Case File New York Supr Ct Amended Complaint in Re Knights of Columbus v Bonym

8/6/2019 Case File New York Supr Ct Amended Complaint in Re Knights of Columbus v Bonym

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SUPREME COURT OF THE STATE OF NEW YORKCOUNTY OF NEW YORK-------------------------------------------------------X

)KNIGHTS OF COLUMBUS, )

) Index No. 651442/2011Plaintiff, )) Kornreich, J.

v. )) AMENDED COMPLAINT

THE BANK OF NEW YORK MELLON, ))

Defendant. ))

-------------------------------------------------------X

Plaintiff Knights of Columbus, by their attorneys Peter N. Tsapatsaris LLC and

Talcott Franklin P.C., for their Amended Complaint against Defendant The Bank of New

York Mellon, allege the following:

SUMMARY

1. This action originally requested the Court to order an immediate accounting oftwo trusts known as CWALT 2005-6CB and CWALT 2006-6CB. These trusts hold

residential mortgage loans for the benefit of investors such as Plaintiff. The original

Complaint was not directed at the Defendant Trustee, but information obtained after the

filing of the Complaint demonstrates that the Defendant Trustee has violated its

contractual and other obligations to Plaintiff. Accordingly, Plaintiff seeks to hold the

Defendant Trustee liable for Plaintiffs damages in all of the following trusts: CWALT

2004-2CB, CWALT 2005-3CB, CWALT 2005-6CB, CWALT 2006-6CB, CWALT

2006-19CB, CWALT 2006-25CB, CWALT 2006-31CB, CWALT 2006-32CB, CWALT

2007-2CB, CWALT 2007-4CB, CWALT 2007-16CB, CWHL 2003-4, CWHL 2003-18,

ILED: NEW YORK COUNTY CLERK 08/16/2011 INDEX NO. 651442/

YSCEF DOC. NO. 20 RECEIVED NYSCEF: 08/16/


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CWHL 2004-14, CWHL 2005-17, CWHL 2005-26, CWHL 2005-30, and CWHL

2006-6.

2. Plaintiff also seeks an accounting concerning the actions of the Defendant Trusteeregarding all of the above-listed Trusts.

3. On June 29, 2011, without Plaintiffs knowledge or consent, Defendantcommenced an Article 77 proceeding in this Court (before Justice Kapnick) (the

Settlement Action) that purports to settle all of Plaintiffs claims against Bank of

America and its affiliates (the Proposed Settlement Agreement). Notably, the Proposed

Settlement Agreement does not purport to release any of Plaintiffs claims against

Defendant, other than those regarding Defendants entry into the Proposed Settlement

Agreement.

4. Plaintiff continues to seek an accounting as to the actions of Bank of America andits affiliates, but agrees that those claims could be affected by the Courts approval of the

Proposed Settlement Agreement. Accordingly, Plaintiff has no choice but to intervene in

the Settlement Action to express its views on the Proposed Settlement Agreement,

particularly in light of Defendants recent Motion to Transfer or Stay this action, filed

July 20, 2011. In the event the Proposed Settlement Agreement is not approved or is

modified to exempt Plaintiffs claims against Bank of America and its affiliates, Plaintiff

preserves those claims by pleading them here.

5. An accounting is required because one or more of the Trust administrators have:(1) been examined by the Office of Comptroller of the Currency, the Office of Thrift

Supervision, the Federal Deposit Insurance Corporation, and the Federal Reserve Board,

which found critical deficiencies and shortcomings in foreclosure governance processes,


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foreclosure document preparation processes, and oversight and monitoring of third party

law firms and vendors; (2) been found by the Office of the Comptroller of the Currency

to have engaged in unsafe or unsound banking practices [i]n connection with certain

foreclosures of loans in its residential mortgage servicing portfolio, which is subjecting

each Trust to unknown costs and expenses; (3) been accused by the City of Buffalo,

among others, for failing to properly care for and dispose of unoccupied properties,

contributing to the deterioration of neighborhoods and increasing losses to the Trusts

beneficiaries; (4) been accused by the Federal Trade Commission of engaging in a

deliberate strategy to mark up the actual cost of services that are ultimately paid by

each Trust; (5) been exposed by AMERICAN BANKER for using affiliates to place on

homes insurance costing up to ten times the price of regular policies, which premiums are

ultimately charged to the beneficiaries of each Trust; and (6) had a court find that a

practice that an employee of a Trust administrator testified under oath was customary

precluded a similar trust from enforcing its rights under a mortgage.

THE PARTIES

6. Plaintiff, Knights of Columbus, is a fraternal benefit society organized andexisting under the laws of the State of Connecticut. Plaintiffs principal place of business

is 1 Columbus Plaza, New Haven, Connecticut 06510. Plaintiff owns a beneficial interest

in each Trust in the form of certificates issued for each Trust in the manner described

below.

7. Defendant, The Bank of New York Mellon, formerly named The Bank of NewYork, is a New York state chartered bank with trust powers with its principal place of


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business located at One Wall Street, New York, NY 10286. Defendant serves as Trustee

for each Trust, as described below.

8. Defendants Chairman and Chief Executive Officer described Defendantsbusiness model in his February 11, 2009 testimony before the House Financial Services

Committee as follows:

The business model of The Bank of New York Mellon is very different from atraditional retail or commercial or investment bank. In contrast to most of theother companies here today, our business model does not focus on the broad retailmarket or products such as mortgages, credit cards or auto loans. Nor do we evendo typical lending to corporate businesses. A good way to think of The Bank of New York Mellon is that we are a bank for banks. The lions share of our

business is dedicated to helping other financial institutions around the world.

JURISDICTION AND VENUE

9. The Court has jurisdiction over this proceeding pursuant to CPLR 301 and 302.The Bank of New York Mellon is a New York state charted bank with its principal place

of business in the City of New York. Each Trust is a New York Trust formed under the

laws of the State of New York. The Bank of New York Mellon participated in the

transaction, the formation of each Trust, and other activities within the State that led to

the events forming the basis of this Complaint.

10. Venue is proper in this Court pursuant to CPLR 503(c) and 506. The Bank ofNew York Mellons principal office is located at One Wall Street, New York, NY 10286.

BACKGROUNDTHE KNIGHTS OF COLUMBUS

11. The Knights of Columbus (the Knights or Plaintiff), the worlds largestCatholic family fraternal service organization, was chartered as a fraternal benefit society

by the Connecticut state legislature in 1882 to further its mission of rendering financial

aid to sick, disabled, and needy members. Founded on the principles of charity, unity,


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patriotism, and fraternity, the Knights promote social and intellectual fellowship among

its members and their families through educational, charitable, religious, social welfare,

war relief, and public relief works. Membership in the Knights is open to men 18 years

of age or older who are practicing Catholics and are committed to supporting the Catholic

Church and making their community a better place. The Order has been called the

strong right arm of the Church and has been praised by popes, presidents, and other

world leaders for support of the Church, civic involvement, and aid to those in need. In

2008, the Holy See gave the founder of the Knights, parish priest Father Michael J.

