RE-BANSC-2010-187 TD Bank N.A. v. Twila A. Wolf Case W/All Exhibits A-K As Filed 10-05-2012

Charlton A. Butler Jr. & Twila A. Butler 44 Patten Street Bangor, ME 04401 September 18,2012 Penny H.
Reckards, Clerk Penobscot County Superior Court Attn: Civil Clerk for Real Estate Mattters 78 Exchange Street, Suite 350 Bangor ME 04401
10/05/2012 Dear Penny: Please find enclosed Defendants Objection to Plaintiffs Supplemental Reply. If you have any questions about this please let me know
Enclosure: 1. Defendants Objection to Plaintiffs Reply CC: To: Stephanie A. Williams and David B. McConnell c/o Perkins Thompson P.A. One Canal Plaza PO Box 426 Portland ME, 04112-0426 To: Paul Niklas Assistant City Attorney c/o The City of Bangor 73 Harlow Street Bangor, ME 04401
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Twila A. Wolf Pro per. & Charlton A. Butler Jr. Pro per. 44 Patten St. Bangor Me, 04401 (207)-249-5378 [email protected] STATE OF MAINE PENOBSCOT, CIVIL ACTION TD BANK N.A. f/k/a FIRST MASSACHUSETTS BANK Plaintiffs v.
DEFENDANTS OBJECTION TO SUPPLEMENTAL REPLY JURY TRIAL DEMANDED TITLE TO REAL PROPERTY AT ISSUE PLAINTIFFS
SUPERIOR COURT DOCKET NUMBER BANSC-RE-2010-00187
Butler & Butler Pro Per 44 Patten Street Bangor ME. 04401 207-249-5378 Victim. of. fraud, and. corruption@, email.com
TWILA A. BUTLER f/k/a WOLF & CHARLTON A. BUTLER JR. Defendant & Intervenor
DEFENDANTS OBJECTION TO PLAINTIFFS SUPPLEMENTAL REPLY
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with their response to Plaintiffs Counsels inaccurate, rant and whining rambling reply to Defendants submissions to this court in response to Plaintiffs Supplemental Material Facts and Defendants need for findings of fact and conclusions of law as well perceived errors of the court. 1. Plaintiffs current arguments are without even a hint of merit, as is the case with all of Plaintiffs arguments to date, and are the very definition of frivolous. 2. Plaintiffs Counsel, David B. McConnell, has, in his very actions, proven Defendants position regarding Plaintiff's actual position in this matter with the addition of the Debt Collector Announcement verbiage required by statute to the end of his missives to Defendants and this court. Defendants Exhibit A 3. Defendants contend that as childish and outlandish as it may sound the court must regard this matter as one might; when, dealing with children and determining whether or not they cleaned their room as claimed. 4. When checking to see if the child did indeed clean their room, we, check to see whether they cleaned and put away all their things. Or did they just stuff things out of sight so that things look correct? But in reality are really just a matter of concealed messes; when we find behind the closet door and under the bed that which the child has stuffed out of sight; so, while it may have looked right on first glance; it was, in reality a ruse that no r "*
Comes Now, Defendant TWILA A. BUTLER f/k/a WOLF and CHARLTON A. BUTLER JR. pro per
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matter what, sooner or later has to be done right, that, has to be dealt with, I.e. cleaned up, in the end. 5. Defendants contend this is the case in this matter at bar. Plaintiffs are providing the court with; what, on the surface, appears correct. The Plaintiffs paperwork and declarations all seem to be the same, as it always has been in the past, in foreclosures. 6. The difference here is that [t]he Plaintiffs that are appearing before this court are not the proper party at issue; as, they would have been in the past. 7. They are merely the servicers; and in a majority of cases, coming to light plain old debt buyers like NVLV Funding LLC. And their ilk in the market; these servicers and debt buyers, are trying to take advantage of a current blind side of the legal system. 8. As exampled in Defendants Exhibits E F and G, wherein the Attorney didnt actually represent the party captioned in the action at bar that said attorney until that time had made every indication of quite the opposite. 9. G is the transcript of the exchange between the Judge and the as already mentioned attorney, and an analysis of the problem as represented in the market and the courts by two other attorneys, of the growing numbers every day, who have in the past been saying that is and was exactly the case and worse in other cases they have worked on. That it is a very common example and evidential of the games being played, by servicers, in courts across the Nation. 10. Additionally and unbeknownst to Plaintiffs is the fact that this alleged loan was a fraudulent loan to begin with. Plaintiffs counsels actions only confirm this fact and make transparent their subterfuge. 11. Plaintiffs Counsel fails to include, in Plaintiffs quoting of the Court, the, one word that is definitional, in relation to the quote of the Court, being cited and offered up to the court, as evidence, Plaintiffs assert, of Defendants non-compliance of a portion within the order and decisions of this court of July, 30th 2012. This Courts Order permitted Defendant to respond to new information contained in Plaintiffs supplemental summary judgment pleading within 21 days after that filing. Order at 4. This is the actual and complete court statement; ...the plaintiff may supplement its summary judgment pleadings in this regard within 21 days, and the defendant may respond within 21 days thereafter. The
Butler & Butler Pro Per 44 Patten Street Bangor ME. 04401 207-249-5378 [email protected]
defendant shall respond to the new information only and its objection shall not contain a request for sanctions. Defendants maintain this is exactly what they did. Defendants responded to Plaintiffs Supplemental Material Facts and nothing else and did so without a call for sanctions. 12. Nowhere in the courts order is there a statement directing defendants that they were not to appeal the decisions of this court. Plaintiffs arent asserting, Defendants assume that the court was not trying to deny them their right to appeal, this, courts decision, that the court would willfully deny Defendants their rights are they? Plaintiffs arent calling for the denial of Defendants rights are they? 0 q o ^t* 3 1 o I W ( S3 oo .2 I S s* cn % ^ 5 o\ o P3 +-u rt- T3 <7 < f" o u 00 (N c 3 <u * M 3 <4-4 PU O rt" "St o >
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13. Defendants state and maintain that the order, being unclear and in need of clarification, hence the request for such clarification from the court, left Defendants in the position to have to submit their request for findings of fact and conclusions of law as well reconsideration, this so as to draw attention to, and preserve on appeal, court decisional and procedural error, at the same time Defendants filed their objections to Plaintiffs Supplemental Material Facts. 14. Under Maine rules of Civil Procedure, a motion to reconsider an order: "shall not be filed unless required to bring to the court's attention an error, omission or new material that could not previously have been presented." M.R. Civ. P. 7(b)(5). 15. Therefore as the rules also state Unless otherwise directed by the court.... When directing a party as to the time frame in which to respond or make a motion or objection, Defendants submissions, by definition, then cannot be untimely. 16. The court dictated, directed or otherwise informed Defendants, that they, do nothing until Plaintiffs filed their supplemental material facts and that Defendants had 21 days from then to respond to, not only, Plaintiffs Supplemental Material facts; contrary to Plaintiffs counsels interpretation, but, also, as, the rules, allow for; in this, particular, case as per the facts, Defendants additional submissions are allowed as they are based on the bringing to the attention of the court, error(s), of the court. COD C rc Ph
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[jjiidicial independence does not equate to unbridled discretion to bully and threaten, to disregard the requirements of the law, or to ignore the constitutional rights of defendants. See 985 P.2d 924 (Wash. 1999) Id at 936
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17. Again, Plaintiffs counsel, M. McConnell, shows his proclivity for never actually providing factual information; but instead, only intimating and leaving to ones own interpretation that which duty requires be clarified, particularly, that which is given to the court and Defendants. 18. Defendants have done exactly as the court instructed. 19. A Court that, in fact, has yet to define, properly, whether or not, the Plaintiffs, have Standing, Capacity and Jurisdiction to bring, let alone maintain, this action. This, being, the case, now, despite, Defendants, having challenged, Plaintiffs, from the beginning, and continue to do so now. Defendants seek to have the court define this conundrum for the parties at bar. 20. Defendants have complied with the court, as much they could possibly be required to do, and as any appellate court would suggest they are or should be required to do, predicated on this court having not proven its authority, by way of and through jurisdiction, as this is the case Defendants nevertheless have complied and kept their submissions to five pages except for their counter-complaint which comes to the court; as any complaint would, and that, is, as long as it takes to make the complaint. 21. Plaintiffs complain that Defendants have not followed rule 56 et seq in their previous submissions but Defendants contend that they did in fact comply with said rule. That Defendants denied said loan in its entirety; that being the case this would be enough for most sane individuals to establish that there is nothing else in; Plaintiffs Motion for Summary Judgment, for Defendants to reference, to, or from after denying the loan in its entirety what exactly are Plaintiffs suggesting, after stating Defendants didnt take this loan, what is it that Plaintiffs suggest Defendants should have referred to? 22. Defendants in their submission of Material Facts made reference to Defendants motions, objections and responses from that submission of Material facts. 23. Defendants then went on to prove their contention. That being that Defendants did not take this loan with Plaintiffs and that [t]hat would be because there was no closing that pertains to this loan that was attended by Defendants, it did not happen and what has been presented, here, is a fraud, a, forgery. 24. Apparently opposing counsel feels that Defendants should have followed Rule 56 in the format of their submission of their counter-complaint but this is simply an amended
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counter-complaint so as to comport with the courts desire as expressed in its order of July 30th 2012 and has been referenced previously. 25. Supplemental Material Facts on Support to any motion, pleading or affidavit is not abnormal, it appears it is to Plaintiffs, only, because Defendants, do not, work from a preformatted Practice Forms and Pleadings as Plaintiffs, in their instant action with only the bare requisite to qualify for having recited the requirements, in appearance only, to legally proceed in an action. 26. Plaintiffs counsel is finessing and stroking the rules, the law and this court; to see, just what they, Plaintiffs counsel, HAS to submit to this court to win. While; at the same time, attempting to maintain their plausible deniability or as Defendants call it the gee I didnt know Andy I didnt know ... they.... they didnt tell me that... soliloquies and protestations for later. 27. Nor do Defendants succumb to the general day to day motion wars, of most attorneys these days. Motion wars over the smallest of minutiae; simply, for the fees they generate, and not, for any cognizable benefit to the client as any such action should be based on. 28. Defendants Exhibit B while concerning the Bankruptcy courts is nevertheless relevant as it provides evidence in other courts of actions like Plaintiffs on point and displays the fact that this behavior is widespread and not confined to any particular part of the country or particular court. If this is what Servicers are up to in other courts and around the country; therefore, Defendants, ask, what would be the intelligent basis for assuming we are free from this rabid and egregious defect in our courts here in Maine? 29. Defendants Exhibits, D and E, are the result of loans made under various Maine State Housing Authority programs and then sold, purchased by some Special Purpose Entity, or Structured Investment Vehicle, Trust and issued as Residential Mortgage Backed Security Bonds, (certificates) The same as was done for the loans, now, being brought before the court. Notice the other side would like to argue all about why defendants cant say what they say. What they do not do is deny the allegations or provide any permissible evidence to the contrary. 30. Plaintiffs witness if you can call her that states that the Bank, is the holder of the Note; however, as an employee, or otherwise Ms. Dagineault is not competent to testify to legal conclusions; as but one of the many, many reasons, again, that Ms. Dagineault is notLO
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competent to testify to the personal knowledge of a subject she has no personal knowledge of. 31. Defendants offer up Attorney David B. McConnells Linkdn listing, Defendants Exhibit H, a business style of social networking website, is your information incorrect M. McConnell? Or is it as correct as Tonya Daigneaults? Then it would be safe to assume then that Ms. Daignuealt is a mere employee and not a Vice President of anything. 32. Plaintiffs failed to include their challenged witnesses resume and employment history to attempt to verify that fact which should have been done without having to be asked. 33. As is said in the vernacular Time to put up or shut up sailor Defendants joyfully and with great excitement look forward to hashing out this matter, completely and fully, in front of a jury. 34. Since, this matter is not one of equity, on Plaintiffs part; that is, but is, instead, a matter for a finder of fact and a jury of Defendants peers; therefore, a prospect they look forward to; if, this court fails, in, establishing Defendants right to a favorable decision and order now. 35. Further upon an unfavorable return Defendants would file their intent to appeal followed by their appeal said unfavorable decision and order. 36. Plaintiffs and the court feel that Defendants are long winded but this is a matter of what to leave out not fishing for what to add. 37. With all due respect, Defendants, have not even touched on the absence of a nexus between the transaction and the documents at issue as relates, as but one example, to the title and being insurable therefore unmarketable as related to the Plaintiffs and issues of being the creditor/lender or not and any subsequent credit bid they would obtain in addition to a free house with a Summary Judgment in Plaintiffs favor from this court. So Defendants feel they have done the best any reasonable court could ask. With all due respect 38. Plaintiffs Counsel could simply make the conciliatory, responsible and decent overt gesture and make a phone call to Defendants, on behalf of their clients, and inquire what it would take to make Defendants right again. 39. Plaintiffs wont like it at all and would refuse to settle, most likely, but if they could, settle, at least it would be settled and done if maybe just maybe they could get a clear outlook on life and this case.
Butler & Butler Pro Per 44 Patten Street Bangor ME. 04401 207-249-5378 Victim, of.fraud, and. [email protected]
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40. That or Plaintiffs can continue on the same course and the matter will be left up to a jury to decide and make an accounting of Plaintiffs actions and for Defendants damages. 41. Defendants Exhibit I is a DRI-The Voice of The Defense Bar; poll, on the confidence in the American Civil Judicial system. With all due respect; after almost, 2 years of trying to get the Courts undivided attention in this matter at bar; as relates to, and concerning the fact, that Defendants did not take/make/sign for/agree to/or otherwise, this loan with Plaintiffs. That taking almost 2 years to even get close to gaining the undivided attention of the Court is mind boggling. 42. Maybe the Courts have just become that busy in the last 30 years, that, this is the norm, but nevertheless the effect is devastating to the reputation of and to the confidence in the efficacy of, the Judiciary. 43. To suffer the indignity, the humiliation and emotional distress, on top of an already compromised mental system, fragile and under a Doctors care for the treatment of said, exacerbating the physical health problems of Defendants that have been made worse or brought on, by this whole ordeal, is a bit ridiculous and exactly why, in addition to other things Defendants have stated, that Defendants contend; it is, that, Defendants have almost no confidence in the civil law system or the courts in this, or really any, matter. With all due respect. 44. Defendants, nevertheless, reach deep within themselves, seeking the order and the promise of justice and righteousness; that called Defendant C Butler to the law as a possible vocation 30 years ago, and find the confidence, in this court, to attempt to keep on trying; with all due respect. 45. Defendants Exhibit J Is an article wherein two law professors, at Brooklyn Law School, go into detail, echoing an article in Fordham Law Review published seven years ago; Defendants read, reiterating Defendants stated opinions, about the market and the negligent at best, intentional, at worst, aspects of the financial and subprime mortgage crisis meltdown, and Defendants as local examples of a much larger problem. 46. All this, [t]hat has developed, due to, securitization and the sham that many, including the IRS, are starting to consider these Securitized Asset Trusts; allegedly, created by the Banks, to be. A sham that as a direct result of and or; because, they were a part of the, and ts.
Butler & Butler Pro Per 44 Patten Street Bangor ME. 04401 207-249-5378 Victim.of.fraud.and.corruption@, email.com
Butler & Butler Pro Per 44 Patten Street Bangor ME. 04401 207-249-5378 Victim.of.fraud.and.corruption@,gmail.com
or, a larger scheme, that fact(s) is up to a jury to decide at worst and or is a final nail, now, in the death of Plaintiffs Motion for Summary and Final Judgment. 47. Which, all described, herein and exhibits, provides for the huge incentives, required, to encourage the fraudulent creation of; and for the submission of, Robo-Signed and consequently fraudulent affidavits to the courts; as but one example of the creativity that is passing for the truth in courts Nationwide. 48. Defendants Exhibit K is a report, with all due respect, by Adam Levitin; arguably the foremost scholar and expert on securitization, and Susan Wachter both illustrious professors of law at their respective Universities. Wherein they describe the current situation, of Defendants, as well other homeowners, in various courts across the country, and the reason for the Housing market as choice for a bubble, the crash, the players and so on; a sort of primer in the situation at hand so to speak with all due respect. 49. Defendants conclude with, as long-time, foreclosure investigator Nye Lavalle, who writes: On thousands o f occasions I stated to regulators, CEOS, banks, Fannie and Freddie that the practices o f the banks were that they were double and multi-pledging assets and pledging paid off and refinance notes to securitizations. This is something April, Max [Gardner] and I have discussed for years now. Now, they come and admit that each o f my allegations were true. Without analyzing the deal, as complex as they are, you WILL NEVER KNOW IF THE FORECLOSING PARTY HAS A NY RIGHT TO FORECLOSE!!! PRAYER Therefore for these reasons, and more, do Defendants pray that this honorable court strike, ignore and or otherwise dismiss Plaintiffs Supplemental Reply. Respectfully Submitted this 5th day of October, 2012. Twila A. Butler f/k/a Wolf Defendant pro per Charlton A. Butler Jr. Intervenor pro per ^
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Charlton A. Butler Jr. Intevenor pro per The Persons above, who proved to me on the basis of satisfactory evidence to be the person whose name is subscribed to this document and acknowledged to me that he/she executed the same in his/her authorized capacity and that by his/her signature on this instrument who is the person who executed this instrument.
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I certify under PENALTY OF PERJURY under the laws of this State that the foregoing paragraph is true and correct. Witness my hand and official seal. NOTARY PUBLIC IN AND FOR THE STATE OF MAINE Notary Seal CERTIFICATE OF SERVICE I, Twila A. Butler f/k/a Wolf & Charlton A. Butler Jr. Pro-Per, certify that I mailed the preceding document to the Clerks office of the Maine State Superior Court in Bangor Maine and mailed a copy of same to be served to the following individuals below on this the 5th day of October, 2012:
1. Defendants Objection to Plaintiffs Supplemental Reply.
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Stephanie A. Williams and David B. McConnell c/o Perkins Thompson P.A. One Canal Plaza PO Box 426 Portland ME, 04112-0426
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Respectfully Submitted: 10-05-2012
Butler & Butler Pro Per 44 Patten Street Bangor ME. 04401 207-249-5378 Victim.of.fraud.and.corruption@, gmail.com
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Penny H. Reckards, Clerk Penobscot Superior Court Attn: Civil Action (Foreclosure) 78 Exchange Street, Suite 350 Bangor, ME 04401 Re: TD Bank. N.A. v. Twilia A. Wolf, et ah Civil Action Docket No.: RE-10-187
Dear Ms. Reckards: Enclosed please find Plaintiffs Supplemental Reply Memorandum in Support of Its Motion for Default Judgment, Summary Judgment and Final Judgment. If you have any questions about this filing, please let me know. Sincerely, David B. McConnell, DBM/lm Enclosures cc: Twila W olf Butler (via U.S. Postal Mail) Charlton A. Butler, Jr. (via U.S. Postal Mail) Paul Niklas, Esq.
O F COUNSEL DOUGLAS S CARR
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This communication is from a debt collector. This is an attempt to collect a debt. Any information obtained will be used for that purpose. If you are in bankruptcy or have received a discharge of this debt in bankruptcy, this is not an attempt to collect a debt.
DEFENDANTS EXHIBIT
By Patrick M. Mosley, Esq. DEFENDANTS Lem Clerk to Hon. Catherine Peek McEwen EXHIBIT Representative Cases B I. In re Stewart, 391 B.R. 327 (Bankr. E.D. La. 2008): Debtor filed an objection to mortgagees claim, thereby denying liability for the amounts claimed, and requested a payment history and support for items included in the second amended claim described as amounts for inspection fees, appraisal fees, NSF check charges, and other charges as well as pre-petition attorneys fees and escrow advances. After a proceeding prolonged by the mortgagees sloppiness and misrepresentations, the United States Bankruptcy Court for the Eastern District of Louisiana held mortgagees conduct was duplicitous and misleading, debtor was improperly charged for drive by inspections and brokers price opinions, its escrow calculations were incorrect and resulted in overcharges, and its imposition of late charges was improper and unreasonable. Given the excessive and improper charges, as well as a nearly incomprehensible escrow account, the court imposed sanctions and warned mortgagee against further improper conduct in the proceedings. II. Nosek v. AmeriquestMortgage Co. (In re Nosek), 386 B.R. 374 (Bankr. D. Mass. 2008): The United States Bankruptcy Court for the District of Massachusetts issued an order to show cause why sanctions should not be imposed under Rule 9011 of the Federal Rules of Bankruptcy Procedure for apparent misrepresentations as to the status of a lender as the holder of the note and mortgage. The Order to Show Cause was directed at the lender, local counsel, three of its attorneys, the lenders national counsel, one of its attorneys, and the existing mortgage holder. Throughout an adversary proceeding, the lender and its attorneys represented that the lender was the holder of a note and mortgage given by plaintiff, the Chapter 7 debtor, on her principal residence. In actuality, the lender was the original holder of the note and mortgage for only five days and had assigned the note and mortgage to the predecessor of the existing holder in 1997. Additionally, the lender assigned its servicing rights in connection with the note and mortgage in 2005. Despite the fact that the lender no longer held the note and mortgage and ended its servicer role, the court noted that the lenders attorneys and representatives had repeatedly and consistently made contrary representations throughout the adversary proceeding. The court found that those parties who do not hold the note and mortgage and who do not service the mortgage, such as the lender, do not have standing to pursue motions for relief or other actions arising from the mortgage obligation. Unfortunately, either through confusion or lack of knowledge, or perhaps sloppiness, all too many lenders misrepresent the roles and positions they hold in bankruptcy mortgage claims. These misrepresentations require debtors, already burdened in their attempts to pay their mortgages, to expend additional time and resources in an effort to sort out who actually holds and/or services a given note and mortgage. The court sanctioned the lender $250,000 because it made repeated misrepresentations and its behavior in failing to properly disclose its role was unreasonable under the circumstances. The court also sanctioned the lenders local law firm and the partner in charge of the matter $25,000 each, because, had they checked the firm's file, they would have seen that the existing holder was perhaps the real party in interest. The court sanctioned the national firm $100,000 because it had a responsibility to know its client's role in the case. The court sanctioned the existing holder $250,000 because it should have been able to correct the misrepresentations.
Residential Mortgage Lender/Servicer Claim Abuse
III.
In re Fitch, 390 B.R. 834 (Bankr. ED. La. 2008): Debtors filed an objection to the claim of creditor mortgagee, and served a qualified written request pursuant to the Real Estate Settlement Procedures Act (RESPA), seeking documentation to support the mortgagee's claim for broker's price opinion charges, inspection fees, foreclosure fees and costs, and amounts due under debtors' escrow account. Debtors also sought damages and attorney's fees. The purpose of RESPA is to protect home buyers from material nondisclosures in settlement statements and abusive practices in the settlement process. The primary issue considered by the court involved past due amounts the mortgagee claimed for escrow. The mortgagee had a great deal of difficulty producing evidence and explaining how the amounts assessed against the debtors were calculated. Its calculation resulted in substantial overstatement of the amounts owed. After it failed to produce evidence at trial, the court declared the escrow account current, striking all past due sums. The mortgagee finally satisfied the qualified written request, well after the time limit set by RESPA. The debtors sought sanctions and damages for its failure to timely provide the information requested. The mortgagee would be liable for actual damages should a pattern of noncompliance be proven. The court found that the debtors did not show a pattern of noncompliance by the lender, nor did they prove that additional damages were warranted. The court awarded the debtors $3,500 in attorneys fees for time spent pursuing the objection to claim. In re Parsley, 384 B.R. 138 (Bankr. S.D. Tex. 2008): Court issued two show cause orders requiring mortgage loan servicer, its national counsel and local counsel to appear and show cause why they should not be sanctioned for the conduct related to a motion to lift the automatic stay, which was later withdrawn. After local counsel for the servicer sought to withdraw the motion to lift the automatic stay, the court inquired why it was necessary to withdraw the motion. Rather than admitting that the motion was based on an incorrect payment history, local counsel attempted to conceal the truth from the court. Over the course of expansive proceedings related to the show cause orders, the court discovered that the servicer had failed to property maintain payment histories and effectively communicate with its counsel. Additionally, the court found that attorneys and legal assistants employed by servicers local counsel are filing motions to lift the stay without questioning the accuracy of the debt figures and other allegations., .and appearing in court without properly preparing for hearings. Parsley, 384 B.R. at 183. Attorneys and appearing at hearings ill prepared because they have not been property trained, have little to no communication with their clients, and they are drafting, signing and filing motions to lift the automatic stay without having the client review the final version of the motion for accuracy. While the court was gravely concerned with the practice of the servicer, national counsel and local counsel, it declined to impose sanctions as the court was unable to find that the parties conduct was anything more than negligent bungling.
IV.
V.
In re Jacobson, 2009 WL 567188 (Bankr. W.D. Wash. March 10, 2009): An alleged servicing agent for a deed of trust holder filed a motion for relief from stay in order to enforce the deed of trust on the debtors residence. Attached to the motion were unauthenticated copies of the adjustable rate note, a barely legible copy of the debtors deed of trust, an unrecorded assignment of mortgage, and a copy of the Debtors real property and secured claims schedule (Schedules A and D). The motion was further supported by a declaration of a bankruptcy specialist of the alleged servicing agent which did little more that parrot the narrative set forth in the motion. There was no evidence provided, nor
2
any assertion made, regarding the servicing agents authority to act for the holder of the note, beyond the unelaborated statements that it was the servicing agent for the holder of the note. Additionally, the servicing agent neither asserted a beneficial interest in the note, nor that it could enforce the note in its own right. Inasmuch as the deficient record put the servicers standing in question, the court opined that it had an independent duty to determine whether [it has]jurisdiction over matters that come before [the court] Id. at * ____ . Consequently, the court had a threshold obligation to determine whether the servicer had standing to seek the relief it sought. The primaiy issues confronted by the court were whether a servicing agent is a real party in interest in whose name a relief from stay can be brought and whether a servicing agent has standing to seek relief from stay to enforce debtors deed of trust. Fed. R. Bankr. P 7017, imposing the requirements of Fed. R. Civ. P. 17, sets forth that actions must be prosecuted in the name of the real part}' in interest. In applying Fed. R. Civ. P. 17, the Court concluded that a stay relief motion must be prosecuted in the name of the real party in interest. The Court went on to hold that the real party in interest in relief from stay is whoever is entitled to enforce the obligation sought to be enforced. Even if a servicer or agent has authority to bring the motion on behalf of the holder [of the deed of trust], it is the holder, rather than the servicer, which must be the moving party, and so identified in the papers and in the electronic docketing done by the moving party's counsel. It follows that an order granting a motion for relief from stay must do so only to the actual holder of the note - not the servicer acting on the note holders behalf. The court went on the hold that for a federal court to have jurisdiction of the motion for relief from stay, the movant must have constitutional standing, which requires an injury fairly traceable to the debtors alleged wrongful conduct and likely to be redressed by the requested relief. Under the Bankruptcy Code, a party seeking a motion for relief from stay must establish entitlement to that relief. 11 U.S.C. 362(d). Servicing agents do no automatically have standing to prosecute a motion for relief from stay and must establish their authority to act for the real party in interest or holder of the note that does. In Washington, only the holder of the obligation secured by the deed of trust is entitled to foreclose. It follows, then, that for a servicing agent to have standing to prosecute a motion for relief from stay, it must not only establish that it represents the real party in interest, but also that it has clear authority to act on behalf of the real party in interest. The court found that the servicing agent failed to establish that it had standing in its own right to bring the motion or authority to act on behalf of the real party in interest. Another issue addressed by the court in Jacobson is the sufficiency of the evidence identifying the real party in interest or the holder of the note. In prosecuting a motion for relief from stay, a servicing agent, as the movant, must establish that it represents the present holder of the note and that it has authority to act on such person or corporations behalf. Often, to establish its right to prosecute a motion for relief from stay, the servicing agent will rely on business records to provide the necessary proof. The exception to the hearsay rule for records of a regularly conducted activity requires that records be (1) made at or near the time by, or from information transited by, a person with knowledge; (2) kept in the course of a regularly conducted business or activity; (3) it was the regular course of the business activity to make and keep the record or data compilations; and (4) the source of information or the method or circumstances of preparation do not indicate a lack of trustworthiness. Fed. R. Evid. 803(6). Each of these elements must be established by the testimony of a custodian of the servicing agent or note holder, and the documents must be authenticated. The individual authenticating the business records, whether through affidavit or live testimony, must establish that he or she is sufficiently qualified and knowledgeable about the records at issue to allow the court to reach the conclusion that the proffered 3
records are what they purport to be. In proffering this testimony, it is not sufficient for declarant to make the bare assertion that I am employed as bankruptcy specialist for movant and in this capacity, I am one of the custodians of the books, records, file and banking records of movant. Such testimony does little to inform the court that the records at issue were created in the regularly conducted business activity of the movant or that it was the regular business activity of the movant to keep the records or data compilations at issue. If a servicing agent is prosecuting the motion for relief from stay on behalf of a bank, and the note secured by the deed of trust is in the possession of the bank, a custodian of the bank and not the servicing agent would be required to authenticate the business records. The custodian of the bank would also have to establish that the servicing agent is authorized to enforce the note on the banks behalf. In re Sheridan, 2009 WL 631355 (Bankr. D. Idaho. March 12, 2009): The Chapter 7 trustee objected to a motion for relief from stay, alleging that the moving party was not a party in interest. The issue highlighted by the trustees objection was the standing of the moving creditor. The motion for relief from stay was filed by Mortgage Electronic Registration Systems, Inc. as nominee for HSBC Bank USA, National Association, as Indenture Trustee of the Fieldstone Mortgage Investment Trust Series 2006-3. The movant characterized itself as a secured creditor and claimant. The trustee objected to the motion for relief from stay on that grounds that the movant failed to establish its interest in the property or its standing to seek stay relief. Under the Bankruptcy Code, relief from the stay is authorized on request of a party in interest and after notice and a hearing. 11 U.S.C. 362(d) (emphasis added). While the term party in interest is not defined by the Bankruptcy Code, the Court held that such a party must have a pecuniary interest in the outcome of the dispute. It follows that only a party in interest or party with a pecuniary interest in the outcome of the dispute has standing to bring a motion for relief from stay. In addressing whether a party has sufficient party in interest standing to be heard, the court stated: The doctrine of standing encompasses both constitutional limitations on federal court jurisdiction (i.e., the case or controversy requirements of Article III), and prudential limitations on the court's exercise of that jurisdiction. Constitutional standing requires an injury in fact, viz. an invasion of a judicially cognizable interest. Prudential standing requires that the party's assertions fall within the zone of interests protected by the statute and, further, requires that the litigant assert only its own rights and not those of another party. The party asserting standing exists has the burden of proving it. Though sometimes articulated in the cases as principles applicable to standing on appeal, the same propositions apply to a party at the bankruptcy court level. Sheridan. 2009 WL 631355 at *3 (internal citations omitted). As such, a party may not asset objections that relate solely to others, or that go to issues that do not directly and adversely affect them pecuniarily. It follows, the real party in interest in relief from stay is whoever is entitled to enforce the obligation sought to be enforced. Even if a servicer or agent has authority to bring the motion on behalf of the holder, it is the holder, rather than the servicer, which must be the moving party, and so identified in the papers and in the electronic docketing done by the moving party's counsel. Id. at *10 (citing In re Jacobson, 2009 WL 4 VI.
567118 at *11). Thus, to obtain stay relief, a motion must be brought by a party in interest, with standing. This means: The motion must be brought by one who has a pecuniary interest in the case and, in connection with secured debts, by the entity that is entitled to payment from the debtor and to enforce security for such payment. That entity is the real party in interest. It must bring the motion or, if the motion is filed by a servicer or nominee or other agent with claimed authority to bring the motion, the motion must identify and be prosecuted in the name of the real party in interest. Sheridan, 2009 WL 631355 at *11. The court found that the movant failed to establish that it was the real party in interest with standing to bring the motion for relief from stay or that it had authority to prosecute the motion in the name of the real party in interest.
This Preliminary Official Statement and th information contained herein are subject t completion or amendment without notice. Under n circumstances shall this Preliminary Official Statement constitute a offer t sell o th solicitation of e o o n o r e a offer t buy. nor shall there b any sale o these securities, in any jurisdiction in which such offer, solicitation, o sale w n o e f r ould b unlawful prior t registration o qualification under th securities laws o such jurisdiction. e o r e f
PRELIMINARY OFFICIAL STATEMENT DATED APRIL 17, 2012

