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Appendix J Sample Foreclosure Pleadings and OtherLitigation Documents
J.1 Introduction
This appendix contains several sample pleadings used in fore-
closure related actions. The pleadings are from actual cases and
have been drafted by experienced attorneys. However, the plead-
ings in the text are for demonstration purposes only. Foreclosure is
governed by local law and thus many of the pleadings contain
state-specific legal claims. The pleadings and other documents
must be adapted by a competent professional to fit the circum-
stances of a given case and the requirements of local rules andpractice.
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.
)
)BERNICE HOMEOWNER,
)Defendant,
)
No. 00 CH 0000
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.
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 educationand 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 refinance 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 refinanced the Option
One loan with The Money Store, which paid off approxi-
mately $58,142 to Option One, paid off a few small creditcard debts, and which purportedly gave her $16,327 cash to
perform certain home improvements. She was charged ap-
proximately $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 refinanced 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 approxi-
mately $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. Home-
owner had received a preliminary Truth In Lending Disclo-
sure which substantially differed from the final loan terms,
but did not realize the discrepancy due to her unsophistica-
tion.
d. In May, 1999, Ms. Homeowner took the loan presently at
issue, described in more detail below, with a principal bal-
ance of $120,000 and monthly payments exceeding 80% of
her total household monthly income.
e. In the space of four years, therefore, Ms. Homeowner in-
creased the indebtedness secured by her home from
1
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$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 benefit of only about $19,000 at
most.
6. Each of the foregoing loans substantially reduced Ms. Home-
owners equity in her home and increased her monthly mortgage
payments without providing her with a proportionate economic
benefit.
7. In February 1999, Ms. Homeowner received a phone solici-tation 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 benefits and urged Ms. Homeowner to complete loan appli-
cation 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 Chi-
cago 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 amyriad 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 financial 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 insuffi-
cient to provide her with the $1600 in cash she had requested.
Instead, James stated that Victory would to pay Ms. Homeowners
first monthly mortgage payment.
15. A few days later, James called Ms. Homeowner and said thatVictory would not make the payment because they had just dis-
covered some unpaid back taxes. Ms. Homeowner did not under-
stand 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%.
17. On information and belief, Saxon reviewed Ms. Homeown-
ers 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 ratified 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 taxesand 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 five years.
20. Ms. Homeowner had no idea that she would still owe
$101,686.62 after making payments for fifteen 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 financial sophistication, and the fact that Victory was a profes-
sional 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 wasincreased 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 benefit.
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 mortgagebroker provided no goods or services for the additional yield
spread premium fee.
30. Ms. Homeowner received no real economic benefit from this
transaction.
31. With respect to the loan transaction, Saxon was a creditor
as that term is defined in the Truth-in-Lending Act, 15 U.S.C.
1602(f), and Regulation Z, 12 C.F.R. 226.2(a)(17). 1
1 [Editors Note: Citations throughout answer as in original.]
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32. The transaction between Saxon and Ms. Homeowner was a
consumer credit transaction as that term is defined 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 defined 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 wasone 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
defined 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 defined 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 de-
scribed 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 as-
signor 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 consumma-
tion 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 15U.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 re-
sponsible for any charge or penalty.
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 Truth-
in-Lending Act, any security interest taken in connection with thetransaction becomes void. 15 U.S.C. 1635(b).
50. When a consumer elects to rescind pursuant to the Truth-
in-Lending Act, the consumer is not liable for any finance 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. Home-
owner was a federally related mortgage loan as that term is
defined in the Real Estate Settlement and Procedures Act
(RESPA), 12 U.S.C. 2602(1).
54. Plaintiffs assignors funding and origination of this trans-
action are settlement services as that term is defined 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 benefit.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 compen-
sated 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 settle-
ment 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 dis-
miss plaintiffs complaint, with prejudice, or, in the alternative,
reduce the amount owed by Ms. Homeowner by the amount of
damages available under RESPA.
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Third Affirmative Defense
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
unidentified employees and/or agents of Victory Mortgage mademisrepresentations to Ms. Homeowner, as set forth above, includ-
ing but not limited to statements that they would act in her best
interest, obtain a loan which would be to her benefit, 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
finance charges imposed on the loan.
67. Saxons closing agent misrepresented the import and con-
tents of the documents which he asked Ms. Homeowner to sign,
and concealed the terms of the loan while requiring Ms. Home-
owner 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 benefits of the loan.
70. Victory and its employee agents knew that their represen-
tations 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. Home-
owner at the closing were false.
72. The misrepresentations and omissions were made with the
intent to induce Ms. Homeowners reliance and thereby to enterinto 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 benefit.
80. Plaintiffs assignors practices as described above are unfair,
immoral, unethical, and unscrupulous.
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 inplaintiffs loan files, 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 dis-
miss 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
unidentified employees and/or agents of Victory Mortgage made
misrepresentations to Ms. Homeowner, as set forth above, includ-
ing but not limited to statements that they would act in her best
interest, obtain a loan which would be to her benefit, 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
finance charges imposed on the loan.
