, ROYAL ) 02-SP-000 MORTGAGE & FINANCIAL ) SERVICE CENTERS, INC., ) and ELIZABETH B. WELD ) and DAVID W. SMITH, as ) Substitute Trustees, ) Defendants. ) ) BETTY CONSUMER,

PLAINTIFFS FIRST SET OF INTERROGATORIES TO DEFENDANT TO: Royal Mortgage & Financial Service Centers, Inc. c/o Joe Broker Post Office Drawer 123 Raleigh, NC YOU ARE REQUIRED, pursuant to North Carolina Rule of Civil Procedure 33,6 to answer, completely, in writing, and under oath, the following interrogatories, and to return your answers to these interrogatories to Plaintiffs attorneys at the addresses indicated below, within thirty days of the date of service of these interrogatories. Pursuant to North Carolina Rule of Civil Procedure 34, Plaintiff requests that Defendant produce the following documents for inspection and copying at the office of Plaintiffs attorney within thirty days of this request. In the alternative, Defendant may provide Plaintiff with legible copies of the requested documents. A. In answering these interrogatories, furnish all information which is available to you, including information which is in the possession of your attorneys, employees or agents of Royal Mortgage & Financial Service Centers, Inc., and not merely such information known of your own personal knowledge. B. If you cannot answer any of the interrogatories in full, after exercising due diligence to do so, state your inability and answer to the extent possible, state reasons for your inability to answer the remainder (including a list of the sources which were consulted for a response) and state whatever information or knowledge you have concerning the unanswered portions. C. Each interrogatory is considered continuing, and if you
6 [Editors Note: Citations throughout discovery as in original.]

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Sample Foreclosure Pleadings and Other Litigation Documents

4. Please identify each person who has knowledge of the facts and/or who participated in the loan transaction, including, but not limited to, the person who reviewed the credit application, processed the application, determined the terms of the nancing agreement, performed the calculations in arriving at the terms of the nancing agreement, and prepared any documents in connection with this transaction. 5. State whether any commission or other special remuneration was paid to any employee of Defendant as a result of the loan transaction. 6. For each commission or other remuneration stated in response to the preceding interrogatory, state: a. The date each commission or other remuneration was paid; b. The amount of commission or other remuneration; and c. How the amount of each commission or other remuneration was determined. 7. Please identify the location of the closing or settlement of the loan transaction. 8. Please identify each person who was present at the closing or settlement of the loan transaction. 9. Identify all documents prepared for or by, received by, or signed by Plaintiff relating to the loan transaction and state: a. The order in which those documents were signed by Plaintiff; b. Which of the documents contained blanks or were not completed at the time they were signed by Plaintiff, and which portions were left blank or incomplete; c. When and by whom the blanks or partially completed forms were lled in or completed; and d. The date(s) each was signed by Defendant and by Plaintiff. 10. State whether the Plaintiff was advised by the Defendant that the loan obtained by Plaintiff during this loan transaction was a high-cost home loan. 11. If the answer to the preceding interrogatory is yes, describe how and when Plaintiff was so advised. 12. Did the Defendant receive certication from a counselor approved by the North Carolina Housing Finance Agency that the borrower has received counseling on the advisability of the loan transaction and the appropriate loan for the borrower, before making its loan to the Plaintiff? 13. Please state whether the Defendant provides training to new employees involved in brokering loans. a. If so, describe the training content, time and duration. b. If so, describe all documents and audio or visual materials used in such training. c. If so, identify each person involved in providing such training. 14. Please state the total amount that Plaintiff has paid to Defendant either directly or indirectly in connection with the transaction in question. Identify each payment individually and state the date of each payment. 15. Please state how long Steve Smith was employed by Defendant. If he is no longer employed, state the reason. Please state his social security number and current address and telephone number. 16. If it is the contention of the Defendant that the Plaintiff received a net tangible benet as a result of the loan transaction, please describe to the best extent possible the facts that support that contention.

Appx. J.3.4

17. Describe fully all the duties that Defendant performed for or on behalf of Plaintiff. 18. Identify any document that you rely on in support of your second defense (Motion to Compel Arbitration). 19. Describe fully all facts that support your contention that Plaintiff has failed to state a claim upon which relief can be granted. 20. Describe fully all facts that support your contention that the doctrine of laches applies as a defense to Plaintiffs complaint. 21. Describe fully all facts that support your contention that the doctrine of waiver and estoppel apply as defenses to Plaintiffs complaint. 22. Describe fully all facts that support your contention that the applicable statute of limitations period ended before Plaintiff entered her complaint. 23. Describe fully all facts that support your contention that the appropriate venue for this action is Wake County. Requests for Production 1. All disclosure statements or other notices given by the Defendant to the Plaintiff regarding the loan transaction. 2. All documents provided by the Defendant to the Plaintiff describing the terms of the loan transaction. 3. The loan application, loan worksheet, application worksheet or other document used in considering the application of the Plaintiff for a loan in connection with the loan transaction that occurred on April 18, 2002. 4. All written communications either by or to the Plaintiff in connection with the loan transaction. 5. All telephone log sheets, internal memoranda, notes or other documents prepared or reecting activity on the Plaintiffs account in connection with the loan transaction. 6. All documents recording, reecting or otherwise relating to visits which the Defendant or its agents made to Plaintiffs home in connection with the loan transaction. 7. All documents you rely on for payment of document preparation fees in connection with the loan transaction. 8. All correspondence between Defendant and R & B Funding Group, Inc. 9. All contracts or agreements you entered into with Plaintiff relating to this loan transaction. 10. A copy of the outside and inside front and back of the le folder on the Plaintiffs loan folder. 11. All documents reecting commission and/or bonuses paid to any individual including, but not limited to, payments to your employees, agents and any loan broker in connection with the loan transaction. 12. Any and all documents which you intend to use or introduce at trial. This is the day of January, 2003.

21

Appx. J.3.5

Foreclosures
supplementary answers on the undersigned. D. For the purposes of these interrogatories, identify, when used with reference to a document or documents, means to state as applicable, the type of document (e.g., installment contract, credit application, letter, memorandum, notes, etc.); the date of the document; the name, address and phone number of its present custodian; and, if a document is no longer in existence, the date and circumstances under which it was destroyed or lost. E. For the purposes of these interrogatories, the terms document or documents refer to all writings and recorded materials, of any kind, that are or have been in possession, control or custody of Defendant or of which Defendant has knowledge, whether originals or copies. Such writings or recordings include, but are not limited to, contracts, documents, notes, rough drafts, inter-office memoranda, memoranda for the les, letters, research materials, correspondence, logs, diaries, forms, bank statements, tax invoices, diagrams, drawings, computer printouts or tapes, reports, statistical computations, studies, graphs, charts, minutes, manuals, pamphlets, or books of all nature and kind whether handwritten, typed, printed, mimeographed, photocopied or otherwise reproduced, all tape recordings (whether for computer, audio or visual replay) or other written, printed and recorded matter of tangible things on which words, phrases, symbols or information are recorded. F. For the purposes of these interrogatories, identify, when used with reference to a person, means to provide the following information for each person: 1. Full name; 2. Whether such person is or was ever an employee of Defendant; 3. Social security number; 4. Job title; 5. Date of initial employment; 6. Professional licenses held; 7. Whether the person has terminated employment with Defendant and, if so, the date each person terminated employment; and 8. The last known address of each person. G. For the purposes of these interrogatories, loan transaction refers to the loan transaction entered into between Plaintiff and Defendant R & B Funding Group, Inc., on approximately April 18, 2002. I. For the purposes of these Interrogatories, the term Defendant refers to R & B Funding Group, Inc. J. For the purposes of these Interrogatories, the term high-cost loan refers to a mortgage loan for more than $20,000, the total points and fees for which exceeds 5% of the total loan amount. Interrogatories 1. Identify the person(s) who answered or participated in answering each of these interrogatories for Defendant. Include the position held by the respondent for Defendant, including the length of time the respondent has held this position, and the duties performed for Defendant. 2. Please state the Defendants correct legal name. 3. Please state any other names which the Defendant uses to identify itself, whether such names are registered with any official, and the date and place of such registration. 4. Please identify each person who has knowledge of the facts and/or who participated in the loan transaction, including, but not

J.3.5 Interrogatories and Request for Production of Documents from Lender

STATE OF NORTH CAROLINA ORANGE COUNTY IN THE GENERAL COURT OF JUSTICE SUPERIOR COURT DIVISION ) ) Plaintiff, ) ) v. ) ) R & B FUNDING GROUP, ) INC., D/B/A National Builders, ) J.P. MORGAN CHASE BANK, ) 02-CVS-0000 02-SP-000 as Trustee, ROYAL ) MORTGAGE & FINANCIAL ) SERVICE CENTERS, INC., ) and ELIZABETH B. WELD ) and DAVID W. SMITH, as ) Substitute Trustees ) Defendants. ) ) BETTY CONSUMER, PLAINTIFFS FIRST SET OF INTERROGATORIES AND REQUEST FOR PRODUCTION OF DOCUMENTS TO: R & B Funding Group, Inc. c/o Joe Lender P.O. Box 11111 Durham, NC YOU ARE REQUIRED, pursuant to North Carolina Rule of Civil Procedure 33,7 to answer, completely, in writing, and under oath, the following interrogatories, and to return your answers to these interrogatories to Plaintiffs attorneys at the addresses indicated below, within thirty days of the date of service of these interrogatories. Pursuant to North Carolina Rule of Civil Procedure 34, Plaintiff requests that Defendant produce the following documents for inspection and copying at the office of Plaintiffs attorney within thirty days of this request. In the alternative, Defendant may provide Plaintiff with legible copies of the requested documents. A. In answering these interrogatories, furnish all information which is available to you, including information which is in the possession of your attorneys, employees or agents of R & B Funding Group, Inc., and not merely such information known of your own personal knowledge. B. If you cannot answer any of the interrogatories in full, after exercising due diligence to do so, state your inability and answer to the extent possible, state reasons for your inability to answer the remainder (including a list of the sources which were consulted for a response) and state whatever information or knowledge you have concerning the unanswered portions. C. Each interrogatory is considered continuing, and if you obtain information which renders its answer or one of them incomplete or inaccurate, you are obligated to serve amended or
7 [Editors Note: Citations throughout discovery as in original.]

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Sample Foreclosure Pleadings and Other Litigation Documents

limited to, the person who reviewed the credit application, processed the application, determined the terms of the nancing agreement, performed the calculations in arriving at the terms of the nancing agreement, and prepared any documents in connection with this transaction. 5. State whether any commission or other special remuneration was paid to any employee as a result of the loan transaction. 6. For each commission or other remuneration stated in response to the immediately preceding interrogatory, state: a. The date each commission or other remuneration was paid; b. The amount of commission or other remuneration; and c. How the amount of each commission or other remuneration was determined. 7. State whether any commission or other special remuneration was paid to any employee as a result of the loan transaction. 8. For each commission or other remuneration stated in response to the immediately preceding interrogatory, state: a. The date each commission or other remuneration was paid; b. The amount of commission or other remuneration; and c. How the amount of each commission or other remuneration was determined. 9. Please identify the location of the closing or settlement of the loan transaction. 10. Please identify each person who was present at the closing or settlement of the loan transaction. 11. Please state whether the Plaintiff was granted the right to select the attorney that served as the settlement agent in the loan transaction from an approved list or otherwise. 12. Identify all documents prepared for or by, received by, or signed by Plaintiff relating to the loan transaction and state: a. The order in which those documents were signed by Plaintiff; b. Which of the documents contained blanks or were not completed at the time they were signed by Plaintiff, and which portions were left blank or incomplete; c. When and by whom the blanks or partially completed forms were lled in or completed; and d. The date(s) each was signed by Defendant and by Plaintiff. 13. At the time of the loan transaction, describe Defendants policy, if any, with respect to determining whether a borrower received a benet from renancing an existing loan with a new high-cost home loan. Explain fully the criteria the Defendant applied in determining which customers received a tangible net benet. 14. State whether the Plaintiff was advised that the loan she was getting was a high-cost home loan. If so, describe how, by whom and when she was so advised. 15. State whether Defendant received certication from a counselor approved by the North Carolina Housing Finance Agency that the borrower has received counseling on the advisability of the loan transaction and the appropriate loan for the borrower, before making its loan to the Plaintiff. 16. Please describe how Defendant determined the nance charges to be imposed in the loan transaction. 17. Please state whether the Defendant provided training on the new provisions of North Carolinas restrictions on high cost home loans to employees involved in originating mortgage loans in North Carolina during the time period from January, 2000 to the present. a. If so, describe the training content, time and duration.

Appx. J.3.5

b. If so, describe all documents and audio or visual materials used in such training. c. If so, identify each person involved in providing such training. 18. Please state the total amount that Plaintiff has paid to Defendant in connection with the transaction in question. Identify each payment individually and state the date of each payment. 19. Please describe the steps taken by the Defendant to pay off the mortgage loan that Plaintiff had with Bank of America, account no. 0000-0000-000, at the time she entered into this loan transaction. 20. If it is the contention of the Defendant that the Plaintiff received a net tangible benet as a result of the loan transaction, please describe to the best extent possible the facts that support that contention. 21. For each year beginning with 2000 to the present, state the following: a. The total number of mortgage loans entered into by the Defendants branch office that originated Plaintiffs loan; b. The total number of mortgage loans entered into by the Defendants branch referenced above in which a high-cost home loan was procured by a borrower; c. The total income, commission, or other remuneration received by employees of Defendant as a result of the origination of loans in North Carolina; d. The total number of branch offices owned by Defendant R & B Funding Group, Inc. 22. Please identify the entity to which Defendant sold, assigned or otherwise transferred Plaintiffs loan, and the date on which the sale or assignment occurred. State the remuneration received by Defendant for selling, assigning, or transferring Plaintiffs loan. 23. Describe to the fullest extent you can what the Loan Origination Fee charged to Plaintiff in connection with this loan transaction in the amount of $395.00 was used for. 24. Describe to the fullest extent you can what the Mortgage Broker Fee charged to Plaintiff in connection with this loan transaction in the amount of $1424.50 was used for. 25. Describe to the fullest extent you can what the Settlement or Closing Fee charged to Plaintiff in connection with this loan transaction in the amount of $100.00 was used for. 26. Describe to the fullest extent you can what the Title Search fee charged to Plaintiff in the amount of $425.00 was used for. 27. Describe to the fullest extent you can what the Lender Notication Fee, charged to Plaintiff in connection with this loan transaction in the amount of $35.00 was used for. 28. Describe to the fullest extent you can what the Document Prep. Fee, charged to Plaintiff in connection with this loan transaction in the amount of $100.00 was used for. 29. If it is the Defendants contention that any of the following fees should not be included in calculating the high cost home loan threshold contained in 24-1.1E(a)(6), please state, to the fullest extent you can, all the facts which support your contention: a. Loan Origination Fee in the amount of $395.00; b. Mortgage Broker Fee in the amount of $1424.50; c. Document Fee in the amount of $35.00. Requests for Production 1. All disclosure statements or other notices given by the Defendant to the Plaintiff regarding the loan transaction.

23

Appx. J.4

Foreclosures
22. Any and all documents contained in Plaintiffs loan le. 23. Any and all documents which you intend to use or introduce at trial. This is the day of March, 2003.

2. All documents provided by the Defendant to the Plaintiff describing the terms of the loan transaction. 3. The notice(s) of right to cancel given to the Plaintiff in connection with the loan transaction. 4. The loan application, loan worksheet, application worksheet or other document used in considering the application of the Plaintiff for a loan in connection with the loan transaction that occurred on April 18, 2002. 5. The settlement statement, commitment letter and any worksheet or other document used to prepare the federal disclosure statement in the loan transaction. 6. All written communications either by or to the Plaintiff in connection with the loan transaction. 7. All written communications either by or to any other Defendant in the present case in connection with the loan transaction. 8. All telephone log sheets, internal memoranda, notes or other documents prepared or reecting activity on the Plaintiffs account in connection with the loan transaction. 9. All documents recording, reecting or otherwise relating to visits which the Defendant or its agents made to Plaintiffs home in connection with the loan transaction. 10. All documents that reect payment of a $35.00 Document Fee to Document Systems (as indicated on line 808 of Plaintiffs HUD-1 Settlement Statement). 11. All documents that reect fees, commissions or other payment made to any party, including the Plaintiff, in connection with the loan transaction, including but not limited to, contracts, bills, cancelled checks and other back-up documentation for such payment. 12. All documents relating to any fees, commission or payments received by the Defendant in connection with the loan transaction from the Plaintiff. 13. All documents relating to any fees, commission or payments received by the Defendant in connection with the loan transaction from anyone other than the Plaintiff. 14. All contracts, agreements, correspondence, records of communication or other documents reecting interaction with any loan broker who was paid in the loan transaction. 15. All materials used by Defendant since January 1, 1998 to train its staff in conducting due diligence or otherwise reviewing loan les before acquiring loans. 16. All documents relating to any internal inspection procedures you used at the time of the loan transaction to insure that your employees or agents were complying with the new limitations on high cost home loans set forth by 24-1.1E of the North Carolina General Statutes. 17. A copy of the outside and inside front and back of the le folder on the Plaintiffs loan account. 18. Copies of both sides of each and every check issued or received in connection with the loan transaction. 19. All documents reecting commission and/or bonuses paid to any individual including, but not limited to, payments to your employees, agents and any loan broker in connection with the loan transaction. 20. All documents related in any way to any criteria or system used to determine the Plaintiffs credit worthiness. 21. All documents used in choosing, determining, setting, changing or adjusting the interest rate in the transaction, including any documents related to how the amount of the interest rate relates to the Plaintiffs individual circumstances.

J.4 Memorandum in Support of Motion to Redeem

Superior Court Homeamerican Credit Inc. dba Overland Mtg v. Mary Ellen G. Homeowner, et al. ) ) ) ) ) ) ) ) )

MEMORANDUM OF LAW IN SUPPORT OF MOTION TO REDEEM BY STATUTORY RESCISSION AND MOTION TO DISMISS Defendant Mary Ellen Homeowner hereby invokes her right to redeem legal title to her property because she has exercised her statutory right to rescind HomeAmericans8 mortgage pursuant to the federal and state Truth in Lending Acts (TILA). Ms. Homeowner asks the Court to hold an evidentiary hearing during which she will prove that she lawfully rescinded HomeAmericans mortgage pursuant to TILA and has thereby redeemed legal title to her property. Statutory rescission under TILA is a permissible method of exercising the equitable right of redemption, and Ms. Homeowner continued to have a right to rescind despite the judgment against her. Ms. Homeowners right to redeem legal title to her property arose when she executed the mortgage. Under Connecticut law, a mortgagor continues to have the right of redemption until the right is extinguished by conrmation of a foreclosure sale or by passage of the mortgagors law day in strict foreclosure. Paying a debt in full is not the sole method of exercising the right of redemption. Connecticut and federal law permit alternate methods of redemption. Lawfully rescinding a mortgage transaction is one such alternate method. Ms. Homeowner has a right to rescind this mortgage under TILA because HomeAmerican committed a material violation of TILAs disclosure requirements. The Truth in Lending Acts establish that mortgagors have a three-day right to rescind certain mortgages, including the mortgage at issue in this case. A mortgagor gains an extended right to rescind under TILA when the mortgage creditor commits a material violation of the Acts. The
8 On December 28, 2006 Defendant Ace Bank moved to be substituted as the plaintiff in this action on the grounds that it has been assigned the mortgage loan at issue and that it now holds Ms. Homeowners mortgage. This substitution does not affect Ms. Homeowners arguments in this motion because 15 U.S.C. 1641(c) and C.G.S. 36a-683(k)(3) provide that assignment does not affect a mortgagors statutory right of rescission and that the assignee is equally liable for rescission.

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Sample Foreclosure Pleadings and Other Litigation Documents

extended right persists for three-years or until the sale or transfer of the mortgaged property. The extended right may also be exercised by way of recoupment at any time. 15 U.S.C. 1635(i)(3); Beach v. Ocwen Federal Bank, 523 U.S. 410, 418 n.6 (1998); 1 Renee B. Bollier, et al., Stephensons Connecticut Civil Procedure 85(f) at 261 (3d ed. 2002). A judgment of foreclosure by sale does not constitutes a sale or transfer under TILA, nor does it extinguish the mortgage, until the mortgagor loses her equity of redemption upon conrmation of the sale. Ms. Homeowner exercised her statutory right to rescind after a judgment of foreclosure by sale but before any sale was held. Because the sale has not yet been held, let alone conrmed, Ms. Homeowner still owned the equity of redemption at the time she rescinded the mortgage. Because statutory rescission under TILA voids a mortgage, it restores legal title to the mortgagor and therefore acts as a form of exercising the common law right of redemption. I. FACTS Ms. Homeowner executed a promissory note and mortgage on her property with HomeAmerican on October 24, 2001 (the transaction). At that time HomeAmerican failed to provide Ms. Homeowner with copies of the mandatory TILA disclosures in the manner required by the Acts. See 15 U.S.C. 1631 et seq. HomeAmerican led this foreclosure action against Ms. Homeowner on June 24, 2003. The Court entered a default judgment of foreclosure by sale on November 3, 2003 (Dkt. #100.00). On July 1, 2004 HomeAmerican moved to open the judgment (Dkt. #101.00). A little over two weeks later, on July 16, 2004, Ms. Homeowner led an Answer and Special Defenses (Dkt. #113.00) denying the allegations of the complaint and raising a special defense stating: The defendant is entitled to rescind the mortgage transaction on account of the failure of the plaintiff to provide to her material disclosures as required by the Truth in Lending Act. On the same day, Ms. Homeowner notied HomeAmerican by letter that she was exercising her right to rescind the transaction because HomeAmerican had violated the Truth in Lending Acts and thereby exercised her equitable right of redemption. See Exh. A (copy of rescission notice). The Court granted HomeAmericans motion to open the judgment on July 19, 2004 (Dkt. #112.00) and entered a new judgment of foreclosure by sale (Dkt. #114.00) without regard to Ms. Homeowners Answer and Special Defenses. HomeAmerican responded to Ms. Homeowners TILA rescission by letter on August 2, 2004 and refused to rescind the mortgage. See Exh. B (letter from Overland Mortgage). The case was subsequently stayed when Ms. Homeowner led a bankruptcy petition. HomeAmerican later obtained relief from the stay and moved to reopen the judgment of foreclosure by sale on February 3, 2006 (Dkt. #121.00). The Court heard this motion at short calendar on December 18, 2006 and set a sale date of April 28, 2007. The Court has not yet granted Ms. Homeowner an opportunity to prove she has exercised her right of redemption by rescinding the mortgage transaction under TILA. There is also another foreclosure action pending against Ms. Homeowner and her property. That case, First Union Natl Bank v. Homeowner, AAN-CV-03-000000-S also resulted in a default judgment of foreclosure by sale. The First Union sale is also scheduled for April 28, 2007. Ms. Homeowner does not contest the validity of the First Union mortgage, which has priority over HomeAmericans mortgage. Ms. Homeowners property is esti-

Appx. J.4

mated to be worth approximately $600,000, which is substantially more than the value of the First Union debt and other liens. See Affidavit of Appraiser (attached as Exh. C). It is reasonable to anticipate that a foreclosure sale will produce sufficient funds to pay the liens on Ms. Homeowners property. Assuming the Court nds that Ms. Homeowner properly exercised her right to rescind the HomeAmerican mortgage, Ms. Homeowner plans to tender the appropriate amount of funds to HomeAmerican, as set forth in TILA and Regulation Z, from the surplus funds remaining after the First Union foreclosure sale. II. ARGUMENT MORTGAGORS MAY REDEEM LEGAL TITLE TO REAL PROPERTY BY RESCINDING A MORTGAGE PURSUANT TO THE TRUTH IN LENDING ACT The nature of mortgages and foreclosure actions is consistent with allowing statutory rescission under TILA to be used as a method of exercising the common law equitable right of redemption before a foreclosure sale is conrmed and despite the entry of a foreclosure judgment. Furthermore, mortgage and foreclosure law in Connecticut must be interpreted consistently with the Federal and Connecticut Truth in Lending Acts. Statutory rescission under TILA unwinds a mortgage transaction and restores the mortgagor and mortgagee to their positions prior to consummating the mortgage loan. The equitable right of redemption enables a mortgagor to redeem legal title to the mortgaged property from the mortgagee. Connecticut law allows mortgagors in a foreclosure action to redeem legal title to their property until a foreclosure sale has been conrmed. The Truth in Lending Act allows mortgagors, in appropriate circumstances, to rescind mortgages until the right of redemption is extinguished. Interpreting these laws harmoniously means that mortgagors in a foreclosure action, who have a legitimate right to rescind a mortgage under TILA, may use statutory rescission to exercise their right of redemption until the mortgage foreclosure sale is nal. A. The Nature of Mortgages A mortgage is granted as security for a debt. See McKelvey v. Creevey, 72 Conn. 464, 467 (1900). The grant of a mortgage deed under Connecticut law is considered to convey the mortgagors legal title to the property to the mortgagee. Red Rooster Constr. Co. v. River Assoc., Inc., 224 Conn. 563, 570 (1993). Connecticut follows the title theory of mortgages, meaning that upon the execution of a mortgage on real estate, the mortgagee gains legal title to the property and the mortgagor continues to hold equitable title to the property. . . . Mortgage Electronic Registration Systems, Inc. v. White, 278 Conn. 219, 231 (2006). The mortgagees legal title is a defeasible fee subject to an equitable right of redemption that persists until it is foreclosed. Id. The mortgagors equitable interest in the property, commonly known as the equity of redemption, is the right to redeem, or reclaim, legal title to the property. In this view of the matter the equity of redemption is regarded as the land, and its owner as the owner of the land, for most purposes; while the estate in fee of the mortgagee is, except for a limited purpose, regarded as personal estate and mere security. McKelvey, 72 Conn. at 467. At the same time, however, we have recognized that the law of mortgages is built primarily on a series of legal ctions[.] Red Rooster

25

Appx. J.4

Foreclosures
LEXIS at *4 (citing Washington Trust Company v. Smith, 241 Conn. 734, 743 (1997)). [U]nder the Connecticut foreclosure-bysale statutes, ratication or conrmation is the determinative element of such foreclosure. In re Loubier, 6 B.R. at 302 (citing Mariners Savings Bank v. Duca, 98 Conn. 147 (1922)). Once the court conrms the sale, the order of conrmation relates back to the sale. Id. at 302 (citing Raymond v. Gilman, 111 Conn. 605, 613 (1930)). Champion Mortgage v. Sheehan is signicant because it shows that a homeowner is not required to make a classic redemption by paying the mortgage debt in order to exercise the right of redemption. Sheehan, 2005 Conn. Super. LEXIS at *4-5. The homeowner in Sheehan arranged a re-extension of credit by the mortgagee and the court upheld this alternate method of redemption. Id. at *5. The case of In re Walker, 232 B.R. 725 (Bankr. N.D. Ill. 1999) is also illustrative. Walker mortgaged her house and a default judgment was entered against her in a foreclosure action. Id. at 729. She led a bankruptcy petition two days before the foreclosure sale and before her redemption period expired. Id. In bankruptcy court she invoked the right to rescind the mortgage transaction under TILA. The lender argued the default judgment barred her from doing so, even in bankruptcy, because the judgment was nal and protected by collateral estoppel and res judicata. Id. at 731. The bankruptcy court rejected that argument because Walkers right to redeem had not expired and therefore the foreclosure judgment was not nal as to her interest in the property. Id. at 733. Accordingly the Walker court denied the lenders motion for summary judgment and permitted litigation over the merits of Walkers TILA claim. C. The Truth in Lending Act The federal Truth in Lending Act was enacted as an attempt to resolve problems of over-reaching by certain creditors in the consumer-credit industry by means of imposing unknown and often unknowable nance charges upon consumers. In re Russell, 72 B.R. 855, 861 (Bankr. E.D. Pa. 1987). The problem addressed by the Act was that, due to their leverage arising from production of adhesion contracts, the credit industry was imposing charges upon consumers of which consumers were ignorant. The theory of the TILA was that, by requiring creditors to inform consumers, in standardized disclosure terms, of the cost of credit, consumers would be enlightened about these terms and would be able to shop for credit. The philosophy of Let the buyer beware was, thus, per former Chief Justice Burger, transformed into the philosophy of Let the seller [or lender] disclose. Id. at 861 (citations omitted) (citing Mourning v. Family Publications Service, 411 U.S. 356, 364-65 (1973)). The federal and state9 Truth in Lending Acts both express the intention to promote economic stabilization, increased competition, and serve the interests of consumers[.] 15 U.S.C. 1601(a); C.G.S. 36a-677(a). The Connecticut and federal versions of TILA have identical disclosure requirements and any violation of the federal Act is automatically deemed a violation of the state Act. Stone & Stone Pension Plan v. Alston, 12 Conn. App. 670, 673 (1987); C.G.S. 36a-678 (mandating compliance
9 Connecticut enacted its own version of TILA to obtain the right to enforce the Act itself. See C.G.S. 36a-677(b)-(c). For purposes of this case, however, there is no difference between the federal and state Acts.

Constr. Co., 224 Conn. at 569. Aside from this legal ction, the law is well settled that . . . the mortgagor before foreclosure is the owner of the property . . . while the interest of the mortgagee is mere personal estate[.] Id. at 570 (quoting Waterbury Savings Bank v. Lawler, 46 Conn. 243, 245 (1878)). In the case of a typical residential mortgage loan, the mortgagor normally exercises his equity of redemption by paying the debt secured by the mortgage in the course of selling or renancing the mortgaged property. The proceeds of the sale or renancing are applied to satisfy the debt resulting in release of the original mortgage. The typical residential mortgage loan contract permits prepayment of the debt at any time. The mortgage is nothing without the debt secured thereby. If the debt is void it follows that the mortgage is void. It would be impossible for there to be a void debt secured by a valid mortgage. Ferrigno v. Cromwell Dev. Assocs., 244 Conn. 189, 200 n.9 (Conn. 1998) (quoting Leventhal v. Martucci, 3 Conn. Supp. 22 (1935)). If [a] conveyance to [someone] was a void conveyance of the legal title, then it is no conveyance, and the legal title still remains in its original holder. New Haven Sav. Bank & Bldg. Asso. v. McPartlan, 40 Conn. 90, 95 (1873). Applied to a mortgage deed, if the mortgage is void, then the mortgagor retains legal and equitable title to the property. Similarly, as explained in Leventhal v. Martucci, 3 Conn. Supp. 22 (1935), if the debt associated with the mortgage is void, the mortgage is automatically void too by operation of law. B. The Nature of Foreclosures A foreclosure suit is the process of foreclosing, or terminating the mortgagors equitable title to the property. MERS, 278 Conn. at 229 (quoting Natl City Mortg. Co. v. Stoecker, 92 Conn. App. 787, 793 (2006) (Generally, foreclosure means to cut off the equity of redemption, the equitable owners right to redeem the property. . . . The equity of redemption can be cut off either by sale or by strict foreclosure.)). Where there is a judgment of foreclosure by sale in Connecticut, the law is that the right[s] of a mortgagor . . . in mortgaged property are terminated by conrmation of a foreclosure sale. . . . In re Loubier, 6 B.R. 298, 303 (Bankr. D. Conn. 1980); MERS, 278 Conn. at 230. The judgment of foreclosure by sale itself, while a necessary step in the foreclosure process, does not terminate the owners equity title. A foreclosure judgment is interlocutory in nature D. Caron, Connecticut Foreclosures at 68, 108 (1981). A nal judgment of foreclosure by sale has been held anything but nal. Valente v. Savings Bank of Rockville, 34 B.R. 362, 365 (D. Conn. 1983). Even the sale of the property at auction does not extinguish the mortgagors interest in the property. See, e.g., Champion Mortgage v. Sheehan, 2005 Conn. Super. LEXIS 3099 (2005) (allowing mortgagor to redeem after highest bidder at auction paid deposit, received Bond for Deed, and Committees motion to approve sale was marked-off short calendar) (attached as Exh. D). The owner retains the equitable title from the time he mortgages the property until the debt is paid or until a court conrms a foreclosure by sale. The mortgage itself remains independent of the judgment on the debt and is not said to merge with the judgment until the judgment becomes nal. See Valente, 34 B.R. at 363, 365. Accordingly [i]t is well established that the fee owners right of redemption or equity of redemption is not extinguished until the court has approved the foreclosure sale. Sheehan, 2005 Conn. Super.

