Appendix H

RESPA Pleadings and More

This appendix is earmarked to include pleadings, motions, discovery, briefs, and other information related to claims that can be raised under the Real Estate Settlement Procedures Act. This Act is discussed in 11.3.1, supra. The servicer provisions are also addressed in National Consumer Law Center, Repossessions and Foreclosures 15.2.4.2 (4th ed. 1999 & Supp.). The rst entry in this appendix is a Motion for Summary Judgment in Lewis v. Delta Funding Corp. The homeowner had pled a claim under RESPA based upon the payment of a broker fee of over $3000 that the lender approved and nanced as part of the principal. In seeking summary judgment on the RESPA claim, the homeowner argued that the broker performed less than the minimal services identied by HUD in its 1999 Policy Statement (see discussion in 11.3.1.5.4, supra) rendering the fee unearned and, therefore, a referral fee. Thanks to Alan White for supplying this Motion. H.2 contains an answer and affirmative defenses to a foreclosure proceeding. One of the defenses, raised by way of recoupment, is based upon RESPA. The creditor paid the broker a yield spread premium, allegedly not for goods, services, or facilities provided by the broker. H.3 contains discovery from the same case. Thanks to Michelle Weinberg from Legal Assistance Foundation of Chicago for sharing her work. This appendix will grow and contain a wide variety of additional RESPA pleadings in future editions.

PLAINTIFFS MOTION FOR SUMMARY JUDGMENT For reasons set forth in the accompanying Memorandum of Law, and based on the Exhibits and Affidavits accompanying this Motion, Plaintiff moves for summary judgment against Defendants as to Counts I, II, and IV of the Complaint. [Attorney for Plaintiff] UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF PENNSYLVANIA ) ) Debtor, ) CONSUMER, ) Plaintiff, ) ) v. ) ) ) DELTA FUNDING CORPORATION and BANKERS TRUST ) COMPANY OF CALIFORNIA, ) N.A., Trustee, ) Defendants. ) ) CONSUMER, MEMORANDUM OF LAW IN SUPPORT OF PLAINTIFFS MOTION FOR SUMMARY JUDGMENT Summary judgment is appropriate when there is not genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P.56(c). Plaintiff now moves for summary judgment on three counts of the complaint, on the basis of the undisputed facts, chiey the loan documents and the deposition testimony of the broker. Plaintiff is entitled to damages under the Truth in Lending Act (TILA and the Homeownership Equity Protection Act (HOEPA) because the lender materially misrepresented the terms of her mortgage renancing loans in the special, 3-day advance loan disclosures required for high cost mortgage loans. She is entitled to damages under the Real Estate Settlement Procedures Act (RESPA) because the lender paid the loan broker a referral fee of $3,097.50 that was not contracted for by Ms. Consumer and was not reasonably related to any services performed for her. She is entitled to damages under Pennsylvanias Consumer Protection Law because of the lenders deceptive practices in paying a broker fee despite the absence of any valid broker contract, and in including a balloon payment in her loan that was not agreed to or discussed prior to the loan closing. All these damages should be deducted from the claim led by Delta Funding, claim number 5, (Exhibit D) by way of recoupment.

H.1 Motion for Summary Judgment

UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF PENNSYLVANIA ) ) Debtor, ) CONSUMER, ) Plaintiff, ) ) v. ) ) ) DELTA FUNDING CORPORATION and BANKERS TRUST ) COMPANY OF CALIFORNIA, ) N.A., Trustee, ) Defendants. ) ) CONSUMER,

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amount equal to the total nance charges and fees paid. 15 U.S.C. 1640(a)(4); Newton, supra, 24 F. Supp. 2d at 451. A. The Lender Violated HOEPAs Three-Day Advance Disclosure Requirement One of the new requirements of HOEPA is that the consumer must receive special written disclosures of the payment amount and annual percentage rate three days prior to the loan closing, along with a warning about the dangers of mortgaging the borrowers home. 15 U.S.C. 1639(a)(1).1 A copy of the advance disclosure provided to Ms. Consumer is attached as Exhibit A. This disclosure contained several material violations. First, the payment schedule is incorrect, because it omits the fact that the nal, 180th scheduled payment on the loan is $39,885.02, i.e., there is a large balloon payment that is not disclosed. Compare Exhibit C (nal TILA disclosure with balloon payment). Second, the form includes contradictory information about the annual percentage rate. TILA disclosures use a standardized calculation to determine the true cost of credit, known as the annual percentage rate or APR. In the disclosure provided to Ms. Consumer, the lender set forth APR as required, but then added in more conspicuous italic print a lower rate described as the note rate of your loan. The inclusion of a lower rate, however calculated, is not called for by the statute or regulation. It is an unauthorized amendment to the prescribed disclosure, which it contradicts and undermines. Third, the form given to Ms. Consumer sets forth a loan amount of $44,250, when her amount nanced was in fact $39,896.34. The $44,250 gure is not an element called for by HOEPA or the regulations, and also undermines the disclosure scheme mandated by Congress and the Federal Reserve Board. The HOEPA early disclosure is also known as the Section 32 form, after the section in the Federal Reserve Boards regulation, 12 C.F.R. 226.32. The HOEPA notice must include a warning statement in the exact language specied, must state the annual percentage rate, the amount of each regularly scheduled payment, and information about the variable interest rates, if applicable. The Federal Reserve Boards Official Staff Commentary species that if the loan provides for a balloon payment, the balloon payment must be disclosed. Official Staff Commentary, 226.32(c)(3)2 (following 12. C.F.R. 226). The particular portion of the Commentary referring to balloon payments was published shortly before the date of Ms. Consumers loan. 62 Fed. Reg. 10193 (March 6, 1997). The Commentary revision included many changes on various topics, and states that this Rule is effective February 28, 1997. Compliance is optional until October 1, 1997. The summary of the revisions describes the subject matter as follows:
1 There can be no dispute that Ms. Consumers loan was covered by HOEPA. Coverage is triggered, inter alia, for any home equity loan where the points and fees charged to the consumer exceed 8% of the net loan amount. 15 U.S.C. 1602(aa)(1)(B). Ms. Consumer was charged a broker fee of $3,097.50, a loan fee of $442.50, an application fee of $325, and a commitment fee of $275, for a total of $4,140. (Settlement Statement, Exhibit B). The loan amount, net of $4,140 fees, was $40,110, so the points and fees were over 10% of the loan amount. See Official Staff Commentary, 226.32(a)(1)(ii) (denition of total loan amount).

Ms. Consumer is the debtor in the main Chapter 13 case, and has proposed in her plan to pay the allowed secured claim of Defendants once her dispute regarding the amount due is resolved. Defendant Bankers Trust Company of California is the holder of the mortgage (see Exhibit F, the mortgage assignments) and Defendant Delta Funding Corporation is the mortgage servicer that led the proof of claim on behalf of Bankers Trust in the Chapter 13 case. COUNT I: TRUTH IN LENDING ACT AND HOEPA The Truth in Lending Act was adopted in order to promote the informed use of credit, and to increase consumer awareness of the true cost of credit. Mourning v. Family Publication Services, 411 U.S. 356 (1973); Thomka v. A.Z. Chevrolet, Inc., 619 F.2d 246, 248 (3d Cir. 1980). It is enforced primarily through a private attorney general scheme, whereby consumers may recover xed statutory penalties, and in the case of certain mortgage loans, may rescind their credit transactions, if the required disclosures are not made correctly. 15 U.S.C. 1640(a), 1635; Thomka, 619 F.2d at 248. The private cause of action, and strict liability for violations, are intended to promote compliance by creditors and deter illegalities which would otherwise rarely be uncovered or punished. Fairley v. Turan-Foley Imports, Inc., 65 F.3d 475 (5th Cir. 1995). TILA is to be liberally construed in favor of consumers. Rodash v. AIB Mortgage Co., 16 F.3d 1142 (11th Cir. 1994); Smith v. Fidelity Consumer Discount Co., 898 F.2d 896, 898 (3d Cir. 1990). TILA has always been understood to be a strict liability statute. The statutory damages are awarded in any case in which the creditor violates the specied provisions of TILA, regardless of whether the creditors conduct was intentional, negligent, or inadvertent. See Newton v. United Companies Financial Corp., 24 F. Supp. 2d 444, 451, (E.D. Pa. 1998). The only exception is specied in 15 U.S.C. 1640(c) regarding clerical errors occurring despite the presence of procedures designed to prevent errors. This exception has not been asserted by Defendant in this case. In 1994 Congress enacted the Homeownership Equity Protection Act (HOEPA), subtitle B of Title I of the Riegle Community Development and Regulatory Improvement Act, Pub. L. No. 103325 (Sept. 23, 1994). The HOEPA amendments to TILA were enacted because the existing disclosure scheme appeared to be insufficient to warn homeowners of the dangers of high cost home equity loans. Williams v. Gelt Financial Corp., 232 B.R. 590 (E.D. Pa. Bankr. 1999) affd 237 B.R. 590 (E.D. Pa. 1999); Newton v. United Companies Financial Corp., 24 F. Supp. 2d 444, 45051, (E.D. Pa. 1998). In particular, HOEPA was enacted to address the problem of reverse redlining, the practice whereby the lenders and home improvement dealers, among others, target the residents of poor, minority communities for credit on unfair terms, . . .peddling high-rate, high-fee home equity loans to cash-poor homeowners. House Conf. Rep. No. 652, 103d Cong., 2d Sess. 158 (1994) reprinted in 1994 U.S. Code. Cong. & Ad. News 1977, 1988; Senate Rep. No. 169, 103d Cong. 2d Sess. 21, reprinted in 1994 U.S. Code. Cong.& Ad. News 1881, 1905. HOEPA explicitly provided that violations of its special protection provisions entitles consumers to rescind mortgage loans to recover the TILA statutory penalties. 15 U.S.C. 1639(j), 1640(a). The statutory damages provision was amended to increase the total award to the consumer in the case of HOEPA violations. In addition to a $2,000 TILA penalty, the consumer may recover an