McGivney, the title Venerable Servant of God, which marks an important step on the

journey to his beatification and canonization.

12. In 2009, the Knights raised and donated more than $151 million to charitableneeds and projects, and members volunteered more than 69 million hours of their time to

charitable initiatives including 227,900 hours to Habitat for Humanity. In the last decade,

the Knights have donated more than $1.367 billion to charity and provided nearly 640

million service hours. The charitable work performed by the Knights is vast and varied

and includes disaster relief in Japan, Haiti, and the Philippines; donations of over

$1 million to local food banks; and the distribution of new coats to children and

wheelchairs to those in need. More recently the Knights have begun an extensive

program in Haiti to assist children who lost limbs in the earthquake by fitting them with

prosthetics, providing rehabilitation services, and operating The Return to Sports

program so that amputees can run and play soccer once again.

13. Since its inception the Knights have sought to protect the membership through thetool of insurance. Initially, the founding parish priest, Father McGivney, instituted a not-


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for-profit life insurance program to provide for the widows and orphans of deceased

members. This not-for-profit program has expanded substantially to more effectively

serve the organizations 1.8 million members worldwide and now includes annuity,

disability, and long-term care products. Today, the Knights maintain an investment

portfolio of $17 billion and operate a fraternal insurance organization doing business in

the 50 states of the United States, the District of Columbia, the 10 provinces of Canada,

Puerto Rico, the Virgin Islands, Northern Mariana Islands, Guam, Mexico, the

Philippines, and Poland. In April of 2011, life insurance in force exceeded $80 billion.

The Knights are one of only five insurers in North America to receive the highest

possible rating for financial stability from both A.M. Best and Standard & Poors, and

one of only three U.S. insurers to have both those accolades plus the Insurance

Marketplace Standards Association certification for ethical business and marketing

practices.

14. As a fraternal benefit society, the Knights have no stockholders; the Knightsowners are its members, and just as those members are committed to performing an

impressive array of charitable, religious, and patriotic works, the Knights are committed

to protecting the financial futures of the members and their families. One way the

Knights do this is by paying claims and dividends to insured members. In 2009, the

Knights paid well over $431 million in death claims and other benefits, and more than

$309 million in dividends to policyholders. From 2000 to 2009, the Knights paid $3.191

billion in dividends to insured members.


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BACKGROUNDTHE TRUSTS

15. The Bank of New York Mellon, formerly the Bank of New York (Defendant orTrustee), is the Trustee of numerous trusts for the benefit of investors (called

certificateholders), including Plaintiff.

16. The document providing for the establishment and administration of each Trust iscalled a Pooling and Servicing Agreement (PSA).

17. The corpus of each Trust consists primarily of residential mortgage loans made byCountrywide Home Loans, Inc. and/or its affiliates Park Granada LLC, Park Monaco

Inc., and Park Sienna LLC.

18. Based upon the assumption that the loans were deposited into each Trust, the borrowers began making payments to each Trust through Countrywide Home Loans

Servicing LP as Master Servicer for each Trust.

19. Countrywide Home Loans Servicing LP is now known as BAC Home LoansServicing, LP. Throughout the remainder of the Complaint, this entity and its parent will

be referred to as the Master Servicer.

20. When the Master Servicer collects loan payments from borrowers, the MasterServicer transfers those payments less allowable deductions to the Defendant, who as

Trustee of each Trust distributes those payments to each Trusts beneficiaries the

certificateholders such as Plaintiff. Thus, the certificateholders are entitled to

participation in the cash flow the Master Servicer collects from borrowers relating to the

mortgage loans each Trust holds on behalf of the certificateholders.


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21. Therefore, each Trust is primarily administered by two entities: The Defendant

Trustee, who is the face of each Trust with the Trust beneficiaries such as Plaintiff,

and the Master Servicer, who is the face of each Trust with borrowers. The entire

process is graphically illustrated as follows:

22. Because a trustee such as Defendant holds the trust corpus for the beneficiaries, a

servicer such as the Master Servicer here will act in the name of the trustee when taking

action against borrowers, which includes the servicer in the name of a trustee bringing

foreclosure actions against borrowers who are allegedly delinquent on their loan

payments. Government officials who are unaware of this practice thus often blame a

trustee for the acts of the servicer, even though the trustee is typically only a nominal

party to the foreclosure. As set forth below, both the Defendant and each Trust have

suffered significant reputational damage as a consequence of the allegations leveled

against the Master Servicer.


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BACKGROUNDGENERAL ALLEGATIONS

23. Recent revelations from a variety of credible sources indicate that the Trustee andthe Master Servicer may be acting for their own benefit rather than for the benefit of

investors. Furthermore, the acts detailed below indicate that the Trustee and the Master

Servicer may be damaging the borrowers whose loans make up each Trusts corpus and

undermining efforts to restore economic prosperity to this Country.

BACKGROUNDTHE NATIONAL FINANCIAL CRISIS

24. As this Court well understands, a national financial crisis exists, which wasprimarily caused by irresponsible lending practices and leveraging of debt on the part of

the nations largest financial institutions.

25. This financial crisis required an unprecedented federal bailout of the nationslargest financial institutions, including the Defendant Trustee and the Master Servicer

described in this Complaint. The Defendant Trustee received $3 billion under the Capital

Purchase Program, while the Master Servicer received $25 billion under the Capital

Purchase Program and $20 billion under the Targeted Investment Program.

BACKGROUNDTHE NATIONAL FORECLOSURE CRISIS

26. As this Court also understands, a national foreclosure crisis accompanies thefinancial crisis. The Federal Reserve considers the record rate of mortgage

delinquencies, foreclosures and their impacts on communities an urgent problem. See

http://data.newyorkfed.org/creditconditionsmap/#. Losing a home to foreclosure can be

one of the most serious, stressful, and devastating events in a persons life. During the

foreclosure process, borrowers should be treated with respect, and the foreclosure process


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should be performed in a manner that is honest, legal, and in compliance with due

process of law.

27. Borrowers losing homes to foreclosure can fall into a number a categories,examples of which include the following borrowers who are working to save their homes

from foreclosure: (1) honest borrowers experiencing difficult life events (Good Faith

Borrowers); and (2) victims of predatory lending activities who were misled or outright

defrauded into obtaining a loan they could not afford (Predatory Lending Victims).

