FORENSIC APPRAISAL REVIEW BORROWERS WAYNE & CONSTANCE CUNNINGHAM PROPERTY ADDRESS 904 N ADOLINE AVENUE FRESNO, CALIFORNIA ‘© 2007-2016 MORTGAGE FRAUD EXAMINERS,PURPOSE The intended use of this review is to verify the credibility of an appraisal that was previously used for a mortgage lending decision, and for assisting the client and their legal counsel in determining if there is reasonable basis to pursue a cause of action. The scope of work includes, but is not limited to, a desk review of the appraisal. If the scope of work entails something greater than a desk review, more details as to the scope of work are listed below. The documents submitted were reviewed for conformity with the edition of the UNIFORM STANDARDS OF PROFESSIONAL APPRAISAL PRACTICE (USPAP) in effect as of the date of the appraisal and for the application of currently accepted appraisal methods and techniques. The reviewer is not required to develop an independent opinion of value. ORIGINAL APPRAISER E. JOANN PARKS DATE OF ORIGINAL REPORT AUGUST 25, 2006 $9.2007-2016 MORTGAGE FRAUD EXAMINERS. —_APPRAISAL RESULTS $0. 20077:2016 00 ETGAGEERALD ASCAMMINERS.COMMENTS ree laser SUBIECT & CONTRACT SECTION This section appears adequate, NEIGHBORHOOD SECTION The neighborhood description is meaningless, as it does nothing to inform the reader about the neighborhood. Itis just some boilerplate statement. SITE SECTION ‘The appraiser makes no mention that the subject fronts two streets thereby affording It less privacy than interior sites, This may or may not be an Issue depending on the traffic patterns in the area. DESCRIPTION OF IMPROVEMENTS SECTION ‘This section appears adequate. SALES HISTORY ‘This section appears adequate. SALES COMPARISON APPROACH The appraiser states: There are 6 comparable properties currently offered for sale in the subject neighborhood ranging in price from $228,000 to $339,000. There are 9 comparable sales in the subject neighborhood within the past twelve months ranging in sale price from $230,000 to $330,000, ‘This ralses the question why is the subject valued at $267,000 ifcomparable properties are available for a $40,000 less? |___9 2007-2416 MonT@adcH FRAUD EXAMINERS —Furthermore, why is the subject worth $267,000 when an active listing (#5) after adjustment indicates $254,000 and that is without considering any coming down from the sale price or adjusting fora site which is considerably Larger (subject 6250 .f. vs. 10,125 5.1. With such a small lot size for the subject and fronting two streets it seems te stand to reason that a much larger lot not fronting two streets affords more privacy and utility and may have ahigher value, Also #S as 1,5 baths.as opposed to the subject's 1 bath yet no adjustment is made. Why was the active listing offered for $228,000 not grided but one offered for $279,000 (whichis in considerably better condition according to the appraiser) is grided? ‘The appraiser fails to make an adjustment to sale #1 for the difference hetween 1 bath and 5 baths. ‘The Summary of Sales Comparison Approach comments are as follows: The subject is a2 bedroom 1 bath home located in a conforming area. All comparables are located in the subject immediate neighborhood and closed escrow in the past six months. Alt sales comps used are verified as closed. All dates shown are contract. Listing or pending dates unless otherwise stated, Mast weight has been given to comp 2 which required the least ‘amount of adjustments(bold added) ‘The subject does not appear to be a Z-bedroom home and sales 2 and 3 were older than six months. While the prior sentence demonstrates poor support for the credibility of the Feport, the most egregious item Is that comp # 2 did not have the least adjustments, It actually was tied for the most number of adjustments. It also had, by several multiples, the largest gross and net adjustments of the closed sales. It is also interesting to note that the more recent sales indicated a much lower value but no market (time) adjustments were made. ‘The sales after adjustment indicate the following: ‘Sale # | Indicated Value Number of months since sale 1 $236,000 3 2 $267,000 7 3 $258,500 9 4 $244,000 1 ‘The appraiser seemed to ignore all data except sale #2 which was the most adjusted sale thereby indicating it is actually the least comparable. ‘The data does not support the value opinion. 02007, 2024MORTGAGE Eatin EXAMINERSAnother item for the local appraiser to check Is to find out if'sale #2 has some sort of useable is the back of 995 Vagedes Ave. space ona second floor. Note dormer in photo. Thi Not reviewed. PRAT! This is boilerplate that does not explain why the appraiser decided on the opined amount. CONCLUSION ‘The opined value opinion is not supported by the data in this report. In fact, several questions arise from the report which could lead a reader to believe the value was pushed upwards. ‘Therefore, the original appraisal report does not meet professional standards and should not have passed any quality contro! measttres. By failing to properly perform the appraisal, the appraiser has violated the Uniform Standards of Professional Appraisal Practice, Tht 6 46.2007-20116 MORTGAGE FRAUD EXAMINERS.violation also means that when the appraiser signed the certification claiming the report was USPAP compliant, they were committing fraud, Nor ‘is document is for internal use only (attorney work product), not to be used as evidence. If litigation is pursued, itis recommended that a well-qualified appraiser, who could testify as an expert witness, conduct a full fleld forensic review, which will likely produce an opinion of value, that is considerably less than the amaunt opined by the appraiser who is the subject of this review.' ny25$ 7050 1 2007.2016 MORTGAGE PRallO EXAMINERS.LOAN TRANSACTION ANALYSIS BORROWER WAYNE & CONSTANCE CUNNINGHAM PROPERTY ADDRESS 904 N ADOLINE AVE FRESNO, CALIFORNIA oni) jar 4 fy mat t9 be sed as on esl, oF Far © 2007-2016 MORTGAGE FRAUD EXAMINERS wamartzacetraudexaminers.comTABLE OF CONTENTS LOAN INFORMATION MISCONDUCT IDENTIFIED & POSSIBLE REMEDIES. SUMMARY OF SALIENT FACTS... UNCONSCIONABILITY & PREDATORY LOANS UNCONSCIONABILITY.... PREDATORY LENDING .. STATED INCOME/ASSET--NO INCOME/ASSET .. TRUTH IN LENDING ACT AND REGULATION Z RESCISSION UNDER TILA. NOTICE OF RIGHT TO RESCIND..... REAL ESTATE SETTLEMENT PROCEDURES ACT & REGULATION X.... FAIR DEBT COLLECTION PRACTICES ACT. | CONDITIONS PRECEDENT... ENFORCEMENT RIGHTS OF NOTES.. HOLDER IN DUE COURSE... MORTGAGE ELECTRONIC REGISTRATION SYSTEMS.. CREDIT REPUTATION DAMAGES, ACTUAL INCREASED OUT-OF-POCKET COSTS... CREDIT CAPAPCITY .. CREDIT EXPECTANCY... PROCEDURES FOR RESOLVING MORTGAGE ISSUES... NOTICE OF GRIEVANCE AND ISSUE ESCALATION. LEGAL AID AND SELF HELP LEGAL AID .. NOTES ON HIRING LEGAL COUNSEL... FREE SERVICES... SAMPLE GRIEVANCE LETTER, [ro2007-2016 stoRTcAGE FRAUD EKAMIDLERSLOAN INFORMATION Single Family Residence That Closed on: September 7, 2006 Loan Amount: $210,000 Loan Term: 360 months Loan Position: First Interest Rate: 7.55% Rate Type: Variable Loan Typé: Payment Option Arm. Mortgage Broker: Madysen Avenue, Inc. Lender: World Savings Bank, FSB Underwritten As: Primary Residence Purchase; [ Refinance: Cash Out to Borrower: X) Prepayment Penalty Details: 3 Years 2% Interest Only Option: Payment Option For Adjustable Rate Mortgages (ARMs): Time Until First Adjustment: 1 Month Frequency of Adjustments: Monthly Freq. of Payment Changes: Annually Index Used for Rate: Cost of Savings Index (COSI), Golden West Financial Added to Margin oft 3.45% Max Rate at 1 Adjustment:1 1.95% “Pick-a-Payment": Max Rate Change After * Adjustment: N/A Max Rate (lifetime cap): 11.95% Lowest Rate (floor): N/A Ifnegative amortization is possible, the maximum increase over principal is: 125% MISCONDUCT IDENTIFIED & POSSIBLE REMEDIES Fraud In The Inducement Violation of RESPA Violation of ECOA Violations of TILA Appraisal Fraud (©0007-2016 MORTGAGE FRASUMMARY OF SALIENT FACTS "The scope of MFE’s involvement Is toreview the provided mortgage(s) transaction(s) documents for breaches, errors, tortious conduct, state federal statutory regulatory ‘compliance, predatory lending, contract breaches, fraud, and any other serious problems, which MFE observes. Material relating to how these and other references may create civil lability or be used defensively against a foreclosure can be found under their own heading in the Table of Contents. MFE highly recommends reading this reference material for those unfamiliar ‘with topics discussed. L ‘The file reviewed for errors, predatory lending, contract breaches, and fraud contained the following documents and felders of related documents: Wayne and Constance (fa Connie) Cunningham have owned the family home at 904 North Adoline Ave, Fresno, CA. for many years, with some documents provided dating back te 1990 on the property. Online recorded documents and mortgages provided show that the Cunningham's refinanced with increasing first mortgage loan amounts and for cash out on first mortgages with ABN AMRO and with second mortgages with Educational Employees Credit Union, 4 ©2007. 20164 MORTGAGE FRAUD EXAMINERS(©2007-2016 MORTGAGE FRAUID EXAMINERS Im 2003, they obtained a first mortgage from ABN AMRO for $100,000. In 2004. they obtained a credit union second mortgage for $25,000, In 2005 they refinanced the ABN AMRO mortgage to $160,000. In 2005 they obtained aHELOC | from the credit union of $30,000. Then in 2006 they refinanced to the subject mortgage which was $210,000 with World Savings Bank, FSB, The same mortgage ‘broker ‘The rapid and serial refinancing ofa borrower for ctsh outover and over again from $100,000 to $210,000 is strongly indicative of what is commonly called equity stripping. [tis a sign that the mortgage payments cannot be afforded,and that the cash out is being used to make mortgage payments and/or live on, followed by a subsequent cash out refinance when funds rum low, Itis referred to as equity stripping because unscrupulous lenders and brokers often would use stated income, interest-only, and negatively amortized loans in combination to “qualify” borrowers for toans that they could notaffard ever and over to earn fees and interest until no equity remained in the property. ‘The $110,000 in cash out funds over three years and serial refinances indicates that this occurred here. However, review of the loan application and questionnaire show few personal consumer debts and adequate income. $4,800 income appears on the application and $4,200 on the questionnaire and both cover $1396 in housing costs and $147 in other personal consumer debt, with the rental income covering the rental property.See | Seca, eco ewer mogege inet{© 2007- 2016 MORTGAGE FRAUD EXAMINERS From Questionnaire: 28. Haw much was each borrower making per month af the time of the loan closing (approximately): Fao ; bout - free $210,000 at7.55% note rate fully amortized over thirty years is $1475.55 per month, plus $147 in consumer debt, and $134 for taxes and insurance isa total payment of 1756, which |s 42% total debt ratio based on an income of $4200, which {s not unreasonable, (Standard FHA total debt ratio Is 43%). ae ‘The following information about your credit scores was created on 8/1/2006 (6:43:54 PM for WAYNE_ - par lt Regardless of why stated income was used, $4200 from Wayne was not written down and does not appear. Taking a written application for residential mortgage credit, by writing down information provided by the applicant, is required under the Equal Credit Opportunity Act and implementation Regulation B 12 C.E.R.S 1002.4 General rules, (c) Written applications. A creditor shall take written applications far the dweiling-related types of credit covered by § 1002.13(a). This is expanded on in the Official Commentary: 2, Written applications. The regulation requires written applications for the types of credit covered by § 1002.13. A creditor can satisfy this requirement by recording on paper or by means of ‘computer the information that the applicant provides orally and that the creditor normally considers in a credit decision,11. The Deed of Trust confirms that stated income was used. ‘Ricraepn et a ooassznz05 31, (XJ) QUICK QUALIFYRIG LoAN PROGRAM | hu quale fo Whe fous by sraking sates fk which wore meHOd upen by Lenier te ‘agerov8 he loan rapidly, Tis a i cabled *Ovek Ovatying Loan” | have sised and coal at: (A) | Wo nat have nny amo Quek Qusbying Loans wan Lender, (B)f have agreed fo not Ruther encumber the Property and do wx nto to futher encunbar te Property for at tase si mows ets tho dots o ho ‘Secured Notes and ths Securty instrument and ¢) Harn putas the Propet. othe Years of he } ‘parchase agement sunt to Lender are eve dn the eri wn per sh omy om ues. 12. Although prior mortgages were obtained under the name Connie, this mortgage was obtained by Constance. 