In the opinion o f Hawkins Delafteld & Wood LLP, Bond Counsel to MaineHonsing, under existing statutes and court decisions and assum ing continuing compliance w ith certain tax covenants described herein, (i) interest on the 2012 Series A -l Bonds, the 2012 Series A-2 Bonds and the 2012 Series A-3 Bonds (collectively, the Offered Bonds ) is excluded from gross income fo r Federal income tax purposes pursuant to Section 103 o f the Internal Revenue Code o f 1986, as amended (the Code"); (ii) interest on the 2012 Series A -l Bonds is treated as a preference item, in calculating the alternative m inim um tax imposed on individuals and corporations under the Code; (in ) interest on the 2012 Series A-2 Bonds is not treated as a preference item, in calculating the alternative m inim um , tax imposed on individuals and corporations under Hie Code; such interest, however, is included in the adjusted current earnings of corporationsferrpurposes o f calculating the alternative m inim um tax; and (iv) interest on the 2012 Series A-3 Bonds is not treated as a preference item in calculating the alternative m inim um tax imposed on individuals and corporations under the Code and is not included in the adjusted current earnings o f corpora tions fo r purposes o f calculating the alternative m inim um tax. In addition, in the opinion o f Bond Counsel under existing statutes, interest on the Offered Bonds is exempt from the State o f M aine income tax imposed on individuals. See Tax Matters.
MAINE STATE HOUSING AUTHORITY
NEW ISSUE
$65,285,000* Mortgage Purchase Bonds, 2012 Series A-I (AMT) $11,800,000* Mortgage Purchase Bonds, 2012 Series A-2 (Nra-AMT) $20,000,000* Mortgage Purchase Bonds, 2012 Series A-3 (Noii-AMT)f Dated: Date of Delivery Dwe: November 15, as shown on inside cover page The Offered Bonds are available only as fully-registered bonds without coupons and will be available in book-entiy form only. Purchasers of the Offered Bonds will not receive certificates representing their interests in the Offered Bonds. The Offered Bonds will be registered in the name of Cede & Co., as nominee for The Depository Trust Company, New York, New York (DTC). See Book-Entry System. The Offered Bonds are issuable in minimum denominations of $5,000 and integral multiples thereof. Principal of and interest on the Offered Bonds are payable by U.S. Bank National Association, Boston, Massachusetts, as Trustee and Paying Agent, to Cede & Co. The Offered Bonds will mature on the dates set forth on the inside cover page hereof and will bear interest, to their maturity or prior redemption, at the respective interest rates set forth on the inside cover page hereof. Interest is payable on the Offered Bonds on each May 15 and November 15, commencing on November 15,2012. The Offered Bonds are subject to redemption at their principal amount prior to maturity, as described herein. See Description of the Offered Bonds. The Offered Bonds are special obligations of Maine State Homing Authority (MaineHousing), and do not constitute a loan of the eredit of the State of Maine (the State), any debt or liability on behalf of the State, or any indebtedness of the State within any constitutional or statutory debt limitation or restriction. MaineHousing has no taxing power. The Offered Bonds are equally and ratably secured with Bonds (as defined herein) heretofore issued and any additional Series of Bonds that may hereafter be issued under the General Resolution (as defined herein). The Offered Bonds are special obligations of MaineHousing, payable solely from, and secured (subject to the provisions of the General Resolution permitting the application of certain monies for the purposes and on the terms set forth in the General Resolution, including payment of Operating Costs relating to the Mortgage Purchase Program) by the lien of the pledge provided under the General The 2012 Series A-l Bonds and the 2012 Series A-2 Bonds are being issued to refund certain outstanding Bonds that glwere issued to finance the purchase of interest-bearing obligations secured by mortgages that are a first lien on land | and the improvements thereon in the State (Mortgage Loans) constituting one-to-four family residences for persons 1 and families of low income. The 2012 Series A-3 Bonds are being issued to finance the purchase of Mortgage Loans of Hawkins Delafield & Wood LLP, New York, New York, Bond Counsel to MaineHousing, and certain other conditions. Certain legal matters with respect to the Offered Bonds will be passed on for the Underwriters by their counsel, Preti, Flaherty, Beliveau & Pachios, IIP, Augusta, Maine. It is expected that the Offered Bonds will be available for delivery through the facilities of DTC in New York, New York, on or about May 2012. J.P. Morgan
Citigroup
Raymond James 1Morgan Keegan
Morgan Stanley
BofA Merrill Lynch
BBC Capital Markets
April _ 2012 * Preliminary, subject to change. t Interest not included in adjusted current earnings of corporations for purposes of the alternative minimum tax under the Code.
DEFENDANTS EXHIBIT
~>N
jFjve Star Service Guaranteed * g ) \
412899
NOTICE OF CONDITIONAL REDEMPTION MAINE STATE HOUSING AUTHORITY MORTGAGE PURCHASE BONDS
NOTICE IS HEREBY GIVEN that pursuant to the provisions of Article VI of the General Mortgage Purchase Bond Resolution adopted February 4, 1972, as amended from time to time by the Maine State Housing Authority, the following described bonds of the Authority have been called for conditional redemption on August 1, 2012 indicated below, subject to the issuance of the Authoritys Mortgage Purchase Bonds, 2012 Series B Bonds (the 2012 Series B Bonds). In the event that the 2012 Series B Bonds are not issued on or before July 19. 2012. the redemption of the Bonds indicated in this notice will not occur and the Bonds indicated below shall remain outstanding as if such notice had not been given and interest on the Bonds indicated herein will continue to accrue. In the event that the 2012 Series B Bonds are issued oil or before July 19,2012, each of said bonds to be redeemed will become due and payable at a redemption price as stated below of their principal amount or portion thereof, to be redeemed with accrued interest to said date and on and after August 1, 2012, interest on the called bonds or portions thereof, will cease to accrue. FULL CALL CUSIP 56052EBN7 1999 Series A-2 at 5.25% due 11-15-2032 - $ 5,105,000. Optional call at 100% from 2012 Series B Bond Proceeds CUSIP 56052EJL3 2001 Series G at 5.50%due 11-15-2031 100% from 2012 Series B Bond Proceeds 3,995,000. Optional call at
Moneys therefore having been deposited with the trustee, from and after August 1, 2012 interest thereon shall cease to accrue. Payment of such principal amount will be made upon presentation and surrender of said bonds at the address below: Bv Mail fReeistered Bonds) U.S. Bank National Association Corporate Trust Services P.O. Box 64111 St. Paul, MN 55164-0111 By Hand or Overnight Mail U.S. Bank National Association Corporate Trust Services 60 Livingston Avenue 1st Floor -Bond Drop Window St. Paul, MN 55107 Maine State Housing Authority by U.S. Bank National Association, Successor Trustee Dated: 7/2/2012
IMPORTANT The provisions of the Jobs and Growth Tax Relief Reconciliation Act of2003. as amended, require certificate holders to submit their Taxpayer Identification Number (either their social security or employer identification number, as appropriate) with each certificate presented for payment Failure to comply with said Act will subject the payment of the principal portion of the redemption price to the withholding of 28% of such principal portion. To avoid being subject to such withholding, certificate holders should submit IRS Form W-9 at the time the certificates are presented for payment. A Form W-9 is available from your local bank or broker. The above CUSIP numbers are included solely for the convenience of the bondholders. Neither Maine Stale Housing Authority nor the Paying Agent shall be responsible for the selection or use ofthe CUSIP numbers nor is any representation made as to their correctness on the bonds or as indicated in any redemption notice. DEFENDANTS EXHIBIT
Client Name: U.S. Bank N.A. (St. Paul) Notice Issuer: MAINE S TATE HOUSING A U TH O R ITY Issue Title: MAINE S TATE HOUSING A U TH O R ITY 1999 SERIES A-2 A N D 2001 SERIES G Job Type: Redemption Notice Memo: Customers: Issue Date: 01/15/1999 Pub Date: 07/02/2012 Call Type: Full Call Date: 08/01/2012
Reliance:
Total Amt Called: $9,100,000.00
Paying Agent
Issues:
U.S. Bank N.A. (St. Paul)
096000690 40071706
60 Livingston Avenue 1st Floor, Bond Drop W indow
St. Paul
MN
55107
651-973-5800
Default Org Paying Agent Address
Interest
m
###### 11/15/2032 00 MU F $5,105,000.00 100.00000000
Cert No
Type Prefix
Par Value
Called Value
Out value
Trans
56052EBN 7
5.2500
N/A
N/A
N/A
mm
56052EBN7 56052EJL3 5.5000 ###### 11/15/2031 00 MU F $3,995,000.00 100.00000000 N/A N/A N/A $5,105,000.00
56052EJL3
$3,995,000.00
ezDisclose Notice Proof Sum m ary Report
Page
of
BOMBSHELL" Your Honor, We Dont Represent The Plaintiff....EXACTLY! http://mattweidnerlaw.com/blog/2012/01 /bombshell-your-honor-we-dont----- ~ ~ ' "x represent-the-plaintiff-exactly/
defen dan ts
EXHIBIT
January 10th, 2012 | ^ Author: Matthew D. Weidner, Esq. The following is a transcript from a hearing when I was sitting in a courtroom where a most extraordinary exchange occurred. The Plaintiff in the case is, US Bank". US Bank is suing a homeowner, trying to throw them into the street. There is an attorney standing in the courtroom arguing on behalf of US BANK... .the judge is upset because shes been trying to figure out who to hold responsible when the Plaintiffs who are foreclosing are ignoring rules of the Florida Supreme Court, abusing homeowners and just generally making a real mess of things and the responses out of the Plaintiff sound like an Abbott and Costello Routine called, Whos On First.... Who owns the note? We dont own the note, they own the note. Whos they? They who? The who that owns the note. And then thats when this exchange occurs: U.S. Bank is not our client. We have no communication with them on this loan. Whoa, say what? U.S. Bank is not our client. We have no communication with them on this loan. WHICH IS PRECISELY WHAT IS WRONG WITH THIS ENTIRE STINKING SYSTEM CALLED THE AMERICAN LEGAL, FINANCIAL AND FORECLOSURE MESS, A bank, US BANK, is foreclosing, but they are not represented by an attorney. US Bank is the Wizard Behind The Curtain, somewhere theres someone else calling the shots. Someone else deciding not to accept a modification. Someone else not accepting a short sale. Someone else pulling the strings. To which my friend Rand, quite correctly responds: MR. PEACOCK: Your Honor, Im a little bit troubled because plaintiffs counsel just said that the plaintiff she is not their client or vice versa. That makes a real representation issue. If they are not represented by her firm, she cannot advocate on their behalf, and they cant continue this lawsuit. This is precisely what is wrong with this country. Exactly what what is wrong with what is choking our court system. Exactly why our court system has such problems with what is happening.
http://livinglies.wordpress.com/2012/01/13/attomeys-admit-no-authority-to-represent-us-bank-in-foreclosure/
Attorneys Admit No Authority to Represent US Bank in Foreclosure

........ ...........- _
DEFENDANTS (
Posted on January 13,2012 by Neil Garfield Esq.