RESPA Pleadings and More / 2004 Supplement

The update provides guidance on issues relating to the treatment of certain fees paid in connection with mortgage loans. It addresses new tolerances for accuracy in disclosing the amount of the nance charge and other affected cost disclosures. In addition, the update discusses issues such as the treatment of debt cancellation agreements. and a creditors duties if providing periodic statements via electronic means: The revisions to the Commentary included changes to a number of existing sections that could be considered to change their substance or application. The specic mention of including balloon payments in the HOEPA disclosure in 32(c)(3)2 was added as a new paragraph. It did not replace any prior language. Balloon payments were not previously addressed in the context of the HOEPA disclosures. Therefore, there was no change in prior law. Indeed, the only reasonable view is that the new paragraph was a clarication of existing law. See Clay v. Johnson, 100 U.S. App. LEXIS 19678 (Sept. 5, 2001). Moreover, it was published prior to Ms. Consumers loan, so there would be no good reason for any lender to continue omitting balloon payments from the payment schedule on the HOEPA notice, because there was no prior rule on which lenders could or should have relied. Even if the specic provision of the Commentary had never been adopted, there really is no other reasonable interpretation of the payment disclosure requirement. If lenders were not required to disclose balloon payments on the HOEPA notice, the consumer would get a completely misleading disclosure of the payment amounts and schedule. In the absence of a reference to the balloon payment the disclosure would lead the consumer to believe that all the regular monthly payments will be in the same amount and will fully amortize the loan. The last regular monthly payment, (the 180th payment, in Ms. Consumers case) is, of course, the balloon payment. In fact, the broker acknowledged that Ms. Consumer did not know about the balloon payment feature until the loan closing, because it was not disclosed on either the Section 32 notice or the RESPA good faith estimate disclosures. Broker Deposition (Exhibit G) pp. 6163. The failure to disclose the balloon payment therefore rendered the HOEPA/Section 32 disclosure materially inaccurate. The second independent defect in the HOEPA notice was the deviation from the regulatory format and inclusion of contradictory interest rate information. Ms. Consumers form says that her Annual Percentage Rate is 15.77%, and that her note rate is 13.99%. The disclosure of the APR and note rate are in the same, inconspicuous type size, but the lower Note Rate is italicized, giving it more prominence. It is hard to avoid the conclusion that the lender wanted to de-emphasize the APR, which was extraordinarily high for a rst mortgage. The annual percentage rate is the cornerstone of TILA. The APR disclosure is intended to allow consumers to comparison shop on the basis of rates that reect all the costs of credit. 15 U.S.C. 1601(a); Rodash v. AIB Mortgage Co., 16 F.3d 1142 (11th Cir. 1994). Ms. Consumers case well illustrates the point. Her nominal interest rate of 13.99% does not reect the fact that more than 10% of the loan principal was nothing more than fees the lender retained or paid to the broker. If another lender offered her a rate

Appx. H.1

of 14.5% without the $4,000 in points and fees, it would have been a better deal. The Section 32 form Ms. Consumer received obscures that fact and undermines the essential purpose of TILA. The inclusion of the lower note rate to detract from the APR is a reversion to precisely the type of deceptive low-balling of the credit price tag that the APR was intended to correct when rst enacted. As economist and primary sponsor of TILA Senator Paul Douglas of Illinois explained: [Some creditors] compound the camouaging of credit by loading on all sorts of extraneous fees . . .which rightfully should be included in the percentage rate statement so that any percentage rate quoted is completely meaningless & deceptive. 109 Cong. Rec. 2027 (1963) (remarks of Senator Douglas). See Rohner, The Law of Truth in Lending 1.02 (1984). When a creditor obscures or detracts from the required information with contradictory information, it violates TILA. Rodash, 16 F.3d at 1145-1147 (holding that lender violated TILA by having consumer sign a form stating that they would not rescind the loan simultaneously with a form correctly disclosing that they had three days to rescind); Herrera v. First Northern Sav. & Loan Assn. 805 F.2d 896 (10th Cir. 1986); Varner v. Century Finance Co., Inc., 738 F.2d 1143, 114748 (11th Cir. 1984) (nding that disclosing two different dollar amounts with the same heading loan fee was confusing and violated the TILA); Jenkins v. Landmark Mortgage Corp. of Va., 696 F. Supp. 1089, 109394 (W.D. Va. 1988) (oral and written statements contradicting the disclosure of the right to rescind rendered the disclosure not clear or conspicuous); Schmidt v. Citibank N.A., F. Supp. 687 (D. Conn. 1987); In re Apaydin, 201 B.R. 716 (Bankr. E.D. Pa. 1999) (following Rodash, nding a violation when rescission notice was contradicted by a simultaneous conrmation of non-rescission form). Moreover, TILA contains a specic format requirement that the terms annual percentage rate and nance charge must be more conspicuous than other disclosures, a rule that was violated on Ms. Consumers Section 32 disclosure. 15 U.S.C. 1632(a). The more conspicuous requirement applies to the relationship between the APR and the other required disclosures, such as the payment schedule. However, it also supports the more general principle that TILA is meant to focus the consumers attention on the APR, a principle completed undermined by Defendants disclosure format. The Fourth Circuit Court of Appeals explained the problems created when a creditor displays inconsistent rate information with the APR, in Mason v. General Finance Corp., 542 F.2d 1226 (4th Cir. 1976). In that case, the creditor disclosed two monthly rates that went into the APR determination, alongside the APR disclosure. The inconsistent rate disclosure was apparently required by state law, bringing into play the specic preemption rules of TILA. The court held that disclosing a monthly contract rate with the APR violated TILA, and that Congress had adopted a national loan terminology for the purpose of enabling the comparison of the cost of credit and may require the subordination of state terminology even though it is true and accurate. 542 F.2d at 1233. Similarly, the Section 32 form given to Ms. Consumer states that her loan amount was $44,250, when in fact the amount nanced was $39,896.34 or less. Compare Exhibit A with Exhibit C. The amount nanced is not one of the loan terms required to be on the

Appx. H.1

The Cost of Credit: Regulation and Legal Challenges / 2004 Supplement

$2,000 penalty and the $13,099 HOEPA penalty, Ms. Consumer is entitled to reduce Deltas claim by recouping $15,099 due to the violations of TILA and HOEPA. COUNT II: RESPA ILLEGAL BROKER REFERRAL FEE The Real Estate Settlement Procedures Act was enacted, among other reasons, in order to protect homeowners from inated settlement costs caused by payments of referral fees or kickbacks. 12 U.S.C. 2601. RESPA specically prohibits payment of a fee, kickback or thing of value pursuant to an agreement or understanding, oral or other wise, that business incident to or part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person. 12 U.S.C. 2607(a). This section of RESPA applies to mortgage broker fees. Culpepper v. Inland Mortgage, 253 F.3d 1324 (11th Cir. 2001). The ban on referral fees does not prohibit making a payment from a mortgage loan that is in exchange for services rendered, or does not bear a reasonable relationship to services rendered, violates the RESPA. Id. A consumer who pays a prohibited referral fee is entitled under RESPA to recover statutory damages from the lender equal to three times the illegal fee. 12 U.S.C. 2607(d)(2). Ms. Consumer is therefore seeking an award of RESPA statutory damages, as a recoupment against the mortgage loan balance claimed by defendant. In Ms. Consumers case, the lender paid a fee of $3,097.50 to Broker, a broker. Exhibit B, line 811. This fee was not based on a valid contract with Ms. Consumer, was not in exchange for any services she contracted to pay for, and bore no reasonable relationship to the value of any services the broker could be said to have provided either to Ms. Consumer or to the lender. The U.S. Department of Housing and Urban Development has issued several rules and policy statements interpreting the RESPA ban on unearned fees as it applies to mortgage brokers. The two latest policy statements were primarily addressed to the legality of certain mortgage broker fees referred to as yield spread premiums, which are not involved in Ms. Consumers case. However, the HUD statements provide guidance on evaluating all broker fees under RESPa. The 1999 policy statement sets forth a two-part test for broker fees. The rst question is whether there were . . .services actually performed for the total compensation paid to the mortgage broker. 64 Fed. Reg. at 10085. HUD then identies fourteen (14) discrete tasks that a mortgage broker might perform, and suggests that as a threshold matter, if the broker took the loan application (the rst item) and also performed ve other tasks, then some quantum of services was provided that might justify a fee. Conversely, if a broker did not meet this minimum requirement, the policy statement suggests that a fee paid by a lender should be inferred to be a referral fee. Of course, providing a borrower referral is not one of the tasks that constitutes a service, since it is fees for referrals that RESPA prohibits. 64 Fed. Reg. at 10085. Mr. Broker apparently transmitted some sort of application to Eagle National Bank, although the written application was prepared by Mr. McCormack of Eagle National Bank. Compare Broker Deposition 49-50 with Exhibit E. He performed at most three of the services listed, and those of lease signicance or value. He ordered an appraisal (item g), he acted as go-between for the lender and borrower to some extent (item k) and he attended the