The Master Servicer should provide Good Faith Borrowers a reasonable opportunity to

stay in their homes where that result exceeds the net present value of foreclosing. The

entity (or its successor in interest) who sold a Trust a loan made to a Predatory Lending

Victim should repurchase the loan from the Trust as it warranted it would upon sale and

face the consequences of its wrongful acts against the borrower under applicable law.

28. Borrowers losing homes to foreclosure can also fall into other categories,including the following: (1) borrowers who cannot make net present value positive

payments under any circumstances and/or have abandoned the premises (Abandoned

Properties); and (2) borrowers who engaged in property-flipping schemes, straw-man

purchases, or other fraudulent acts, which often are accompanied by a failure to make any

payments to a Trust (Fraudulent Borrowers). Abandoned Properties and Fraudulent

Borrowers (who typically either abandon the property or start to destroy it) are a source

of great concern to local governments charged with maintaining quality of life in these

neighborhoods. There is virtually no dispute that some foreclosures including those

involving Abandoned Properties and Fraudulent Borrowers are necessary from both a

lending and societal perspective (Valid Foreclosures). Valid Foreclosures should be


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done quickly to reduce the decay and decimation to a neighborhood that accompanies

abandoned or vandalized properties.

BACKGROUNDDEFENDANTS OBLIGATION TO ACQUIRE THE TRUST CORPUS

29. Each PSA contained express terms for the delivery of the loans into the Trust.Specifically, each PSA contained language to the effect that the Depositor would deliver

certain critical documents evidencing and supporting each loan to the Defendant Trustee:

In connection with the transfer and assignment set forth in clause (b) above, theDepositor has delivered or caused to be delivered to the Trustee (or, in the case ofthe Delay Delivery Mortgage Loans that are Initial Mortgage Loans, will deliveror cause to be delivered to the Trustee within thirty (30) days following the

Closing Date and in the case of the Delay Delivery Mortgage Loans that areSupplemental Mortgage Loans, will deliver or cause to be delivered to the Trusteewithin twenty (20) days following the applicable Supplemental Transfer Date) forthe benefit of the Certificateholders the following documents or instruments withrespect to each Mortgage Loan so assigned:

(i) the original Mortgage Note endorsed by manual or facsimile signature in blank in the following form: Pay to the order of ____________ withoutrecourse, with all intervening endorsements showing a complete chain ofendorsement from the originator to the Person endorsing the Mortgage Note(each such endorsement being sufficient to transfer all right, title and interestof the party so endorsing, as noteholder or assignee thereof, in and to thatMortgage Note); or[](iii) in the case of each Mortgage Loan that is not a MERS Mortgage Loan, aduly executed assignment of the Mortgage, (which may be included in ablanket assignment or assignments), together with, except as provided below,all interim recorded assignments of such mortgage (each such assignment,when duly and validly completed, to be in recordable form and sufficient toeffect the assignment of and transfer to the assignee thereof, under theMortgage to which the assignment relates); provided that, if the relatedMortgage has not been returned from the applicable public recording office,such assignment of the Mortgage may exclude the information to be providedby the recording office; provided, further, that such assignment of Mortgageneed not be delivered in the case of a Mortgage for which the relatedMortgaged Property is located in the Commonwealth of Puerto Rico;

CWALT 2006-6CB PSA 2.01(c).


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30. Moreover, the Trustee acknowledged the receipt of these critical documents andpromised to hold them in trust for the exclusive use and benefit of all present and future

Certificateholders. The Defendant Trustee further acknowledged that it will maintain

possession of the Mortgage Notes in the State of California:

The Trustee acknowledges receipt of the documents identified in the InitialCertification in the form annexed hereto as Exhibit F-1 and declares that it holdsand will hold such documents and the other documents delivered to it constitutingthe Mortgage Files, and that it holds or will hold such other assets as are includedin the Trust Fund, in trust for the exclusive use and benefit of all present andfuture Certificateholders. The Trustee acknowledges that it will maintain possession of the Mortgage Notes in the State of California, unless otherwisepermitted by the Rating Agencies.

CWALT 2006-6CB PSA 2.02(a).

31. The Trustee was required to execute the Initial Certification in the form annexedhereto as Exhibit F-1 (attached to this Complaint as Exhibit F-1), in which it was to

state that it had both received a Note and an assignment, and that it had undertaken a

review and examination of those documents:

In accordance with Section 2.02 of the above-captioned Pooling and ServicingAgreement (the Pooling and Servicing Agreement), the undersigned, as Trustee,hereby certifies that, as to each Initial Mortgage Loan listed in the Mortgage LoanSchedule (other than any Initial Mortgage Loan paid in full or listed on theattached schedule) it has received:

(i) (a) the original Mortgage Note endorsed in the following form: Pay to theorder of __________, without recourse or (b) with respect to any LostMortgage Note, a lost note affidavit from Countrywide stating that the originalMortgage Note was lost or destroyed; and(ii) a duly executed assignment of the Mortgage (which may be included in ablanket assignment or assignments).

Based on its review and examination and only as to the foregoing documents,such documents appear regular on their face and related to such Mortgage Loan.

CWALT 2006-6CB PSA Form F-1.


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32. The Trustee subsequently had to issue a Final Certification (attached to thisComplaint as Exhibit H-1) with respect to the loans:

Not later than 90 days after the Closing Date, the Trustee shall deliver to the

Depositor, the Master Servicer and Countrywide (on its own behalf and on behalfof Park Granada, Park Monaco and Park Sienna) a Final Certification with respectto the Initial Mortgage Loans in the form annexed hereto as Exhibit H-1, with anyapplicable exceptions noted thereon. If, in the course of such review, the Trusteefinds any document constituting a part of a Mortgage File which does not meetthe requirements of Section 2.01, the Trustee shall list such as an exception in theFinal Certification [.]

CWALT 2006-6CB PSA 2.02(a).

33. It was also the Trustees duty to affix certain language to each assignment ofMortgage:

As promptly as practicable subsequent to such transfer and assignment, and in anyevent, within thirty (30) days thereafter, the Trustee shall (i) as the assigneethereof, affix the following language to each assignment of Mortgage: CWALTSeries 2006-6CB, The Bank of New York, as trustee, (ii) cause such assignmentto be in proper form for recording in the appropriate public office for real propertyrecords and (iii) cause to be delivered for recording in the appropriate publicoffice for real property records the assignments of the Mortgages to the Trustee,except that, with respect to any assignments of Mortgage as to which the Trusteehas not received the information required to prepare such assignment inrecordable form, the Trustees obligation to do so and to deliver the same for suchrecording shall be as soon as practicable after receipt of such information and inany event within thirty (30) days after receipt thereof and that the Trustee neednot cause to be recorded any assignment which relates to a Mortgage Loan, (a) theMortgaged Property and Mortgage File relating to which are located in Californiaor (b) in any other jurisdiction (including Puerto Rico) under the laws of which inthe opinion of counsel the recordation of such assignment is not necessary toprotect the Trustees and the Certificateholders interest in the related MortgageLoan.