^
EDITORS COMMENT: When I raised this issue some years back, most lawyers thought I was stretching for a technicality. But in fact the lack of authority to represent, a forecloser, in litigation lies at the core of the plausible deniability defense that the Banks raise when confronted with a lawsuit over a wrongful foreclosure. The challenge should be in the form of a Motion for Proof of Authority to Represent. Whether they come up with the proof or not, you are in a better position. If they admit no authority the case is over, at least for the moment. If they show the proof, then the Bank cant say they didnt know what was going on. The exchange below shows clearly that the foreclosure would have proceeded with a rubber stamp from the Judge had the borrower not raised defenses and challenged US Bank on its right to foreclose. Attorneys for the Banks are getting a little more careful now about what they say in court since there is a movement afoot to hold them responsible for fraudulent foreclosures. So in this exchange with the Court, the lawyer for the Bank admitted that he had no contact with US Bank nor did he represent the Bank. BOMBSHELL- Your Honor, We Dont Represent The Plaintiff... .EXACTLY! January 10th, 2012 | Author: Matthew D. Weidner, Esq. http://mattweidnerlaw.com/blog/2012/01 /bombshell-vour-honor-we-dont-represent-the-plaintiff-exactlv/ The following is a transcript from a hearing when I was sitting in a courtroom where a most extraordinary exchange occurred. The Plaintiff in the case is, US Bank. US Bank is suing a homeowner, trying to throw them into the street. There is an attorney standing in the courtroom arguing on behalf of US BANK.. ..the judge is upset because shes been trying to figure out who to hold responsible when the Plaintiffs who are foreclosing are ignoring rules of the Florida Supreme Court, abusing homeowners and just generally making a real mess of things and the responses out of the Plaintiff sound like an Abbott and Costello Routine called, Whos On First.... Who owns the note? We dont own the note, they own the note. Whos they? They who? The who that owns the note. And then thats when this exchange occurs: U.S. Bank is not our client. We have no communication with them on this loan. Whoa, say what? U.S. Bank is not our client. We have no communication with them on this loan. WHICH IS PRECISELY WHAT IS WRONG WITH THIS ENTIRE STINKING SYSTEM CALLED THE AMERICAN LEGAL, FINANCIAL AND FORECLOSURE MESS.
A bank, US BANK, is foreclosing, but they are not represented by an attorney. US Bank is the Wizard Behind The Curtain, somewhere theres someone else calling the shots. Someone else deciding not to accept a modification. Someone else not accepting a short sale. Someone else pulling the strings. To which my friend Rand, quite correctly responds: MR. PEACOCK: Your Honor. Im a little bit troubled because plaintiffs counsel just said that the plaintiff she is not their client or vice versa. That makes a real representation issue. If they are not represented by her firm, she cannot advocate on their behalf, and they cant continue this lawsuit. This is precisely what is wrong with this country. Exactly what what is wrong with what is choking our court system. Exactly why our court system has such problems with what is happening. Full transcript below: March 11 CL http://mattweidnerlaw.com/blog/wp-content/uploads/2012/01 /March-11-CL.pdf
DEFENDANTS EXHIBIT
M arch
11 CL
l
2
IN THE CIRCUIT COURT OF THE SIXTH JUDICIAL CIRCUIT IN AND FOR PINELLAS COUNTY FLORIDA CASE NO. 11 000971 Cl 11 U.S. BANK, NATIONAL ASSOCIATION,
3 4 5 7 8 9
10
11
vs.
Plaintiff,
LEROY MARION, et a l ., Defendants.
HEARING HELD BEFORE THE HONORABLE PAMELA A.M. CAMPBELL DATE: TIME:
place:
Monday,
December
12
Commencing at
13, 2011 2:00 -2 :3 0 p.m.
13 14 15 16 17 18 19
20
Circuit Court of the sixth Judicial circuit Pinellas County, Florida 545 First Avenue North St. Petersburg, Florida Hearing taken before:
Room 300
33701
Sarah J . Mur*row Executive Reporting Service Ulmerton Business Center 13555 Automobile Boulevard, suite Clearwater, Florida 33762
100
21
22
23 24 25
EXECUTIVE REPORTING SERVICE
(727) 823-4155
2
Page 1
March 11 CL
APPEARANCES:
2
3 4 5
6
Nicole R. Ramirez, Esq. Douglas C. zahm, P.A. 12425 28th street North St. Petersburg, Florida 33716 (727) 536-4911 Attorney for the Plaintiff Rand Peacock, Esq. Law office of Rand Peacock, P.A. 5716 5th Avenue North St. Petersburg, Florida 33710 (727) 490-5719 Attorney for the Defendants
7
8
10
11
12
I NDEX
PAGE Reporter's certificate 20
13 14 15 16 17 18 19
20 21
E X H I B I T S (None)
22 23 24 25
EXECUTIVE REPORTING SERVICE (727) 823-4155
Page 2
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 that?
March 11 CL P R O C E E D I N G S THE COURT: we are here on case
No. 11 000971 Cl 11, U.S. Bank, here represented by Nicole Ramirez vs. Leroy Marion represented by Rand Peacock. We are here as a follow-up to a
hearing that occurred on November 3rd, 2011. I reset this as a case management conference so that we could continue some of the the
parties could continue some of the discovery issues and see if there are any further objections after Mr. Peacock had an opportunity to review the responses, and I think there was also going to be the coordination of a time and place in Florida for a deposition. Mr. Peacock, could you tell us the status of
MR. PEACOCK: apologize.
well, your Honor, I guess
There is a slight lack of recollection who
in this Court's statements in terms of the
the plaintiff has called as their corporate rep, but they are in good status. those depositions. The plaintiff also plans to depose my client at the same time, which we understand that's a reasonable request, so we are going to make that We are scheduling
EXECUTIVE REPORTING SERVICE (727) 823-4155 4
1 2
happen,
we have just resolved that issue prior to
walking in here as far as what person they are Page 3
March 11 CL
3 4
5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
going to have show up. THE COURT: They were going to choose a
corporate representative for the deposition, MR. PEACOCK: have, your Honor, Which my is understanding they we just have to set up the time
and place for everybody to show up at. THE COURT: so are there any outstanding
issues that we need to discuss for today or any preemptive ones that may be coming up at some of the depositions? MR. PEACOCK: an issue that Well, your Honor, we still have privilege has still been raised
in several of the plaintiff's objections, and subsequent objections and there has been no privilege log filed. I m of the position that if there is a specific document which the plaintiff is a requesting privilege over, it needs to identified in the privilege log and duly file it; and, if not, then they need to if there are no other
documents, then there is no reason to document it in the privilege THE COURT: well, at the last hearing on
1 2 3
November 3rd, Ms. Ramirez, you had produced over 300 pages of documents; however, they were on the eve of the hearing. Page 4 So Mr. Peacock had not had an
4 5 6
March 11 CL opportunity to review those; therefore, he didn't know about any remaining objections. At this point in time we will then for
7
8
this case management conference, which I believe is a follow-up of the November 3rd hearing, do we need to have argument on what those objections are and go through one by one? MR. PEACOCK: Well, I mean, there are basic
10
11
12
13 14 15 16 17 18 19 20
issues here in terms of me trying to establish what might be discoverable to set up affirmative defenses and/or defenses that are not otherwise really apparent at this time and to prove the body of the plaintiff's full case. The only thing I
don't think I have gotten at this point plaintiff's counsel has asserted they have given me all of their title documents to the note that there are. So as long as other documents are
21
permitted at a later time, I have no problem with it. There is an issue that apparently, there
22
23 24 25
is a servicer on the business and the servicing contract has not been provided to my client.

6
1
2
3 4 5
That's a document that we requested.
There are
objections to it, so I would like to have that heard. MR.

ramirez:
I'm sorry.
That's this huge
that is the servicing agreement. Page 5
March 11 CL 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 ago. MR. PEACOCK: web si te. MR. RAMIREZ: I also sent it by e-mail, and I I did e-mail you know, By reference to the link on the MR. PEACOCK: So you're saying that is the
servicing agreement because there is an objection on that privilege, so I want to make sure that is the full document and there are no other parts to it.
ms.
RAMIREZ:
This is from the web site.
printed out two copies today. a printed copy,
We did not provide
it's 350 pages or something, but
yes, that is a servicing agreement. THE COURT: So you are giving him the
servicing agreement today? MS. RAMIREZ: No. He got that a long time
did not put this in the mail to him. it, that is true.
And, certainly, we
the plaintiff doesn't
it's not our practice to
charge for these things, but
1 2 3 4 5 6
MR. PEACOCK:
as
long as we can be specific
that the link you gave me is the true and correct copy for purposes for showing it to the Court, l rm fine on that. MS. RAMIREZ: avai1able. Yes. That's pub!ically
Page 6
7 8 9 10
March 11 CL THE COURT: Thank you.
And you're saying
that, yes, that is the servicing agreement? MS. RAMIREZ: MR. PEACOCK: Yes. I guess then we are on to the
11
12 13 14 15 16 17 18 19 20 21 22 23 24 25
interrogatory objections and some of them, such as No. 11 where I say: note whether State please state the
as of what date you secured the And they have I think
original there and from whom?
objected as irrelevant and immaterial.
that's an easy one to answer; as far as what date did you actually get it, because I'm not sure of the date they gave me. They may say effective as of this date, but my question is: original note. When did they physically get the And I don't see how that could be
irrelevant or otherwise not discoverable and certainly would, again, speed up the because
it's also a potential issue at the deposition where if I ask that same question and they say we
1 2 3 4 5 6 7 8
are not real sure; well, we thought that was irrelevant so then we are right back here after I'm trying to avoid those issues. Your Honor, I have some
the deposition. MS. RAMIREZ:
objections to relevance with regard to the answer filed, but to address just that specific answer to an interrogatory, we are scheduling the depositions so further information can be obtained Page 7
March 11 CL regarding that. We have the original! all of
the original documents which will be filed in the court. So the objection of the question being
12
13 14 15 16 17 18 19
20 21
irrelevant and immaterial, we do have the original. If there is any question of when the trust received the documents or that type of thing, those might be proof issues. It requires a legal
conclusion; it requires looking at the documents that say when the originals were received and MR. PEACOCK: documents say. I'm not asking what the
I'm asking for someone testifying
when they were received; and, again, that's the purpose of interrogatories. there hasn't been
the
22
23 24 25
More importantly,
COURT:
Because there is no amended
complaint.
1
2
3 4 5
MR. PEACOCK:
There is an amended complaint,
but they filed a motion to dismiss because it didn't comply with this Court's order. issue for another hearing, the notice requirements, but the point is it's not our fault. THE COURT: When was the amended complaint That's an
6
7
filed because it's not in the court file? MR. PEACOCK: Honor. It was filed December 7th, your
8
9
There was a November 15th motion for Page 8
10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
March 11 CL enlargement of time and a motion to modify your order, which has not been heard. MS. RAMIREZ: which I was waiting for the
appropriate time to bring up, so that is an issue for discussion. MR.

peacock:
I'm not saying it's tardy based
on the original motion for enlargement of time, but I am stating that we have issues. That is not
our own as to why an answer has not been filed in thi s complai nt. THE COURT: the objections. MR. PEACOCK: The objection is, I think we when did All right. So let's stick with
asked a legitimate question, which is: you get the note and from whom?
And I don't see It
how that can be irrelevant or otherwise.

10
1 2 3 4 5 6 7 8 9 10 11
doesn't require any logical
we got it in May or I hate
whatever date or whatever year they got. to have to go on an assumption based on an assignment and then we find out later, oh, actually there is a different date.
So, again, the purpose of the interrogatory was to speed up and reduce unnecessary time in depositions; also to avoid having us come back and hear if there is an objection raised, which then leads to, again, another case management conference and wasting resources of my client. Page 9
March 11 CL 12 13 14 15 16 17 18 19 20 21 22 23 24 25 It's not a hard question. I don't think that the objection is valid, and it could easily lead to an otherwise admissible or relative information even if itself is not relevant. THE COURT: MS. RAMIREZ: question. THE COURT: I think it is relevant. It's Anything else, Ms. Ramirez? Not regarding that particular
certainly going to become relevant later on down the road as I review the motion to alter my order. MS. RAMIREZ: THE COURT: So we will answer No. 11? Yes.
what else, Mr. Peacock?

11
1 2 3 4 5 6 7 8 9 10 11 12
MR. PEACOCK:
Well, obviously the motion No. 7,
we asked if it was subject to mortgage/loan purchase agreement.
I think it's
kind of apparent from the statement of the style of the case, but they have objected again that it's irrelevant, immaterial, and vague, overly broad and unduly burdensome, confidential, privileged, and proprietary information. Again, we have an issue as to whether there are privileged logs to back this up on. could get to the deposition and again be stone-walled on this, particularly, if there is Again, we
Page 10
13 14 15 16 17 18 19 20 21 22 23 24 25
March 11 CL not an answer in place. THE COURT: this is. You know you know, here is what I have a
This is a-15 minute hearing.
bunch of others at 2:15.
I arm not going to go what I am going to
through all of the objections,
do, though, is, Mr. Peacock, later on down the road as this case grows along and there is irrelevant there was a privilege that was
cisserted and you didn't get the answer at that point in time, how about a motion to compel and then we will go from there? MR. PEACOCK: will be done. I have just one more and then I
We asked them to state all of the
12
1 2 3 4 5 6 7 8 9 10 11 12 13 14 known servicers involved. THE COURT: MS. RAMIREZ: MR. PEACOCK: THE COURT: MS. RAMIREZ: That would certainly be relevant. which number is that? It's 3.3. So No. 13 needs to be answered. We answered by providing the
default letter, which lists the servicers, so we'll write out the answer instead of complying through production. MR. PEACOCK: I would disagree, your Honor.
The rules require a written response. THE COURT: response. The rules require a written
You have to give some kind of written
response; otherwise, you'll have to come back to Page 11
March 11 CL 15 16 17 18 19 20 21 22 23 24 25 court. It just cleans up the record. We will be happy to answer that
MS. RAMIREZ: question.
Just for the record, pursuant to Rule 1.340C of the Rules of Civil Procedure, it allows production of documents to answer the question and that was the intent there, but certainly we will answer in writing. THE COURT: response. Let's go on to the plaintiff's motion to You need to have some kind of
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
modify the prior order and on enlargement of time to comply with order, amended complaint so you are saying the it looks like the amended and it's
complaint was filed you are telling me not in the court file was filed December 7th? MR. PEACOCK:
the
but the amended complaint
7th, I believe, your Honor. So the hearing that we had I have a copy of the hearing,
COURT:
MS. RAMIREZ: your Honor. THE COURT: extra copy.
That's okay.
I don't want an
The hearing that we had where I said
the motion to dismiss is granted and the plaintiff had 90 days to get a new one done, instead whoever the plaintiff was had to verify the Page 12 and
March 11 CL 16 17 18 19 20 21 22 23 24 25 amended. I didn't care who the plaintiff was as long as if was there was an amended verification was amended that the So now let's
by
the plaintiff.
there is a motion to modify, so that was see. MS. RAMIREZ: nutshell?

the
if I could put it in a
COURT:
Please don't interrupt me. All right.
August, September, October, November.
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17
So that would have been barely within the 90 days when the motion was filed on November 16th. MS. RAMIREZ: The motion is styled a motion Really, I think it
to modify the prior order.
should probably be a motion to clarify the prior order. The reason there was a delay and even
by your comments here today I'm confused about what the order was. we thought or I think you don't have
there is some confusion that the
the amended complaint in front of you, but the amended complaint the verification was an issue
in that other hearing and I was not at that hearing, but I do have the transcript of it to try to clarify what was supposed to happen. In the amended verification, they then added wells Fargo Bank as servicer for U.S. Bank as trustee with the whole long plaintiff litany, but Page 13
March 11 CL 18 19 20 21 22 23 24 25 the reason this was delayed whether is this okay? and I'm not sure
That's kind of why we
are here, to make sure is this verification okay? Does that comply with what you ruled? Because
there was some discussion in the office and based on the order that, no, it was U.S. Bank then as the trustee who was going to have to sign the verification.
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18
THE COURT:
whoever's the plaintiff is is the That's
person that has to sign the verification.
what all the judges in this courthouse believe, and I appreciate the fact that in the plaintiff's motion. it's somewhere
I will try not to take
offense, but somewhere in plaintiff's motion to modify in paragraph 4, it would be helpful to consider how other circuit judges address verification issues, blah, blah, blah, about Judge Cox and Judge shacks, so this court should adopt the same view. well, that's all really helpful and, perhaps, there is something going on with the Second
dca
which will address that issue, but so far all of the judges in this courthouse believe, to my knowledge the last I checked last week with all
of the judges in this courthouse, we all were of the same belief that it's the plaintiff Page 14 whoever
19 20 21 22
March 11 CL the plaintiff is, the plaintiff is the one that is to verify the complaint because actually that is what we believe the Supreme Court intended when they made the change that complaints had tp be
11 14
25
viM fiiil.
it illewi tht plaintiff t ditiPfflini iPi yu truly the owner and holder of the note? So that's
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
why we think it should be the plaintiff. care if it's the servicer. the bank.
I don't
I don't care if it's The
It just has to be the plaintiff.
plaintiff has to be the one to verify it. So let's see on the order on defendants' motion to dismiss, which was signed September 23rd, 2011, plsiintiff shall have 90 days from the date of the hearing to file an amended complaint and that shall clearly state the legal theory on reasons to foreclose on the defendants* property clearly allege the fact according to Plaintiff's
theory and the plaintiff specific.
amended complaint shall be verified pursuant to the Rules of civil Procedure by an employee. think that's pretty clear. MS. RAMIREZ: So the reason there was if I can approach and show I
confusion, though
you the amended verification? THE COURT: You may.
MS. RAMIREZ: I hear what you are saying Page 15
March 11 CL 21 22 about the plaintiff, and I still don't know if this is the not THE COURT: So I'm being handed a copy of a what you had in mind and if it's
23
24 25
verified amended complaint; apparently, filed by a
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
legal assistant with the clerk, which we can't the courts can't hold legal assistants responsible for anything. responsible. So the amended verification under penalty of perjury: I declare that I have read the foregoing I have to hold the attorney
and the facts alleged therein are true and correct to the best of my knowledge and belief. page 4 of the complaint it says: So on
wells Fargo
Bank, as contractual servicer for U.S. Bank National Association as trustee for CitiGroup Mortgage Loan & Trust, incorporated, 2007-AHLl, certificate 2007 AHLl signed by David E. Franklin, Ur., vice president loan documentation. So it appears to me that as a contractual servicer, they are not an employee of the bank, so it would seem to me that that would not be as intended or as discussed at the hearing that was on August 18th, 2011. MS. RAMIREZ: So that's why, your Honor, we There was
had the motion to modify that order. Page 16
22
March 11 CL first initially confusion; so, yes, it was supposed to be U.S. Bank would sign it an
23 24 25
employee of U.S. Bank would sign it; however, U.S. Bank is not our client. We have no communication
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23
with them on this loan, servicing agreement.
I had provided a
There is no case on point
that says the servicer can or cannot sign the verification, but there are lots of case law that says the servicer can bring the complaint THE COURT: Can you tell me this: This
motion that was filed on November 16th, did you make any attempts to schedule that for hearing or did you notice it for today? MS. RAMIREZ: Well, we knew the case
management was set for today. THE COURT: MS. RAMIREZ: no. THE COURT: So here's what I would suggest: I mean you Did you notice it for today? I did not notice it for today,
Why don't you file that motion or
clearly you filed the motion, so you need to schedule that for a hearing at another time. Coordinate the hearing with Mr. Peacock. Mr. Peacock, you filed a motion to dismiss you said? MR. PEACOCK: Yes, your Honor.
THE COURT: So how about at that same time we Page 17
March 11
cl
will hear all of those motions, but they should all be noticed and set. Even though sometimes we
schedule case management and under the rules case
2
3 4 5
6
management you can consider whatever pending motions there are, I think that's the type of motion that everyone should be noticed for so that there would be accurate preparation for that motion. MR. PEACOCK: Your Honor, I'm a little bit
7 8 9
10 11
troubled because plaintiff's counsel just said that the plaintiff vice versa. issue. she is not their client or
That makes a real representation
If they are not represented by her firm,
12 13 14 15 16 17 18 19 20
she cannot advocate on their behalf, and they can't continue this lawsuit. THE COURT: You can continue that or can
conclude that in any of your future motions. MR. PEACOCK: THE COURT: in the future. I would be happy to your Honor. Thank you. We will see you again
Good luck with setting those
depositions and getting all of those responses. MS. RAMIREZ: Thank you.
21
22
23 24
Page 18
March 11 CL
CERTIFICATE OF COURT REPORTER