13, The Note is of even date of the Deed of Trust of September 1, 2006. The Note has a starting Interest rate of 7.55%. | o2007: 2016 MORTGAGE FRAUD EXAMINERS© coreozzr105512965 (2008 Note PP, deterred ADJUSTABLE RATE MORTGAGE NOTE PICK-A-PAYMENT LOAN ‘com Atv ce teronr coun Ret (CONT Or naWeIOS NCO ones marine se gente ree seme canna ammaan er A ANE me eee ad ©2007. 2016 MORTGAGE FRAUD EXAMINERScas24/20n8 2:20:24 oH 0560 was rac mice plat 2 ors sour ic dyn avn, to umes ni: SRR Unclear disclosures of loan terms a (a) Form of disclosures. Except for the disclosures required by § 1026.49(e), (f), and (g): (1) The creditor shail make the disclosures required by this subpart clearly and conspicuously in writing, in a form that the consumer may keep. 16. ‘This may be reviewed with an attorney in any defensive action. The statute of limitations for TILA for regular actions is ne year, 17. The 1.5% on the application was input so the software used (Kcompass) could use that rate to determine initial payments, including those shown on page two and the Truth in Lending Disclosure. What should have happened is that page two paymentsand other disclosures based on the payment rate of 1.5% should have heen printed off, and then the rate changed ta the Note rate of 7.55% prior to printing the first page of the loan application, It would have taken S seconds or fess to do so. The fact that the broker who was an expert in using such software and these loans chase not to create a correct loan application, combined with 0 (©2007- 201h MORTGAGE FRAUD EXAMINERSWorld Savings Bank, FSB which would have noticed this in underwriting also choosing not to.use World's saftware to create an accurate application indicates that both parties intentionally wanted to defraud Cunningham as te the Initial interest rate of the loan. This may be reviewed with an attorney for fraudulent inducement. 18, The second page of the Note states the index was the twelve month COSI average, added to.a margin of 3.45%. It also states that principle and interest would be paid every month by making payments, and that initial payments were $724.76, 19. Based on monthly Cosi values, the average was index value was over 3%, and would remain so for several months, even ifthe index became 0. cn (©2007. 2016 MORTUAGE FRAUD EXAMINERSee eT fe ences cng oa ny em ete ae Te anew den apne een rns hw hata by cea smaro math op noma ib ay a nen Iiace neon ‘sunmns’ thf ge oar] waar W SW reese ‘oman ccecosr' myer ier appress m caemay we zon eps shawn ne nd ‘Suna Pov mone See fe asst sor Wt ne OBA oot dare Ou ema re [Sihabor pe wove soaps mycsten atu eco enna oes sy eget eure ol comet tv yin now aueves sachs masa Gy ne pued e are Sites parece ecctd an cna teow y aan eaters Aeneas Fon Sietiectne fpevasabeenger tires ope ema ne oon a (2) Ccsnen etna tes Crone Sioa ce nmsay ny nrsodeioey sheay 3.490 sesegs roms cant oy the “'78 Sti nie vt © yeitsrs Nanda lve te mya taoasn mtr rostrwel ius ue wi teers onan Bee sem le ran pap nen waa tne i ean tre oe gestions a nates ape he fare aa mar tarm ry ae ty ue perder gm Same CaSS Sethe icon Cucina ory me wn bne ce narra” fens loarateconn# WR PERE SESE Tecra oe 0 teeta EON acca anaheim eoamnammn ean acekiteriere anes ehaeare cetieaatee me, onset Since erent eet carers cance aerate hemseiesaetie citar orion Sees ate reenter Se SEES ce ee uenacraaiaann Wircaren mentee > amour Bi Rant cerayete Neyer trcestanemendia aig rer eee rath icy oe Hine he NN ee me Nagy ow OCD HOD, a ie eae yr sey ts ne Fn Fanwood ay Mh eH a Cini in tal ey rete ony oe oi a ty bate Bon Sapam 98, 200K ee ‘Srpemar ak te capoysen onsen ah dae toh ste ictus ay sen pemet se HAAN HARBISON SYRUEET, OAKLAND, CALIFQRRIR 94812 = user seer oadnyroe vo enone 121 htt ta etry Prete ass iteg inlesee sama sites nt amet ib LTBUM Thanet ergy ites che fp MEIONEEa) bean Sy te eet aye et ne ned a pa ms en eb Pept nar Bt ‘ipmenc yaa Pg cat Hace Angry ose Nae ORF OUT wt nat hs roey EB poomanvne Cay ote demu ier a Parma any Cua Mate gape a rae (Polo tnt 2) naan cnponn bar en it (4 Caen Pape anaes Theat tere Havant He Ba PHpReN-neN we my mee payment Spare cet Ek _emhwcret preps ndsdrg sry titra eset =r SE ka, Wa BP monn LDN Gyan tamed care seen ao rser an '7 ata nah Pace aed Se! rma Tn Sipe ustae sustets Dron Cx! rate epee SEE Se ere? we SE "ae antares Peron Shade Oe mreminmasiry persian) septa on 12 (©:2007- 2016 MORTGAGE FRAUD EXABINERS(vil) Any rules relating to changes in the index, Interest rate, payment amount. and otttstanding loan balance including, for ‘example, an explanation of interest rate or payment limitations, negative amortization, and interest rate carryover. (2006) in any defensive action for violation of for fraudulent ent, as Work: every month. As per the Deed o! inte ‘paid before principle, and the payment of $724.76 was insullicientto pay al terest due. 20160227108220803 (2008 Deed of Trust Wertdliedt 3. APPLICATION OF BORROWER'S PAYHENTS ‘Undo anya Ly esas three, Lemder wl ape mach of my payrmants: under the Soewredt "Nts. nn uo Paragrapns 1 and? above tbe fawn onfor and forthe flied purionet Fant tm pry perpaynent charges de ener the Scared Notes: 5 i ovansesz03 ‘Secon. 6 per Ay mdr eta Ker ee ve Seeury tne, ‘ea py hn emp an Lene dor Pago 2 bee Four, to pay hetero unr Oe Secoed ites Ft, apy sete ot we Mae Baca es ‘Shan to pay poncipal dow under the Scures Netw: [La to pay tae cham Ge uerer ts Secueed Hotae B (©2007-2014 MORTGAGE FRAUD EXAMINERS.i elanass ta ms oereeie sesh om nae caer pomn (epee eigen one [peyesay stata IOI Prue care Dee we oy SP Ctr at Senet rts be sveanes eee bscr Sah seve ne Prenat Baska, he net Suneca typ mien trnbamant regener Be tetas a hagrant Ckapen Sesto secciatmaite as aah ay Ag wea by Remy ene Hate Rage ch ‘tetera Cure te The Paynek Sane kao ovine ae « ramune rowan tonsucre tay rmce cnet ape covbe tapes bony Sch i ors anata Py ab romeo "steppe STs HM leer ov War Bie Pena Hayne Beare ave wena een ase) eet eee pee eto ig fy tums ps etch re nes ped ome pate a at ‘have the gto mane payrent of Princ any me betray ave due A payne ‘pngcipstaton hit ous calcu s“Peopapmen Vins» Prepejns we tno {orton am ang co Tae Lenser ay toque at sy pal repuyee be made ene ate 0 eerteglay sehen payee we on mae a pri Prepayment (ave wi bs 9 Changes {he dacdatea ot ameand ah my rey weeded pment wats Orakenaes ana tone ‘hssges tn wining Tay pay dered eco onthe ooh at ary be hed charge ne ch payment not be Conlon "Prepayment of Pinal Dog test eats tt ban {vane ene roe Prepayments tht tbe appre exceed 38,008 ay Canes mor trust pays penpayoent cage sq! one aoued ach Pepper encod $6508 at ‘er marin Aer 2 yar ef ny mab for prt Preps ‘wot prying amr prepayment chat Mas eyeuiey toned ne Penseaeare Foswe fi otaeone becomes ak abet geet om Hat 16944 As mee IN) at eget ene Pree ‘Poets mnt A prey many aoedey Hew #8 at sepa ne we i (©2007: 2016 MORTGAGE FRAUD EXABHINERS.24 This isaiso unclear description of the negative amortization and may be reviewed with an attorney with the above TILA violation for unclear description ‘of negative amortization. 25, ‘The addition of a prepayment penalty on a stated income loan, combined with negative amortization, what appears to be equity stripping serial refinances, and le, as it ne Oo OCC ADVISORY LETTER Comoticiie of the Curane Sametrator of Materal Sook z ‘Avvoding Predhiory and Alpacve Lea Sa Altern Deed ad asta TO: Chet Exeeutie Offers of AIENapeal Bask aad Natomsl Beak Operating Subadiane: Deparanent and Dhirio Head, and All Examine Personal INTRODUCTION AND PURPOSE “Te otice ofthe Compoter oe Cuneney (OCC) San tena vane of eps gad relat eshonil ack Geom ald ipedsor td helt paces Ose Eger ef te OCC sconce sae elise the sed fr tonal ark w exerere rpprpeate gence when ey uke o jai longs Oat orga Geshe Sartor be keerwedianey. tiseasl als thou hive m place pocedur pad sunsdards Segue eared er Woke at pemeas and Ton puines done! eves raced aa _Accondgly ie OCC ts ating fic adasey lee alert msbeaal baa te opting ‘ubruanes(clevaiely seferedto 11 natal banks) 15 the ris they mere conto f the ‘uae loa: thwagh brokers ce obs ona: hoops pechace waasachon? hat contin temo teflect pocices that tony be cbaraetenced at shat oF ptedsory ~ Suck loans preset 15 ©2007-2016 MORTGAGE FRAUD EXAMINERS‘cel bas shod ha clear procedure: ov enerni int and comsinsingeeltomipt with undp sacra lan brokers and onus. av andr that delineate underumting and appenval ruaeavears” wad unacoepatlecharctenct fcr tekered and pechaved loans” ‘These polices should also dente. applica, the iscsi wider which th bank will rake doogh » broler, er seqeste mn a purehive mansaction, leant with eae that have Neen ssceuted was abusive lending peaches Avappuopmnie bask polaris etl adit spect mame’ sch a Frequeat.ceqieatal refinancing, Refinancing: of spesualrubrciced mortgage center ter. cea 19 the Borer, Sengle peensues cet hfe umaeace ot mals predict Neganve smorizscen Balleoa pevments in skotters tamiactoa: Prepayment pensltes hot are pot hited toe eary ves o Franny pres feet penobnes. sed ober charges lntee:t rie racine: upon del = Mundatoryathimanon clawes. aod + Acqutinon ef deans bjt fo HOEPA" 26, While the other factors.are shown above, the insurance appears only from the questionnaire: 16. Did the horrower get a cheek (or eash) from anyone, including the ttle company, after closing fer any amount of moncy? Ayes, how much and who gave it to them? 16a, What was the exsh-ont money wsed fo ; applicable? a 4. : 27, ‘This should be reviewed with an attorney for unconscionability inany defensive action, 28. ‘The violations of TILA, fraud, and uneonseionability found within the Note and advertisements by World Savings were subject to a class action lawsuit, Jee “Pick-A-Payment™ Mortgage Marketing and Sales Practices Litigation, Case No, M:09-CV-2015-JF. 29. ‘The verified sccond amended complaint resulted ina settlement, but due toa lack of modifications as agreed upan in the settlement, is now backin courtas a new class action. 16 {©2007-2016 MORTGAGE FRAUD EXAMINERS30. No documentation of the settlement or exemption from it appears in documents provided by Cunningham. This should be reviewed with an attorney for settlement of any defenses to foreclosure. 31. The Note is signed by both Cunninghams. mg 83 (note ended rua ator AE COL aA 32. The Deed of Trust is ofeven date of the Note, September 1, 2006. It is also signed by both Cunninghams, recorded, and the legal description matches the earliest legal description that appears in the file from 1990. wv (©2007: 2014 MORTGAGE FRAUD EXAMINERSeT REcORDINO REGUESTED EY. OLD aaviNGS DANA FREE Coun Meeaeeer soit RECOREED UAL 10 feet © re ‘WORLD savavas bat oc- 2006-0194586 Praceseuuene tion ene ane closmeeranent Sr gh ms rowots ‘tron e APR PRIS DLT ‘Ban ANTON, P7 oa un aang MOTE AMMOUNT: 8240,6004e nth | eeLOPb FD - Om RECORDER'S aE ONLY DEED OF TRUST DEED OF TAUAT VICK, SECURES Tons fork EHABGES AM THTERESY RATE, ng. AND Precis. BALANCE HINCLUODNO FIRE EST AT LENDERS OPTION THE SECURED WOE, VAY BE fiuente OF RENESOTATEO, ‘Te SECURED NOTE PROVIDED FOR FRVREvTa Gr priiciens Ano 1wTEREST “THE WARMUN ACOREGATE pRMVCHPAL BALANCE SECUNED BY Dus DELD-OF TRUST Toei $00 00 Wc 474% OF THE ORIGINAL PRIAEIPAL NOTE AROSE, a 1 PGFmunong OF woRos USED mi The OED -OF TAYE ePmat Sette Fon ace fot a snes Beommbas 9, 24M, WA ba cate somaya {f) eenower. WAT L CUNNINGHAM ANO.OORIME P_CUNIENGHAR HUBHAND AME Gre serttnn nate cuted Bastowat are Sorecra seth °T 9% Received Oct 81 2006 Rosendo Garza 16) Lender, WORLD AYWOD BAUR, F20, 11S SUCCESZORE AND'ON ASSIOMEES, wt cates “lene Lae se PEDEMAL BAVIIGS BANIR, wach erpanzec) ont ers whe he a ot (hana Sires Lowers atioeny 0 1961 Hamison Stet, O3Mara CA MebHE 1, DESCRIPTION OF THE PROPERTY ive Tastee rhs nthe Property cesebed baw: (The Property whlch i focated a 904 N ADOLINE AVE, FRESNO, CA 93728-2942. Ths fogst sdeseiton ofthe Property is aftached 38 ExeDk "At wih By mae nis Secutly Pasture, Progary a aed tho "Described Pray neti = 18 ©2007. 