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Sample Foreclosure Pleadings and Other Litigation Documents

with all provisions of the Consumer Credit Protection Act (15 USC 1601 et seq.)); C.G.S. 36a-683(a) (setting forth liability for disclosure violations). Courts in the 2nd Circuit and elsewhere have long held that TILA is a remedial act intended to protect consumers. Belmont v. Associates Natl Bank (Del.), 119 F. Supp. 2d 149, 159 (E.D.N.Y. 2000) (citing N. C. Freed Co. v. Board of Governors of Fed. Reserve Sys., 473 F.2d 1210, 1214 (2d Cir. 1973)); Dauti v. Hartford Auto Plaza, Ltd., 213 F. Supp.2d 116, 121 (D. Conn. 2002) (TILA is a remedial statute, it is interpreted strictly in favor of the consumer.); Ellis v. General Motors Acceptance Corp., 160 F.3d 703, 707 (11th Cir.1998). When applying the terms of the Act, it must be given a broad liberal construction in favor of the consumer. Belmont, 119 F.Supp.2d at 159 (quoting Begala v. PNC Bank, Ohio, Natl Assn, 163 F.3d 948, 950 (6th Cir.1998), cert. denied, 528 U.S. 868, 120 S.Ct. 166, 145 L.Ed.2d 141 (1999)). A consumer need not prove that they were mislead or suffered any actual damages from the purported TILA violations. In re Ameriquest Mortg. Co. Mortg. Lending Practices Litig., 2006 U.S. Dist. LEXIS 35316 at * 8 (N.D. Ill. 2006) (attached as Exh. E) (citing Brown v. Marquette Sav. & Loan Assoc., 686 F.2d 608, 614 (7th Cir. 1982)). Even [t]echnical violations of the disclosure provisions are enforced under the Act without differentiation. Dauti, 213 F. Supp.2d at 121. As the 7th Circuit has said, hypertechnicality reigns in the application of TILA. Smith v. Cash Store Mgmt., 195 F.3d 325, 328 (7th Cir. 1999); Cowen v. Bank United of Texas, FSB, 70 F.3d 937, 941 (7th Cir. 1995). The District of Connecticut has also stated The requirements of the TILA are highly technical but full compliance is required. . . . Even minor violations of the Act can not be ignored. Clement v. Am. Honda Fin. Corp., 145 F. Supp. 2d 206, 210 (D. Conn. 2001) (quoting Griggs v. Provident Consumer Discount Co., 503 F. Supp. 246, 250 (E.D. Pa. 1980)). D. Statutory Rescission Under TILA Rescission is the most signicant consumer right established by TILA. The Acts create a three-day right to cancel a loan for any reason where the loan is secured by a borrowers residence. See 12 C.F.R. 226.23(a); 15 U.S.C. 1635; C.G.S. 36a-683. The existence of the three-day right to cancel must, itself, be disclosed before consummation of the transaction, usually at the mortgage closing. 12 C.F.R. 226.23(b); 15 U.S.C. 1635(a); C.G.S. 36a-683. When a consumer decides to exercise his right to cancel, the consumer is normally required to notify the lender in writing at an address designated by the lender. 12 C.F.R. 226.23(a). The Federal Reserve Board has issued two model forms that lenders can use to properly disclose the existence of the three-day right to cancel. See Reg. Z, App. H. If a lender commits a material violation of TILA, as Ms. Homeowner asserts in this case, the three-day right to cancel is extended for up to three years. C.G.S. 36a-683; 15 U.S.C. 1635. Id. Although a sale or transfer of the property prior to rescission will cut-off the three-year period, foreclosure does not cut-off or extinguish the mortgagors statutory right to rescind unless there has been a nal foreclosure sale . . . and the redemption period has expired. Walker, 232 B.R. at 732; 12 C.F.R. 226.23(a)(3). Similarly, renancing a rescindable transaction does not extinguish the right to rescind the transaction under TILA even though the original debt itself has been extinguished. Barrett v. Ace Bank,

Appx. J.4

N.A., 445 F.3d 874, 876, 880-81 (6th Cir. 2006) (rejecting the cursory analysis of King v. California, 784 F.2d 910 (9th Cir. 1986)); Handy v. Anchor Mortg. Corp., 464 F.3d 760, 766 (7th Cir. 2006); McKenna v. First Horizon Home Loan Corp., 2006 U.S. Dist. LEXIS 18793 (D. Mass. 2006) (attached as Exh. F) (magistrate recommendation accepted by McKenna v. First Horizon Home Loan Corp., 429 F. Supp. 2d 291 (D. Mass. 2006)); Pacic Shore Funding v. Lozo, 42 Cal. Rptr. 3d 283 (2006). [R]escinding a loan transaction requires unwinding the transaction in its entirety and thus requires returning the borrowers to the position they occupied prior to the loan agreement. Barrett v. Ace Bank, N.A., 445 F.3d 874, 877 (6th Cir. 2006); Trimmel v. General Elec. Credit Corp., 555 F. Supp. 264, 268 n. 3 (D. Conn. 1983) (observing aim of 15 U.S.C. 1635 is restoration of status quo ante); In re Ramirez, 329 B.R. 727, 738 (D. Kan. 2005) (within the context of the TILA, rescission is a remedy that restores the status quo ante.). Title 15 U.S.C. 1635(a) provides that [w]hen an obligor exercises his right to rescind . . . he is not liable for any nance or other charge, and any security interest given by the obligor . . . becomes void upon such a rescission. See also 12 C.F.R. 226.23(d)(1) (When a consumer rescinds a transaction, the security interest giving rise to the right of rescission becomes void and the consumer shall not be liable for any amount, including any nance charge.) When a consumer rescinds a mortgage transaction, both the loan (the promissory note) and the mortgage deed are cancelled and the transaction must be unwound. Arnold v. W.D.L. Investments, Inc., 703 F.2d 848, 849 (5th Cir. 1983) (affirming decision cancelling notes along with mortgage); Elsner v. Albrecht, 460 N.W.2d 232, 234-35 (Mich. Ct. App. 1990) (15 U.S.C. 1635(a) and 12 C.F.R. 223.26(a)(1) allow the borrower to rescind the transaction including pendent documents such as the promissory note. . . .[15 U.S.C. 1635(b)] clearly contemplates a return to the status quo ante and thus the extinguishment of the underlying obligation.) (internal quotations removed). The TILA rescission process was intended to be self-effectuating based on the method set forth in C.G.S. 36a-683(j), 15 U.S.C. 1635 and 12 C.F.R. 226.23. These provisions set forth a clear procedure for effectuating rescission without judicial intervention. Under 12 C.F.R. 226.23(d), the process is as follows: 226.23(d)(1): When a consumer rescinds a transaction, the security interest . . . becomes void 226.23(d)(2): Within 20 calendar days . . . the creditor shall return any money . . . that has been given to anyone in connection with the transaction and shall take any action necessary to reect the termination of the security interest. 226.23(d)(3): When the creditor has complied with [paragraph (d)(2)], the consumer shall tender the money or property to the creditor As the Connecticut Appellate Court has held, under 15 U.S.C. 1635(b), all that the [borrower] need do is notify the creditor of his intent to rescind. The agreement is then automatically rescinded. . . . Family Financial Services, Inc. v. Spencer, 41 Conn. App. 754, 769 (1996) (quoting Williams v. Homestake Mortgage Company, 968 F.2d 1137, 1140 (11th Cir. 1992)). Courts have expressly recognized that statutory rescission under TILA works differently than common law rescission. In Velazquez

27

Appx. J.4

Foreclosures
rescind. A decision to the contrary would create a genuine conict in the law that would nullify part of the federal and state Truth in Lending Acts. F. Relationship Between TILA Rescission & the Equity of Redemption When a mortgage is subject to foreclosure, the three-year extended right to rescind under TILA does not expire until the foreclosure sale is nal and the mortgagor loses the equity of redemption. In re Walker, 232 B.R. at 732; 12 C.F.R. 226.23(a)(3). The proper and timely rescission of a mortgage derails a foreclosure action. In re Ameriquest Mortg. Co. Mortg. Lending Practices Litig., 2006 U.S. Dist. LEXIS at *4. It is important to remember that the foreclosure judgment does not constitute a sufficient transfer of a mortgagors property interest to terminate the TILA rescission right. That is because the mortgagors right of redemption survives the judgment. The TILA rescission right expires along with the equity of redemption, when the foreclosure is conrmed. See 15 U.S.C. 1635(f); In re Ameriquest Mortg. Co. Mortg. Lending Practices Litig., 2006 U.S. Dist. LEXIS at *4 (Once a foreclosure sale is completed, however, a borrower can no longer cancel the mortgage.). TILA rescission voids the original conveyance of legal title to the mortgagee. The TILA rescission process restores the parties to their relationship prior to becoming mortgagor and mortgagee. See Trimmel, 555 F. Supp. at 268 n. 3 (goal of 15 U.S.C. 1635 is restoration of status quo ante). As the Connecticut Supreme Court of Errors clearly stated over one hundred years ago, if a conveyance of legal title is void, then it is no conveyance, and the legal title still remains with the original holder. McPartlan, 40 Conn. at 95. As previously stated, a mortgagee holds a defeasible fee estate in the subject property. White, 278 Conn. at 231. When a mortgagee properly rescinds a mortgage under TILA, the rescission defeases the mortgagee of its interest in the mortgaged property. Because TILA rescission restores legal title to the consumer, it is effectively an alternate method of redemption in the foreclosure context. The classic method of redemption is to extinguish the debt set by the judgment by paying it in full. Under TILA the owner of the equity of redemption extinguishes the debt by rescinding the underlying transaction. When the transaction, including the promissory note memorializing the debt, is rescinded, it follows that the mortgage is no longer enforceable either. See Ferrigno, 244 Conn. at 200 n. 9 (If the debt is void it follows that the mortgage is void.). Therefore, if the mortgage is void, it follows that legal title is restored to the mortgagor. Upon TILA rescission, whether before or after foreclosure, the mortgagor remains liable for the money borrowed from the mortgagee/lender. 12 C.F.R. 226.23(d)(3). That amount is normally lower than the amount due under the judgment because the judgment amount includes nance charges and other fees that are stripped from the debt upon rescission. See 15 U.S.C. 1635(b); In re Ameriquest Mortg. Co. Mortg. Lending Practices Litig., 2006 U.S. Dist. LEXIS at *3-4 (If a borrower rescinds a mortgage, he or she is no longer responsible for nance or other charges, and the lender loses its security interest.). Logically if the transaction is cancelled, the terms of the transaction (such as the security interest and the lenders right to receive interest, late fees, or attorney fees, etc.) are also cancelled. Id. While the borrower remains liable for

v. HomeAmerican Credit, Inc., d/b/a Overland Mortgage, another case involving the same plaintiff as in this action, the Northern District of Illinois recognized that TILAs scheme is contrary to the rule under common law rescission, where the rescinding party must tender rst. Velazquez v. HomeAmerican Credit, Inc., d/b/a Overland Mortgage, 254 F. Supp. 2d 1043, 1045 (N.D. Ill. 2003). Under the TILA scheme for rescission, the mortgagor does not become obligated to return the proceeds of the loan until the mortgagee acts rst as described in 12 C.F.R. 226.23(d)(1) and (2). 12 C.F.R. 226.23(d)(3) (When the creditor has complied with [paragraph (d)(2)], the consumer shall tender the money or property to the creditor). The 1st Circuit has similarly held that under the statutory rescission process created by TILA and Regulation Z, the lender must go rst rather than the rescinding mortgagor. Large v. Conseco Finance Servicing Corp., 292 F.3d 49, 55-56 (1st Cir. 2002) (in contrast to common law rescission, the borrower need not rst return the loan proceeds received under the agreement to effect a rescission.). The purpose of the TILAs reordering of common law rescission rules is to put the consumer in a stronger bargaining position because the lender has violated the law. Id. E. Interpreting Mortgage Law, Foreclosure Law & The Truth-in-Lending Act Harmoniously Connecticut enacted its version of TILA in 1969. C.G.S. 36a675 et seq. (1969, P.A. 454, S. 24). At that time, most of Connecticuts mortgage foreclosure-related laws and procedures had been in place for over one hundred years. The legislature is presumed to be aware and to have knowledge of all existing statutes and the effect which its own action or nonaction may have on them Town of Wallingford v. Dept of Pub. Health, 262 Conn. 758, 781 (2003) (quoting State v. George B., 258 Conn. 779, 795 (2001)); Conway v. Wilton, 238 Conn. 653, 663-64 (1996) (we presume that laws are enacted in view of existing relevant statutes . . . because the legislature is presumed to have created a consistent body of law). In this case, that means the legislature is presumed to have been aware of how the new Truth-in-Lending Act and statutory rescission remedy would affect existing mortgage foreclosure law and mortgagor rights. The Connecticut Supreme Court has held that, when considering statutes that could conict, a reviewing court should seek to harmonize the statutes to avoid conict rather than adopt a reading of these statutory provisions to create a genuine conict that would result in a nullication of one by the other. . . . Stern v. Allied Van Lines, 246 Conn. 170, 179 (1998) (quoting Dodd v. Middlesex Mutual Assurance Co., 242 Conn. 375, 388 (1997)). A decision holding that Ms. Homeowners rescission was ineffective because the Court had already entered a judgment of foreclosure by sale will render meaningless the clause in 15 U.S.C. 1635(f) and C.G.S. 36a-683(j)(3) which states: a mortgagors right of rescission shall expire three years after the date of consummation of the transaction or upon the sale of the property, whichever occurs earlier. . . . 15 U.S.C. 1635(f); C.G.S. 36a683(j)(3) (emphasis added). Connecticut law provides that a mortgagor continues to hold an equitable interest in the secured property until the foreclosure sale has been conrmed. Loubier, 6 B.R. at 303; MERS, 278 Conn. at 230. Therefore, a judgment of foreclosure by sale does not affect a mortgagors TILA right to

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this reduced debt, it is no longer a secured debt and the borrower is entitled to pay it by renancing the debt, by making installment payments, by selling the house, or by other means. See, e.g., Bell v. Parkway Mrtg., Inc. (In re Bell), 314 B.R. 54, 62 (Bankr. E.D. Pa. 2004) (I conclude that, under these circumstances, the Debtor should have a reasonable time for repayment, even if such period exceeds the ve-year period imposed by [the Bankruptcy Code].); Shepeard v. Quality Siding & Window Factory, 730 F. Supp. 1295, 1308 (D. Del. 1990) (permitting payment of tender by installment payments); Semar v. Platte Valley Fed. Sav. & Loan Assn, 791 F.2d 699, 706 n.15 (9th Cir. 1986) (noting ability to pay tender through use of private sale proceeds); FDIC v. Hughes Dev. Co., 684 F. Supp. 616 (D. Minn. 1988) (allowing debtor one year to pay tender amount); Bookhart v. Mid-Penn. Consumer Discount Co., 559 F. Supp. 208 (E.D. Pa. 1983) (permitting payment of tender by installments). See, generally, Elizabeth Renuart & Kathleen Keest, Truth in Lending 6.8.2 (5th ed. 2003) (discussing different methods of paying tender amount to creditors). III. APPLICATION TO MS. HOMEOWNERS CASE Ms. Homeowner, the mortgagor in this action, asserts that she lawfully exercised her right to rescind her HomeAmerican mortgage because HomeAmerican violated the Truth in Lending Acts. Ms. Homeowner sent her rescission notice to HomeAmerican after the Court entered a default judgment of foreclosure by sale against her, but well before the sale was scheduled. In this regard, her case is analogous to In re Walker, 232 B.R. 725, where a court determined that the mortgagor was still entitled to rescind, despite a foreclosure judgment, because the TILA right to rescind persists until the right of redemption expires. Here, Ms. Homeowner exercised her TILA right rescind before the foreclosure sale so her state right to redeem had not yet expired. Because she still had the right to redeem, her right to rescind had not yet expired and was timely. Ms. Homeowner requests that this Court hold a hearing during which she will have the opportunity prove that HomeAmerican violated TILA in a manner that extended the three-day cancellation period to three years and thereby entitled her to rescind the transaction. Assuming the Court nds that Ms. Homeowner properly exercised her statutory right to rescind, HomeAmericans mortgage will be void. See 12 C.F.R. 226.23(d)(1). Pursuant to Regulation Z, HomeAmerican must then tender payment to Ms. Homeowner for any money . . . that has been given to anyone in connection with the transaction and shall take any action necessary to reect the termination of the security interest. 12 C.F.R 226.23(d)(2). In this situation, it would be most practical for HomeAmericans payment to be applied as a credit to the judgment entered against Ms. Homeowner under the mortgage note. After that has been completed, Ms. Homeowner will perform her obligation under 12 C.F.R. 226.23(d)(3) (to return the loan proceeds, less nance charges) by paying HomeAmerican from the excess funds anticipated from the foreclosure sale in First Union v. Homeowner. CONCLUSION Ms. Homeowner is entitled to rescind her mortgage with HomeAmerican d/b/a Overland Mortgage and its assigns, despite the judgment entered against her, because federal and state law

Appx. J.5.1

provide that the TILA right to rescind survives the foreclosure judgment and continues to exist until the foreclosure sale has been conrmed and the equity of redemption is extinguished. Ms. Homeowner lawfully rescinded her mortgage under TILA and her statutory rescission should be recognized as a means of exercising her right of redemption. Ms. Homeowner will tender the amount due to HomeAmerican, as calculated pursuant to Regulation Z, from the anticipated proceeds of the foreclosure sale of her home on April 28, 2007. WHEREFORE, Ms. Homeowner respectfully requests that Court hold an evidentiary hearing to allow her to establish that she has properly exercised her statutory right to rescind the HomeAmerican mortgage.

J.5 Actions Against Home Improvement Companies

J.5.1 Sample Complaint for Fraud Against Home Improvement Contractor
IN THE CIRCUIT COURT ST. CLAIR COUNTY, ILLINOIS SENTEX HOME EQUITY CORP. PLAINTIFF, v. HATTIE O. CONSUMER, DEFENDANT, v. STANLEY DARROW, DEFENDANT. ) ) ) ) ) ) ) ) No. 99-CH-0000 ) ) ) ) ) )

THIRD-PARTY COMPLAINT Now comes the Defendant, Hattie O. Consumer, by her attorney, and for her complaint for damages states as follows. Factual Allegations 1. The Defendant, Hattie Consumer, is a natural person currently residing at 123 Main Street, East Cupcake, IL. Ms. Consumer is an 82 year old disabled widow with an eighth grade education. Her total monthly income is $520 month, from Social Security, a pension, and Supplemental Security Income. 2. Ms. Consumer has lived in her home since 1977, when she began buying it under a bond-for-deed from Sieron-Fauss Associates. She received a quit-claim deed to the property in 1990. Ms. Consumer has no other debt and had never before taken out a home equity loan. 3. Defendant Stanley Darrow is a natural person, engaged in the construction business. Sometimes Defendant Darrow uses the name Windell Darrow Construction Company, although, upon

29

Appx. J.5.1

Foreclosures
pancy Code, as adopted by the East Cupcake City Council. Soffit and fascia boards were not primed and painted. Drip edges were not installed properly. Defendant Darrow also failed to obtain any permits for the work from the East Cupcake Building Department. Count I FRAUD Defendant Consumer repeats and reaffirms each and every allegation set forth in paragraphs 1 through 17 as if fully set forth herein. 18. Defendant Stanley Darrow knowingly made false statements of material fact regarding the terms of the mortgage. 19. At the time Defendant Darrow made these statements, they were false, since the loan payment was more than the $150 promised. 20. Defendant Stanley Darrow knowingly made false statements of material fact as to the home repair contract with Ms. Consumer. 21. At the time Defendant Darrow made these statements, they were false, since the repairs were not completed, the repairs that were completed were not completed in compliance with city codes, and Mr. Darrow accepted more than the bargained-for consideration. 22. Defendant Stanley Darrow offered these statements as fact, not opinion, with the intent to induce Defendant to enter into the mortgage loan and provide the funds to him. 23. Ms. Consumer reasonably relied on Defendant Darrows statements in signing the loan documents and turning over the funds obtained under the mortgage loan to him with the belief that her roof, porch, and kitchen would be properly repaired according to the terms of their agreement. 24. Had Ms. Consumer known the monthly payment that would be required under the loan, she would not have agreed to enter into it. 25. Had Ms. Consumer known that the repairs would not be completed and that those repairs that were completed would not be performed in substantial compliance with city code, she would not have entered into the contract for home repairs with Defendant Darrow. 26. As a result of Ms. Consumers reliance on Defendant Darrows statements, Ms. Consumer suffered damages in that she now faces the foreclosure of her home and no signicant repairs have been performed on it. WHEREFORE, Defendant Hattie Consumer prays that this Court a. Award damages to be established at trial, and b. Award such other relief as this Court deems just and proper. Count II CREDIT SERVICES ORGANIZATION ACT Plaintiff repeats and reaffirms each and every allegation set forth in paragraphs 1 through 26 as if fully set forth herein. 27. Defendant is a credit services organization within the meaning of the Credit Services Organization Act, 815 ILCS 605/3 (d).10 28. Defendant deceived Plaintiff into obtaining a loan

information and belief, no such company is registered to do business in Illinois. 4. In the fall of 1998, Ms. Consumer contacted Defendant Stanley Darrow about making repairs to her home. Defendant Darrow agreed to repair her roof, her kitchen oor, and front porch. 5. Defendant Darrow and Ms. Consumer never signed a written contract. Defendant Darrow agreed and contracted to perform the work listed in paragraph 4 in exchange for $7000. 6. Defendant Darrow told Ms. Consumer that he could get her a loan to pay for the home repairs. Defendant Darrow told Ms. Consumer that she would have to pay no more than $150 a month on the loan. 7. Upon information and belief, Defendant Darrow did arrange a loan for Ms. Consumer. 8. The loan Defendant Darrow arranged for Ms. Consumer was with Sentex Home Equity Corporation. It had a principal of $16,000, with stated interest 13.35%. Ms. Consumer paid over $1000 in points and fees out of the loan principal at the closing. 9. Upon information and belief, Defendant Darrow had an undisclosed business relationship with Plaintiff Sentex. 10. On January 14, 1999, Ms. Consumer received a phone call from Defendant Darrow, informing her that she needed to go to the closing the next day. Defendant Darrow picked up Ms. Consumer and took her to the closing. 11. On January 15, 1999, at the East Cupcake office of Nations Title, Ms. Consumer executed a note and mortgage against her home for the purpose of securing funds to pay for the repairs to her home. The only debt paid off by the loan was a sewer lien of approximately $972. Upon information and belief, all loan documents and closing instructions had been prepared by Plaintiff Sentex the previous day and sent via facsimile to Nations Title. 12. Defendant Consumer signed all loan documents, including the mortgage creating a security interest against her home, on January 15, 1999. No documents were provided to Ms. Consumer before the closing. 13. When she was signing the loan documents, Ms. Consumer noticed that the monthly principal and interest payment was $206.14, or nearly 40% of her income. Ms. Consumer told the closing agent and Defendant Darrow that she would not be able to pay that much monthly, and could only pay $150, the amount she and Defendant Darrow had agreed upon. 14. A few days after the closing, Defendant Darrow called Ms. Consumer and informed her that she needed to sign the check. Defendant Darrow picked Ms. Consumer up, took her to a bank, and turned over to her $600 in proceeds from the loan. Upon information and belief, Defendant Darrow kept possession of $12,735.66, the balance of the funds provided under the loan. 15. Defendant Darrow did x the roof, but did not x either the porch or kitchen oor. Defendant Darrow also failed to remove all of his trash from the property. Ms. Consumer has not heard from Defendant Darrow since he initially worked on her home. Defendant Darrow has not returned Ms. Consumers repeated phone calls. 16. On or about March 9, 2000, Ms. Consumers attorney wrote to Defendant Darrow demanding that the work be completed and the excess funds returned. A copy of that letter is attached as Exhibit A. Defendant Darrow never responded to that letter. 17. Defendant Darrows work on the roof was substandard. Large portions of the roof have begun to buckle and warp. Proper venting was not installed, in violation of the Building and Occu-

10 [Editors Note: Citations throughout complaint as in original.]

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Sample Foreclosure Pleadings and Other Litigation Documents

a. By not registering as a credit services organization as the Act requires under ILCS 605/9; b. By not providing Ms. Consumer with a consumer statement before accepting payment as required under 815 ILCS 605/6; c. By not using a written contract as outlined in 815 605/7; d. By making misleading or untrue statements to lending companies concerning Ms. Consumers nancial situation; and e. By deceiving Ms. Consumer as to the cost and terms of the mortgage loan. 29. By reasons of the aforesaid violations of the Credit Services Organization Act, Defendant is liable to Plaintiff in the amount of actual damages to be established at trial in accordance with 815 ILCS 605/11. WHEREFORE, Plaintiff prays that this Court a. Award actual damages to be established at trial pursuant to 815 ILCS 605/11. b. Award such other relief as this Court deems just and proper. Count III CONSUMER FRAUD AND DECEPTIVE BUSINESS PRACTICES ACT Defendant repeats and reaffirms each and every allegation set forth in paragraphs 1 through 29 as if fully set forth herein. 30. Defendant Darrow is engaged in trade or commerce within the meaning of the Consumer Fraud and Deceptive Business Practices Act, 815 ILCS 505/1(f). 31. Defendant Darrow deceived Ms. Consumer, intending that Ms. Consumer rely on his deceptions and execute a mortgage on her home, through the following and other unfair practices: a. By willfully and with a reckless indifference for Ms. Consumers rights failing to provide her with notice of her rights under the Federal Trade Commissions Rule Concerning the Preservation of Consumers Claims and Defenses, 16 CFR 433; b. By violating the Credit Services Organizations Act, 815 ILCS 605/1 et seq.; c. By obtaining credit for Ms. Consumer without being licensed as a broker; d. By willfully and with a reckless indifference for Ms. Consumers rights procuring credit for Ms. Consumer beyond her ability to repay; e. By misrepresenting the quantity of work he would perform under the home repair contract; f. By misrepresenting the quality of work he would perform under the home repair contract; g. By misrepresenting the amount he would charge for the work under the home repair contract; h. By failing to get required building permits for the work performed on her home; and i. By refusing to provide Ms. Consumer with a written contract. 32. Defendant Darrow engaged in this conduct willfully, in violation of public policy, and with the intent that Ms. Consumer would rely on his misrepresentations and enter into a mortgage loan on her home and provide him with the proceeds of that loan. 33. When Ms. Consumer entered into the loan transaction, she did so under the understanding that she could only pay $150 a month and that all monies were to go to Defendant Darrow for repairs to her home. Ms. Consumer believed that Defendant Darrow would perform all promised work in a professional manner.

Appx. J.5.2

34. By reason of the aforesaid violations of the Consumer Fraud and Deceptive Business Practices Act, Defendant is liable to Plaintiff in the amount of actual damages to be established at trial in accordance with 815 ILCS 505/10a. WHEREFORE, Plaintiff prays that this Court a. Award actual damages to be established at trial pursuant to with 815 ILCS 505/10a; b. Award such other relief as this Court deems just and proper.

J.5.2 Sample Complaint and Quiet Title Action Against Home Improvement Contractor that Forged a Mortgage
IN THE COURT OF COMMON PLEAS COUNTY OF CUYAHOGA Christine Consumer Plaintiff v. Jerry Peters and Brown Construction Company, LTD c/o Statutory Agent Jerry Peters and Bobby Brown Construction Co., LLC c/o Statutory Agent Defendants ) ) ) ) ) ) ) Bobby Brown and Diane ) Lane and Jeff Williams and ) Arthur J. Able ) ) ) )

COMPLAINT AND QUIET TITLE ACTION Now Comes Plaintiff, Christine Consumer, and states for her complaint as follows: 1. At all times relevant, hereto, Plaintiff Christine Consumer is a resident of the City of Cleveland, County of Cuyahoga, Ohio, residing at [Address], Cleveland. 2. The contracts which are the subject of this action were negotiated, discussed and signed in Cuyahoga County, Ohio. 3. Upon information and belief, all of the Defendants reside in Cuyahoga County, Ohio. 4. Upon Information and belief, Defendants Diane Lane and Jeff Williams reside in Cuyahoga County Ohio, but their specic addresses are unknown. Their addresses will be determined when the responses to the interrogatories that are attached to this Complaint are returned by Defendant Peters. 5. Defendants, Brown Construction Company, LTD (Hereinafter Brown Construction), Bobby Brown Construction Co, LLC (Hereinafter Bobby Browns) have their principal places of business in Cuyahoga County, Ohio. 6. Mrs. Consumer was solicited for business because Brown Construction and/or Bobby Brown and/or Jerry Peters (Hereinafter Peters), or someone under their direction and control left a yer on her door extolling the virtues of a plan to remodel homes in Cleveland. Said yer contained several false promises and assertions, such as . . . No payments are required! and Have your home repaired and house paid! and No Monthly Payment and No Out of Pocket Expenses and claiming that the program was Government Guaranteed. (Flyer attached hereto as exhibit A)

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Appx. J.5.2

Foreclosures
20. Although he knew the representation to be false at the time it was made, Peters promised Christine Consumer that the work contemplated by the Home Improvement Contract would be completed within three weeks. 21 The Home Improvement Contract was a Home Solicitation Sale as dened by O.R.C. 1345.23 (A). 22. The day after the Home Improvement Contract was executed, which was before the Mandatory Three day cooling off period that accompanies all Home Solicitation Sales in Ohio, employees or agents of Brown construction and/or Bobby Brown started tearing up Mrs. Consumers house. 23. This initial tear-out, which gutted the kitchen and her only bathroom and left her bathroom without a door, was undertaken in an order so as to place pressure on Mrs. Consumer to renance her property on unfavorable terms, because, if she failed to renance, her house would remain without a working kitchen or a functional bathroom. 24. The work that has been performed on Mrs. Consumers house by Brown Construction and/or Bobby Browns, was done unsatisfactorily, not in a workmanlike manner, in substandard fashion and not to the specications in the Home Improvement Contract. 25. After the initial tear-out, Peters the loan officer attempted to get Mrs. Consumer to renance her entire current home loan to pay for the cost of the Home Improvement Contract. 26. When Mrs. Consumer questioned the need for a renance of her entire existing mortgage and questioned the terms that were presented to her by Peters, the loan officer, Peters became combative and attempted to place pressure on Mrs. Consumer to sign the loan. 27. During one meeting with Mrs. Consumer, Peters told her that if she did not execute the renance loan that he would sue her. At no time did he advise her that she had the right to obtain funds on her own to satisfy the money due under the Home Improvement Contract . 28. During this time, Mr. Peters removed his employees from the job, in an effort to place additional pressure on Mrs. Consumer to sign the loan. Although Mrs. Consumers only bathroom was left without a door, Peters, the builder, promised repeatedly to replace the door, but failed to do so, in an effort to force Mrs. Consumer sign the loan papers. 29. At some point during the period of time that Peters, the loan officer, was trying to pressure Mrs. Consumer into signing the home loan, Peters, the builder, caused a forged mortgage to be led against Mrs. Consumers property with the County Recorder. (Attached as exhibit C and hereinafter referred to as bogus mortgage.) 30. The two witnesses to the bogus mortgage and the notary who signed the mortgage did so, even though they knew that the signature on the mortgage was not that of Christine Consumer. 31. It is unknown who exactly signed Mrs. Consumers name on the bogus mortgage, but upon information and belief, this person was acting under the direction and control of Jerry Peters. 32. The refuse from the initial tear-out on Mrs. Consumers residence was placed in her backyard in early June, remained there until late July when Peters, the builder, removed his employees from the job and remained there until mid-September, even though that refuse had become a haven for rats and other undesirable creatures, which threatened the health and safety of the occupants of Mrs. Consumers residence.

7. The phrases contained in the Flyer depicted in paragraph 5 of this Complaint and others contained thereon were worded in such a way as to entice homeowners to respond and invite a representative to their homes, despite the fact that the person or persons who designed the yer had knowledge of the falsity of said statements. 8. Upon information and belief, Brown Construction exists for the purpose of shielding Jerry Peters from personal liability and is a corporation in name only, lacking any of the necessary corporate formalities to qualify as such in the state of Ohio. 9. At all times relevant to this action, Peters was acting in his capacity as a representative and principal of Brown Construction; held himself out as the owner of Brown Construction and possessed real and apparent authority to bind Brown Construction by his actions alone, because of his position. 10. Upon information and belief, Bobby Brown exists for the purpose of shielding Bobby Brown from personal liability and is a corporation in name only, lacking any of the necessary corporate formalities to qualify as such in the state of Ohio. 11. Jerry Peters, Bobby Brown and Brown Construction are suppliers as dened by The Ohio Consumer Sales Practices Act (hereinafter CSPA) O.R.C. 1345.01 et. seq. 12. Christine Consumer is a Consumer as dened by CSPA. 13. On or about June 9, 2004 as a direct result of the aforementioned yer that was attached to her front door and several promises that were made by Jerry Peters, Christine Consumer, entered into a contract to remodel her home that contained a total price, but was devoid of payment terms. (The Home Improvement Contract between Plaintiff and Brown Construction, hereinafter referred to as Home Improvement Contract, is attached hereto as exhibit B.) 14. Jerry Peters is a loan officer, as dened by the Ohio Mortgage Broker Act, O.R.C. 1322.01 et. seq. (Hereinafter referred to as OMBA.) 15. At all times relevant to this action Jerry Peters acted, alternatively depending upon which of his interests were of concern, as loan officer, builder, president and principal of Brown construction and as a principal of Real Deal Mortgage, and as a principal and/or loan officer of Principal Mortgage Financial. 16. By acting in a dual capacity, as outlined above, Peters was in a position to benet multiple times from the same transaction. 17. By acting in a dual capacity, as outlined above, Peters was in the unique position of controlling certain decisions that he would not otherwise have had the opportunity to controlwhich were to the detriment of Consumerhad he been acting as only the builder, or only the loan officer. 18. By acting in a dual capacity, as outlined above, Peters was violating his duty as a duciary to act towards Christine Consumer in good faith and for her benet, and was acting improperly as a loan officer in the state of Ohio, and was violating the CSPAs prohibition on unconscionable, unfair and deceptive acts and practices. 19. The amount of the contract price for the Home Improvements was decided upon by Peters, the builder, based upon what amount of money for which Peters, the loan officer, would be able to obtain approval in Mrs. Consumers name in a potential renance loan, rather than being based upon the actual fair market value that the contemplated goods and services would normally cost a homeowner.