2
3 4 5
STATE OF FLORIDA
) : ss.
COUNTY OF HILLSBOROUGH
6
7
8
9
10 11
I, Sarah 3 . Murrow, certify that I was authorized to and did stenographical1y report the hearing held before the Honorable Pamela Campbell; and that transcript of proceedings, pages 1 through 19, is a true and correct record of my stenographic notes. I FURTHER CERTIFY that I am not a relative, employee, attorney or counsel of the parties, nor am I a relative or employee of any of the parties' attorney or counsel connected with the action, nor am I financially interested in the action. DATED this 10th day of January, 2012.
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Sarah J. Murrow
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22
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March 11 CL EXECUTIVE REPORTING SERVICE (727) 823-4155
Page 20
David McConnell I Linkedln
http://www.iinkedin.com/pub/david-mcconneLl/10/3bb/843
DEFENDANTS EXHIBIT
David McConnell
Director at Perkins Thompson. P.A.
Portland, Maine Area Law Practice
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Current Past Education Connections Websites Director at Perkins Thompson, P.A. Acquisitions Editor at Kluwer Academic Publisher University of Virginia School of Law Dartmouth College 223 connections Company Wfebsits
David M cConnells Summary

Chair of the Litigation Department at Perkins Thompson, P A Transactional intellectual property expertise. Specialties Commercial, land use and antitrust litigation. Transactional intellectual properly. Mediation.
David McConnells Experience

Director Perkins Thompson, P.A.
Privately Held; 11-50 employees; Law Practice industry 1995 - Present (17 years)
I am a shareholder and director of Perkins Thompson and I chair the Litigation Department My practice areas include litigation and intellectual property. I have trial experience in a number of areas, including commercial, land use and antitrust matters.! also serve as a mediator, arbitrator and eariy neutral evaluator. Acquisitions Editor Kluwer Academic Publishers
Privately Heid; 5001-10,000 employees; Publishing industry 1 9 8 8 -1 9 9 2 (4 years)
Before becoming an attorney, I was an acquisitions editor tor a multinational scholarly publisher. I signed and developed doctoral-level monographs and journals in the academic disciplines of business and economics.
David McConnell's Education

University of Virginia School of Law J.D,. Law
1 9 9 2 -1 9 9 5
Activities and Societies: Articles Devetopment Editor of the Virginia Environmental Law Journal. Dartmouth Coliege BA., History, English
1 9 8 4 -1 9 8 8
Activities and Societies: Football, Rugby, Alpha Chi Alpha
David McConnell's A dditional Information

Websites: Interests: Groups and Associations: Company Website Kayaking, sailing, hiking, reading, spending time with my family. I am active in the Maine State Bar Association and am a former Chair of the Young Lawyers Section. I am Director and past President of the Board of Directors for the Nathan and Henry B. Cleaves Law Library. I am past Chair of the Zoning Board e rf
1 of 2
10/2/2012 9:53 AM
dri
The Voice of the Defense Bar
DEFENDANTS EXHIBIT
The DRI National Poll on the Civil Justice System
P r o d u c e d f or
DRIThe Voice of the Defense Bar

August 2012
ENGAGE
j CONNECT
( GROW
| LEARN
T h e DRI C o m m u n ity

August 2012
Contents
In tro d u c tio n .................................................................................................................................................................. 3 View s of the Civil Litigation S y s te m ...................................................................................................................... 4 Overall Results..........................................................................................................................................................4 Results A m o n g G ro u p s ..........................................................................................................................................6 Bias Tow ard Litigants.................................................................................................................................................. 7 Overall Results..........................................................................................................................................................7 Class Action Litigation............................................................................................................................................. 10 Overall Results....................................................................................................................................................... 10 Results A m o n g G ro u p s ....................................................................................................................................... 11 A p pendices.................................................................................................................................................................. 13 Appendix A: Additional C h a rts ........................................................................................................................ 13 Appendix C: Survey Production and M e th o d o lo g y .................................................................................. 23 A ppendix D: Questionnaire and Topline Results.......................................................................................24
This survey was produced for DRI-The Voice of the Defense Bar by Langer Research Associates of New York, N.Y., with field work services by SSRS/Social Science Research Solutions of Media, Pa. Langer Research Associates subscribes to the Code of Professional Ethics and Practices of the American Association for Public Opinion Research and the Principles of Disclosure of the National Council on Pul Polls. For details contact [email protected].
Copyright 2012 DRI - The Voice of the Defense Bar

August 2012
Introduction
Abroad preference for trial by jury marks public attitudes on civil jurisprudence in this country, buttressed by overwhelming acceptance among Americans of jury duty as a civic obligation. Indeed, among those who've served on juries, most by far say they actually enjoyed it. The public, however, also perceives substantial flaws in the civil justice system, including a sense that outcomes can be influenced by disproportionate wealth among litigants and by jurors' personal opinions alike. Many Americans, as well, admit prejudice against corporate defendants in lawsuits, with a bias in favor of individuals or small businesses. Yet most also think the system usually overcomes its limitations to produce just and fair results.
80% 70% 60%50% 40% 30%20 %

-
) C o n fid e n c e T h a t th e C iv il L a w S y s te m P ro d u c e s J u s t a n d F a ir R esults
Vre Vote* of me
dri
gar
Confident 58% 4 8%
Not confident 41%
25%
10%
9%
0%Very confident Somewhat confident N ot so confident Not at all confident
These and other findings come from an independent, nonpartisan, national telephone survey conducted in August 2012 among a random sample of 1,020 adults for the nation's leading organization of civil defense lawyers, DRI-The Voice of the Defense Bar. it employed rigorous methodology and balanced question wording to assess public attitudes on issues in civil law.

August 2012
Among additional results, the survey uncovers a nuanced response to class action litigation, with perceptions of both benefits and shortcomings in such cases e.g., with majority views that they encourage corporate accountability, yet also that they unfairly enrich plaintiffs' attorneys. Remarkably, nearly four in 10 Americans say they themselves have been invited to participate in class action lawsuits, and 15 percent actually have done so as many to "send a message" to the defending company as to win damages. That purpose seems adequate (plus, perhaps, the low barrier to participation): Among those who've received a class action award, three-quarters call it "insignificant" yet two-thirds also say their joining the lawsuit was worthwhile. This analysis presents survey results in three sections, looking first at overall views of the civil litigation system, as well as of judges and juries; second, at the extent and nature of self-reported potential prejudices in civil cases; and third, at attitudes and experiences relating to class action lawsuits. Each section includes a subsection analyzing differences among groups. The full survey results are appended, as well as a description of the survey's methodology.
Views of the Civil Litigation System
Overall Results
At a time of broad public distrust of many institutions of government, the civil justice system receives majority support, with 58 percent of Americans expressing confidence that it usually produces results that are just and fair. Yet there are challenges. A substantial minority, 41 percent, lacks such confidence. And a mere 9 percent are "very" confident in the system, while more, 16 percent, have no confidence in it whatsoever. The role of disproportionate resources is one issue: In cases in which one litigant has "much more money for lawyers" than the other, a vast majority 83 percent says the side with more resources generally wins. Judges and juries can perhaps mitigate financial advantages, and of the two, the poll finds broad preference for juries. Sixty-four percent of Americans say they prefer to have juries rather than judges decide lawsuits, including 41 percent who feel that way "strongly," a high level of strong sentiment. Far fewer, 27 percent, prefer to have judges decide civil cases, and just 13 percent hold that view strongly.
Copyright 2012 DRI - Th e Voice of the Defense Bar

August 2012
a W h o S h o u ld D e c id e Law suits?
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TVva Vo<e Of the
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Perhaps counterintuitively, preference for juries prevails despite an almost precisely even division, 47-48 percent, on whether juries base their verdicts mostly on the facts of the case and their understanding of the law, or mostly on their personal opinions. Many more instead say judges stick to the facts and the law, not their own opinions, 69-25 percent. While further research is warranted, it may be that judges are relied upon in the public's mind to keep juries on the straight and narrow or, conversely, that departures from the facts and the law are seen as acceptable tradeoffs for the benefit of the judgment of one's peers. In any case, preference for jury trials is higher among people who think juries decide cases on the basis of the law (73 percent in this group prefer juries to judges in civil actions) than it is among those who think jurors are guided by their opinions (55 percent of whom prefer jury trials nonetheless). Conversely, preference for jury trials soars especially high, to 80 percent, among those who are skeptical of how judges rule. In terms of their own participation, 75 percent of Americans say they'd see a jury summons more as "a civic duty to fulfill" rather than as "a burden to avoid." Many fewer, 27 percent, say they've personally served on a jury while not a large percentage, still one in four adults, rising sharply to more than half of

August 2012
senior citizens. And, also contrary to usual resistance to government mandates, a remarkable 81 percent of former jurors describe their experience as a positive one.
Results Among Groups

Demographic and attitudinal factors inform views of the jurisprudence system. Confidence that it usually results in fair outcomes reaches 66 percent among self-described liberals, vs. 49 percent among adults who identify themselves as "very" conservative politically. Very conservative Americans also are disproportionately dubious that judges stick to the facts and the law in their civil rulings.
[ Confident in the system of civil jurisprudence

Liberals "Very" conservatives Think judges rule on the facts Think judges rely on their opinions See jury service as a duty See jury service as a burden College graduates Not graduates 66% 49% 66% 39% 61% 48% 65% 55%
Confidence in the system is far higher among people who think judges do follow the law, rather than their opinions, by a wide 27-point margin an example of how perceptions of judges can help shape views of the system more broadly. Confidence in the civil law system also peaks among those who see jury service as a duty, rather than a burden. And confidence also is higher, albeit not so starkly, among people with more education and higher incomes. In one other difference, strong confidence in the system is 16 percentage points lower 6 percent vs. 22 percent among people who think a large financial advantage tends to determine outcomes, compared with those who think resources don't make much difference. Results on jury service buttress the concept that some forms of civic engagement (voting is another example) increase with age. Among adults under age 30, 69 percent see jury service as a civic duty; that sentiment reaches 82 percent among seniors. Most striking, though, is service itself. A mere 9 percent of under-30s say they've served on a jury. That rises to 25 percent among middle-aged adults then soars to 53 percent among seniors.
Jury Service
See jury service as a civic duty All 75%
Have served on a jury 27%

August 2012
18-29 30-64 65+
69%
75% 82%
9%
25% 53%
Ratings of the experience itself relate to some extent on views of how juries come to their decisions. Among former jurors who think juries tend to rule on the facts and the law, a nearly unanimous 93 percent say their own jury experience was a positive one. That drops by 20 points among those who think jurors vote more on the basis of their own opinions.
Bias Toward Litigants
Overall Results
While greater financial resources are broadly perceived as an advantage, large corporations also face difficulties in the context of litigation prominent among them, an inclination among the public, all else equal, to favor individuals or small businesses in civil disputes. If they were serving as a juror in a case in which an individual had sued a large corporation, a majority of Americans, 54 percent, say they'd be inclined to favor the individual's side. Just 11 percent say they'd favor the business; 23 percent say they'd be neutral. Similar results hold across a range of business sectors. Anywhere from 56 to 59 percent say they'd be inclined to favor an individual plaintiff against a prescription drug manufacturer, a stock brokerage or other financial services firm, an oil or gas company or an insurance company. Two other sectors fare slightly better than that group: Fifty-two percent say they'd be inclined to side with an individual against a car manufacturer; and fewer than half, 46 percent, say they'd lean toward an individual plaintiff who'd sued a technology company. (Eighteen percent say they'd favor the tech company over the individual few, but the highest pro-business bias of any sector tested.) There is, however, one dramatic difference. Preference for individual plaintiffs essentially disappears when the defendant, rather than a large company, is "a small business located in your community." In that case, 32 percent say they'd! be inclined to favor the individual, but roughly as many, 30 percent, instead say they'd be apt to favor the small-business defendant.
Copyright 2012 DR] - Th e Voice of the Defense Bar

August 2012
90% 80% 70% 60%

59% 58%
s F a v o re d S id e in a L a w s u it B e tw e e n an In d iv id u a l a n d a C o m p a n y
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iIndividual w h o sued Corporation
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Insurance
Oil/gas
Financial
Pharma
Large corp.
Auto
Tech
Small business
Another result further marks the extent to which small businesses win special affection: In a civil case pitting a small business against a large corporation, a broad 64 percent say they'd be inclined to favor the small business, even more than say they'd favor an individual against a large company. In addition to bias in favor of individuals and small businesses, another factor experience with inferior products or service can come into play in consideration of civil cases. Asked to imagine a lawsuit involving a company with which they'd had a bad experience, 52 percent of Americans say that experience could influence their verdict as a juror. (Forty-four percent say it wouldn't influence them, with the rest unsure.)

There are some common themes in expressions of bias against large corporations in litigation. Inclination to favor individuals generally is higher among less-educated adults compared with those who've earned college degrees, among Democrats vs. Republicans, and among liberals compared with conservatives. Favoring individuals over corporations also rises among people who haven't served on juries suggesting that the experience of jury service encourages at least a somewhat more even-handed approach.

August 2012
Some of these differences are wide. Sixty-six percent of Democrats and 70 percent of liberals say they'd tend to favor individuals over large business corporations in civil suits; that falls to 43 percent of Republicans and conservatives alike, bottoming out at 36 percent of those who say they're very conservative. There's a 19-point gap between non-graduates and college graduates in favoring individuals, and a 14-point gap among those who haven't served on juries vs. those who have. Inclination to support individuals peaks at 61 percent in the West, 11 points greater than its regional low, 50 percent, in the South. And it's 15 points higher among people who've participated in class action suits, compared with those who've been invited but declined. (See Appendix B for details.)
Inclined to favor individuals vs. large business corporations

College graduates Not graduates Republicans Independents Democrats "V ery" conservatives All conservatives Moderates Liberals Served on a jury Have not served Declined to join a class action Joined a class action 41% 60% 43% 52% 66% 36% 43% 56% 70% 44% 58% 42% 57%
Many of these gaps are consistent across sectors. Democrats, liberals and less-educated adults are more apt to favor individual plaintiffs against large companies regardless of the type of business involved insurance, oil or gas, financial services, pharmaceutical, automotive or technology. There are, however, some differences among other groups. Adults under age 30 are more apt than their elders to say they'd favor individuals in cases involving pharmaceutical, insurance and automotive firms. Those age differences fade when other sectors are involved. Tendencies to side with a small business vs. a large corporation by and large reflect bias in favor of individuals, e.g. with notably greater preference for the small business side among under-30s and among political liberals vs. their conservative counterparts. There are few patterns in who's more apt to say a bad experience with a company could bias them against it in a civil case. This view is much more commonly held among people who see jury service as a

August 2012
burden (65 percent in this group say they could be biased by a bad experience) vs. those who see jury service as a civic duty (49 percent). And it's 14 points more prevalent in the Northeast compared with the Midwest.
Class Action Litigation
Overall Results
Americans see both positive and negative aspects of class action lawsuits. In a broad affirmation of these actions, about two-thirds, 65 percent, say they make corporations more responsible and accountable. In tandem with that result, just 35 percent endorse the notion that class action suits in general "unfairly attack companies that have done nothing wrong." Yet there also are widely held criticisms. Fifty-nine percent say class action lawsuits "unfairly enrich plaintiffs' lawyers." And a related finding reveals skepticism that injured parties are adequately compensated: While 40 percent say this generally is the case, 48 percent think not.
s V ie w s o n Class A c tio n Law suits
t^>5 Voice or iftt?
O d ri
6-3'
Do
Do not
Copyright c ;w . S N i < - T ot
Make corporations more responsible

Bj*
Unfairly enrich plaintiffs lawyers
Produce adequate compensation
Unfairly attack companies
10

August 2012
Whatever their pros and cons, class actions have remarkable reach: Thirty-eight percent of Americans say they've been invited to join such a suit (that's the equivalent of 90 million adults), and 15 percent overall about one in seven say they've gone ahead and done so. For invitees who've not participated, the chief reason is that joining the class did not seem to be worth the time and effort involved, cited by 52 percent (especially a concern for people who work full-time). Smaller numbers say the suit seemed unjustified (25 percent, higher among college graduates than non graduates) or too complicated (9 percent). Financial gain is not the prime motivation for many of those who have participated in class actions. About equally as many say it was "to send a message to the company involved" (45 percent) as to win damages (43 percent). Damages are common among those who've joined a class action, 70 percent say they ultimately received an award. A mere 8 percent say that award was "substantial," 19 percent call it "modest" and the most by far, 73 percent, call it "insignificant." Nonetheless among people who've participated in a class action, 68 percent say doing so was worthwhile.

Majorities across partisan and ideological groups say class action lawsuits increase corporate accountability, but that view is 11 points greater among Democrats (70 percent) than among Republicans (59 percent), and lowest among very conservatives (55 percent). Democrats, at the same time, are less apt than Republicans or political independents to say these suits unfairly attack companies that have done no wrong. But there are essentially no partisan or ideological differences in tw o other views: belief that such suits unfairly enrich plaintiffs' lawyers (about 60 percent across the board) and doubt that they adequately compensate injured parties.
Think class action lawsuits

Unfairly enrich Increase corp accountability. All Democrats Republicans Independents Liberals Moderates All conserv. Very conserv. 65% 70 59 66 70 66 63 55 Unfairly attack companies 35 26 43 40 32 34 40 40 plaintiffs' lawyers 59 60 64 60 60 61 60 60 Adequately compensate injured parties 40 39 37 43 39 39 41 36
Copyright 2012 DRi - The Voice of the Defense Bar
11

August 2012
There are sharp differences in having been invited to join a class action it's at least twice as prevalent among college graduates vs. non-graduates, among adults age 30+ vs. under-30s, and among higherincome vs. lower-income Americans. Actual participation is highest among those age 50 and older. One of the few gender differences in this survey is a gap in motivations to participate in class actions. Men who have done so are far more apt than women to say they joined in order to win damages, 55 percent vs. 31 percent; women, by contrast, are twice as likely as men to have joined a class action to send a message to the company involved, 60 vs. 31 percent. Given that women are less apt to have been in it for the money and the fact that awards by and large are rated as "insignificant" it follows that women are more likely than men, by an 18-point margin, to rate their participation in a class action as having been worthwhile.
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August 2012
Appendices Appendix A: Additional Charts

g F a v o re d S id e in a L a w su it: L a rg e C o r p o r a tio n o r S m a ll Business?
Eidri
Large corporation
Small business
Neither
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August 2012
0 J u d g e s an d J u rie s M o stly Base D e c is io n s on..,

Tf*5 Voce Ct S*
!3 d n
p-ar
> Facts and the law 'Personal opinions
47%
4 8%
Judges
Juries
14

August 2012
0 J u r y S e rv ic e a n d J u r o r E x p e rie n c e
ire ef tfn? Defcrsc Ejt
If yes, experience was: Positive 81% Negative 17%
Very positive
V -T>* jri)aCW<
Somewhat positive
Somewhat negative
Very negative
Copyright 2012 DRi - Th e Voice of the Defense Bar
15

August 2012
100% -
V ie w s o f J u r y D u ty
90% 80% 70% 60% 50% 40% 30% 20 %

-
The Vbtcc c.t tbo Sofcr.sc Bar
dri
75%
21%
10%
0%
Burden to avoid
Civic d uty to fulfill
16

August 2012
17

Au g u s t 2 0 1 2
100 %
Invited to participate -% adults* 62%
Participated % adults
Reason for participating |~% participants-|
45%
Send a Win message damages
jr|pf)pwjTa[Tr|>ifriiHFiBp?rwiwnprw[)wnffpWl.TjVi[l!TCT^ i
WfllMBHMMBlBliniliMlllffiTTiriyiyfflSlTnTTnfTO JK
18

August 2012
R eason fo r N o t P a rtic ip a tin g in a C la ss A c tio n L a w s u it
19

August 2012
W in an Award?
j If yes, the award was..r-j
^P articipatio n was...~j
73%
68%
Yes
CopyiiaM . :citt Dft T'* VJC8 aft)-* ententeflji
No
Substantial Modest Insignificant
W orth it N ot w orth it
20
Appendix B: Supplemental Table

