IN THE SUPERIOR COURT OF WASHINGTON FOR CLARK COUNTY
In re:
OCCO and REBECCA DEJONGH,
Petitioners,and
LAWYERS TITLE INSURANCE CORPORATION, a foreign company doing business in Washington State, and HSBC BANK USA, NATIONAL ASSOCIATION, a foreign corporation doing business in Washington State, and NOMURA HOME EQUITY LOAN, INC. ASSET-BACKED CERTIFICATES, SERIES 2006-FM 1, a foreign corporation doing business in Washington State,
Respondents.
Case No
PLAINTIFF’S RESPONSE TO DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT
COMES NOW the Plaintiffs, Occo and Rebecca DeJongh, by and through their counsel of
record, Gavin Flynn, Attorney at Law, and responds to Defendants’ Motion for Summary
Judgment by stating that the Respondent-Counter-Plaintiff lacks standing to bring a foreclosure
against the Plaintiffs under the applicable law because they have failed to demonstrate ownership.
Plaintiffs respectfully request that the court deny Defendants’ Motion for Summary Judgment.
PLAINTIFF’S RESPONSE TO DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT
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OVERVIEW
On one level, this is a complicated case, as it involves two trust relationships, and also
because it necessarily hinges upon the laws of two states, Washington and New York. But on
another level, this is a simple case that hinges on ownership and ordinary rules of evidence.
The first trust relationship is that set up under the Deed of Trust executed by the DeJonghs
and is governed by Washington State Law. The second trust relationship was formed when Nomura
Home Equity Loan created a REMIC trust under New York laws. As will be shown in greater
detail below, the terms of the second trust (hereinafter “REMIC trust”) determine that the DeJongh
Note and Deed of Trust is not a part of the Nomura REMIC trust assets, which means that Nomura
is not the owner of the Note and Deed of Trust and has no standing to pursue a foreclosure.
Judicial Foreclosure
Under Washington law, the foreclosing party must demonstrate why they are entitled to
pursue the foreclosure, i.e., that they are the current owner of the promissory note and mortgage. 18
WA PRAC: REAL ESTATE § 19.5 (emphasis added). For all the Defendant’s talk at the last
hearing about how commercial paper is negotiable even by a thief, Defendant misses the point,
which is that a thief cannot sue in a court of law to enforce a stolen check; one must be an owner.
Black’s Law Dictionary defines “owner” as “One who has the right to possess, use, and
convey something; a person in whom one or more interests are vested. An owner may have
complete property in the thing or may have parted with some interests in it (as by granting an
easement or making a lease). SEE OWNERSHIP.” Black’s Law Dictionary 1214 ( 9th ed., 2009).
“Ownership is defined as: “The bundle of rights allowing one to use, manage, and enjoy property,
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including the right to convey it to others. … ‘Possession is the de facto exercise of a claim;
ownership is the de jure recognition of one. A thing is owned by me when my claim to it is
maintained by the will of the state as expressed in the law; it is possessed by me, when my claim to
it is maintained by my own self-assertive will.’” Black’s Law Dictionary 1215 ( 9th ed., 2009).
Because defendant only submits evidence of possession of the note, without clear evidence
of legal ownership, they fail to demonstrate the necessary element to pursue judicial foreclosure of
showing that they are the current owner of the promissory note and mortgage.
In Washington, one must have standing to pursue a judicial foreclosure. The common law
doctrine of standing prohibits a litigant from raising another's rights. Fire Prot. Dist. V. City of
Moses Lake, 145 Wn.2d. 702, 713 (2002).
HSBC claims that as Trustee of the Nomura REMIC trust, it is authorized to foreclose on
assets of the trust. To have standing to pursue a foreclosure, it is necessary that HSBC show more
than mere possession of the Note. It necessarily must provide admissible evidence that the
DeJongh’s Promissory Note and Deed of Trust were properly assigned to the Nomura REMIC trust.