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Sample Foreclosure Pleadings and Other Litigation Documents

33. The pile of refuse was left at Mrs. Consumers residence intentionally, by employees or agents of Peters, the builder and/or Brown Construction and/or Bobby Browns, in an effort to force Mrs. Consumer to renance her house with Peters, the loan officer. 34. At all times relevant hereto, the Defendants behaved (and Mrs. Consumer was led to believe) as if the Home Improvement Contract and the renance loan were one and the same transaction, in an effort to pressure Mrs. Consumer into signing the renance loan. COUNT I (CONSUMER SALES PRACTICES ACT EXCESSIVE PRICE/QUALITY OF GOODS FAR BELOW STANDARDS/FAILURE TO PERFORM AS PROMISED) 35. Paragraphs 1 through 34 are hereby realleged and reasserted as if fully rewritten, herein. 36. Plaintiff Christine Consumer entered into a consumer transaction with Brown Construction as dened in O.R.C. 1345.01(A). 37. The price that was listed on the Home Improvement Contract was substantially in excess of the price at which the same or similar Home Improvement Services were obtainable by Mrs. Consumer, as a resident of the City of Cleveland, in violation of R.C. 1345.05(B)(2) and O.A.C. 109:4-3-09(A)(2). 38. Those acts depicted above have been declared to be deceptive or unconscionable by rules adopted pursuant to R.C. 1345.05(B)(2) and O.A.C. 109:4-3-09(A)(2). 39. At the time the Home Improvement Contract was executed, Peters, the builder, and/or Brown Construction knew or should have known that the price was substantially in excess of the price at which the same or similar Home Improvement Services were obtainable by Mrs. Consumer, as a resident of the City of Cleveland. 40. The reason the contract price was substantially in excess of the normal price for the goods and services that were contemplated was because Peters, the builder, based the contract price on the amount of money that Peters, the loan officer, could obtain for Mrs. Consumer in a renance loan, and not upon the fair market value of those goods and services. 41. Brown Construction violated the CSPA by providing a product in the contracted-for home improvement services and materials that were of an inferior standard, quality, grade and style, in violation of O.R.C. 1345.02 (B)(2). 42. Brown Construction violated the CSPA by failing to perform as promised when the contracted-for Home Improvements were not completed within the promised three week period in violation of O.R.C. 1345.02 (B)(5). 43. Brown Construction violated the CSPA by failing to perform as promised when promises were made to Mrs. Consumer that her bathroom door was going to be reattached, or reinstalled, and that the pile of refuse that was left in her backyard was going to be removed, even though Brown Construction and its employees knew that this representation was not true. 44. Brown Construction violated the CSPA when it performed the acts depicted in Mrs. Consumers Complaint, because the acts, misrepresentations and omissions made by Brown Construction its representatives, agents and employees violate the CSPAs proscription against Unconscionable acts and practices. 45. As a result of Brown Constructions unfair, deceptive and unconscionable acts, Mrs. Consumer has been damaged in the

Appx. J.5.2

contract amount of $19,000.00, plus additional statutory and treble damages and attorney fees and costs. 46. Brown Construction knowingly committed said unfair, deceptive and unconscionable acts and are therefore liable for treble damages, pursuant to CSPA. 47. The violations of the Ohio CSPA depicted in this count of Plaintiffs complaint were performed intentionally by the Defendants and with knowledge that they were violating CSPA, or with such reckless disregard as to whether or not they were violating applicable Consumer Protection laws as to constitute knowledge and intent. COUNT II (HOME SOLICITATION SALES ACT BROWN FAILURE TO DELIVER RTC/VERBAL OR RTC/WRITTEN) 48. Paragraphs 1 through 47 are hereby realleged and reasserted as if fully rewritten, herein. 49. The Home Improvement Contract that is the subject of this Complaint was a Home Solicitation Sale of goods and services as dened in R.C. 1345.21(A) and (B) and 1345.21 (E) of the Ohio Home Solicitation Sales Act. (Hereinafter referred to as HSSA) 50. Brown Construction failed to give Mrs. Consumer a written and an oral Notice of Cancellation as required by R.C. 1345.23(B)(2) and (D)(2) of HSSA. 51. Brown Construction has, as of the ling of this Complaint, still failed to provide a proper Notice of Cancellation to Mrs. Consumer. 52. Pursuant to R.C. 1345.23[C], a buyers right to cancel continues until the seller has complied with all the notice requirements of HSSA. 53. Therefore, Mrs. Consumer, with the ling of this complaint, requests rescission of the home improvement contract with Brown Construction. 54. The violations of the Ohio CSPA enlisted in this count of Plaintiffs complaint were performed intentionally by the Defendants and with knowledge that they were violating CSPA, or with such reckless disregard as to whether or not they were violating applicable Consumer Protection laws as to constitute knowledge and intent. 55. Plaintiff is entitled to statutory, actual and punitive damages, as well as attorney fees and costs for Brown Constructions failure to comply with HSSA. COUNT III (CSPAFORGERY OF MORTGAGE) 56. Paragraphs 1 through 55 are hereby realleged and reasserted as if fully rewritten, herein. 57. Peters, in his capacity as a principal of Brown Construction and under the apparent authority to bind them with his actions, violated the CSPA by ling the bogus mortgage or by instructing others to sign and le the mortgage, or both. 58. The acts depicted in the preceding paragraph, violated the CSPA and were unconscionable, pursuant to O.R.C. 1345.03 (B)(1). 59. Peters and, by extension, Brown Construction violated the CSPA by taking advantage of the inability of the consumer to reasonably protect [her] interests, when he signed and led the bogus mortgage, or caused it to be led.

33

Appx. J.5.2

Foreclosures
documents of any kind with respect to the work that was to be performed at her house and with respect to any nancial documents containing her name. 73. The facts that Peters, Brown Construction and their authorized representatives, agents, or employees concealed, and the misrepresentations that were made were material to the transaction at hand. 74. Said omissions and misrepresentations were made with the knowledge of their falsity, or with such utter disregard and recklessness as to whether they were true or false and with the intent of misleading Mrs. Consumer into relying upon them. 75. The reliance of Mrs. Consumer on the statements and omissions that were made by Peters, Brown Construction , their authorized representatives, agents or employees was justiable, given the circumstances. Said reliance resulted in injury to Consumer, as the presence of the bogus mortgage and the instant lawsuit will attest. 76. At all times, Peters, Brown Construction, and its authorized representatives, agents, or employees acted with a conscious, willful and malicious disregard for the rights and safety of Christine Consumer, knowing that there was a great probability that his acts would cause harm to her. 77. Because of the actions and omissions outlined above, Peters, Brown Construction , Jeff Williams, Diane Lane, Arthur J. Able (and anybody else that discovery reveals to have participated in the bogus mortgage) have committed fraud upon Mrs. Consumer, and are liable to her in an amount to be determined by this court. COUNT VI (CORPORATE LIABILITYBROWN CONSTRUCTION) 78. Paragraphs 1 through 77 are hereby realleged and reasserted as if fully rewritten, herein. 79. Upon information or belief, at all times relevant herein, Peters was either a principal, an officer or otherwise possessed an ownership interest in Brown Construction, and held himself out publicly to possess this positionthe effect of which was to legally bind the company by his actions, alone. 80. Mrs. Consumer knew of Peters status as a corporate officer, as outlined above. 81. The actions that Peters undertook on behalf of Brown Construction, that were depicted in Plaintiffs Complaintfor the reasons statedwere the actions of Brown Construction, itself. 82. Plaintiff hereby reasserts all claims that she has alleged against Peters, personally, as against Brown Construction. 83. Brown Construction is, therefore liable to Mrs. Consumer for all claims and damages that she has asserted against Peters, herein. COUNT VII (PERSONAL LIABILITY PETERSLACK OF CORPORATE FORM) 84. Paragraphs 1 through 83 are hereby realleged and reasserted as if fully rewritten, herein. 85. Upon information and belief, Brown Construction failed to maintain proper corporate form as required by the laws of Ohio, thus subjecting its officers, owners and principals to personal liability. 86. Upon information and belief, Peters was, at all times relevant to this action an owner, principal, or otherwise possessed an ownership interest in Brown Construction.

60. As a result of Peters and, by extension, Brown Constructions actions and, deceptive and unconscionable acts, Mrs. Consumer has been damaged in the contract amount of $19,000.00, plus statutory damages, plus additional damages and attorney fees and costs. 61. Peters, and, by extension, Brown Construction knowingly committed said unfair, deceptive and unconscionable acts and are therefore liable for treble damages. 62. The violations of the Ohio CSPA enlisted in this count of Plaintiffs complaint were performed intentionally by the Defendants and with knowledge that they were violating CSPA, or with such reckless disregard as to whether or not they were violating applicable Consumer Protection laws as to constitute knowledge and intent. COUNT IV (OHIO MORTGAGE BROKER ACT PETERSATTEMPTING TO PRESSURE BORROWER INTO SIGNING NOTE, FORGING MORTGAGE, MISREPRESENTATIONS) 63. Paragraphs 1 through 62 are hereby realleged and reasserted as if fully rewritten, herein. 64. Peters is a loan officer, as dened by O.R.C. 1322.01 (E). 65. Peters, by signing or causing to be signed and by ling, or by causing to be led, the bogus mortgage, effectively made false or misleading statements to Mrs. Consumer (as she understood that no mortgage would be levied on her property unless she executed a mortgage by herself) in violation of O.R.C. 1322.07 (A). 66. Peters engaged in conduct that constitute[d] improper, fraudulent, or dishonest dealings, when he signed (or caused to be signed) and led (or caused to be led) the bogus mortgage, and when attempted to pressure Mrs. Consumer into signing a renance loan to pay for the work contemplated by the Home Improvement Contract in violation of O.R.C. 1322.07 (C). 67. Peters [k]nowingly [made], propose[d], or solicit[ed] fraudulent, false, or misleading statements on mortgage documents, when he forged, or caused to be forged Christine Consumers name on a bogus mortgage, in violation of O.R.C. 1322.07(E). 68. At all times, Peters acted with a conscious, willful and malicious disregard for the rights and safety of Christine Consumer, knowing that there was a great probability that his acts would cause harm to her. 69. Peters is liable to Mrs. Consumer in the amount of statutory, actual, punitive and treble damages, pursuant to O.R.C. 1322.11, as well as attorney fees. COUNT V FRAUD (FORGING MORTGAGE ALL DEFENDANTS) 70. Paragraphs 1 through 69 are hereby realleged and reasserted as if fully rewritten, herein. 71. The acts of forging Christine Consumers name on a mortgage and causing that mortgage to be led with the Cuyahoga County Recorder constituted a misrepresentation, as it was the omission of a material fact, because Mrs. Consumer expected there to be no mortgage led in her name, if she had not executed any mortgage documents. 72. Peters, the loan officer; Peters, the builder; Brown Construction and its employees and agents had a duty to be truthful with Mrs. Consumer and a duty to refrain from forging her name on any

34

Sample Foreclosure Pleadings and Other Litigation Documents

87. Upon information and belief, Peters so controlled Brown Construction that Brown Construction did not have a separate existence or identity of its own. 88. Peters utilized the entity known as Brown Construction to commit the unlawful acts depicted in this Complaint for his benet and to the detriment of Mrs. Consumer. 89. Because of the failure by Brown Construction to operate properly as a Corporation within the State of Ohio, as alleged in the previous paragraphs of this Complaint, Peters is personally liable to Plaintiff for all claims and damages that she has asserted against Brown Construction. 90. Plaintiff hereby reasserts all claims that she has alleged against Brown Construction as against Peters, personally. COUNT VIII (QUIET TITLEBROWN CONSTRUCTION) 91. Paragraphs 1 through 90 are hereby realleged and reasserted as if fully rewritten, herein. 92. Plaintiff is the current owner of the residence and property located at [Address], Cleveland, Cuyahoga County, Ohio, 44103, permanent Parcel No. [Number]. 93. One or more of the named Defendants led, or caused to be led the Bogus Mortgage in the favor of Brown Construction Company, LTD on or about July 15, 2004. 94. The Bogus Mortgage contains a signature that, although it purports to be that of Plaintiff, Christine Consumer, it is not her signature. 95. Upon information and belief, the false Mrs. Consumer signature that appears on the Bogus Mortgage was placed there by a representative of, or at the express direction of an employee, agent or representative of Brown Construction and/or Peters. 96. The Bogus Mortgage represents a claim on Plaintiffs land that is adverse to her own interest, thereby creating a cloud on the title to her property, that is both unlawful and invalid. 97. The aforementioned cloud on the Mrs. Consumers property prevents her from the unencumbered enjoyment of her premises, as sole and rightful owner. 98. Plaintiff is entitled to a court order, pursuant to O.R.C. 5303.01, canceling the Bogus Mortgage in favor of Brown Construction, and an order quieting the Plaintiffs title in the her property, and for an award of damages to compensate her for the wrongdoing that created the need for this Quiet Title Action, along with its costs and attorney fees. COUNT IX (CIVIL CONSPIRACYALL DEFENDANTS) 99. Paragraphs 1 through 98 are hereby realleged and reasserted as if fully rewritten, herein. 100. All of the named defendants, and several possible, as yet, unidentied co-defendants conspired to act together to defraud Christine Consumer by creating and ling the Bogus Mortgage and by performing other, as yet identied, acts in furtherance of this conspiracy. 101. Falsifying information on a mortgage document is fraudulent, represents theft and violative of the Ohio Mortgage Broker Act, CSPA, HSSA, common law fraud, principles of equity and other applicable state and federal laws. 102. Because of the false information on the Bogus Mortgage, Christine Consumer has suffered damages.

Appx. J.5.2

103. It would have been impossible for any of the Defendants to act alone to defraud Mrs. Consumer in this manner. 104. At all times relevant hereto, the Defendants acted with a reckless disregard for the rights and well-being of Mrs. Consumer. 105. Jeffrey Peters, Jeff Williams, Diane Lane, Brown Construction, Bobby Brown Construction and Arthur J. Able and all un-named co-conspirators are jointly and severally liable to Mrs. Consumer, as a result of the conspiracy that they formed. COUNT X (CSPAFALSE ADVERTISING/FLYER) 106. Paragraphs 1 through 106 are hereby realleged and reasserted as if fully rewritten, herein. 107. The yer contained a phony special offer, in violation of O.R.C. 1345.02 (B)(4), by stating Call NOW While This Program is Still Available in Your Area!. 108. The yer describes a program for Home Improvements that is Free to the Homeowner with language that is intentionally misleading, by stating Credit History and Monthly Income Do Not Matter Because No Payments are Required! 109. These assertions, and others, made by the yer were deliberately false and misleading, in violation of The Ohio CSPA and OAC 109:4-3-04. 110. The violations of the Ohio CSPA depicted in this count of Plaintiffs complaint were performed intentionally by the Defendants and with knowledge that they were violating CSPA, or with such reckless disregard as to whether or not they were violating applicable Consumer Protection laws as to constitute knowledge and intent. 111. Because of the violations mentioned in this count of Plaintiffs complaint, Plaintiff is entitled to an award in her favor and against the Bobby Browns, Brown Construction and/or Jeffrey Peters for CSPA statutory damages, compensatory damages, punitive damages, attorney fees, and court costs. COUNT XI (CSPANO PLACE OF BUSINESS LOCATED AT ADDRESS ON CONTRACT) 112. Paragraphs 1 through 111 are hereby realleged and reasserted as if fully rewritten, herein. 113. The contract that was executed between the parties contains an address for Brown Construction that is false and misleading. 114. The address on the Home Improvement Contract is 1677 East 40th Street, Cleveland, OH, 44103. However, no business with the name Brown Construction Inc. exists at that site. 115. It is a violation of The Ohio CSPA to issue an advertisement or contract that contains a phony address, such as the one listed on the Home Improvement Contract in this case. 116. Plaintiff is entitled to statutory damages, attorney fees and court costs, because of the violations listed in this count of Plaintiffs complaint. 117. The violations of the Ohio CSPA enlisted in this count of Plaintiffs complaint were performed intentionally by the Defendants and with knowledge that they were violating CSPA, or with such reckless disregard as to whether or not they were violating applicable Consumer Protection laws as to constitute knowledge and intent.

35

Appx. J.6

Foreclosures
7. That all Defendants are jointly and severally liable to Mrs. Consumer for punitive damages. 8. That this court issue an order voiding the Bogus Mortgage that has been placed upon Plaintiffs property in favor of Brown Construction, and quieting the title of Plaintiffs property in her name. 9. Appropriate injunctive relief against all Defendants, pursuant to O.R.C. 1345.09(D) as this honorable court deems necessary, depending upon what facts have been uncovered in the instant matter. 10. Appropriate injunctive relief against Defendant Able, pursuant to O.R.C. 147.01 et. seq. As this honorable court deems necessary. 11. That Defendant Able is liable to Plaintiff in an amount that compensates her for the damages that arise from the placement of the Bogus Mortgage on her property, as well as Court costs and attorney fees. 12. Such other relief as the court deems appropriate. Respectfully Submitted, [Attorney for the Plaintiff]

COUNT XII (PERSONAL LIABILITYFALSE NOTARYABLE) 118. Paragraphs 1 through 117 are hereby realleged and reasserted as if fully rewritten, herein. 119. Mrs. Consumers signature on the Bogus Mortgage was notarized by Defendant Able. 120. The notarial seal that was placed upon the Bogus Mortgage was placed thereon, even though Defendant Able knew, or should have known, that Christine Consumer was not the person signing her name. 121. As a Notary, empowered by the State of Ohio, Defendant Able possessed the obligation to administer the appropriate oath to Christine Consumer before notarizing the Bogus Mortgage in her name. 122. Defendant Able failed to administer the appropriate oath to Christine Consumer, thereby wrongfully certifying her signature, as evidenced by the fact that the signature on the Bogus Mortgage is a forgery. 123. Defendant Able is personally liable for all of the damages arising from the fact that he wrongfully certied Christine Consumers forged signature on the Bogus Mortgage, even though acts performed by other individuals were necessary to generate some or all of the damages that were realized by Mrs. Consumer. 124. Mrs. Consumer has suffered damages by the placement of the Bogus Mortgage on her property. 125. By Notarizing a signature that was not placed upon the Bogus Mortgage by Mrs. Consumer, Defendant Able acted willful and wanton manner that showed a conscious disregard for her well-being, or with such disregard for her well-being as to be willful and wanton. 126. Because of the actions performed by Defendant Able, Plaintiff is entitled to an award in her favor and against Defendant Able statutory damages, compensatory damages, punitive damages, attorney fees, and court costs. WHEREFORE, As to her Complaint, Plaintiff requests a judgment against all Defendants in amounts to exceed $25,000.00, as well as a court order granting the following relief: 1. An order of damages against each Defendant, jointly and severally for their part in the Civil Conspiracy and Fraud depicted, herein; 2. That Defendants Peters, Brown Construction and Bobby Brown are jointly and severally liable to pay for the costs of the within action, pursuant to O.R.C. 1345.01, et. seq. 3. That Defendants Peters, Brown Construction and Bobby Brown are jointly and severally liable to pay for the reasonable attorney fees that Plaintiff, Mrs. Consumer, has had to incur as the result of the within action, pursuant to O.R.C. 1345.01, et. seq. 4. That Defendants Peters, Brown Construction and Bobby Brown are liable to Plaintiff Mrs. Consumer for statutory and actual damages, pursuant to O.R.C. 1345.01, et. seq. 5. That Defendants Peters and Brown Construction and Bobby Brown are jointly and severally liable for statutory, compensatory and actual damages, as contemplated by the Home Solicitation Sales Act. 6. That Defendant Peters is liable for statutory and actual damages and attorney fees and costs, for his violations, pursuant to the Ohio Mortgage Broker Act.

J.6 Actions Against Mortgage Servicers

J.6.1 Sample Complaint Against Mortgage Servicer Based on Violations of RESPA and FDCPA.
) ) Plaintiff ) ) ) Case No. ) ) Defendant ) ) COMPLAINT PRELIMINARY STATEMENT 1. This action is brought by the Plaintiff, [name], against the mortgage company that services a mortgage on her home, the [name] Federal Bank. 2. Defendant [name] Federal Bank has refused to honor a Modication Agreement entered into between the parties and as a result has overcharged the Plaintiff and failed to properly credit payments on her mortgage account. In addition to its breach of contract, Defendant has engaged in abusive, deceptive and unfair debt collection practices in violation of the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. 1692 et seq. 3. Defendant [name] Federal Bank has also failed to make appropriate corrections to the mortgage account despite Plaintiffs dispute of the overcharges and misapplication of payments, in

Consumer,

v. Mortgage Servicer,

36

Sample Foreclosure Pleadings and Other Litigation Documents

violation of the mortgage servicer provisions of the Real Estate Settlement Procedures Act (RESPA), 12 U.S.C. 2605. PARTIES 4. Plaintiff [name] is an individual who resides at [address] in Laguna Vista, California. 5. Defendant [name] Federal Bank (hereinafter Defendant [name]) is a corporation with its principal place of business in Irving, Texas. At all times material to this action, Defendant [name] regularly transacted business in the State of California. 6. Defendant [name] is a debt collector of the Plaintiffs debt as those terms are dened in the FDCPA, 15 U.S.C. 1692a. 7. Defendant [name] is a loan servicer of the Plaintiffs federally related mortgage loan as those terms are dened in the RESPA, 12 U.S.C. 2602(1) and 12 U.S.C. 2605(i)(2). FACTUAL ALLEGATIONS 8. On [date], the Plaintiff borrowed $50,000 for the purchase of her home from the Merchants Bank. The Note signed by the Plaintiff was secured by a mortgage on her home. 9. Defendant [name] subsequently became the owner of the subject Note and Mortgage (hereinafter referred to as the original Loan). At the time Defendant [name] obtained an interest in the Plaintiffs original Loan, Defendant [name] deemed the mortgage account to be in default and serviced the account as a debt in default. 10. In March, 2000, Defendant [name] initiated foreclosure proceedings against the Plaintiff claiming that she was in default on the original Loan. 11. Prior to this time, the Plaintiff had attempted to resolve a long-standing dispute with Defendant [name] over whether payments she had made had been properly credited to her account. 12. Unable to resolve this dispute, the Plaintiff led a chapter 13 bankruptcy in the United States Bankruptcy Court on April 15, 2000. In the chapter 13 proceeding, the Plaintiff sought to obtain a determination of the proper balance owed on her account and to cure any default found to exist with payments through her Chapter 13 plan. 13. On August 21, 2001, the Plaintiff and Defendant [name] entered into a consent order in the bankruptcy court resolving the Plaintiffs objection to Defendant [name]s proof of claim. This consent order provided that parties would enter into agreement modifying the Plaintiffs original Loan. 14. This agreement also provided that the parties would have a period of 30 days before entering into the modication agreement in order to resolve any disputes concerning the outstanding balance owed under the original Loan. 15. The Plaintiff and Defendant [name] subsequently entered into a Modication Agreement, effective November 1, 2001. A copy of the Modication Agreement is attached as Exhibit A. 16. In the Recital section of the Modication Agreement, the parties acknowledged that the Plaintiff was in default on the original Loan and that Defendant [name] was entitled to demand payment of a principal balance on the original Loan of over $85,000, plus interest, and all other charges. 17. The parties further acknowledged that despite the default and based on the Plaintiffs request to modify the original Loan, the

Appx. J.6.1

Defendant [name] agreed to adjust the terms of the original Loan, including total amount due. 18. In accordance with these acknowledgments, the parties specically agreed in Paragraph 3(d) of the Modication Agreement that the New Principal Balance that the Plaintiff would now owe on her loan was $85,000.00. 19. The intention of the parties as evidenced by the terms of the Modication Agreement was that the Plaintiffs loan was reinstated as current and that the total outstanding balance, including all accrued interest, charges and fees owing on the loan as of the effective date, was stipulated to be $85,000.00. 20. Although the Plaintiff believed that she owed less than $85,000.00, she agreed to this amount and signed the Modication Agreement in order to achieve a nal resolution of her dispute with Defendant [name] over the amount owed on her mortgage account. 21. In Paragraph 12 of the Modication Agreement, the parties additionally agreed that the loan modication was a Final Agreement and that it constitutes the entire agreement between you and [name], supersedes all previous negotiations and discussions. . . . 22. After the Modication Agreement became effective on November 1, 2001, the Plaintiff began making her new monthly payments of $671.73 as provided for under the Modication Agreement. 23. Despite the Plaintiffs timely payments each month and her full compliance with the terms of the Modication Agreement, Defendant [name], through its attorneys, sent the Plaintiff a foreclosure notice on June 15, 2002 and on July 10, 2002. Copies of these Notices are attached as Exhibits B and C respectively. 24. In response, the Plaintiff, through her attorney, sent Defendant [name] a letter dated August 15, 2002 seeking information about the Plaintiffs mortgage account and disputing that her account was in default. 25. On January 25, 2003, Defendant [name] sent the Plaintiff a response stating that sometime after the Modication Agreement was completed, Defendant [name] had received invoices from its attorneys for fees in the amount of $6,701.92 relating to the Plaintiffs earlier bankruptcy case. 26. The response further stated that upon receiving the invoices, Defendant [name] assessed the legal fees to the Plaintiffs loan balance and then applied the Plaintiffs payments made on the Modication Agreement to cover these pre-modication fees. 27. A history of the Plaintiffs account provided with the response suggests that Defendant [name] paid some or all of the invoices and assessed the attorney fee charges to the Plaintiffs account on November 11, 2001. 28. At no time prior to the execution of the Modication Agreement by the Plaintiff on October 14, 2001, or its effective date on November 1, 2001, did Defendant [name] advise the Plaintiff that, contrary to the plain terms of the Modication Agreement, it believed that the Plaintiff would be responsible for paying outstanding legal fees separate from her obligations under the Modication Agreement, or that Defendant [name] had not waived any claim for outstanding legal fees by signing the Modication Agreement. 29. At no time during the Plaintiffs rst chapter 13 bankruptcy, or at any time thereafter, did Defendant [name] or its attorneys seek or obtain bankruptcy court approval of an award of attorneys fees against the Plaintiff.

37

Appx. J.6.1

Foreclosures
mation and documentation requested, or an explanation why the information sought was unavailable, no later than 60 days after receipt of the Plaintiffs qualied written request. 38. Defendant [name] violated RESPA, 12 U.S.C. 2605(e)(2) by refusing to cease its collection efforts and foreclosure proceedings after receiving the Plaintiffs qualied written request. 39. Upon information and belief, Defendant [name] violated RESPA, 12 U.S.C. 2605(e)(3), by providing information to consumer reporting agencies regarding overdue payments allegedly owed by the Plaintiff that were related to her qualied written request. 40. Defendant [name] has engaged in a pattern or practice of non-compliance with the requirements of the mortgage servicer provisions of RESPA as set forth in 12 U.S.C. 2605. COUNT IIIVIOLATION OF THE FAIR DEBT COLLECTION PRACTICES ACT 41. The allegations of paragraphs 131 above are realleged and incorporated herein by reference. 42. Defendant [name] violated the FDCPA, 15 U.S.C. 1692f, by using unfair and unconscionable means to collect the debt owed by the Plaintiff, including the collecting and attempting to collect of interest and other charges, fees and expenses not authorized by the original Loan and Modication Agreement, or otherwise legally chargeable to the Plaintiff, as more fully set forth above. 43. Defendant [name] violated the FDCPA, 15 U.S.C. 1692e(2), by misrepresenting the character, amount and legal status of the Plaintiffs debt. 44. Defendant [name] violated the FDCPA, 15 U.S.C. 1692e(5)and 1692f(6), by threatening to foreclose on the Plaintiffs home even though Defendant [name] has no present right to possession of the property under its security agreement, and by threatening to take other action prohibited by law. 45. Defendant [name] violated the FDCPA, 15 U.S.C. 1692g(a)(1), by failing to accurately and fully state in communications to the Plaintiff the amount of the debt. PRAYER FOR RELIEF WHEREFORE, the Plaintiff respectfully requests that this Court: A. Assume jurisdiction over this action; B. Declare that the Defendant [name] is in breach of the original Loan and Modication Agreement and that Plaintiff is current and not in default on the terms of the original Loan and Modication Agreement; C. Enjoin the Defendant [name] from collecting or attempting to collect any attorneys fees or other charges incurred prior to the effective date of the Modication Agreement that were not included the New Principal Balance specied in the Modication Agreement; D. Award actual and compensatory damages, including those for mental anguish, in an amount to be determined at trial; E. Award punitive or exemplary damages in an amount to be determined at trial; F. Declare that Defendant [name] violated RESPA, enjoin Defendant from committing any future violations of the Act, and award the Plaintiff actual damages and $1,000 in statutory damages pursuant to 12 U.S.C. 2605(f);

30. Defendant [name]s refusal to honor the terms of the Modication Agreement by charging and collecting extraneous fees not agreed to by the parties, and its actions in improperly declaring defaults and pursing a wrongful foreclosure of the Plaintiffs home, have caused the Plaintiff to suffer severe emotional distress and mental anguish. Defendant [name]s actions have also damaged the Plaintiffs credit rating and caused her to incur expenses in seeking redress against Defendants wrongful acts. COUNT IBREACH OF CONTRACT 31. The allegations of paragraphs 131 above are realleged and incorporated herein by reference. 32. Defendant [name] breached its contractual obligations to the Plaintiff in at least the following ways: a. By failing to apply all payments received from the Plaintiff after November 1, 2001 to the principal and interest accrued after that date on the Plaintiffs mortgage account according to the terms of the original Loan and Modication Agreement; b. By assessing to the Plaintiffs mortgage account charges and fees not agreed to between the parties; c. By improperly allocating payments received from the Plaintiff after November 1, 2001 to fees and charges not agreed to between the parties; d. By assessing late payment charges to the Plaintiffs mortgage account after November 1, 2001 contrary to the terms of the original Loan and Modication Agreement; e. By declaring the Plaintiff to be in default of the original Loan and Modication Agreement when no such default exists; f. By initiating foreclosure proceedings contrary to the terms of the original Loan and Modication Agreement. COUNT IIVIOLATION OF REAL ESTATE SETTLEMENT PROCEDURES ACT 33. The allegations of paragraphs 131 above are realleged and incorporated herein by reference. 34. On August 15, 2002, the Plaintiff, though her attorney, sent Defendant [name] a qualied written request as that term is dened under RESPA, 12 U.S.C. 2605(e)(1)(B), regarding the crediting of payments on her mortgage account. In the qualied written request, the Plaintiff specied her reasons for belief that the account was not in default and requested that Defendant [name] correct the error. The Plaintiff also requested that Defendant [name] provide her with information and documentation supporting its claim that the Plaintiffs account was in default. 35. Defendant [name] violated RESPA, 12 U.S.C. 2605(e)(1)(A), by failing to provide a written response acknowledging receipt of the Plaintiffs qualied written request no later than 20 days after receipt of the request. 36. Defendant [name] violated RESPA, 12 U.S.C. 2605(e)(2)(A), by failing to make appropriate corrections to the Plaintiffs account in response to the qualied written request, including the crediting of any late charges or penalties, and failing to transmit written notice of such corrections to the Plaintiff no later than 60 days after receipt of the Plaintiffs qualied written request. 37. Defendant [name] violated RESPA, 12 U.S.C. 2605(e)(2)(C) by failing to provide the Plaintiff with the infor-

38

Sample Foreclosure Pleadings and Other Litigation Documents

G. Declare that Defendant [name] violated the FDCPA, enjoin Defendant from committing any future violations of the Act, and award the Plaintiff actual damages and $1,000 in statutory damages pursuant to 15 U.S.C. 1692k; H. Award Plaintiff reasonable attorneys fees and litigation expenses, plus costs of suit, pursuant to 12 U.S.C. 2605(f) and 15 U.S.C. 1692k(3); I. Grant such other or further relief as is appropriate.

Appx. J.6.2.1

J.6.2 Action Against Mortgage Servicer for an Accounting and for Violation of RESPA and FDCPA
J.6.2.1 Complaint
UNITED STATES DISTRICT COURT EASTERN DISTRICT OF PENNSYLVANIA ) ) Plaintiff ) ) v. ) ) LINTON LOAN SERVICING ) LP ) ) Andrea Consumer, COMPLAINT 1. This is an action by a low-income homeowner against a mortgage servicing company seeking a proper accounting of her mortgage and statutory damages under the Fair Debt Collection Practices Act and the Real Estate Settlement Procedures Act. 2. Jurisdiction over this matter is conferred upon this Court by 12 U.S.C. 2614, 15 U.S.C. 1692 and 28 U.S.C. 1331. The court has supplemental jurisdiction over her state law claims. 3. Venue lies in this judicial district in that the events which gave rise to this claim occurred here and the property which is the subject of the action is situated within this district. 4. Plaintiff Mrs. Consumer is a natural person residing at [Address]. 5. The Defendant, Linton Loan Servicing, LP (Linton), is a corporation with its principal offices at 500 West Central Drive, Houston Texas. Linton is the servicing agent for the holder of Mrs. Consumers mortgage. The mortgage on Mrs. Consumers home is held by WFM Bank Minnesota, NA as the trustee for an investorowned trust that holds a large pool of mortgage loans sold by Owens Federal Savings Bank. 6. Andrea Consumer and her husband, Joe Consumer, purchased their home in North Philadelphia in 1984. 7. In December 1998 Mr. and Mrs. Consumer renanced their mortgage and entered into a loan with Pier, Inc., trading as Sunnyside Mortgage Company. The mortgage was later sold to Owens Federal Savings Bank, who in turn sold it to WFM Bank of Minnesota, trustee. Owens continued to service the mortgage. 8. Mrs. Consumer eventually led a civil suit against Owens, seeking to rescind the 1998 loan and seeking other relief.