2016 MORTGAGE FRAUD GMAMINERSingS00 eed of ik eadlpaP: LEGAL DESCRIPTION From 1990; 3 ae eunasoey an me wenmcoemat Se 81 880 ‘vencuao sence GOPORATION cores ss Scere creia0 Tea r0)2609-2 FUOSAR pS — Gunn, 12630050033, aR ‘YOU ARE IN DEFAULT UNDER ADEED OF TRUST DATED deptanber 7, 1279 TO PROTECT YOURPROPERTY, IF MAY BE SOLD ATA EXPLANATION OF THE NATURE OF THE PRO- Notice of Trustee's Sale Srey Deed of Trust Notes: wet ghen at WEREUCD SERVICE COMPORKT! sa Gators Oxporan Meeee ere au rockon ask faa Cove! Tat emmtedhy WANE CMBENGHAL ‘AND OGIO P,CUNTENGHAM HUGEAND AND WE. Receed September 19, 1978 inSedi 7117 Pogo 328 teat @ n02292. ‘deal acon Be tinct Cay Racor FREDO ‘Great Gtr ad oO premio beter iene a Raremtatrormon! ay 30; 2070, - na # 90062079 ctnaki Orci sonra wit Séillon Pape F Gotobor 22, 1990” M1 11:00 dolly AME VAN ORG AVENUE HXTRANCE TO nt a Comey cousouNE 9 2100 VAN WEES A. emcee meant cen nnd FES trues ree en ee nen cece a casnte pone ance eeace Somes 3 ere 1M a8 csvt-oF rasag, cocree or reasn0 NGO HuE MAP RECORDED 1M BOOK 9 PAGE St OP 033. A Negative Amortization disclosure appears following the Note. It does not ‘accurately disclose that payment options do nol exist every month due to limitations, or that due to payment increases every year, that typically loan payments will not have four available payment options including interest only and minimum payments. 20260227105542065 (OOS Note PPP.c =U WORLD SAVINGS DATE wetme. ‘MOAN 1 ebaaeaeaas PROPERTY ADDRESS, se4tV ABDOUNE AVE FRESNO, CA to7d42042 @ IMAPORTANIF FORMATION ABOUT YOUR WONTMLY PICK-A.PAYUENT LOAN 1A You have selected 1» nan gumduct th ttt you choose hew much 40 pay each mone from amen several choses on pour baling statoraert. Rx descbed below, fox maka 4 panodic payment that i leak thane tel arth an yo oi et Ste nt al a cipal ue Yor fan al ene ‘Ths document describes detered interes! and your payment pms Bo asst you in dating the payroet sanourt that makes sease for your fnancal situakon H you have minationa. wa wenconrage You to talk wih yout {oan epreaertative er speak win a Wortd Baviogs foan acer mt 1S8B.SaLeSTO0. nue s perunnes mineREsT? Deteaes nieve she bmn 28 were Ihe soma torus sus on You tam Fer exes Ij com SEDO meme agen Be ba pu ue IE yma at autesued ty Your oun. We S40 veel be Uered atueik Mat Bed W vou fea uli. ecepeet ih, grt ha er teedt ou he hs gc baance Yin casigny con ary daw seh en you oan mye ‘YOUR PAYMENT oP ONS. = (0 tam gtatameen wat ypeaey flare fewrms leur papront meici t9 gw Yd ebity ew Ye A A Your are (1) Sereda Eonaso ano bees The amare covtes eres sed garcoal 2 pay af yew loan wih ts Siivogwea tere Top sene-hura tern Is 20 years 5 est oars. Yeh YoU fay IN NUM you wt MOK EM ry wmnmed erent ued you wi eeuce yeu lea. Eales: (test ciny Tee payment coume he test our a owe Wk Voou your non baNaSe eM you Pa ‘Seu, yout wt retin ay Gabbe ans st (OMe renee, ro wo ere arom rune om way Aye ane set we MIE ral MN the nec, you Al we Abed teed wach vo BE DO TS Re cenens! Enkin ely fan, (Sconce Paar Tea payed cesar wma ane ann cnc 1 £39 yt aah wth ever hen yor emo onc, ha het rae roe Manoa You wa + tome epkans et 20 agen coy oan store You Mumm Pet ger tan te oer ‘rpc reat 1 the Sense revs seats ecto yes tee pat he gmt oe Shange nine Une vier means How Wun SHOULD YOU PAY? _ - 34. As per the Note, payments keep increasing every year until they are fully amortized, including a recast at 10 years, and a recast at the negative amortization cap. 20 2016 MORTGAGE FRAUD EXAMIreise ern Tap Cee De ec a reed ip canter rape crane ‘betes esars Means Bas eve Freet Charge etn ve gape nar shwene nse et sayemspneyesnyn neuen heey ney qaagmrwwnatetene orbs be ye mney Pee ter Cuanap oun papord sate ppeine=t wanowines "4b haba tary Fomor twee 34ret T [AZM Weta ued "aened Ca "hae elena Bs Pene fay ade ud At on tah anes Ponet ee te rammsomesy peveracnnn ecm ea con tet 38, ‘This disclosure that loan payments would remain options instead of increasing to the fully amortized amount was false and given by World Savings Bank, FSB knowing their falsity for reliance by borrowers, who often find they cannot afford future fully amortized payments. 36. This disclosure should be reviewed for fraudulent inducement with an attorney. As per the questionnaire, default occurred because it no longer became economically worth it to make fully amortized payments since payment options were no tonger available, 22. **Why is the borrower behind in payments?** Pleaye explain (he situation surrounding the defvult, ia as much detail as possible. 37. ‘The reliance on disclosed more affordable payment options which were not available as disclosed should be reviewed with an attorney in any defensive action for fraudulent inducement, as this appears to be the ultimate reason for default and current foreclosure. The tack of payment options appears when interpreting the ‘Teuth in Lending Disclosure, when you see that the vast majority of payments (265), are for fully amortized foan payments.as the minimum payment. (82007: 2016 MORTGAGE FRAUD EXAMINERS20160227103606883 (7008 MOS. WORLD SAVINGS | renuens mom nrcmicns oct cuune REDAG BY REGULATION Z Setara tw Fe nea WAYNE L CUNNINGHAM, EF AL pronase FaamaOUNGE | Amit Famed Todas Sota Pree srorsm00 sernaTeae Arountcreayreare When gente ane Bae: WGRTTHCY baioon co snare sot508 at dover ant toes seat soko 4290 so1s10 Teo 49 toner names toaeaz 38, In addition, since this lack of payment options would not be revealed until many years into the loan, this may be reviewed for extending any applicable statute of imitations on fraud. 39, ‘This may also be reviewed with an attorney in any defensive action for unclear disclosure of loan payment terms and amortization, in violation of the Truth in Lending Act’s requirement for clear and conspicuous disclosure. 40. In addition to the Deferred Interest Acknowledgement, an adjustable rateloan disclosure aiso was provided to describe the loan. In it, it states that Cunningham would select an initial payment amount from a fange of payment amounts provided by World. Then it goes on to describe how negative amortization may ‘aecur based on the initial payment selected, 2 ©2007. 2026 MORTGAGE FRAUD EXABIINERS‘PO1GO227 05120607 (2006 Wisclouwes Wor pelt LOAN PROGRAM DISCLOSURE onaeanzoe PICK-A-PAYMENT™ LOAN ADASTAILE RATE MOTEACE (GoW AVERAGE DEPOSIT AECOUNT RATE (COST OF SAIN) MOEE COBH Neageetnsuen ce ene salem wage Eee Seiaeneeoy shard eee om Peat Cope Stag rey ime =f horton tee ttre me ie cmey een arrarereo fae 65 mn bem win Yee so sare wompor zaman nears are aces) Siterweeaonemcraeures an “trarwenaet Seer Sey mas (oe woe ome Peer See view we dnp ene te Ran ee ae ©2007: 2016 MOIRTGAGE FRAUD EXAMINERS ‘user ten pute ge etree Tb et roe ey a yet mm hn Sat heen ‘ae tm ANT La: 70 AOL To ROEREST BATE ‘et Prenat ti 60 eae fa Peres banca tty rt, ma Rubyroecrogrbacs Tevatahewe ten nmin norco thane netineaamet nan ter nataey mae meta oy Staten rtnanen we arieneeets em Siteciayn en toteoreentn rar et ‘Sfattarne eee doer tavern re scans puta ecw sh ae aaa 241. I then describes minimum and maximum initial payments, and gives examples of how to eateulate such minimum and maximum payments, (1 ety aye at en py ea aro rere dun Yio A201 fot anal lope Fe ae (ere anette sap orca! bn ar oo bows evestans =e a ema de ‘reer tieren ey tw eet = BvGoae egret prep ttn wrt a Pea agen tar rower eno riase arte emmys mee + ama pe cea once nce anu ea Pa serosa am ear aa fun Bah 03 eon Tt imo mo re recon seranes vie 2 te Se 2 Ps ere peve bear arti hy a br cute uo enous Jeter fan WO Pe PoREATY Sencedwnccesaen ser temaeret im ‘ran tue canada neal een non ete ‘ard wat meson sep Om ae wert aoe pen sah an bagrar mi Fay C9 ae men An TE hy MN APRS ATES AND Daves rom a fe tM OROMATED #4 SEPTEMDER a mn ee tae Sone Sas ee mreacame c Senet tn HE See ieemarore ten Stn ener Pes tate esha TUR ath rn fase cae od rene oma ange oz eR, Yor bal are pene eel oe riven mtr = fie ear 9 12M wach (Alo rata ant RD eb ae ere Leon aa ray beer ar set sei arnna a eae na Nal Siweena mation oe HOW CAM 1 CALCULATE TRE TAL FATA OR THE ‘we L410 BORROW ABs ote parr t ee 1, ate ena pan Nome mp AO Ane ee eee 2 runny sarge ye en parser roe ow he cast haga) te ee count ra foie Sebastes wewrpamatts pn recat at te =n OED tivcmwepaaiens san snees ENA mer alpen ronuant- cnn fer she em a ty aa mo BH HE mt sane sneane {Dea FDS reduc apes He xe HHLM amen nehensnt, ar Bate por ere a mt EID? fr steer sna00 +12 fa) KE22* fame mera coire 14 g00 28 pan mnevatparee AN Wl | RECENE NOME OF BARGE TO THE LON ‘pak roma TON WHA THEY ELIE Gaye tae hy mas Aaate Wein wont He Bares Sa eeetan nar oentanor sarge Nf nk LOAN AE A ABSLAOMONDUCONTALE cgay tan Float ty Bao are ee ated tA op ones ar ner mee Fenow tendeey cup omen Gan eve one cet 1) santa eet ar twat: Sorsret gave vind 3) “heaiesmateeacaraton 4h repre fo apy bay rete ered Grease ee pues a coer opiate anumetenc en The tas af tn ser Ut Pat Ca at Diets ange tt wong separ mr Mew Ca tn Peeeranaee [ps wan pram 2s be comet enaen emi: Yenc oe cerca ae ecctangeann Po ev on tba morale etc feces samtena mecaner nate agp ta tran yee ion nn erie om. YA ds te i ng ‘Sorrentino fori Fam © by Tok Seine Rone wn he apts eveg Psa Tom Sd aan, rete ee = es wt or manor nis sant we: clarks cece wat acon ‘Ors nes LoMLAYE APRERKCTHEN CAE MRCNHCT impart Gavel Fyos hana aan corn st cow tow (Soysses penapmor to aoe ae amar a epee Palit na anayeer omen en {1 ue mayne em oes ener aE (roraat taiepar teereniren Saat me ee Can 1 OFT RCRA ABET WORLEY OTHER DAR praca? oe Reman uray aranw mann ute Saree eo denna i sean mt Haer mann sy feo darenie acrorg 4 Purpmet Laan Poa was Fm kare er 4st reasems tpengeetat The tees sruecadeen on tna gata ow 4 8etoie bay nahn Dats ant Rowse ery 2007. 2016 MORTGAGE FRAUD EXAMINERS42, However, the no mention of minimum or maximum payment or payment choice appears, and only a pre-filled $724 per month appears, without mention of whether or notit is a minimum or maximum initial payment. 20160227108120607 (2006 disclowmnes World pa WORLD SAVINGS | ecuest iinern tonn Paver aNoui? oe arene APPLICANT'S NAMES) MAYNE L CUNNINGHABL ET AL. PROPERTVADDAESS. 804M ADOLINE AVE. FREENO, CA ST?z1-2082 LOWEN. o4easaDS LOAN ANOUNT REQUESTED $ 210,00000 Lille Deity rast ejatable ite Pek a Dayrpert™ Lean i hoaeosre sven am have en Fetal MONTHLY payer amount of sere ALL APPLICANTS UST SIGN coNRE P cueNICHA 43, By preiilling in a selected initial payment instead of having Cunningham chose from a range of payments as described in the ARM disclosure, and not labelling it aga minimum or maximum payment, but providing disclasure in terms of minimum or maximum payment, the ARM disclosure is unclear. This may alse be reviewed with an attorney in any defensive action for violation of TILA’S requirements for clear and conspicuous disclosure of both negative amortization and payments as above with the note. tn addition, this may also be reviewed for fraud, as no range of initial payments appear for Cunningham to choose from, and no mention of whether $724.76 isa minimum or maximum payment appears, 44, ‘The HUD-1 Settlement Statement has an appraisal review fee, but dacs not contain the listed fee and party who performed the appraisal. Since it is obviows co $2007. 