However, nowhere in the Motion for Summary Judgment does the Defendant provide a
copy of any assignment of the Deed of Trust or Note to HSBC or Nomura Home Equity. In fact,
they do not argue assignment of the Deed of Trust in their argument, and appear to rely solely upon
possession of the Note endorsed in blank. While possession of a bearer note may be sufficient in a
purely commercial setting, possession is not what the law in Washington requires in order to pursue
a judicial foreclosure; Washington law requires ownership. 18 Wa.Prac. §19.
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Without showing a valid assignment of the Deed of Trust and Note, the Defendants have
failed to demonstrate that fundamental element of standing, and their motion for summary
judgment should be denied.
As will be shown in greater detail below, the documents provided by the Defendant
demonstrate that the DeJongh Note and Deed of Trust were never made a part of the REMIC trust.
Since the REMIC trust has no legal interest in the property, the Defendants lack standing to
foreclose upon the DeJongh property.
REMIC Trusts and Strict Adherence to Indentures
To help understand why the Nomura REMIC trust has no interest in this property, it is
important to give a bit a background about what REMIC trusts are and why their own rules (the
trust indentures) are interpreted so strictly, even when it could mean that the REMIC trust does not
receive property it otherwise could have claimed. REMIC trusts are specially created trusts which
receive preferential status under the US Tax Code. 26 USC 860. Should a REMIC trust violate the
provisions under the Code, the IRS will treat them as an ordinary corporation, and they will lose
their preferential tax status, leaving them liable to possibly millions in tax liability. Because of this,
REMIC trusts are very careful to abide by the requirements of the Tax Code.
What happens when a Trustee for a REMIC trust unwittingly enters a transaction that
violates the Tax Code? Are they now liable for millions in additional taxes? The answer to those
questions would need to be resolved by the laws of the State in which the REMIC trust operates.
Here, by the terms of the Trust itself, New York substantive law governs.
“THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE SUBSTANTIVE LAWS OF THE STATE OF NEW YORK
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APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN THE STATE OF NEW YORK AND THE OBLIGATIONS, RIGHTS AND REMEDIES OF THE PARTIES HERETO AND THE CERTIFICATEHOLDERS SHALL BE DETERMINED IN ACCORDANCE WITH SUCH LAWS WITHOUT REGARD TO THE CONFLICTS OF LAWS PRINCIPLES THEREOF OTHER THAN THE PROVISIONS OF SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW.”
Securitization Pooling and Servicing Agreement (hereinafter “PSA”) §11.03 (emphasis in original); see also Declaration of Colin Davis.
According to the New York cases that have dealt with this situation, when a Trustee acts in
contravention to the indentures, the Trustee’s action is void. Dye v. Lewis, 326 N.Y.S.2D 581, 68
Misc.2d 434 (N.Y.Sup. 1971) (The authority of a trustee to whom a mortgage had been delivered
under a trust indenture was subject to any limitations imposed by the trust instrument, and every
act in contravention of the trust was void.); Warren's Weed New York Real Property 14‐140 §
140.58 (“It is a fundamental principle of trust law that the instrument under which the trustee
acts is the charter of his rights. Therefore, in administering the trust, he must act in accordance
with its terms. This rule applies to every kind of trustee, regardless of whether the trustee is to
hold, invest or pay over income, or to sell or liquidate for the benefit of creditors.”).
In short, if an attempted assignment is made that would violate the terms of the REMIC
indentures, the assignment is void. One cannot, after all, effectuate an assignment to an unwilling
party, and by its terms, the REMIC trusts only accept contributions under the conditions established
by the trust.
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Contributions to REMIC trust must be within 90 days of formation
One of the requirements of the IRS REMIC provisions is that all contributions to the
REMIC trust must be within 90 days of a REMIC’s startup date. 26 USC 860 G(3). According to
its terms, this REMIC trust was created as of the Closing Date, January 30, 2006, and all assets had
to be assigned by then. PSA, Definitions; see also Declaration of Colin Davis.
The defendant never provided the assignment of the deed of trust or the note as part of
their motion. Assuming, arguendo, that they provide an admissible copy of the assignment that
was stricken from the record on their first Motion for Summary Judgment, the purported
assignment is dated and notarized on March 11, 2008, almost two years after the terms of the
trust say contributions are closed.