9. The civil suit against Owens was settled by a December 2000 settlement and loan modication agreement that, among other things, called for Owens to reduce the loan principal to $25,984 and the interest rate to 8%, and for Mrs. Consumer to make monthly payments of principal and interest of $190.66. A copy of the December 2000 loan modication agreement is attached as Exhibit A. 10. At some time on or about April 29, 2002 the servicing of the mortgage loan was transferred from Owens Federal Savings Bank to Defendant Linton. 11. Shortly after the servicing transfer, Linton demanded that Mrs. Consumer make monthly payments of $394.79, which was the payment prior to the December 2000 modication. 12. On May 21, 2002, Mrs. Consumer, through her lawyer, reminded Linton of the terms of the loan modication, including the $190.66 payment amount, enclosed another copy of the modication agreement, and asked Linton to correct Mrs. Consumers account records accordingly. 13. Nevertheless, Linton failed and refused to revise its account records to reect the loan modication agreement. 14. On or about July 21, 2004 Linton mailed a statement to Mrs. Consumer incorrectly asserting that the mortgage payments were delinquent. 15. On or about August 10, 2004 Mrs. Consumer wrote to Linton disputing the alleged delinquency and asking Linton to correct its account records to reect that her payments of $190.66 were paid up to date. 16. On August 18, 2004 Linton acknowledged Mrs. Consumers written request for account information and adjustments. On or about October 8, 2004, Linton wrote to Mrs. Consumer acknowledging the loan modication and asserting that Lintons records had been updated to reect the loan modication. The same letter stated that Mrs. Consumers payment was in fact $190.66, and was due for October 1, 2004, in other words, her payments were current. 17. Mrs. Consumer subsequently received a letter dated September 22, 2004, asserting that she had an escrow decit of $5285.17, and that effective November 1, 2004 her mortgage payment would increase to 455.8 (sic). 18. At about the same time in September 2004 Mrs. Consumer received her monthly statement dated September 15, 2004 showing the amount due by October 1 as $190.66. This statement also, however, reected an escrow decit of $5,285.17 and other fees due of $40,927.12. No explanation was provided for the escrow decit or the other fees. 19. In November, 2004, Mrs. Consumer received a letter from Linton asserting that her loan was past due for November and December, 2004, and that the total due was $1461. No explanation was provided for this curious arithmetic. Meanwhile Mrs. Consumer continued sending the $190.66 monthly payments to Linton. 20. In December 2004 Mrs. Consumer received her monthly statement dated December 15 which called for a current payment amount of $666.96, and a total amount due by January 1 2005 of $2,118.43. The other fees due had increased slightly to $40,936.12. 21. Mrs. Consumer received another letter from Linton dated January 5, 2005 asserting that she owed three payments, and must send $2,127.96 today. This amount was apparently calculated on the same basis as the December statement amount, with the January 17 late fee added in advance. A copy of the January 5 letter

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Appx. J.6.2.1

Foreclosures
32. Linton has, for the past two years, provided Mrs. Consumer with inconsistent, incomprehensible statements and correspondence and has made it impossible for her to maintain her monthly mortgage payments. To the extent Linton has made advances for taxes and insurance Linton has failed to identify the amounts advanced in a clear and simple manner and to establish a reasonable plan for Mrs. Consumer to repay those amounts. 33. Mrs. Consumer has suffered severe emotional distress and anxiety as a result of Lintons conduct, and has expended money to travel to and from her attorneys office and to copy documents in her vain efforts to resolve this account dispute. COUNT IFAIR DEBT COLLECTION PRACTICES ACT 34. Linton was a debt collector within the meaning of the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. 1692a, at the time it became the servicing agent for Mrs. Consumers loan, in that it regularly collects debts owed to another, and the debt was asserted by Linton to be contractually in default at the time it became the servicer of the debt. 35. Each of the letters described above incorrectly stated the amount and the status of Mrs. Consumers debt. 36. Linton failed to provide verication of the alleged debt to Mrs. Consumer in response to her timely written request for such written verication. 37. Due to the repeated and continuing violations of the FDCPA, Mrs. Consumer is entitled to actual and statutory damages under 15. U.S.C. 1692k. COUNT IIRESPA 38. Linton is a servicer of a federally related mortgage loan within the meaning of the Real Estate Settlement Procedures Act (RESPA), 12 U.S.C. 2605. 39. Each of Mrs. Consumers (and her attorneys) written requests for information about her account and correction of Lintons numerous errors were qualied written requests within the meaning of RESPA. 40. Linton failed to respond in a proper and timely way to Mrs. Consumers qualied written requests for information about, and corrections to, her mortgage account, in violation of 12 U.S.C. 2605(e). COUNT IIIPENNSYLVANIA ACT 6 of 1974 41. Mrs. Consumers mortgage is a residential mortgage obligation covered by Pennsylvania Act 6 of 1974, 41 Pa. Stat. 101-605. 42. Linton has repeatedly failed to provide Mrs. Consumer with an accurate notice of the amount required to cure her mortgage default, as required by 41 P.S. 403, and has improperly demanded payment of improper amounts and has thwarted her right to cure her default, under 41 P.S. 404, and has applied some of her payments to amounts not due under her mortgage and Act 6. WHEREFORE, Plaintiff requests judgment in her favor and against Linton for three times the amount of the illegal charges. COUNT IVPENNSYLVANIA CONSUMER PROTECTION LAW 43. Lintons conduct described above constituted unfair and deceptive acts and practices, as dened by 73 Pa. Stat. 201-2(4).

is attached as Exhibit B. This letter also falsely stated or implied that foreclosure was imminent and could begin immediately or today if payment was not made. 22. Also dated January 5, 2005 were two additional letters sent by Linton. One, entitled Notice of Default and Intent to Accelerate, demanded $2,127.96, and stated that after 45 days Linton could accelerate the mortgage balance and foreclose the property. This letter is attached as Exhibit C. 23. The other January 5, 2005 letter, entitled Appendix A, is similar to the notice required by Pennsylvania law prior to foreclosure. This letter is attached as Exhibit D. 24. Exhibit D says that the monthly payments due were in the amount of $455.80 each, contradicting the statements calling for $666.96. Exhibit D also contains mathematically inconsistent amounts needed to be paid by Mrs. Consumer, on page three. The letter asserts that three payments of $455.80 are due, plus $19.06 in late charges and $319.18 in deferred late charges. These amounts total $1705.64. However the total amount demanded is $2,127.96. 25. Mrs. Consumer received another letter dated January 27, 2005, purporting to respond to her attorneys written request for account information. Exhibit E. The January 27 letter states that the payment amount is $666.96 effective October 1, and is attributable to advances for insurance and taxes. The letter includes an escrow analysis that makes reference to an annual payment of $417.39 for insurance, but does not explain the escrow decit in excess of $5,000. 26. It is mathematically impossible for annual insurance payments of $417.39 from 2002 to 2004 to accumulate to a decit of $5,000. Mrs. Consumer pays her own real estate taxes, which are about $500 per year. Even if Linton had paid the taxes from 2002 through 2004, that would account only for $1,500 of the asserted escrow advances. 27. The January 27 letter also includes a payment history, but only from September 2004 through December 2004. The history printout included is incomprehensible, does not identify transactions as payments, advances or charges, does not begin to address the questions and concerns expressed by Mrs. Consumer and her attorney, and is completely unresponsive to her qualied written requests, which asked for an explanation of the $5,000 escrow decit. 28. On or about May 13, 2005 Linton, through its attorneys Utrech Law Office, P.C., mailed a Reinstatement Quote to Mrs. Consumer. The May 13, 2005 reinstatement is attached as Exhibit F. The total amount claimed to be due is shown as $47,103.60. This document calls for monthly payments of $362.61, an amount that does not correspond to the $190.66 payment for principal and interest, the $666.96 payment shown on the December statement, or the $455.80 referred to on Exhibit D. 29. Exhibit E includes a demand for payment for numerous inspections of the property, despite the fact that Mrs. Consumer has been in constant communication with Linton, has a working telephone, and Linton has no basis to believe there is any danger of the property being abandoned. 30. Exhibit E includes a demand for $400 for a BPO, that is, a broker price opinion. This amount is not properly chargeable to Mrs. Consumer under the contract or Pennsylvania law. 31. Having no way to determine the correct amount due, Mrs. Consumer sent $1,400 to Linton on May 6, 2005 (enough to cover the principal and interest payments due from November 2004 through May 2005) in an effort to show her good faith and desire to maintain her mortgage payments.

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Sample Foreclosure Pleadings and Other Litigation Documents

44. Mrs. Consumer has suffered an ascertainable loss of money as a result of Lintons unfair and deceptive practices. WHEREFORE, Plaintiff requests that the court enter judgment in her favor and against defendants, for a proper accounting and application of her mortgage payments and for actual, statutory, treble and/or punitive damages, and attorneys fees and costs, along with any other and further relief as the court deems just and proper. Attorney for Plaintiff

Appx. J.6.2.2

J.6.2.2 Plaintiffs Proposed Findings of Fact and Conclusions of Law

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF PENNSYLVANIA ) ) Plaintiff ) ) v. ) ) LINTON LOAN SERVICING ) LP ) ) Andrea Consumer, PLAINTIFFS PROPOSED FINDINGS OF FACT AND CONCLUSIONS OF LAW FINDINGS OF FACT 1. This is an action by a low-income homeowner against a mortgage servicing company seeking an accounting of her mortgage and statutory damages under the Fair Debt Collection Practices Act and the Real Estate Settlement Procedures Act and state law. 2. Plaintiff Andrea Consumer is a natural person residing at [Address]. 3. The Defendant, Linton Loan Servicing, LP (Linton), is a corporation with its principal offices at 500 West Central Drive, Houston Texas. Linton is the servicing agent for the holder of Ms. Consumers mortgage. The mortgage on Ms. Consumers home is held by WFM Bank Minnesota, NA as the trustee for an investorowned trust that holds a large pool of mortgage loans. 4. Andrea Consumer and her husband, William Consumer, purchased their home in North Philadelphia in 1984. 5. In December 1998 Mr. and Mrs. Consumer renanced their mortgage and entered into a loan with Pier, Inc., trading as Sunnyside Mortgage Company. The mortgage was later sold to Owens Federal Savings Bank, who in turn sold it to WFM Bank of Minnesota, trustee. Owens continued to service the mortgage. 6. Mrs. Consumer eventually led a civil suit against Owens, seeking to rescind the 1998 loan and seeking other relief. 7. The civil suit against Owens was settled by a December 2000 settlement and loan modication agreement (the 2000 modication) that, among other things, called for Owens to reduce the loan principal to $25,984 and the interest rate to 8%, and for Mrs. Consumer to make monthly payments of principal and interest of $190.66. Exhibit 1. 8. On April 29, 2002 the servicing of the mortgage loan was transferred from Owens Federal Savings Bank to Defendant Linton. Exhibit 2.

9. For a period of 29 months, from April 29, 2002, through at least September 2004, Linton failed and refused to adjust its records to reect the 2000 modication, and as a result continued demanding monthly payments ranging from $343 to $666 or more from Mrs. Consumer, contrary to the terms of the modication. As a result Mrs. Consumer received dozens of letters, account statements and telephone calls from Linton that completely misrepresented the amounts she owed. 10. Linton appears to have corrected the loan principal and interest rate by the end of September 2004. Exhibit 8, 9. However, Linton continued demanding repayment by Mrs. Consumer of legal fees incurred by Owens prior to the 2000 modication, contrary to the terms of the modication agreement. (Exhibit 3, entry dated 10/21/2004). 11. On May 9, 2002, Linton sent Ms. Consumer a letter demanding that Mrs. Consumer make monthly payments of $394.79, which was the payment prior to the 2000 modication, and asserting that she was past due for payments since September 2000. Exhibit 2. 12. On May 21, 2002, Mrs. Consumer, through her lawyer, faxed a letter to Linton calling attention to the terms of the loan modication, including the $190.66 payment amount, enclosing another copy of the 2000 modication agreement, and asking Linton to correct Mrs. Consumers account records accordingly. These documents were received on the same day by Linton. Exhibit 1. 13. On October 25, 2002 Linton mailed a adjustable rate mortgage loan adjustment notice asserting that the principal balance was $33,126.86 and the new monthly payment would be $343.74, based on an interest rate of 11.875%, considerably in excess of the amounts provided for in the 2000 modication. Exhibit 4. 14. Linton also mailed rate adjustment notice letters to Mrs. Consumer on April 30, 2003, October 24, 2003, and April 26, 2004, each of which incorrectly stated that Mrs. Consumers mortgage bore an adjustable interest rate based on the original Note, instead of the xed 8% rate called for in the 2000 modication. Exhibit 3. 15. Linton mailed a monthly billing statement on April 14, 2004, May 14, 2004, June 14, 2004, July 15, 2004, August 13, 2004, and September 15, 2004, none of which reected the lower interest rate and payment provided for in the 2000 modication. See Exhibit 3, entries for corresponding dates. 16. On or about August 10, 2004 Mrs. Consumer wrote to Linton disputing the alleged delinquency and asking Linton to correct its account records to reect that her payments were to be $190.66, and not $343.74 (or whatever amounts Linton was demanding based on the adjustable rate Note.) Exhibit 5. 17. On August 18, 2004 Linton acknowledged Mrs. Consumers written request for account information and adjustments. Exhibit 6. 18. On September 3, 2004 and again on September 16, 2004, Linton wrote to Mrs. Consumer acknowledging the loan modication and asserting that Lintons records had been updated to reect the loan modication. The September 16 letter stated that Mrs. Consumers payment was in fact $190.66, and was due for October 1, 2004, in other words, her payments were current. Exhibits 8, 9. 19. However, Mrs. Consumer then received a letter dated September 22, 2004, asserting that she had an escrow decit of

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Foreclosures
escrow analysis that makes reference to an annual payment of $417.39 for insurance, but does not explain the escrow decit in excess of $5,000. 30. The January 27 letter also includes a payment history, but only from September 2004 through December 2004. The history printout included is incomprehensible, does not identify transactions as payments, advances or charges, does not begin to address the questions and concerns expressed by Mrs. Consumer and her attorney, and is completely unresponsive to her qualied written requests, which asked for an explanation of the $5,000 escrow decit and all other amounts demanded, as well as an account history from 2002. 31. In the ve months after September 2004, when Linton had allegedly corrected Ms. Consumers account to reect the loan modication agreement, Ms. Consumer received conicting notices demanding three different monthly payment amounts, escrow advances that were not due, and a mysterious $40,936 fee balance. 32. Mrs. Consumer was understandably confused and upset during this period and frustrated in her attempts to determine in telephone conversations with Linton exactly what she owed and why. 33. On or about May 13, 2005 Linton, through its attorneys Utrech Law Office, P.C., mailed a Reinstatement Quote to Mrs. Consumer. Exhibit 22. The total amount claimed to be due is shown as $47,103.60. This document calls for monthly payments of $362.61, an amount that does not correspond to the $190.66 payment for principal and interest, the $666.96 payment shown on the December statement, or the $455.80 referred to on Exhibit 17, i.e. a fourth conicting amount for her monthly payment. 34. Exhibit 22 includes a demand for payment for numerous inspections of the property, despite the fact that Mrs. Consumer has been in constant communication with Linton, has a working telephone, and Linton has no basis to believe there is any danger of the property being abandoned. 35. Exhibit 22 includes a demand for $400 for a BPO, that is, a broker price opinion. This amount is not properly chargeable to Mrs. Consumer under the contract or Pennsylvania law, because it was not a reasonable and necessary cost of foreclosure, incurred after the mailing of a proper 30-day notice of intent to foreclose, 41 Pa. Stat. 403, 406. 36. Having no way to determine the correct amount due, Mrs. Consumer sent a certied check for $1400 to Linton on May 6, 2005 (enough to cover the seven principal and interest payments due from November 2004 through May 2005) in an effort to show her good faith and desire to maintain her mortgage payments. This payment was later refused by Linton. 37. To the present date it does not appear that Linton properly adjusted Mrs. Consumers account, retroactively to January 2001, the effective date of the loan modication agreement. As a result, payments made and accepted from January 2001 to the present may have been applied improperly. 38. Linton has, for the past two years, provided Mrs. Consumer with inconsistent, incomprehensible statements and correspondence and has made it impossible for her to maintain her monthly mortgage payments. 39. To the extent Linton has made advances for taxes and insurance, Linton has failed to identify these amounts advanced in a clear and simple notice and payment demand, and has failed to establish a reasonable plan for Mrs. Consumer to repay those amounts.

$5285.17, and that effective November 1, 2004 her mortgage payment would increase to 455.8 (sic). Exhibit 11. 20. The September 22, 2004 letter was incorrect. As of that date, Linton had made the following payments for taxes and insurance on Mrs. Consumers property: a. $528.66 insurance premium September 5, 2002 b. $417.61 insurance premium May 28, 2003 c. $417.39 insurance premium May 10, 2004 d. $2,965.28 real estate taxes paid on January 29, 2004 Total: $4,328.94 (Defendants Exhibit D15) 21. At about the same time in September 2004 Mrs. Consumer received her monthly statement dated September 15, 2004 showing the amount due by October 1 as $190.66. This statement also, however, reected an escrow decit of $5,285.17 and other fees due of $40,927.12. No explanation was provided for the escrow decit or the other fees. Exhibit 12. 22. On December 6, 2004 Linton sent Mrs. Consumer a letter saying she was past due for two months, and owed a total of $1,451.47. Exhibit 13. This was clearly inconsistent with the September notices referring to a payment of $455 to recover the tax and insurance advances. 23. Also in December 2004 Mrs. Consumer received her monthly statement dated December 15 which called for a current payment amount of $666.96, and a total amount due by January 1 2005 of $2,118.43. The other fees due had increased slightly to $40,936.12. Exhibit 14. 24. Mrs. Consumer received another letter from Linton dated January 5, 2005 asserting that she owed three payments, and must send $2,127.96 today. Exhibit 15. This amount was apparently calculated on the same basis as the December statement amount, with the January 17 late fee added in advance. Exhibit 15 also falsely stated or implied that foreclosure was imminent and could begin immediately or today if payment was not made. Pennsylvania law requires a 30-day notice prior to foreclosure, and also prohibits foreclosure for up to 90 days if a homeowner applies for emergency mortgage assistance. 41 Pa. Stat. 403, 35 Pa. Stat. 1680.403c. 25. Also dated January 5, 2005 were two additional letters sent by Linton. One, entitled Notice of Default and Intent to Accelerate, demanded $2,127.96, and stated that after 45 days Linton could accelerate the mortgage balance and foreclose the property. Exhibit 16. 26. The other January 5, 2005 letter, entitled Appendix A, is similar to the notice required by Pennsylvania law prior to foreclosure. Exhibit 17. 27. Exhibit 17 says that the monthly payments due were in the amount of $455.80 each, contradicting the statements calling for $666.96. Exhibit 17 also contains mathematically inconsistent amounts needed to be paid by Mrs. Consumer, on page three. The letter asserts that three payments of $455.80 are due, plus $19.06 in late charges and $319.18 in deferred late charges. These amounts total $1705.64. However the total amount demanded is $2,127.96. 28. Although Exhibit 17 demands $319.18 in deferred late charges, other letters sent by Linton (Exhibits 8 and 19) state or suggest that Linton was waiving the late charges. 29. Mrs. Consumer received another letter dated January 27, 2005, purporting to respond to her attorneys written request for account information. Exhibit 19. The January 27 letter states that the payment amount is $666.96 effective October 1, and is attributable to advances for insurance and taxes. The letter includes an

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Sample Foreclosure Pleadings and Other Litigation Documents

40. Mrs. Consumer has suffered severe confusion, frustration, emotional distress, loss of sleep, anxiety and fear of losing her home as a result of Lintons conduct, continuously during the nearly four years from May 2002 to the present. CONCLUSIONS OF LAW 41. Jurisdiction over this matter is conferred upon this Court by 12 U.S.C. 2614, 15 U.S.C. 1692 and 28 U.S.C. 1331. The court has supplemental jurisdiction over the state law claims. COUNT IFAIR DEBT COLLECTION PRACTICES ACT 42. Linton was a debt collector within the meaning of the Fair Debt Collection Practices Act (FDCPA), 15 U.S.C. 1692a, at the time it became the servicing agent for Mrs. Consumers loan, in that it regularly collected debts owed to another. 43. The FDCPA coverage exception for servicers of debts that are not past due does not apply to Linton. 15 USC 1692a(6)(F)(iii). Linton asserted in its initial communication with Mrs. Consumer that her payments were seriously past due. Exhibit 2. Whether Linton was correct or not, the assertion of a default is sufficient to bring Linton under the FDCPA. Schlosser v. Fairbanks Capital Corp., 323 F.3d 534 (7th Cir. 2003). 44. Each of the letters described above incorrectly stated the amount and the status of Mrs. Consumers debt. 45. In particular, the four rate adjustment letters dated October 25, 2002, April 30, 2003, October 24, 2003, and April 26, 2004, the six monthly statements mailed in 2004 (including Exhibits 12 and 14), and the ten letters and notices (Exhibits 11-13, 15-17, 19-22) for a total of twenty written communications to Mrs. Consumer, each constituted a separate violation of 15 U.S.C. 1692e. 46. Linton failed to provide verication of the alleged debt to Mrs. Consumer in response to her timely written request for such written verication, in violation of 15 U.S.C. 1692g(b). 47. Although the statute of limitations under the Federal statute is one year, encompassing the written communication and other conduct from June 2004 to the present, Pennsylvanias Fair Credit Extension Uniformity Act, 73 Pa. Stat. 2270.1 to 2270.6, imposes the same requirements on debt collectors as the federal law. 73 Pa. Stat. 2270.4(A). A violation of the Pennsylvania debt collection provisions is per se a violation of the Pennsylvania Consumer Protection Law, 73 Pa. Stat. 201-9.2, 2270.6(A). The statute of limitations for private actions under the Consumer Protection law is six years. Gabriel v. OHara, 368 Pa. Super. 383, 534 A.2d 488 (1987). 48. Because of the difficulty of quantifying the misapplication of Mrs. Consumers payments by Linton throughout the three year period at issue, it is appropriate to award the $100 minimum damages under the Pennsylvania Consumer Protection Law for each of the incorrect and misleading communications, for a total of $2,000. See In re Koresko, 91 B.R. 689 (Bankr. E.D. Pa. 1988). 49. Due to the repeated and continuing violations of the FDCPA, Mrs. Consumer is entitled to actual and statutory damages under 15. U.S.C. 1692k, as follows: A) $1,000 statutory damages under the FDCPA, B) actual damages of $ for anxiety and emotional distress suffered from 2002 to the present, COUNT IIRESPA

Appx. J.6.2.2

C) minimum statutory damages under the Pennsylvania Fair Credit Extension Uniformity Act and the Consumer Protection Law of $100 for each violation, for a total of $2,000, and D) reasonable attorneys fees and costs.

50. Linton is a servicer of a federally related mortgage loan within the meaning of the Real Estate Settlement Procedures Act (RESPA), 12 U.S.C. 2605. 51. The May 21, 2002 letter to Linton was a qualied written request to Linton, within the meaning of 12 U.S.C. 2605(e)(1)(B) and was received on that date by Linton. 52. Linton failed to make appropriate corrections to the account within 60 days, and failed to notify Ms. Consumer of any corrections, as required by 12 U.S.C. 2605(e)(2). 53. Each of Mrs. Consumers (and her attorneys) subsequent written requests for information about her account and correction of Lintons numerous errors were qualied written requests within the meaning of RESPA, including, among others, the January 13, 2005 letter to Linton, Exhibit 18. 54. Linton failed to respond in a proper and timely way to Mrs. Consumers qualied written requests for information about, and corrections to, her mortgage account, in violation of 12 U.S.C. 2605(e). 55. As a result of a pattern or practice of noncompliance with the servicing provisions of RESPA, Linton is liable to Mrs. Consumer for actual damages in the amount of $ and statutory damages of $1,000. 12 U.S.C. 2605(f)(1). COUNT IIIPENNSYLVANIA ACT 6 of 1974 56. Mrs. Consumers mortgage is a residential mortgage obligation covered by Pennsylvania Act 6 of 1974, 41 Pa. Stat. 101-605. 57. Linton has repeatedly failed to provide Mrs. Consumer with an accurate notice of the amount required to cure her mortgage default, as required by 41 P.S. 403, has improperly demanded payment of amounts not due, and has thwarted her right to cure her default, under 41 P.S. 404. 58. The excess charges to Mrs. Consumers account include $319.18 in late charges caused by Lintons failure to implement the loan modication, Exhibit 17 page 3, the $400 BPO fee and $70 in inspection fees, Exhibit 22. 59. Linton is therefore liable to Mrs. Consumer for three times the excess charges, 41 P.S. 502, or $2,367.54, together with reasonable attorneys fees and costs. COUNT IVPENNSYLVANIA CONSUMER PROTECTION LAW 60. Lintons conduct described above constituted unfair and deceptive acts and practices, as dened by 73 Pa. Stat. 201-2(4). 61. Mrs. Consumer has suffered an ascertainable loss of money as a result of Lintons unfair and deceptive practices. 62. Mrs. Consumer is entitled to recover three times her actual damages, or $ , together with reasonable attorneys fees and costs, 73 Pa. Stat. 201-9.2.

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Appx. J.7

Foreclosures
DEFENDANT, WILLIE CONSUMERS AMENDED MOTION TO DISMISS PLAINTIFFS COMPLAINT, OR IN THE ALTERNATIVE, MOTION FOR MORE DEFINITE STATEMENT The Defendant, WILLIE CONSUMER, (hereinafter Mr. Consumer) by and though his undersigned attorney, les this amended motion to dismiss, or in the alternative, motion for more denite statement, pursuant to Rules 1.210(a), 1.130(a) and 1.140(b)(7) of the Florida Rules of Civil Procedure, for Plaintiffs failure to join an indispensable party. In the alternative, Mr. Consumer requests this Court to enter an Order requiring Plaintiff to provide a more denite statement. In support of these alternative motions, Mr. Consumer says: 1. Mr. Consumer is the owner of the property which is the subject of this mortgage foreclosure Complaint. He requests the Court dismiss this action pursuant to Rule 1.210(a) and 1.140(7), because it appears on the face of the Complaint that a person other than the Plaintiff is the true owner of the claim sued upon and that the Plaintiff is not the real party in interest and is not shown to be authorized to bring this action. In re: Shelter Development Group, Inc., 50 B.R. 588 (Bankr. S.D. Fla. 1985) [It is axiomatic that a suit cannot be prosecuted to foreclose a mortgage which secures the payment of a promissory note, unless the Plaintiff actually holds the original note, citing Downing v. First National Bank of Lake City, 81 So.2d 486 (Fla. 1955)], See also 37 Fla. Jur. Mortgages and Deeds of Trust 240 (One who does not have the ownership, possession, or the right to possession of the mortgage and the obligation secured by it, may not foreclose the mortgage). 2. Fla. R. Civ. P. Rule 1.130(a) requires a Plaintiff to attach copies of all bonds, notes, bills of exchange, contracts, accounts, or documents upon which action may be brought to its complaint. Attached to Plaintiffs Complaint, are a promissory note and mortgage. The Promissory Note is payable to Taylor, Bean & Whitaker Mortgage Corporation as Lender. The Plaintiff in the above-styled case is Mortgage Electronic Registration Systems, Inc. as nominee for Taylor, Bean & Whitaker Mortgage Corporation.(MERS) 3. Fla. R. Civ. P. Rule 1.310(b) provides that all exhibits attached to a pleading shall be considered a part of the pleading for all purposes. Therefore, the promissory note attached to MERS Complaint must be considered in determining if it is the proper party to bring this action and for purposes of determining if an indispensable party has been overlooked. It appears on the face of MERS Complaint that it is not the proper party to bring this action based upon the note attached to the Complaint payable to Taylor, Bean & Whitaker. 4. The Mortgage attached to Plaintiffs Complaint reads: This Security Instrument is given to Mortgage Electronic Registration Systems, Inc. (MERS) (solely as nominee for Lender, as hereinafter dened, and Lenders successors and assigns). The Mortgage further provides that the Lender is Taylor, Bean & Whitaker Mortgage Corporation. 5. A nominee is dened in Blacks Law Dictionary (7th Edition, 1999) as: . . . A person designated to act in place of another, usually in a very limited way . . . A party

63. The Pennsylvania Consumer Protection Law also authorizes an award to an aggrieved consumer of other appropriate relief, which in this case includes a full and complete accounting of her mortgage account by Linton, together with all adjustments necessary to reect the terms of the 2000 modication agreement, effective January 2001, to remove all late charges, and any other fee or charge of any kind, apart from the agreed reduced principal, interest from January 2001, and actual payments of real estate taxes and insurance made by Linton since January 2001. 64. The relief to be awarded the plaintiff can be summarized as follows: a. $1,000 statutory damages under the FDCPA, b. $2,000 for the twenty violations of the Pennsylvania debt collection statute, c. $1,000 statutory damages for violating RESPA, d. $2,367.54 in treble damages under Pennsylvania Act 6 of 1974, e. $ actual damages for emotional distress, f. an injunction directing Linton to analyze Mrs. Consumers account retroactive to the date of the 2000 loan modication agreement, to reapply her payments properly under that agreement, to remove all fees or charges imposed by Linton or the previous servicer, including any attorneys fees or foreclosure costs, and to discuss with Mrs. Consumer and establish a reasonable repayment schedule for any taxes and insurance advances made by Linton from 2002 to the present (which may include setting off the damage award to Mrs. Consumer against these amounts due), g. and reasonable attorneys fees and costs, in an amount to be determined after submission of an appropriate motion by the Plaintiff. Respectfully submitted, Attorney for Plaintiff

J.7 Action Challenging MERS as Plaintiff

IN THE CIRCUIT COURT, FOURTH JUDICIAL CIRCUIT, IN AND FOR DUVAL COUNTY, FLORIDA. ) ) ) ) ) ) ) ) v. ) ) WILLIE CONSUMER, et al. ) Defendants. ) ) MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC. as Nominee for Taylor, Bean & Whitaker Mortgage Corporation, Plaintiff,

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Sample Foreclosure Pleadings and Other Litigation Documents

who holds bare legal title for the benet of others or who receives and distributes funds for the benet of others. 6. A nominee is one designated to act for another as his/her representative in a rather limited sense . . . In its commonly accepted meaning, the word nominee connotes the delegation of authority to the nominee in a representative capacity only, and does not connote the transfer or assignment to the nominee of any property in or ownership of the rights of the person nominating him/her. Mortgage Electronic Registration Systems, Inc., v. Rees, 2003 WL 22133834 (Conn. Super. Ct. 2003). 7. In the absence of contrary evidence, nominee should be given its commonly accepted meaning. It connotes the delegation of authority in a representative or nominal capacity only, and does not connote the transfer or assignment to the nominee of any property in or ownership of the rights of the person nominating him. Winters National Bank and Trust Company v. Saker, 419 N.E. 2d 890 (Ohio App. 1979). 8. MERS is a for-prot electronic registration and tracking system utilized by some owners and holder of notes that allows these parties to avoid paper transfers of the ownership of notes and mortgages. A loan registered with MERS is provided an 18 digit number which follows it as it is transferred from owner/holder to owner/holder. MERS is not the true owner or holder of the note and mortgage and, instead, MERS acts as a library or holder of information regarding the true owners and holders of notes and mortgages. Through its database a person who is properly qualied and registered to do so can determine the true owner or holder. 9. Mr. Consumers mortgage is insured by the FHA. The FHA will allow HUD-approved mortgagees to register their FHA-insured loans with MERS, however, the mortgagees must also continue to comply with all Departmental regulations, reporting requirements and other established policies. Mortgagees will continue to be responsible for informing FHA of any changes related to the mortgage such as change of holder/servicer, foreclosure initiation and terminations. See MORTGAGEE LETTER 97-30, To: All Approved Mortgagees, SUBJECT: Registering FHA-insured Loans with Mortgage Electronic Registration System, Inc. (MERS) dated July 16, 1997. MERS cannot be the true holder or owner of Mr. Consumers mortgage as it would be a violation of FHA policies and the terms and conditions of the subject mortgage and note. 10. In this case, MERS allegations of material facts claiming it is the owner of the subject note are inconsistent with the documents attached to the Complaint. MERS has not pled or attached an assignment to the Complaint. MERS also has not and cannot plead or attach any documentation memorializing the transfer of the subject note or mortgage to itself. Further, MERS has alleged it does not have the original promissory note. When exhibits are inconsistent with the plaintiffs allegations of material fact as to who the real party in interest is, such allegations cancel each other out. Fladell v. Palm Beach County Canvassing Board, 772 So.2d 1240 (Fla. 2000); Greenwald v. Triple D Properties, Inc., 424 So. 2d 185, 187 (Fla. 4th DCA 1983); Costa Bella Development Corp. v. Costa Development Corp., 441 So. 2d 1114 (Fla. 3d DCA 1983). WHEREFORE, Mr. Consumer requests the Court to dismiss the Plaintiffs complaint with prejudice; alternatively order the Plaintiff to add the owner and holder of the subject mortgage as an indispensable party to this foreclosure action, and award this