2016 MORTGAGE FRAUD EXAMINERSfrom an appraisal review fee that.an appraisal was performed, this appears to be an attempt to hide the existence of that appraisal and party, 20160227105736071 Dipat (cement tm akg tad onoseone Benzene ‘Stowatt Tita ct Caiternia, tne. (925) 945-6400 Borrower's Estimated Closing Statement ae ae em ——- Tana Spee WR Po Drees smut tm We tRshetene . amore Peete (Semen Ams en wens Fon BO Reig on tte » ened acca fen Prt er me oe ‘ate rps Meu Fe Se ren ae ae oe 45. The settlement agency had a duty of good faith to list settlement charges, and a duty under the Real Estate Settlement Procedures Act (RESPA) and its implementation Regulation X te state charges as per 12 GER, § 1024.8 Use of HUD--1 or HUD--1A settlement statements. (a) Use by settlement agent. The settlement agent shall use the HUD--1 settlement statement in every settlement involving a federally related mortgage loan in which there is a borrower and a SOUT 26 ©2007. 2016 MORTGAGE FRAUD EXABEINERSa7, 49, ©2007-2016 MORTGAGE FRAUD EXAMINERS (b) Charges to be stated. The settiement agent shalt complete the HUD--1 or HUD--1A, in accordance with the instructions set forth in Appendix A to this part. The foan originator must transmit to the settlement agent all information necessary to complete the HUD-1 or HUD--1A, In addition, World Savings and the mortgage broker had a duty as originaters to provide the necessary information, especially since it appears obvious that an appraisal charge existed. While there is no private right of action for violation of this section of RESPA, this be reported to HUD who enforces RESPA, and aise reviewed with an attorney for conspiracy to hide any appraisal fraud found. In addition to RESPA, a copy of the appraisal or an appraisal disclosure was required to be detivered to borrowers under the Equal Credit Opportunity Act and implementation Regulation B12 GER, 1002.14, although in 2006 only the appralsal ora disclosure of where to request a copy of the appraisal was required to be given, ‘The appraisal was not initially provided to MFE, Indicating that Cunningham was not given the appraisal, and no ECOA appraisal disclosure appears directing Cunningham toa location to obtain the appraisal. Phe statute of limitations on ECOA In 2006 was two years for regular actions. This may be reviewed in any defensive action with an attorney. In 2007, World Savings Bank, FSB and the Cunningham's modified the note toa fixed rate fora few years, a Sah oF ne, Joss. ncdestemein 20ls0d27AGAbeE7 ty BOR foes cometion propo ro pa a ‘Temporary Conversion to Fixed Inierest Rate A. When Fixed Interest Hate Begins and Kinits ‘Subject to paragrapl 3 above, the outstanding principal balanee of the Loan will sccrue injerest al he Conversion) Rate boginnang. on OWISQ0UT ("Fixed Conversion Date"), The ppetiod of tine during which the Conversion Rate «sin effect ix called the “Temporary Fixed Rate Period”. Boyinning on OF/15/2010¢"Conversion End Date’), the interest on the Loan will no longer be caleulated at the Foced Conversion Rafe. Tho interest rate will, from the Convcrsicn Fmd Date until all obligations aro paid in full, be periodically adjusted in acencdange with the Acer of the Note without repard te this Agreement, 251, In 2013, Wells Fargo Bank, FSB responded to a letter of inquiry that the Note and servicing were both held by Wells Fargo, as owner and holder of the Note by merger with Wachovia in 2008 (fka World Savings). 20160227105686812 (QOIR April WFis server and note hoider, Apel 24, 2015 Wane | Comannse 06S. Adaline Aveta cm, CA OUTRO Ree Loan Nucor M4 8925205 (Boo Wayne 1 Cunningbum and Coneance * Comninghaet: ‘We ate in tcecspt of codrenpssndcoie recetved un April 22,2013. Your correspondence way refed is me far review ats resportse. | apgtselate the onfwTunily’ Berean to your enwcens he Noe wich aires the ligation wo Wet Mstgipe utnkr the loan vercoced abe. For you seview, 1 [2-mopth Lawn isiory wil fll ser sspurate ante. Your eter and Wei ane Horie Morteage's Jesprnse they. banter in aay wag the Iepl oblipations 26 Wells Fagg The Morgane sr the ter liste within the Bote acl Dea ot Hee ‘Wells Fargs Home Mutya haes nl eps acquis fo ale feo aces with any demand ‘or proooaancerment et For ia june letter, Yur emer snd Wells targa Hfomne Moa ee" Walter imsimy way the lepal obipations 10 Wells Fargo Home Soregage lids the Nose and Daa of ree any ib Southwext, N.A., frmetty hammers ax Wachovia Ntoeigage, # Wp espondence trons tho Oifiee of Thi) Suprvsion and Con rvs recmneity the mown ehunytes, The servicing of the fun ds petro rater Weil Vatass Horne Monts visio Thus, Wells Fare Hank, NA. bafta ee cer aad On tof Trust ane held hy $2. In November 2014, Cunningham strategically defaulted on payments. This led to ‘@ Notice of Default in June 2015, and a Notice of Trustee’s Sale in October 2015. 28 (©2007-2016 MORTGAGE FRAUD EXAMINERS.f oe | NOTICE OF DEFAULT SUMMARY OF KEY INFORMATION CONSTANCE PF cunmANGHAM, wave The silached notice of dotault was seet to, in Jo WADOLINE AVE, PRIERID, CA NID TON? {deer ition ofthe propeny inst aeearea the engage or dead at mista devau) ‘This property may be sold to satis yout obligation and any olher obligation sacured by the ‘Seed of ust or morkgege Bi IHN GOtaNl esa ugen csagaasan NO. ws described i the notice ef defaul, breached the mortgage oF deed oftruston the property daccnbed seove IMPORTANT NOTICE: IF YOUR PROPERTY IS IN FOREGLOSURE BECAUSE YOU. ‘ARE BEHIND IN YOUR PAYMENTS, IT MAY BE SOLO WITHOUT ANY COURT ACTION and you may have the legal ight la bring Yau account ln goad slanding by ouying all of your past due payments plus permiton costs ane expenses within the time permaiied by lw for feinstatement of your account. hich ts normaltyfve business days porto the dato set forthe sale of your property, No ale date may be 86 tint apiptoximately EH days from the date the attached nolice of eefau may be recorded (which date of recordation appears on the notice). relation to This amount io AME AT asor__ “S001 and wilineneave until your (Gate) secount becomes cuitent ‘ncconoms arouesre HY PS Detnk The icing 32286 Gamine Real, ios casaeo {AO HEN RECORDED UNL Tor {ts Data Seren, Le TSMACHSS12EE0 TSG OnkerNoc HOIISH-CKVOL APC AS2EA NOTICE OF TRUSTEE’S SALE NOTE TWERE 1 ASCLBANT OF THE MIFORMATON I THIS COCUMENTATIACHED seaman ‘Sole Date & Time: 19/30/2015 at 10:00 AM ‘Sale Location: AL the Van Ness venue exit from the County Courthouse at 1100 Van Ness Avenue, Freano, CA. $3, ‘Thisled to bankruptcy fling by Cunningham. {tis unknown whieh defenses ifany Were sed in any defenses against Wells Fargo's proof of claim, 223. When, ifever, did the borrower file bankruptey? Chapter 13, or 72 Biel al 1 pT mb 3 — 54. In addition, some sort of scheme appears for payment of $1,004,639.21 from ‘Wells Fargo. This may be reviewed with an attorney for fraud by Cunningham in trying to obtain funds from a bank under = false premise, MFE recommends reviewing these sort of actions with an attorney before taking them. FIRST NOT!” i ca in ae * 4 ae Roar, ~ gegen a eg hal rae (ester tert a Aye 1 ——_ tno us FCBA ERROR Dae it ‘While You, a ow, Have A Specified Th wi ‘te OF Your Billing Exar ‘Pages, Except That Ye Will Hot Be Unreasonsh. andar For Your Time Te wesponise in The Time Required, Hi + Bushell/Penn Gass By Ghiot ustice Sirs _ recognized By the United States Sunreme Court acco. the Law. as follows. 20. Except you confirm, as the federal law requires, that you, within the 21 days jimedine [provided liberally by us to you, starting from the date you receive our greseniment of the Ques) | ‘Contract associated with your “biling arme” (or if you should need more time than thal, you fave bit to ask, In welng, sing Wot you ned inom He, @ nant of more tne sll at b= ‘unreasonably widiheld), then except you show evidentiary cause 8 to why it shall not so bo, we shal by se of neural binging abitaon, determined by th stato twee the sat of ‘original jurisdiction referrad to in the: “promissory” of ‘promise to pay" note, # 0043925208, and ciarifigd by presgntmant of Quasi Contract, # - ocfNINENED 4, in the fully expanded amount of '$7,004,639.21, of ehall be carried out to ifs: conclusion batween us, requiring, reasonably, yaur ‘monthly Quasi-Contract payments to usin the amount of $2,790.66 per month (racalcu‘ated at ‘99 determined 15.5 %, nol yours, annually, over 360 months) which You Aro. at this time, in 30UNCONSCIONABILITY & PREDATORY LOANS UNCONSCIONABILITY Unconsctonability is the absence of meaningful choice for one of the contracting parties, together with contract terms that are unreasonably favorable to the other party. In determining reasonableness or fairness, the primary concern is the circumstances ‘that existed at the time the contract was formed. Unfair practices often create a legal cause of action under both local state and federal Unfair and Deceptive Practices Acts, see which may be explored with an attorney for use in an offensive action such as a lawsuit or a defensive action in defense of foreclosure or against a proof of aim in Bar ty. Also see FIC Act Section Sanalysis by the FTC. Also sce story of Damian. 2 Ie pt ened epee * dal | Unconscionability almost rises to the level of fraud or contractual capacity (unsound mind), but does not quite get there. | Te spot unconscionability, one must look at the overall transaction between the parties 'o determine whether itrises to the level necessary where it becomes evident to the court action must be taken te prevent an injustice from continuing. ‘The elements of unconseionability are generally:? 1) The absence of meaningful choice for one of the contracting parties, 2) Together with contract terms that are unreasonably favorable to the other party. a. Price alone will not constitute unconscionability. b. Toestablish unconscionabill ty, the court will laok to see if both Substantive and procedural unconscionability were present atthe time the contract was formed. i. Substantive Unconscionability deals with unjust or contracts: unfairly oppressive to one of the parties. i, Procedural Unconscionability is. concerned with “unfair surprise,” like fine print clauses or mistakes or ignorance of important facts. lil, See the factors section on how to establish each. ne-sided” PREDATORY LENDING Nealiams v. Wolker-Thamas Furniture Ca, 354 F 2445 (0.C. Ct. 1965) (as found In this famous goods transaetion). i where tisimprovident oppressive or totaly one-sided, Relevant ide gross dieparity in bargaining pesitions cf the parties together with terms unrencanbly favorable tothe ranger party.” Reuben Ht Donnaleyv. Kresny- Supply Co,592 N-EZM B,12 (ILApp.Ce 1994) ‘Some jurisdictions only require ether procedural or nebstantive unconsckonability be present, But the majority require both, 31 ©2007-2016 MORTGAGE FRAUD EXAMINERSPredatory lending is a term that encompasses many different types of abusive actions by loan originators to secure loans. There are no set elements to a predatory lending claim, Instead, many individual factars-come together to paint a picture of lending abuse. Each individual component may be legal, but taken together as a whole the loan is predatory. Predatory lending practices often create a legal cause of action under local state unfair trade practices laws, as well as federal unfair practices 15 USC § 45, which may be explored with an attorney for use in an offensive action such as a lawsuit ora defensive action in defense of foreclosure or against a proof of claim in Bankruptey. Also see FTC Act Section 5 analysis by the FTC, Also see story of Dorothy Davis. ‘The Office of the Comptroller of the Currency (OCC) issued a rule in 2003 cautioning banks under its purview to be cautious about accepting loans originated by brokers that may be predatory. The OCC warned banks that they might be subject to liability for disregarding banking controls. ‘The OCC described the heart of predatory lending as “a disregard of basic principles of Joan underwriting," indicating a variety of other marketing practices may make a loan predatory. 