Under terms of the REMIC trust and the operation of New York law, the attempted
contribution of the DeJongh’s property to the asset of the trust was void. Dye; see also
Declaration of Colin Davis. While this may appear to be a significant loss to the REMIC trust in
the instant case, it has the fundamental benefit of preserving the REMIC trust’s tax preferential
status, arguably worth much more, while leaving the Trust able to pursue the selling lender for its
money back.
Contributions to REMIC trust must be conforming loans
Additionally, the trust indentures warrant that only performing loans will be contributed
to the trust. Declaration of Colin Davis, citing PSA. By their own testimony, the Defendant
acknowledges that the DeJongh Note and Deed of Trust was in default prior to its purported
assignment to the REMIC trust. See Declaration of Christopher Spradling in Support of
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Defendants’ Motion for Summary Judgment. Since the attempted assignment did not comport
with the indentures, the assignment is void. Dye; see also Declaration of Colin Davis.
Void assignment causes lack of standing
Because the attempted assignment is void, HSBC and Nomura lack standing to pursue a
foreclosure of the DeJongh’s property. Dye; see also Declaration of Colin Davis. HSBC must
have “standing” to bring this action. The common law doctrine of standing prohibits a litigant
from raising another's rights. Fire Prot. Dist. V. City of Moses Lake, 145 Wn.2d. 702, 713
(2002). Standing is a threshold issue. Standing to sue requires an interest in the claim at issue in the
lawsuit that the law will recognize as a sufficient predicate for determining the issue at the litigant’s
request. Here, under the terms of the PSA that govern Nomura’s REMIC trust, the attempted
assignment was void and gave to HSBC and/or Nomura no legal rights.
Since HSBC’s only claim to an interest in this lawsuit relates to its role as Trustee for the
Nomura REMIC trust, a demonstration that the Nomura REMIC trust has no legal interest in the
action defeats the standing of both HSBC and Nomura.
Under New York case law, this Assignment is Defective and a Nullity
Even aside from the strictures of the trust indentures, in the instant action, the March 12,
2008 assignment from MERS to HSBC is defective under New York law. The facts relating to
the assignment in this case are strikingly similar to the facts in the New York case of HSBC
BANK USA, NA v. Yeasmin, 19 Misc.3d 1127(A), 866 N.Y.S.2d 92, 2008 WL 1915130 (Table)
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(N.Y.Sup., 2008) (hereinafter “Yeasmin”); see also Bank of New York v. Alderazi, 28 Misc.3d
376, 900 N.Y.S.2d 821, 2010 N.Y. Slip Op. 20167.
In Yeasmin, HSBC Bank USA, NA, acting as Trustee for Nomura Asset-Backed
Certificate Series 2006-AF1, attempted to foreclose on real property owned by Lovely Yeasmin.
Id. Relying upon well-established principles of real estate and agency, the court found the
purported assignment by MERS defective as it lacked any power of attorney or corporate
resolution demonstrating that MERS had authority to assign the rights of the original lender, and
held that the terms of the Deed of Trust, identical to the case at hand, were insufficient to give
rise to such authority. Id. The court dismissed the foreclosure without prejudice. Id.
As in Yeasmin, in our case, the recorded assignment by “Victor Parisi, Vice President”
on behalf of MERS has neither the corporate resolution nor a power of attorney attached and
recorded. Since MERS purported to act on the behalf of the lender, this lack is fatal to a proper
assignment and renders the assignment a nullity.
“To have a proper assignment of a mortgage by an authorized agent, a power of attorney is necessary to demonstrate how the agent is vested with the authority to assign the mortgage. “No special form or language is necessary to effect an assignment as long as the language shows the intention of the owner of a right to transfer it.” (Tawil v. Finkelstein Bruckman Wohl Most & Rothman, 223 A.D.2d 52, 55 [1d Dept 1996]; see Suraleb, Inc. v. International Trade Club, Inc., 13 AD3d 612 [2d Dept 2004]).