% Favoring Individual/Company/Neither
All 18-29 65+ College graduate Non-graduate <$50K $50-100K $100K+ Liberal Moderate All conservative Very conservative Democrat Republican Independent Money Matters M oney does not matter Participated in class action Have not participation in class action Class actions unfair to companies
54/11/23 59/18/15 52/7/28 41/15/29 60/10/20 59/11/20 57/12/20 39/14/29 70/9/16 56/7/24 43/17/26 36/18/30 66/7/16 43/16/2 52/12/25 57/10/22 48/21/20 57/9/28 42/10/29 55/15/23
32/30/24 35/37/19 27/28/31 20/32/31 37/29/22 38/30/21 30/35/23 22/29/31 41/30/21 34/27/26 25/33/27 24/32/28 37/29/22 24/36/25 34/28/27 34/30/24 28/35/20 39/24/28 17/35/3 31/34/26
56/14/19 67/15/12 52/13/23 43/17/27 61/13/16 65/11/16 57/14/18 37/21/28 70/12/14 55/13/23 49/18/21 43/23/19 64/10/18 43/22/21 60/13/21 58/13/19 50/21/15 57/11/24 48/16/23 59/17/17
59/10/20 71/9/12 54/6/27 48/12/26 63/9/17 64/9/18 61/11/17 48/11/2 73/9/13 60/6/22 50/14/22 51/15/22 65/8/18 53/15/20 58/9/22 60/9/19 61/14/15 57/10/25 52/12/22 62/10/20
52/13/22 61/14/16 47/11/29 40/15/27 57/12/21 58/12/20 54/14/21 38/15/25 64/11/17 51/11/27 46/17/23 33/26/26 59/9/20 47/18/21 50/14/26 53/12/22 49/19/18 54/13/27 40/18/25 49/20/23
57/10/21 61/15/16 55/7/26 48/11/26 61/10/19 61/11/19 61/10/19 46/12/25 72/7/15 59/8/23 48/16/24 44/16/25 68/7/16 51/14/21 54/11/26 60/9/21 47/17/18 60/7/27 49/9/26 57/13/22
58/11/20 63/17/16 55/7/26 47/13/28 62/11/17 62/11/18 62/10/18 46/14/25 73/8/15 58/8/22 50/17/21 43/22/22 67/7/17 51/16/20 56/13/22 60/10/20 51/18/19 59/10/24 50/11/25 57/15/20
46/18/22 52/23/15 42/15/27 36/19/27 50/18/19 49/19/19 50/18/19 34/20/28 61/14/16 43/19/25 39/22/23 35/22/26 53/15/18 40/23/21 43/20/25 48/17/21 41/25/18 51/15/25 33/19/28 45/23/22
64/6/19 74/11/10 60/3/26 57/4/27 67/7/16 67/9/16 68/4/19 59/3/26 74/5/13 65/5/21 59/7/22 58/4/24 71/4/17 64/6/19 61/9/21 65/6/19 63/7/17 66/2/23 58/3/26 68/8/18
21

August 2012 62/12/17 37/33/19 62/13/16 65/12/15 62/11/18 66/11/15 68/10/14 54/18/17 71/6/15 Not unfair
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August 2012
Appendix C: Survey Production and Methodology

This survey was produced for DRI The Voice of the Defense Bar by Langer Research Associates LLC, a New York-based company that specializes in designing, managing and analyzing high-quality probabilitybased public opinion surveys. Langer Research produces the ongoing ABC News/Washington Post poll for ABC News, the weekly Bloomberg Consumer Comfort Index for Bloomberg LP and individual survey research projects for a range of clients. The firm is directed by Gary Langer, former director of polling at ABC News, a board member of the nonprofit Roper Center for Public Opinion Research, trustee of the National Council on Public Polls and former president of the New York Chapter of the American Association for Public Opinion Research. Langer was assisted on this project by senior research analyst Julie E. Phelan, Ph.D.; research analyst Gregory Holyk, Ph.D.; research analyst Damla Ergun, Ph.D.; and research assistant Lillian Nottingham. Field work and data tabulation were provided by SSRS/Social Science Research Solutions of Media, Pa., using its Excel national dual-frame telephone omnibus survey. The Excel sample is designed to represent the adult population of the continental United States, using a fully replicated, stratified, single-stage, random-digit-dialed sample of landline telephone households, and randomly generated cell phone numbers. Landline respondents are selected via the youngest male/youngest female procedure. Cell phone interviews are conducted with the person answering the device. Interviews are conducted in English and Spanish. Data were weighted via a multistage process to correct for unequal probabilities of respondent selection depending on the number of adults in the household and the type of telephone service used, as well as to correct for systematic nonresponse along known demographic parameters. After initial adjustments, the sample underwent iterative proportional fitting (or 'raking') to reflect U.S. adult population estimates from the March 2011 Supplement of the U.S. Census Bureau's Current Population Survey for age by gender, education, race/ethnicity and region by gender. Respondents' telephone status (cell phone only, landline only, mixed user) also was included in this procedure, based on the most recent estimates from the National Health Interview Survey of the U.S. Centers for Disease Control and Prevention. Full results are based on a total of 1,020 interviews from Aug. 15-19, 2012, including 713 completed via landline telephone and 307 via cell phones. The results have a margin of sampling error of plus or minus 4 percentage points for the full sample. All characterizations of differences in results presented in this report are statistically significant at the 95 percent confidence level.
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August 2012
Appendix D: Questionnaire and Topline Results

I have a few questions about the civil law system in this country. As opposed to criminal law, this is the system that handles lawsuits and other civil matters. 1. How confident are you that the civil law system in this country usually produces results that are just and fair are you very confident, somewhat confident, not so confident or not at all confident?
2.
Thinking about lawsuits in which one side has much more money for lawyers than the other side do you think (the side with more resources generally wins), or do you think (money doesn't make that much of a difference in the outcome)? Side with more resources generally wins 83 Money doesnt make much of a difference 13
No opinion 4
3.
Do you think it's better to have lawsuits decided by (judges) or decided by (juries)? Do you feel that way strongly, or somewhat? ' .....j " Judges ..... '-. -i j . | ' ' NET 64 j Juries No difference No opinion 5
H [.' NET 27 4.
Strongly 13
Somewhat 14
No difference 1 \j ! Strongly Somewhat (vol.) 23 41 4
Do you think (ITEM ) in civil cases usually base their decisions mostly on (the facts of the case and their understanding of the law), or mostly on (their personal opinions)? Facts/understanding of the law ------- -- - ------- ----------------------- 1 r ' f '.v Personal opinions No opinion 25 48 5 5
a. Judges b. Juries 5.
69 47
If you received a summons for jury duty, would you think of it more as a (burden to avoid) or more as a (civic duty to fulfill)?
WmSk
Burden to avoid 21
Civic duty to fulfill 75
Both equally (vol.) 2
No opinion 2
Copyright 2012 DRi - Th e Voice of the Defense Bar
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August 2012
6. I
Have you ever served on a jury, or not? Yes No 73 Not eligible (vol.) 1 No opinion 0 ]
27
7.
(IF SERVED ON A JURY) How would you describe your experience as a juror was it very positive, somewhat positive, somewhat negative or very negative?
8.
Imagine that you're a juror in a lawsuit filed against (ITEM ) by an individual saying they were defrauded or injured by that company. All else equal, which side would you be inclined to favor the (individual who sued) or the (ITEM)? Individual w ho sued a. a large business corporation b. a small business located in your community c. a manufacturer of prescription drugs d. an insurance company e. an automobile manufacturer f. a stock brokerage or other financial services company g. an oil or gas company h. a technology company 54 32 56 59 52 57 58 46 Neither (vol.) 23 24 19 20 22 21 20 22 No opinion 12 13 11 11 12 11 11 14
Company 11 30 14 10 13 10 11 18
9.
Now imagine that youre a juror in a lawsuit between (a large corporation) and (a small business). All else equal, who would you be inclined to favor the (large corporation) or the (small business)? | Large corporation 6 Small business 64 Neither (vol.) 19 No opinion 10 ]
10.
Now say you were on a jury hearing a lawsuit between two companies, and you once had a bad experience with one of those companies do you think that could influence your verdict, or not?
52
44
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August 2012
16.
(IF EVER PARTICIPATED) Did you receive an award, or not?
Yes
70
No 28
No opinion 2
17.
(IF EVER PARTICIPATED AND RECEIVED AN AWARD) Would you describe that award as substantial, modest or insignificant? 1 Substantial 8 Modest 19 Insignificant 73 No opinion * ]
16/17 NET:
-------- j
I NET Substantial Modest Insignificant 18. Received an Award 70 5 13 51 Did not receive an award 28 No opinion 2 I
(IF EVER PARTICIPATED) Do you think your participating in this suit was worthwhile, or not worth the trouble? Worthwhile 68 Not w orth trouble 27 No opinion 5 |
* signifies <0.5%
27
REMIC Status Under Fire: HUGE LOSSES FROM TAX LIABILITIES Posted on October 2, 2012 by Neil Garfield
D EFEN D AN TS E X H IB IT
If, however, the transaction does not coincide with the parties bona fide intentions, courts will ignore the stated intentions.19 The analysis of ownership cannot merely look to the agreements the parties entered into because the label parties give to a transaction does determine its character.20 Consequently, the analysis must examine the underlying economics and the attendant facts and circumstances to determine who owns the mortgage notes for tax purposes.21 (Bradley T. Borden & David Reiss are professors at Brooklyn Law School.!) They take aggressive positions, and they figure that if enough of them take an aggressive position, and theres billions of dollars at stake, then the IRS is kind of estopped from arguing with them because so much would blow up. And that is called the Wall Street Rule. That is literally the nickname for it.2 Editors Note: We have been discussing the sham nature of securitization and assignment claims for years. The IRS and others have begun to take notice. The effect will be staggering unless the Wall Street rule is established. The article below from two professors at Brooklyn Law School is a mirror of the Fordham Law Review Article written 7 years ago entitled Will the Real Party in Interest Please Stand Up. The authors state This calamity is compounded by the fact that those professional advisers should have known that the REMICs they created were flawed from the start. If these losses are realized, those professionals will face suits for damages so large that they could put them out of business. We are talking about bankers, insurers, lawyers, accounting firms and all the other players that were engaged in the make-believe game of securitization. The scheme was not flawed in my opinion, it was intentional and based on the sole premise of every PONZI scheme artist: they thought they could get away with it and they still think so. Madoff, whose PONZI scheme is now being traced to the early 1970"s, Drier who used Solows name to create the appearance of legitimate transactions that were faked from start to finish, are all in the same pot. When you look closely, there isnt any difference. They took money, they used it not the way the lender or investor intended, and they ended up lavishing on themselves huge bonuses, salaries and other gains (off-shore) that make Madoff and Dreir look like small potatoes. A REMIC allows for the pooling of mortgage loans that can then be issued as a mortgage-backed security. It is a pass-through entity for tax purposes, meaning that unlike corporations, they do not pay income tax and their owners thereby avoid the double taxation they would face from receiving corporate dividends. A REMIC is intended to be a passive investment. Because of its passive nature, a REMIC is limited as to how and when it can acquire mortgage. In particular, a REMIC must in most cases acquire its mortgages within 90 days of its start-up.3 The Internal Revenue Code provides for draconian penalties for REMICs that fail to comply with applicable legal requirements. By failing to transfer possession of the note to the pool backing the securities, Countrywide failed to comply with the requirements necessary to obtain REMIC status. Numerous other filings and reports suggest that Countrywides practice was typical of many major lenders during the early 2000s. Thus, although we rely on the facts in the Kemp case in this brief article, it has very broad application.
The article maintains a focus on the paperwork which is a common occurrence in these analyses, assuming that the REMIC existed and was somehow funded with cash and/or assets. But this was not the case and so the scenario that these authors paint is actually understated. The money appears to have been diverted from the REMIC from the very start, with no bank account or other account held by a financial institution or trustee in control of it. The authors give the banks the benefit of the doubt when they describe the actions as negligent. They stop at the doorway leading to the PONZI scheme that went into full swing at the beginning of the 2000's. BY diverting the money and then diverting the documents away from the REMICs, the banks were able to assert ownership of the loan thus enabling them to collect insurance, credit default swap and Federal bailout proceeds for themselves instead of the REMICs or the REMIC investors. The reason why so many notes were lost, destroyed, stolen or whatever is that if the insurers, investors, and counterparties on hedge products had actually seen the notes rather than data describing the notes, they would have known that the wrong parties were named on all the instruments, and that the REMICs were violating the rules to avoid double-taxation on a regular basis all without the investors knowledge. Further, the profits from tier 2 yield spread premiums, which were huge (especially in loans classified as subprime) together with the payoffs from entities who contractually agreed to waive subrogation, left the investors with no way to know, much less understand, that trillions of dollars were being paid on notes, whether they were in default or not because they were in pools where the Master Servicer ordered a write-down of the pool. Like any PONZI scheme, two things are true here, in the scheme that is papered over with false claims of securitization and assignments: the deal falls apart when people stop buying the bogus mortgage bonds and when it comes time to pay up or prove the transaction, there is no money to cover it. So the banks painted themselves into a comer that is causing the long arm of the law to close in on them due to upcoming statutes of limitations: in an ironic twist, if the loans turn out to be performing or were false declared to be in default or were false declared to be devalued, then the money received by the banks is due back to the insurers and other parties who paid. And that is why the insurers and counterparties are suing the banks based upon the misrepresentation of the quality of the loans or even the existence of the loans, and the fact that the payment was predicated upon a good faith belief that defaults had occurred when in fact they had not. Since the loans were aggregated into false mortgage bonds, the banks were able to sell the same pool multiple times which they called leveraging. And THAT is why a modified loan represents a huge loss to them. When the number of modified, reinstated or settled loans reach critical mass, the recipients of the insurance, credit default swaps and federal bailouts, must pay that money back under either contract law or tort law (fraud). In monetary terms a $30 million commercial loan might have been sold a few times with the lender receiving tens of millions of dollars, or even hundreds of millions of dollars (depending upon how bold they became). So the lender must do everything within its power to maintain the appearance of a default even if there was no default or else they not only give up their claim for default interest, they must give up multiples of the original loan that they received from third parties based upon false pretenses. It gets worse. Having received the insurance, credit default swap and federal bailout money, the original debt has been extinguished because the creditor has been paid in full according to the paperwork existing at the time of the payment from these co-obligors. The parties that paid would ordinarily have a claim for contribution against the borrower, but in most cases they contracted that right away. Hence the commercial property could emerge debt free and definitely unencumbered by a mortgage. Whether we are discussing residential loans or commercial property loans, the borrower should do their homework and realize that they actually have more leverage than the lender who is pressing for foreclosure. We
already have had one case where a whistle-blower received a huge sum of money for reporting these practices and the IRS collected enormous tax revenues from one deal. The article below shows that out of the $13 trillion in mortgages, most of it followed a path of false paper and diverted money; the liability for the professionals that put these deals together might include a criminal conspiracy but even without that the REMIC rules are very clear. Violation means double taxation, and with interest and penalties that alone could be enough to change the landscape of banks, insurers, law firms and accountants. That failure appears to cause the trusts to fail both the definitional requirement and the timing requirement that are necessary to elect REMIC status. They fail the definition requirement because they do not own obligations, and what they do own does not appear to be secured by interests in real property.44
Wall Street Rules Applied to REMIC Classification