11 includes a list of problematic lending practices, which may indicate predatory behavior. The OCC also directed banks to consider creating policies to identify whether loans made involve features associated with predatory lending? In addition to this list, ifthe loan contains violations of other laws, It would help establish the loan is predatory. Each minor and major violation of federal law begins to painta picture of abuse. If several different violations of the law are present, then It may be wise to include predatory lendingas a defense, ‘This loan does appear to contain terms that would be considered unconscionable or predatory, but the facts surrounding the loan's consummation are not fully clear as no loan application appears, a. ‘The way stated Income was used, on a prepayment penalty loan, ona negatively amortized loan, that was rapidly serial refinanced for equity strippingappears unconscionable. Especially combined with fraudulent disclosure of the interest rate and negative amortization, and cash aut to pay for a life insurance policy. 1, The following are unconscionability factors. a. The following.are procedural unconscionability factors, You should evaluate all factors for this loan, Those that are evident from the documents and questionnaire are bolded here: S OCC Advisory Later Al. 2003-2. id. (List quoted from advisory opinion) Id. (List quoted trom advisry opintor.) 32 | 2007. Z016 MORTGAGE FRAUD EXAMINERSi. The education, intelligence, business acumen and experience of the borrower. li, The age of the borrower. * iii, ‘The inability of the borrower to understand or read the language of the contract. (Such as Spanish speakers.) iv. Any disabilities the borrower may have, especially these that may impair the ability for the borrower to understand the contract's terms. v. The sales process being conducted in a language other than the language of the contract, (Sale in French, papers are presented in English.) ‘The closing conducted in English without an interpreter present. ‘The relative bargaining power of the parties, Adverse construction of the language of the contract. ; Manipulation of the rules. ‘The manner in which the contract was formed. Lack of disclasures at closing. xi, Whether the terms of the contract were possible. iL Whether the seller or lender knowingly took advantage of the consumer's inability to protect his or her interests. Oppressive terms. Last minute hikes in the terms. Failure to provide accurate initial Good Faith Estimate or disclosures, xvi. Refinance deception with respect to promising lower payments but actually: + New payments don’t include taxes or insurance. + Number of new payments much larger. + Total period of repayment, thus total payments greater interest payments. avi. Ifadvertisements run afoul of federal guidelines on deceptive statements, 2, The following are substantive unconscionability factors. You should evaluate all factors for this loan. Those that are evident from the documents and questionnaire are bolded here: i, Relative fairness of the obligations. Oppressive terms. ‘Overall imbalance of the obligations and rights imposed by the contract. iv. Significant price disparities. ¥y. Inability of the consumer to receive substantial benefits from the transaction. "See AARP “Subprime Mortgage Lending and Older Americans,” (Macch 2061} (predatory lending practices often are targeted atolder horacowners}, available at hthy,// wwwresearch.aarp.org/consunse/M4S7_lerding Wu a \6 MORTGAGE FRAUD EXAMINERSa, cyan 3, The following are predatory lending factors as described. You should evaluate all factors for this loan. Those that are evident from the documents and ‘questionnaire are bolded here: b. kk. Negative amort 0007: 2014 MORTEA: 2 Gross disparity between other loans on the market that like situated consumers could obtain, versus the one this consumer entered into, Loan amount was much larger than normal due to fraud. vii. Notoffering to qualify the homeowner for lower mortgage terms at a lower cost instead of going “stated” income. Vil ‘The Income differences between the application form (Document No, 1003) and the tax returns of the borrower may be significant, ix. The fender may have filled out the application, nat the borrower. x. Using 2 No Income No Asset (NINA), Stated Income Stated Asset (SISA), or like program instead of qualifying the borrower at the payment amount he or she cauld afford. xi. Using an adjustable rate product when a fixed rate product was available, especially if used in conjunction with a NINA or SISA program to loan more maney, (Remember, brokers are paid on loan sizes, which is an incentive to-secure the biggest loan possible). xil, The loan has a negative amortization schedule (loan size increases ‘over time). xlll, The failure ofthe lender to carefully evaluate the repayment cajpabilities of the borrower. “Packing” of excessive and sometimes *hidden” fees in the amount financed; Using loan terms or structures - such as negative amortization - to make it more difficult or impossible for borrowers to reduce or repay their indebtedness; Using balloon payments to conceal the true burden of the financing and ta force borrowers into costly refinancing transactions or foreclosures; ‘Targeting inappropriate or excessively expensive credit products ta older borrowers,*10 persons whe are not financially sophisticated or who may be otherwise vulnerable to abusive practices, and to persons who could qualify for mainstream credit products and terms; Inadequate disclosure of the true casts, risks and, where necessary, appropriateness to the borrower of loan transactions; ‘The use of mandatory arbitration clauses. Frequent, sequential refinance! Rates higher than what the borrower qualifies for, Refinancings of special subsidized mortgages that contain terms favorable to the borrower; Single-premium eredit life insurance or similar products: ation | See AARP “Subprime Mortgage tending and Ohler Americans (Maveh 2001) (predatory lending practices oftenare tamgeted | colder homeowners), avaible at http, /wwwnevearch aarp org/consuine/4A37, fending he 34 AUD BXAMINERSBalloon payments in short-term transactions; (2!) . Prepayment penalties that are not limited to the early years of loan; 1 m ‘1, Financing points, fees, penalties, and other charges; ‘©. Interest rate increases upon default; p. Making loans subject to HOEPA. 35 ©2007. 2016 MORTGAGE FRAUD EXAMINERSSTATED INCOME/ASSET--NO INCOME/ASSET “Stated Income Stated Asset” (SISA) and "No Income No Asset” (NINA) loans are loans whereby the income or assets are not verified by the lender (or verification is minimal). As the names imply, “stated” income means the borrower, states his. or her income to the bank and the bank believes him. These loans were originally designed to help Upped workers and self-employed individuals qualify for mortgages without using tax returns or other customary financial verification methods. However, the loans became @ source of abuse when originators began using SISA and NINA to approve borrowers with little actual ability to substantiate their income, Additionally, when borrowers: want bigger hames, SISA and NINA could be used to secure loan approvals for loans otherwise turned-down, SISA loans usually have an employer stated on the application and an income amount stated. Assets in SISA loans are also stated, whether or not the assets actually exist, (In practice, assets are usually verified, even ifincome is not). Whereas SISA loans required the employer and income be stated on the application, NINAloans were left blank. The employer, income, and asset sections contained no information during the underwriting process. | SISA and NINA loans were very common in the mortgage industry between about 2000- 2007, These loans.are not per-se illegal, but the federal government issued a “final guidance” letter on October 4, 2006 outlining actions bank holding companies.and insured financial institutions should take to ensure borrower income and assets were properly reviewed.!° The letter was jointly issued by the Department of Treasury Office ofthe Comptroller of the Currency (OCC), Federal Reserve System (FRS), Federal Deposit Insurance Corporation (FDIC), Department of the Treasury Office of Thrift, Supervision (OTS), and the National Credit Union Administration (NCUA). The revisions to TILA that passed in July 2008 eliminate sub-prime lenders ability to use SISA and NINA loan programs. TILA now requires all loans that have an interest rate over 1.5% of the prime rate index (effectively all sub-prime loans) have verified income and assets.!! When brought up by lenders, stated income fraud is breach of the borrower's agreement to provide accurate Information as part of the mortgage contract process. If this is brought up, you may look to see if the lender reasonably relied on the stated income and suffered damages, such as verifying if the lender had a process of reviewing stated Interagency Guidanee an Nontraditional Mortgage Product Risks.71FRSGO09, Ako, se the Statement on Subprime Morigage Lendiag, 72 FR37569-01. On Jane 7,2006 the Conference of State Bank Supervisars (CSBS) and the Anverican Association of Residential Mortgage Regulators (AARMR) anounced thei intent to develop parallel guidelines. Available at tpi /twure ll stated. inane ontradmoregage htm, CERS 2263400100) 36 (©2007. 2016 MORTGAGE FRAUD EXAMINERSincome loans for accuracy. Most lenders required signing of the IRS 4506 or 4506T at closing, but never relied or had a process to execute or review the tax information."2 1. Ifthe borrower clearly had no way of paying back a loan and the loan was SISA or NINA, look to the following defenses: fraud, unconscionability, misrepresentation, and negligence, Additionally, SISA and NINA loans that adversely affected the ‘borrower would be factors in a predatory lending defense. Fraud here can also implicate bank fraud, wire fraud, and mail fraud, giving rise to RICO claims. This appears to be the case here, although there is a question of fact as to how borrower's income structure existed at the time of origination. ‘See Salient Facts.as to income analysis. Stated income was used, but the payments appear roughly affordable, P MCCLOSKEY. EF ALY. NOWASTAR MORIGACIEAINC. or tn ee Hill (City National Bank v. Hi Read more at mipi/www-caleulatedrstbloy con'2008/0%/bL,judge-ruteseated-inceme-haloc- eb him 7TdxCwbFPU ceri. 99 hip www pacd uscourts gowidocument¢opinions!O7D014AP pdf a7 ©2007. 2014 MORTGAGE FRAUD EXAMINERS.TRUTH IN LENDING ACT AND REGULATION Z ‘The ‘Truth inLending Act (TILA 15 USC § 1604 et seq.) is implemented by the Board of Governors of the Federal Reserve System's Regulation 7 (12 CFR Part 226). A principal purpose of TILA is to promote the informed use of consumer credit by requiring disclosures about its terms and cost. It gives consumers the right to cancel certain credit transactions that involve a lien on a consumer's principal dwelling. Regulation Zalso prohibits specific acts and practices in connection with an extension of credit secured by a consumer's dwelling, Violations of TILA and its implementation Regulation Z give rise to strict liability, so there is no “technical” violation of TILA that does not create liability." One significant remedy under TILA is rescission. Rescission under TILA is made available for specific ‘errors, within a time frame of three years, and only for non-purchase owner occupant refinances, |A creditor who falls to comply with any requirement imposed under TILA is able in an amount equal to the sum of the following: 1) any actual damage sustained by such a person as a result of the failure, and 2) damages not less than $200 or greater than ‘$2,000 if the home loan |s not a home equity loan." Recovery is not cumulative, so the borrower is only able to recover for ane set of damages (even ifthere are multiple disclosure failures).! ‘The statute of limitations to prosecute a regular TILA violation is one year. If the loan goes into foreclosure, a TILA violation may be used as offset against the judgment sought. This may reduce the amount of any deficiency judgment or default claim. See 15 U.S.C. § 1640 for civil liability under TILA and its use under section (k) Defense to Foreclosure, See 15 U.S.C. § 1640 for civil liability under TILA and its use under section, (k) Defense to Foreclosure. When ownership of a mortgage is sold or otherwise transferred, 15 USC 1641 provides Hability to assignees of mortgages for TILA violations of previous owners, and requires a disclosure to be provided to the borrower identifying the new owner. Regulation Z was amended’ to apply to applications October 1, 2009 by adding 12 CER. 226.25 to include special protections for higher-priced loans. The threshold for a higher price loan was set above the average Freddie Mac Primary Mortgage Market Survey rate by 1.5% for first and 3.5% for subordinate lien mortgages. HELOCS, reverse mortgage, and construction loans are exempted from this section. Effective April 1, 2014, threshold of 2.5% applies to Jumbo loan amounts exceeding the maximum conforming loan Freddie Mac Joan limit, * tan Notte Fiancol Services Carp 381 F.Supp 24829 (ND: I, 2004, "ISU8C 4 160K, 2) *ISUSC § 16H) ny ine gp Rove’ kieER-308:017-30-pA(YER: [6400 gulf 38 ©2007. 