Appx. J.8.1

defendant attorneys fees and all other relief to which he proves himself entitled. [Attorney for Consumer]

J.8 Foreclosure Rescue Scams

J.8.1 Sample Complaint Involving Fraudulent Transfer of Title
IN THE CIRCUIT COURT, FOURTH JUDICIAL CIRCUIT, IN AND FOR DUVAL COUNTY, FLORIDA ) DONALD C. CONSUMER, ) Plaintiff, ) ) v. ) ) WILLIAM DEFENDANT ) Defendant. ) ) COMPLAINT The Plaintiff, DONALD C. CONSUMER, sues the Defendant, WILLIAM DEFENDANT and alleges: JURISDICTIONAL ALLEGATIONS l. The Plaintiff, DONALD C. CONSUMER (hereinafter Mr. Consumer) is and was at all times material to this Complaint a resident of Jacksonville, Duval County, Florida. 2. The Defendant, WILLIAM DEFENDANT, (hereinafter Defendant) is and was at all times material to this Complaint a resident of Jacksonville, Duval County, Florida, doing business in Duval County and is otherwise sui juris. 3. This is an action for damages in excess of $15,000 exclusive of interest and costs. Injunctive and declaratory relief are also sought herein. 4. Venue is properly placed in Duval County, Florida pursuant to 47.011, Fla. Stat. (2002). FACTUAL ALLEGATIONS 5. In the fall of 2001, Defendant advertised various services, via various mediums including television, the Internet and yellow page advertisements, relating to the purchase of real estate. Said advertisements targeted persons in nancial distress or difficulty and stated, among other things, Bill Buys Houses, Sell Your House Today, and We Charge You No Fees. 6. Mr. Consumer contacted Defendant in response to his advertisements. During a brief telephone conference, Defendant offered his services and told Mr. Consumer to obtain a payoff statement from the company holding the mortgage on their house. 7. Prior to December 2001, Defendant met with Mr. Consumer and went to look over his former home located at [Address], Jacksonville, and more particularly described as follows:

45

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Foreclosures
19. He has not paid this amount or any sums to Mr. Consumer nor has he assumed Mr. Consumers mortgage secured by the property. 20. Pursuant to the purchase agreement, Defendant was required to pay the mortgage payment on the house and to keep in good standing and current all other obligations required in the mortgage agreement. He has failed to do so. 21. Defendants tenants have caused damage to Mr. Consumers former home. 22. Defendant has failed to sell the property within seven days and such promise was material to induce Mr. Consumer into signing the contract in question so as to enable him to convert the property to his use without obligation or consideration. COUNT ONE Fraud and Misrepresentation 23. Mr. Consumer realleges and reincorporates the allegations contained in Paragraphs 1 through 22 above as if stated fully herein and adds: 24. As part of his scheme to defraud Mr. Consumer, Defendant engaged in actions and made representations which he knew or should have known were unconscionable, false and fraudulent with the express purpose of having Mr. Consumer rely upon such actions and representation to his detriment, namely: to convey title to his property to him without receiving anything in return. 25. Specically, Defendant: a. advertised that he could sell Mr. Consumers property within seven days of signing the transactional documents for approximately $50,000.00, the principal balance remaining on the mortgage secured by the property when he had no intention of doing so; b. changed the terms of the sales contract after it was signed by Mr. Consumer; c. told Mr. Consumer he would assume the mortgage and satisfy all of its requirements as required by the parties sales agreement when he had no intention of doing so; d. surreptiously prepared an addendum to the agreement which purportedly relieves him of all obligation under the Standard Purchase and Sales Agreement thereby essentially taking Mr. Consumers property for absolutely nothing; e. presented under false pretenses a fraudulent and unconscionable addendum to the parties agreement, hurried Mr. Consumer into signing it without allowing him a reasonable opportunity to read it and, thereafter, refused to give him a copy of same; and f. Promised to make repairs on the property with no intent to carry out such promise. 26. Defendants scheme, which included the activities and statements referenced in Paragraph 25 above, was unconscionable, false, misleading and fraudulent and was engaged in and stated intentionally and with wanton disregard for the truth in order to induce Mr. Consumer to transfer title to and possession of his property to him without receiving anything in return. 27. Mr. Consumer reasonably relied upon Defendants actions and statements practiced as a part of the scheme in entering into the Purchase and Sale Agreement, signing the Warranty Deed to Trustee and turning the property over to Defendant. 28. As a direct result of Defendants actions and misrepresentations as described above, Mr. Consumer has been damaged

Lot 0, Block 0, EMPIRE ESTATES, Unit 0, according to plat thereof recorded in Plat Book 00, Pages 00 and 00A of the current public records of Duval County, Florida. 8. During their meeting, Mr. Consumer explained he was renting the property, however, the last tenant failed to make payments and left. As a result, he was having difficulty keeping the mortgage payments current. Defendant told Mr. Consumer he would sell his property within seven days as advertised so Mr. Consumer could avoid having a mortgage foreclosure led against him. 9. On or about December 5, 2001, Defendant presented Mr. Consumer with a form, Standard Purchase and Sales Agreement which was signed by Mr. Consumer and Defendant. 10. After Mr. Consumer signed the sales agreement, Defendant marked through the language indicating he would assume the mortgage and added taken subject to Mr. Consumers mortgage. A copy of this document, as altered after signed, is attached hereto as Exhibit A and is by this reference incorporated herein. 11. Defendant agreed to pay all closing costs and promised to do necessary repairs. Defendant promised to prepare the remaining transactional papers immediately so the property would be sold. 12. Defendant delayed the signing of the nal transactional documents until January 8, 2002, by this time a foreclosure lawsuit had been led. 13. On January 8, 2002, Defendant arranged for the parties to meet in a parking lot to sign the remaining documents. On this date, Defendant asked Mr. Consumer to sign a series of documents. He had him sign the documents using Defendants pickup truck as a desk. Mr. Consumer could not sit down and did not have a meaningful opportunity to read any of the documents presented to him before being pressured to sign. 14. Defendant refused to provide Mr. Consumer with copies of these documents until more than ve months after the closing. At that time, Mr. Consumer noticed the sales agreement had been altered and that they had signed a Warranty Deed to Trustee prepared by Defendant transferring the property to The Consumer Family Trust. A copy of this Deed is attached hereto as Exhibit B and is by this reference incorporated herein. Mr. Consumer has never executed any trust documents and has no knowledge of a Consumer Family Trust. 15. Defendant also prepared a Letter of Agreement and Addendum which purports to change the terms of the sales contract signed by both parties on December 5, 2001. Defendant did not show or ask Mr. Consumer to sign this until January 8, 2002. A copy of this document, signed only by Mr. Consumer, is attached hereto as Exhibit C and is by this reference incorporated herein. 16. Lastly, Defendant asked Mr. Consumer to sign a notice to his mortgage company signifying he would be absent, a Limited Power of Attorney, a Clerical Error Authorization, an Assignment of Benecial Interest in Trust and an insurance conversion document on January 8, 2002. Copies of these documents are attached hereto as Composite Exhibit D and are by this reference incorporated herein. 17. Thereafter, Defendant rented the property to various and sundry tenants who are not parties to this case. In each instance, the rental included an option to purchase the property. 18. Defendant collected from the tenants rental payments that represented a gure double the mortgage payments and also charged one tenant a $5,000.00, lump sum option-to-purchase fee.

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Sample Foreclosure Pleadings and Other Litigation Documents

because he has lost his property through its conveyance to Defendant under false pretenses; he has had to abandon the use of his property based upon Defendants promises to assume the mortgage; he has lost the equity he developed in the property; the property has been damaged and has fallen into a state of disrepair as a result of Defendants alterations to and failure to maintain the property and he has been notied of a default on the mortgage because Defendant has not been complying with the terms of the agreement or the mortgage. 29. The actions and representations which constitute Defendants scheme were fraudulent, false and untrue. These deceptive activities and false and fraudulent statements were intentionally made to induce Mr. Consumer to sell and vacate his property and execute a Warranty Deed to Trustee. 30. Pursuant to Fla. Stat. 768.72 (2002), Mr. Consumer reserves the right to amend this complaint to add a prayer for punitive damages upon a showing by evidence in the record providing a basis for recovery of such damages. WHEREFORE, Mr. requests this Court enter a judgment against Defendant for compensatory damages, interest, costs and attorneys fees pursuant to 57.105(2) (2002), Fla. Stat. and any such other relief this Court deems just and proper. COUNT TWO Conversion 31. Mr. Consumer realleges and reincorporates the allegations contained in Paragraphs 1 through 22 and 25 above, as if stated fully herein and adds: 32. This is an action for conversion of real property more specically described in Paragraph 7 above located in Jacksonville, Duval County, Florida. 33. On December 5, 2001, Mr. Consumer and Defendant entered into a contract in which Defendant agreed to sell Mr. Consumers property within seven days and agreed to assume the mortgage secured by the property. He also agreed to make all of the payments required by the mortgage beginning immediately. A copy of this contract is attached hereto as Exhibit A. 34. Mr. Consumer executed the Warranty Deed to Trustee prepared by Defendant and turned the property over to Defendant for sale in reliance upon Defendants representations and promises and in accordance with his understanding of the contract in question. 35. Defendant has failed and refused to pay Mr. Consumer or to provide any of the required consideration for the sale of the property and has failed to comply with any of the other terms of the parties contract. 36. Defendant has unlawfully converted the property in question to his own use based on false and fraudulent representations. 37. Mr. Consumer has demanded the return of the real property and Defendant has failed and refused to convey the property back to him. 38. Mr. Consumer reserves his right, pursuant to 768.72, Fla. Stat. (2002) to amend his complaint to seek punitive damages upon a showing by evidence in the record providing a basis for recovery of such damages. WHEREFORE, Mr. Consumer requests this Court to enter a judgment awarding him title to and possession of the subject property, damages, interest and costs, and any other further relief as deemed equitable and just. COUNT THREE Complaint to Quiet Title

Appx. J.8.1

39. Mr. Consumer realleges and reincorporates the allegations contained in Paragraphs 1 through 22 above, as if stated fully herein and adds: 40. This is an action to quiet title to certain real property situated in Duval County, Florida, led under 65.011, Fla. Stat. 41. Mr. Consumer is the owner in fee simple of the real property described in Paragraph 7 above. 42. Mr. Consumer obtained title to the subject property as a result of a deed executed on December 15, 1989 by [Seller] to Mr. Consumer and Ms. Consumer. Said deed was recorded on December 20, 1989 in Official Records Volume [Number], page number [Number] of the current public records of Duval County, Florida. Ms. Consumer conveyed her interest in the property to Mr. Consumer as required by the nal judgment of dissolution entered in Mr. and Ms. Consumers divorce case. 43. Defendant may claim a right, title or interest in the subject property as a result of a Warranty Deed To Trustee executed on January 8, 2002 and recorded in the current public records of Duval County, Florida on March 8, 2002 at Book [Number], pages [Numbers]. This document was not executed before a notary even though a notary signature appears on the deed. 44. Any and all claims, right, title, or interest of Defendant are inferior to that of Mr. Consumer who is the true record title owner to the real property and the legal and equitable owner in fee simple, and, as such, is entitled to have its title to the real property quieted and conrmed by the Court. WHEREFORE, Mr. Consumer, being without remedy save in a court of equity, demands as follows: A. That upon nal hearing, the fee simple title to the above described property be adjudged to be in Mr. Consumer. B. That Defendant be required to set forth the nature of its claim in and to the above described real property and that all adverse claims by him or those claiming by, through, under, or against Defendant determined by judgment of this court to be null and void as against Mr. Consumer. C. That all right, title, and interest of Defendant and the Consumer Family Trust and those parties claiming by, through, under, or against them be forever quieted and conrmed in Mr. Consumer. D. That Defendant and the Consumer Family Trust and those parties claiming by, through, under, or against them be perpetually enjoined from asserting any rights, title, claims, or interest in and to the above described real property. E. That the court grant such other and further relief as it may deem just and proper in the premises. COUNT FOUR Breach of Contract 45. Mr. Consumer realleges and reincorporates the allegations contained in Paragraphs 1 through 22 above, as if stated fully herein and adds: 46. On December 5, 2001, Mr. Consumer and Defendant entered into a contract in which Defendant agreed to sell Mr. Consumers house and to assume the mortgage secured by the property. He also agreed to make all of the payments required by the mortgage beginning immediately. A copy of this contract is attached hereto as Exhibit A.

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Foreclosures
pursuant to the Standard Purchase and Sales Agreement and any other relief this Court deems just and proper. COUNT SIX Fraud in the Inducement 59. Mr. Consumer realleges and reincorporates the allegations contained in Paragraphs 1 through 22 above, as if stated fully herein and adds: 60. Defendant made representations of material fact concerning his ability and intention to sell Mr. Consumers property and his ability and intention to assume his mortgage. Defendant made these representations which he knew or should have known were false and fraudulent with the express purpose of inducing Mr. Consumer to rely upon such actions and representations to his detriment, namely: to convey title to his property to him without receiving anything in return. 61. Specically, Defendant: a. advertised that he could sell Mr. Consumers property within seven days of signing the transactional documents for approximately $50,000.00, the principal balance remaining on the mortgage secured by the property when he had no intention of doing so; b. changed the terms of the sales contract after it was signed by Mr. Consumer; c. told Mr. Consumer he would assume the mortgage and satisfy all of its requirements as required by the parties sales agreement when he had no intention of doing so; d. surreptiously prepared an addendum to the agreement which purportedly relieves him of all obligation under the Standard Purchase and Sales Agreement thereby essentially taking Mr. Consumers property for absolutely nothing; e. presented under false pretenses a fraudulent and unconscionable addendum to the parties agreement, hurried Mr. Consumer into signing it without him having a reasonable opportunity to read it and thereafter refused to give him a copy of same; and f. promised to make repairs on the property with no intent to carry out such promise. 62. Defendants activities and statements referenced in Paragraph 61 above, were false, misleading and fraudulent and were engaged in and stated intentionally and with wanton disregard for the truth in order to induce Mr. Consumer to transfer title to and possession of his property to Defendant without receiving anything in return. 63. Mr. Consumer did reasonably rely upon Defendants representations in entering into the purchase and sale agreement, signing the Warranty Deed to Trustee and turning his property over to Defendant because of his position as an experienced and knowledgeable real estate representative. As such, Mr. Consumer was entitled to consider Defendants representations as statements of facts and not mere puffing or salesmanship. 64. As a direct result of Defendants actions and misrepresentations as described above, Mr. Consumer has been damaged because he has lost his property through its conveyance to Defendant under false pretenses, he has had to abandon the use of their property based upon Defendants promises to assume the mortgage, he has lost the equity he developed in the property, the property has been damaged and has fallen into a state of disrepair as a result of Defendants failure to maintain the property and he

47. Mr. Consumer signed the Warranty Deed to Trustee prepared by Defendant and vacated the property as provided by the contract in reliance upon and as consideration for Defendants promises. 48. Mr. Consumer has performed, in all material respects, his obligations under the Standard Purchase and Sale Agreement entered into between the parties. 49. Defendant has breached the parties agreement; said breach includes but is not limited to his failing and refusing to assume the mortgage, timely pay the monthly mortgage payments, repair the property and sell the property. Instead, Defendant has rented the property to third parties with an option to purchase the property for twice the stated value. He has also collected and continues to collect rent and other charges. 50. Defendants breach of contract has damaged Mr. Consumer. 51. All conditions precedent to the maintenance of this action have occurred, been satised or waived. WHEREFORE, Mr. Consumer requests this Court to enter a judgment awarding him damages, interest, costs and attorneys fees pursuant to the contract in question, along with any other relief this Court deems just and proper. COUNT FIVE Specic Performance 52. In the alternative, this is an action for specic performance of Defendants contractual obligation to sell real property located in Jacksonville, Duval County, Florida, which is more particularly described in Paragraph 7 above. 53. On December 5, 2001, Mr. Consumer and Defendant entered in a contract in which Defendant agreed to sell Mr. Consumers house within seven days and to assume the mortgage secured by the property. He also agreed to make all of the payments required by the mortgage beginning immediately. A copy of this contract is attached hereto as Exhibit A. 54. Mr. Consumer signed the Warranty Deed to Trustee prepared by Defendant and turned the property over to Mr. Defendant as required by the parties agreement. 55. Mr. Consumer has performed, in all material respects, his obligations under the Standard Purchase and Sale Agreement entered into between the parties. 56. Defendant has breached the parties agreement; said breach includes but is not limited to his failing and refusing to sell the property, to assume the mortgage, and to timely pay the monthly mortgage payments. Instead, he has rented the property to various third parties with an option to purchase the property for twice the stated value. He has also collected and continues to collect rent and other charges. 57. Defendants breach of contract has damaged Mr. Consumer and entitles him to specic performance of said contract, as he has no adequate remedy of law. 58. All conditions precedent to the maintenance of this action have occurred, been satised or waived. WHEREFORE, Mr. Consumer requests this Court to enter a judgment requiring Defendant to specically perform the agreement he crafted, as represented by him to Mr. Consumer to wit: to assume the mortgage and keep said mortgage current without default or delay, to sell the property without delay and to protect Mr. Consumers credit and goodwill from default under the mortgage. Mr. Consumer also requests an award of attorneys fees

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Sample Foreclosure Pleadings and Other Litigation Documents

has defaulted on his mortgage because Defendant has not been timely complying with the terms of their agreement or the mortgage. 65. Defendants actions and representations were fraudulent, false and untrue. These deceptive activities and false and fraudulent statements were intentionally made to induce Mr. Consumer to sell and vacate their property and execute a Warranty Deed to Trustee. 66. Mr. Consumer reserves the right, pursuant to Fla. Stat. 768.72 (2002), to amend this complaint to add a prayer for punitive damages upon a showing by evidence in the record providing a basis for recovery of such damages. WHEREFORE, Plaintiff requests this Court enter a judgment against Defendant for compensatory damages, interest, costs and attorneys fees pursuant to 57.105(2) (2002), Fla. Stat. and any such other relief this Court deems just and proper. DEMAND FOR JURY TRIAL The Plaintiff demands a trial by jury on all issues so triable.

Appx. J.8.2.1

property is void. Plaintiffs seek entry of an order voiding the transfer of title allegedly effected by the deed and voiding the subsequent Mortgage and Assignment of Rents. Additionally, Plaintiffs seek damages for the wrongful conduct of the Defendants as set forth below. JURISDICTION AND VENUE 2. The Court has jurisdiction over the parties and the subject matter of this action. All parties necessary to the determination of this cause have been duly joined as defendants. 3. Venue is proper pursuant to 735 ILCS 5/2-103(b),11 because the real estate that is the subject of this complaint is situated in Cook County. PARTIES 4. Plaintiffs Richard and Susan Smith (the Smiths) are a married couple aged 66 and 65, respectively. The Smiths have lived in their home at [Address], since they purchased the property in 1964. 5. Defendant Hanniford & Cole, Inc. (Hanniford & Cole), is an Illinois corporation doing business in Illinois and marketing itself as Illinois Top Foreclosure Mitigation Firm. Hanniford & Coles President, Secretary, and registered agent is T.J. Cox, 100 Park Drive, Lincolnshire, Illinois, 60069. Hanniford & Cole is not licensed in the state of Illinois as a real estate broker or as a mortgage broker. 6. Defendant T.J. Cox is listed as the President, Secretary, and registered agent of Hanniford & Cole. 7. Defendant George Handy is an employee of Hanniford & Cole. 8. Defendant Steven Moore, LLC (Steven Moore) appears to be an alter ego of, or a business run by, T.J. Cox, at least one apparent purpose of Steven Moore being the collection of rent payments allegedly due from homeowners such the Smiths, although Steven Moore is not registered as a business entity in the state of Illinois. 9. Defendant Warren Investment Company I, LLC (Warren I), is business registered in Illinois as a limited liability company (LLC). It registered agent is Michael A. Mann, 1000 W. Truman, Lincolnwood, Illinois, 60712. Its apparent business is buying and/or selling real estate and acting as a mortgagor and/or mortgagee. Its LLC le on report with the Illinois Secretary of State is No. 0000000. 10. Defendant Warren Investment Company II, LLC (Warren II), is a business registered in Illinois as a limited liability company (LLC). It registered agent is Michael A. Mann, 1000 W. Truman, Lincolnwood, Illinois, 60712. Its apparent business is buying and/or selling real estate and acting as a mortgagor and/or mortgagee. Its LLC le on report with the Illinois Secretary of State is No. 00000001. 11. Defendant BigBank, F.S.B. (BigBank) is a subsidiary of BigBank Corporation, a Maryland corporation, and does business in the state of Illinois as a mortgage lender. Upon information and belief, its principal business address is the address listed on the subject mortgage: BigBank, F.S.B., 10000 First Street, Burr Ridge, Illinois, 60527.

J.8.2 Sale-Leaseback Transactions

J.8.2.1 Sample Complaint
IN THE CIRCUIT COURT OF COOK COUNTY, ILLINOIS COUNTY DEPARTMENT, CHANCERY DIVISION ) Richard and Susan Smith ) Plaintiffs, ) ) v. ) ) Hanniford & Cole, Inc., T.J. ) Cox, George Handy, Steven ) Moore, LLC, Warren ) Investment Company II, LLC, ) Warren Investment Company I, ) LLC, BigBank, F.S.B., and ) Unknown Owners and ) Nonrecord Claimants, ) Defendants. ) ) SECOND AMENDED COMPLAINT TO QUIET TITLE AND FOR OTHER RELIEF Richard and Susan Smith, by and through their attorneys, hereby le this First Amended Complaint to Quiet Title and for Other Relief, and allege in support thereof as follows. PRELIMINARY STATEMENT 1. By this action to quiet title, Plaintiffs seek a declaration that they are the exclusive titleholders to their residential real property, that the deed which purported to convey their exclusive title to the property was in fact an equitable mortgage, and that the Mortgage and Assignment of Rents subsequently executed in favor of Defendant Big Bank and purportedly encumbering the Plaintiffs

11 [Editors Note: Citations throughout complaint as in original.]

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Foreclosures
Illinois Top Foreclosure Mitigation Firm. The Hanniford & Cole letter represented its services as including, Foreclosure Mitigation, Asset Management, and Consulting. It stated that OUR SERVICES ARE FREE. It stated further, WE ARE HANNIFORD & COLE. I AM T.J. COX and my rm is Illinois TOP FORECLOSURE AND MITIGATION HELP FIRM. You have rights!! You have options!! You have us!! OUR SERVICES WILL BE FREE AND PRO-BONO. The mailing urged, PROTECT your home and credit! and Stop your FORECLOSURE! and Dont let the bank put your family out! Exhibit A (emphases in original). 24. Nothing in the mailing suggested that Hanniford & Cole was offering to help the homeowner sell, or transfer ownership, of the home. 25. What most caught the Smiths attention, and what specically drew them to respond to this particular mailing, out of the many dozens of mailings they received, was the repeated claim, emphasized in conspicuous ribbon running the width of the advertisement, and repeated in bomb burst format: 98.3% SUCCESS RATE. Exhibit A. 26. Based upon the advertisement itself, and based upon the statements made subsequently by representatives of Hanniford & Cole, the Smiths reasonably believed that Hanniford & Cole was advertising a success rate for helping homeowners maintain ownership of, and remain in, their homes. 27. Based solely on this advertisement, the Smiths called the number on the mailing and spoke with the representative of Hanniford & Cole set forth on the mailing, George Handy (Handy). The Smiths called Handy on August 6, 2003. They offered to come meet him at his office but he said that, no, he would come meet them at their Home. Handy came to meet the Smiths at their Home the next day, on August 7, 2003. 28. At this rst meeting, Handy came across to the Smiths as being very nice, and as very supportive of their situation. He said that if the Smiths let Hanniford & Cole act on their behalf, Hanniford & Cole could negotiate a workout with Nationwide, since Hanniford & Cole would be talking with different people at Nationwide (different from the ones to whom the Smiths had talked). Handy insisted, however, that Hanniford & Cole would not help them unless the Smiths signed certain forms before Handy left their Home. 29. The Smiths did not want to sign the forms at this rst meeting, but they felt pressured to do so, they trusted Handy, and they felt that they had no choice. So they signed the forms. 30. One form states that the Smiths do authorize Hanniford & Cole (complete and exclusive authorization) to negotiate on my behave [sic] regarding the interests of my property and the foreclosure proceedings led against me. Exhibit B. 31. Another form was an exclusive six-month authorization to represent the Smiths in the sale of their Home. Despite repeated requests by the Smiths, Handy never gave them a copy of this form. 32. In the next few weeks, Handy came back to meet with the Smiths several times. In these subsequent meetings, Handy story (as to what Hanniford & Cole was going to be able to do for the Smiths) evolved. He began by telling the Smiths that he was not, after all, going to be able to negotiate a workout with Nationwide. Then he proposed selling the home, in a deal where Nationwide would absorb the closing costs. Then he informed the Smiths that Nationwide would not, after all, absorb closing costs. Hanniford & Cole never made any serious attempt to sell the Home on the

12. Defendant Unknown Owners or Nonrecord Claimants are any other individuals or entities who may have or claim an interest in the property described below. STATEMENT OF FACTS 13. The Smiths bought their single-family home (Home or Property) located at 1000 Main Street, Glenview, Illinois, 60025, in 1964, for approximately $22,000. The legal description of the Property is as follows: LOT 0 IN MAIN SUBDIVISION BEING A 1 SUBDIVISION OF PART OF THE SOUTH 2 OF 1 THE NORTHEAST 4 OF SECTION 99, TOWNSHIP 00 NORTH, RANGE 00 EAST OF THE THIRD PRINCIPAL MERIDIAN, ACCORDING TO THE PLAT THEREOF RECORDED JUNE 14, 1958 AS DOCUMENT 999999999, IN COOK COUNTY, ILLINOIS PIN: 00-00-00-00-0000. 14. Over the years, the Smiths took out several mortgage loans in order to build an addition to their Home, and in order to help nance the college education of their two daughters, Amy and Lisa. 15. Other than the transaction described below, the Smiths last renanced when they signed a loan for $165,750, with Midwest Wholesale Lender, on April 29, 1999. 16. Mr. Smith has always been the primary breadwinner of the family. He has worked for some 30 years in the area of customer service call management. On March 1, 2002, Mr. Smith was laid off from his customer service job at SBC Cable, which was downsizing to make itself a more attractive acquisition to its prospective buyer, Vencast. Mr. Smith was not laid off for any disciplinary reason or for any reason related to unsatisfactory job performance. At the time, Mr. Smith was about to turn 63 years old. 17. After he was laid off, Mr. Smith looked for, but was unable to nd, comparable work. At this time, the Smiths began to have difficulty making their mortgage payments, which amounted to approximately $1700 per month in monthly principal and interest, plus taxes and homeowners insurance, which they paid separately. 18. For about a year, the Smiths managed to make their mortgage payments, primarily by using Mr. Smiths severance pay and a small amount of savings, until both of these reserves ran out. 19. After the Smiths were no long able to keep up with their monthly mortgage payments, they contacted the servicer of their mortgage loan, Nationwide, to see if there was some way to avoid foreclosure and the loss of their Home. 20. Nationwide suggested that the Smiths sign over the Property, but the Smiths were unwilling to do this, as they believed they owed about $179,000 on their mortgage, whereas they believed their house was worth between $400,000 and $500,000. 21. Soon thereafter, Nationwide assigned the loan to WMC Specialty Mortgage, LLC, which led a foreclosure action against the Smiths on June 11, 2003. 22. As soon as the foreclosure case was led, the Smiths began to receive numerous pieces of correspondence from lawyers, realtors, and others advertising services to help the Smiths to deal with their foreclosure situation. 23. Out of the many dozens of solicitations, one mailing stood out: the one sent by Hanniford & Cole, which marketed itself as

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Sample Foreclosure Pleadings and Other Litigation Documents

private market, for a fair market value, which would have allowed the Smiths to retain the equity that had built up in the Home over the past 40 years. 33. At one of the Smiths meetings with Handy, T.J. Cox (Cox), the President, Secretary, and registered agent of Hanniford & Cole, was, for the time, also present. At this meeting, Cox presented a new idea to the Smiths, the idea of putting the Smiths Home in a protected trust. Cox told the Smiths this would mean that the Home would be owned partly by them, and partly by the trust. Cox said this would mean the Home would be protected from creditors, and would give the Smiths time to build up good credit so that they could renance. Cox said that, while the Home could be sold out of the trust, the Smiths would, in that event, have the rst option to purchased the Home outright. Cox did not mention that any new loans would be taken out on the Home. Cox presented all of this as a new idea and said he wasnt sure if he could do it, but that hed go back and talk to his partners to see if he could. 34. Cox later contacted the Smiths and said that, yes, their Home could be put into a protected trust. 35. On September 15, 2003, the Smiths signed documents which, based upon Coxs representations, they believed to be an agreement putting their Home in a protected trust. Specically, they signed a Real Estate Contract (Contract) and a Residence Lease (Lease) and Rider thereto. Exhibits C, D, and E. 36. In fact, the house was not put in a trust, protected or otherwise. According to the formal terms of the Contract, Lease, and Rider, all signed by the Smiths, the Smiths were to sell the Property for the price of $230,000 and lease the Property back for $2,500 per month with an option to repurchased. The repurchased price would be $280,000 if paid within 12 months of sale, or $290,000 if paid within 24 months of sale. Although the text of the Contract and Lease refer to Warren I as the buyer and landlord with whom the Smiths are contracting, each document (and the Rider) are executed by Warren II. Exhibits C, D, and E. 37. Despite the formal structure of the sale-leaseback arrangement, the Smiths never talked with Handy, Cox, or anyone else about selling their house to Warren II (whom they had never heard of before September 15, 2003), nor did they intend to sell their house to Warren II. 38. On October 3, 2005, the Smiths attended a closing. Based upon the statements of Cox, the Smiths believed that this was a closing whereby they would be putting their Home into a protected trust pursuant to which they would still be part owners of the Home. 39. There was an attorney at the closing, Trey Rucker Sawyer (Sawyer), who was purportedly there to act on behalf of the Smiths. Cox arranged for Sawyer to act as the Smiths closing attorney. He did not explain to the Smiths that they were transferring title to Warren II, nor did he advise them of the true nature of the transaction, nor disabuse them of the notion that they were putting their house in a protected trust. 40. Warren II was represented at the closing by its attorney and registered agent, Robert A Motel. 41. At the closing, the Smiths signed a Warranty Deed and a HUD-1 Settlement Statement listing a contract sales price of $230,000. Exhibits F and G. 42. According to the formal terms of the Warranty Deed, the Smiths transferred title to their home to Warren II. Exhibit F.