By Bradley T. Borden & David Reiss (Bradley T. Borden & David Reiss are professors atBrooklyn Law School.') They take aggressive positions, and they figure that if enough of them take an aggressive position, and theres billions of dollars at stake, then the IRS is kind of estopped from arguing with them because so much would blow up. And that is called the Wall Street Rule. That is literally the nickname for it.2 Investors in mortgage-backed securities, built on the shoulders of the tax-advantaged Real Estate Mortgage Investment Conduit (REMIC), may be facing extraordinary tax losses because of how bankers and lawyers structured these securities. This calamity is compounded by the fact that those professional advisers should have known that the REMICs they created were flawed from the start. If these losses are realized, those professionals will face suits for damages so large that they could put them out of business. That is, unless the Wall Street Rule is applied. The issue of REMIC failure for tax purposes is important in at least three contexts: (1) in any potential effort by the IRS to clean up this industry; (2) in civil lawsuits brought by REMIC investors against promoters, underwriters, and other parties who pooled mortgages and sold mortgage-backed securities; and (3) state and federal prosecutors and regulators who consider bringing criminal or civil claims against promoters, underwriters, and other parties who pooled mortgages and sold MBSs. A History of REMIC-able Growth The first mortgage-backed securities (MBS) were issued by entities related to the federal government, like Fannie Mae and Freddie Mac, in the early 1970s. These MBS paid out to investors from their proportional share of ownership of a securitized pool of mortgages cash flow. Starting in the late 1970s, private issuers such as commercial banks and mortgage companies began to issue residential mortgage-backed securities. These private label securities are issued without the governmental or quasi-govemmental guaranty that a federally related issuer would give. Private label securitization gained momentum during the savingsand-loan crisis in the early 1980s, when Wall Street firms were able to expand market share at the expense of the beleaguered thrift sector.
Before 1986, mortgage-backed securities had various tax-related inefficiencies. First among them, such securities were taxable at the entity level, thus investors faced double taxation. Wall Street firms successfully lobbied Congress to do away with double taxation in 1986. This legislation created the REMIC, which was not taxed at the entity level. This one change automatically boosted its yields over other types of mortgage-backed securities. Unsurprisingly, REMICs displaced these other types of mortgage-backed securities and soon became the dominant choice of entity for such transactions. A REMIC allows for the pooling of mortgage loans that can then be issued as a mortgage-backed security. It is a pass-through entity for tax purposes, meaning that unlike corporations, they do not pay income tax and their owners thereby avoid the double taxation they would face from receiving corporate dividends. A REMIC is intended to be a passive investment. Because of its passive nature, a REMIC is limited as to how and when it can acquire mortgage. In particular, a REMIC must in most cases acquire its mortgages within 90 days of its start-up.3 The Internal Revenue Code provides for draconian penalties for REMICs that fail to comply with applicable legal requirements. In the 1990s, the housing finance industry, still faced with the patchwork of state and local laws relating to real estate, sought to streamline the process of assigning mortgages from one mortgage pool to another. Industry players, including Fannie and Freddie and the Mortgage Bankers Association, advocated for The Mortgage Electronic Recording System (MERS), which was up and running by the end of the decade. A MERS mortgage contains a statement that MERS is a separate corporation that is acting solely as nominee for the Lender and Lenders successors and assigns. MERS is the mortgagee under this Security Instrument.4 MERS is not named on any note endorsement. This new system saved lenders a small but not insignificant amount of money every time a mortgage was transferred. However, the legal status of this private recording system was not clear and had not been ratified by Congress. Notwithstanding that fact, nearly all of the major mortgage originators participated in MERS and MERS registered millions of mortgages within a couple of years of being up and running. Beginning in early 2000s, MERS and other parties in the mortgage securitization industry began to relax many of the procedures and practices they originally used to assign mortgages among industry players. Litigation documents and decided cases reveal how relaxed the procedures and practices became. Hitting a crescendo right before the global financial crisis hit, the practices became egregiously negligent. The practices at Countrywide Home Loans Inc. (then one of the nations largest loan originators in terms of volume and now part of Bank of America) illustrate the outrageous behavior of mortgage securitizers that was typical during that period. ifem/-temptabIe Practices In re Kemp demonstrates that securitizers did not follow the rules applicable to REMICs when issuing mortgage-backed securities. On May 31, 2006, Countrywide Home Loans Inc., lent $167,000 to John Kemp.5 At that time, Kemp signed a note listing Countrywide Home Loans Inc., as the lender; no indorsement appeared on the note. An unsigned allonge (a piece of paper attached to a negotiable note that allows for the memorialization of additional assignments if there is not sufficient room on the note itself to do so) of the same date accompanied the note and directed Kemp to Pay to the Order of Countrywide Home Loans Inc., d/b/a Americas Wholesale Lender.
On the same day, Kemp signed a mortgage in the amount of $167,000, which listed the lender as Americas Wholesale Lender. The mortgage named MERS as the mortgagee and authorized it to act solely as nominee for the lender and the lenders successors and assigns. The mortgage referenced the note Kemp signed, and it was recorded in the local county clerks office on July 13, 2006. On June 28, 2006, Countrywide Home Loans Inc., as seller, entered into a Pooling and Servicing Agreement (PSA) with CWABS, Inc., as depositor; Countrywide Home Loans Servicing LP as master servicer; and Bank of New York as trustee. The PSA provided that Countrywide Home Loans Inc., sold, transferred, or assigned to the depositor all the right, title and interest of [Countrywide Home Loans, Inc.] in and to the Initial Mortgage Loans, including all interest and principal received and receivable by Countrywide. The PSA further provided that the depositor would then transfer the Initial Mortgage Loans, which include Kemps loan, to the trustee in exchange for certificates referred to as Asset-backed Certificates, Series 20068. The depositor apparently then sold the certificates to investors. The PSA also provided that the depositor would deliver the original Mortgage Note, endorsed by manual or facsimile signature in blank in the following form: Pay to the order o f________without recourse, with all intervening endorsements from the originator to the Person endorsing the Mortgage Note. Although Kemps note was supposed to be subject to the PSA, it was never endorsed in blank or delivered to the depositor or trustee as required by the PSA. At that time, no one recorded a transfer of the note or the mortgage with the county clerk. On March 14, 2007, MERS assigned Kemps mortgage to Bank of New York as trustee for the Certificate Holders CWABS Inc. Asset-backed Certificates, Series 2006-8. The assignment purported to assign Kemps mortgage [tjogether with the Bond, Note or other obligation described in the Mortgage, and the money due and to become due thereon, with interest. That assignment was recorded on March 24, 2008. On May 9, 2008, Kemp filed a voluntary bankruptcy petition. On June 11, 2008, Countrywide, identifying itself as servicer for the Bank of New York, filed a secured proof of claim noting Kemps property as collateral for the claim. In response, Kemp filed an adversary complaint on October 16, 2008, against Countrywide Home Loans, Inc., seeking to expunge its proof of claim. At trial, Countrywide Home Loans, Inc., produced a new undated Allonge to Promissory Note, which directed Kemp to Pay to the Order of Bank of New York, as Trustee for the Certificate-holders CWABS, Inc., Assetbacked Certificates, Series 6006-8. A supervisor and operational team leader for the apparent successor entity of Countrywide Home Loans Servicing LP testified that the new allonge was prepared in anticipation of the litigation and was signed weeks before the trial. That same person testified that the Kemps original note never left the possession of Countrywide Home Loans, Inc., but instead, it went to its foreclosure unit. She also testified that the new allonge had not been attached to Kemps note and that customarily, Countrywide Home Loans, Inc., maintained possession of the notes and related loan documents. In a later submission, Countrywide Home Loans, Inc., represented that it had the original note with the new allonge attached, but it provided no additional information regarding the chain of title of the note. It also produced a Lost Note Certificate dated February 1, 2007, providing that Kemps original note had been misplaced, lost or destroyed, and after a thorough and diligent search, no one has been able to locate the original Note. The court therefore concluded that at the time of the filing of the proof of claim, Kemps mortgage had been assigned to the Bank of New York, but Countrywide had not transferred possession of the associated note to the Bank of New York. By failing to transfer possession of the note to the pool backing the securities, Countrywide failed to comply with the requirements necessary to obtain REMIC status. Numerous other filings and reports suggest that
Countrywides practice was typical of many major lenders during the early 2000s. Thus, although we rely on the facts in the Kemp case in this brief article, it has very broad application. Sloppiness and REMICs Rules Dont Mix Well Even though a minority of securitizers may have followed the terms contained in the applicable Pooling and Servicing Agreements, there is very low tolerance for deviation in the REMIC rules. This suggests that compliance in a minority of situations would not prevent the IRS from finding that individual REMICs fail to comply with their strict requirements in an overwhelming number of cases. And the failure of a very small num ber o f mortgages to comply with the rules would be sufficient to cause a putative REMIC to lose its preferred-tax status. Federal tax treatment of REMICs is important in two respects. First, it treats regular interests in REMICs as debt instruments.6 Second, federal tax law specially classifies REMICs as something other than tax corporations, tax partnerships, or trust and generally exempts them from federal income taxation.7 These two aspects of REMICs work hand in hand to provide REMICs favorable tax treatment. REMICs must compute taxable income, but because the regular interests are treated as debt instruments, REMICs deduct amounts that constitute interest payments to the holders of residual interests.8 Without these rules, a REMIC could be a tax corporation and the regular interests could be equity interests. If that were the case, the REMIC would not be able to deduct payments made to the regular interest holders and would owe federal income tax on its taxable income. That is how the REMIC classification provides significant tax benefits. To obtain REMIC classification, a trust must satisfy several requirements. Of particular interest is the requirement that within three months after the trusts startup date, substantially all of its assets must be qualified mortgages.9 The regulations provide that substantially all of the assets of a trust are qualified mortgages if no more than a de minimis amount of the trusts assets are not qualified mortgages.10 The regulations do not define what constitutes a de minimis amount of assets, but they provide that substantially all of the assets are permitted assets if no more than one percent of the aggregate basis of all of the trusts assets is attributed to prohibited assets.11 If the aggregate basis of the prohibited assets exceeds the one percent threshold, the trust may nonetheless be able to demonstrate that it owns no more than a de minimis amount of prohibited assets.12 Thus, almost all of a REMICs assets must be qualified mortgages.
* A qualified mortgage is an obligation that is principally secured by an interest in real property. The trust must acquire the obligation by contribution on the startup date or by purchase within three months after the startup date.14 Thus, to be a qualified mortgage, an asset must satisfy both a definitional requirement (be an obligation principally secured by an interest in real property) and a timing requirement (be acquired within three months after the startup date).
1^
Industry practices raise questions about whether trusts satisfied either the definitional requirement or the timing requirement. The general practice was for trusts and loan originators to enter into PSAs, which required the originator to transfer the mortgage note and mortgage to the trust. Nonetheless, as with Kemp, reports and court documents indicate that originators and trusts frequently did not comply with the terms of the PSAs and the originator typically retained the mortgage notes and mortgages. That failure appears to cause the trusts to fail both the definitional requirement and the timing requirement that are necessary to elect REMIC status. They fail the definition requirement because they do not own obligations, and what they do own does not appear to be secured by interests in real property.
They fail the timing requirement because they do not acquire the requisite interests within the three-month prescribed time frame. And even if the trusts acquired some obligations principally secured by interests in real property, many of their assets would not satisfy the REMIC requirements. This would result in the trusts owning more than a de minimis amount of prohibited assets. If more than a de minimis amount of a trusts assets are prohibited assets, then it would not be eligible for REMIC status. The Un-MERS-iful Stringency of the REMIC Regulations Federal tax law does not rely upon the state-law definition of ownership, but it looks to state law to determine parties rights, obligations, and interests in property.15 Tax law can also disregard the transfer (or lack of transfer) of formal title where the transferor retains many of the benefits and burdens of ownership.16 Courts focus on whether the benefits and burdens of ownership pass from one party to another when considering who is the owner of property for tax purposes.17 As the Tax Court has stated, to properly discern the true character of [a transaction], it is necessary to ascertain the intention of the parties as evidenced by the written agreements, read in light of the attending facts and circumstances.18 If, however, the transaction does not coincide with the parties bona fide intentions, courts will ignore the stated intentions.19 Thus, the analysis of ownership cannot merely look to the agreements the parties entered into because the label parties give to a transaction does determine its character. Consequently, the analysis must examine the underlying economics and the attendant facts and circumstances to determine who owns the mortgage notes for tax purposes. 1 Courts in many states have considered the legal rights and obligations of REMICs with respect to mortgage notes and mortgages they claim to own. The range of issues state courts have considered with respect to REMIC mortgage notes and mortgages range from standing to foreclose,22 entitlement to notice of bankruptcy proceeding against a mortgagor,23 to ownership of a mortgage note under a states commercial code.24 As these cases indicate, at least with respect to the question of security interest, the courts are split with some ruling in favor of MERS and others ruling in favor of other parties whose interests are adverse to MERS. Apparently, no court has considered how significant these rules are with respect to REMIC classification. Standing to foreclose and participate in a bankruptcy proceeding will likely affect the analysis of whether REMIC trust assets are secured by an interest in real property, but they probably do not affect the analysis of whether the REMIC trusts own obligations. This analysis turns on the ownership of the mortgage notes. In re Kemp addressed the issue of enforceability of a note under the uniform commercial code (UCC) for bankruptcy purposes.25 The court in that case held that a note was unenforceable against the maker of the note and the makers property under New Jersey law on two grounds.26 The court held that because the owner of the note, the Bank of New York, did not have possession and the lack of proper indorsement upon sale made the note unenforceable.27 Recognizing that the mortgage note came within the UCC definition of negotiable instrument,28 the court then considered who is a party entitled to enforce a negotiable instrument.29 Only the following three types persons are entitled to enforce a negotiable instrument: 1) the holder of the instrument, 2) a nonholder in possession of the instrument who has the right of a holder, or 3) a person not in possession of the instrument who is entitled to enforce the instrument pursuant to UCC 3309 or 3-418(d).30 The Kemp court then explained why the Bank of New York did not come within the definition of a party entitled to enforce the negotiable instrument.
This analysis illustrates how courts may reach results that undercut arguments that REMICs were the owners of the mortgage notes and mortgages for tax purposes. But even if the majority of states rule in favor of REMICs, the few that do not can destroy the REMIC classification of many MBS that were structured to be - and promoted to investors as - REMICs. Because rating agencies require that REMICs be geographically diversified in order to spread the risk of default caused by local economic conditions, REMICs hold notes and mortgages from multiple jurisdictions. Most, if not all, REMICs own mortgages notes and mortgages from states governed by laws that the courts determine do not support REMIC eligibility for the mortgages from those jurisdictions. This diversification requirement ensures that REMICs will have more than a de minimis amount of mortgages notes that do not come within the definition of qualified mortgage under the REMIC regulations. IRS-ponsible Industry Regulation Law firms issued opinions that MBS transactions would qualify as REMICs. They did so even though they knew or should have known that an insufficient percent of trust assets would satisfy the definition of qualified mortgage under the REMIC rules. Nonetheless, the IRS does not appear to be engaged in auditing REMICs. Its reasons for not challenging REMIC status at this time may be justified as they study the issue and observe the outcome of the numerous actions against REMICs and originators. Because REMICs did not file the correct returns and may have committed fraud, the statute of limitations for earlier years will remain open indefinitely, giving the IRS adequate time to pursue REMIC litigation after it obtains the information it needs. If the IRS does not take action at the appropriate time, however, it will be a serious failure and will result in the loss of billions of dollars of tax revenue for the federal government. More troubling still is the IRSs failure to address the wide-scale abuse and problems that existed during the years leading up to the financial meltdown. The IRSs failure to adequately police REMICs is one more reason that the mortgage industry was able to overly inflate the housing market. And that, inexorably, led to the crash and our tepid recovery from it. More generally, by overlooking the serious defects in the transactions, courts and governmental agencies encourage the type of behavior that led to the financial crisis. Lawmakers, law enforcement agencies and the judiciary cede their governing functions to private industry if they allow players to disregard the law and stride to create law through their own practices. If we allow the Wall Street Rule to apply, then Wall Street rules. If the rule of law is respected, then Main Street can look forward to the equal protection of the law and returned prosperity without fear of bubbles inflating because powerful special interests can flout the law that applies to the rest of us. Notes 1 This brief article is drawn from a forthcoming study by the authors. 2012 Bradley T. Borden and David Reiss. Professor David Reiss is the founding director of the Community Development Clinic at Brooklyn Law School and teaches property law and real estate law. His articles expound upon the secondary mortgage markets, predatory lending, and housing policy and he is a regular commentator in the news on these topics. Professor Bradley Borden is a leading authority on taxation of real property transactions and flow-through entities. He teaches Partnership Taxation, Taxation of Real Estate Transactions, and a general income tax course. He is also a prolific writer whose articles appear in numerous journals and is the author or co-author of several books. He is also a regular commentator on these topics in the news.
2 Lee Shepard, Bain Capital Tax Documents Draw Mixed Reaction, ALL THINGS CONSIDERED, (NPR Business broadcast Aug. 28, 2012) (discussing taxation of private equity management compensation), available at http://www.npr.org/plaver/v2/mediaPlayer.html?action=l&t=l&islist=false&id=160196045&m=160201502 (emphasis added). 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 26 U.S.C. 860G(a)(3). (9). See, e.g., Brook Boyd, Real Estate Financing 14.05[9] (2005). See In re Kemp. 440 B.R. 624, 627 (Bkrtcy D.N.J. 2010). &eIRC 860B(a). 860C(b)(l)(A). SeelRC 860A(a). SeelRC 163(a). 860C(b)(l)(A). SeelRC 860D(a)(4). SeeTreas. Reg. 1.860D-l(b)(3)(i). SeeTreas. Reg. 1.860D-l(b)(3)(ii). See Treas. Reg. $ 1.860D-l(b)(3)(ii). SeelRC 860G(a)(3)(A). 5eeIRC 860G(a)(3)(A)(i). (ii). See, e.g., Burnet v. Harmel, 287 U.S. 103. 110 (1932). See Bailey v. Comm >,912 F.2d 44. 47 (2d Cir. 1990). Grodt & McKay Realty. Inc. v. Comm >, 77 T.C. 1221. 1237 (1981). See Haggard v. Comm >. 24 T.C. 1124. 1129 (1955). aff'd 241 F.2d 288 (9th Cir. 1956). See Union Planters National Bank of Memphis v. United States. 426 F.2d 115. 117 (6th Cir. 1970). See Helvering v. F. & R. Lazarus & Co.308 U.S. 252. 255 (1939). See Helverins v. F. & R. Lazarus & Co., 308 U.S. 252. 255 (1939).
22 See Bain v. Metropolitan Mortgage Group, Inc., 2012 WL 3517326 (Wash. 2012) (holding that MERS was not a beneficiary under Washington Deed of Trust Act because it did not hold the mortgage note); Eaton v. Federal National Mortgage Association. 462 Mass. 569 (Mass. 2012); Ralph v. Met Life Home Loans, _ _ _ (5th D. Idaho August 10, 2011) (holding that MERS was not the beneficial owner of a deed of trust, so its assignment was a nullity and the assignee could not bring a nonjudicial foreclosure against the borrower); Fowler v. Recontrust Company, N.A., 2011 WL 839863 (D. Utah March 10. 2011) (holding that MERS is the beneficial owner under Utah law); Jackson v. Mortgage Electronic Registration Systems, Inc.. 770 N. W.2d 487
('Minn. 2009) (holding that MERS, as nominee, could institute a foreclosure by advertisement, i.e., a nonjudicial foreclosure, based upon Minnesota MERS statute that allows nominee to foreclose). 23 See Landmark National Bank v. Kesler, 289 Kan. 528. 216 P.3d 158 (Kan. 2009) (holding that MERS had no interest in the property and was not entitled to notice of bankruptcy or to intervene to challenge it). 24 See In re Kemp, 440 B.R. 624 (Bkrtcy.D.N.J. 2010). 25 See In re Kemp. 440 B.R. 624 (Bkrtcy.D.N.J. 2010). A claim in bankruptcy is disallowed after an objection to the extent that... such claim is unenforceable against the debtor and property of the debtor, under any agreement or applicable law for a reason other than because such claim is contingent or unmatured. See id. at 629 (citing 11 U.S.C. $ 502(b)(1). New Jersey adopted the UCC in____. See ___ . This article cites to the UCC generally instead of specifically to the New Jersey UCC to illustrate the general applicability of the holding. 26 27 28 29 30 See In re Kemp at 629-30. See In re Kemp at 629-30. See In re Kempat 630. See In re Kempat 630. SeeUnif. Commercial Code 3-301.
University of Pennsylvania L a w School
ILE
INSTITUTE FOR LAW AND ECONOMICS
A Joint Research Center of the Law School, T h e Wharton School, and Th e Department of Economics in the School of Arts and Sciences of the University of Pennsylvania
GEORGETOWN UNIVERSITY LAW CENTER
Business, Economics & Regulatory Policy Working Paper Series Research Paper No. 2114620 Public Law & Legal Theory Working Paper Series Research Paper No. 2114620
R e s e a r c h P a p e r No. 12-28
23 H o u sin g P o lic y D e b a te (forthcoming 2012)

