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IN THE CIRCUIT COURT FOR THE COUNTY OF TALBOT, MARYLAND
JOHN E. DRISCOLL, III, et al *
Plaintiffs, *
v. * Civil Action No. 20-C-12-007978
ELIZABETH M. JACOBSON *
Defendant *
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
ELIZABETH M. JACOBSON *
Counter-Plaintiff *
v. *
JOHN DRISCOLL, III *ROBERT E. FRAZIERLAURA D. HARRIS *DANIEL J. PESACHOWITZ andDEENA L. REYNOLDS *Substitute Trustees
*and
*WELLS FARGO BANK, N.A.
*Counter-Defendants
* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *
DEFENDANT/COUNTER PLAINTIFF’S MEMORANDUM IN SUPPORT OF ORAL MOTION TO STAY AND/OR DISMISS FORECLOSURE PROCEEDING PENDING DETERMINATION OF INDEPENDENT FORECLOSURE REVIEW HEARING and MOTION TO DENY ANY
REQUEST FOR DEFENDANT/COUNTER PLAINTIFF TO FILE A BOND
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Elizabeth M. Jacobson, Defendant/Counter Plaintiff, by her attorney, Gerard
P. Uehlinger, Esquire, files this memorandum in support of her position as
stated in open Court at the February 1, 2013, hearing that the foreclosure
action be stayed until a determination has been made under the recent $8.5
billion dollar settlement pursuant to the Independent Foreclosure Review,
and that no bond be required by Defendant/Counter Plaintiff, and in support
hereof, states as follows:
I. The Parties
At the February 1, 2013, hearing the Plaintiff/Counter-Defendant’s attorney
asserted that as Ms. Jacobson has recognized Wells Fargo as the servicer of
her loan, dealt with Wells Fargo in her attempts to modify her loan, and that
as the loan was originated by Wells Fargo, Ms. Jacobson must recognize
that Wells Fargo has the authority to enforce the Note in a foreclosure
action. Ms. Jacobson denies that assertion by first identifying all parties
pursuant to Freddie Mac’s own guidelines.
a. Owner/Investor of subject loan: Freddie Mac’s Document
Custody Procedure Overview, December 2003, at page 25, clearly
states that (emphasis added) ‘Freddie Mac is the owner (holder-
in-due- course) of the property.’ Freddie Mac’s own records
reflect “that Freddie Mac is the owner of your mortgage and it was
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acquired on November 13, 2007. This date is also referred to as
the Freddie Mac settlement date.” (Exhibit A, FreddieMac.com,
Yes! Our records show that Freddie Mac is the owner of your
mortgage. – Freddie Mac). In its December 21, 2011, letter, Wells
Fargo states that Freddie Mac is the investor for this loan (Exhibit
B). There is no dispute that Freddie Mac is the owner/investor of
the subject loan.
b. Originator/Lender of subject loan: Wells Fargo originated the
subject loan on October 15, 2007, and then on November 13, 2007,
Wells Fargo sold the Note and all of its rights under the Note to
Freddie Mac. (See Exhibit A). There is no dispute that Wells
Fargo originated the subject loan and that its role as “lender”
ceased when Wells Fargo sold the subject loan to Freddie Mac.
c. Servicer of the subject loan: Pursuant to the Statement of
Donald Bisenius, Executive Vice President-Single Family Credit
Guarantee Business Freddie Mac to the U.S. Senate Committee on
Banking, Housing and Urban Affairs on December 1, 2010,
“servicers collect loan payments from the borrowers and remit
them to Freddie Mac each month. They are paid for their services
on a monthly basis by retaining the difference between the interest
rate on the note and interest rate paid to Freddie Mac.”