CWALT 2006-6CB PSA 2.01(c).

34. Furthermore, numerous provisions of the PSA made clear that the Trustee wasrequired to maintain possession of the Mortgage File, which contained among other

things the Note and any assignments, and that possession of the Mortgage File by any


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other entity was to be a closely guarded and monitored exception rather than the rule.

For example:

a. The Trustee shall retain possession and custody of each Mortgage File inaccordance with and subject to the terms and conditions set forth herein.

The Master Servicer shall promptly deliver to the Trustee, upon the

execution or receipt thereof, the originals of such other documents or

instruments constituting the Mortgage File as come into the possession of

the Master Servicer from time to time. CWALT 2006-6CB PSA

2.02(d) (emphasis added).

b. With respect to any Substitute Mortgage Loan or Loans, sold to theDepositor by a Seller, Countrywide (on its own behalf and on behalf of

Park Granada, Park Monaco and Park Sienna) shall deliver to the Trustee

for the benefit of the Certificateholders the Mortgage Note, the Mortgage,

the related assignment of the Mortgage, and such other documents and

agreements as are required by Section 2.01, with the Mortgage Note

endorsed and the Mortgage assigned as required by Section 2.01.

CWALT 2006-6CB PSA 2.03(c) (emphasis added).

c. Upon the payment in full of any Mortgage Loan, or the receipt by theMaster Servicer of a notification that payment in full will be escrowed in a

manner customary for such purposes, the Master Servicer will

immediately notify the Trustee by delivering, or causing to be delivered a

Request for Release substantially in the form of Exhibit N. Upon

receipt of such request, the Trustee shall promptly release the related


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Mortgage File to the Master Servicer, and the Trustee shall at the Master

Servicers direction execute and deliver to the Master Servicer the request

for reconveyance, deed of reconveyance or release or satisfaction of

mortgage or such instrument releasing the lien of the Mortgage in each

case provided by the Master Servicer, together with the Mortgage Note

with written evidence of cancellation thereon. CWALT 2006-6CB PSA

3.12.

d. From time to time and as shall be appropriate for the servicing orforeclosure of any Mortgage Loan, including for such purpose, collection

under any policy of flood insurance, any fidelity bond or errors or

omissions policy, or for the purposes of effecting a partial release of any

Mortgaged Property from the lien of the Mortgage or the making of any

corrections to the Mortgage Note or the Mortgage or any of the other

documents included in the Mortgage File, the Trustee shall, upon delivery

to the Trustee of a Request for Release in the form of Exhibit M signed by

a Servicing Officer, release the Mortgage File to the Master Servicer.

Subject to the further limitations set forth below, the Master Servicer shall

cause the Mortgage File or documents so released to be returned to the

Trustee when the need therefor by the Master Servicer no longer exists,

unless the Mortgage Loan is liquidated and the proceeds thereof are

deposited in the Certificate Account, in which case the Master Servicer

shall deliver to the Trustee a Request for Release in the form of Exhibit N,

signed by a Servicing Officer. CWALT 2006-6CB PSA 3.12


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(emphasis added). Each Request for Release referenced above is

attached to this Complaint as Exhibit M and Exhibit N. Both Exhibits

M and N make clear that they are to be used for individual loans, not for

the entire loan pool.

e. Notwithstanding any other provisions of this Agreement, the MasterServicer shall transmit to the Trustee as required by this Agreement all

documents and instruments in respect of a Mortgage Loan coming into the

possession of the Master Servicer from time to time and shall account fully

to the Trustee for any funds received by the Master Servicer or which

otherwise are collected by the Master Servicer as Liquidation Proceeds,

Insurance Proceeds or Subsequent Recoveries in respect of any Mortgage

Loan. CWALT 2006-6CB PSA 3.13 (emphasis added).

35. Even the PSAs fail safe provision (providing that if a true sale does not takeplace then the Trustee has a security interest in the loans) required that the Mortgage File

be delivered to the Trustee:

a. In connection with the pledge of the fail safe security interest, [t]heDepositor hereby represents that: [] (v) All original executed copies of

each Mortgage Note that are required to be delivered to the Trustee

pursuant to Section 2.01 have been delivered to the Trustee. CWALT

2006-6CB PSA 10.04(b).

b. The Master Servicer shall take such action as is reasonably necessary tomaintain the perfection and priority of the security interest of the Trustee

in the Mortgage Loans; provided, however, that the obligation to deliver


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the Mortgage File to the Trustee pursuant to Section 2.01 shall be solely

the Depositors obligation and the Master Servicer shall not be

responsible for the safekeeping of the Mortgage Files by the Trustee.

CWALT 2006-6CB PSA 10.04(c) (emphasis added).

BACKGROUNDDEFENDANTS FAILURE TO ACQUIRE THE TRUST CORPUS

36. Based on the following allegations, it is apparent that the Defendant knowinglyfailed in its obligation to receive, process, maintain, and hold all or part of the Mortgage

Files as required under the PSA. As a consequence, Plaintiff did not acquire residential

mortgage-backedsecurities, but instead acquired securities backed by nothing at all.

37. In a case styled Kemp v. Countrywide Home Loans, Inc., 440 B.R. 624 (D.N.J.Bankr. 2010), the Master Servicer, identifying itself as the servicer for Defendant, filed a

secured claim in the bankruptcy of homeowner and debtor Kemp. Kemp filed an

adversary complaint against the Master Servicer asserting that the Bank of New York

cannot enforce the underlying obligation. Id. at 626.

38. At trial, a supervisor and operational team leader for the Litigation ManagementDepartment for the Master Servicer testified that to her knowledge, the original note

never left the possession of Countrywide, and that the original note appears to have been

transferred to Countrywides foreclosure unit, as evidenced by internal FedEx tracking

numbers. She also confirmed that the new allonge had not been attached or otherwise

affixed to the note. She testified further that it was customary for Countrywide to

maintain possession of the original note and related loan documents. Id. at 628.