To foreclose on a mortgage, a party must have title to the mortgage. The instant assignment is a nullity. The Appellate Division, Second Department ( Kluge v. Fugazy, 145 A.D.2d 537, 538 [2d Dept 1988] ), held that a “foreclosure of a mortgage may not be brought by one who has no title to it and absent transfer of the debt, the assignment of the mortgage is a nullity.” Citing Kluge v. Fugazy, the Court ( Katz v. East-Ville Realty Co., 249 A.D.2d 243 [1st Dept 1998] ), held that “[p]laintiff's attempt to foreclose upon a mortgage in which he had no legal or equitable interest was without foundation in law or fact.”
It is clear that plaintiff HSBC, with the invalid assignment of the instant mortgage and note from MERS, lacks standing to foreclose on the instant mortgage. The Court, in Campaign v. Barba (23 AD3d 327 [2d Dept 2005] ), held that “[t]o establish a prima facie case in an action to foreclose a mortgage, the plaintiff must establish the existence
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of the mortgage and the mortgage note, ownership of the mortgage, and the defendant's default in payment.” (See Household Finance Realty Corp. of New York v. Wynn, 19 AD3d 545 [2d Dept 2005]; Sears Mortgage Corp. v. Yahhobi, 19 AD3d 402 [2d Dept 2005]; Ocwen Federal Bank FSB v. Miller, 18 AD3d 527 [2d Dept 2005]; U.S. Bank Trust Nat. Ass'n v. Butti, 16 AD3d 408 [2d Dept 2005]; First Union Mortgage Corp. v. Fern, 298 A.D.2d 490 [2d Dept 2002]; Village Bank v. Wild Oaks Holding, Inc., 196 A.D.2d 812 [2d Dept 1993] ).
Id.
Under Washington Law Assignment of Deed of Trust and Note was without authority
HSBC impliedly alleges that MERS assigned Fremont’s interest in the Deed of Trust and
Note to HSBC Bank. However, that’s not what the assignment says. On its face, the assignment
is, not of Fremont’s interest, but of MERS’ interest. In fact, no mention of Fremont is made in
the Assignment at all.
Even if MERS’ intent was to transfer Fremont’s interests, the assignment fails to do so.
Courts are required to give effect to the actual terms of a contract. “It is a well-established rule
in this jurisdiction that parol evidence will not be admissible to vary the promissory terms of a
written contract.” Shelton v. Fowler, 69 Wn.2d 85, 93 (1966).
And as the original Deed of Trust states, MERS holds “only legal title to the interests
granted by Borrower in this Security Instrument, but, if necessary to comply with laws or
custom, MERS (as nominee for Lender and Lender’s successors and assigns) has the right: to
exercise any or all of those interests, including, but not limited to, the right to foreclose and sell
the Property; and to take any action required of Lender including, but not limited to, releasing
and canceling this Security Instrument.” (See Defendant’s Motion for Summary Judgment,
Exhibit 1, page 3)(emphasis added).
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By the terms of the Deed of Trust, MERS’ only “interest” was to hold legal title subject
to the directions of the Lender, and that is all that could be transferred by MERS. (See
Defendant’s Motion for Summary Judgment, Exhibit 5) There is no document which
demonstrates a transfer of Fremont’s interest in the Deed of Trust to anyone.
It is assumed that HSBC will assert that Fremont authorized MERS to assign its interests
in the Deed of Trust and Note. However, there is no evidence that Fremont ever authorized
MERS to assign anything. Notably lacking from the file and the evidence before the court is any
sort of power of attorney or corporate resolution from Fremont which would grant this type of
authority to MERS.
“Nominee” is defined as “A person designated to act in place of another, usu. in a very
limited way. A party who holds bare legal title for the benefit of others or who receives and
distributes funds for the benefit of others.” Black’s Law Dictionary 1149 ( 9th ed., 2009). No
Washington case interpreting this term in this situation has been found. By analogy to the cases
from numerous states dealing with these same transactions (and often the same lenders and/or
beneficiaries), a nominee does not have authority to assign a deed of trust and promissory note
absent evidence of specific direction from the lender. See e.g. Dye, supra, Yeasmin, supra,
L andmark National Bank v. Kesler , 2009 WL 2633640 (Kan.)(2009), Bellistri v. Ocwen Loan
Servincing, LLC, 284 S.W. 3d 619, 623 (Mo.App. 2009); In re Wilhelm, 407 B.R. 392
(Bankr.D.Idaho 2009); In re Vargas, 396 B.R. 511, 517 (Bankr.C.D.Cal.2008);and Saxon
Mortgage Services, Inc. v. Hillery, 2008 WL 5170180 (N.D.Cal.2008).