“Servicers’ duties also include working with borrowers who fall
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behind in making payments on their mortgages”. (Exhibit C)
Wells Fargo is the Servicer of the subject loan as it is the singular
entity that issues mortgage statements to Ms. Jacobson; the entity
to which Ms. Jacobson applied for her loan modification; and the
entity to which Ms. Jacobson sent her Qualified Written Request
(QWR), which elicited Wells Fargo’s response of December 21,
2011 (Exhibit B). The Servicer is analogous to a property
manager of an apartment complex; like the property manager, the
Servicer collects payments on behalf of the owner of the
loan/apartment complex. There is no dispute that Wells Fargo
services the subject loan on behalf of Freddie Mac.
d. Document Custodian of the subject loan: In his statement to
the Senate Banking Committee, Donald Bisenius describes the
document custodian (Exhibit C) as follows:
Concerns have been raised about the custody of mortgage notes and other documents. When a mortgage is sold to Freddie Mac, the seller must deliver the original note for mortgage loan, together with any power of attorney or modifying instrument (such as a modification agreement, conversion agreement, assumption of liability or release of liability agreement), to a document custodian, which holds the documents in trust for Freddie Mac. Currently, Freddie Mac uses approximately 125 document custodians, with much of the volume concentrated in a relatively small number of large companies.
Our Guide sets forth eligibility standards and various other requirements for document custodians. Each document custodian enters into a tri-party custodial
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agreement with Freddie Mac and the servicer that is servicing a mortgage for which the custodian holds note files.
Freddie Mac Document Custody Procedures Handbook (“the
Handbook”), dated March 2012, details the requirements of the
Custodian. The handbook is 118 pages, so in an effort to conserve
resources and the Court’s time, several pages are attached as
(Exhibit D); certainly, the complete handbook can be produced if the
Court so requests. The Handbook’s Overview states that a
Seller/Servicer (defined as an entity primarily or exclusively selling
Mortgages to, or servicing Mortgages for, Freddie) selling mortgages
to Freddie Mac must ensure that the Notes are delivered to the
Document Custodian. Freddie Mac allows for a ‘Self-Custodian’;
however, the Self-Custodian must ensure that document custody
functions are separate from Mortgage origination, selling or servicing,
pursuant to Chapter 2, page 5 of the Handbook (Exhibit D). The
Document Custodian must certify that the Notes are delivered by the
Seller/Servicer and held in trust for Freddie Mac. (Chapter 2, page 2
of Handbook).
The “Custodial Agreement” is the ‘tri-party agreement’ among
Freddie Mac, the servicer and the custodian as described by Mr.
Bisenius in his December 1, 2010, statement to the Senate Banking
Committee. The “Custodial Agreement” is attached as (Exhibit E).
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In executing this Custodial Agreement, the “Custodian represents and
warrants that it has no, and covenants that it shall hold no, (sic)
adverse interest, by way of security or otherwise, in any Note and
hereby waives and releases any such interest which it may have or
acquire in any such Note. The parties each hereby acknowledge that
neither title, ownership nor right of alienation with respect to the
Notes, nor any books and records relating to the Notes, is hereby
transferred to, or conferred upon, Custodian.” (pp 4-5 of Exhibit E).
Plaintiff’s Counsel stated at the February 1, 2013, that Wells Fargo
has held the Note since it was originated. Assuming that is an
accurate statement, then under the terms of the Handbook and
Custodial Agreement, Wells Fargo is the Document Custodian for the
subject loan.
The parties are now clearly defined: Freddie Mac is the owner of the
Note/loan, and Wells Fargo is both the Servicer and the Custodian of
Documents on behalf of Freddie Mac. Also, it is clearly established that
Wells Fargo is not owner/investor of the subject loan, and that pursuant to
the Custodial Agreement Wells Fargo only holds the Note in trust for
Freddie Mac because Wells Fargo has waived and released any interest it
had in that Note. What has not been clarified from Plaintiff’s counsel,
however, is the capacity in which Wells Fargo is involved in this
foreclosure action – as Servicer or as Document Custodian.
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Nonetheless, Wells Fargo thereby lacks standing to enforce the Note via a
foreclosure action because Wells Fargo is merely the servicer and/or the
document custodian.