2016 MORTGAGE FRA AMINERS‘Maine, Connecticut, Massachusetts, Oklahoma, and Wyoming all have state versions of the Truth in Lending Act*”. State Truth in Lending requirements generally only apply to state licensed and state regulated institutions, as they are generally preempted by federal regulation for federally regulated institutions. 1. The "material disclosures" given by TILA do appear te have been given. Footnote 48 of TILA states the term "material disclosures" means the required disclosures of the annual percentage rate, the finance charge, the amount financed, the total of payments, the payment schedule, and the disclosures and limitations referred to in §§ 226.32(c) and (d) and 226.35(b)(2). | hinp diwwo.nierseat ened commifile SH MCB OnThinisetOOs mit 39RESCISSION UNDER TILA Ina credit transaction in which a security interest Is or will be retained or acquired ina consumer's principal dwelling, each consumer whose ownership interest is or will be | subject to the security interest shall have the right to rescind the transaction, See 15 USC § 1635 and 12. CER. 1926.23, Rescission means the entire mortgage transaction is undone. When a homeowner rescinds the mortgage transaction, the security interest-giving rise te the right of rescission becomes void and the cansumer shall not be liable for any amount, including any finance charge. The consumer!® cannot be required to pay any amount in the form of money or property either to the creditor or to a third party as part of the credit transaction, Any amounts of this nature already paid by the consumer must be refunded, "Any amount” includes finance charges already acerued, as well as other charges, such as broker fees, application and commitment fees, or fees for a title search or appraisal, whether paid to the creditor, paid directly to a third party, or passed on from the creditor te the third party. Its irrelevant that these amounts may not represent profit to the creditor,1? Notwithstanding the above procedures, a court may modify them. However a court's ‘modification of those procedures does not affect a consumer's substantive right to rescind and to have the loan amount adjusted accordingly. Ifthe loan has funded, courts ‘may require the person seeking rescission to allege they will tender, are capable of ‘tendering, or that such equitable circumstances exist that conditioning rescission on any tender would be inappropriate.2* Note: While rescission is available by federal law, state common law may also provide a right to rescind in some cases. For example, most states permit judges to ratify. contracts, strike offending provisions, or rescind contracts when they are unconscionable (see the Predatory Lending section). Each state treats common law defenses and rescission a little differently. While this report covers some common law state defenses, an exhaustive review of state laws is not possible here so local research may be warranted, 1. The right of rescission under TILA expires.after three years. "*Consamer means a cardholder or natural person to whom consumer eredi is offered or extended, However, foe purposes of rosession under §§ 226.15 and 226.23, the term alse includes a aaturl pexson in whove principal dwelling a security interest is or will be retained or acquited, if that person's ownership interest in the dwelling is or wall be subject fo the security interest 52262002) * Mungindia v. Wosingian Mutual Hank, 2009 US, Dis. Levis $1231 *9(ND. Cal June 18, 2004), 40 (22007-2016 MORTGAGE FRAUD ENAMINERSNOTICE OF RIGHT TO RESCIND Ina transaction subject to rescission under TILA, the lender must deliver two copies of | the natice ofthe right to rescind to each homeowner entitled torescind. See 15UISC§ | 1635 and 12 GE,R.§ 102623. The notice shall be on a separate dacument that identifies the transaction and shalll clearly and conspicuously disclose the following: * The retention or acquisition ofa security interest in the consumer's principal dwelling. | | + ‘The consumer's right to rescind the transaction, + How to exercise the right to rescind, with a form for that purpose, designating the address of the creditor's place of business. + The effects of rescission. + The date the rescission period expires. To exercise the right torescind, the consumer shall notify the lender of the rescission by mail, telegram or other means of written communication. Notice is considered given when mailed, when filed for telegraphic transmission or, ifsent by other means, when delivered to the lender's designated place of business. ‘The consumer may exercise the right te rescind until midnight of the third business day | following consummation, delivery of the notice or delivery of all material disclosures, whichever occurs last. If the required notice or material disclosures are nat delivered, the right to rescind shall expire 3 years after consummation, upon transfer of all of the consumer's Interest in the property, or upon sale of the property, whichever occurs first, A signed statement to the effect that the homeowner received the required notices “creates a rebuttable presumption only.*) A borrower cannot sign a decument at closing, stating he or she does not wish to rescind the |oan.2* Additionally, the lender may not provide a correct notice to the borrewer, but contradict the information in the notice contained elsewhere* The following states consider property gained during marriage to be community property: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. In these states, the borrower's spouse likely has a security interest in the transaction, even though they may not be on the note, necessitating the need for the spouse to receive a copy of the notice also, 1, The right of rescission under TILA expires after three years. IS USC. § 1635(0). Bryant v, Mongage Capital Resouree Coap.,2002 U.S, Dist LEX Jam 2002) Rodash v. AIB Mongage Co. 16 F 3d 1142 (| th Cir. 1994), * Jeckins v. Landmark Mige Corp, 696 F Supp. 1089 (W.D Va. 1988); Apaydaa v, Citibank Eederal Savings Bank, 201 BAR, 716, 723-24 (Banks E,D-Pa.1936), 66, at UI-IT (ND. Ga, a ©2007: 2016 MORTGAGE FRAUD EXAMINERSREAL ESTATE SETTLEMENT PROCEDURES ACT & REGULATION X ‘The Real Estate Settlement Procedures Act 12 USC Chapter 27 and its implementation Regulation X by HUD (The Department of Housing and Urban Development) requires lenders, mortgage brokers, or servicers of home loans to provide borrowers with pertinent and timely disclosures regarding the nature and casts af the real estate settlement process. The Act also protects borrowers against certain abusive practices, such as unearned kickbacks, places limitations upon the use of escrow accounts, and requires lenders to respond te qualified written requests, The National Affordable Housing Act of 1990 amended RESPA to require detailed disclosures concerning the transfer, sale, or assignment of mortgage servicing, It also requires disclosures for mortgage escrow accounts at closing and annually thereafter, itemizing the charges to be paid by the borrower and whats paid out of the account by the servicer. 1ZUSC§ 2614 provides civil liability for violations of sections 2605, 2607, and 2608 of RESPA. It also provides.a 3-year statute of limitations for affirmative actions in the case of § 2605, and one year in the cases of 2607 and 2608. Regardless of the statute of limitations for affirmative actions, violations of RESPA may be used as a setoff or defense in foreclosure.”* Section 2605 provides for actual damages and a penalty of up to $2,000 for a pattern of noncompliance, Sections 2607 and 2608 provide liability of three times the amount of settlement services not in compliance with RESPA. There is no liability under RESPA for failing to provide a GFE, CHARM booklet, or the HUD-1 settlement statement prior to 2010, but there is liability under TILA for these violations (subject to TILA’s one year statute of limitations on damages, except for set- off). There may be liability under RESPA for failing to provide the Notice on Servicing | and for paying illegal kickbacks, 2. No RESPA liabilities giving a private right ofaction were observed. BANK NATIONAL TRUST COMPANY, Fl: Dist Court of Appeab, ath Bist. 2012 at MORTHIAGE FRAUD EXAMINERSFAIR DEBT COLLECTION PRACTICES ACT ‘The Fair Debt Collection Practices Act, 15 U.S.C. § 1692, et seq,, (FDCPA) isa law enacted to protect consumers from abusive debt collectors, It provides several layers of protection for consumers, and requires specific disclosures be made within five day's of a debt collector making collections attempts.** It also requires the debt collector take specific steps when an account is disputed,?* and stop collection on a debt when instructed by the consumer.*? However, the horrawer must notify the debt collector in writing before it is required to cease communication.® Regular foreclosure actions by attorneys are often covered under the FDCPA.”” Consumers may bring lawsuits against debt collectors violating the FDCPA, and may ‘obtain damages from the debt collector. Damages may include actual damages costs of the lawsuit, and reasonable attorney's fees”. Actual damages can include compensable credit reputation damages. Such damages may accrue ff, for example, the debt collector publishes incorrect information about the debtor or improperly reports the debt to the Credit Reporting Agencies (CRA). Compensable credit damage may also be present if the debt collector files a report with a CRA after being advised to stop collection actions and communications, See "Compensable Credit Damages” for additional information. ‘The lender may call a borrower directly to collect on its own debt, ifit uses its regular corporate name and is not primarily in the collection business.'t If the lender or servicer changes after the default, the new lender or servicer must comply with the FDCPA.*? The law firm representing the lender must comply with the FOCPA.? The FDCPA kicks in after the borrower goes into default and then contact is initiated by a new servicer, lender, or collection agency. Any communication with the debtor after the debtor informs the debt collector in | writing of his or her desire for ceasing communication is violation ofthe act.“ The debtor should keep track of each communication made by the debt collector, and use this as proof ofan FDCPA violation. Reporting the debt toa CRA after a request to cease ‘communications may also be a violation ofthe FDCPA. |e isuse gion. oi, Suse § 1692/00) 25S § 1692(6) 3 tment sts en opinions alt 300 SUS § lotta) 2 15USC 6 1682(0)6) "id, {1d Mle Pecan, Raymer, Poach Codd, Richoy and Clos LLC, 214 F.3d 872 (Fehr. 2000) Honcever, theta fre doesnot make contact withthe borrower ather than to eth last the Complait snot cansidered anni contac. 