three-day advance disclosure form. However, including an amount that contradicts the amount nanced disclosed later at closing similarly detracts from the required, material disclosures, and violates TILA, for the same reasons that the nominal Note rate undermines the APR disclosure. For any one of these three reasons, Eagle National Banks Section 32 disclosure violated TILA. B. TILA Damages and Recoupment As a result of the lenders violation of HOEPA, Ms. Consumer is entitled to statutory damages and attorneys fees. 15 U.S.C. 1640(a). The limitations period for an affirmative suit to recover statutory damages is one year. 15 U.S.C. 1640(e). However, the statutory damages may be asserted by way of recoupment even after the one-year limitations period, when the creditor seeks to recover the underlying debt. 15 U.S.C. 1640(e); In re Soto, 221 B.R. 343 (Bankr. E.D. Pa. 1998); Associates v. Troup, 2001 N.J. Super. LEXIS 318 (2001). Defendant Delta Funding has led a proof of claim in this bankruptcy case seeking $54,190.81 as of the ling date. Exhibit D. Ms. Consumer is therefore entitled to assert her TILA claims by way of recoupment. The basic TILA statutory penalty is now set at double the nance charge, up to a maximum of $2,000. 15 U.S.C. 1640(a);2 Newton, 24 F. Supp. 2d at 451. In Ms. Consumers case, the broker fee alone was over $1,000, so the basic TILA penalty is capped at $2,000. HOEPA imposes an additional statutory penalty equal to the amount of nance charges actually paid by the borrower, and this HOEPA penalty is cumulative with the basic $2,000 TILA penalty. 15 U.S.C. 1640(a)(4); Newton, 24 F. Supp. 2d at 451. The fact that defendant Bankers Trust Company of California is an assignee of the mortgage loan, and not the original lender, does not alter the outcome in this case. HOEPA explicitly provides that any assignee of a covered, high-cost mortgage loan, is subject to all of the claims and defenses the consumer could assert against the original lender, limited only to the sum of the remaining debt balance and the payments made by the consumer. 15 U.S.C. 1641(d). The only exception is if the loan documents do not make it apparent that the loan is covered by HOEPA. In this case the broker fees and lender fees of $3,097.50 and $1,067 respectively are set forth on the Settlement Statement, Exhibit B. The amount nanced of #39,896.34 is set forth in the TILA disclosure, Exhibit C. Simple division demonstrates that the points and fees considerably exceeded the HOEPA 8% trigger. See 15 U.S.C. 1602(aa)(1)(B). Any assignee of this mortgage would know it was a HOEPA loan and subject to liability for all consumer claims. Prior to the bankruptcy ling, Ms. Consumer had made monthly payments of $13,099 ($523.96 per month from September, 1997 though September, 1999, see Exhibits C and D.) These payments have been applied entirely to interest or to the origination and loan fees, because the principal claimed by Delta in its proof of claims is $43,824.79, which still exceeds the original amount nanced of $39,896.34. Therefore all of Ms. Consumers payments have been applied either to interest, or prepaid nance charges (nanced points). The HOEPA penalty is therefore equal to $13,099. See Newton, 24 F. Supp. 2d at 451. Combining the basic
2 The maximum penalty was increased from $1,000 to $2,000 in 1995, which is why earlier reported TILA cases refer to the statutory penalty as $1,000. Pub. L. 104-29, 6, (Sept. 30, 1995), amending 15 U.S.C. 1640(a)(2)(A).

RESPA Pleadings and More / 2004 Supplement

loan closing (item n). Broker deposition at 61. Mr. Broker acknowledged that he did not obtain a credit report or analyze Ms. Consumers credit. Broker deposition at 50. Given that he apparently dealt with no other lenders, Broker deposition at 20, and was unfamiliar with any alternative loan products, Id. at 71, he could not possibly have been advising the borrower about the different types of loan products available . . . or providing any of the counseling services described in HUDs list. In fact, Mr. Broker claimed complete ignorance of a key feature of the loan, the balloon payment, so he could hardly have explained the loan to Ms. Consumer. Broker deposition at 59-63. He did not obtain income verication, but instead simply told Ms. Consumer to provide it. Id. at 74. Thus, based on the rst step of the HUD analysis, Mr. Brokers services did not rise to the level that would justify any compensation from the borrower, let alone a fee of over $3,000. Nor could the fee have been in exchange for services to Ms. Consumer, since she never contracted for Mr. Brokers services prior to the closing. The rst step of HUDs test also requires that payment for broker services be based on an agreement with the borrower, i.e., be in exchange for the services. Culpepper v. Inland Mortgage Co., supra. In Culpepper the facts alleged were that borrowers did have a contract to pay a broker fee, but the broker then obtained a second fee from the lender. The Eleventh Circuit Court of Appeals held that a jury could nd that the front-end broker fee was for the services, while the back-end fee or yield spread premium was for the referral, and therefore illegal under RESPA. Id. Thus, if Ms. Consumer did not contract with Mr. Broker for his fee, the fee was for a referral, rather than for services to her. By his own admission, the broker never had any discussions or agreement with Ms. Consumer regarding his fee or his services at any time prior to the loan closing. Broker Deposition, 26-38. As the broker described it, Ms. Consumer was notied that there would be a broker fee through the lenders good faith estimate form. Broker Deposition 38. However, the good faith estimate in Ms. Consumers case was not prepared or delivered to her until the loan closing date, July 16, 1997. Broker Exhibit 3. Similarly, Ms. Consumer signed a form acknowledging the nonexistent broker agreement only at the loan closing itself. Broker Exhibit 5. By that point the broker had done whatever he was going to do, Ms. Consumer never knowingly agreed to enter into a broker agreement. Consumer affidavit. She was told nothing about the fee agreement document except that it was another document she must sign to get her loan. Id. There was thus no bargained-for exchange between Ms. Consumer and the broker, who provided no real services in any event, and the fee does not meet the rst part of HUDs test. The second part of the HUD test is whether the fee bears a reasonable relationship to the value of services provided. The clearest indicator that Mr. Brokers fee was not related to the value of his services, but instead was lender compensation for referring a loan, is the simple fact that it was based on a percentage of the loan amount, and not negotiated in any fashion with Ms. Consumer. In the 1999 policy statement, HUD says: The Department generally has held that when the payment is based on the volume or value of business transacted, it is evidence of an agreement for the referral of business (unless, for example, it is shown that payments are for legitimate reasons unrelated to the value of the referrals). HUD Statement of Policy, 1999-1, 64 Fed. Reg. 10080, 10088 n. 8 (Mar. 1, 1999).

Appx. H.1

Mr. Broker testied that he determined the amount he wished to be paid, and communicated that to the lender. Broker deposition, at 79-83. Ms. Consumer never agreed to hire Mr. Broker as a broker or pay him a separate fee. Affidavit of Consumer. More importantly, the amount of the broker fee was based solely on a percentage of the loan amount, and was not tied in any way to the value of any services provided by the broker. Broker deposition, p. 79. Mr. Broker testied that he rst wrote the gures 9 (percentage points) and $3,982.00 on the loan commitment, and that he determined later to reduce the gure to $3,089 (i.e. 7% of the $44,250 Note amount). Once Mr. Broker decided his fee amount, he agreed on the amount with the lender and the lender instructed the closing agent to pay that amount from the loan proceeds. Broker deposition, p. 8182. As for the value of Mr. Brokers services, he admitted he did no rate shopping whatsoever on Ms. Consumers behalf, and he was not aware even of whether the lender offered different combinations of interest rates and fees. Broker Deposition pp. 20, 7072. Although her objective was to obtain a small loan to pay some debts and do some repairs, Mr. Broker persuaded her to renance a low-interest rst mortgage with Mellon Mortgage Company and a subsidized assistance loan from the Pennsylvania Housing Finance Agency that required only nominal monthly payments. The loan had a balloon feature that Ms. Consumer did not want and that was not suitable for her, and Mr. Broker claims he was not even aware of this term of the loan until the closing. Broker deposition, pp. 6163. Most tellingly, when asked to explain on what factors his fee depended, Mr. Broker replied, It depends on me. Broker deposition at 83, line 24. In sum, the lender determined all the fees charged to Ms. Consumer in her loan. The amount of the brokers fee was subject to the lenders approval. The lender increased the loan amount to cover the fee. The increased loan amount brought the lender additional prot from interest and other charges based on the loan amount, and provided a vehicle by which the lender rewarded the broker for referring loans to it. The services normally covered by an origination fee were performed mostly by the lender. The lenders approving and nancing a $3,097.50 brokers fee and of providing loan origination services for which the broker was compensated constituted, directly or indirectly, the giving of a thing of value in exchange for the referral of loan business, in violation of RESPA. Furthermore, these practices also violate RESPA because they constitute the splitting, between Lender and the broker, of charges for settlement services, with the amount going to the broker being unrelated to actual services performed by the broker. Mr. Brokers broker fee represented nothing more than 7% of the loan, paid to him by the lender as a fee for referring Ms. Consumer. The fee therefore violated RESPA, whether it was a referral fee, or simply a split of the origination fees (1% to lender and 7% to broker). See Culpepper v. Inland Mortgage Co., supra. Ms. Consumer is entitled to the damages RESPA prescribes, i.e., three times the illegal fee. 12 U.S.C. 2607(d)(2). The lender who paid the fee and the broker who received it are jointly liable for the damages. Because this was a HOEPA loan, the assignee of the mortgage is fully liable for this claim against the original lender. 15 U.S.C. 1641(d). Defendants claim should therefore be reduced by three times $3,097.50, or $9,292.50. See Silverman v. Eastrich Multiple In-

Appx. H.1

The Cost of Credit: Regulation and Legal Challenges / 2004 Supplement

not just common law fraud. Rodriguez v. Mellon Bank, 218 B.R. 764, 784 (Bankr. E.D. Pa. 1998); McParland v. Keystone Health Plan Central, 113 York 135 (C.P. York County, 1998). In McParland, the court addressed the pre-amendment caselaw and added: In response to this split of authority, the Legislature apparently has amended the subsection to include deceptive conduct. The Defendant argues that this amendment means nothing. The Commonwealth Court has dened deceptive as the meaning and impression arising from the sum total not only of what is said but also of all that is reasonable implied that is signicant. Commonwealth v. Hush-Tone Industries, Inc., 4 Pa. Commw. Ct. 1 (1971). Showing that conduct was deceptive does not approach the stringent pleading requirement of common law fraud. See also Carolyn L. Carter, Pennsylvania Consumer Law, 2.5.4.21(B) (1997). We, therefore, hold that common law fraud does not need to be pled under the subsection as amended. McParland, at 14-15. Accord, Rodriguez v. Mellon Bank, 218 B.R. 764 (Bankr. E.D. Pa. 1998) (citing history of catch-all provision and need to adhere to Pennsylvania Supreme Courts mandate to interpret catch-all liberally to effect remedial goal). See also Commonwealth v. Hush-Tone Industries, 4 Pa. Commw. 1,11 (1971) (As its name explicitly states, the Pennsylvania Act is a consumer protection law designed to broaden the protections afforded buyers by existing state law). The CPLs provisions extend to deceptive conduct in the making of mortgages and consumer loans. Smith v. Commercial Banking, 866 F.2d 576 (3d Cir. 1989); In re Fricker, 115 B.R. 809, 820 (Bankr. E.D. Pa. 1990); In re Russell, 72 B.R. 855, 871 (1987). Several aspects of this transaction violated the CPL. A. The Lenders Payment of a Broker Fee in the Absence of a Valid Broker Agreement Conforming to State Law Violated the CPL The broker fee paid by Eagle National Bank was illegal under Pennsylvania law for three independent reasons. First, any contract for services that is sold door-to-door or by telephone contact must be in writing. 73 P.S. 201-7. Second, the Pennsylvania Credit Services Act calls for broker contracts to be in writing, and preceded by delivery of a written information sheet. 73 P.S. 2184, 2186. Third, the consumer must be given a written notice of her right to cancel for up to ve days, under the CSA, and/or for three days, under the CPL. 73 P.S. 201-7, 2186(c). All of these protections help to insure that the consumer understands that she is hiring a broker, and paying him a separate fee, and to reect for a reasonable time outside the high-pressure sales situation. The broker Broker completely disregarded all these requirements. The initial contact with Mr. Broker was by telephone. Broker deposition p. 9. Mr. Broker did not even discuss his broker fee with Ms. Consumer until he obtained a preliminary approval from the lender. Id. pp. 2630. The broker did not establish the amount of his fee until shortly before closing. Id. p. 38. The only written broker fee agreement was the one prepared by the lender and signed by Ms. Consumer at closing. Id. pp. 4647,