39. Summarizing the record, the New Jersey Bankruptcy Court found that:[W]e have established on this record that at the time of the filing of the proof ofclaim, the debtors mortgage had been assigned to the Bank of New York, but that


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Countrywide did not transfer possession of the associated note to the Bank.Shortly before trial in this matter, the defendant executed an allonge to transferthe note to the Bank of New York; however, the allonge was not initially affixedto the original note, and possession of the note never actually changed. ThePooling and Servicing Agreement required an indorsement and transfer of the

note to the Trustee, but this was not accomplished prior to the filing of the proofof claim. The defendant has now produced the original note and has apparentlyaffixed the new allonge to it, but the original note and allonge still have not beentransferred to the possession of the Bank of New York. Countrywide, theoriginator of the loan, filed the proof of claim on behalf of the Bank of New Yorkas Trustee, claiming that it was the servicer for the loan. Pursuant to the PSA,Countrywide Servicing, and not Countrywide, Inc., was the master servicer forthe transferred loans. At all relevant times, the original note appears to have beeneither in the possession of Countrywide or Countrywide Servicing.

Id. at 629.

40. With this factual backdrop, the New Jersey Bankruptcy Court turned to theissue of whether the challenge to the proof of claim filed on behalf of the Bank of New

York, by its servicer Countrywide, can be sustained, and found that:

Countrywides claim here must be disallowed, because it is unenforceable underNew Jersey law on two grounds. First, under New Jerseys Uniform CommercialCode (UCC) provisions, the fact that the owner of the note, the Bank of NewYork, never had possession of the note, is fatal to its enforcement. Second, uponthe sale of the note and mortgage to the Bank of New York, the fact that the notewas not properly indorsed to the new owner also defeats the enforceability of thenote.

Id. at 629-630.

41. To test the Kemp testimony concerning endorsements, FORTUNE magazineexamined [104] foreclosures filed in two New York counties (Westchester and the

Bronx) between 2006 and 2010, and reported the following:

None of the 104 Countrywide loans were endorsed by Countrywide theyincluded only the original borrowers signature. Two-thirds of the loans made byother banks also lacked bank endorsements. The other third were endorsed eitherdirectly on the note or on an allonge, or a rider, accompanying the note.

The lack of Countrywide endorsements, combined with the banks representationto the court that these documents are accurate copies of the original notes, calls


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Mortgage Files were not transferred properly ( 23-28), but also breached its duty to

notify Certificateholders like the Knights of this fact ( 29-34).

BACKGROUNDTHE COVER-UP THROUGH CERTIFICATIONS AND SECURITIES FILINGS

45. For older trusts, the Master Servicer, consistent with contractual obligations,annually and at its own expense causes a nationally or regionally recognized independent

public accounting firm (which is a member of the American Institute of Certified Public

Accountants) to furnish a statement to Defendant to the effect that such firm has

examined certain documents and records relating to the servicing of the Mortgage Loans

and that, on the basis of such examination, such servicing has been conducted in

compliance with the Master Servicers contractual obligations, with any significant

exceptions or errors reported.

46. For newer trusts, the Master Servicer and the Trustee, pursuant to Regulation ABof Rule S-X of the Securities Exchange Act, annually must provide to the Depositor

individual Assertions [or Assessments] of Compliance with Applicable Servicing

Criteria, which are assessments of compliance or non-compliance with applicable

Servicing Criteria as defined and described in Item 1122(d) of Regulation AB

(collectively, Servicing Criteria Assessments). For the Master Servicer, Servicing

Criteria Assessments relate to the Master Servicers compliance or non-compliance with

a wide range of individual servicing or administrative tasks, record creation and delivery,

and processes required to service and administer each mortgage loan properly under the

pooling and servicing agreement, e.g., reconciling borrower payments, posting loan

related disbursements, timely reporting to investors, employment of proper loss


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mitigation practices, and the like. For the Trustee, the Servicing Criteria Assessments

include its compliance or non-compliance under Item 1122(d)(4)(i) and (ii):

(4) Pool asset administration.

(i) Collateral or security on pool assets is maintained as required by thetransaction agreements or related pool asset documents.(ii) Pool assets and related documents are safeguarded as required by the

transaction agreements.

47. For each newer Trust, the Depositor must file with the SEC the Servicing CriteriaAssessments executed by the Master and the Trustee, and the SEC makes those Servicing

Criteria Assessments available for public viewing, including by investors and rating

agencies. In addition, under Regulation AB and the related PSA, the Trustee and the

Master Servicer also must cause their respective approved registered public accounting

firms to deliver separate attestation reports (collectively, Accountant Attestation

Reports) to the SEC regarding the Trustees and the Master Servicers individual

assessments of compliance with the Applicable Servicing Criteria.

48. For each newer Trust, the Master Servicer and the Trustee filed Servicing CriteriaAttestations indicating their respective compliance with the Applicable Servicing

Criteria, including the Trustees attestations that the pool assets and related documents

are safeguarded as required by the transaction documents and that collateral security on

pool assets is maintained as required by transaction documents In the Servicing

Criteria Attestation Reports executed and filed with the SEC in accordance with the

Trusts pooling and servicing agreements and Regulation AB, both the Trustee and the

Servicer asserted that they were in material compliance with the Applicable Servicing

Criteria.


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49. As set forth elsewhere in this Amended Complaint, the Servicing CriteriaAttestations of the Trustee and of the Master Servicer were untrue, inaccurate and

misleading, to the detriment of the Knights.

50. On information and belief, based on the public allegations detailed herein, anyMaster Servicer or Trustee self-assessment or independent accounting firm report

produced by a competent nationally or regionally recognized independent public

accounting firm should have reported material non-compliance with certain servicing

criteria.

51.

On information and belief, based on the language of certain PSAs, the Master

Servicer each year provides to Defendant the Report of an Independent Accounting Firm.

On information and belief, Defendant has not shared with Certificateholders at large

findings regarding any material non-compliance identified.

52. Some PSAs require the Trustee to provide the Report of an IndependentAccounting Firm to any Certificateholder who requests it. Based on the Affidavit of a

representative of a Certificateholder in another trust, however, the Trustee does not

provide the Report of an Independent Accounting Firm to Certificateholders when

requested to do so.

BACKGROUNDTHE COVER-UP IN FORECLOSURE AND PROPERTY TRANSFERFILINGS

53. In a February 19, 2010, deposition in a Massachusetts bankruptcy case, Renee D.Hertzler, an employee of the Master Servicer, admitted under oath to signing seven to

eight thousand legal documents a month outside the presence of a notary and without

reviewing the documents prior to signing them. Ms. Hertzler testified I typically dont

read them because of the volume that we sign.


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54. Ms. Hertzler further admitted to signing affidavits as the Vice President of theDefendant The Bank of New York Mellon when, in fact, she was not and never had been

employed by Defendant.

55. Tam Doan worked on pre-sale foreclosures for the Master Servicer in SouthernCalifornia. While his job required him to sign various legal documents, he primarily

handled notices to delinquent borrowers that their loans were proceeding to foreclosure.