II. Independent Foreclosure Review/$8.5 Billion Settlement
It is undisputed that Wells Fargo is one of the 10 mortgage servicers to
have entered into settlement agreement/consent orders with the Office of
the Comptroller of the Currency (OCC) and the Federal Reserve Board
(FRB), both which ended their Independent Foreclosure Review (IFR)
programs created by Article VII of an April 2011 Interagency Consent
Order, and have since replaced them with an accelerated remediation
process. Exhibit F, Wells Fargo Press Release dated January 7, 2013. As a
result of the agreement therein, the 10 servicers will pay more than $8.5
billion in cash payments and other assistance to help borrowers. Exhibit G,
Joint Press Release of FRB and OCC dated January 7, 2013. Wells Fargo’s
portion of the cash settlement will be $766 million. The $8.5 billion
agreement ensures that more than 3.8 million borrowers whose homes were
in foreclosure in 2009 through December 2010 with the participating
servicers will receive cash compensation in a timely manner.
Plaintiff’s counsel inaccurately stated at the February 1, 2013, hearing that
borrowers would be contacted in order of submission of their completed the
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Independent Foreclosure Review Form that was due December 31, 2012.
It is unknown upon what information that statement derives. The FRB and
OCC Joint Press Release dated January 7, 2013, (Exhibit G) clearly and
expressly states that borrowers will receive compensation whether or not
they filed a request review form, as stated below (highlighted):
As a result of this agreement, the participating servicers would cease the Independent Foreclosure Review, which involved case-by-case reviews, and replace it with a broader framework allowing eligible borrowers to receive compensation significantly more quickly. The OCC and Federal Reserve accepted this agreement because it provides the greatest benefit to consumers subject to unsafe and unsound mortgage servicing and foreclosure practices during the relevant period in a more timely manner than would have occurred under the review process. Eligible borrowers will receive compensation whether or not they filed a request for review form, and borrowers do not need to take further action to be eligible for compensation.
A payment agent will be appointed to administer payments to borrowers on behalf of the servicers. Eligible borrowers are expected to be contacted by the payment agent by the end of March with payment details. Borrowers will not be required to execute a waiver of any legal claims they may have against their servicer as a condition for receiving payment. In addition, the servicers’ internal complaint process will remain available to borrowers.
Ms. Jacobson is an eligible borrower under this settlement as confirmed
recently, on January 31, 2013, by Wells Fargo customer service
representative Ebise, who provided 1405587196 as the reference number of
Ms. Jacobson’s case pursuant to this settlement. Ebise confirmed that Ms.
Jacobson’s loan qualifies based on the status of the loan being referred to
the foreclosure process between January 1, 2009, and December 31, 2010,
and that the loan remains delinquent but with no sale date.
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As of the writing of this Memo, the most recent status update by the OCC
and the FRB regarding the $8.5 billion settlement was posted January 24,
2013 at http://www.occ.gov/topics/consumer-protection/foreclosure-
prevention/ifr-settlement-faqs.html. At present, the actual wording of the
amended consent orders are not publicly available. As the question from
the link’s site pasted herein below states:
Where can I find a copy of the Independent Foreclosure Review settlement agreement?
The Office of the Comptroller of the Currency and the Board of Governors of the Federal Reserve System have reached an agreement in principle with the participating servicers. This agreement will be memorialized into amended consent orders for each of the participating servicers. The amended consent orders will be made publicly available the Office of the Comptroller of the Currency’s website, www.occ.gov, and the Board of Governors of the Federal Reserve System’s Web site, www.federalreserve.gov once they are finalized.
Eligible borrowers under this settlement are expected to receive
compensation ranging from hundreds of dollars up to $125,000.00,
depending on the type of servicer error. The OCC and FRB developed a
financial remediation framework (the Framework, Exhibit H) that
“provides examples of situations where compensation or other remediation
is required for financial injury due to servicer errors, misrepresentations, or
other deficiencies.” It is undisputed that Ms. Jacobson entered into a HAMP
modification with Wells Fargo in December of 2010, and remitted seven
Trial Period Payments (TPP), four more than the required 3 TPP. It is
undisputed that Wells Fargo returned all seven payments totaling
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$11,718.001 via check no. 7008190328 dated July 6, 2010, Exhibit I. It is
undisputed that HAMP guidelines clearly state that (highlighted) “In no
event should the Servicer return the funds [TPP] to the Borrower.”