vestor Fund, L.P. 51 F. 3d 28, 32-33 (3d Cir. 1995) (discussing defensive assertion of time-barred consumer claim as recoupment against the underlying debt, under Equal Credit Opportunity Act and other statutes). COUNT IV:3 PENNSYLVANIA CONSUMER PROTECTION LAW Pennsylvania state law provides an alternative basis for awarding statutory damages to Ms. Consumer based on the fraudulent manner in which she was charged a broker fee of over $3,000 for an unsuitable and overpriced renancing loan. Instead of getting the $10,000 or so that she sought, Ms. Consumer ended up renancing her rst and second mortgage balances, increasing her interest rate on those amounts from 9% to over 15%, nancing over $4,000 in lender and broker fees, and facing the prospect of a $39,000 balloon payment after paying almost nothing but interest for 15 years. See Exhibits B and C. This type of unconscionable and opportunistic conduct in structuring a mortgage loan is unfair and deceptive and violates Pennsylvanias Consumer Protection Law. In re Fricker, 115 B.R. 809, 820821 (Bankr. E.D. Pa. 1990). Pennsylvania, like most other states, has enacted a broad consumer protection statute, the Unfair Trade Practice and Consumer Protection Law, 73 Pa. Stat. 201-1 to 201-9.3 (hereinafter CPL). Modeled after the Federal Trade Commission Act, Gabriel v. OHara, 368 Pa. Super 383, 534 A.2d 488, 491 (1987), the CPL is intended to ensure the fairness of market transactions, and redress the imbalance between consumers and merchants, by prohibiting unfair or deceptive practices. In its only decision interpreting the CPL, the Supreme Court of Pennsylvania stated that: [CPLs] expansive provisions reect the legislative judgment that unfairness and deception in all consumer transactions must be halted. These sections of the Consumer Protection Law, in accordance with the legislative intent, are to be liberally construed to effect that intent. Commonwealth v. Monumental Properties, Inc., 459 Pa. 450, 461, 329 A.2d 812 (1974). The CPL statute prohibits: (v) representing that goods or services have . . . benets or quantities that they do not have, and . . . (xxi) engaging in any other fraudulent or deceptive conduct which creates a likelihood of confusion or of misunderstanding. 73 Pa. Stat. 201-2(4). The CPL was most recently amended in 1996. Pa. Act 146 of 1996, effective February 2, 1997. The 1996 amendments modied the catch-all provision to outlaw any other fraudulent or deceptive conduct . . . 73 Pa. Stat. 201-2(4)(xxi). The provision previously did not include the words or deceptive. Some decisions had required consumers or the attorney general to prove some, or all, the elements of common law fraud to establish fraudulent conduct under the catch-all provision. e.g., DiLucido v. Terminix International, Inc., 676 A.2d 1237 (Pa. Super. 1996). Those pre-1997 cases are no longer authoritative. The 1996 amendments reect a reaffirmation of the legislatures intent to protect consumers from a broad range of deceptive and unfair practices,
3 Editors note: So in original.

RESPA Pleadings and More / 2004 Supplement

Exhibit 5. The lender participated in the deception, by failing to require Mr. Broker to submit a valid timely written broker contract, by having Ms. Consumer sign an authorization to pay his fee at the loan closing despite the absence of any prior broker contract, information sheet and cancellation notices, and by paying the broker fee despite the absence of the required written disclosures and contract. The door-to-door sales provision of the CPL is written broadly to encompass most consumer transactions that do not take place in a store or retail business, and covers any transaction with a price over $25 when services are contracted to be sold to a buyer, as a result of, or in conjunction with, a contract with or call on the buyer or resident at his residence either in person or by telephone. 73 Pa. Stat. 201-7. See Burke v. Yingling, 44 Pa. Super. 16,666 A.2d 288 (1995) (holding that it is immaterial whether the seller or consumer initiated the contact). There is no dispute that the broker contract, assuming there was one, resulted from a contact with Ms. Consumer at her residence by telephone. The CPL requires that a fully completed copy of the contract be provided to the consumer at the time of the sale. 73 P.S. 201-7(b)(1). The contract must set forth the 3-day right to cancel, and there must also be a separate, written notice of cancellation. 73 Pa. Stat. 201-7(b)(2). The cancellation period does not begin to run until the consumer receives the notice. 73 Pa. Stat. 2017(b)(2). The broker contract signed at closing complied with none of these requirements, and this fact would have been obvious to the lender and any assignee of the mortgage, as well as to the broker. The broker fee form in the loan le was dated on the closing date, long after the sale of Mr. Brokers services, and it contains no reference to any right to cancel. Rather than correctly apprising Ms. Consumer of her right to cancel and of the separate existence of the broker contract, both the broker and lender concealed her rights under the CPL, and the lender instructed Ms. Consumer to sign an authorization to pay the broker fee that was silent as to these important rights. Therefore the broker and lender violated the CPL. The Pennsylvania Credit Services Act, 73 P. S. 2181-2192, serves two related purposes. It provides consumer protections in a broad range of credit repair and credit brokering transactions. It also provides for registration of a small group of loan brokers who are not licensed or registered under other laws. The substantive protections of 2183-2187 apply to all credit services organizations, a denition which by its plain language includes brokers. The registration rules of 2188 apply only to loan brokers, as separately dened. The broker in this case was a licensed mortgage broker, and therefore did not come within the denition of loan broker in the Credit Services Act. Ms. Consumer does not claim that Broker should have registered as a loan broker with the Banking Department. What she does claim, however, is that the broker acted as a credit services organization, because he represents that [he] will sell, provide, or perform . . .the following services in return for the payment of money . . .obtaining an extension of credit for a buyer [or] Providing advice or assistance to a buyer with regard to [obtaining an extension of credit]. 73 Pa. Stat. 2182. See Arnold v. United Companies Lending, 204 W. Va. 229,237; 511 S.E.2d 854, 862, n. 9 (1998) (mortgage brokers are credit services organizations under identically worded West Virginia statute). The denition of loan broker contains an exemption for mortgage brokers who are licensed under the Mortgage Bankers and Brokers Act. The denition of credit services organization

Appx. H.1

contains no such exemption. 73 PP.S. 2182. Loan brokers are thus a subset of credit services organizations. Licensed mortgage brokers must follow the consumer protection rules, but they do not have to register with the Banking Department, since they are already licensed. The most important protections call for the consumer to receive a written information sheet about the credit services organization and its fees and services, and a notice of a ve-day right to cancel. 73 Pa. Stat. 2184-2186. Mr. Broker did not comply with either of these requirements. B. Eagle Violated the CPL by Permitting the Broker to Ignore the CSA Any violation of the Credit Services Act is a per se violation of the Consumer Protection Law; 73 P.S. 2190(a). The Credit Services Act also establishes the principle that damages for violations are presumed to equal, at a minimum, the broker fee paid. 73 P.S. 2191. There is no dispute that Mr. Broker held himself out as a person obtaining a loan for her in return for payment of money, and therefore was a credit services organization. Given that the broker obviously violated the CSA, the question is, does Ms. Consumer have a remedy against the lender who funded the transaction? Pennsylvanias CPL provides consumers with a private cause of action when they are victimized by unfair and deceptive practices by a merchant, broker or lender. In a linked credit and sale transaction, it is a deceptive practice for the lender to fund a transaction knowing that the merchant is violating specic consumer protection laws. Iron & Glass Bank v. Franz, 9 D&C 3d 419 (Allegheny Cty. CP 1978); Heastie v. Community Bank, 727 F. Supp. 1133 (N.D. Ill. 1989). Moreover, by instructing its closing agent to pay the broker fee, and having Ms. Consumer sign a document at closing acknowledging an obligation to pay the broker fee for which she had not previously contracted, Eagle actively misled her into believing payment of the broker fee was legal. Likewise, the lender assisted the broker in concealing her rights to cancel the broker agreement under the CSA and the CPL. See Phillips v. Dukes, 24 B.R. 404 (Bankr. E.D. Mich. 1982) (deceptive for loan broker to fail to reveal his fee until minutes before the loan closing); Russell v. Fidelity Consumer Discount Co., 72 B.R. 855 (Bankr. E.D. Pa. 1987) (deceptive for lender to hide brokers fee in loan documents when broker was unknown to customer). See also Rodriguez v. Mellon Bank, 218 B.R. 764, 785 (Bankr. E.D. Pa. 1998) (pervasive illegality of lenders conduct was per se violation of CPL). Thus, the lender engaged in deceptive conduct proscribed by the CPL when it instructed Ms. Consumer to sign fee agreement at the loan closing and paid the $3,097.50 fee despite the brokers complete disregard of the Credit Services Act. C. The Lender Violated the CPL by Misleading Ms. Consumer Regarding the Loan Terms There were two aspects of the mortgage renancing that were highly material, and highly disadvantageous to Ms. Consumer: the renancing of her low-interest rst and second mortgages, and the balloon payment feature. Ms. Consumer was unaware of these terms until the closing. Consumer Affidavit, Broker deposition at 60-70. In a similar case, a broker was found to have violated the CPL, committed common law fraud and violated his duciary duty