15 psc g levis) (pill Also nee discuss 15 USC§ 1692(e)Ea) 3 02007-2016 MORTGAGE FRAUD EXAMINERS‘Additionally, any attorney's fees or other charges imposed by a debt collector that are not expressly authorized in the mortgage violate the FDCPA.* However, the act does not apply to a lender who owned the loan before default. Ifthe lender did not change, and is foreclosing om its own account, then the FDCPA does not apply to it2? However, if the lender changed after the default, then the new lender would need to comply with the act.” Collection agencies must follow the FDCPA whether or not they obtained the debt pre- default. A debt collector who does not comply with the FDCPA is liable in an amount equal to the sum of? * Any actual damage sustained by a violation of the act; * Additional damages up to'$1,000; and + The costs of the action and reasonable-attorney’s fees. + Possible punitive damages.‘° 1, A debt collector may not use any false, deceptive, or misleading representation or means in connection with the collection of any debt. 2. I'this loan has gone into default, verify the servicer or note holder has not changed post-default by calling the current servicer. If either has changed, then. the company contacting the borrower may need to comply with the Fair Debt Collection Practices Act (FDCPA) and may be liable for damages ifit fails to mail the necessary disclosures to the borrower. Note: An action brought in bad faith by the debtor may subject the debtor to the other party's attorney's fees.‘ = 15USC§ 1692(00) MISUSE § 1992(), 27 ChGLAAERy, CHASE HOME FINANCE LLC, Cont of Appts Circ 2008 m6 2a) 16 USCS L692} a). (2}A). 49 FAUSTO ¥, CREDIGY SERVICES CORP, 598 FSupp:24:1049 (2007): McCOLLOUGH v.OHINSON, RODENDERG & LALINGER 587 FSupp.2 1170 (2008) M6 USC § 169D4Ky(0N3) “4 (©2007- 2016 MORTGAGE FRAUD EXAMINERSCONDITIONS PRECEDENT | a*condition precedent” is something that must occur before the lender can start foreclosure or a lawsult for foreclosure, Usually, the Deed of Trust (or Mortgage) will have contractual prerequisites that the lender must mail the borrower, such as an acceleration /defaultletter and wait a certain amount of time before beginning the formal foreclosure. If FHA or VA guarantees the loan, the lender is required to follow other pre-foreclosure steps before foreclosing, These are called "conditions precedent.” Ifthe lender does not comply with the condition precedent, the borrower may seek relief from the courts to stop the foreclosure and require the lender start over. The lender would need to mail the notice, wait the required number of days, and then start with foreclosure again, This type af defense can be used as a stall tactic, but generally cannot defeat the entire action, unless your state has. civil rule similar to Federal Rule 41(a)(1)(B) and a courthas previously dismissed the foreclosure, Thatrule governs multiple dismissals acting as adjudication on the merits. (Federal Rule 41(b). 1, Covenant 22 of the Deed of Trust/ Section 7 Note typically creates a conditions precedent to any foreclosure action. The condition requires 30 days notice before accelerating the loan and foreclosing, Local law may provide for additional conditions precedent prior to foreclosing. 2. NO'TE: A mortgage lender which received TARP funds, or which voluntarily signed up for President Obama's HAMP program, must suspend a foreclosure action while a borrower's mortgage modification application is pending. 3. HAMPis the modification program ofthe Home Affordable Plan, (HARP is the refinance program.) Lenders can sign up to participate. Banks, which received TARP (Troubled Asset Relief Program) automatically “volunteered” for the HAMP. program. 4, The HAMP contract with the United States Treasury requires that all Treasury guidelines be followed, including this one which states that “Any foreclosure: action will be temporarily suspended during the trial period, or while borrowers are considered for alternative foreclosure prevention options.” #* 5, Since Treasury recognizes that the MHA program will not help every at-risk homeowner or prevent all foreclosures, Treasury developed the Foreclosure Alternatives Program, an additional MHA program to help homeowners facing foreclosure. Here are the lies Of LAU rocipients (money paid unde. Capital Kutchase Contracts} abd LAM wacticipants *1See Page 3 of Home Alfordabe Meuhfication Program Guidelines dated barch 4.2902 45 (©2607. 204 6 MORTGAGE FRAUD EXAMINERS6, Prior to resorting to foreclosure, servicers participating in HAMP must evaluate eligible borrowers todetermine if a short sale is appropriate. Therefore, no foreclosure sale can occur during the agreed-upon marketing period, provided that the borrower is making good-faith efforts to sell the property. 7, Section 106(c) (5) of the Housing and Urban Development Act of 1968 (the Act) (42 U.S.C. 1704x (c) (5)) provides for homeownership counseling notification by creditors to eligible homeowners.‘ The contents of the notice must: « Notify the homeowner of the availability of any homeownership counseling offered by the creditor; and + Provide either a list of HUD-approved nonprofit homeownership counseling organizations or the toll-free number HUD has established through which a list of such organizations may be obtained. ‘See: http://www. fdic.gov/regulations/compliance /handbeok/manual%20251- 2SZ.pat 8, Bankruptcy does not prevent loan modification under many programs, including HAMP. Note: Many states have HAMP and HAFA type programs, so make sure to check local 9. FHA loans also require a face-to-face interview prior to foreclosure as per regulations by HUD. US Department ofthe Treasury, Secretaries Geithner, onovan Announce new Details of Making Heme Affordable Program, Highlight Inplementation Progress (May 14,2009) (ooline at bt. //wwarKreas coy press /neleasestaU\ htm * etre lati emt vmmary judgment in orelonur, it ‘xtablah tha thy ar epi ther factually eft the logo afr atve dofouse oF leat wo defeat wuasrary judgment” Fras + Regions Bont. 34 Fla L. Weekly, DIST (Flat DCA Aug. $2009) Karght Energy Services) Amoco Oi Campany, 660 Sa. 24 7X6, THX (Fla 8" DCA 1995), Any substantial deviation froma the requirements may ercalc on equitable wfVirmixe defense. Crnisv Feakal National Moragage Assosiuton, 38% Se.2d 464 (Fla. DCA 197%), 46 ©2007. 2014 MORTGA IRAU DD FKARTINERSENFORCEMENT RIGHTS OF NOTES ‘The promissory note found in almost all mortgage transactions is usually a negotiable ‘instrument.‘¢ Permanent Editorial Board (PEB) for the Uniform Commercial Code Article 3 of the UCC governs negotiable instrument transfers including real estate notes. 7 (Contract law governs when the notes are not negotiable.) While all 50 states have adopted portions of the UCC, net all have adopted it exactly, You will want to review your states adoption of the UCC. § 3-104, NEGOTIABLE INSTRUMENT, (a) Except as provided in subsections (¢) and (d), “negotiable instrument” means an unconditional promise or order to pay a fixed amount of money, with or without interest or other charges described in the promise or order, ifit: (1) Is payable to bearer or to order atthe time itis issued or first comes into possession of a holder: (2) ls payable on demand or ata definite time; and (3) Does not state any other undertaking or instruction by the person promising or ordering payment to do any act in addition to the payment of money, but the promise or order may contain (1) an undertaking or power to give, maintain, or protect collateral to secure payment, (ii) an authorization or power to the holder to confess judgment or realize on or dispose of | callateral, or (iii) a waiver of the benefit of any law intended for the advantage or protection of an obligor. I the lender sells a note to another party, that party must establish it Is a person holding rights to enforce the note in order to take action against the borrawer, such as: foreclosure and filing proof of claims in bankruptcy. To establish enforcement rights, a person must meet one of the requirements of UCC 3-301, U.C.C.- ARTICLE 3 -§3-201, "Person entitled to enforce” an instrument means (1) the holder of the instrument, (ii) a nonholder in possession of the instrument who has the rights ofa holder, or (iil) a person not in possession of the instrument who is entitled to enforce the instrument pursuant to Section 3-309 or 3- 418(d), A person may be a person entitled to enforce the instrument even though the person is not the owner of the instrument or is in wrongful possession of the instrument. U.C.C - ARTICLE 1 § 1-201 General Definitions, Article 3. UCCHS 3-104, 102, “"uce 3-102, “7 ©2007. 2016 MORTGAGE FRAUD EXAMIN(20) “Holder” with respect to a negotiable instrument, means the person In possession ifthe instrument is payable to bearer or; in the case of an instrument payable to an identified person, if the identified person is in possession. "Holder" with respect ta a document of title means the person in possession if the goods are deliverable to bearer or to the order of the person in possession. ‘Te be the instrument holder, the person must have physical possession of the note plus have the note in the holder’s name, indorsed to the holder, or indorsed in blank.4°* ‘Many mortgage backed securities trusts and trustees are not holders, as they (or their agents) were never delivered an endorsed note. Non-holders in possession who has the rights of a holder are normally servicers. Holders may give possession of the physical note alone without endorsement to Servicers or agents to represent the holders on their behalf. This gives those servicers ‘or agents non-holder in possession with rights to enforce. That person must hold proof ‘of rightful possession." Non-holders in possession may also include parties wha can prove by written agreement that they are or were entitled to indorsement, but just did not get around to it! Many mortgage-backed securities do not list purchased mortgages and therefore could not prove non-holder in possession with rights of a holder. As a practical litigation matter, a previous written agreement between third parties would likely not be admissible as evidence (hearsay) without authentication fram one of those parties, Evidence in the trust documents that a party with enforcement rights transferred the particular note in question into itis normally sufficient. Section 3-309 involves enforcement of lost nates. Section 3-418(d) involves instruments not in physical possession because they were negotiated, but the negotiation was reversed due to payment failure or mistake. If the foreclosing party is seeking to-enforce a lost note for any reason, review the complaint for compliance with these sections. § 3-201. NEGOTIATION. (a) "Negotiation" means. transfer of possession, whether voluntary or involuntary, of an instrument by a person other than the issuer toa person ‘who thereby becomes Its holder. (b) Except for negotiation by a remitter, (fan instrument is payable to an identified person, negotiation requires transfer of possession of the instrument and its indorsement by the holder. Ifan instrument is payable to bearer, it may be negotiated by transfer of possession alone. “Joc 1-204 (21) frevised): UCC 3-901; In re Wells 407 B., 87, Yoo 3-201 emt L J€C§ 3-012): Citizens Fedcrat Savings and Loan Assoc. of Dayton v Core lavestments, 78 Ohio App 34.284, 287 (10th (879 ($.D. Obie BR, 2000), a (©2007. 