90. Saxons closing agent misrepresented the import and con-
tents of the documents which he asked Ms. Homeowner to sign,and concealed the terms of the loan while requiring Ms. Home-
owner 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 benefits of the loan.
93. Victory and its employee agents knew that their represen-
tations 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. Home-owner 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.
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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 dis-
miss 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. Home-
owner 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 chargedMs. 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 notmore 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 statu-
tory 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 thatPlaintiff 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
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 ANDDEMAND FOR JURY TRIAL
COMES NOW the separate Defendant John Consumer, and for
his second amended Answer to Plaintiffs Amended Complaint
filed 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/orby 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 financially
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 thisdefendant 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 repay-
ment 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
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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 modification, and
other foreclosure prevention loan servicing or collection require-ments 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 Au-
gust 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 himof 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 circum-
stances surrounding this defendants claimed default; his capacity
to pay the monthly payment amount or a modified 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 circum-
stances and to re-evaluate these techniques each month after
default and this plaintiff failed to do. 24 C.F.R. 203.605, effectiveAugust 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 specific period to allow him time
to recover from the financial 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 re-
sponsibilities and the terms of the subject mortgage and as a
proximate result, this defendants delinquency has been improperly
inflated by mortgage foreclosure filing, 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 filed the subject lawsuit in November, 2004 without
first allowing this defendant the right to pursue the federally-
required 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 modi-
fication, and other foreclosure prevention loan servicing require-
ments 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 com-
ply with the federal regulations more particularly described below:
a. Defendant defaulted on this residential mortgage which is thesubject 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 un-
paid. 24 C.F.R. 203.604.
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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 foreclo-
sure.
f. Plaintiff has no valid cause of action for foreclosure unlessand until Plaintiff can demonstrate compliance with the regu-
lations in 24 C.F.R. Part 203(C).
g. This Defendant made significant 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 Nor-
west 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 specifically, by
filing this foreclosure before offering Defendant any of the feder-
ally required foreclosure avoidance options. As a matter of equity,
this Court should refuse to foreclose this mortgage because accel-
eration of the note would be inequitable, unjust, and the circum-
stances of this case render acceleration unconscionable. This Court
should refuse the acceleration and deny foreclosure because Plain-
tiff has waived the right to acceleration or is estopped from
proceeding with this action because of misleading conduct and
unfulfilled conditions.
COUNTERCLAIMSCOUNT 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 filing
this foreclosure action.
4. Defendant contends that he has a right to receive forbearance,
mortgage modification, and other foreclosure prevention loan ser-
vices from the Plaintiff pursuant to and in accordance with thefederal 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.
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 pre-
scribed 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 Plain-
tiffs 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 includ-
ing 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 defined 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 debtwhen 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 fore-
closure action even though the Plaintiff knows no such right
exists and this foreclosure action is threatening and prema-
ture because the Plaintiff has not serviced this federally
insured home loan pursuant to or in compliance with the
special foreclosure prevention loan servicing federal regula-tions.
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 pre-
cedent 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.
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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 find 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 para-
graphs 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
defined by F.S. 501.203 (7).
17. At all times relevant, plaintiff was engaged in trade orcommerce as defined 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 prac-
tices. 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 con-
sumer protection, unfair methods of competition, and un-
conscionable, 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 com-
merce. 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 par-
ticularly 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 first 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 servic-
ing 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.
22. Pursuant to 768.72 (2002), Fla. Stat., this defendant re-
serves 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 judg-ment 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 ser-
vicing 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.
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.
)
)BERNICE HOMEOWNER,
)Defendant.
)
No. 00 CH 0000
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 Definitions
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.]
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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, andif 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, inter-
office memoranda, memoranda for the files, letters, research ma-
terials, correspondence, logs, diaries, forms, bank statements, tax
returns, card files, 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 repro-
duced; 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 andaddressees of such document.
4. The name of any principal whom or which the signers,
senders and preparers of such document were thereby rep-
resenting.
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 makingsuch 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
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, partner-
ship, 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 artificial) 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 specifically 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 docu-
ment that tends to support that fact or contention; and each
document that tends to dispute that fact or contention.
K. Unless otherwise specified, the terms subject account or
subject transaction means the transaction(s) described in the
complaint(s), including any prior or ongoing contract or commu-nication relating to the transaction and/or account, up to and
including the date of your answers to these interrogatories. Spe-
cifically, subject transaction includes each and every agreement,
contract, communication or transaction between Ms. Homeowner
and Chance and/or its assignor (Saxon Mortgage), agents, repre-
sentatives 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 infor-mation 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. Home-
owner) is a 70-year-old woman who has owned the property at
1234 W. Main Street (hereinafter home) since 1970.
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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 refinance loans. Each loan substantially reduced Ms.
Homeowners equity in her home and increased her monthly
mortgage payments without providing her with a proportionateeconomic benefit.
5. In February 1999, Ms. Homeowner received a phone solici-
tation 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 docu-
ments 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. Home-
owner 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 first 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 differen-
tial, 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.