Appx. H.1

The Cost of Credit: Regulation and Legal Challenges / 2004 Supplement

Ms. Consumer is on a xed, low income, and is in no position to pay a balloon payment. Given that the broker structured the loan at the maximum loan to value ratio, Broker deposition at 12-13, and the fact that her payments would not reduce the principal to any extent prior to the balloon payment, Ms. Consumer would face difficulty renancing the mortgage and nancing additional fees and closing costs, in the absence of substantial appreciation in her home value. As for renancing a Homeowners Emergency Mortgage Assistance Program loan, the disadvantages are clear. Payments on these special loans are based on income subject only to a $25 monthly minimum, and the interest is 9% and runs only when the borrower is in repayment. See 35 Pa. Stat. 1680.406c. Ms. Consumer was therefore deceived about material loan terms, by both the broker and the lender. The lender also participated in and facilitated the brokers deception regarding his fee and his failure to provide legally required written contract and cancellation notices at a meaningful time prior to the loan closing. The economic harm to Ms. Consumer, at a minimum, was the $3,097.50 fee she was charged for the broker fee. The CPL provides for an award of treble damages, which in this case should be allowed as a further recoupment against the creditors claim. 73 Pa. Stat. 201-9.2, See Mbank Forth Worth N.A. v. Trans Meridian, Inc., 820 F.2d 716 (5th Cir. 1987) (nding that damages under Texas Deceptive Practices law can be asserted by way of recoupment). CONCLUSION For the foregoing reasons, plaintiffs motion for summary judgment should be granted. Respectfully submitted, [Attorney for Plaintiff] DECLARATION OF CONSUMER I, Consumer, declare under penalty of perjury that the following facts are true: 1. I rst spoke to Mr. Broker, who I later learned was a broker and not a lender, by telephone. I called him from my residence and he told me he would be able to get me a loan. 2. Mr. Broker did not give me a written contract for his broker services at any time before the loan closing. He did not tell me, or notify me in writing, that I could cancel my contract with him at any time at all. 3. I wanted a loan for about $10,000 to do some home repairs and pay some bills. I was not planning to renance my rst mortgage or amy assistance loan from the Pennsylvania Housing Financing Agency. 4. I did not want a balloon loan and I did not understand that Mr. Broker was requesting a balloon loan for me. I did not nd out about this feature until the loan closing. Mr. Broker never discussed the balloon payment with me before the closing. 5. I am very uncertain that I will be able to ever renance my loan before the balloon comes due. I have a very low income and cannot afford the payments on this loan, let alone a renanced loan with additional fees and costs. I have no plans to sell my home or move, and I very much would have preferred a loan that did not have a balloon payment.

to the consumer, by failing to disclose a balloon payment, and failing to disclose the adverse consequences of renancing a mortgage assistance loan, prior to closing. Barker v. Altegra Credit, 251 B.R. 250 (E.D. Pa. 2000). Just as in the Barker case, the broker in the case at bar received a preliminary approval from the lender which stated the critical terms, but neither the broker nor the lender shared this information with the consumer. The preliminary approval form, Broker deposition Exhibit 1, shows the loan term as 360/180 months, which means amortized over 360 months but due at the end of 180 months, i.e., a balloon loan. The form also species that all mortgages must be paid off. The form was received by Mr. Broker at some time prior to June 28, 1997, i.e., several weeks before the closing. Broker deposition at 11. The lender also participated in the deception. Ms. Consumer did not receive her good faith estimates three days after her initial application, as the law requires. See 24 C.F.R. 3500.7, Broker deposition at 31, 34. Instead the good faith estimates document was dated and delivered on the date of the loan closing, so Ms. Consumer received her advance loan disclosures only after closing the loan. Broker deposition exhibit 3. Similarly, the 3-day advance HOEPA disclosure form prepared by the lender (discussed above) did not mention the balloon payment in its presentation of the payment schedule. Whether the conduct is deceptive under the CPL is to be judged on the basis of its effect on unsophisticated consumers: the act is intended to protect the ignorant and unthinking and credulous members of the general public. Commonwealth v. Hush-Tone Industries, 4 Pa. Commw. 1, 22 (1971). The theoretical possibility that Ms. Consumer could have carefully reviewed her closing documents and thereby discovered the true loan terms does not preclude the nding of an unfair and deceptive practice. If unfair trade practitioners could escape the liability upon showing that their victims were careless, gullible, or otherwise inattentive to their own interests, the Act would soon be a dead letter. Winston Realty v. GHG, Inc., 70 N.C. App. 374, 381, 320 S.E.2d 286 (N.C. Ct. App. 1984), affd, 331 S.E.2d 677 (N.C. 1985). Nor does the fact that the written loan closing documents contained the loan terms necessarily obviate a claim of deceptive conduct. For example, an insurers oral misrepresentation of the extent of coverage is unfair and deceptive conduct, despite the fact that the printed insurance policy sets forth the true coverages. Glazewski v. Allstate Ins. Co., 126 Ill. App. 3d 401, 409410, 466 N.E.2d 1151, 1157 (1984). A loan broker misrepresenting itself as a lender and thereby concealing the fact he would charge a separate fee engaged in deceptive conduct, despite the fact that the brokers fee and true role were set forth in loan closing documents. Heastie v. Community Bank of Greater Peoria, 690 F. Supp. 716, 719 (N.D. Ill. 1988). It is the essence of bait and switch deception that the consumer eventually learns the true terms, but only after they are psychologically committed to the deal. See 73 Pa. Stat. 2-2012(4)(ix), (x) (banning bait and switch advertising tactics). Deception, or an absence of full and fair disclosure, can be also inferred from the gross or subtle unfairness of a loan transactions provisions as they affect the borrower. In other words, if no reasonable person, apprised fully of the nancing terms, would have accepted them, deception can be inferred. Besta v. Benecial Loan Co. of Iowa, 85 F.2d 532, 536 (8th Cir. 1988); Therrien v. Resource Financial Group, Inc., 704 F. Supp. 322 (D.N.H. 1989); Millbourne v. Mid-Penn Consumer Discount Co., 108 Bankr. Rep. 522 (Bankr. E.D. Pa. 1989).

RESPA Pleadings and More / 2004 Supplement

6. Mr. Broker did not provide me with any advice or counseling about different types of loans, interest rates, points or any other loan terms. All he did was tell me that a loan was approved, ask me to provide income verications, and tell me where to go for the closing. I do not recall him providing me with any other services. Date: [CONSUMER] UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF PENNSYLVANIA ) ) Debtor, ) CONSUMER, ) Plaintiff, ) ) v. ) ) ) DELTA FUNDING CORPORATION and BANKERS TRUST ) COMPANY OF CALIFORNIA, ) N.A., Trustee, ) Defendants. ) ) CONSUMER, ORDER AND NOW, this _____ day of _____________, 2001, upon consideration of the motion of Plaintiff for Summary Judgment, it is hereby ORDERED, that Plaintiffs Motion is GRANTED, and it is further ORDERED, that Judgment is entered against Defendants and in favor of plaintiff Consumer as follows: 1) Plaintiff is entitled to recoup the following statutory penalties against the amounts claimed by Defendant in its proof of claim: HOEPA and TILA penalty: RESPA penalty: [or Pennsylvania Consumer Protection Law damages:] Total: $15,099.00 $9,292.50 [9,292.50] $24,391.50

Appx. H.2

H.2 Answer and Affirmative Defenses

IN THE CIRCUIT COURT OF COOK COUNTY, ILLINOIS COUNTY DEPARTMENT, CHANCERY DIVISION ) CHASE BANK OF TEXAS, ) Plaintiff, ) ) v. ) No. 00 CH 3033 ) [Defendant-Consumer], ) Defendant. ) ) SECOND AMENDED ANSWER AND AFFIRMATIVE DEFENSES TO COMPLAINT TO FORECLOSE MORTGAGE Now comes Defendant, by and through her attorneys, the Legal Assistance Foundation of Chicago, and answers Plaintiffs Complaint, as follows: 1. Defendant admits paragraph 1 of Plaintiffs Complaint. 2. Defendant admits paragraph 2 of Plaintiffs Complaint. 3. Defendant has insufficient knowledge to admit or deny the facts alleged in paragraph 3 of Plaintiffs Complaint and demands strict proof thereof. 4. Defendant has insufficient knowledge to admit or deny the facts alleged in paragraph 4 of Plaintiffs Complaint and demands strict proof thereof. 5. Defendant denies paragraph 5 of Plaintiffs Complaint. 6. Defendant denies paragraph 6 of Plaintiffs Complaint. WHEREFORE, Defendant prays that this Court enter an Order: Dismissing the Complaint in this case with prejudice and entering judgment in favor of Defendant and against Plaintiff. AFFIRMATIVE DEFENSES STATEMENT OF FACTS 1. [Defendant-Consumer] is a 72-year-old woman who has owned the property at [Defendant Consumers address] (hereinafter, the home) for over thirty years. 2. The home was purchased for approximately $20,000 in 1970. 3. At all relevant times, [Defendant-Consumer] has resided in the home with her sons and grandchildren. 4. [Defendant-Consumer], as a senior citizen with limited education and income, but substantial equity in her home, was a prime target for predatory mortgage lenders and brokers. 5. [Defendant-Consumer] was an unsophisticated borrower who did not understand many of the basic terms and costs of a typical mortgage loan transaction. For example, between 1995 and 1999, [Defendant-Consumer] entered into at least 4 costly home renance loans as follows: a. In July, 1995, [Defendant-Consumer] entered into a mortgage loan with Option One Mortgage Corporation, for a $48,750 loan amount at 12.85 percent Annual Percentage Rate, with closing costs of $4111. b. In November, 1996, [Defendant-Consumer] renanced the Option One loan with The Money Store, which paid off approximately $58,142 to Option One, paid off a few small credit card