Appx. J.8.2.1

43. According to the HUD-1, the transaction was a cash sale for $230,000, and paid off the Smiths prior mortgage loan at an amount of $192,094.15, and property taxes in the amount of $5,058.20. At closing, the Smiths received a cash payment of $10,361.15. Figures are listed on the HUD-1 for rst month rent ($2,500), security deposit ($2,500), and repair credit ($15,000). Exhibit G. 44. Other than the above payoffs and cash payment, the Smiths did not receive any other monetary benet from the transaction. 45. Despite the fact that the sale was listed on the HUD-1 as a cash sale, and unknown to and without the permission of the Smiths, a Mortgage and Assignment of Rents was executed on November 12, 2003, purporting to secure a loan of $368,000 in favor of BigBank, F.S.B. Exhibits H and I. The Smiths did not know about this Mortgage and Assignment of Rents until informed thereof in approximately August 2005 by their legal counsel in this action. 46. Said Mortgage and Assignment of Rents were executed by Warren I, an entity distinct from Warren II, and which never acquired an interest in the Property. Exhibits H and I. 47. Beginning in November 2003, and every month thereafter through September 2005, the Smiths have continued to reside in the Home and have made rent payments of $2400 (if paid by the rst of the month) or $2500. Payments have been made to Warren II or to its agent, Steven Moore. All told, the Smiths have made payments of $56,650. Property taxes, which remain in the Smiths name, have been paid using a portion of the monthly rent payments. The Smiths have continued to pay for homeowners insurance separately, and said insurance is current. 48. It has always been a struggle for the Smiths to make the monthly rent payments. They have never been able to afford these payments on their own, even from the beginning. The Smiths have managed to make these payments through a combination of monthly Social Security income, income from different part-time temp jobs obtained by Mr. Smith, and funds given to them by family members. Sometimes the payments have been late. Sometimes checks have bounced and have had to been replaced. 49. The Smiths nancial situation has been further challenged by Mr. Smiths health problems which, among other things, have created additional expenses and have kept him from working. On July 24, 2004, Mr. Smith had a (second) stroke due to his inability to afford medications. He subsequently had a heart attack on February 15, 2005, for which he underwent quadruple bypass surgery. In April 2005, he was back in the hospital again for heart trouble. 50. In addition, the Smiths have had to deal with the nancial and other challenges posed by the failing health, hospitalization, and death of Mrs. Smiths father, who died on March 3, 2005, and her mother, who died on May 3, 2005. 51. The Smiths had hoped that they would be able to repurchased their Home and again own it outright. Both before and after his hospitalizations, Mr. Smith has continued to look for work, and has worked at several temp jobs. Recently, Mr. Smith obtained a new part-time temp job as a le clerk. Still, the Smiths cannot on their own afford the monthly rent payments, nor can they afford to obtain a loan to repurchased their home for the contract price of $290,000. 52. Already, the Smiths have twice come close to being evicted from their Home of 40 years. On two occasions, their monthly payments were late and/or their checks bounced, causing War-

51

Appx. J.8.2.1

Foreclosures
c. The fact that the Smiths were not represented by counsel other than the token closing counsel provided for them by Hanniford & Cole; d. The fact that the Smiths remained in the Property after the sale; e. The fact that the Smiths remained on the county records as the taxpayer and continued to pay taxes (through the rent payments) and the homeowners insurance (directly) after the sale; f. The fact that the Smiths retained an option to repurchased the Home, which was in fact in the nature of the repayment of a debt; g. The fact that the language used by Handy, Cox, and Hanniford & Cole to describe the nature of the transaction they were arranging for the Smiths never evinced an intent by the Smiths to sell the Property to Warren II; and h. The fact that the Smiths themselves never understood the transaction as a sale of their Home, nor intended it as such. 63. Here, consideration of each of the above factors warrants the court to construe the deed transfer from the Smiths to Warren II as the granting of an equitable mortgage. WHEREFORE, the Smiths ask this court to enter an order: a. Voiding the deed transfer and declaring that said transfer was in fact an equitable mortgage lien (securing a sum to be determined at trial), with sole title to the Home restored to the Smiths; b. Invalidating the title interests of any Unknown Owners or Nonrecord Claimants whose purported interests depend upon the validity of said deed transfer; c. Awarding such other relief as is equitable and just. COUNT II Quiet Title (Against Warren I, BigBank, and Unknown Owner and Nonrecord Claimants) 64. Plaintiffs repeat and reallege paragraphs 1 through 63 as though fully set forth herein. 65. This Count is pled against Warren I and BigBank. 66. According to the formal terms of the Warranty Deed, the Smiths transferred title to Warren II. 67. According to the public title record, Warren I, a separate and distinct licensed business entity, never acquired any interest in the Property, and never had any interest in the Property to convey. 68. Nonetheless, with the Mortgage and Assignment of Rents executed on November 12, 2003, Warren I purported to grant a lienhold interest to BigBank. 69. Because Warren I never had any interest in the Property, its attempt to encumber he Property in favor of BigBank is void. 70. In addition, even if Warren II had purported to convey a lienhold interest to BigBank, or if Warren I had purported to convey a lienhold interest to BigBank based on a deed transfer from Warren II to Warren I, either such conveyance would likewise be void, since Warren II did not in fact own the Property, but merely held an equitable mortgage interest therein, of which BigBank was on notice. 71. BigBank was on notice of the limited nature of the title interest held by Warren II because of the Smiths continuing occupancy of the Property after October 3, 2003, and through the date when BigBank issued its mortgage loan. Occupancy of residential property is public notice of a title interest therein, creating

ren II and/or Steven Moore to serve them with 5-day notices of termination of tenancy. One such notice was served on the Smiths in December 2004. Exhibit J. 53. Both times, the Smiths were able to make up the late payments. However, the Smiths now face the imminent prospect of eviction when they are unable to repurchased their Home by paying Warren II the sum of $290,000 due under the Contract and Lease on or before October 3, 2005. 54. The current value of the Smiths home is at least $400,000 to $500,000. 55. Assuming the payoff statements on the HUD-1 are accurate, the Smiths received the benet of the payoff of their old mortgage loan ($192,094.15) plus the payoff of property taxes ($5,058.20), plus a closing payment of $10,361.15, for a total benet of $207,513.50. In addition to having paid a total of $56,650 in rent payments, they stand to lose approximately $300,000 in equity built up in their Home of 40 years. 56. The Smiths have fallen prey to the bustling new foreclosure rescue scam business that was the subject of a report issued in June 2005 by the National Consumer Law Center, Dreams Foreclosed: The Rampant Theft of Americans Homes Through Equity-stripping Foreclosure Rescue Scams (http://www.consumerlaw.org/ news/ForeclosureReportFinal.pdf). This report surveys 18 states (including Illinois), examining the equity-stripping schemes targeting homeowners facing foreclosure and the statutes that states are beginning to pass in an effort to combat this form of equitystripping. 57. The Smiths would never have entered this transaction had they believed they were selling their Property to Warren II, nor would they have entered this transaction had they known the Property would be mortgaged for substantially more than the repurchased price. 58. The Smiths do not want to be evicted from their Home of 40 years. They want to save their Home and the equity built up therein. They seek an order from this court voiding the Warranty Deed and subsequent Mortgage and Assignment of Rents and awarding damages as set forth below. COUNT I Quiet Title (Against Warren II and Unknown Owner and Nonrecord Claimants) 59. Plaintiffs repeat and reallege paragraphs 1 through 58 as though fully set forth herein. 60. This Count is pled against Warren II. 61. The deed transfer from plaintiffs to Warren II, though formally a conveyance of real property, should properly be construed as the granting of an equitable mortgage. This principle of common law is codied in Illinois Civil Code, which denes as a mortgage to be foreclosed through the sole statutory procedure available an equitable mortgage, as well as every deed conveying real estate, although an absolute conveyance in its terms, which shall have been intended only as a security in the nature of a mortgage. 735 ILCS 5/15-1207(c) and (e). 62. Each of the following type of factors is properly considered by courts in declaring an equitable mortgage: a. The gross disparity between the economic benet received by the Smiths and the value of the Home; b. The relative sophistication of the parties;

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Sample Foreclosure Pleadings and Other Litigation Documents

a requirement on the part of the lender to inquire into the nature of that title interest. Here, due diligence on the part of BigBank would have conrmed through the title records, tax records, and the Smiths themselves, that the Smiths were long-time homeowners who had given an equitable mortgage on the Property and had the option to repurchased the Property (i.e., pay off their equitable mortgage loan) in October 2005, at a sum considerably less than the mortgage with which Warren I was seeking to encumber the Property. WHEREFORE, the Smiths ask this court to enter an order: a. Voiding the mortgage lien executed by Warren I in favor of BigBank and declaring that neither Warren I nor BigBank have any interest in the Property; b. Invalidating the title interests of any Unknown Owners or Nonrecord Claimants whose purported interests depend upon the validity of said mortgage lien; and c. Awarding such other relief as is equitable and just. COUNT III Truth in Lending Act (Against Warren II) 72. Plaintiffs repeat and reallege paragraphs 1 through 71 as though fully set forth herein. 73. This Count is pled against Warren II. 74. The subject transaction, though structured as a deed transfer from the Smiths to Warren II, is properly construed as an equitable mortgage loan. 75. In 2003, Warren II was engaged in the making of equitable mortgage loans such as the subject transaction, payable by agreement in more than four installments, and for which the payment of a nance charge was required. 76. The subject transaction is properly construed as a mortgage loan in the principal amount of $230,000, with required payments of $2500 per month beginning in November 2003 and running through September 2005, with a nal balloon payment of $290,000 due on October 3, 2005. 77. Under 12 C.F.R. 226.18 of the Truth in Lending Act (TILA), the amount nanced on said mortgage loan is, according to the HUD-1, $207,513.50 (the loan payoff of $192,094.15 plus the property tax payment of $5,058.20, plus the cash payment at closing of $10,361.15.) 78. Given this payoff and the above terms of the mortgage loan, the annual percentage rate (APR) of the Smiths mortgage loan is 28.9%. 12 C.F.R. 226.18. 79. Mortgage loans are covered by the TILA amendment known as the Home Ownership and Equity Protection Act (HOEPA) if the APR exceeds by more than 10% the applicable Treasury security yield. 15 U.S.C. 1602(aa). 80. Here, the applicable Treasury security yield was not more than 1.85% (the two-year Treasury security yield on August 15, 2003). 81. The Smiths loan APR of 28.9% exceeds the applicable Treasury rate by more than 27%. 82. Because the Smiths loan APR of 28.9% exceeds the applicable Treasury security yield by more than 10%, the Smiths mortgage loan is a high-cost loan covered by HOEPA. 15 U.S.C. 1602(aa). 83. Upon information and belief, Warren II issued a similar equitable mortgage loan in the amount of $290,000, on or about October 30, 2003, resulting in a Warranty Deed recorded on

Appx. J.8.2.1

December 9, 2003, as Cook County Recorder Document No. 0334302247. 84. Upon information and belief, the December 2003 mortgage loan was also covered by HOEPA. 85. Upon information and belief, Warren II issued at least two HOEPA loans within a 12 month period, and is therefore a creditor for the purposes of TILA. 12 C.F.R. 226.2. 86. In any event, because the Smiths loan transaction was covered by HOEPA and was brokered (by Hanniford & Cole), Warren II is therefore a creditor for the purposes of TILA. 12 C.F.R. 226.2. 87. As a result of the subject transaction, Warren II acquired an interest in plaintiffs home that secures payment or performance of an obligation. 88. The transaction between Warren II and the Smiths was a consumer credit transaction as that term is dened in the Truth in Lending Act, 15 U.S.C. 1602(h), and Regulation Z, 12 C.F.R 226.2(a)(12). 89. The transaction between Warren II and the Smiths was a closed-end credit transaction as that term is dened in 12 C.F.R. 226.17 through 226.24. 90. In the course of issuing a mortgage loan to the Smiths, Warren II committed material violations of TILA by failing to make the following disclosures required by TILA and its implementing Regulation Z, 12 C.F.R. 226.18: APR, amount nanced, nance charge, total of payments, and schedule of payments. 91. Warren II also committed a material violation of TILA by failing to provide a written notice of the Smiths absolute three-day right to rescind the transaction. 12 C.F.R. 226.23. 92. These material TILA violations give the Smiths an extended three-year right to rescind the equitable loan transaction, which automatically voids the lienhold interest held by Warren II. 15 U.S.C. 1635, 12 C.F.R. 226.23. 93. The Smiths have exercised their right to rescind the loan by delivering a notice of rescission to Warren II. Exhibit K. 94. Subsequent to rescission, Warren II must take whatever action is required to void the lien, and it must take steps to ensure the return of any money or property that has been given to anyone in connection with the subject transaction (including but not limited to returning to the Smiths all of the monthly payments made on the loan). 15 U.S.C. 1635. WHEREFORE, the Smiths ask this court to enter an order: a. Voiding the mortgage lien executed in favor of Warren II; b. Requiring Warren II to take whatever actions are required by 15 U.S.C. 1635; c. Awarding recoverable costs and attorneys fees under 15 U.S.C. 1640; and d. Awarding such other relief as is equitable and just. COUNT IV Home Ownership and Equity Protection Act (Against Warren II) 95. Plaintiffs repeat and reallege paragraphs 1 through 94 as though fully set forth herein. 96. This Count is pled against Warren II. 97. Because the Smiths mortgage loan transaction was covered by the Home Ownership and Equity Protection Act (HOEPA), Warren II was required to give the Smiths a special cautionary notice setting forth the terms of the loan, including, inter alia, the

53

Appx. J.8.2.1

Foreclosures
e. Misrepresenting the deed transfer as a transfer of the Property into a protected trust; f. Misrepresenting the fact that deed transfer was, formally, a complete (rather than a partial) transfer of title; g. Misrepresenting the transaction as a cash sale; h. Misrepresenting the allocation of funds on the HUD-1, and/or misleading the Smiths as to the nature of said allocation of funds, including but not limited to the purported $15,000 repair credit; i. Providing the Smiths with hand-picked closing counsel who was not truly independent, and who failed to counsel the Smiths as to the true nature of the subject transaction; j. Taking action to encumber the Property with a new mortgage loan in an amount substantially higher than the payoffs made on behalf of the Smiths, without the knowledge or consent of the Smiths, and using the funds acquired from that loan to benet the Count V Defendants, and not the Smiths; k. Misleading the Smiths into thinking they could afford the monthly payments or the nal balloon payment; l. Misleading the Smiths into thinking they would not lose their Home and the equity therein; m. Misleading the Smiths as to the nature of the services being offered by Hanniford & Cole; n. Misleading the Smiths into thinking Hanniford & Cole was offering its services for free; o. Acting as an unlicensed real estate broker; p. Acting as an unlicensed mortgage broker; q. Acting as an unlicensed mortgage lender; and r. Threatening the Smiths with eviction. 110. Said deceptive acts and practices and fraudulent misrepresentations and misstatements and omissions of material fact are part of a larger, growing problem known as foreclosure rescue fraud, a type of fraud perpetrated by these Defendants and by similar individuals and business entities preying upon homeowners facing foreclosure. 111. Said acts and practices and fraudulent misrepresentations and misstatements and omissions of material fact were unfair, deceptive, and contrary to public policy and generally recognized standards of business. 112. As a direct and proximate cause of Defendants actions, the Smiths have suffered substantial economic harm including but not limited to the loss of title to the Home, the loss of equity in the Home, the further encumbrance of their Home due to the mortgage executed by Warren I, the monthly payments made since November 2003 (totaling $56,650), and the imminent prospect of being evicted from their Home of 40 years. WHEREFORE, the Smiths ask this court to enter an order: a. Voiding the mortgage lien executed in favor of Warren II; b. Awarding actual and punitive damages in an amount to be determined at trial; c. Awarding recoverable costs and attorneys fees; and d. Awarding such other relief as is equitable and just. COUNT VI Common Law Fraud (Against T.J. Cox, George Handy, and Hanniford & Cole) 113. Plaintiffs repeat and reallege paragraphs 1 through 112 as though fully set forth herein.

APR and the required monthly payments, three of more business days prior to the loan closing. 12 C.F.R. 226.31 and 226.32. 98. Warren II did not give the Smiths this required notice. 99. HOEPA prohibits balloon payments on covered loans with a term of less than ve years. 12 C.F.R. 226.32(d)(1). 100. Because the Smiths loan is covered by HOEPA and requires a balloon payment after two years, it violates the HOEPA statute. 101. Both of the above HOEPA violations give the Smiths an extended three-year right to rescind the equitable loan transaction, which automatically voids the lienhold interest held by Warren II. 15 U.S.C. 1635, 12 C.F.R. 226.23. 102. The Smiths have exercised their right to rescind the loan by delivering a notice of rescission to Warren II. Exhibit K. 103. Subsequent to rescission, Warren II must take whatever action is required to void the lien, and it must take steps to ensure the return of any money or property that has been given to anyone in connection with the subject transaction (including but not limited to returning to the Smiths all of the monthly payments made on the loan). 15 U.S.C. 1635. WHEREFORE, the Smiths ask this court to enter an order: a. Voiding the mortgage lien executed in favor of Warren II; b. Requiring Warren II to take whatever actions are required by 15 U.S.C. 1635; c. Awarding recoverable costs and attorneys fees under 15 U.S.C. 1640; and d. Awarding such other relief as is equitable and just. COUNT V Illinois Consumer Fraud and Deceptive Business Practices Act (Against T.J. Cox, George Handy, Hanniford & Cole, Steven Moore, Warren II, and Warren I) 104. Plaintiffs repeat and reallege paragraphs 1 through 103 as though fully set forth herein. 105. This Count is pled against T.J. Cox, George Handy, Hanniford & Cole, Steven Moore, Warren II, and Warren I (the Count V Defendants) 106. The Smiths are persons and consumers as dened by the Illinois Consumer Fraud and Deceptive Business Practices Act (ICFA), 815 ILCS 505/1(c) and 505/1(e). 107. At all times relevant to this case, the Count V Defendants were engaged in commerce and trade in Illinois. 108. The Count V Defendants employed deceptive acts and practices and made fraudulent misrepresentations and misstatements and omissions of material fact, with the intent that the Smiths rely upon such acts, practices, representations, misstatements and omissions of material fact. 109. Said deceptive acts and practices and fraudulent misrepresentations and misstatements and omissions of material fact include but are not limited to the following: a. Soliciting the Smiths with misleading advertising; b. Locking the Smiths into an exclusive representation arrangement with Hanniford & Cole; c. Misleading the Smiths as to the prospects for negotiating or performing a workout with Nationwide; d. Misleading the Smiths as to Hanniford & Coles intent of negotiating or performing a workout with Nationwide, and failing to make genuine efforts to do so;

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Sample Foreclosure Pleadings and Other Litigation Documents

114. This Count is pled against T.J. Cox, George Handy, and Hanniford & Cole (the Count VI Defendants) 115. As described above, Defendants T.J. Cox, George Handy, and Hanniford & Cole knowingly and intentionally made fraudulent representations and misrepresentations and omission of material fact in order to induce the Smiths to enter into the subject transaction. 116. The Smiths reasonable relied on these representations in executing the subject loan transaction. 117. As a direct and proximate cause of Defendants actions, the Smiths have suffered substantial economic harm including but not limited to the loss of title to the Home, the loss of equity in the Home, the further encumbrance of their Home due to the mortgage executed by Warren I, the monthly payments made since November 2003, and the imminent prospect of being evicted from their Home of 40 years. WHEREFORE, the Smiths ask this court to enter an order: a. Voiding the mortgage lien executed in favor of Warren II; b. Awarding actual and punitive damages in an amount to be determined at trial; c. Awarding recoverable costs and attorneys fees; and d. Awarding such other relief as is equitable and just. COUNT VII Unconscionability (Against Warren II) 118. Plaintiffs repeat and reallege paragraphs 1 through 117 as though fully set forth herein. 119. This Count is pled against Warren II. 120. Throughout the course of the subject transaction, an enormous disparity in bargaining power existed between the Smiths and Defendants T.J. Cox, George Handy, Hanniford & Cole, Steven Moore, Warren II, and Warren I. Plaintiffs are one-time homebuyers who were facing desperate nancial circumstances and the loss of their home of 40 years. In contrast, Defendants are experienced business entities and individuals that sought to prot from the disparity in bargaining power, and who did so by deliberately targeting plaintiffs with misinformation. 121. The terms of the subject transaction, especially in combination with the subsequent mortgage executed by Warren I, are so one-sided as to be abusive and unconscionable. Defendants exploited the disparity in bargaining power to induce plaintiffs to transfer title to their home and enter into a highly disadvantageous equitable loan when plaintiffs believed that they were putting their home into a protective trust of which they would still be part owners. Said procedural and substantive unconscionability renders void and unenforceable the October 2003 transfer of title. WHEREFORE, the Smiths ask this court to enter an order: a. Voiding the deed transfer and declaring that said transfer was in fact an equitable mortgage lien (securing a sum to be determined at trial), with sole title to the Home restored to the Smiths; and b. Awarding such other relief as is equitable and just. COUNT VIII Breach of Fiduciary Duty (Against T.J. Cox, George Handy, and Hanniford & Cole) 122. Plaintiffs repeat and reallege paragraphs 1 through 121 as though fully set forth herein.

Appx. J.8.2.1

123. This Count is pled against T.J. Cox, George Handy, and Hanniford & Cole (the Count VIII Defendants) 124. Defendants are individuals or entities regularly engaged in and knowledgeable of the interrelated businesses of real estate investment, mortgage lending, and mortgage foreclosure. 125. Conversely, the Smiths are unsophisticated consumers and one-time homeowners with little experience in the businesses of real estate investment, mortgage lending, or mortgage foreclosure. 126. Defendants specically targeted the Smith knowing (and because) they were unsophisticated homeowners facing a desperate nancial situation. 127. Defendants advertised and stated that they could save the Smiths Home. 128. In response to the Smiths initial phone contact, Defendants and/or their representative came to the Smiths Home and took action to earn the Smiths trust to act in their best interest, and on their behalf. 129. During this rst meeting, before leaving the Smiths Home, Defendants and/or their representative required the Smiths into signing an agreement whereby they were to act as the Smiths sole representatives in saving and/or selling their Home. 130. In light of the disparity in the commercial background and needs of the parties, the active solicitation of the Smiths business, and the trust and condence placed in Defendants to help save their Home, Defendants owed the Smiths a duciary duty. 131. Defendants had a duciary duty to perform the duties they advertised to the Smiths, and, in so doing, to put the interests of the Smiths above their own interests. 132. By virtue of their deceptive acts and practices, misrepresentations, and misstatements and omissions of fact, as set forth above, Defendants breached their duciary duty to the Smiths. 133. As a direct and proximate cause of Defendants actions, the Smiths have suffered substantial economic harm including but not limited to the loss of title to the Home, the loss of equity in the Home, the further encumbrance of their Home due to the mortgage executed by Warren I, the monthly payments made since November 2003, and the imminent prospect of being evicted from their Home of 40 years. WHEREFORE, the Smiths ask this court to enter an order awarding actual and punitive damages in an amount to be determined at trial, recoverable costs and attorneys fees, and other such other relief as is equitable and just. COUNT IX Unjust Enrichment (Against all Defendants) 134. Plaintiffs repeat and reallege paragraphs 1 through 133 as though fully set forth herein. 135. This Count is pled against all of the named Defendants. 136. As a result of the events described above, upon information and belief, each of the Defendants was unjustly enriched to the extent that it received title and/or a portion of the value of (the equity in) the Smiths Home, at the time, or after, title to the Home was fraudulently transferred from the Smiths to Warren II. WHEREFORE, the Smiths ask this court to void the transfer of title to Warren II and to require that each Defendant pay Plaintiffs the value of the equity in the Property unjustly received by that Defendant. Attorney for Plaintiffs

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Foreclosures
a claim with sufficient particularity, the proper result is to dismiss with leave to replead. Harvey v. McKay, 109 Ill. App. 3d 582, 586, 440 N.E.2d 1022 (1st Dist. 1982) (purpose of a motion to dismiss is to point out the defects so that the complainant will have the opportunity to cure them before trial). II. FACTUAL BACKGROUND Based on the above, for the purposes of Defendants Motion, this court must consider as true all of the facts alleged in the Smiths First Amended Complaint (Complaint), a copy of which is attached hereto, and all reasonable inferences to be drawn therefrom. Those facts and inferences are as follows. The Smiths bought their single-family home (Home or Property) located at [Address], in 1964, for approximately $22,000. Over the years, the Smiths took out several mortgage loans in order to build an addition to their Home, and to put their two daughters through college. Complaint (copy attached hereto). After working for 30 years in the area of customer service call management, Mr. Smith was laid off from his job at SBC Cable, which was downsizing to make itself a more attractive acquisition to its prospective buyer, Vencast. At the time, Mr. Smith was about to turn 63 years old. Because Mr. Smith was subsequently unable to nd full-time employment, the Smiths fell behind on their mortgage payments. The Smiths lender, Nationwide, offered to take title to the home in lieu of foreclosing, but the Smiths refused: they knew they only owed about $179,000 on their mortgage, whereas they knew their house was worth at least $400,000 to $500,000. The lender led a foreclosure suit, and the Smiths began to receive a wave of solicitations. Of all of these, the solicitation from Defendant Hanniford & Cole, Inc. (Hanniford & Cole) stood out: this company claimed to be Illinois Top Foreclosure Mitigation Firm, and it claimed a 98.3% success rate in saving peoples homes from foreclosure. Nowhere did the solicitation indicate that Hanniford & Cole would sell the homeowners property. Based on several meetings with representatives of Hanniford & Cole, the Smiths agreed to put their home into a protected trust. They were told they would still own the property, together with an investor (which turned out to be Defendant Warren Investment Company II, LLC, or Warren II), and that by putting the home in a protected trust, they would be protecting the home from creditors. The Smiths were told that they would then make monthly payments and could buy the home back out of the trust in two years. They were told that if the home were sold, they should have a right of rst refusal. Hanniford & Cole lied. On October 3, 2003, the Smiths attended a closing, where, contrary to the statements that had been made to them, title to the home was transferred outright to Warren II. There was an attorney at the closing, Trey Rucker Sawyer (Sawyer), who was purportedly there to act on behalf of the Smiths, but it was Hanniford & Cole who arranged for Sawyer to act as the Smiths closing attorney. Sawyer did not explain to the Smiths that they were transferring title to Warren II, nor did he advise them of the true nature of the transaction or disabuse them of the notion that they were putting their house in a protected trust. Unbeknownst to the Smiths, Warren II (or one of its affiliate companies, Warren Investment Company I, LLC, or Warren I) turned around a month later and mortgaged the home for an additional $160,000 (by taking out a loan of $368,000, whereas the

J.8.2.2 Response to Motion to Dismiss

IN THE CIRCUIT COURT OF COOK COUNTY, ILLINOIS COUNTY DEPARTMENT, CHANCERY DIVISION ) Richard and Susan Smith ) Plaintiffs, ) ) v. ) ) Hanniford & Cole, Inc., T.J. ) Cox, George Handy, Steven ) Moore, LLC, Warren ) Investment Company II, LLC, ) Warren Investment Company I, ) LLC, BigBank, F.S.B., and ) Unknown Owners and ) Nonrecord Claimants, ) Defendants. ) ) RESPONSE TO MOTION TO STRIKE AND/OR DISMISS PLAINTIFFS FIRST AMENDED COMPLAINT TO QUIET TITLE AND FOR OTHER RELIEF Now come Richard and Susan Smith (the Smiths), by and through their attorneys, and respond to the Defendants Motion to Strike and/or Dismiss Plaintiffs First Amended Complaint To Quiet Title And For Other Relief (Motion).12 I. STANDARD OF REVIEW In ruling on a 2-615 motion to dismiss, a court must take all well-pled facts in the complaint as true, and it must interpret all allegations in a light most favorable to the non-moving party. Connick v. Suzuki Motor Co., Ltd., 174 Ill. 2d 482, 490, 675 N.E.2d 584, 588 (Ill. 1996).13 Moreover, all inferences from those wellpled facts must be drawn in favor of the non-moving party. Lee v. Nationwide Cassel. L.P., 174 Ill. 2d 540, 545, 675 N.E.2d 599, 601 (Ill. 1996); Kolegas v. Heftel Broad. Corp., 154 Ill. 2d 1, 9, 607 N.E.2d 201, 205 (Ill. 1992). Finally, the court cannot consider anything outside of the allegations in the complaint or attachments thereto; affidavits, the products of discovery, documentary evidence not incorporated into the complaint, testimonial evidence, or other evidentiary materials may not be considered. Carter v. New Trier East High School, 272 Ill.App.3d 551,553, 650 N.E.2d 657,659 (1st Dist. 1995), Cwikla v. Sheir 345 Ill.App.3d 23, 29, 801 N.E.2d 1103,1109, (1st Dist. 2003). A dismissal based on a failure to state a claim must only be sustained if it clearly appears that no set of facts could be proved under the allegations which would entitle the party to relief. Lee, 174 Ill. 2d at 545. Moreover, even if the court nds that a party has failed in any respect to plead
12 The Motion is led on behalf of Defendants Hanniford & Cole, Inc. (Hanniford & Cole), T.J. Cox (Cox), George Handy (Handy), Steven Moore, LLC (Steven Moore), Warren Investment Company II, LLC (Warren II), and Warren Investment Company I, LLC (Warren I). 13 [Editors Note: Citations throughout response to motion to dismiss complaint as in original.]

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payoffs on behalf of the Smiths had only been about $207,000).14 Never knowing about this new, higher mortgage loan, the Smiths struggled mightily for 24 months to make monthly payments of $2,500 under the sale-leaseback agreement, largely with the help of family and friends (since the $2,500 payments approximated the Smiths total monthly income). Despite Mr. Smiths multiple hospitalizations, and the death of both of Mrs. Smiths parents, the Smiths managed somehow to make these payments, hoping to preserve the possibility of buying their house back out of the protective trust. All told, over the past two years, the Smiths have made payments of $56,650. Property taxes, which remain in the Smiths name, have been paid using a portion of these monthly payments. The Smiths have continued to pay for homeowners insurance separately. The Smiths never intended to sell their home to Warren II, and the prospect of an outright transfer of title to Warren II was contrary to all of the statements made to them by Hanniford & Cole. The Smiths were not willing to deed their home to the lender, when offered, and they were not seeking to sell to Warren II. III. ARGUMENT For the reasons stated below, the Smiths have pled adequate facts to support each of the claims alleged in their Complaint, and none of their allegations should be stricken. A. None of the Smiths allegations should be stricken. Defendants want to have their cake and eat it, too: they argue both that the Smiths have pled too many facts, and that they have not pled enough facts. The reality is that the Smiths 133-paragraph Complaint alleges a great many facts with a great deal of specicity. However, all of these facts are part of the story of what happened to the Smiths. All of these facts are relevant to one or more of the eight claims alleged by the Smiths, and, taken together, all of these facts adequately set forth the basis for the Smiths claims. Defendants claim that the Smiths preliminary statement should be stricken as superuous. Motion, p. 2. The preliminary statement merely summarizes the claims alleged and the relief sought in the Complaint. There is nothing improper in offering the court a brief and helpful summation of what is to follow in a lengthy 26-page Complaint. Defendants next seek to strike so-called extraneous material that does not constitute a recitation of the facts underlying a cause of action but which seek[s] only to evoke the sympathy of the Court and to prejudice this Court against Defendants. Motion, p. 3. As an initial matter, Defendants cite as examples of such extraneous materials mere parts of sentences, and they claim that such citations are mere examples of extraneous material of which the Complaint is replete. Id. In other words, Defendants do not actually specify the precise extraneous material that they want stricken. Their unworkable request should be denied on this basis alone. More to the point, the Defendants completely miss it (the point, that is). They claim that the Smiths merely seek the sympathy of this Court. Id. Well, one mans sympathy is another mans equity. This is a court of equity, and the core claim at the heart of this quiet title action is the equitable claim that the purported sale of the
14 As alleged in the First Amended Complaint, Warren II took title to the Home, but Warren I executed the $368,000 mortgage.