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The Deed of Trust itself is not signed by Fremont, so Fremont cannot have given its
authority to MERS by way of the Deed of Trust. Under the Statute of Frauds, this authority
would have had to be in writing. RCW 19.36.010.
In reviewing language identical to the case at bar, courts in New York have noted that to
have a proper assignment of a mortgage by an authorized agent, a power of attorney is necessary
to demonstrate how the agent is vested with the authority to assign the mortgage. HSBC Bank
USA, N.A. v. Yeasmin, supra. There would have had to have been another document somewhere
for that grant of authority, but that document, if it exists, is nowhere before the court.
Not only that, but the Assignment of the Deed of Trust would also have to have assigned
the Note. But the Note makes no mention of MERS at all. (See Defendant’s Motion for
Summary Judgment, Exhibit 5). There is no written authority for MERS to assign the Note. And
again, under Washington law ownership is required to pursue a judicial foreclosure, not mere
possession. 18 Wa.Prac. §19, supra.
Deed of Trust says “this Security Instrument” - Not the Note
Another issue with the Deed is that the role of MERS is limited to dealing with “this
Security Instrument”. “Security Instrument” is defined as “this document, which is dated June
20, 2005 together with all Riders to this document.” Notably, that does not include the
Promissory Note. Banks would naturally be more guarded before giving out authority over the
Promissory Note as compared to the Deed of Trust, since as court’s have long held “… the note
is ‘essential’, the mortgage is only ‘an incident’ to the note”. Landmark, supra.
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The Promissory Note (Adjustable Rate Note) does not include any mention of MERS, nor
does it grant to MERS the right or authority to act for the Lender, or to transfer the Note. (See
Defendant’s Motion for Summary Judgment, Exhibit 5).
This is not the first time that MERS has attempted to assign both a mortgage and note.
Courts across the country have held that when the record contains no evidence that the original
holder of the note authorized MERS to transfer the note, the language of the assignment
purporting to transfer the promissory note was ineffective. See Landmark National Bank v.
Kesler, 2009 WL 2633640 (Kan.)(2009), citing Bellistri v. Ocwen Loan Servincing, LLC, 284
S.W. 3d 619, 623 (Mo.App. 2009); Bellistri, supra (MERS never held the promissory note, thus
its assignment of the deed of trust to Ocwen separate from the note had no force), see also In re
Wilhelm, 407 B.R. 392 (Bankr.D.Idaho 2009) (standard mortgage note language does not
expressly or implicitly authorize MERS to transfer the note); In re Vargas, 396 B.R. 511, 517
(Bankr.C.D.Cal.2008) (“If FMH has transferred the note, MERS is no longer an authorized
agent of the holder unless it has a separate agency contract with the new undisclosed
principal.”); Saxon Mortgage Services, Inc. v. Hillery, 2008 WL 5170180 (N.D.Cal.2008) (For
there to be a valid assignment, there must be more than just assignment of the deed alone, the
note must also be assigned… MERS purportedly assigned both the deed of trust and the
promissory note… However, there is no evidence of record that establishes that MERS held
either the promissory note or was given the authority… to assign the note.”).
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Conflict of Interest Problems – Voids Holder in Due Course
On March 13, 2008, Victor Parisi, acting as VP of MERS purportedly assigns all interests
in the Deed of Trust and Note to HSBC Bank USA, NA. See Declaration of Colin Davis.
Victor Parisi is also the VP of HSBC Bank USA, NA. The following day, Victor Parisi,
acting as VP of HSBC Bank USA NA, purportedly appoints successor trustee, Lawyers Title
Insurance Corporation, and requests that a copy of the recorded document be forwarded to
Popular Mortgage Servicing. See Declaration of Colin Davis.