2) The claim of Delta Funding, servicer for Bankers Trust Company of California is therefore Disallowed in Part, and Allowed only as a secured claim for $24,391.50, and arrears of $0.00. 3) Plaintiff is entitled to an award of reasonable attorneys fees, and Plaintiffs attorneys shall le a motion for an award of attorneys fees, within fteen (15) days of the entry of nal judgment in this proceeding. [United States Bankruptcy Judge]

Appx. H.2

The Cost of Credit: Regulation and Legal Challenges / 2004 Supplement

signing was a mere formality. [Defendant-Consumer], with limited education and little ability to understand the complicated nancial documents placed before her, signed all the documents. [Agent 2] was present at the closing. 14. Upon completing the closing, [Defendant-Consumer] asked [Agent 2] when she would receive the funds to repair her roof. [Agent 2] informed her that the loan they had arranged for her was insufficient to provide her with the $1600 in cash she had requested. Instead, [Agent 2] stated that Victoria would to pay [Defendant-Consumers] rst monthly mortgage payment. 15. A few days later, [Agent 2] called [Defendant-Consumer] and said that Victoria would not make the payment because they had just discovered some unpaid back taxes. [Defendant-Consumer] did not understand this because her previous mortgage company was supposed to pay the property taxes, and she was unaware of any tax arrearage. 16. The mortgage documents created a loan transaction between [Defendant-Consumer] and Saxon Mortgage, Inc. (Saxon) for the principal amount of $120,000 with an Annual Percentage Rate of 12.042 percent. See Truth In Lending Statement and Itemization of Amount Financed, Exhibits A and B, attached. 17. On information and belief, Saxon reviewed [DefendantConsumers] application and prepared all the documents in connection with the loan. Moreover, Saxon had an arrangement or agreement with Victoria whereby Victoria referred borrowers to Saxon for mortgage loans. Therefore, Saxon authorized, approved, and/or ratied each document and procedure employed by Victoria in connection with the making of the loan. 18. The transaction created a 15-year loan which increased [Defendant-Consumers] mortgage payments to $1142.79 (excluding taxes and insurance) with a balloon payment in the 180th month (when [Defendant-Consumer] is 84) of $101,686.62. See Exhibit A. 19. The loan also carried a prepayment penalty which would require [Defendant-Consumer] to pay an amount equal to six months interest if she paid off the loan within ve years. 20. [Defendant-Consumer] had no idea that she would still owe $101,686.62 after making payments for fteen years and would not have agreed to the loan had she known. 21. [Defendant-Consumer] relied on Victorias representation that the loan would provide her with $1600 for the roof and would lower the monthly payment and interest rate. She would not have entered into the transaction had she been aware of the true nature of the loan. 22. [Defendant-Consumers] reliance was reasonable under all of the circumstances, given her advanced age, limited education and lack of nancial sophistication, and the fact that Victoria was a professional mortgage broker which undertook to assist and advise [Defendant-Consumer] in obtaining a loan. 23. According to the Itemization of Amount Financed attached to the Truth In Lending Statement, Victoria received $7800 from the loan proceeds for arranging the loan. Exhibit B, attached. 24. Victoria received at least $5597 from the loan proceeds. 25. Victoria received an additional payment of $3750 from Saxon, denominated Brokers Compensation in Exhibit C. 26. On information and belief, based on counsels familiarity with mortgage industry practices, the $3750 was measured or calculated based on the rate of interest which Victoria was able to get [Defendant-Consumer] to sign for, i.e., Victorias compensation was increased by an amount corresponding to a higher rate of

debts, and which purportedly gave her $16,327 cash to perform certain home improvements. She was charged approximately $7300 in closing costs for this loan, including almost $6000 in broker fees on a loan of approximately $80,000. c. In April or May, 1997, [Defendant-Consumer] renanced the Money Store loan with a mortgage lender/broker called Midwest America Financial Corp. Midwest paid The Money Store some $84,000 and charged [Defendant-Consumer] approximately $4000 in closing costs, a portion of which she was required to pay at the closing. The resulting loan was about $90,000, at 12.9 percent interest, with payments of $922 per month and a balloon after 15 years. In this transaction, [Defendant-Consumer] had received a preliminary Truth In Lending Disclosure which substantially differed from the nal loan terms, but [she] did not realize the discrepancy due to her unsophistication. d. In May, 1999, [Defendant-Consumer] took the loan presently at issue, described in more detail below, with a principal balance of $120,000 and monthly payments exceeding 80 percent of her total household monthly income. e. In the space of four years, therefore, [Defendant-Consumer] increased the indebtedness secured by her home from $48,750 to $120,000, and paid over $20,000 in closing costs and mortgage fees (not counting regular interest on the loans), but received the benet of only about $19,000 at most. 6. Each of the foregoing loans substantially reduced [DefendantConsumers] equity in her home and increased her monthly mortgage payments without providing her with a proportionate economic benet. 7. In February 1999, [Defendant-Consumer] received a phone solicitation from Victoria Mortgage (Victoria), a mortgage broker. Victoria explained to [Defendant-Consumer] that it could offer her a new loan that would reduce her mortgage payments and provide her with some extra cash. 8. Because [Defendant-Consumer] was struggling to make her monthly mortgage payments of approximately $990 a month and because she needed about $1600 to repair her roof, she agreed to meet with Victoria. 9. Soon thereafter, a male Victoria agent visited [DefendantConsumer] at her home. Victorias agent repeated the assertions about the loans benets and urged [Defendant-Consumer] to complete loan application documents. In reliance on Victorias promises that the loan would provide her with additional cash and lower her monthly mortgage payments, [Defendant-Consumer] signed these documents. 10. In or around March 1999, [Defendant-Consumer] went to the office of Victoria Mortgage near Central and Lawrence Avenue in Chicago and met with its agent, [Agent 1]. [Agent 1] again promised [Defendant-Consumer] that Victoria could provide a new mortgage loan that would reduce her mortgage payments and provide her with the cash to repair her leaking roof. 11. In reliance on [Agent 1s] assertions, [Defendant-Consumer] completed additional documents relating to the loan application. 12. Subsequently, a Victoria agent named [Agent 2] contacted [Defendant-Consumer] and informed her that her loan was ready to close. On or about May 27, 1999, [Defendant-Consumer] went to an office in downtown Chicago, where the closing was completed. 13. At the closing, [Defendant-Consumer] was presented with a myriad of loan documents to sign. A man showed [DefendantConsumer] the documents and told her where to sign them. He stated that she did not need to read the documents because the

10

RESPA Pleadings and More / 2004 Supplement

interest on the loan. The higher the rate, the more Victoria could receive. Such a payment is sometimes known in the mortgage industry as a yield spread premium. 27. As part of the transaction, [Defendant-Consumer] paid thousands of dollars in fees to the mortgage broker for obtaining a balloon loan with an interest rate of 11 percent that increased her mortgage payments without providing her with any real economic benet. 28. On information and belief, based on counsels familiarity with the mortgage industry, the 11-percent interest rate exceeded Saxons par rate on 15-year balloon loans for borrowers with similar credit histories to [Defendant-Consumers]. 29. Victoria was more than adequately compensated for its services by [Defendant-Consumer] from the loan proceeds. The mortgage broker provided no goods or services for the additional yield spread premium fee. 30. [Defendant-Consumer] received no real economic benet from this transaction. 31. With respect to the loan transaction, Saxon was a creditor as that term is dened in the Truth-in-Lending Act, 15 U.S.C. 1602(f) and Regulation Z, 12 C.F.R. 226.2(a)(17). 32. The transaction between Saxon and [Defendant-Consumer] was a consumer credit transaction as that term is dened in the Truth-in-Lending Act, 15 U.S.C. 1602(h) and Regulation Z, 12 C.F.R. 226.2(a). 33. The transaction between Saxon and [Defendant-Consumer] was a closed-end credit transaction as the term is dened in 12 C.F.R. 226.2(10) and is subject to the requirements for such transactions set forth in 15 U.S.C. 1638 and 12 C.F.R. 226.17 226.24. 34. The transaction between Saxon and [Defendant-Consumer] was one in which a security interest was taken in [DefendantConsumers] principal place of residence. 35. The transaction between Saxon and [Defendant-Consumer] was for the principal amount of $120,000. 36. The transaction between Saxon and [Defendant-Consumer] was for the Amount Financed of $111,705.66. See Exhibit A. 37. As such, the total loan amount for the transaction, as dened in 15 U.S.C. 1602(aa)(1)(B) and 12 C.F.R. 226.32(a) (1)(ii) was therefore a maximum of $111,705.66. 38. The total points and fees paid by [Defendant-Consumer] in connection with the loan exceeded 8 percent of the total loan amount. 39. When the total points and fees are greater than 8 percent of the total loan amount, the mortgage is dened as a high rate mortgage pursuant to 15 U.S.C. 1602(aa). 40. The transaction between Saxon and [Defendant-Consumer] was therefore a high rate mortgage. 41. [Defendant-Consumer] has suffered economic and emotional damages as a result of the Third-Party Defendants conduct described herein. She is faced with the possible loss of her home of over thirty years. First Affirmative Defense: Plaintiffs Assignors Failure to Provide Required Truth in Lending Disclosures 42. As described above, the transaction between plaintiffs assignor and [Defendant-Consumer] was a high-rate mortgage. 15 U.S.C. 1602(aa)(1)(B).