24. The total loan amount for the transaction, as defined 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 finance 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 hesubject 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. Home-
owner 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 origi-
nation, underwriting, disbursement and assignment of the subject
account: full name, present or last known home and business
addresses and telephone numbers; date first 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, notariz-
ing signatures, approval of financing 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 reflecting or relating to such communications, in-
cluding 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 fromthe 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.
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5. Describe your policy and practice relating to the origination,
approval or underwriting, preparation, disbursement and accep-
tance 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 reflecting such policy, practices and
agreements, including all documentation required to be in assigned
account files, and all forms given or sent to borrowers, information
or forms which borrowers are requested to provide in order toobtain 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
files for approval and/or acceptance of assignment.
6. If your response to any of the foregoing Requests To Admit
is anything other than an unqualified 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 de-
scribe 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 commu-
nication 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 circum-
stances 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, occupa-tion, 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 state-
ments made by any such expert.
10. Describe and define all charges listed in Exhibits A, B and C
to Homeowners Affirmative Defenses, and explain any discrepan-
cies in the listed figures, 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 Settle-
ment 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 toVictory 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 con-
nection 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 figures.
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, specific services provided).
14. State the name, residence and business addresses and phone
numbers, and job position of all person(s) and/or entities not
identified 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 eachand every written or recorded statement made by such potential
witnesses.
15. Identify all agreements between Chance and Saxon Mort-
gage. 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 first three years
after they were made. State whether Chance has received any
complaints (oral or written, whether or not filed with any judicial
or administrative forum or consumer protection agency) from other
borrowers in transactions in which either Saxon or Victory Mort-
gage 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, filed or retriev-
able 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 be-
tween 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 mort-
gage 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 reflecting such
policy, practices and agreements, including all documentation
required to be in assigned account files, and all instructions, policy
and procedure manuals, memoranda and guidelines given to bro-
kers, title companies, lenders, closing agents, and/or any persons
who review account files for approval and/or acceptance of assign-
ment.
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 vio-
lated 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 identified in response to the above Interroga-
tories, and all documents referred to or reviewed in preparing the
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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
)
)BETTY CONSUMER,
)Plaintiff,
)
)v.
)
)R & B FUNDING GROUP,
)INC., d/b/a National Builders,
)J.P. MORGAN CHASE BANK,)as Trustee, ROYAL
)MORTGAGE & FINANCIAL
)SERVICE CENTERS, INC.,
)and ELIZABETH B. WELD
)and DAVID W. SMITH, as
)Substitute Trustees,
)Defendants.
)
02-CVS-0000
02-SP-000
(Jury Trial Requested)
COMPLAINT
Plaintiff, complaining of the defendants and in support of hermotion 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 financing of fees in excess of five
percent of the loan amount, and by failing to ensure that she was
provided with financial 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 fiduciary 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.
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. Mor-
gan), 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 per-
formed mortgage brokerage and/or loan origination services pur-
suant 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 Defen-
dant 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 financial transac-
tions, including the instant transaction.
8. Consumer lives in a modest home on Main Road in Con-
sumerville, in Orange County, North Carolina. She and her late
husband purchased this home almost fifty years ago, and she has
lived there ever since.
9. In the spring of 2002, Consumers son, John Consumer
contacted a mortgage broker about refinancing Consumers exist-
ing 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 refinancing of Plaintiffs home loan.
12. Steve Smith took information from Plaintiff over the tele-
phone concerning her finances, 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 firm 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 firm 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 vari-
ous loan related expenses.
17. The amount of the loan was $37,000.00.
18. Among the various fees charged in connection with Plain-
tiffs loan included a loan origination fee of $395, a mortgage
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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 termis defined by N.C.G.S. 24-1.1E,3 and were financed 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 cost-
home loan as defined in N.C.G.S. 24-1.1E.
24. Upon information and belief, no party to the transaction
received a certification 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 fide 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 refinance
Plaintiffs then existing first 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, filed a foreclosure action against the plaintiff, alleg-
ing that the plaintiff is in default in payments under the terms of the
April 2002 loan contract. The foreclosure action is filed as 02 SP
000.
31. Plaintiff, who is unsophisticated, did not realize the banks
error. After getting several collection calls and letters, she finally
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 satisfied shortly thereafter.
32. Despite being apprised of the circumstances surrounding the
failure of the April 2002 lender to pay off Plaintiffs prior mort-
gage, the substitute trustee refused to delay or stop the foreclosureproceedings. The foreclosure hearing before the clerk was sched-
uled 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 homeloan 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 defined 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 specifically under N.C.G.S. 24-1.1E9(c). The loan was made
without certification 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 specifically 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 One3 [Editors Note: Citations throughout complaint as in original.]
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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, confidence 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, confidence and reliance that Steve
Smith and Royal Mortgage occupied with respect to Plaintiff and
the position they occupied as Plaintiffs mortgage broker created
fiduciary 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 unjustified profits taken by Smithand 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 specifically set out in Count Three,
proximately damaged plaintiff, are in and affecting commerce, vio-
late public policy, h