Consumer Pleadings Foreclosures-2007 Appendix J

8/4/2019 Consumer Pleadings Foreclosures-2007 Appendix J

1/70

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


2/70

$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.]

Appx. J.2.1 Foreclosures

2


3/70

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.

Sample Foreclosure Pleadings and Other Litigation Documents Appx. J.2.1

3


4/70

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.


4


5/70

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


5


6/70

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.


6


7/70

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.


7


8/70

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.]


8


9/70

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.


9


10/70

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.





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.


10


11/70

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


11


12/70

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

Appx. J.3 Foreclosures

12


13/70

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)


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.]


13


14/70

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)


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)


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

Consumer Pleadings Foreclosures-2007 Appendix J

Documents

Transcript of Consumer Pleadings Foreclosures-2007 Appendix J