Appx. H.2

43. The transaction of May 27, 2000, between plaintiffs assignor and [Defendant-Consumer], was therefore one in which the provisions of 15 U.S.C. 1639 and 12 C.F.R. 226.32 were applicable. 44. Plaintiffs assignor violated the Truth-in-Lending [Act], inter alia, a. by failing to provide the disclosures to the consumer required by 15 U.S.C. 1639(a)(1) and (a)(2)(A) and 12 C.F.R. 226.32(c)(1)(3); b. by failing to provide the above disclosures to the consumer required at least three business days prior to the consummation of the transaction, in violation of 15 U.S.C. 1639(b)(1) and 12 C.F.R. 226.31(c); c. by failing to provide accurate disclosures as required by 15 U.S.C. 1638(a) and Reg. Z 226.17 and 226.18. 45. The failure to comply with any provision of 15 U.S.C. 1639 is deemed a failure to deliver material disclosures for the purpose of 15 U.S.C. 1635. See 15 U.S.C. 1639(j). 46. Pursuant to the Truth-in-Lending Act, [Defendant-Consumer] had an absolute right to cancel the transaction for three business days after the transaction, or within three days of receiving proper disclosures from the plaintiff, after which she would not be responsible for any charge or penalty. 47. Plaintiffs assignors violations of 15 U.S.C. 1638, 1639 and 12 C.F.R. 226.17, 226.18, 226.31 and 226.32, which are considered to be a failure to give all material disclosures, give rise to a continuing right of rescission on the part of [DefendantConsumer]. 48. [Defendant-Consumer] hereby elects to rescind the transaction between herself and plaintiffs assignor, pursuant to her continuing right of rescission. 49. When a consumer elects to rescind pursuant to the Truthin-Lending Act, any security interest taken in connection with the transaction becomes void. 15 U.S.C. 1635(b). 50. When a consumer elects to rescind pursuant to the Truthin-Lending Act, the consumer is not liable for any nance or other charge. 15 U.S.C. 1635(b). 51. The mortgage that is the subject of this foreclosure action was taken in connection with the transaction that [DefendantConsumer] has elected to rescind. 52. Since the mortgage is now void, this foreclosure case is due to be dismissed. WHEREFORE, [Defendant-Consumer] prays that this Court dismiss plaintiffs complaint, with prejudice. Second Affirmative Defense: Recoupment for Violation of the Real Estate Settlement and Procedures Act 53. The transaction between plaintiffs assignor and [DefendantConsumer] was a federally related mortgage loan as that term is dened in the Real Estate Settlement and Procedures Act (RESPA), 12 U.S.C. 2602(1). 54. Plaintiffs assignors funding and origination of this transaction are settlement services as that term is dened in RESPA, 12 U.S.C. 2601(3). 55. As part of the transaction, [Defendant-Consumer] paid fees to the mortgage broker of at least $11,550 for obtaining a balloon loan with an interest rate of 11 percent that increased her mortgage payments without providing her with any real economic benet. See Exhibit D.

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The Cost of Credit: Regulation and Legal Challenges / 2004 Supplement

72. The misrepresentations and omissions were made with the intent to induce [Defendant-Consumers] reliance and thereby to enter into the transaction. 73. [Defendant-Consumer] reasonably relied on Saxons and Victorias misrepresentations to her detriment. 74. Plaintiffs assignor is a mortgage company with extensive experience and sophistication in transactions involving residential mortgages. 75. Conversely, [Defendant-Consumer] is a single family homeowner who is inexperienced and unsophisticated in matters involving consumer lending. 76. The fees charged to [Defendant-Consumer] far exceed the fees normally charged to consumers in home mortgage transactions. 77. In addition to the fees paid by [Defendant-Consumer] for the loan, plaintiffs assignor paid an illegal kickback to the mortgage broker of $3750 in violation of RESPA. 78. Furthermore, plaintiffs assignor failed to properly notify [Defendant-Consumer] about the high-cost nature of the loan and failed to provide accurate Truth In Lending disclosures. 79. Finally, the mortgage that plaintiffs assignor entered into with [Defendant-Consumer] increased her monthly mortgage payments by more than $150, left her with a balloon payment of $101,686.62 due when she is 84 years old and provided her with absolutely no real economic benet. 80. Plaintiffs assignors practices as described above are unfair, immoral, unethical, and unscrupulous. 81. Theses practices offend public policy. 82. As a result of plaintiffs assignors unfair practices, in violation of the Consumer Fraud Act, 815 Ill. Comp. Stat. 505, [Defendant-Consumer] suffered substantial injury in that she is now faced with the loss of her home. 83. Plaintiff, as holder of a high-cost loan, is liable for all claims and defenses that can be raised against its assignor. 15 U.S.C. 1641(d)(1). 84. On information and belief, based on documents found in plaintiffs loan les, plaintiff knew that the terms of the loan had been misrepresented to [Defendant-Consumer]. 85. Plaintiff knew that the Truth In Lending disclosures given to [Defendant-Consumer] were inaccurate. Such inaccuracy was apparent on the face of the documents assigned to plaintiff. Wherefore, [Defendant-Consumer] prays that this Court dismiss Plaintiffs Complaint with prejudice, or, in the alternative, reduce the amount owed by [Defendant-Consumer] by the amount of damages available under the CFA. Fourth Affirmative Defense: Common Law Fraud 86. [Defendant-Consumer] incorporates paragraphs 174 above by reference herein. 87. Victoria Mortgage, [Agent 1], [Agent 2], and other unidentied employees and/or agents of Victoria Mortgage made misrepresentations to [Defendant-Consumer], as set forth above, including but not limited to statements that they would act in her best interest, obtain a loan which would be to her benet, lower her monthly payment, and provide additional cash to repair her roof. 88. Victoria and its agents or employees also misrepresented the amount it was charging [Defendant-Consumer] for its purported services.

56. This interest rate exceeded plaintiffs assignors par rate on 15-year balloon loans. 57. In exchange for submitting an above-par-rate loan, plaintiffs assignor paid the mortgage broker $3750. See Exhibit A. This payment was in addition to the money paid by [Defendant-Consumer], and was not for any services provided by the mortgage broker to plaintiffs assignor or [Defendant-Consumer]. 58. The mortgage broker was more than adequately compensated for its services by [Defendant-Consumer]. 59. The mortgage broker provided no goods or services for this fee. 60. Plaintiffs assignors payment of this fee to the mortgage broker violates RESPAs prohibition against providers of settlement services from paying referral fees and kickbacks. 12 U.S.C. 2607. 61. Plaintiffs violation of RESPA is a violation that subjects Plaintiff to a civil penalty of three times the amount of any charge paid for settlement services. 12 U.S.C. 2607(d)(2). Wherefore, [Defendant-Consumer] prays that this Court dismiss plaintiffs complaint, with prejudice, or, in the alternative, reduce the amount owed by [Defendant-Consumer] by the amount of damages available under RESPA. Third Affirmative Defense: Illinois Consumer Fraud and Deceptive Practices Act 62. [Defendant-Consumer] realleges paragraphs 150. 63. This defense is asserted pursuant to the Illinois Consumer Fraud and Deceptive Business Practices Act, 815 Ill. Comp. Stat. 505 et seq. 64. Victoria Mortgage, [Agent 1], [Agent 2], and other unidentied employees and/or agents of Victoria Mortgage made misrepresentations to [Defendant-Consumer], as set forth above, including but not limited to statements that they would act in her best interest, obtain a loan which would be to her benet, lower her monthly payment, and provide additional cash to repair her roof. 65. Victoria and its agents or employees also misrepresented the amount it was charging [Defendant-Consumer] for its purported services. 66. Saxon (plaintiffs assignor) misrepresented the terms and nance charges imposed on the loan. 67. Saxons closing agent misrepresented the import and contents of the documents which he asked [Defendant-Consumer] to sign and concealed the terms of the loan while requiring [Defendant-Consumer] to sign the documents. 68. Saxon and Victoria entered into a conspiracy to defraud [Defendant-Consumer] by agreeing to the payment of a kickback (the yield spread premium) from Saxon to Victoria for the purpose of getting [Defendant-Consumer] to accept the loan at a higher rate than Saxon was prepared to impose, without disclosing to [Defendant-Consumer] the purpose and nature of the kickback. 69. The misrepresentations were material in nature, as they concerned the basic terms and benets of the loan. 70. Victoria and its employee agents knew that their representations were false at the time they were made. 71. Saxon knew that its Truth In Lending disclosures were inaccurate. Saxons agent knew that representations to [DefendantConsumer] at the closing were false.

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RESPA Pleadings and More / 2004 Supplement

89. Saxon (plaintiffs assignor) misrepresented the terms and nance charges imposed on the loan. 90. Saxons closing agent misrepresented the import and contents of the documents which he asked [Defendant-Consumer] to sign and concealed the terms of the loan while requiring [Defendant-Consumer] to sign the documents. 91. Saxon and Victoria entered into a conspiracy to defraud [Defendant-Consumer] by agreeing to the payment of a kickback (the yield spread premium) from Saxon to Victoria for the purpose of getting [Defendant-Consumer] to accept the loan at a higher rate than Saxon was prepared to impose, without disclosing to [Defendant-Consumer] the purpose and nature of the kickback. 92. The misrepresentations were material in nature, as they concerned the basic terms and benets of the loan. 93. Victoria and its employee agents knew that their representations were false at the time they were made. 94. Saxon knew that its Truth In Lending disclosures were inaccurate. Saxons agent knew that representations to [DefendantConsumer] at the closing were false. 95. The misrepresentations and omissions were made with the intent to induce [Defendant-Consumers] reliance and thereby to enter into the transaction. 96. [Defendant-Consumer] reasonably relied on Saxons and Victorias misrepresentations to her detriment. 97. Plaintiff knew that the loan terms had been misrepresented to [Defendant-Consumer] and knew that the Truth In Lending disclosures given to [Defendant-Consumer] were inaccurate. Such inaccuracy was apparent on the face of the documents assigned to plaintiff. 98. Plaintiff accepted assignment of the note with notice that the documents contained therein were inaccurate and that the loan violated TILA and RESPA. Therefore plaintiff is subject to the defense of fraud raised herein. 99. Plaintiff, as holder of a high-cost loan, is liable for all claims and defenses that can be raised against its assignor. 15 U.S.C. 1641(d)(1). Wherefore, [Defendant-Consumer] prays that this Court dismiss Plaintiffs Complaint with prejudice, or, in the alternative, reduce the amount owed by [Defendant-Consumer] by the amount of her damages. Fifth Affirmative Defense: Violation of the Illinois Interest Act4 100. This defense is asserted pursuant to the Illinois Interest Act, 815 Ill. Comp. Stat. 205. 101. The loan entered by plaintiffs assignor and [DefendantConsumer] on May 27, 1999, was for the stated sum of $120,000. 102. The stated interest rate on the loan entered by plaintiffs assignor and [Defendant-Consumer] was 11.00 percent. See Exhibit D. 103. In addition to the stated interest, plaintiffs assignor charged [Defendant-Consumer] at least $12,044.34 in points and fees. 104. The points and fees paid by [Defendant-Consumer] are 10.04 percent of the principal amount of $120,000. 105. The points and fees charged to [Defendant-Consumer] are therefore in excess of 3 percent of the principal amount of the loan.
4 This Affirmative Defense (formerly denominated the Fourth Affirmative Defense), has been previously stricken by the Court. [Defendant-Consumer] includes it here solely in order to preserve her rights on appeal.