The Appointment of Successor Trustee was not provided as an attachment to any of the
Defendant’s materials. Previously, a copy of a purported appointment was one of those
documents that the court struck as inadmissible the last time we were here on Defendant’s first
motion for summary judgment. Defendant has failed to provide an admissible copy.
Victor Parisi is also the Vice President of Popular Mortgage Servicing. See Declaration
of Colin Davis.
HSBC / Nomura Not Holder in Due Course
RCW 62A.3-303 provides that a "holder in due course" means the holder of an
instrument if:
(1) The instrument when issued or negotiated to the holder does not bear such apparent evidence of forgery or alteration or is not otherwise so irregular or incomplete as to call into question its authenticity; and
(2) The holder took the instrument (i) for value, (ii) in good faith, (iii) without notice that the instrument is overdue or has been dishonored or that there is an uncured default with respect to payment of another instrument issued as part of the same series, (iv) without notice that the instrument contains an unauthorized signature or has been altered, (v) without notice of any claim to the instrument described in RCW 62A.3-306, and (vi) without notice that any party has a defense or claim in recoupment described in RCW 62A.3-305 (a)
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RCW 62A.3-303(emphasis added).
Here, the Plaintiffs first defaulted on September 1, 2007, yet the assignment from MERS
to HSBC is dated March 12, 2008. Since Victor Parisi is listed as the Vice President of MERS
as well as the Vice President of HSBC, he clearly had notice “that the instrument is overdue or
has been dishonored or that there is an uncured default with respect to payment”. This violation
of the rules governing Holder in Due Course status lends further strength to the REMIC trust
indentures prohibiting non-performing loans from becoming a part of the trust assets. PSA, p. 97.
Claim against Fremont Investment and Loan
The Plaintiffs have defenses and counter-claims against enforcement of the Note based
upon fraudulent lending practices of Fremont Investment and Loan. The HUD Settlement
Statement that is required to be provided as part of any residential loan also requires the
disclosure of any payments, if any, made by the lender to the mortgage broker outside of the
monies directly involved in the loan. That amount is shown on page 2 of the HUD statement,
line number 814. Exhibit 1. This demonstrates that Fremont Investment and Loan paid to Agape
Home Mortgage an additional $1,407.36. Agape Home Mortgage was the mortgage broker who
secured the loan at issue. This payment from the lender to the broker is evidence that the
mortgage broker colluded with the lender to have the borrowers accept a mortgage with less
advantageous terms than they are qualified for.
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SUMMARY
Because the terms of the Nomura REMIC trust and the operation of New York laws
which govern the trust make it clear that the DeJongh property cannot be a part of the REMIC
trust assets, and because the purported assignment of the note and deed of trust was invalid, the
Defendants are unable to demonstrate ownership of the Deed and the Note, and therefore lack
standing to pursue a foreclosure. Therefore, the Motion for Summary Judgment should be
dismissed.
RESPECTFULLY SUBMITTED this day of ________________2011.
GAVIN FLYNN, WSBA # 25781Attorney for Plaintiff
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DECLARATION OF SERVICE
I, Gavin Flynn, hereby certify that I have served a true and correct copy of the foregoing
Response to Defendants’ Motion for Summary Judgment upon the individual(s) listed herein by
the following means:
Lance OlsenRouth Crabtree Olsen, P.S.3535 Factoria Blvd. SE, Suite 200Bellevue WA 98006
Mark J. Phelps ofFIDELITY NATIONAL TITLE GROUP, INC.1200 – 6TH AVENUE, SUITE 1900SEATTLE, WA 98101
U.S. Mail (First Class) Facsimile Email Hand Deliver
U.S. Mail (First Class) Facsimile Email Hand Deliver
I declare under the penalties of perjury of the laws of the State of Washington that the
foregoing is true and correct to the best of my knowledge.
SIGNED at Vancouver, Washington, this ____ day of ___________________, 2010.
__________________________________Gavin FlynnAttorney at Law
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