Exhibit J, Home Affordable Modification Programs FAQs. It is undisputed
that Freddie Mac’s Bulletin Number 2013-3 requires that “Servicers must
ensure that upon receipt of any Trial Period payment such funds are placed
in the Borrower’s suspense account. When the aggregated amount equals
or exceeds the oldest delinquent payment due, the Servicer must apply such
funds to the Borrower’s account to pay the oldest delinquent payment due
in accordance with the Note and Security Instrument, and any modification
agreement, if applicable.” It is undisputed that Wells Fargo states in its
June 29, 2010, letter to Ms. Jacobson that “Any trial period payments you
have made will be applied to your mortgage in accordance with your
current loan documents.” It is undisputed that Wells Fargo violated both
Freddie Mac and HAMP guidelines when it returned the seven TPP to Ms.
Jacobson. Wells Fargo failed to convert Ms. Jacobson’s written trial period
plan to a permanent modification and it is undisputed that under the
Framework (Exhibit H), Ms. Jacobson qualifies under the category “Error
after Trial Loan Modification Completed” which is 3a.
With the instant case now in the foreclosure process, there are two
“remedies available under the Framework: 1. Suspend foreclosure as
1 Defendant/Counter-Plaintiff’s Counter Complaint filed in this instant case asserts the reasons that Wells Fargo returned the TPP in violation of both HAMP and Freddie Mac.
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required by program; pay $5,000.00, provide permanent loan modification,
correct servicer record for any improper amounts, and correct credit
reports. 2. If servicer cannot provide permanent loan modification; pay
$35,000.00, correct servicer record for any improper amounts, and correct
credit reports.”
By the establishment of Ms. Jacobson’s loan eligibility under this $8.5 billion
settlement, it is just and proper to wait until the end March when a
payment agent appointed to administer payments on behalf of Wells
Fargo has contacted Ms. Jacobson as to the compensation owed to
her by Wells Fargo due to Wells Fargo’s unsafe and unsound
mortgage servicing practices. If Ms. Jacobson is satisfied with the
compensation offered to her pursuant to this OCC/FBR settlement and her
loan is reinstated to a permanent loan modification based on the terms of
December 2009 HAMP modification, the foreclosure action is extinguished,
leaving only the counter claim to proceed.
III. Opposition to Bond
At the February 1, 2013, hearing, Plaintiff’s counsel stated that he would
seek a bond to be set for Ms. Jacobson to pay into the Court.
Defendant/Cross-Plaintiff opposes the requirement of posting a bond, as set
forth herein below.
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It is well-documented that Wells Fargo subjected homeowners, including
Ms. Jacoboson, to unsafe and unsound mortgage servicing and foreclosure
practices, compelling Wells Fargo to enter into at least three settlements.
1. The Consent Order dated April 13, 2011, with the OCC and FRB
that resulted in the initial Independent Foreclosure Review and,
subsequently, in the recent $8.5 billion settlement. This Consent
Order was as a result of the OCC identifying “certain deficiencies
and unsafe or unsound practices in residential mortgage servicing
and in the Bank’s [Wells Fargo] initiation and handling of
foreclosure proceedings”.
2. $25 Billion Mortgage Servicing Agreement among the Justice
Department, the Department of Housing and Urban Development,
attorneys’ general from 49 states (including Maryland), and the
nation’s five largest mortgages servicers, including Wells Fargo, to
address the mortgage loan servicing and foreclosure abuses.
(Exhibit K, Department of Justice press release dated March 12,
2012).
3. Wells Fargo entered into a Consent Order with the United States
on July 12, 2012, to resolve the claims that during and between
2004 and 2009, Wells Fargo engaged in a pattern or practice of
discrimination on the basis of race and national origin in
residential mortgage lending in violation of the Equal Credit
Opportunity Act and the Fair Housing Act2. Wells Fargo agreed to
pay $175 million to settle the claim, Exhibit L
2 The Department of Justice and the City of Baltimore heavily relied on Ms. Jacobson’s whistle-blowing of Wells Fargo’s “reverse redlining” practices in bringing this case forward.