His signature constituted an affirmation that the Master Servicer had reviewed the loan

and it did not qualify for modification. Yet, Mr. Doan told CNN that [w]e had no

knowledge of whether the foreclosure could proceed or couldn't, but regardless, we

signed the documents to get these foreclosures out of the way. In some cases he claimed

that he did not even know what kind of document he was signing. I had no idea what I

was signing, said Doan. Either you were in or you were out.2

56. This practice of signing documents in an assembly-line manner and swearing topersonal knowledge of facts that the affiant has not even reviewed has popularly become

known as robo-signing.

57. The media revelations about robo-signing were a topic of discussion during aCongressional hearing3 on the financial regulatory overhaul. A WASHINGTON POST

article dated September 30, 2010, entitled 7 Major Lenders Ordered to Review

Foreclosure Procedures quoted John Walsh, acting director of the Office of the

Comptroller of the Currency, as telling lawmakers that some lenders clearly had

2 http://bit.ly/q4ISRp.

3 The transcripts of the Senate Banking Committee Hearing on Financial Overhaul can be found at

http://1.usa.gov/9XkhWP, while the hearing video can be viewed at

http://www.c-spanvideo.org/program/OverhaulI.


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deficiencies in their foreclosure systems. Accordingly, seven banks, including the

Master Servicer, were ordered to review their foreclosure processes.

58. In her testimony before this same Congressional panel, Federal Deposit InsuranceCorp. Chairman Sheila C. Bair described the issue of document processing errors as

troubling. She also said its just a further indication of how wrong we went with the

mortgage origination process and securitization process.

59. According to the Congressional Oversight Panels November Oversight Report,Affidavits such as the ones involved in the foreclosure irregularities are statements made

under oath and thus clearly fall within the scope of the perjury statutes. Congressional

Oversight Panel, November Oversight Report, Nov. 16, 2010, at 42.

60. On October 1, 2010, the Master Servicer announced that it was puttingforeclosures on hold in the 23 judicial foreclosure states. According to the Master

Servicers spokesman Dan Frahm: To be certain affidavits have followed the correct

procedures, Bank of America will delay the process in order to amend all affidavits in

foreclosure cases that have not yet gone to judgment.4

61. In October 2010, Attorneys General in California, Florida, Connecticut, Illinois,Ohio, and Colorado called for foreclosure moratoriums, and then-New York Attorney

General and now Governor Andrew Cuomo began an investigation of the issue.5 On

October 4, 2010, the Attorney General of Texas sent notices to the Master Servicer and

29 other mortgage companies in the state demanding that all foreclosures be halted until

all robo-signers were identified, remedial steps taken to deal with legally insufficient

4 http://wapo.st/bNumWZ.

5 http://bit.ly/cNBCBX.


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documentation, and proper assurances of compliance with Texas law were given.6

On

October 5, 2010, Massachusetts Attorney General Martha Coakley asked the Master

Servicer and other banks to suspend foreclosures and evictions in that state, and Delaware

Attorney General Joseph R. Biden, III called on the Master Servicer and other banks to

halt all pending foreclosures until a thorough review of their foreclosure policies and

procedures was complete.7

That same day North Carolina Attorney General Roy Cooper

asked the Master Servicer and 13 other mortgage companies to suspend foreclosures in

his state.8 All told, at least 10 states - with Iowa and Delaware being the latest - are

seeking to expand a voluntary freeze on foreclosures by some of the nation's largest

mortgage lenders to include more companies and more regions.9

62. The Master Servicer responded on October 8, 2010, by releasing the followingstatement: Bank of America has extended our review of foreclosure documents to all

fifty states. We will stop foreclosure sales until our assessment has been satisfactorily

completed. Our ongoing assessment shows the basis for our past foreclosure decisions is

accurate. We continue to serve the interests of our customers, investors and

communities. Providing solutions for distressed homeowners remains our primary

focus.10

63. In response to the ongoing dissemination of information regarding robo-signing,in October 2010, the Attorneys General of all 50 states formed the Mortgage Foreclosure

6

http://www.oag.state.tx.us/oagNews/release.php?id=3500.

7 http://bloom.bg/d9TBzu; http://1.usa.gov/prWSAc; http://bit.ly/quFw9c.

8 http://bit.ly/quFw9c.

9 http://wapo.st/bn8GEq.

10 http://bit.ly/cic5pl.


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Multistate Group. In a joint statement issued October 13, 2010, the group opined that

robo-signing may constitute a deceptive act and/or an unfair practice or otherwise

violate state laws.

64. On October 18, 2010, the Master Servicer released a statement that We havereviewed our process for resubmission of foreclosure affidavits in the 23 judicial states

with key stakeholders, including our largest investors. Accordingly, Bank of America

today began the process of preparing foreclosure affidavits for submission in 102,000

foreclosure actions in which judgment is pending. We anticipate that by Monday, Oct.

25, the first foreclosure affidavits will be resubmitted to the courts. Upon judgment,

foreclosure dates will be set and Bank of America will resume foreclosure sales in such

proceedings in the 23 judicial states.11

65. However, on October 24, 2010, THE WALL STREET JOURNAL reported that theMaster Servicer admitted finding errors in ten to twenty-five out of the first several

hundred foreclosure files it examined. The mistakes included lack of signatures, missing

files, and inconsistent information about the property and the payment history. In

addition, a Master Servicer spokesman admitted that, rather than review all of the files for

accuracy, the Master Servicer only reviewed several hundred, which represents less than

1% of the foreclosure filings it intends to resubmit to the courts. TheWASHINGTON POST

quoted Master Servicer spokesman Dan Frahm as stating: We never said that our

review tested each of these previously filed affidavits in these 102,000 proceedings.

11 http://bit.ly/pZmzSB. The states where foreclosures were suspended are: Connecticut,

Delaware, Florida, Hawaii, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Nebraska, New

Jersey, New Mexico, New York, North Dakota, Ohio, Oklahoma, Pennsylvania, South Carolina, South

Dakota, Vermont, and Wisconsin.


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66. Thus, despite the Master Servicers review of its process for resubmission of

foreclosure affidavits in the 23 judicial states with key stakeholders, the Master Servicer

review appears to be little more than a robo-review, which is insufficient to determine

whether or not the foreclosures are fully compliant with law.