Appx. J.8.2.2

Smiths home is in fact an equitable mortgage. As discussed below in greater detail, equitable factors which Defendants dismiss as seek[ing] only to evoke the sympathy of this Court, id., are highly relevant to the Smiths equitable mortgage claim as they relate to factors determinative of that claim (e.g., the circumstances surrounding the transaction, the disparity of the situation of the parties, and an agreement to repurchase, all correctly cited by Defendants, Motion, p. 9, as factors to be considered under McGill v. Biggs, 105 Ill. App. 3d 706 (3rd Dist. 1982), in determining whether a purported sale is an equitable mortgage). This extraneous material is also relevant to several of the Smiths claims of unconscionability, fraud, and breach of duciary duty. Even if it is true that Defendants created none of [the Smiths desperate] circumstances, they took advantage of those circumstances, and that is actionable under the claims pled by the Smiths. Defendants claim, nally, that 56 of the Complaint should be stricken because it refers to the nationwide growth in equity stripping schemes such as the one alleged by the Smiths. There are two reasons why this paragraph is properly pled. First, it helps the court to understand the context, or, otherwise put, the modus operandi of rescuers such as Hanniford & Cole. Second, it is relevant in that it offers circumstantial evidence of a pattern and practice of these types of activities, evidence which can be relevant for obtaining punitive damages. Obviously, in order to obtain punitive damages, the Smiths would have to adduce additional evidence through discovery to prove a pattern and practice by these Defendants; nevertheless, allegations of a widespread pattern and practice of this same type of bad behavior can serve as one piece of circumstantial evidence that such practices exist, are protable, and victimize homeowners such as the Smiths. B. The Smiths have adequately pled the existence of an equitable mortgage. The doctrine of equitable mortgage has been recognized in Illinois for over 100 years, under facts similar to the Smiths transaction with Warren. The relevant factors in determining whether a deed which is absolute in form constitutes a mortgage as a matter of law include the relationship of the parties, the circumstances surrounding the transaction, the adequacy of the consideration, and the situation of the parties after the transaction. Nave v. Heinzmann, 344 Ill. App. 3d 815, 821 (5th Dist. 2003). In Nave, the Illinois Appellate Court held that simultaneous agreements to sell and then re-purchase property constitute an indication that the parties intend the transaction to be a mortgage. Id., 344 Ill. App. 3d at 821-22. As the Nave court pointed out, a declaration that a deed which is otherwise absolute in form is a mortgage, does not require the existence of fraud, accident, or mistake. Id. at 821. A host of Illinois appellate courts have found that a transaction, like this one, that amounts to a sale-leaseback with an option to repurchase, is in fact an equitable mortgage. See, e.g., McGill v. Biggs, 105 Ill. App. 3d 706 (3rd Dist. 1982); Metcalf v. Altenritter, 53 Ill. App. 3d 904 (5th Dist. 1977); Warner v. Gosnell, 8 Ill. 2d. 24 (1956); In re Scheribels Estate, 340 Ill. App. 238 (1st Dist. 1950); Kiethly v. Wood, 151 Ill. 566 (1894). The case which most comprehensively lays out the factors which a court must consider in determining whether a transfer of title is a true sale or an equitable mortgage is McGill v. Biggs, 105 Ill. App. 3d 706 (3rd Dist. 1982), a case in which the court found

57

Appx. J.8.2.2

Foreclosures
3. Prior unsuccessful attempts for loans. Granted, the Smiths did not seek outside funding prior to the deal with Warren II, but they did seek to work out something (i.e., loss mitigation) with their own lender, for the same reason that someone would seek an outside loan, that is, to continue to nance the home-secured debt and remain in the home. From what Nationwide had communicated (and from what Hanniford & Cole itself communicated), it did not seem like they could qualify for a traditional renance loan; that is why they did this deal, likewise for the purpose of remaining in the home. 4. Circumstances surrounding the transaction. The Smiths Complaint speaks volume on this point. From the text of their (misleading) solicitation and all the way through the evolution of the deal up through closing, Hanniford & Cole and its agents never indicated to the Smiths that they were selling their home; instead, they promised to help save the Smiths home from foreclosure, supposedly by putting the home in a protected trust out of which it could not be sold without the Smiths approval. It is clear that the Smiths never intended to sell their home; they made this clear from the beginning, even in refusing to transfer title to Nationwidebecause they knew their house was worth far more than the mortgage debt they owed. 5. Disparity of the situation of the parties. Hanniford & Cole and Warren are professional real estate buyers, lenders, and/or investors. The Smiths are a retired couple who have owned one and only one piece of real estate in their entire lives: the home they have lived in for over 40 years and which they are desperately trying to save. The disparity of the situation of the parties could not be more extreme. 6. Lack of legal assistance. Defendants argue that the Smiths had legal assistance, which weighs against their claim. Yes, the Smiths were represented by a lawyer at closing, but it was a lawyer selected by Hanniford & Cole, and she did nothing to inform them of the true nature of the deal that they were entering. 7. Unusual type of sale. Defendants claim that there was nothing unusual about the sale. Motion, p.11. There certainly was. It is true that homeowners facing foreclosure sell their homes every day. But not like this. They go to a real estate broker (or perhaps sell by owner), get a fair market price, close on the sale, and move out. This deal was nothing like that. The Smiths wanted to stay in their home, and had no interest in selling itcertainly not at less than half its value, something they had already communicated to Nationwide. 8. Inadequacy of consideration. The Smiths have alleged that they believed their house to be worth between $400,000 and $500,000.15 They received consid15 In the unlikely event that the court were to nd that this lack of consideration were not signicant enough, and if that nding led to a determination that the equitable mortgage claim (or one of the Smiths other claims) should be dismissed, the Smiths would

that the warranty deed at issue was properly construed as an equitable mortgage. According to McGill, proof that a transfer of title should be considered an equitable mortgage can come from almost every conceivable fact that could legitimately aid that determination (which is why the Smiths Complaint goes into such detail), as [e]ach case will depend upon its own special circumstances. Id. at 708. The McGill court noted that [m]any circumstances have been recognized by Illinois courts as evidence of an equitable mortgage. The court noted that [d]irect evidence is not required, and, [I]n fact, no particular kind of evidence is required. Id Finally, said the court, [I]f there is doubt as to the intent of the conveyance, it should be resolved in favor of a mortgage. Id. at 710. Though noting that proof of an equitable mortgage can come from any relevant circumstance, the court listed thirteen of the most prominent circumstances which have considered by Illinois courts. A party need not make a showing under all of these factors; the determination of equitable mortgage comes from a consideration of a totality of the circumstances. Nonetheless, these thirteen factors are the most prominent ones. Defendants have cited to McGill and to these thirteen factors. While conceding that several of the McGill factors indicate the existence of an equitable mortgage, Defendants claim that most of the factors do not. A careful examination of the facts alleged by the Smiths belies Defendants position, which is based on misreading or ignoring a large portion of the Smiths allegations. In fact, as set forth below, almost every one of McGills thirteen factors weighs in favor of an equitable mortgage, and none weigh against it. 1. Existence of an indebtedness. The Smiths frankly concedeand plead in their Complaint that they owe a debt to Warren II. At the closing held on October 3, 2005, Warren II paid off the Smiths mortgage debt owed to Nationwide ($192,094.15) and real estate taxes owed ($5,058.20), and paid a small sum of cash directly to the Smiths ($10,361.15). This amount totals $207,513.50, which is the amount nanced. Absent consideration of any interest owed on the amount nanced (which would increase the amount of the debt), or any damages owed to the Smiths on any of their other claims (which would decrease the amount of the debt), that is the amount of the debt owed by the Smiths to Warren II: $207,513.50. The Smiths are not seeking to walk away from that debt, but simply to call it what it is: a debt owed, not a sales price. 2. Close relationship of the parties. Granted, there was initially no close relationship between the parties; they were not long-time friends or relatives. But by virtue of their solicitation of the Smiths business and their speedy, next-day appearance at the Smiths, Hanniford & Cole and its representatives (George Handy and T.J. Cox) established a close relationship with the Smiths. They sought to (and did) earn the Smiths trust, they led the Smiths through a series of (probably sham) efforts to offer loss mitigation as promised by their advertisement, and they nally brokered the deal with Warren II, even providing a lawyer for the Smiths in effort to allay the Smiths concerns and sanitize the transaction.

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eration of only $207,513.50. The numbers speak for themselves. As stated in McGill, [t]he inadequacy of consideration has been regarded as a potent or strong circumstance tending to show that a deed was intended to operate as a mortgage and not a sale; and where consideration is grossly inadequate, a mortgage is strongly indicated. McGill, 105 Ill. App. 3d at 709. Thus, the gross inadequacy of consideration here is strong evidence of an equitable mortgage. Defendants simply ignore the fact that the Smiths stand to lose a home worth hundreds of thousands of dollars more than the consideration they received. Defendants claim that by being allowed to stay in the home, and by retaining an option to repurchase, the Smiths received adequate consideration. Once again, Defendants distort the doctrine of equitable mortgage, which presupposes that the homeowners remain in their home and retain an option to repurchase. Those facts alone do not make for adequate consideration. Consideration is the monetary value received by the homeowners, and here that value is grossly inadequate (especially since the right to remain in the home was paid for at the high cost of $2,500 per month). 9. Way the consideration was paid. The payment of the Smiths Nationwide debt and real estate taxes and the cash payment to them would be typical features of a true sale or of a renance loan transaction; likewise, the fact that the HUD-1 reected a cash (versus nanced) sale. This factor does not cut either way. 10. Retention of the written evidence of the debt. The Smiths retained a right to repurchase the property. According to the repurchase contract, they had the right to buy the property back in 12 months (for $280,000) or 24 months (for $290,000). Thus, according to the documents, the debt incurred by the Smiths was to be repaid either at $280,000 (i.e., the original amount nanced of $207,513.50 plus a nance charge of $72,486.50), or at $290,000 (i.e., the original amount nanced of $207,513.50 plus a nance charge of $82,486.50). Complaint, 36, 43, 77. 11. Belief that the debt remains unpaid. As mentioned above, the amount nanced is $207,513.50. Aside from any offset of damages from their other claims, that debt is still owed on the equitable mortgage, and the Smiths have not pled otherwise. 12. Existence of an agreement to repurchase. Defendants concede the existence of an agreement to repurchase. They argue, however, that this is not enough, in and of itself, to create an equitable mortgage. This is true. Nonetheless, [a]n agreement to reconvey has long been considered a signicant factor in distinguishing mortgages from absolute sales. Agreements made in writing at the same time as the conveyance resolve
seek leave to replead on this point. Recently, a real estate broker performed a BPO (brokers price opinion) in which she estimated that the value of the home was at least $659,000. If need be, the Smiths could plead this fact in a Second Amended Complaint.

Appx. J.8.2.2

any doubt as to the character of the conveyance in favor of a mortgage. McGill, 105 Ill.App.3d at 710. Likewise, here, with almost all the other factors weighing in favor of an equitable mortgage and none weighing against it, there can be no doubt. 13. Continued exercise of ownership privileges and responsibilities by the seller. According to the Defendants, the Smiths did not allege that they continued to exercise ownership privileges and responsibilities. Motion, p. 12. This claim is disingenuous at best. Most obviously, the Smiths have continued to live in the property for the past two years. Taxes remain in the Smiths name, and they have been paying them (indirectly) through their monthly payments to Warren II. Finally, the Smiths pay their own homeowners insurance. Complaint, 47. For all of the above reasons, the thirteen McGill factors strongly suggest an equitable mortgage in this case. C. Defendants general contract defenses are unavailing. In addition to its unpersuasive analysis of the McGill factors, Defendants seek dismissal of the Smiths equitable mortgage claims based on several general contract defenses, none of which bear scrutiny. Defendants argue that the relevant documents here indicate a sale of the property; that the Smiths had a duty to read, and are therefore bound by, the documents; that the doctrine of merger holds that a written agreement supersedes all prior agreements; and that the parol evidence rule bars the introduction of evidence concerning any prior contrary terms. Defendants cite a handful of inapposite cases in support of these arguments. Motion, pp. 4-8. Each of Defendants arguments fail. The principles cited by Defendants are valid enough, in the abstract, but neither the principles nor cases cited bear any relation to the doctrine of equitable mortgage in general or to the specic facts of this case. The relevant documents, and what they say, are not at issue. On a formal level, those documents indicate a sale of the property, and title was accordingly transferred via a deed. This is, obviously, what the documents show. But this gets Defendants nowhere. The very doctrine of equitable mortgage presupposes the existence of a deed, that is, a formal sale of property and transfer of ownership. Nonetheless, the doctrine of equitable mortgage asks the court to determine whether a formal sale is best considered as a true sale, or merely as a sale in form and a mortgage in substance. That determination depends upon the application of the thirteen factors cited above (and any additional circumstances relevant in a given case). Thus, the existence of a deed and a contract for sale proves nothing. The twin doctrines of merger and parol evidence are likewise inapposite. The substantive doctrine of merger states that all prior agreements between parties are merged into the nal agreement executed by those parties. The evidentiary doctrine of the parol evidence rule states that parties cannot introduce evidence of prior terms which conict with the nal agreement. These doctrines are, again, inapposite. Here, it is not a question of seeking to prove and enforce some prior agreement: the issue, rather, is how the court should best construe the deal that was ultimately executed by the parties. Defendants cite a string of cases which simply have no application to the situation of a homeowner asking a court to construe

59

Appx. J.8.2.2

Foreclosures
The Smiths made perfectly clear in their allegations that they had no intention of selling their home. They never talked with Hanniford & Cole about selling their home. Indeed, they responded to the solicitation of Hanniford & Cole solely because they believed Hanniford & Coles claims that it was a loss mitigation rm which could help the Smiths save their homenot sell it. Handy and Cox stated repeatedly that they were not selling the home, but were rather placing it in a protected trust as a strategy for preserving the Smiths ownership interests. Hanniford & Cole lied: it arranged a sale to Warren II, and there was no protected trust. It sanitized the deal by providing an attorney who offered token services to the Smiths, that is, he did not advise them on the true nature of the deal. The Smiths were not interested in selling their home, and they would not have knowingly sold it for less than half of its value. But for the deceptive acts and statements of Handy, Cox, and Hanniford & Cole, the Smiths never would have entered into this deal. Moreover, the deal itself was improvident. In other words, given the Smiths circumstances, Handy, Cox, and Hanniford & Cole (and Warren II) are sophisticated real estate actors who knew or should have known that the Smiths were unlikely to be able to afford either the post-closing monthly payments or the repurchase price. Knowingly inducing borrowers to enter into a deal that is likely to lead to default for the purpose of stripping the equity from their home states a cause of action for improvident lending under the Consumer Fraud Act. Fidelity Financial Services v. Hicks, 214 Ill.App.3d 398, 404 (1st Dist. 1991). Indeed, the new wave of rescue fraud alleged by the Smiths is beginning to generate decisions nding that such activity violates state deceptive acts and practices statutes. Recently, in Eicher v. Mid America, 270 Neb. 370, 702 N.W.2d 792 (2005), the Nebraska Supreme Court affirmed judgments of fraud and civil conspiracy against individual defendants and their corporate alter ego for victimizing 10 homeowners through a fraudulent scheme in which they identied people whose homes were in foreclosure, approached them under the guise of loaning them money to stop the foreclosures, and then deceitfully acquired title to the homes by acquiring warranty deeds. Id. at 373. Defendants countered (as Defendants do here) that the terms of the transaction were fully explained to each plaintiff and that each plaintiff understood that he or she was conveying title to the home to the defendants. Id. The trial court conducted a bench trial and ruled in favor of the plaintiffs on its statutory and common law fraud claims. That judgment was ultimately upheld by the Nebraska Supreme Court. Nebraskas fraud statute, the Nebraska Consumer Protection Act, Neb. Rev. St. 59-1601 et seq., and 87-301 et seq. is akin to Illinois Consumer Fraud Act in prohibiting unfair and deceptive acts and practices in the course of commerce. Eicher is also instructive on Defendants secondary point, namely, that the Smiths signed documents which evinced the true nature of the deal (i.e., a sale which did not involve a protected trust), and so they cannot claim that they were deceived. As here, the rescuers in Eicher tried to rely upon the homeowners signatures on documents indicating sales transactions. Like the Illinois cases cited above, however, Eicher readily rejects the rescuers self-serving argument by recalling that [t]he general rule that one who fails to read a contract cannot avoid the effect of signing it applies only in the absence of fraud. Id. at 378. But where fraudulent inducement is alleged, the terms of a contract are not

a deed as an equitable mortgage. The cases cited by Defendants concern the sale of commercial property, or they have nothing at all to do with real estate. The only case that even comes close is Evans v. Berko, 408 Ill. 438 (1951), in which the court declined to impose a constructive trust. Even assuming, arguendo, that the conditions for establishing a constructive trust are the same as establishing an equitable mortgage, Evans is easily distinguishable from this case for a number of reasons: (1) the plaintiff was not selling his residential property; (2) the plaintiff did not make post-closing payments to the buyer in the nature of mortgage payments (in fact, the buyer made post-closing payments); and (3) the seller took possession. Moreover, although fraud is not necessary to the establishment of an equitable mortgage, no fraud was alleged in Evans, as it is here. This is relevant because merger is a contract defense, and contract defenses do not apply in the case of fraud. Lefebvre Intergraphics v. Sander Machine, Inc., 946 F.Supp. 1358 (N.D. Ill. 1996); Mother Earth Ltd. v. Strawberry Camel, Ltd., 72 Ill.App.3d 37, 390 N.E.2d 393, later appeal, 98 Ill.App.3d 518, 424 N.E.2d 758 (1st Dist 1979). It has long been the law in Illinois that a party guilt of fraud cannot, by way of estoppel against the party injured, rely upon contract terms to insulate itself from liability: in the case of fraud, the doctrine of merger and the evidentiary parol evidence rule do not apply. Ginsburg v. Bartlett, 262 Ill.App. 14 (1st Dist. 1931) (parol evidence of fraud admissible where defendant represented that a new transportation line would connect the property, though the contract stated that no such representation had been made). D. The Smiths have adequately pled a claim under the Consumer Fraud Act. In Count V, the Smiths seeks recovery under the Illinois Consumer Fraud and Deceptive Business Practices Act (Consumer Fraud Act). Defendants claim that the Smiths have failed to adequately plead a claim under the Consumer Fraud Act. Defendants argue that they were the innocent purveyors of services who gave the Smiths exactly what was advertised, and exactly what the Smiths wanted. According to the Defendants: Plaintiffs allege that Defendants Hanniford & Cole, T.J. Cox, and George Handy arranged for a sale of the property under terms that would give Plaintiffs an opportunity to meet all of their goals: to remain in their home, to payoff [sic] their mortgage, to take some cash out of the home, and to have the option to repurchase at a reasonable price having retained much of the equity after a one year or two year nancial recovery period. Motion, p. 13. In all of this, argue the Defendants, there was absolutely no hint of deception. In fact, a careful reading of the Complaint reveals that Defendants characterization is disingenuous at best. Moreover, any arguments based on facts extraneous to the Complaint must be rejected in the context of a 2-615 motion.16
16 This would apply, for example, to Defendants argument, purportedly based on their Exhibit B, that the Smiths negotiated the sale price of their home up from $180,000 to $200,000 to the ultimate sales price of $230,000. Motion, p. 7.

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Sample Foreclosure Pleadings and Other Litigation Documents

controlling. This is as true in Illinois as in Nebraska, and no doubt in most (if not all) other states. Otherwise, any act of fraud could be insulated by the delivery of a written document. For the above reasons, the Smiths have adequately pled a claim under the Consumer Fraud Act. E. The Smiths have adequately pled a claim for common law fraud. For all of the reasons stated above, the Smiths have likewise stated a valid cause of action for common law fraud. Really, the only element required for common law fraud which is not required for a claim under the Consumer Fraud Act is reasonable reliance, and the Smiths have alleged that they reasonably relied on the false statements of Handy, Cox, and Hanniford & Cole, namely, that the home was not being sold but was instead being put in a protected trust. Eicher is again instructive. Eicher sets forth the elements of a claim for common law fraud under Nebraska law, and they are identical to those under Illinois law. The defendants in Eicher were found to have committed common law fraud for engaging in the same types of rescue fraud practices alleged herein. The Smiths have likewise stated a valid claim for common law fraud under Illinois law. F. The Smiths have adequately pled a claim for unconscionability. Defendants argue that the Smiths have failed to adequately plead a claim for unconscionability. As Defendants note, a contract will be struck down as unconscionable if it is both procedurally and substantively unconscionable. Basselen v. General Motors Corp., 341 Ill.App.3d 278 (2nd Dist. 2003). Here, both prongs are met. Procedurally, the Smiths have alleged the requisite surprise: it was their understanding (because they were told so) that they were merely putting their home into a protected trust, not selling it outright. Hanniford & Cole and its agents took advantage of the Smiths vulnerable position, used their superior bargaining power and business sophistication, and fraudulently induced the Smiths into a deal which was one huge surprise. Substantively, the Smiths have alleged that their home was sold for less than one-half of its value, leading them to face eviction from their home of 40 years after having been stripped of most of their home equity surely a one-sided result that shocks the conscience. Id. at 288. Contrary to the argument adduced by Defendants, even though Warren II was ultimately the party which contracted with the Smiths, Hanniford & Cole and its agents should also be held liable for the damages caused by this unconscionable contract because they fraudulently induced it. G. The Smiths have adequately pled a claim for breach of duciary duty. Defendants claim, without any real analysis, that the Complaint fails to allege the breach of a duciary duty owed to the Smiths. Defendants cite to only case, Chicago City Bank and Trust Co. v. Lesman, 186 Ill. App. 3d 697, 542 N.E.2d 824 (1st Dist. 1989), a case in which the court ruled that a bank trustee did not breach a duciary duty owed to a remainder beneciary by failing to provide him with an accounting of the trust on demand. This case is not very helpful.

Appx. J.8.2.2

The most apposite case law is that which examines whether a duciary duty is owed by a mortgage broker to a borrower on whose behalf the broker is seeking to arrange a loan. Since the Smiths entered into an equitable mortgage, what Hanniford & Cole did was, in effect, to broker a mortgage loan for them with Warren II. In Illinois, when one party undertakes to nd nancing on behalf of another, a principal and agent relationship is created. De Leon v. Benecial Constr. Co., 55 F. Supp. 2d 819, 827 (N.D. Ill. 1999). Once an agency relationship is found, a duciary relationship arises as a matter of law. Citicorp Sav. of Illinois v. Rucker, 295 Ill. App. 3d 801, 809, 692 N.E.2d 1319, 1325 (1st Dist. 1998); see also De Leon, 55 F. Supp 2d at 827. Even where an agency relationship does not arise as a matter of law, it is well settled that [t]he existence of an agent/principal relationship rests on factual underpinnings, and cannot be determined on a motion to dismiss. Watson v. CBSK Financial Group, Inc., 2002 WL 598521, at *7 (N.D. Ill. Apr. 18, 2002). A duciary relationship exists where a person can show that he placed trust and condence in another so that the other gained inuence and superiority over him. This degree of trust and condence can be shown by such factors as the degree of kinship between the parties, the disparity in age, health, mental condition, education, and business experience between the parties, and the extent to which the servient party entrusted his business affairs to the dominant party and placed trust and condence in it. Chricton v. Golden Rule Insurance Co., 358 Ill.App.3d 1137, 1149 (5th Dist. 2005). Applying these factors, courts have repeatedly upheld claims of breach of duciary duty pled by borrowers against mortgage brokers. Watson, supra; Michalowski v. Flagstar Bank, 2002 WL 113905, at *7 (N.D. Ill. Jan. 25, 2002); Vargas v. Universal Mortgage Company, 558045, at *3 (N.D. Ill. May 21, 2001); Hastings v. Mortgage Fidelity Mortgage Decisions Co., 984 F. Supp. 600 614-15 (N.D. Ill. 1997). Here, on the facts as pled, a duciary duty was clearly established. In terms of the disparity in age, health, and business sophistication, and in terms of how Defendants insinuated themselves into the Smiths lives and worked to gain their trust and condence in the face of a desperate nancial positionall of these factors established a duciary duty which was subsequently breached when, instead of placing the home in a protected trust, as promised, Defendants sold the Smiths home out from under them, contrary to their wishes. The Smiths have clearly pled a breach of duciary duty. H. The Smiths have pled valid causes of action against the individual defendants. Individual Defendants (Cox and Handy) argue that they cannot be held personally liable because they are not liable for the debts of the corporate entity (Hanniford & Cole), and because the Smiths have not pled facts which would allow them to pierce the corporate veil. Motion, p. 19. Individual Defendants are mistaken. The Smiths are not trying to (and need not) pierce the corporate veil. This is not an instance in which plaintiffs are seeking to hold individuals liable for the debts of a company. This is about fraud, and it is well established that an individual is personally liable for fraud where his participation in the fraud was active and direct. Zekman v. Direct American Marketers, 182 Ill.2d 359, 370, 695 N.E.2d 853, 859 (1998) (plain language of the

61

Appx. J.8.2.3

Foreclosures
RICHARD & SUSAN SMITHS FIRST DISCOVERY REQUEST DIRECTED AT HANNIFORD & COLE, INC., T.J. COX, GEORGE HANDY, STEVEN MOORE, LLC, WARREN INVESTMENT COMPANY II, LLC, AND WARREN INVESTMENT COMPANY I, LLC Richard and Susan Smith (the Smiths), by and through their attorneys, and pursuant to Illinois Supreme Court Rules 210, 213, 214,17 and the order of court entered in this case on June 12, 2006, hereby request that defendants Hanniford & Cole, Inc., T.J. Cox, George Handy, Steven Moore, LLC, Warren Investment Company II, LLC, and Warren Investment Company I, LLC, respond to the following interrogatories and produce the below-listed documents within 35 days upon service hereof. DEFINITIONS For the purpose of these discovery requests (both these Interrogatories and the Request for Production of Documents being led contemporaneously herewith), the following denitions apply: 1. The request to identify an individual requires the full name, job title, present business and/or home address, and present business and/or home telephone number. 2. The word identify when used in reference to a document means to state the title, author, description, date, and present location of the document, and the name and address of the person who has possession or control of the document. 3. The word document refers to, and includes but is not limited to, writings or recordings of any kind, whether handwritten, typed or printed, drawings, graphs, charts, letters, memoranda, transcripts, reports, articles, studies, bulletins, orders, photographs, microlm, x-rays, resolutions, books, pamphlets, computer printouts or cards and all other forms of computer storage and retrieval, notebooks, diaries, notes, logs, ledgers, manuals, recorded recollections, desk calendar entries, notations of events and conversations, medical records, all retrievable information in computer storage and tangible recordings of any nature. 4. Job title or position or capacity refers to the descriptive name given to each discrete position which a particular employee is assigned to perform. 5. Communication shall mean any or all transmittals of information, whether oral or reduced to writing, whether handwritten, typewritten, tape-recorded, or produced by electronic data processing, irrespective of how conveyed (e.g., telephone, telegram, telegraph, United States mail, private mail or courier service, face-to-face contact). 6. Job classication shall mean any employment status designated by job title, department, responsibility, job duties, production rate, shift worker, or any other manner that distinguishes it from other employment. 7. Describe shall mean to exhaust Surplus information, knowledge, or belief with respect to the subject matter of the Interrogatory.

Consumer Fraud Act imposes liability on those who directly participate in the deceptive conduct); Jackson v. South Holland Dodge, 197 Ill.2d 39, [cite] 755 N.E.2d 462 (2001) (plaintiff entitled to maintain a cause of action under the Consumer Fraud Act where the [defendants] fraud is active and direct); Cumis Insurance Society, Inc. v. Peters et al., 983 F. Supp. 787, 794 (N.D. Ill. 1997) (defendant liable if he either knowingly participated in the fraud or knowingly accepted the fruits of the fraudulent conduct). Here, Coxs and Handy participation in the fraud was active and direct, and therefore the complaint can be maintained against them individually, as well as against their employer. I. The Smiths have pled valid causes of action against Steven Moore. The Smiths allegations against Steven Moore are sufficient. Steven Moore acted as the agent of Warren II in collecting the Smiths monthly rent payments. Moreover, the Smiths have alleged that Steven Moore is a business run by Cox. As such, this business entity, like Hanniford & Cole, is part and parcel of a scheme to defraud the Smiths, a scheme which began when Cox insinuated himself into the Smiths lives and continued through the period of time when he was collecting unaffordable rent payments from them. Bolstering the claim that Steven Moore was a mere alter ego of Cox, as alleged by the Smiths, is Defendants admission in its Motion, p. 20, that Steven Moore was not a licensed entity until October 11, 2005, a full year after the 5-day notice it served the Smiths on December 7, 2004. WHEREFORE, for all the above reasons, the Smiths respectfully request that the Court deny Defendants Motion to Strike and/or Dismiss Plaintiffs First Amended Complaint to Quiet Title and For Other Relief. Attorney for the Smiths

J.8.2.3 Request for Discovery

IN THE CIRCUIT COURT OF COOK COUNTY, ILLINOIS COUNTY DEPARTMENT, CHANCERY DIVISION ) Richard and Susan Smith ) Plaintiffs, ) ) v. ) ) Hanniford & Cole, Inc., T.J. ) Cox, George Handy, Steven ) Moore, LLC, Warren ) Investment Company II, LLC, ) Warren Investment Company I, ) LLC, BigBank, F.S.B., and ) Unknown Owners and ) Nonrecord Claimants, ) Defendants. ) )

17 [Editors Note: Citations throughout request for discovery as in original.]

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Sample Foreclosure Pleadings and Other Litigation Documents

8. Relating to or concerning shall mean consisting of, referring to, reecting, or being in any way legally, logically, or factually connected with the matter discussed, whether directly or indirectly. 9. Subject property means 1000 Main Street, Glenview, Illinois. 10. Subject transaction means the sale-leaseback with option to repurchase transacted between the Smiths and the Defendants, including the marketing, application, processing, closing, underwriting, lending, disbursement of funds, and ongoing payments related thereto. 11. Mortgage rescue transaction means the subject transaction, or similar transactions with other homeowners, as indicated. INSTRUCTIONS FOR INTERROGATORIES AND REQUEST FOR PRODUCTION OF DOCUMENTS 1. In answering, Defendants are requested to identify separately all sources of information (whether human, documentary, or other) and all records maintained by them or by any other person or entity, on which they are relying in answering the interrogatories or which reect, refer or relate to the information called for in these discovery requests. In lieu of identifying particular documents, the documents may be attached to the answers. 2. Identify the person or persons answering each interrogatory, stating each persons name, job title, business address and telephone number. 3. Defendants are under a continuing duty to supplement their response in a timely manner to any question contained herein, including but not limited to supplementing information related to the identity and locations of persons having knowledge of discoverable matters, and correcting any responses which Defendants know or later learn to be incorrect. 4. When identifying a person, unless otherwise instructed, state the persons full name and current or last known business and residential addresses and telephone numbers. 5. When identifying a document which is not attached to the answers to these interrogatories and which does not contain the information below on its face state: a. the author and all parties thereto and, if applicable, the name of the person who signed the document; b. the title, number, code, or other identifying data; c. the number of pages, if longer than one page; d. any attachment or supplemental items incorporated with the document; e. the date on which the document was prepared or, if not known, the approximate date; f. the date appearing on the document, if different from (e); g. the transactions, acts or occurrences to which each document relates; h. the general description of the document; i. if the document was, but no longer is, in the possession of Defendants or subject to their control, the disposition made of it and the date of disposition. 6. When identifying an oral communication state: a. the person who made the communication and the person to whom the communication was directed; b. the time, date, place and method of the communication; c. as nearly as possible, the verbatim contents of the communication;

Appx. J.8.2.3

d. any other persons present when the communication was made. 7. If Defendants, after exercising due diligence to secure the requested information, cannot answer any of the interrogatories in full, they shall so state and answer to the extent possible, specifying (a) their inability to answer the remainder of the request; (b) the reason for this inability to answer; and (c) whatever information or knowledge they have concerning the unanswered portions. INTERROGATORIES 1. State the name, job title, and business address of each person providing information in response to these discovery requests (and state which person is providing what information for each answer, either here or as each answer is given). ANSWER: 2. State the name, residence and business addresses and phone numbers, and job position of all person(s) and/or entities who had any involvement in the subject transaction or who have knowledge of any facts relating to matters alleged in Plaintiffs Second Amended Complaint and/or Defendants Answer, and/or who may testify as witnesses at the trial or any hearing hereof. Describe, generally, each individuals involvement and/or function (e.g., marketing, broker, realtor, appraiser, investor, funder, servicer, preparation of documents, disbursement of funds, collection of rent, etc.), and identify each and every written or recorded statement made by such potential witnesses. ANSWER: 3. Identify each person who took part in or who was present at the closing of the subject transaction which took place on September 15, 2003 (specically, the signing of the Real Estate Contract, Residence Lease, and Rider attached as Exhibits C, D, and E to the Second Amended Complaint), and identify which persons are or were agents or employees of Hanniford & Cole, Inc., T.J. Cox, George Handy, Steven Moore, LLC, Warren Investment Company II, LLC, and Warren Investment Company I, LLC. ANSWER: 4. State the date and subject matter of any and all communications (oral or written): (a) between or among any of the parties to this action, and (b) between any of the parties to this action and any/or other person or entity, in any way relating to the Smiths or the property located at [Address] including but not limited to either the September 15, 2003, transaction between the Smiths and Warren Investment Company II, LLC, or the November 12, 2003, transaction between Warren Investment Company I, LLC and BigBank, F.S.B. Identify or produce all documents reecting or relating to such communications, including but not limited to letters, faxes, notes, internal memoranda, calendars, computer data, and credit applications, disclosures, etc. ANSWER: 5. For the years 2002, 2003, and 2004, state the total number of mortgage rescue transactions (i.e., each sale-leaseback with option to repurchase) any one or more of the following entered into or was involved with: Hanniford & Cole Inc., T.J. Cox, George Handy, Steven Moore, LLC, Warren Investment Company II, LLC, and/or Warren Investment Company I, LLC. Identify in each case the

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Appx. J.8.2.3

Foreclosures
13. If any document requested was, but no longer is, in your possession or subject to your control, please state: the date of its disposition; the manner of its disposition (e.g., lost, destroyed, or transferred to a third party); and an explanation of the circumstances surrounding the disposition of the document. ANSWER: 14. With respect to each expert or opinion witness whom you will or may call upon to give evidence in connection with this case, please state: his or her name, address, telephone number, occupation, and current employment; the subject matter of his or her expertise; any matters which you contend qualify him or her as an expert; the substance of all facts and opinions to which he or she could testify if called as a witness; a summary of the grounds for each such opinion, and identify all documents, reports or statements made by any such expert. ANSWER: REQUESTS FOR PRODUCTION OF DOCUMENTS 1. Please produce all documents (including all computer or digital media-stored data) relating or referring to the Smiths, the subject property, and the subject transactions and/or account, or which are indexed, led or retrievable under their name or any number, symbol, designation or code (such as a transaction number or Social Security number) assigned to them or to the property at issue (1000 Main Street, Glenview, Illinois), including but not limited to all documents reecting or relating to the offer to purchase, agreement to sell, payments made to Nationwide or the Smiths mortgagee, communications with WMC Specialty Mortgage, LLC (foreclosure rm secured by Nationwide), the origination, approval, disbursement, administration, and payment history of any loan(s) secured by the subject property (including but not limited to the loan transaction between Warren Investment Company I, LLC and BigBank, F.S.B.), any and all agreements between Warren Investment Company I, LLC, Warren Investment Company II, LLC, and any other party in any way pertaining to the property, all appraisals, applications, worksheets, analyses, and/or other related documents prepared in connection with the transaction, calendars, datebooks, etc., relating to the closing of the transaction, general instructions to closing agents, all documents reecting communications and correspondence related to the subject transaction and/or property, including any communications with Trey Rucker Sawyer, and any and all documents, not covered by another section of this request, that otherwise relate or refer to the transaction between the Smiths and Warren Investment Company II, LLC and/or Warren Investment Company I, LLC. ANSWER: 2. All documents reecting or relating to the relationship between or among any of the following: T.J. Cox, George Handy, Hanniford & Cole, Inc., Steven Moore, LLC, Warren Investment Company I, LLC, Warren Investment Company II, LLC, BigBank, and Tory Zucker Sawyer, including documents reecting co-ownership of corporations, partnership agreements, joint venture agreements, communications reecting transactions and/or all agreements between or among these individuals or entities. ANSWER:

purchasing entity or person and the selling homeowners name, address, and phone number. For each such homeowner identify which of them: (a) have repurchased the property, (b) are still paying pursuant to the leaseback agreement, (c) have been subject to an eviction action (and state the case number and outcome of the eviction action), or (d) face or have faced some other outcome (and state that outcome). ANSWER: 6. Provide all of the information set forth above in Interrogatory Number 5 for each of those transactions upon which Hanniford & Cole based its claim, set forth in the yer sent to the Smiths and attached as Exhibit A to their Second Amended Complaint, of a 98.3% SUCCESS RATE, and describe generally how said percentage was calculated. ANSWER: 7. Provide the number of the transactions identied in Interrogatories Number 5 and Number 6 in which Trey Rucker Sawyer represented or purported to represent homeowners, identify those transactions, and state how Mr. Sawyer was retained for those transactions, attaching any written documents related to his retainer. ANSWER: 8. Identify each officer, director, partner, shareholder, incorporator, employee and/or founder of Hanniford & Cole, Inc., Steven Moore, LLC, Warren Investment Company II, LLC, and Warren Investment Company I, LLC, providing for each the ownership interest, full name, last known address, and phone number. ANSWER: 9. Identify and describe in detail the underwriting procedures used, both generally and in the specic case of the Smiths, in determining whether homeowners are likely to be able to afford the monthly payments and the repurchase terms of the mortgage rescue transactions arranged by Hanniford & Cole and its agents. ANSWER: 10. Describe each payment, disbursement, or transfer of funds or other compensation made in connection with the Smiths mortgage rescue transaction, including who is giving and who is receiving said payment, disbursement or transfer, and the specic date, nature, and amount thereof, as applicable. ANSWER: 11. Describe Hanniford & Coles marketing model, practices, and communications applicable to the period of time and to the transactions set for in Interrogatories Number 5 and Number 6. ANSWER: 12. If you are declining to produce any document or respond to any paragraph in whole or in part because of a claim of privilege, please identify the subject matter, type of document (e.g., letter, memorandum), date, and author of the privileged communication or information, all persons that prepared or sent it, and all recipients or addressees; identify each person to whom the contents of each such communication or item of information have heretofore been disclosed, orally or in writing; state what privilege is claimed; and state the basis upon which the privilege is claimed. ANSWER:

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Sample Foreclosure Pleadings and Other Litigation Documents

3. All documents relating to any judicial or administrative proceeding, public or private consumer protection agency or office, and all customer complaints in which Hanniford & Cole, Inc., T.J. Cox, George Handy, Steven Moore, LLC, Warren Investment Company I, LLC, and/or Warren Investment Company II, LLC, was alleged to have made misrepresentations or violated any consumer protection statutes, rules or regulations relating to mortgages or real estate transactions. ANSWER: 4. Copies of all insurance policies which may afford coverage as to the matters complained of, or under which a claim was made, including but not limited to title insurance and/or any policy which refers to consumer protection coverage and any comprehensive general liability policy. ANSWER: 5. All documents identied in response to the above Interrogatories, and all documents referred to or reviewed in preparing the response to the above Interrogatories, not otherwise called for in these document production requests. ANSWER: 6. All documents referred to or reviewed in preparing Defendants Answer. ANSWER: 7. All documents used in calculating the 98.3% SUCCESS RATE identied in Interrogatory Number 6. ANSWER: 8. Any and all documents defendants, or any one of them, intend to introduce at trial, not otherwise covered by the foregoing requests. ANSWER: Attorney for the Smiths

Appx. J.8.2.4

MOTION FOR CONSOLIDATION Now come the movants, Richard and Susan Smith (the Smiths), by and through their attorneys, and, pursuant to 735 ILCS 5/2-100618 and General Order 12-1 of the Circuit Court of Cook County, respectfully move this Honorable Court to consolidate the above-captioned cases. In support of their motion, the Smiths state as follows: 1. The Smiths are a married couple aged 66 and 65 who have lived in the single-family home located at [Address], since they purchased the home in 1964, for approximately $22,000. The legal description of the home is as follows: LOT 0 IN MAIN SUBDIVISION BEING A 1 SUBDIVISION OF PART OF THE SOUTH 2 OF 1 THE NORTHEAST 4 OF SECTION 99, TOWNSHIP 00 NORTH, RANGE 00 EAST OF THE THIRD PRINCIPAL MERIDIAN, ACCORDING TO THE PLAT THEREOF RECORDED JUNE 14, 1958 AS DOCUMENT 999999999, IN COOK COUNTY, ILLINOIS PIN: 00-00-00-00-0000. Complaint to Quiet Title and for Other Relief (Complaint, a copy of which is attached hereto as Exhibit 1). 2. On March 1, 2002, after working for 30 years in the area of customer service management, Mr. Smith, who was about to turn 63 years old, was laid off from his job at SBC Cable (now Vencast). After struggling to make mortgage payments for about a year, the Smiths went into default on their mortgage. 3. After trying unsuccessfully to work something out with their lender, Nationwide, the Smiths responded to an advertisement by Hanniford & Cole, which billed itself as Illinois Top Foreclosure Mitigation Firm, and which claimed that it could help keep the Smiths in their home. 4. Based on this advertisement, and based on subsequent conversations and meetings with representatives of Hanniford & Cole, the Smiths entered into a transaction which, they were led to believe, would allow them to pay off their debt and keep their home. 5. The rescue transaction was formally structured as a saleleaseback, with transfer of the Smiths title interest to Warren Investment Company II, LLC (Warren), which paid off the outstanding debt to Nationwide. 6. At no point did the Smiths intend to sell, or believe that they were selling, their home, to Warren. 7. The transfer of title to Warren is properly construed under the law as an equitable mortgage. 8. Otherwise, if the rescue transaction is construed as a sale, the Smiths will have sold their home, valued at between $400,000 and $500,000, for a mere $207,513.50 (the amount of the debt paid off at the time of the sale to Warren), not to mention the additional $56,650 in rent payments made subsequently to Warren, over the past two years. 9. Based upon the above facts, as set forth more fully in the Smiths Complaint, on September 30, 2005, the Smiths led their Complaint against Warren, Hanniford & Cole, and other related parties. The Complaint alleges quiet title, unconscionability, com18 [Editors Note: Citations throughout motion for consolidation as in original.]

J.8.2.4 Motion for Consolidation

IN THE CIRCUIT COURT OF COOK COUNTY, ILLINOIS COUNTY DEPARTMENT, CHANCERY DIVISION ) Richard and Susan Smith ) Plaintiffs, ) ) v. ) ) Hanniford & Cole, Inc., T.J. ) Cox, George Handy, Steven ) Moore, LLC, Warren ) Investment Company II, LLC, ) Warren Investment Company I, ) LLC, BigBank, F.S.B., and ) Unknown Owners and ) Nonrecord Claimants, ) Defendants. ) )

65

Appx. J.8.2.5

Foreclosures

mon law fraud, and breach of duciary claims, plus violations of the Truth in Lending Act and the Illinois Consumer Fraud and Deceptive Business Practices Act. The Smiths seek to void the transfer of title to Warren and a subsequent mortgage lien, and they seek money damages and other appropriate relief. Exhibit 1. Upon ling their Complaint, the Smiths recorded a Lis Pendens and delivered a copy of same to Warren. 10. Nonetheless, seeking to assert its rights as a purported landlord, and seeking to assert those rights in a separate action, three weeks later, on October 20, 2005, Warren led a forcible entry and detainer action against the Smiths seeking rent and possession. Exhibit 2. 11. Section 2-1006 of the Code of Civil procedure provides for consolidation of cases pending in the same court as an aid to convenience, whenever it can be done without prejudice to a substantial right. 735 ILCS 5/2-1006. 12. In cases where two separate actions involve an inquiry into the same event, the actions may be tried together, but with separate docket entries, verdicts and judgments, the consolidation being limited to a joint trial. Ad-Ex, Inc. v. City of Chicago, 247 Ill. App. 3d 97, 102-03 (1st Dist. 1993). 13. Here, it is the same issue which lies at the core of each action, namely, which party (the Smiths, or Warren) has valid title to the property. If the Smiths are granted the relief they seek in their Complaint, then Warren has no right to possession of the premises, and no right to evict the Smiths. Therefore, proper resolution of the quiet title action and the forcible entry and detainer action turn on the same issue (rightful ownership of the property) and on the same evidence, meaning that consolidation is appropriate. Ad-Ex, Inc. v. City of Chicago, 247 Ill. App. 3d 97, 102-03 (1st Dist. 1993). 14. Indeed, absent consolidation, the forcible entry and detainer court will be left to rule on the issue of possession without being able to adjudicate the underlying issue of title, since the forcible entry and detainer court is a court of limited jurisdiction. Urbach v. Green, 15 Ill. App. 2d 186, 188 (1st Dist. 1957) (if there is a serious contest with respect to title and the right to possession derived therefrom, the issue cannot be tried in a forcible detainer action); Layzod v. Martin, et al., 305 Ill. App.1, 5 (4th Dist. 1940) (where the right to possession is based on contested title, the issue of possession cannot be tried in a forcible action, but instead the matter must be addressed in an action for ejectment); Schultz v. OConnell, 239 Ill.App. 312, 313 (3rd Dist. 1925) (same). 15. For that reason, this court has routinely granted motions to consolidate under similar circumstances, that is, where the defendant in the forcible entry and detainer case has contested the forcible entry and detainer by claiming that she was the rightful owner of the property, and where she sought to reestablish that right. See, e.g., Neighborhood Commons Cooperative v. Osmanu, 00 M1 716992 (consolidated into Osmanu v. CHAC, 00 CH 05829); Westwood Corporation v. Glenn, 02 M1 714538 (consolidated into M.T. Leasing v. Glenn, 00 CH 2082); and Holcombe w. Wynne, 03 M1 700008 (consolidated into Wynne v. Holcombe, 02 CH 2315). WHEREFORE, the Smiths respectfully request that this Honorable Court consolidate the above-captioned forcible entry and detainer action, Warren v. Smith, 05 M2 00000, into the abovecaptioned quiet title action, Smith v. Warren, et al., 05 CH 000001. Attorney for the Smiths

J.8.2.5 Response to Motion for Use and Occupancy

IN THE CIRCUIT COURT OF COOK COUNTY, ILLINOIS COUNTY DEPARTMENT, CHANCERY DIVISION ) Richard and Susan Smith ) Plaintiffs, ) ) v. ) ) Hanniford & Cole, Inc., T.J. ) Cox, George Handy, Steven ) Moore, LLC, Warren ) Investment Company II, LLC, ) Warren Investment Company I, ) LLC, BigBank, F.S.B., and ) Unknown Owners and ) Nonrecord Claimants, ) Defendants. ) ) RESPONSE TO MOTION FOR USE AND OCCUPANCY PENDING TRIAL Now come Richard and Susan Smith (the Smiths), by and through their attorneys, and respond to the Motion for Use and Occupancy Pending Trial (Motion) led by Warren Investment Company II , LLC (Warren). For the reasons set forth below, Warren is not entitled to Use and Occupancy (U & O) pending trial of this action. INTRODUCTION The Smiths led this quiet title action on September 30, 2005. In their First Amended Complaint to Quiet Title and for Other Relief (Complaint), Smith v. Warren, et al., 05 CH 00000,19 the Smiths name Warren and other related individuals and entities as Defendants. A true and accurate copy of the Smiths Complaint is attached hereto as Exhibit 3. The Smiths Complaint includes 8 counts and alleges, at its core, that the purported sale of the Smiths home of 40 years must, by law, be construed as an equitable mortgage. Likewise, the monthly payments which the Smiths have struggled to make for the past two years must, by law, be construed not as lease payments, but as monthly mortgage payments. Accordingly, now that the Smiths have stopped making monthly mortgage payments, Warrens sole remedy, by law, is to pursue foreclosure of its equitable mortgage. However, instead of ling a foreclosure action or asserting counterclaims in this action, Warren sought to assert its rights as a purported landlord by ling an independent eviction case, Warren v. Smith, 05 M1 000001, which it led on October 20, 2005. The Smiths immediately moved to consolidate Warrens eviction case into this action. Their motion was granted on November 8, 2005, and the eviction case was consolidated herein. Nonetheless, Warren has now led a motion for U & O in this case. In so doing, Warren continues to seek to be treated as a
19 [Editors Note: Citations throughout response to motion for use and occupancy as in original.]

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Sample Foreclosure Pleadings and Other Litigation Documents

landlord, and to have the Smiths treated as tenants. Motions for U & O are routinely available to landlords ling eviction cases. They are not, however, available where, as here, two parties are contesting title. Though it fails to acknowledge it, Warrens motion for U & O is a motion for preliminary injunction, and, applying the facts at issue in this case, Warren falls far short of meeting the requirements for a grant of preliminary injunctive relief. As with all mortgagees, an equitable mortgagee must seek to foreclose its lien using the procedures set forth in the Illinois Mortgage Foreclosure Law (IMFL), 735 ILCS 5/15-1101 et seq. This includes actions to foreclose on equitable mortgages and on every deed conveying real estate, although an absolute conveyance in its terms, which shall have been intended only as a security in the nature of a mortgage. 735 ILCS 5/15-1207(c) and (d). The presumption enshrined in the IMFL is that a mortgagee is adequately protected by its security interest in the property; therefore, unlike in eviction cases, U & O is not available. Such could not be truer here, where Warren has gained (formal) title to a house worth several hundreds of thousand dollars more than the debt which Warren paid off on behalf of the Smiths. There is a huge amount of equity in the Smiths home. Warrens motion should be denied based on the allegations set forth in the Smiths First Amended Complaint, and veried by the Smiths in their Affidavits. The allegations set forth fully in the First Amended Complaint and in the Smiths Affidavits are summarized below. FACTUAL BACKGROUND The Smiths bought their single-family home (Home or Property) located at [Address], in 1964, for approximately $22,000. Over the years, the Smiths took out several mortgage loans in order to build an addition to their Home, and to put their two daughters through college. After working for 30 years in the area of customer service call management, Mr. Smith was laid off from his job at SBC Cable, which was downsizing to make itself a more attractive acquisition to its prospective buyer, Vencast. At the time, Mr. Smith was about to turn 63 years old. Because Mr. Smith was subsequently unable to nd full-time employment, the Smiths fell behind on their mortgage payments. The Smiths lender, Nationwide, offered to take title to the home in lieu of foreclosing, but the Smiths refused: they knew they only owed about $179,000 on their mortgage, whereas they knew their house was worth at least $400,000 to $500,000. The lender led a foreclosure suit, and the Smiths began to receive a wave of solicitations. Of all of these, the solicitation from Hanniford & Cole stood out: this company claimed to be Illinois Top Foreclosure Mitigation Firm, and it claimed a 98.3% success rate in saving peoples homes from foreclosure. Nowhere did the solicitation indicate that Hanniford & Cole would sell the homeowners property. Based on several meetings with representatives of Hanniford & Cole, the Smiths agreed to put their home into a protected trust. They were told they would still own the property, together with an investor (which turned out to be Warren), and that by putting the home in a protected trust, they would be protecting the home from creditors. The Smiths were told that they would then make monthly payments and could buy the home back out of the trust in two years. They were told that if the home were sold, they should have a right of rst refusal.

Appx. J.8.2.5

Hanniford & Cole lied. On October 3, 2003, the Smiths attended a closing, where, contrary to the statements that had been made to them, title to the home was transferred outright to Warren, and, unbeknownst to the Smiths, Warren (or one of its affiliate companies) turned around a month later and mortgaged the home for an additional $160,000 (by taking out a loan of $368,000, whereas the payoffs on behalf of the Smiths had only been about $207,000). Never knowing about this new, higher mortgage loan, the Smiths struggled mightily for 24 months to make payments of $2,500, largely with the help of family and friends (since the $2,500 payments approximated the Smiths total monthly income). Despite Mr. Smiths multiple hospitalizations, and the death of both of Mrs. Smiths parents, the Smiths managed somehow to make these payments, hoping to preserve the possibility of buying their house back out of the protective trust. All told, over the past two years, the Smiths have made payments of $56,650. Property taxes, which remain in the Smiths name, have been paid using a portion of these monthly payments. The Smiths have continued to pay for homeowners insurance separately. The Smiths never intended to sell their home to Warren, and the prospect of an outright transfer of title to Warren was contrary to all of the statements made to them by Hanniford & Cole. The Smiths were not willing to deed their home to the lender, when offered, and they were not seeking to sell to Warren. A real estate broker who is familiar with the area in which the Smiths live recently estimated that the value of their Property is at least $659,000. Affidavit of Connie White. As such, the Smiths would never have deeded their property to Warren (or anyone else) for a mere $207,000. The Smiths do not want to be evicted from their Home of 40 years. They want to save their Home and the equity built up therein. They want this court to declare that the October 2003 transaction was, by law, an equitable mortgage. That is why they led this quiet title action. ARGUMENT I. Warren must be denied U & O because such relief is only appropriate in forcible entry and detainer actions, not in quiet title actions where the party in possession contests title and alleges an equitable mortgage. Warrens claim that it is entitled to U & O boils down to the claim that it is a landlord with an enforceable lease agreement, and that, pending any legal action related to possession of the subject premises, it should be able to collect its normal rent. Warren attaches the lease agreement it entered into with the Smiths, arguing that this agreement makes it a landlord entitled to collect U & O. Yet Warren fails to acknowledge all of the above circumstances surrounding the Smiths real estate transaction, and the claims arising from those circumstances. Warren fails to mention that the lease agreement is part of a sale-leaseback with an option to repurchase, and that the subject transaction was, according to the First Amended Complaint, part of a scheme to defraud the Smiths of up to $500,000 of equity built up in their home of 40 years. There is no dispute as to what documents were signed by the Smiths, or as to what those documents say. The dispute is as to the their legal effect. Warren does not even acknowledge that the Smiths are the long-time homeowners of the Property. Were Warren to acknowledge such, it would no doubt argue that by transferring title to Warren, the Smiths sold their home (never mind that

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Appx. J.8.2.5

Foreclosures
The only concern I have is to apply the forcible entry and detainer statute to the proceeding in front of me. The only basis, as I said before, for me granting the motion of use and occupancy is because at some juncture it is the appropriate remedy, not in the [separately led] Chancery proceeding, but just in the proceeding in front of me. . . . Here, in contrast, now that Warrens eviction case has been consolidated into this quiet title action, and given that title is being contested (which was not the case in Morales), U & O is not available. Given the nature of the facts pled and the claims alleged herein, this is no traditional landlord-tenant relationship in which the status quo would be maintained by granting U & O. There is simply no precedent for granting U & O in a case like this, where title is being contested by long-time homeowners who entered into an equitable mortgage. II. Warren is not entitled to U & O because it does not meet the standard for a grant of preliminary injunctive relief. As stated above, Warren may only bring its equitable mortgage claim under the Illinois Mortgage Foreclosure Law. The IMFL contains no authority for payment of U & O to a mortgagee pending trial. The mortgagee is presumed to be adequately secured, and that is certainly the case here. Because the applicable statute does not provide for U & O, Warren is, without acknowledging it, seeking preliminary injunctive relief, which may only be ordered pursuant to the Injunction Act. See 735 ILCS 5/11 101. The Injunction Act creates an extraordinary remedy. Stavros v. Karkomi, 28 Ill. App. 3d 996, 329 N.E.2d 563 (1st Dist. 1975). Specically, a preliminary injunction is an extraordinary remedy which should be used sparingly, with due restraint, and only when the circumstances clearly require it. Cullen Electric Co. v. Cullen, 218 Ill. App. 3d 726, 578 N.E.2d 1058, 1061 (1st Dist. 1991). Thus, a party must plead facts which clearly establish his or her rights to the requested relief. Allstate Amusement Co. v. Pasinato, 96 Ill. App. 3d 306, 308, 421 N.E.2d 374 (1st Dist.1981). Warren has presented no argument as to why this court should grant the extraordinary remedy of preliminary injunctive relief in this case. The party seeking a preliminary injunction must establish each of the following elements before the injunction may issue: (a) that the party has a reasonable likelihood of prevailing on the merits of the case; (b) that the party has no adequate remedy at law and will be irreparably injured if the injunction is not granted; (c) that the threatened injury to the party will be immediate, certain, and great if the injunction is denied while the loss or inconvenience to the opposing party will be comparatively small and insignicant if it is granted; and (d) that granting the preliminary injunction will not have an injurious effect upon the general public. McCormick v. Empire Accounts Service, Inc., 49 Ill. App. 3d 415, 417, 364 N.E.2d 420 (1st Dist. 1977). Failure to establish any of these necessary elements must result in the denial of injunctive relief. Mingere v. DeVito, 67 Ill. App. 3d 371, 373, 385 N.E.2d 20 (1st Dist. 1988). In this case, Warren has failed even to allege the required elements.

they sold it for less than a third of its value), and, that after 40 years of living in the only home they had ever owned, the Smiths became mere tenants owing rent to a landlord. Thus, according to Warrens blinders-eye view, it should be able to collect rent pending this action. The facts speak loudly otherwise. According to the facts as set forth above, the transaction at issue has all the hallmarks of an equitable mortgage, and not a true sale creating a subsequent landlord-tenant relationship. The doctrine of equitable mortgage has been recognized in Illinois for over 100 years, under facts similar to the Smiths transaction with Warren. The relevant factors in determining whether a deed that is absolute in form constitutes a mortgage as a matter of law include the relationship of the parties, the circumstances surrounding the transaction, the adequacy of the consideration, and the situation of the parties after the transaction. Nave v. Heinzmann, 344 Ill. App. 3d 815, 821 (5th Dist. 2003). In Nave, the Illinois Appellate Court held that simultaneous agreements to sell and then re-purchase property constitute an indication that the parties intend the transaction to be a mortgage. Id., 344 Ill. App. 3d at 821-22. As the Nave court pointed out, a declaration that a deed which is otherwise absolute in form is a mortgage, does not require the existence of fraud, accident, or mistake. Id. at 821. A host of Illinois appellate courts have found that a transaction, like this one, that amounts to a sale-leaseback with an option to repurchase, is in fact an equitable mortgage. See, e.g., McGill v. Biggs, 105 Ill. App. 3d 706 (3rd Dist. 1982); Metcalf v. Altenritter, 53 Ill. App. 3d 904 (5th Dist. 1977); Warner v. Gosnell, 8 Ill. 2d 24 (1956); In re Scheribels Estate, 340 Ill. App. 238 (1st Dist. 1950); Kiethly v. Wood, 151 Ill. 566 (1894). All of the factors identied as relevant in these cases indicate that the Smiths transaction should be construed as an equitable mortgage. From the point of initial solicitation through closing, Hanniford & Cole and its agents never indicated to the Smiths that they were selling their house; instead, they were promising to help save the Smiths home from foreclosure, supposedly by helping the Smiths put the home in a protected trust. Clearly, the Smiths did not intend to sell their home; they made this clear from the beginning, even in refusing to transfer title to Nationwide because they knew their house was worth far more than the mortgage debt they owed. Both Hanniford & Cole and Warren were far more sophisticated than this retired couple who had never owned any other real estate, and who simply wanted to save their home. As further indicia of an equitable mortgage, the Smiths remained in the property, hoping somehow to come up with the repurchase price (in fact a balloon payment on the equitable mortgage loan advanced by Warren to pay off Nationwide). Throughout, the Smiths intended to stay in their home. Just as they had refused to sell low to Nationwide, there is absolutely no indication that they intended to sell their home to Warren for less than a third of what it was worth. Under Illinois law, every mortgage, equitable or otherwise, must be foreclosed exclusively under the procedures set forth in the Illinois Mortgage Foreclosure Law. U & O, routinely available in eviction cases, is not available in foreclosure actions. Indeed, in the very case cited by Warren in support of its motion, Morales v. Zamora, 2003 WL 21467107, *1 (Ill. App. 1st Dist., May 6, 2003), the eviction court judge whose grant of U & O was affirmed suggested as much:

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Sample Foreclosure Pleadings and Other Litigation Documents

First, Warren has not provided any evidence showing that it has a likelihood of prevailing on the merits. In contrast, the Smiths Complaint and Affidavits demonstrate a strong likelihood of success on the merits, at the very least on their equitable mortgage claim, given both the circumstances surrounding the subject transaction and the gross disparity between the amounts paid on their behalf ($207,513.50) and the value of the home they stand to lose (at least $659,000.00), not to mention the additional $56,650 the Smiths have paid to Warren over the past two years. Second, Warren has a perfectly adequately remedy at law. If it prevails (which it should not), then Warren will retain title to a home worth at least $659,000.00 And if, incredibly, this court nds that Warren is entitled to any further relief, this court can enter an award for money damages. As for the issue of possession, 1701(b)(1) of the IMFL, 735 ILCS 5/15-1701(b)(1), presumes that a residential mortgagor will remain in possession during the pendency of a foreclosure suit absent an extraordinary showing of good cause supported by sworn affidavit. Travelers Insurance Company v. LaSalle National Bank, 200 Ill. App. 3d 139, 143 (2nd Dist. 1990). Third, Warren needs to plead harm which is immediate, certain, and great compared to the relatively insignicant harm that would befall the Smiths were injunctive relief granted. It is hard to imagine how Warren could even make such a claim. Not only has Warren obtained title to a house worth three times what it paid, but Warren has already cashed out about $160,000 of the available equity by virtue of the $368,000 mortgage loan which (unbeknownst to the Smiths) Warren took out with BigBank. Indeed, were Warren to make the self-serving argument that it needs U & O to cover payments due on this illegal $386,000 mortgage, the court can do the math: the $160,000 that Warren (or its affiliate) cashed out can fund 64 monthly payments of $2,500. Add on top of this the fact that the Smiths have struggled mightily, despite underemployment and multiple instances of family illness, hospitalization, and death, to pay Warren an additional $56,650 over the past two years. In short, Warren has already seen a huge windfall. It will suffer nothing by being denied additional monthly prots, whereas the Smiths have already suffered mightily, and will suffer further nancial stress if they are forced to pay so-called U & O payments to Warren (payments that approximate the Smiths total monthly income). Fourth, Warren has to show that granting U & O in this context will not have an injurious effect upon the general public. To the contrary, granting U & O will further encourage the growing phenomenon of equity stripping known as rescue fraud, the practice to which the Smiths fell victim herein, and a species of fraud that is arising across the country wherever there is a high number of foreclosures combined with rising property values. See Dreams Foreclosed: The Rampant Theft of Americans Homes Through Equity-stripping Foreclosure Rescue Scams, National Consumer Law Center, June 2005 (available at: http:// www.consumerlaw.org/news/ForeclosureReportFinal.pdf). Warren cannot possibly meet the stiff burden of proof required for the injunctive relief it seeks in asking for U & O. WHEREFORE, the Smiths respectfully request that the Court deny Warrens Motion for Use and Occupancy Pending Trial. Attorney for the Smiths

Appx. J.9

J.9 Sample Complaint for Wrongful Foreclosure

IN THE SUPERIOR COURT OF THE STATE OF WASHINGTON COUNTY OF KING ) RICHARD AND SUSAN ) CONSUMER, ) Plaintiffs, ) ) v. ) ) v. WESTERN MUTUAL ) BANK, FA dba WESTERN ) MUTUAL MORTGAGE dba ) WESTERN MUTUAL; ) PROFESSIONAL FORECLO- ) SURE SERVICES ) Defendants. ) ) FIRST AMENDED COMPLAINT Come now the plaintiffs, Richard and Susan Consumer, by and through their attorneys of record, and for their First Amended Complaint against the defendants hereby complain and allege as follows: I. PARTIES 1.1 Richard and Susan Consumer are residents of King County, Washington. 1.2 Western Mutual Bank, FA (hereafter WMU) does business in the state of Washington and at relevant times serviced a loan acquired by Western Mutual and ultimately by the Federal National Mortgage Association. 1.3 Professional Foreclosure Services is believed to be a Washington corporation operated from California and is in the business of conducting non-judicial foreclosures in King County, Washington. II. FACTUAL ALLEGATIONS AND FIRST CLAIM: BREACH OF CONTRACT 2.1 On or about January 1999 the plaintiffs purchased a condominium and obtained a mortgage loan from the Lee National Mortgage Company, Bellevue, Washington in the approximate amount $165,000.00. This mortgage loan was eventually transferred for servicing to Franklin Mortgage Company (hereafter Franklin). On or about June, 2001, WMU acquired Franklin and began servicing plaintiffs mortgage loan. The exact monthly payment varied according to property taxes and other fees paid but a typical monthly payment was $1,295.36 including reserves for the payment of taxes and insurance. 2.2 Beginning in February 1999 and continuing until July of 2001 the plaintiffs made timely payments to Lee National Mortgage until such time as the loan was assigned to Franklin Mortgage and, thereafter, payments were made to Franklin Mortgage.

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Appx. J.9

Foreclosures
Agency Act, as well as in breach of the duty of Good Faith and Fair Dealing implicit in contracts. III. SECOND CLAIM: WRONGFUL FORECLOSURE 3.1 As a proximate result of the negligent or reckless conduct of Western Mutual and Professional Foreclosure Services the Consumers credit has been impaired and they are threatened with the eminent loss of their property despite the fact that they have made all payments in accordance with the loan agreement. 3.2 Unless enjoined, the plaintiffs will suffer irreparable harm and will not have an adequate remedy at law. 3.3 As a proximate result of the negligent actions of both defendants, the Consumers have suffered consequential damage and will continue to suffer additional damage in an amount to be fully proved at the time of trial. IV. THIRD CLAIM: SLANDER OF TITLE 4.1 The defendants have caused to be recorded various documents including a Notice of Trustee Sale which has impaired the Consumers title which constitutes slander of title and the Consumers should be awarded resulting damages to be fully proved at the time of trial. V. FOURTH CLAIM: VIOLATION OF THE CONSUMER PROTECTION ACT 5.1 The defendants have engaged in a pattern of unfair practices in violation of the Washington Consumer Protection Act, RCW 19.86 et seq. entitling the Consumers to damages, treble damages and reasonable attorney fees and costs pursuant to the statute. VI. FIFTH CLAIM: SLANDER OF CREDIT 6.1 The Consumers allege that the actions and inactions of the defendants have impaired their credit causing them to lose the ability to have good credit entitling them to damages, including statutory punitive damages pursuant to state and federal law, all to be proved at the time of trial. VII. INFLICTION OF EMOTIONAL DISTRESS 7.1 The defendants have intentionally or negligently taken actions which have caused the plaintiffs severe emotional distress. Wherefore, having set forth various causes of action against the defendants, the plaintiffs pray for the following relief: 1. That this Court enjoin the foreclosure presently scheduled for July 19, 2002, conditioned upon the Consumers making payments as the have in the past in a timely fashion; 2. That the actions of both defendants be determined to be unfair and deceptive business practices in violation of RCW 19.86; 3. That the Consumers be awarded punitive damages provided for in RCW 19.86 including costs and attorney fees; 4. That the Consumers be awarded consequential damages to be fully proved at the time of trial; 5. That the Consumers be awarded their fees and costs pursuant to the written loan agreements which bind the defendants; and 6. That the Court grant any other relief that may be just or equitable. Attorney for Consumers

2.3 Around June of 2001 the plaintiffs were notied that Western Mutual had acquired Franklin Mortgage and payments were to be made to Western Mutual prospectively. 2.4 On or about August 1, 2001 the plaintiffs, through their personal bank, Pacic Bank, initiated an automatic bill payment service to automatically pay the Western Mutual home loan payment, which commenced on August 14, 2001. Initially, the payments were scheduled to be sent on or about the 14th day of each month in accordance with the loan agreement. Between August 14, 2001, and April 10, 2002 Pacic Bank sent automatic payments to Western Mutual for the amount of the full payment each and every month in a timely fashion. 2.5 The automatic payments were received by Western Mutual within a few days of the transmission by Pacic Bank, but not credited to their account. 2.6 Around October of 2001 the monthly statements from Western Mutual reected that payments were not being credited. The Consumers promptly checked with Pacic Bank to ensure that the payments had been sent and then supplied the requested information about the transmission and receipt of the payments to Western Mutual. The Consumers had Pacic Bank produce canceled checks from these payments which were transmitted to Western Mutual whenever requested. In November, Western Mutual, without explanation, sent back the September payment to Pacic Bank which credited it to the Consumers Pacic Bank account. 2.7 On December 12, 2001 Western Mutual wrote to the Consumers indicating no payments had been received since October 1. Western Mutual assessed escrow expenses and delinquency charges and threatened to foreclose on the property. 2.8 The Consumers immediately responded to this, again supplying canceled checks and proof that Western Mutual had in fact received their payments. 2.9 In early 2002, despite repeated communication from the Consumers and repeated proof of payments made, Western Mutual hired Professional Foreclosure Services to commence foreclosure. On March 6, 2002, a Notice of Default was issued by Professional Foreclosure Services and approximately 30 days later a Notice of Trustee Sale scheduling a non-judicial foreclosure for July 19, 2002, was transmitted to the Consumers. 3.0 The Consumers continued to send letters and make phone calls to Western Mutual to no avail. As a result, in April 2002 adverse credit consequences occurred to the Consumers including a cancellation of a Pacic Bank credit line and reduction of an American Express credit line. 3.1 Western Mutual and/or Professional Foreclosure Services has transmitted to various credit reporting agencies, including Equifax, false adverse information about the Consumers, causing their credit to be impaired. 3.2 In April of 2002 Western Mutual returned some of the payments and refused to take further payments made by the Consumers. 3.3 Beginning May 2002, the Consumers have made payments directly to Western Mutual payable to a bank account in a Western Mutual bank to show their good faith and intent to comply with their loan obligations. 3.4 The Consumers have contacted Professional Foreclosure Services to dispute the debt and request verication of the debt and have received no information whatsoever in violation of the Fair Debt Collection Practices Act and the Washington Collection

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