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As evidenced by the aforementioned settlements, and by Wells Fargo’s
mishandling of Ms. Jacobson’s loan modification; by its violation of HAMP
and Freddie Mac requirements in returning the TTP to her; and by its odd
assertion that it has the power to enforce the Note when all evidence shows
that it is only a document custodian holding the Note in trust for Freddie
Mac, Wells Fargo presents a convincing history of “unclean hands”. The
Court in Wells Fargo v. Neal, 922 A.2nd 538, 398 Md. 705 (Md. App. 2007)
addresses the issue of “unclean hands” in a foreclosure action as noted
below:
Thus, the venerated equity doctrine of clean hands which requires that "he who comes into equity must come with clean hands," Hlista v. Altevogt, 239 Md. 43, 48, 210 A.2d 153, 156 (1965), is applicable in foreclosure proceedings such as the one implicated in the present case.
The clean hands doctrine states that "courts of equity will not lend their aid to anyone seeking their active interposition, who has been guilty of fraudulent, illegal, or inequitable conduct in the matter with relation to which he seeks assistance." Hlista, 239 Md. at 48, 210 A.2d at 156; see also Hicks v. Gilbert, 135 Md.App. 394, 400, 762 A.2d 986, 989-90 (2000). The doctrine does not mandate that those seeking equitable relief must have exhibited unblemished conduct in every transaction to which they have ever been a party, but rather that the particular matter for which a litigant seeks equitable relief must not be marred by any fraudulent, illegal, or inequitable conduct. Hlista, 239 Md. at 48, 210 A.2d at 156; Hicks, 135 Md.App. at 400-01, 762 A.2d at 990 ("There must be a nexus between the misconduct and the transaction, because `[w]hat is material is not that the plaintiff's hands are dirty, but that he dirties them in acquiring the right he now asserts.'") (quoting Adams v. Manown, 328 Md. 463, 476, 615 A.2d 611, 617 (1992)). As we have stated previously, the NHA and its implementing regulations compel FHA mortgagees to pursue loss mitigation strategies before initiating foreclosure. In the present case, if Neal's contentions regarding Wells
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Fargo's failure to comply with the loss mitigation directives are proven to the satisfaction of the trial court, such a failure may constitute improper and/or inequitable conduct, depending on the proven circumstances. Thus, under the doctrine of clean hands, while Neal technically may be said to be in default, the legal fiction that no default exists may be maintainable until such time as Wells Fargo complies with the statutory and regulatory imperative to pursue loss mitigation prior to foreclosure.
Thus Ms. Jacobson should not be required to post a bond, in light of the
doctrine of “unclean hands” and that Wells Fargo has dirtied it hands “in
acquiring the right he now asserts” by refusing to convert Ms. Jacobson’s
loan modification to a permanent loan modification after the 3rd TPP was
made and further “dirt[ied] its hands” by violating both HAMP and Freddie
Mac requirements by returning all 7 TPP. Pursuant to the Framework,
Exhibit H, it is Wells Fargo which should be required to pay what it owes
to Ms. Jacobson: At least $5,000.00 for Wells Fargo’s failure to convert her
loan modification to a permanent loan modification.
IV. Conclusion
For the foregoing reasons, Defendant/Cross-Plaintiffs requests this Court to
Dismiss the Foreclosure action as Wells Fargo does not have standing as
Servicer or Document Custodian to enforce the Note, or in the alternative,
Stay the Foreclosure until after Wells Fargo has compensated Ms. Jacobson
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under the OCC/FRB agreement and to not require that any bond be posted
during that time.
Respectfully Submitted,
___________________________Gerard P. Uehlinger28 West Allegheny AvenueSuite 1210Towson, Maryland 21204Phone: 410-821-0025
CERTIFICATE OF SERVICE
I hereby certify that on February 20, 2013, a copy of the foregoing Memorandum with Exhibits was mailed by first class mail, postage prepaid to Robert H. Hillman, 611 Rockville Pike, #100, Rockville, MD 20852 and that the foregoing Memorandum without Exhibits was faxed to 301-838-1954.
___________________________Gerard P. Uehlinger
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