67. On May 4, 2011, the Register of Deeds of Guilford County, Jeff L. Thigpen,

surveyed various recorded documents filed with his office. Scores of filings in the name

of Bank of America, N.A. were signed by Christie Baldwin. Filings in the name of Bank

of New York Trust Company, N.A. were signed by Pat Kingston, who also signed for

numerous other entities, including EMC Mortgage Corp., Citi Residential Lending Inc.,

Mortgage Electronic Registration Systems Inc., and Wells Fargo Bank, N.A. Pat

Kingston and Christie Baldwin respectively used eight and twelve different signatures

in Guilford County, including the following examples:


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68. During the fourth quarter of 2010, the Office of Comptroller of the Currency, the

Office of Thrift Supervision, the Federal Deposit Insurance Corporation, and the Federal

Reserve Board undertook a coordinated horizontal examination of foreclosure processing

at the nations 14 largest federally regulated mortgage servicers, including the Master

Servicer. As John Walsh, Acting Comptroller of the Currency, testified before the Senate

Committee on Banking, Housing, and Urban Affairs on February 17, 2011:

In general, the examinations found critical deficiencies and shortcomings inforeclosure governance processes, foreclosure document preparation processes,and oversight and monitoring of third party law firms and vendors. Thesedeficiencies have resulted in violations of state and local foreclosure laws,regulations, or rules and have had an adverse affect on the functioning of themortgage markets and the U.S. economy as a whole. By emphasizing timelinessand cost efficiency over quality and accuracy, examined institutions fostered anoperational environment that is not consistent with conducting foreclosure

processes in a safe and sound manner.12

69. On April 13, 2011, the Office of the Comptroller of the Currency announced

formal enforcement actions against eight national bank mortgage servicers and two third-

12 Written testimony available at http://1.usa.gov/pcJlpq.


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party servicer providers for unsafe and unsound practices related to residential mortgage

loan servicing and foreclosure processing. The eight servicers included the Master

Servicer. See http://occ.gov/news-issuances/news-releases/2011/nr-occ-2011-47.html.

70. That same date, the Office of the Comptroller of the Currency signed andpublished a consent order styled In the Matter of Bank of America, N.A. (the Consent

Order), which found that the Master Servicer engaged in unsafe or unsound banking

practices by reason of the following conduct:

In connection with certain foreclosures of loans in its residential mortgageservicing portfolio, the Bank: (a) filed or caused to be filed in state and federal

courts affidavits executed by its employees or employees of third-party serviceproviders making various assertions, such as ownership of the mortgage note andmortgage, the amount of the principal and interest due, and the fees and expenseschargeable to the borrower, in which the affiant represented that the assertions inthe affidavit were made based on personal knowledge or based on a review by theaffiant of the relevant books and records, when, in many cases, they were notbased on such personal knowledge or review of the relevant books and records;(b) filed or caused to be filed in state and federal courts, or in local land recordsoffices, numerous affidavits or other mortgage-related documents that were not properly notarized, including those not signed or affirmed in the presence of anotary; (c) litigated foreclosure proceedings and initiated non-judicial foreclosure proceedings without always ensuring that either the promissory note or themortgage document were properly endorsed or assigned and, if necessary, in thepossession of the appropriate party at the appropriate time; (d) failed to devotesufficient financial, staffing and managerial resources to ensure properadministration of its foreclosure processes; (e) failed to devote to its foreclosure processes adequate oversight, internal controls, policies, and procedures,compliance risk management, internal audit, third party management, andtraining; and (f) failed to sufficiently oversee outside counsel and other third-partyproviders handling foreclosure-related services.

71. On May 20, 2011, the Connecticut Attorney General sent a letter to the MasterServicer regarding the numerous complaints from consumers whose loans are served by

Bank of America received by his office:

Just this week my office received a complaint from a former Navy Corpsman whodescribed his two-year ordeal with the bank as a nightmare. This customersexperience is far from unique. Indeed, our colleagues at the Connecticut


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Department of Banking and the Connecticut Fair Housing Center report that theycontinue to assist many consumers who are experiencing significant difficultieswith Bank of America. Despite having had more than two years to right-sizeyour staff and establish effective procedures and systems, Bank of America has sofar not prevented even the most common consumer complaints regarding lost

documentation, poor communication, misinformation, dual tracking, and lack of asingle point of contact. Such consumer complaints are common and a clearindication that Bank of America has not devoted sufficient resources towardaddressing its well-documented default servicing problems.

http://www.ct.gov/ag/lib/ag/press_releases/2011/brianmoynihanboa_.pdf

72. According to the Associated Press, the Master Servicer continues to engage inrobo-signing despite entering into the consent order:

Since [June 7, 2011], [John] OBrien[, the registrar of deeds in Essex County,]has received nine documents from Bank of America purportedly signed by LindaBurton, another name on authorities list of known robo-signers. For years, hisoffice has regularly received documents signed with Burton's name but written insuch vastly different handwriting that two forensic investigators say its highlyunlikely it all came from the same person.

OBrien returned the nine Burton documents to Bank of America in mid-June. Hetold the bank he would not file them unless the bank signed an affidavit certifyingthe signature and accepting responsibility if the title was called into questiondown the road. Instead, Bank of America sent new documents with newsignatures and new notaries.

A Bank of America spokesman says Burton is an assistant vice president with asubsidiary, ReconTrust. That company handles mortgage paperwork processingfor Bank of America.

She signed the documents on behalf of the bank, spokesman Richard Simonsays. The bank says providing the affidavit OBrien asked for would have beencostly and time-consuming. Instead, Simon says Bank of America sent a new setof documents signed by an authorized associate who Mr. OBrien wasntchallenging.

The bank didnt respond to questions about why Burtons name has been signedin different ways or why her signature appeared on documents that investigatorsin at least two states have deemed invalid.

Several attempts by the AP to reach Burton at ReconTrust were unsuccessful.

OBrien says the banks actions show consciousness of guilt. Earlier this year,he hired Marie McDonnell, a mortgage fraud investigator and forensic document


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analyst, to verify his suspicions about Burtons and other names on suspectpaperwork.

She compared valid copies of Burtons signature with the documents OBrien hadreceived in 2008, 2009 and 2010 and found that Burtons name was fraudulently

signed on hundreds of documents.

Most of the documents reviewed by McDonnell were mortgage discharges, whichare issued when a home changes hands or is refinanced by a new lender and aresupposed to confirm that the previous mortgage has been paid off. Bank ofAmerica declined comment on McDonnells findings.

13

73. Examples of the Master Servicers latest robo-signed documents include thefollowing signatures:

N ews S g n in

74. Similarly, Reuters published a special report on July 19, 2011, in which it claimedthat five mortgage loan servicers, including the Bank of America, had filed foreclosure

documents of questionable validity since agreeing to stop doing so earlier this year.