G eo r g e to w n U n iv e r sit y L a w C en te r
W hy H o u sin g ?
Adam J. Levitin
T h e Wh a r t o n S ch o o l , U n iv e r sit y o f P en n sylvan ia
Susan M. Wachter
August 3 1 ,2 0 1 2 V ersion This paper can be downloaded without charge from the Social Science Research Network Electronic Paper Collection at: http://ssm.com/abstraclK2114620
DEFENDANTS EXHIBIT
W hy H ousing ?
A dam J. L e v itin 1 & S u sa n M. W a c h te r*
What made housing vulnerable to a bubble? And why has the housing market been so impervious to attempts at resuscitation? This Article critically reviews the theories of the housing bubble. It argues that housing is unusually susceptible to booms and busts because credit conditions affect demand and because the market is incomplete and difficult to short. Housing market distress transmits to the macroeconomy through a balance sheet channel, a construction channel, and a collateral channel. Housing is unique as an asset class in that it is both a consumption and investment good. It is also the largest single consumer asset and debt class. Because housing is credit-backed and such a large asset class, failure will impact the financial system itself and pull down the economy as a whole. The dual-use of housing, its ubiquity on consumer balance sheets, its highly correlated pricing, and its linkage to the macroeconomy make it a particularly painful type of asset bubble to deflate. The credit-backed nature of housing is also the key to understanding why there was a bubble. We argue that the bubble must be understood as stemming from the change in the mortgage financing channel from Agency securitization to private-label securitization (PLS). This shift enabled financial intermediarieseconomic, but not legal agents of borrowers and investorsto exploit the information problems inherent in PLS for their own short-term gain. In other words, a set of agency problems in financial intermediation was the critical factor in fomenting the housing bubble.
1 Bruce W. Nichols Visiting Professor of Law, Harvard Law School; Professor of Law, Georgetown University Law Center. * Richard B. Worley Professor of Financial Management and Professor of Real Estate and Finance, Wharton School, University of Pennsylvania.
2012, Adam J. Levitin & Susan M. Wachter
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Introduction...........................................................................................................2 I. The Bubble in the Literature..........................................................................5 A. Bubble Denial...........................................................................................5 C. Bubble Agnosticism................................................................................ 8 D. Bubble Believers....................................................................................11 II. The Inside Inside Job..................................................................................11 A. The Shift to Private-Label Securitization......................................... 11 B. A Tale of Two Boom s..........................................................................11 C. Enter the CDOs...................................................................................... 13 D. Didnt the Insiders Get It Wrong?......................................................18 III. The Social Nature of Housing.................................................................20 A. The Economic Importance of Housing............................................. 20 B. Default Spirals.......................................................................................21 C. Housing Externalities............................................................................22 Conclusion..........................................................................................................23 References...........................................................................................................25 I n tro ductio n Five years after the bubble burst, the US housing market is still in disarray. Delinquencies and foreclosures, while slightly down, are still at near record levels. Near a quarter of mortgagors remain underwater on their properties. Fannie Mae and Freddie Mac are still in conservatorship and the private-label securitization market is dead. Even with record low interest rates, originations and new home construction are anemic. There is little sign that the situation will soon change, with neither the Administration nor Congress pushing major housing policy initiatives. Indeed, it could well be said that the United States currently lacks a housing policy. For years, housing policy was clear: increase homeownership. This simple directive helped gloss over the lack of coordination in housing policy, which is splintered among numerous agencies: HUD (for low-to-moderate income households), FHFA (for middle income households), the bank regulators (for high income households), the Federal Reserve Board (for interest rates), the VA, the CFPB (for consumer protection), as well as state and local housing agencies. Now, however, it is not clear whether the goal o f housing policy should be to maximize homeownership, to maintain homeownership at a particular level, to facilitate rental stock, to
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encourage single-family or multi-family construction, to encourage green and transportation-accessible development, etc. Similarly, there is no clear policy on how to deal with the housing bubbles legacy problemsforeclosures and negative equity nor is there a clear policy about what to do with the broken housing finance system: What is to become o f Fannie Mae and Freddie Mac? Can the private-label securitization market be revived? Will covered bonds make inroads in the United States? Will the 30-year fixed-rate mortgage continue as the standard product? The lack of housing policy and housing finance policy should not be a surprise; we are still coming to terms with what caused the housing bubble. Until there is a clear consensus on the causes of the bubble, it is unlikely that we will see significant action in formulating a housing policy; any housing policy must account for the lessons of the bubble. Still, in making sense of the events of the past several years, it is necessary to start with a fundamental question: Why housing? What made housing vulnerable to a bubble? And why has the housing market been so impervious to attempts at resuscitation? This Article critically reviews the theories of the housing bubble. It argues that housing is unusually susceptible to booms and busts because credit conditions affect demand and because the market is incomplete and difficult to short. Housing is also unique as an asset class in that it is both a consumption and investment good and as an investment good, purchase frequently requires borrowing. Because real estate lending is based on appraised values, higher housing prices justify more credit, enabling the unsustainable upward price spiral to which all forms of asset-based lending are vulnerable, as Veblen (1904) observed. Because homeowners are generally both occupants and borrowers the result, when a residential mortgage fails is a foreclosure and eviction for the owner-occupant. The result adds to housing inventory. This problem does not exist for other asset classes, such as commercial mortgage, where the mortgagor is usually not the occupant, and foreclosure does not result in an increase in commercial real estate inventory through an eviction. The foreclosure-eviction outcome is not only socially disruptive to families and neighborhoods, but also potentially disruptive of the economy because it causes housing price volatility, which can impair household and financial institutions balance sheets.
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Because housing is credit backed and the most important asset and debt on households balance sheet, and because the financial sector is itself leveraged, widespread mortgage defaults will impact the financial system itself, potentially pulling down the economy as a whole. The dual-use of housing, its ubiquity on consumer balance sheets, its highly correlated pricing within and across markets, and its linkage to the macroeconomy through the balance sheet channel, construction channel, and financial sector collateral channel make it a particularly painful type of asset bubble to deflate. It is also a difficult asset bubble to deflate because of the inherent limits to arbitrage. When prices get out of line with fundamentals, it is not possible to sell homes short (meaning selling homes one does not own with the aim of purchasing them at a lower price prior to delivery on the first sale).1 While housing may be uniquely susceptible to bubbles with deep social and economic consequences, the housing bubble did not simply happen on its own. In our view it was a man-made, rather than a marketmade event. We argue that the bubble must be understood as stemming from the change in the mortgage financing channel from Agency securitization to private-label securitization (PLS). This shift enabled financial intermediaries economic, but not legal agents of borrowers and investorsto exploit the information problems inherent in PLS for their own short-term gain. In other words, we see agency problems as lying at the heart o f the housing bubble.2 The shift in the financing channel was possible only because of the artificial demand created for the junior, riskiest tranches o f privatelabel securitizations via resecuritization using collateralized debt obligations (CDOs). The CDOs were essentially a manufactured, captive source of demand for the most concentrated risk in the housing market. This artificial demand enabled financial institutions to unsustainably expand the market and profit from the expansion. The explanation of the bubble we present, then, is a story of an inside job, in which some parts of the financial services industry (and their shareholders at the time) did very well for a short time, even if the bubble was ultimately disastrous for many of the firms that helped create it.
1 Selling standardized mortgage-backed securities (MBS) and financial derivatives backed by the collateral is of course possible if there is a market in which these assets trade, as discussed abelow. 2 In other work, we lay out in detail the role information problems played in the ubble and how agency conflicts in mortgage finance enabled the exploitation of these information problems. (Levitin & Wachter, 2012, at http://ssm.com/abstract=l 669401; Levitin, Pavlov & Wachter, 2012, at http://ssm.com/abstract=l 970288.)
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A. Bubble Denial
The Article proceeds as follows. Section I reviews the literature on the causes of the housing market boom and bust, with an emphasis on recent work in this burgeoning area o f inquiry. Section II sets forth what we believe is the most cogent explanation for the bubble. Section III then considers the social nature of housing and its links to the macroeconomy. A conclusion discusses the implications for housing and housing finance policy going forward. I. T he B u bble in the L iterature Was there a bubble? And, if so, when did it start? As John Cochrane (2011) has recently said: Crying bubble is empty unless you have an operational procedure for distinguishing them from rationally low risk premiums. Could we have seen it coming? And if so, was it avoidable? Or will bubbles always take us by surprise?
Part of the bubble literature denies that there even was a bubble or at least contends that it was and is not identifiable as such. At the time of the housing price run-up, some, including Federal Reserve Chairman Alan Greenspan (2004) argued that housing prices were being driven by fundamentals and, in fact, that housing could not be subject to a bubble because frequent buying and selling of homes is not possible. While few, if any, would make Greenspans argument today, there are subtler versions of the fundamentals argument that are in fact plausible. The fundamentals in question derive from the financing of housing, rather than the demographic and income driven demand side or physical supply side issues (although they may play a role as discussed below). The supply of capital is critical to housing since its purchase and sale must be mediated by financing given the size of the purchase and its long life as a consumer durable. Low interest rate environments, and, specifically, low yield spreads over Treasury rates, automatically result in higher asset prices (based on the increased value o f the imputed rent or other cash flow from the asset). In the canonical model, asset prices are formed based on current and expected yields and current and expected cash flows; lower yields mirror higher asset prices. Based on this, there is an argument within the paradigm of the Efficient Market Hypothesis (EMH) that justifies the declining yield spread and subsequent rise in housing prices during the 2000s as the outcome of rational behavior by market participants, rather than a bubble. Such an argument has been made in a recent paper by Favilukis, Ludvigson, and Van Nieuwerburgh (FLV) (2012), which suggests that in
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the boom period, households became better able to smooth their consumption due to financial market liberalization and technological gains, thus reducing the risk in the economy and the risk of investments. Investors could therefore accept a lower rate of return for riskier assets, resulting in a price rise and in the declining yield spread and simultaneous proliferation of risky, expensive real estate products. FLV distinguish their explanation of credit expansion and price rises based relaxed credit constraints due to technology advances from Bemanke et al. (2011)s global savings glut explanation. Bemanke et al., argue that a surplus of savings from emerging market countries was invested in safe US assets, namely Treasuries and Agency securities. The influx of emerging market capital displaced US and European investors, who invested instead in other AAA-rated assets, especially structured financial products like private-label MBS (PLS) thereby creating a surfeit of financing that lowered mortgage costs and enabled prices to be bid up. FLV, however, conclude that the increased access to credit is not consistent with Bemanke et al.s global savings glut argument because the inflow of foreign capital would reduce the supply of safe assets available to American investors. A reduced supply of safe assets would increase American investors exposure to riskier assets and therefore result in higher yield spreads. As higher yield spreads did not occur, FLV conclude that there could not have been a global savings glut. Critically, FLVs argument assumes a constrained supply of safe assets, a point we take up later in Part II. The basic set of facts that FLV and others observe and attempt to explain is the rise in credit and housing prices and decline in credit constraints and in required yields. Which of these is cause and which is effect? The burgeoning macro literature uses structural vector error correction models to test for which came first. A number of recent empirical papers attempt to disentangle whether the decline in credit constraints caused price rises or whether price rises caused a decline in credit constraints. They find a mutual dependence between credit and housing prices. (Anundsen & Jansen 2012; Berlinghieri, 2010; Oikarinen, 2009a; Oikarinen, 2009b; Sophocles & Vlassopoulos, 2009; Fitzpatrick & McQuinn, 2007; Gerlach & Peng, 2005; Gimeno & Martinez-Carrascal, 2010; Hoffman, 2004; Hoffman, 2003). A conceptual base for this mutual dependence is established by Adrian and Boyarchenko (2012), which presents a theory of financial intermediary leverage cycles. The interaction among production,
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financial intermediation, and household sectors amplifies fundamental shocks that affect the real economic activity. Financial intermediaries leverage is procyclical because of risk-sensitive funding constraints. Therefore, financial intermediaries produce greater output and consumption growth and less consumption volatility than they would with constant leverage, but they do so at the cost of systemic risk. The fact that credit constraints declined and impacted housing prices in the bubble years is not in question as part of the story, although evidence is for a bidirectional causation. The historical increase in volume and share of subprime as well as other non-traditional mortgage finance is clear. As Table 1 shows, there was an unprecedented expansion in aggressive mortgage lending during the bubble years, although we should note that these aggregate data are only recently available, and were not available in real time in the expansionary period. These data do not show what still is not known: the layering of risk on individual loans and the extent of missing or inaccurate or fraudulent information. Table 1. Decline in Underwriting Quality During Bubble3
Year Sector Issued
AltA AltA AltA AltA AltA Prime Prime Prime Prime Prime Pre2005 2005 2006 2007 2008 Pre2005 2005 2006 2007 2008
Avg Loan
$240,729.31 $285,178.79 $317,050.44 $360,667.35 $456,839.34 $412,684.19 $494,833.63 $566,814.87 $616,609.88 $708,515.75 $142,176.27 $180,000.15 $188,385.23 $199,223.96 $232,583.03
Interest Interest Negative ARM Only ARM Only FRM Amortization FICO LTV CLTV Piggyback Full Doc WAC
48% 71% 71% 66% 93% 40% 65% 53% 45% 51% 69% 81% 80% 73% 17% 24% 32% 30% 39% 55% 20% 48% 46% 38% 44% 6% 26% 18% 14% 4% 2% 8% 11% 14% 2% 0% 5% 13% 19% 11% 0% 1% 1% 2% 11% 11% 32% 36% 32% 29% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 709 712 710 713 725 732 740 741 742 748 616 627 626 625 616 74% 74% 75% 75% 73% 68% 69% 70% 71% 71% 80% 81% 81% 82% 78% 77% 79% 81% 80% 76% 69% 71% 73% 75% 74% 81% 85% 87% 86% 78% 15% 31% 40% 36% 24% 5% 20% 25% 30% 19% 8% 23% 29% 21% 2% 31% 29% 18% 18% 28% 62% 55% 49% 47% 54% 66% 59% 56% 57% 59% 6.27 5.34 6.50 6.90 6.92 6.07 5.42 6.18 6.24 6.63 8.08 7.24 8.11 8.31 8.50
Subprime Pre2005 Subprime 2005 Subprime 2006 Subprime Subprime 2007 2008
Moreover, a recent paper by Barakova et al. (2012) directly tests for the extent o f credit constraints in this period and finds that credit constraints associated with income and with poor credit quality history declined significantly from 2004 through 2007 and that these declines were associated with price rises in the markets in which they occurred. Other work also demonstrates the simultaneous expansion of credit and rise in prices over time and space. Mian and Sufi (2009) find that ZIP codes with a larger expansion of the supply of mortgage credit experienced more rapid increases in house prices and subsequent
3 Fitch RMBS Performance Metrics.
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defaults, even though these ZIP codes had lower income and employment growth. Pavlov and Wachter (2006) similarly fmd, in an 18country cross-section analysis, that countries with greater underpricing of credit experienced much deeper asset market crashes. Taken as a whole, this empirical work supports explanations where credit expansion and price rises occurred together and with causation going both ways. This is of course consistent with the stylized facts of an increase in credit availability, a decrease in yield spreads, and a rise in housing prices. These empirical data, however, do not answer the Cochrane question, namely whether there is an operational way to distinguish between a bubble and a rational decline in the cost o f capital consistent with the FLVs EMH market explanation. In other words, was the increase in housing prices the result of a disinnovation or an innovation and could this be known in real time?
C. Bubble Agnosticism
Another stream of post-crisis literature is epistemologically agnostic. It contends that it is impossible to operationally distinguish between bubbles and rationally based asset price increases. There may or may not have been a bubble, but we simply cannot tell. Foote, Gerardi, and Willen (FGW), for example, specifically argues that the price increases in the 2000s could not and still cannot, in retrospect, be identified as a bubble. They also identify a number of factors, including securitization and the originate-to-distribute mortgage lending model and government affordable housing policies that they believe are not responsible for the bubble. They argue that the evidence is against these possible explanations for housing price inflation during the boom years. Instead, they assertthat the only explanation consistent with the available data was that there was a mass delusion, (Neyfakh, 2012) and because it was a mass delusion, it was inherently neither detected nor detectable in other words, the housing bubble is beyond explanation it is the economics of the ineffable. As it stands, detecting a housing price bubble is necessarily a joint test of the validity of the model identifying the bubble and of the actual existence of the bubble. A claim of a bubble is always subject to a critique of an incomplete model, although such a critique never touches on whether there is in fact a bubble but rather focuses on the inadequacy of the model and the fact that there are likely to be other fundamental forces which if they were known could complete the model and thus explain the run-up in housing prices.
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FGW in fact points to the unwillingness of those economists whose models pointed to pervasive positive errors to call a bubble. FGW also points to the active trading of MBS and specifically asserts that there was rich information available about the pricing of individual mortgages and individual MBS. FGW, however, does not consider credit characteristics, in aggregate, which are at least potentially knowable. A bubble cannot be identified from a sampling of loans, such as the information for particular deals, which is what FGW notes was available to investors in the 2000s. But to understand the impact of credit on housing prices, it is necessary to know the aggregate supply of credit and the attributes of that supply, not merely anecdotal information on individual loans or samples. Aggregate data is necessary to model the impact of a potential change in credit and economic conditions on future credit availability and therefore on the performance of mortgages, including not only mortgages that require refinancing, but also those mortgages potentially impacted by an increase in foreclosure rates. Aggregate data would be necessary to identify a bubble. It would, however, have been an impossible task to aggregate the terms of the loans being underwritten in the US mortgage market in the 2000s given the heterogeneity of those loans. Even now it is not possible to know in aggregate the layering o f risk and the loan level corruption of information that was transferred to deal tapes. Absent standardization of products and exclusion of niche products to minimal market share, it is not possible to aggregate rate and term information for the market. In earlier work, Pavlov and Wachter set forth an empirical test for a bubble. The Pavlov-Wachter test looks to the correlation of compressed lending terms (low risk premia) on standardized mortgages, with otherwise unexplained asset price rises. (Pavlov & Wachter, 2006; Pavlov & Wachter, 2004). When such correlation occurs, there is a heightened risk that a credit-based bubble is forming, and the associated empirical analysis predicts ex ante a deeper asset price crash in the presence of such a correlation. Levitin, Pavlov and Wachter (2012) show this finding holds for commercial real estate markets because investors are diversified; for residential housing markets, the relationship holds when low risk premiums are associated with increased risk in the financing offered. In the commercial market, only compression of lending terms is necessary
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for a bubble, but in the residential market, lower risk premia are not in itself necessarily a sign of a bubble.4 The question for residential markets, then, when a price rise is accompanied by a decline in the cost of credit, is whether the price rise is due to technological innovation lowering the cost of capital and default risk or to a mispricing of risk. The identification that risk was increasing during the bubble period even as the cost of credit declined and its availability increased is potentially revealed by the nature of the credit extended. The credit that was extended during the bubble could not have smoothed life cycle expenditures as FLV (2012) argue, because it was extended in a form that would result in heightened payment shock, namely the adjustable rate mortgage. The preponderance o f credit that was extended in this period was in the form of adjustable rate mortgages. Many had teaser rates that would adjust after a couple of years, with prepayment penalties for refinancing at the period of adjustment. Many others were interest only loans (requiring a balloon payment), or negatively amortizing loans (increasing debt loads). Thus, although it is theoretically plausible that overcoming credit constraints can result in consumption smoothing, such an explanation is inconsistent with the facts of the bubble. Credit constraints were being overcome not by a technological innovation (which, in any case, remains unidentified by the proponents of EMH theories of the bubble) but by more prosaic moves to riskier credit and the abandonment of traditional lending criteria.5 Still, the inconsistency between a consumption smoothing explanation and the prevalence of adjustable rate, balloon, or negatively amortizing products only poses the question of why prices would not accurately reflect risk. Why would the cost of credit decline when risk is increasing? Why would prices not accurately reflect risk? The answer, we believe, is in the shift in the structure of financial products, both at the consumer levelmortgages and at the investor levelmortgagebacked securities. Both derive from the incompleteness of housing asset markets, which was then compounded by opaque derivative markets.
4 Commercial investors will be diversified and this is diversifiable risk, so they should not be getting a premium for this risk. If there is a compression associated with a price rise in commercial real estate, then there is a bubble. 5 A candidate for the technological innovation could have been automated underwriting. However, automated underwriting failed to predict performance o f an aggregate book o f business when terms shift, much as Lucas (1976) theorized.
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D. Bubble Believers
A wide range of works in the literature accepts that there was a bubble, but provides very different explanations for the bubble. These include demand-side explanations about exuberant consumer and investor expectations about future price increases (Shiller 2000, 2008; Akerlof and Shiller, 2009) or inelastic housing supply in certain markets (Glaeser, Gyourko and Saiz 2008) and supply-side explanations about government affordable housing policies (e.g., Wallison FCIC Dissent, 2011), price-rise-induced credit deterioration (Coleman, LaCour-Little and Vandell 2008) and monetary policy (Taylor 2009; Bemanke et al., 2010). We review these explanations in detail in other work and show that they are at best incomprehensive and sometimes inconsistent with the known facts. (Levitin & Wachter 2012).
A. The Shift to Private-Label Securitization