2014 MORTEAGE PHAUD EXAMINERS.Negotiation is the method by which transfer of holder status occurs. Notes are normally indorsed in blank to bearer or indorsed toa specific entity. Indorsing a note in blank causes the note to give holder status to the bearer.!2*Indorsed,” means any symbol* on the note that is made for the purpose of negotiating the note.'4, The most common indorsements are stamps of executive signatures by workers with power of attorney to provide the stamp, In some states, transfer of possession must be physical,** while in others constructive (intent) delivery is sufficient Article 9 of the UCC allows transfer by an agreement or sales contract. This requires (1) value has been given for the purchase; (2) the seller to have rights in the note or te transfer rights to the note to the buyer, and (3) possession by buyer of the physical note or of receipt of sale by seller. Transfer by this method does not require endorsement of the note. Transfer of the Note under Article 9 also transfers the security instrument (mortgage or Deed of Trust). | When space runs out on the note for making indorsements, a piece of paper may be attached to the note to record further indorsements. This extra piece af paper is called an “allonge” and must be firmly attached (o the note (o be legally effective.” Each transfer should be reflected on the note as a separate Indorsement, The last page of the note should be filled with indorsements reflecting each transfer, or have an allonge firmly attached to it with whatever indorsements could not fit on the note itself.s* 1. Review the original note and ensure that the signature on itis the original signature (not a color copy). Review any note filed with the courts and obtained a copy by Qualified Written Request for review of any negotiation, 2, The borrower can demand presentation of the actual note when the lender makes a demand to enforce it through presentment. The borrower can demand ta 1) exhibit the note, ji) give reasonable identification and authority of right to enforce if dane on behalf of another, and iii) to sign the instrumentas paid when paid.* A note is paid to the extent that payment is made to.a person entitled to Court, D. New lersey 2010 S. Neviasinr Marts. ic, 862 So, 2d 793 - Fla: Dist. Court of Appeals, th Dist, 2003 57 UGC 3-202 {2}4°An indorsement must be witien by or on behalf af the holder und on the instrument or ona paper #9 firmly-sffixed therete aso become a part thereof"); In Re Welle, 2009 WI. 1740675 (Bnkr.D. Ohio 2009), Cresstand Sav ‘Bank FSB v. Constant, 737 SW 2d 19 (Tex App. 1987)-(The courts are split concerning whether stapling an Indorsetnent to a ote constitutes "firm altxation” under the UCE.") Soe generally, Hawikand & Lawrence, UCC Series 3-02.08 (Art $) (1984 & Supp 1906), Annot. 19 AL 34 1297 (19968). 50 yocg 2-202 (2). |? uces-soxreya) bard 9 #02007. 2016 MORTGAGE FRAUD EXAMINERSenforce the instrument. 3, Ifthe bank claims the note is lost it must comply with UCC 3-309 or 3-418(d). 4, Ifthe original note is not endorsed to the party claiming ownership, and that party is trying to enforce it as an owner, it is possible that the note was sold and securitized under Article 9. You will want to review Lf they file proof of ownership with any action. 5. If the original note is not endorsed to the party claiming ownership and a servicer | or other party is trying to enforce it you will want to review if they file proof of the right to enforce it by UCC and power of attorney of the rightful owner, which may or may not include bylaws of the mortgage backed securities trust. 6. Ina foreclosure lawsuit, this may require the restarting of the foreclosure proceeding once the paperwork is in order.*? Therefore, if this is brought up outside of bankruptcy, it may only stall the foreclosure process. 7. In bankruptcy, this may lead to the investor or mortgage backed securities trust being unable to prove a.claim and having the mortgage discharged. 8, Due to different adoptions of the UCC in different states, consult your local attorney. 9. To determine if Freddie Mac owns your loan visit https: //vw3.freddicmac.com/corporate/. To check Fannie Mae, visit huty://loanlookup.fanniemae,com /loantookups- * Uer3.602{a). ® Hank of New Vork. Raftosianis, 13 A, 34.435 - NU: Superior Court, Chancery Div, 2010 © See IN RI MATTER OF KEMP, Bankr, Coun, D, New Fersey 2010 vs. IN RE WALKER, Bankr. Couia, ED, Pennsylvania 2012 80 | 2007. 2016 MORTGAGE FRAUD EXAMINERSHOLDER IN DUE COURSE ‘The Holder in Due Course Doctrine is often misunderstood. This doctrine does not preventa lender from enforcing the note or foreclosing on the property owner. Instead, ‘when the doctrine is applied, it protects the enforcinglender from certain defenses the homeowner would have against the original lender.“ If the lender is a holder in due course, then itis safe from defenses that the homeowner could have brought against the original lender under simple contract law. A holder in due course is protected from a claim in recoupment that the borrower could have broughtagainst the original lender (Consumer defenses excepted). The defenses left to the property owner, with respect to defenses the homeowner would have had against the original lender, are those found in UCC§ 3-305(a)(1): defenses based on infancy (under the age to contract, usually 18), duress, lack of capacity, illegality of the transaction, fraud that induced the obligor to sign the note, or discharged due to bankruptey or insolvency praceedings. ‘The holder in due course doctrine does NOT protect alender from TILA and other statutory defenses available to consumers. This doctrine is fairly limited in its protection, and relates specifically to regular contract defenses that would have been available against the original lender or mortgage broker. ithe lender claims to be a holder in due course, it must comply with UCC§ 3-302. That section roughly requires that the lender foreclosing took the note 1) for value, 2) in good faith, and 3) without knowtedge of the default, dishonor, or any defenses or claims. raised by the homeowner.‘ Practically speaking, this means the party foreclosing must have acquired the note prior to the homeowner's default. It means the new | party lender took the note with value, meaning it paid something in return for obtaining the note, usually money. If the property owner is in foreclosure and the party foreclosing claimsto be a holder in due course, then conduct thorough discavery to establish when the note was transferred | and how much money was paid courts acquisition. You will likely find the party /lender foreclosing will be extremely uncomfortable answering questions about how much was paid to acquire the note, which is obviously helpful for the borrower. 1. Ifhe lender here is claiming to be a holder in due course of this note/loan. Thus, ensure that they prove that they obtained the note 1) for value, 2) in good faith, ‘and 3) without knowledge of the default, dishonor, or any defenses or claims raised by the homeowner. Discovery is key: what day, specifically, the party obtained the note and what they paid. ssuccga-308 “Sucegs-aoztay(a | 51 | e200. 2016 Mareniads FRAtID EXAMINERS |MORTGAGE ELECTRONIC REGISTRATION SYSTEMS ———————— MERS stands for Mortgage Electronic Registration Systems, Inc. MERS began as a project in October 1993 when Fannie Mae, Freddie Mac, and Ginnie Mae produced a White Paper about the need for an electronic mortgage registration system, and the MERS acronym was coined soon thereafter. The Mortgage Bankers Association got involved and MERS was incorporated in October 1995, MERS awarded a contract to Electronic Data Systems (EDS) to develop and service the technology systems, and MERS was officially launched in April 1997.5" ‘The MERS® System Is a national electronic database that tracks changes in mortgage servicing rights and beneficial ownership interests in loans secured by residential real estate, It is a member-based organization made up of about 3,000 lenders, servicers, sub-servicers, investors and government institutions, Mortgage Electronic Registration Systems, Inc, (MERS) serves as the mortgagee in the land records for loans registered on the MERS® System, and is a nominee (or agent) for the owner of the promissory note. 1, Checking MERS website at htip://www.mers-servicerid.org indicates this property does not have an active MERS record, but they may have more information as to the Note holder history. ter Foie sume CA 4 amcetes 2. Please note that this finding is not determinative and any lawsuit involving the lender should include discovery to determine MERS rele, ifany. "Vex There alien MIS" Retrieved March 12, 212 52 (© 2007- 2016 MORTGAGE FRAUD EXAMINERSCREDIT REPUTATION DAMAGES Upon determining that there has been a statutory violation, legal error, contract breach, or tortious conduct regarding the foreclosure, economic damage may have been inflicted on the home owner(s) as evidenced by the remarks in subscriber credit reports and erosion of the credit scores. This type of damage typically changes the value ofa case by many thousands of dollars: Credit damages are not a gencral cause ofaction, but damages associated with a violation of a Federal or State law, such as the Fair Credit Reporting Act are, In some cases, a claim also may be made for breach of contract, intentional interference with credit expectancy, fraud, or defamation, Ina recent San Diego case the jury awarded approximately $6,000,000 for loss of credit reputation. An Orange county, CA a bench trial resulted in a $930,000 ruling in favor of the plaintiff for violations of the FCRA. Smaller amounts may be awarded based on the merits of the case. | The injured person need not have perfect credit in order to qualify for credit damages. If | it can be documented that the person has credit, although less than perfect, and that credit is diminished as a result of the wrong of another, a case for credit damages can be ‘made, The critical inquiry is whether the injured person's credit status was changed | detrimentally as the result of the wrongful act of another. An injured person might have substantial credit damages even without perfect credit at the time of injury. ‘Creditworthiness is determined by a creditor’s underwriting department, which determines the probability that the credit applicant will meet debt obligations ina timely fashion. Someone who is deemed likely to satisfy debt obligations is creditworthy ‘while someone who is more likely to default isa greater credit risk and not creditworthy. Thus someone who is considered creditworthy prior to injury to eredit by the wrongful act of another and not creditworthy after occurrence of the injury has peers credit damage, | Credit Damage consists of three distinct types of damages, including actual increased | costs, loss of credit capacity, and loss of credit expectancy. These are further defined as | follows: i ACTUAL INCREASED OUT-OF-POCKET COSTS Increased rates - higher interest, access to less advantageous programs Increased cost of credit ~ higher points on loans, larger down payments Attorney fees for the claims Increased dollars per month - this increase comes from the higher rate caused hy a lower credit rating or "score," and can sometimes extend for the life of the loans 53 | 102007: 2016 MORTGAGE FRAUD EXAMINERS.General special damages allowed: Mental anguish Inconvenience Lack of confidence Cannot be due to Plaintiff's actions (self-caused) Cannot be due to general market conditions (¢.g., a general interest rates: | rise) CREDIT CAPAPCITY * Loss of credit - the inability to borrow at all CREDIT EXPECTANCY * Develops when a borrower could apply for credit and have a reasonable chance of getting it’? * Expectation is “the act of looking forward" or “the prospect of receiving.” + ‘To have valid credit expectancy one need not have a formal contract. *” + There must be, however, a reasonable expectation of obtaining credit. This ‘expectancy cannot be too indefinite or remote. 74 * Its essential that a credit damage expert be engaged in determining the ‘extent of the damages bath in review of the possible claims and as an expert witness. 72 * Shuman v. Sundard OF Co, 453 F Supp, 1150, 1154 (ND Cal 1978) ‘fucks Law Dictionary, Zod ition, 2006 * American Bank of Princeton v Stiles, 731 W 24332, 343 (Mo. App. 1987) ® Kilian Cocstroction v. Jack D, Ball & Associates, 65 S.W.24 880, £91 (Mo. App. 1993) *.Genovess v, DCA Food Industries, Ine, 911 F. Sopp. 378, 380 (ED, Ma. 1996), * sone eneditdamageespent com, sa | ©2007-2016 MORTUAGE FRAUD EXAMINERS.