Appx. H.3

106. The loan made by plaintiffs assignor to [DefendantConsumer] is secured by her home, which is residential real estate in the state of Illinois. 107. The loan requires the payment of interest at an interest rate in excess of 8 percent per annum. Section 4.1a of the Illinois Interest Act, 815 Ill. Comp. Stat. 205/4.1a(f), limits the amount of certain charges, including points, service charge, discounts, commission, or otherwise, in the case of loans with an interest rate in excess of 8 percent per annum that are secured by residential real estate, to not more than 3 percent of the principal amount. 108. Plaintiffs actions as described in paragraphs 6671 above were done knowingly as that term is used in Section 6 of the Interest Act. 815 Ill. Comp. Stat., 205/6. A knowing violation of the Interest Act subjects the offender to a penalty of twice the total of all interest, discount and charges determined by the loan contract or paid by the obligor, whichever is greater. 815 Ill. Comp. Stat. 205/6. 109. The total of all interest, discounts and charges determined by the loan contract in connection with the transaction far exceeds the payoff balance owed by [Defendant-Consumer]. 110. Pursuant to Section 6 of the Interest Act, Plaintiffs statutory liability is not less than twice the total of all interest, discounts or charges determined by the loan contract. [Defendant-Consumer] is therefore entitled to a complete set-off against all amounts that Plaintiff claims are due, under the terms of the Mortgage. 815 Ill. Comp. Stat. 205/6. WHEREFORE, [Defendant-Consumer] prays that this Honorable Court dismiss plaintiffs complaint with prejudice. One of Defendants Attorneys [Attorneys Name] [Attorneys Law Firm and Address]

H.3 Discovery
INTERROGATORIES 1. State the name, job title, and business address of each person providing information in response to these discovery requests. ANSWER: 2. Provide the following information for all employees and agents of Chase and/or its assignor and/or Victoria Mortgage who had any involvement in the transaction with plaintiff or in the administration of her account, including but not limited [to] the origination, underwriting, disbursement and assignment of the subject account: full name, present or last known home and business addresses and telephone numbers; date rst employed by you; whether presently employed by you; all job title(s) and dates during which each job was held; and, if not presently employed, Social Security number and exact date of birth. State, generally, each individuals involvement (e.g., preparation of documents, notarizing signatures, approval of nancing terms, communications with the borrower; sending of notices, disbursement of funds, etc.). ANSWER: 3. State the date and subject matter of each communication (oral or written): (a) between or among any of the parties to this action,

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Appx. H.3

The Cost of Credit: Regulation and Legal Challenges / 2004 Supplement

please state: his or her name, address, telephone number, occupation, and current employment; the subject matter of his or her expertise; any matters which you contend qualify him or her as an expert; the substance of all facts and opinions to which he or she could testify if called as a witness; a summary of the grounds for each such opinion, and identify all documents, reports or statements made by any such expert. ANSWER: 10. Describe and dene all charges listed in Exhibits A, B and C to Hs Affirmative Defenses, and explain any discrepancies in the listed gures, i.e., explain why the Itemization of Amount Financed (Exhibit C to Hs Affirmative Defenses) states that the Brokers Origination Fee was $7800, and that $500 was paid to Thomas Appraisals, while the HUD-1 Settlement Statement (Exhibit A to Hs Affirmative Defenses) states that a $7032.63 loan origination fee plus $500 for an appraisal was paid to Victoria Mortgage. ANSWER: 11. If you believe that other or different amounts were paid to Victoria Mortgage in connection with the subject transaction (other than what is disclosed in the Exhibits to Hs Affirmative Defenses), please state what amounts were paid and explain the discrepancy. Identify each and every service or goods you believe were provided by Victoria Mortgage to Ms. H in connection with the transaction and the reasonable fair market value of those goods and services. ANSWER: 12. State the amount that you believe is the total loan amount and the total points and fees involved in the subject transaction and explain how you arrived at those gures. ANSWER: 13. Explain the basis and/or the manner in which the payments made to Victoria Mortgage were calculated (e.g, percentage of loan amount, interest rate of loan, specic services provided). ANSWER: 14. State the name, residence and business addresses and phone numbers, and job position of all person(s) and/or entities not identied in response to any preceding Interrogatory who had any involvement in or has knowledge of any facts relating to matters alleged in Hs Affirmative Defenses, and/or who may testify as witnesses at the trial or any hearing hereof. Identify each and every written or recorded statement made by such potential witnesses. ANSWER: 15. Identify all agreements between Chase and Saxon Mortgage. State the number of residential mortgage loans assigned by Saxon to Chase in the last three years, and identify those in which Victoria Mortgage was the broker. Of these loans, state how many were in default of at least one month, within the rst three years after they were made. State whether Chase has received any complaints (oral or written, whether or not led with any judicial or administrative forum or consumer protection agency) from other borrowers in transactions in which either Saxon or Victoria Mortgage was involved, and identify all individuals who made such complaints. ANSWER: REQUESTS FOR PRODUCTION OF DOCUMENTS 1. Please produce all documents (including all computer or digital media-stored data) relating to Ms. H, the property located at

and (b) between you and any other person or entity (other than your counsel), relating to the subject account and/or transaction. Identify all documents reecting or relating to such communications, including but not limited to letters, faxes, notes, internal memoranda, calendars, computer data, and credit applications, etc. ANSWER: 4. State the date and amount of each payment (a) disbursed from the loan proceeds of the subject transaction and/or account; (b) received by you from anyone in connection with the subject account; and (c) paid to or received by anyone else in connection with the subject account (regardless of whether the payment came from the loan proceeds or another source). Identify the payor and payee of each such payment made or received, including but not limited to payments made to brokers, appraisers, title companies, credit reporting agencies, couriers and contractors, and identify all documents relating to same, including all canceled checks and receipts. ANSWER: 5. Describe your policy and practice relating to the origination, approval or underwriting, preparation, disbursement and acceptance of assignment of a residential mortgage loan such as the subject transaction(s), including but not limited to all agreements with brokers, lenders, title companies, assignors, etc. Identify all documents relating to or reecting such policy, practices and agreements, including all documentation required to be in assigned account les, and all forms given or sent to borrowers, information or forms which borrowers are requested to provide in order to obtain a loan, and all instructions, policy and procedure manuals, memoranda and guidelines given to brokers, title companies, lenders and/or closing agents, and any persons who review account les for approval and/or acceptance of assignment. ANSWER: 6. If your response to any of the foregoing Requests To Admit is anything other than an unqualied admission, state in detail all facts upon which you rely on in denying the request, state whether any investigation was made to determine your response and describe any such investigation, and identify all documents reviewed or relied upon. ANSWER: 7. If you are declining to produce any document or respond to any paragraph in whole or in part because of a claim of privilege, please: identify the subject matter, type (e.g., letter, memorandum), date, and author of the privileged communication or information, all persons that prepared or sent it, and all recipients or addressees; identify each person to whom the contents of each such communication or item of information have heretofore been disclosed, orally or in writing; state what privilege is claimed; and state the basis upon which the privilege is claimed. ANSWER: 8. If any document requested was, but no longer is, in your possession or subject to your control, please state: the date of its disposition; the manner of its disposition (e.g., lost, destroyed, or transferred to a third party); and an explanation of the circumstances surrounding the disposition of the document. ANSWER: 9. With respect to each expert or opinion witness whom you will or may call upon to give evidence in connection with this case,

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RESPA Pleadings and More / 2004 Supplement

[address], Chicago, Illinois, and the subject transaction and/or account, or which are indexed, led or retrievable under her name or any number, symbol, designation or code (such as a transaction number or Social Security number) assigned to her or to the subject transaction(s), including but not limited to all documents relating to the origination, approval, disbursement, assignment and administration of the loan(s), all agreements between Chase and Saxon, and all correspondence related to the subject transaction. 2. All documents relating or referring to your policy and practice relating to the origination, approval or underwriting, preparation, disbursement and acceptance of assignment of a residential mortgage loan such as the subject transaction(s), including but not limited to all agreements with brokers, lenders, title companies, assignors, etc. Identify all documents relating to or reecting such policy, practices and agreements, including all documentation required to be in assigned account les and all instructions, policy and procedure manuals, memoranda and guidelines given to brokers, title companies, lenders, closing agents, and/or any persons who review account les for approval and/or acceptance of assignment.

Appx. H.3

3. All documents relating to any judicial or administrative proceeding, public or private consumer protection agency or office, and all customer complaints in which Chase, Saxon or Victoria Mortgage were alleged to have made misrepresentations or violated any consumer protection statutes, rules or regulations relating to mortgages, mortgage brokers, or consumer credit. 4. Copies of all insurance policies which may afford coverage as to the matters complained of or under which a claim was made. Include any policy which refers to consumer protection coverage and any comprehensive general liability policy. 5. All documents identied in response to the above Interrogatories, and all documents referred to or reviewed in preparing the response to the above Interrogatories, not otherwise called for in these document production requests. Respectfully submitted, [Attorney for Plaintiff] [Attorney for Plaintiff] [Attorneys Law Firm and Address]

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