We believe the key development behind the bubble was the loosening of credit standards enabled by shift in the mortgage financing channel from Agency securitization to private-label securitization. This shift was accompanied and necessitated by a change in mortgage products, from traditional fully-documented, long-term, fully-amortized fixed rate mortgages to adjustable rate, balloon, and negatively amortizing products with limited documentation o f ability to repay. It is important to note that the financial technology involved in the shift in the financing channel were not new innovations. Privatelabel securitization, CDOs, and the originate-to-distribute (OTD) business model had all existed for decades, as FGW notes. What was new however, was the emergence of these technologies from being niche products to becoming the market. In 2001, private-label securitization, consisting of jumbos as well as subprime and alt-A, constituted 21% of the MBS issuance. In 2006, private-label constituted 56%. (FHFA 2010). The bubble was the not the result of financial innovation per se, but of the mass use of niche products. The OTD business model using PLS and CDOs to distribute mortgage credit risk to investors was the defining feature of the bubble. Why did the shift in the financing channel occur? To understand the dramatic growth of private-label securitization, it is necessary to
II. T he I nside I nside J ob
B. A Tale of Two Booms
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return to 2001. In 2001, following the bursting o f the Internet bubble, the Federal Reserve dropped interest rates to historic lows. Predictably an orgy of mortgage refinancing filed. 2002 remains a record year for mortgage refinancing activity. Virtually all of the refinancing activity was of prime, fixed-rate mortgages being refinanced into lower rates. The refinancing boom generated tremendous revenue throughout the mortgage industry. By 2003, however, revenues were waning, as pretty much everyone had refinanced; we estimate that in the range o f 90% of all mortgages were refinanced in 2001-2003. In order to keep up origination volume, and hence revenue, the mortgage industry had to expand the borrower base. It did so by lowering underwriting standards and by turning to niche products that had greater initial affordability. The problem, however, was that Fannie Mae, Freddie Mac, and Ginnie Mae would not securitize these products. The financing had to come from somewhere, and that somewhere was private-label securitization. The single most distinguishing feature o f private-label MBS is that they are tranched for credit risk, as well as interest rate risk. The overwhelming majority (>90%) o f private-label MBS were AAA-rated at issuance, but deals always included a number o f junior tranches, some investment-grade, some not (we refer to these junior tranches collectively as the B-piece). In order for a securitization to be economically viable, it is necessary to sell all of the tranches, not just the AAA-tranches. Someone must own the risky pieces. Put another way, when a pig is slaughtered, its necessary to sell not just the ham, bacon, and loins but also the trotters, snouts, and unmentionables. This presented a complication because while there is a vast, seemingly endless appetite for AAA-rated securities, there is a far more limited market for junior securities, particularly, non-investment grade. Bemanke et al. (2010) have shown that the global savings glut resulted in a massive influx o f capital from Asia and the Middle East to US markets. Most of this global savings glut capital was invested in Treasuries and Agency securities; very little went into MBS. The global savings influx drove down yields on Treasuries and Agencies and displaced US and European investors. Other than Treasuries and Agency securities there are relatively few options for investing in AAA-rated securities. Only a handful of corporates or sovereigns have an AAA-rating. Yet there were over 60,000 structured products sporting an AAA seal. The global savings glut thus drove US and European investors to invest in AAA rated MBS. If the supply of AAA-rated assets were constrained, as FLV (2012) assumes they must be, then the global savings glut would have
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ultimately reduced the supply o f safe assets available to US and European investors and therefore resulted in higher yield spreads. But the nature of structured finance is that safe assets can supposedly be manufactured wholesale out of junk assets. Thus as Lloyd Blankfein, CEO of Goldman Sachs noted, In January 2008, there were 12 triple Arated companies in the world. At the same time, there were 64,000 structured finance instruments . . . rated triple A. (Blankfein, 2009). The alchemy of structured finance was a disinnovation that ensured that the global savings glut did not push up yield spreads, as the supply of investment vehicles expanded with demand. AAA-rated investors are primarily institutional investors that are simply looking for safe assets; for most AAA-investors, the purchase was of the rating, and as long as housing prices were rising, there was even less incentive to care about information, as rising prices made deals safer. A Wisconsin school districts retirement fund, for example, or a Norwegian pension plan, simply lacks the capacity to do a meaningful investigation of the underlying credit risk in an RMBS and has to rely on informational intermediaries such as rating agencies, whose incentive problems have been well-documented. (e,g., Coffee, 2010). As Gary Gorton (2009) has observed, there is an insatiable market demand for informationally insensitive assets. That is what AAA-rated assets purport to be, which explains the demand for the AAA-rated privatelabel MBS.
C. Enter the CDOs
As we have observed in earlier work, Bemankes global savings glut story is incomplete, because it doesnt explain who purchased the junior tranches of the MBS or why. AAA-rated MBS tranches can only be created if there are junior tranches. So who was buying the junior tranches, sometimes referred to as the B-piece? The answer is the CDOs. (FCIC, 2011, p. 155). There were some hedge fund purchasers as well, but a large percentage of junior tranches of private-label RMBS wound up resecuritized in CDOs. (Cordell et al., 2012.) As James Grant noted in 2006L Mortgage traders speak lovingly of the CDO bid. It is mothers milk to the ABS market. Without it, fewer asset-backed structures could be built, and those that were would have to meet a much more conservative standard o f design.
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(Grant, 2006). CDOs are essentially close-ended hedge funds unregulated investment pools with a limited investment purpose. One would expect subordinated debt buyers like CDOs to be particularly diligent in investigating credit risk. Indeed, traditional B-piece buyers in private-label deals (residential and commercial) were extremely careful about credit risk. They would obtain loan-level data about proposed pools pre-sale and actually kick out individual properties that they did not want in the pool. Starting in around 2004, CDOs simply outbid traditional B-piece buyers for the junior tranches, meaning that the CDOs were willing to take the junior tranches even with a lower yield, resulting in cheaper mortgage credit being made available. We have found the same phenomenon to exist in the commercial real estate market, where, excluding multi-family, it is an entirely private securitization market. The first-loss position in commercial mortgage-backed securities (CMBS) was traditionally held by a small number of sophisticated Bpiece buyers. Beginning in 2004, these B-piece buyers were outbid by CDOs. With the advent of the CDO in the CMBS B-piece market, underwriting standards declined precipitously, resulting in a bubble that closely tracks the housing bubble. (See Figure 1.) Figure 1. Commercial and Residential Real Estate Bubbles'5
6 S&P/Case-Shiller Housing Price Index CS-10 (residential price index); Moodys/REAL Commercial Price Index (commercial price index).
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Why did the CDOs underprice for risk? In part CDOs were created by the major securitization sponsors in order to create a more robust B-piece market. The CDOs and then C D 02s and C D 03s were essentially a giant daisy chain that collapsed before it went through numerous iterations. Whereas a typical daisy chain scam involves assets being flipped repeatedly at ever-inflated marks between the daisy chains participants, thereby artificially boosting the assets market value, the CDO daisy chain involved continuous handoffs to newly created entities. Given how short-lived the bubble was, the CDO daisy chain did not require very many iterations. Moreover, CDOs were beset by a principal-agent problem. CDO managers had little (and declining) skin in the game, resulting in terribly skewed incentives, as CDO manager Wing Chau, infamously described in Michael Lewiss The Big Short. (Lewis, 2010.) The CDO manager is guaranteed compensation based on assets under management, so the riskaverse CDO manager will simply increase assets under management, rather than seek asset quality. Moreover, in some cases, such as the infamous Magnetar deals, the CDOs own B-piece investors were encouraging the CDO to invest in the worst possible assets because the B-piece investors had a much larger short position on the CDO. (Eisenger & Bernstein, 2009.) While generating fees in the CDO business required some pipeline and warehousing, this pipeline and warehouse risk could be hedged through credit default swaps (provided cheaply by AIG and others) which themselves were mispriced given thenlarge counterparty risk, as discussed below. Critically, it did not take a huge volume o f CDOs to generate an enormous volume of AAA-rated MBS. Every dollar of CDO investment was leveraged into perhaps 10 times as much MBS investment. The CDOs financed the B-piece and with the B-piece sold, it was easy then to sell the investment-grade A-piece. The result was an enormous amount of underpriced housing finance that enabled homebuyers to bid up housing prices...as long as the borrower pool could grow at a sufficient rate. There are a limited number of potential borrowers; many people simply have no interest in homeownership, regardless of the ease of credit. As Figure 2 shows, homeownership rates peaked in 2004, but the absolute number of homeowners continued to grow during the bubble. The rate of growth slowed starting in 2006 and turned negative in 2007. Without a sufficient growth in the number o f homeowners, the bubble was not sustainable.
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The mispricing that produced the bubble, then, was the result of a principal-agent problem that exploited the informational opacity and fragmentation of interests in private-label securitization. While there was information available to investors on a deal-by-deal basis, as FGW notes, it was not necessarily the right type of information. Investors could obtain loan-level information about deals pre-sale, but doing so typically required a small payment. While experienced B-piece buyers were aware of this, the post-2004 B-piece buyers were often unaware or if aware simply did not care since their interest was in the fees generated and they could hedge pipeline and warehouse risk with credit default swaps. Irrespective, loan level information on individual deals was simply not the right sort of information for identifying a bubble. No one had a model for how millions of new types of loan products with novel underwritings would interact on national housing prices. Instead, what was necessary was market-wide information. And no one had it in real time. The savvier investors were, however, aware that underwriting standards were deteriorating, even if they could not determine by how much. As noted above and as we have described in other work, it is
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difficult to short real estate, however.7 (Levitin & Wachter, 2012). It can only be done indirectly, by shorting homebuilders or REIT stock or the like or through illiquid derivative instruments like credit default swaps. Short positions are expensive to maintain, however, so a short needs to know not only that there is a bubble, but also have an idea of when it will burst. Otherwise the short might go broke before it can cash in. The best method for shorting the housing market was to purchase credit default swap (CDS) protection on MBS. Typically, this CDS protection was sold by synthetic collateralized debt obligations (CDOs), making the CDO the long swap counterparty. The synthetic CDO market was miniscule prior to the bubble, with less than $10 billion in deals between 1999 and 2004. Between 2005 and 2007, however, over $191.5 billion of synthetic CDOs were issued (Cordell et al. 2012), indicating that there was substantial money betting on the collapse of the housing market. Indeed, while it is often asserted that everyone believed that housing prices would continue to rise, there is little actual evidence of optimism from institutional investors. Some analyst reports, such as those cited in FGW indicate hope that price declines would stabilize, but that is a far cry from expecting continued appreciation. Synthetic CDOs compete with regular MBS to attract investors who are long on housing; investors can arbitrage MBS and synthetic CDOs. The more vigorous the short investors were, the greater protection premiums they were willing to pay the synthetic CDOs, which enabled the synthetic CDOs to offer higher yields to investors. To compete, MBS could offer higher yields through making riskier loans. This was obviously not a sustainable equilibrium, but in the short term, the shorts fueled the bubble. Our inside job explanation of the bubble is also consistent with the timing of the bubble. Dating the bubble is critical to being able to evaluate explanations of the bubble. We can rule out factors that occurred either substantially before its start or after its start. For example, changes in government policy years before the start of the bubble are unlikely to be causes of the bubble. Surprisingly, we are unaware of any work besides our own that attempts to date the bubble. In prior work we have pegged the start of bubble to late 2003 or early 2004 after inflation-adjusted home prices deviate upward from rental
7 Without reliable short pressure, housing prices are set by optimists at the margin, creating fertile ground for Shillers exuberant investors. Even a very short period o f optimism, such as in 2004-2007, can lead to an incredibly painful housing bubble.
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D. Didn t the Insiders Get It Wrong?
price indices and interest rates lose their explanatory power for the deviation. Levitin & Wachter (2012). Late 2003/early 2004 is precisely when the shift in mortgage product types and mortgage financing channels occurred, suggesting that the shift in products and financing was driving the bubble.
FGW makes the most sustained attack on the inside job theory. They argue against twelve myths about the bubble, several o f which are relevant to the inside job theory. FGW contends that the financial products that marked the bubble had been around for years, that there was a great deal of information available to MBS investors, who understood the risks involved with their investments and were universally optimistic about prices. They also argue that the insiders were the biggest losers and the outsiders were the biggest winners, and that most AAA-MBS have not yet incurred any losses. We disagree with FGW on many (but not all) of the so-called myths they identify. As we have explained, it was not the novelty, but the expanded use of niche products that marked the bubble. MBS investors theoretically had access to deal-specific information, but lacked a market-wide view, which meant they could not analyze borrower and economy interactions. Whether the investors understood the risks involved and partook in the Pollyannaism obviously varies by investor. It is clear that many investors (as in the entire $191 billion synthetic CDO short position) did not share in the supposedly universal optimism. Certainly there were many unsophisticated institutional investors like rural school district pension plans. Indeed, had investors truly understood the risks, they would have demanded greater premia. Moreover, the investors who assumed the most risk were the CDOs, where principal-agent problem resulted in entirely warped behavior. Not surprisingly, as FGW observes, then, the losses on initially AAA-rated securities were primarily in CDOs, not MBS. Without the CDOs, however, there would not have been AAA-rated MBS and thus there would have been much less mortgage credit available, thereby constraining risk. What about how insiders and outsiders fared? Certainly many insiders did poorly: Bear Steams, Countrywide, Lehman, Wachovia, WaMu all failed, for example. The biggest winner, hedge fund manager John Paulson, was a mortgage outsider. The insider-loser/outsiderwinner criticism is off base and hardly a scientific examination of winners and losers and why they won or lost. From even a cursory 18
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glance, however, it is clear that there is a more complicated story. First, some insider institutions came out poorly; others, such as JPMorgan, Goldman Sachs and PIMCO, did not. Second, for highly leveraged institutions that are reliant on having massive liquidity, even small mistakes can be fatal. Third, the criticism envisions large financial institutions for well-coordinated monoliths. They are not, as FGW acknowledges: Why didnt the mortgage analysts tell their coworkers how sensitive the CDOs would be to a price decline? This question goes to the heart of why the financial crisis occurred. The answer may well involve the information and incentive structures present inside Wall Street firms. Employees who could recognize the iceberg looming in front of the ship may not have been listened to, or they may not have had the right incentives to speak up. If so, then the information and incentive problems giving rise to the crisis would not have existed between mortgage industry insiders and outsiders, as the inside job story suggests. Rather, these problems would have existed between different floors of the same Wall Street firm. (FGW at 25). The mortgage securitization desk is separate from the CDO desk, which is separate from the derivatives desk, which is separate from the trading desk. The securitization and CDO desks may well have understood what shoddy products they were selling, but as Citigroup CEO Charles Prince put it, when the musics playing you have to keep dancing. The financial institutions, such as JPMorgan, that stayed away from the worst excesses saw their share price punished for not being on the bandwagon (Bratton & Wachter, 2010). Why would the securitization desk want to tell the trading desk to stop buying MBS and thereby shut down their own business? Human capital is moveable. The true insiders the securitization and CDO deskspulled an inside job not just on outsiders, but on their own firms as well. In other words, agency problems were responsible for the bubble as agents (legal or economic) took advantage of their informational advantages over principals, particularly through the complexity and opaqueness of financial instruments.
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TTT.
A. The Economic Importance of Housing

The macroeconomic literature has pointed to housings relation to the growth and stability of the economy. For example, Learner (2007) finds residential investmentand therefore the housing marketto be a predictor of recessions. As Learner observes, Housing IS the business cycle. However, a financial transmission mechanism between the housing market and the macroeconomy remains an understudied research topic. Housing is the single largest connector between consumer balance sheets and the rest of the economy. No financial asset class is more deeply embedded in the real economy than housing. Home equity is the primary source of wealth for the vast majority of households and represents the bulk of their net worth. In this recession, the average American household lost 40 percent of its net worth, the vast majority of which was in the form of home equity. (Mui, 2012) Housing wealth alone is nearly equal to all non-housing wealth for US households. Consumers spend more on housing than on any other single type of consumption, and housing is traditionally the major household asset, an asset almost always funded by debt. Credit constrained households borrow more when credit is easy and less when credit is tightened, thus creating a financial accelerator. Unlike other sectors, the housing sector, directly impacts wealth and the ability to borrow. Asset-based borrowing fueled the housing bubble. (Adelino et al., 2012; Pavlov & Wachter 2011). When the bubble ended, the decline in housing prices decimated households accumulated assets as a spending base, and also as a base against which to borrow. This damage directly affected the macro-economy through three transmission mechanisms: the balance sheet channel, the construction channel, and the collateral channel. First, lower home prices reduce the value of assets on household balance sheets, which results in lower spending and deleveraging, particularly, as underwater borrowers reduce their borrowing. (E.g., Dynan, 2012; IMF, 2011; Mian & Sufi, 2011; Mian et al., 2011). Second, construction activity halts, and related jobs disappear. Third, declining home prices and mortgage defaults negatively impact the financial systems capital, which directly affects banks willingness to lend. Financial institutions own whole mortgages, mortgage-backed securities, and derivatives whose value is tied to the price and solvency of real estate assets. When prices decline, asset values decline, which
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calls into question financial institutions solvency. Distress in the financial markets then accelerates decline in housing prices as credit markets contract. This circular mechanism linking asset prices to firm solvency, to investment decisions, and back to asset prices was identified in the 1980s as a financial accelerator, most commonly used to explain widespread bank insolvencies during the Great Depression. (Bemanke, 1981; Bemanke, 1983; Bemanke and Gertler, 1989.) Through this financial accelerator, a housing bubble built on leverage can impact far more than housing, and can trigger a financial crisis that affects the macro-economy. The intersection of housing and the financial sector also makes a nationwide housing collapse self-reinforcing through the financial sector impact. Unable to refinance because of negative equity, tightened credit standards, or frozen markets, borrowers may be stuck with loans that they cannot (or will not rationally) repay, resulting in defaults that damage the very institutions refusing to issue them new loans as well as inducing further declines in prices through market wide effects as well as specific effects on neighboring properties. In the response to the financial crisis in the US, the Federal Reserve greatly eased monetary supply through its quantitative easing programs, with the goal of lowering the cost of credit and controlling the deleveraging and decline in asset values. Yet despite the lowest interest rates and most affordable housing in postwar history, access to new mortgages continues to be limited, as banks attempt to rebuild balance sheets and remain chary of all but the best credit quality borrowers. As John Williams, President and CEO of the Federal Reserve Bank of San Francisco, recently pointed out, Credit market frictions make refinancing and other housing activity less responsive to changes in interest rates. (Williams, 2012). Last year, for example, the Wall Street Journal reported, the nations 10 largest mortgage lenders denied 26.8% of loan applications in 2010, an increase from 23.5% in 2009. According to their analysis, these restrictions have lasted longer following this recession than they had following previous postwar recessions. (Timiraos & Tamman, 2011).
B. Default Spirals
While housing can transmit distress to the macro-economy through the balance sheet, construction, and collateral channels, distress can also be transmitted through the housing sector. Mortgage defaults trigger their own downward spiral. The distinguishing characteristic of owner-occupied housing is that foreclosure results in the borrower being
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put out of the home, thereby increasing the supply of housing. The excess supply can be significant given the slow growth in demand. For example, a 5% foreclosure rate is equivalent to three-to-five years of normal household formation. Thus the excess supply weighs down housing prices, causing further foreclosures in an on-going spiral.8 All of these factors from the direct effects of declining house prices to the indirect effects of panic and self-fulfilling dynamic depress consumer confidence and reinforce growing expectations of negative growth. Weak consumer confidence therefore became its own self-fulfilling prophecy, potentially setting off another vicious cycle, with the potential of a growing shadow inventory plus the large number of homeowners who are underwater. Thus the dynamic o f falling prices increasing demand and decreasing supply the normal path to equilibrium does not hold. No other asset class has this far-reaching and destabilizing effect on the economy. The usual stabilizing impact of price declines increasing demand and thus settling on a market clearing price is here reversed: downward price cascades increase supply through foreclosure which leads to further price declines. Commercial real estate does not create such an upheaval, as commercial foreclosure still allows tenants to provide income during distress, whereas residential foreclosure requires a change in ownership and therefore a crisis o f abandoned properties, unsold inventory, and increased possibility of fraudulent or negligent mortgage servicing.
C. Housing Externalities
Moreover, distress in residential real estate has particularly negative externalities in the form of social disruption. Unlike other assets or commercial real estate, the resolution of failed residential mortgage securities requires the displacement of the owner-occupant. Evictions strain communities and families, exacerbating unemployment, inequality, and public health. (Gelpem & Levitin, 2009). The last severe foreclosure crisis in American historythe Great Depressionwas characterized by a sharp rise in homelessness, etched in our collective memories by urban
8 Regional clustering of foreclosures makes the effect more marked. Agarwal, et al. (2012) found that a 1% increase in foreclosures in a given region increased the odds of default for surrounding homeowners by 2.9%. Concentrated foreclosures can produce lasting blight. Foreclosed properties fall into a state of disrepair when the owners leave, casting a pall on the neighborhood that depresses surrounding house prices.
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squatter settlements known as Hoovervilles and memorialized in the travails of Steinbecks Okies. Our current upheaval is so great that contemporary accounts refer to it as the end of the American dream. Notions o f wealth building through homeownership have been severely damaged, as years of accumulated wealth has disappeared with the decline of home prices. The effect has been particularly severe in communities of color, which traditionally have concentrated their already more limited wealth in real estate. The political impact of housing cannot be overlooked either. The importance o f housing from a social standpoint in terms of household wealth and community as well its connection to the macro economy means that the housing market will inevitably be bailed out when it gets in trouble. It should be no surprise that the government has supported the housing market in a range of ways, from the bank bailouts to borrower relief programs like HAMP and HARP to the open-ended conservatorship and financing for Fannie Mae and Freddie Mac. While there is been political reluctance to support individual homeowners, the infrastructure of the housing finance market will always be guaranteed, implicitly or explicitly because housing is too central to society. A failure of the housing sector means a failure of the financial sector, and massive macroeconomic consequences. It is not credible to believe that the government will not take whatever steps are necessary to protect the infrastructure of the housing finance market, which is necessary to maintain basic stability of the housing market, the macroeconomy, and society. Housing is too-big-to-fail. C on c lu sio n As we write, it is now five years since the bubble burst, but there is no clear direction in US housing policy. Indeed, it is hard to say what US housing policy is or whether there even is currently a housing policy. While unfortunate, this is not surprising; we are still coming to terms with the bubble and trying to divine its lessons. Nonetheless, three responsive changes can be identified in the thinking on housing, namely turns 1. a turn in policy toward sustainable homeownership and away from homeownership per se; 2. a turn towards modeling the nexus between the credit cycle and housing; and
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3. a consideration of the appropriate role of macroprudential policy and other collective action responses to this potentially destabilizing nexus. For us, there are three fundamental lessons that must be taken from the bubble. First, the housing market is uniquely vulnerable to credit-fueled bubbles. Second, deflation of housing bubbles is likely to have wide-ranging macroeconomic and social effects. And third, the government will support the housing finance market because it is necessary to protection the markets infrastructure in order to stave off even worse macroeconomic or social consequences. The risk o f bubbles, their consequences, and likelihood that government will bear part of the costs all mandate the careful regulation of housing finance. We have already started down this path with the reforms enacted by the Dodd-Frank Wall Street Reform and Consumer Protection Act,9 but the ultimate lesson from the bubble is that housing policy can no longer be divorced from financial regulatory or economic policy. Going forward, the challenge will be to reconcile our past commitments to an ownership society with our new commitments to economic stability and sustainability. It is time to move toward this new policy equilibrium.
5 The Dodd-Frank Act created additional regulatory requirements for mortgage loan origination; created a new agency (the Consumer Financial Protection Bureau) with industry-wide authority to regulate mortgages; imposed risk-retention requirements for certain securitizations; and created a macroprudential regulation structure.
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R eferences Adelino, Manuel, Antoinette Schoar, and Felipe Severino. (2012). Credit Supply and House Prices: Evidence from Mortgage Market Segmentation, Working Paper, http://papers.ssm.com/sol3/papers.cfm7abstract id=1787252. Adrian, Tobias & Nina Boyarchenko. (2012). Intermediary Leverage Cycles and Financial Stability, Federal Reserve Bank of New York Staff Report No. 567, Aug. 1. Agarwal, Sumit, Brent W. Ambrose, Souphala Chomsisengphet, and Anthony B. Sanders. (2012). Thy Neighbors Mortgage: Does Living in a Subprime Neighborhood Affect Ones Probability of Default? Real Estate Economics, 40(1): 1-22. Akerlof, George A. and Robert J. Shiller. (2009). Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism. Princeton, NJ: Princeton University Press. Anundsen, Andre K., and Eilev S. Jansen. (2012). Self-reinforcing effects between housing prices and credit, Journal of Housing Economics, forthcoming. Barakova, Irina, Paul Calem and Susan Wachter. (2012). Financing constraints to homeownership in relation to the pre-2008 housing market boom, Unpublished Paper, University of Pennsylvania. Berlinghieri, Laura. (2010). Essays on House Price Fluctuations in the U.S., Ph.D. thesis, University of Washington. Bemanke, Ben S. (1981). Bankruptcy, Liquidity, and Recession, American Economic Review, 71(2): 155-159. Bemanke, Ben S. (1983). Nonmonetary Effects of the Financial Crisis in the Propagation of the Great Depression, American Economic Review, 73(3): 257-276. Bemanke, Ben S., and Mark Gertler. (1989). Agency Costs, Net Worth, and Business Fluctuations, American Economic Review, 79(1): 14-31. Bemanke, Ben S., Carol Bertaut, Laurie Pounder DeMarco, and Steven Kamin. (2011) International Capital Flows and the Returns to Safe Assets in the United States, 2003-2007, Board of Governors of the Federal Reserve System, International Finance Discussion Paper No. 1014.
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Wh y H o u s in g ?
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29

RE-BANSC-2010-187 TD Bank N.A. v. Twila A. Wolf Case W/All Exhibits A-K As Filed 10-05-2012

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Charlton A. Butler Jr. & Twila A. Butler 44 Patten Street Bangor, ME 04401 September 18,2012 Penny H.

SUPERIOR COURT DOCKET NUMBER BANSC-RE-2010-00187

DEFENDANTS OBJECTION TO PLAINTIFFS SUPPLEMENTAL REPLY

Respectfully Submitted: 10-05-2012

Charlton A. Butler Jr. Intervenor Pro per

O F COUNSEL DOUGLAS S CARR

Residential Mortgage Lender/Servicer Claim Abuse

PRELIMINARY OFFICIAL STATEMENT DATED APRIL 17, 2012

Raymond James 1Morgan Keegan

BofA Merrill Lynch

BBC Capital Markets

jFjve Star Service Guaranteed * g ) \

Total Amt Called: $9,100,000.00

U.S. Bank N.A. (St. Paul)

60 Livingston Avenue 1st Floor, Bond Drop W indow

Default Org Paying Agent Address

ezDisclose Notice Proof Sum m ary Report

Attorneys Admit No Authority to Represent US Bank in Foreclosure

Posted on January 13,2012 by Neil Garfield Esq.

LEROY MARION, et a l ., Defendants.

13, 2011 2:00 -2 :3 0 p.m.

EXECUTIVE REPORTING SERVICE (727) 823-4155

March 11 CL P R O C E E D I N G S THE COURT: we are here on case

MR. PEACOCK: apologize.

well, your Honor, I guess

There is a slight lack of recollection who

in this Court's statements in terms of the

EXECUTIVE REPORTING SERVICE (727) 823-4155 4

we have just resolved that issue prior to

walking in here as far as what person they are Page 3

EXECUTIVE REPORTING SERVICE (727) 823-4155 5

EXECUTIVE REPORTING SERVICE (727) 823-4155

That's a document that we requested.

objections to it, so I would like to have that heard. MR.

That's this huge

that is the servicing agreement. Page 5

This is from the web site.

printed out two copies today. a printed copy,

We did not provide

it's 350 pages or something, but

the plaintiff doesn't

it's not our practice to

charge for these things, but

EXECUTIVE REPORTING SERVICE (727) 823-4155 7

long as we can be specific

March 11 CL THE COURT: Thank you.

And you're saying

as of what date you secured the And they have I think

original there and from whom?

objected as irrelevant and immaterial.

EXECUTIVE REPORTING SERVICE (727) 823-4155 8

the deposition. MS. RAMIREZ:

March 11 CL regarding that. We have the original! all of

I'm asking for someone testifying

Because there is no amended

EXECUTIVE REPORTING SERVICE (727) 823-4155 9

There is an amended complaint,

There was a November 15th motion for Page 8

appropriate time to bring up, so that is an issue for discussion. MR.