Reuters went on to describe an incident only a week earlier in which Robert Drain,

United States Bankruptcy Judge for the Southern District of New York:

[O]rdered an investigation involving a foreclosure case brought by [Bank ofAmerica]. [In re: Priscilla C. Taylor, Debtor, U.S. Bankruptcy Court, SouthernDistrict of New York, Case #10-22652]. Two earlier copies of a promissory notefiled in court had lacked any endorsement, but then one appeared on the notewhen bank lawyers produced the original. The judge said the sudden appearanceof an endorsement, and his own close look at it, raised questions about whether ithas been added illegally to make the note look legitimate. It raises a sufficiently

13 Michelle Conlin, AP Exclusive: Mortgage robo-signing goes on, Associated Press, July 18,

2011, at http://apne.ws/mYIUus.


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serious issue as to when and more importantly by whom this note was endorsed,the judge said.14

BACKGROUNDIMPACT ON FORECLOSURES

75. Defendants failure to possess the complete Mortgage File and properly executeassignments has prevented, obstructed, delayed, and/or increased the expense of

otherwise proper foreclosures.

76. The nations courts have responded to the servicers notoriously flawedpaperwork by instituting new procedures in foreclosure matters in an effort to insure the

integrity of the process. For example:

a. The New York Court of Appeals implemented a new rule on October 20,2010, requiring that every attorney handling a foreclosure matter sign a form

verifying that the documentation presented to the court is valid.

b. On November 8, 2010, the Cuyahoga County Court of Common Pleas(covering Ohios largest county including the Cleveland metro area) announced a

new residential mortgage foreclosure affidavit policy that will require attorneys to

provide details of their communication with the representative of the party

seeking foreclosure and certify that, to the best of their knowledge, the pleadings

and other court filings are complete and accurate.

c. In Maryland, the states highest court approved new emergency measuresthat provide for examiners and/or special masters to scrutinize the documentation

in foreclosure matters. The new rules specifically allow the courts to pass on the

cost of the examinations to the firms foreclosing on debtors.

14 Scot J. Paltrow, Special Report: Banks still robo-signing, Reuters, July 19, 2011. Available

online at http://t.co/0BmGkVH.


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77. Due to Defendants failings, no foreclosure can take place at the cost anticipatedwhen Plaintiffs invested in the Trusts, because the cost of preparing foreclosure

paperwork has increased exponentially.

78. Further, Defendants failings give rise to additional expenses associated withforeclosures. Such expenses include, but are not limited to: (1) sanctions for misconduct

in legal proceedings; (2) attorneys fees and costs of filing a foreclosure complaint

dismissed or delayed due to improper documentation; (3) attorneys fees and costs of re-

filing or amending a foreclosure complaint or affidavit; (4) attorneys and other

professional fees related to defenses against government investigations and claims;

(5) costs of evaluating servicing procedures to ensure compliance with law; (6) the

payment to borrowers and/or government entities of settlements, fines, penalties, or

judgments related to this issue; (7) increased costs of future foreclosures; and

(8) carrying costs associated with delaying Valid Foreclosures such as force-placed

insurance, default-related services, and taxes.

BACKGROUNDIMPACT ON SALES OF FORECLOSED-UPON PROPERTIES

79. When a homeowner loses a home to foreclosure, title to the home passes to thelender before the property is marketed and sold to a third party. At this stage in the

process, the property is called Real Estate Owned (i.e., real estate owned by the

lender). During this time, the property is typically vacant the homeowner no longer

lives at the property. Real Estate Owned has certain costs of carry, which are

necessary to preserve the value of the property and get the best possible price from a

buyer to reduce the deficiency owed by the borrower and maximize the return to the


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Trust. Such carrying costs include property maintenance, force-placed insurance

coverage, taxes, and other expenses.

80. Further, once a property becomes Real Estate Owned, it cannot be allowed todeteriorate so that it becomes unsellable and a public nuisance. Such practices damage

both the borrower and the investor by increasing the deficiency owed by the borrower on

the loan and the loss associated with the property, as well as the community at large.

81. An example of this practice is alleged by the City of Buffalo in a complaint (theBuffalo Complaint) styled City of Buffalo v. ABN AMRO Mortgage Group, Inc., Case

No. 2008002200 (N.Y. Sup. Ct. Feb. 20, 2008), which states at paragraph 117 that Bank

of New York Trust was granted a judgment of foreclosure for the property know[n] as

508 Dodge in the City of Buffalo, New York and thereby was the owner, occupant,

mortgagee in possession, equitable owner, or that which exercised dominion and control

over said property and adds at paragraph 120 on information and belief that

Defendant Bank of New York permitted, suffered and allowed the aforesaid building(s)

located at 508 Dodge [to] become so dilapidated, deteriorated, abandoned and/or decayed

so as to present a danger to the health, safety and welfare of the public. Similar

allegations are made against the parent of the Master Servicer respecting a property at 1

Ruhland. Buffalo Compl. 109-114.

82. According to a Brookings Institution Senior Fellow, the impact of an REOproperty that sits vacant and boarded up for a year after a foreclosure sale is far more

damaging than that of a property that is quickly fixed up and sold at an affordable price to

a homebuyer. [] The magnitude of that impact, as noted above, is largely a function of

how long the property sat vacant prior to resale. The shorter the period from initial notice


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to foreclosure sale, and from then until the property is resold and reoccupied, the less the

impact. Alan Mallach, REO Properties, Housing Markets, and the Shadow Inventory,

REO and Vacant Properties: Strategies for Neighborhood Stabilization (Federal Reserve

Banks of Boston and Cleveland and the Federal Reserve Board), at 16.

83. By contrast, according to the president of the National Community StabilizationTrust, a quick sale of Real Estate Owned property means lower carrying and

marketing costs, less property deterioration and vandalism, and other savings. Craig

Nickerson, Acquiring Property for Neighborhood Stabilization: Lessons Learned from

the Front Lines, REO and Vacant Properties: Strategies for Neighborhood Stabilization

(Federal Reserve Banks of Boston and Cleveland and the Federal Reserve Board), at 92.

84. To obtain maximum value for an REO property, the Trust must be able to assurethe purchaser that the Trust has good and marketable title to the property.

85. The inability to assure the purchaser that the Trust has good and marketable titleto the property greatly suppresses the value the Trust can obtain for the property.

86. To the extent that title insurance can be obtained on the sale of an REO property,title insurers now must perform significant additional diligence, which increases the time

that the Trust must hold the REO property even after a potential purchaser has made an

offer to buy the property.

87. Defendants failure to receive, process, retain, and hold the Mortgage Files inaccordance with the PSA calls into question title on REO properties that have been sold

as well as current and future REO inventory. Damages due to Defendants failures

include: (1) potential liability on already-sold REO property from borrowers, purchasers,

and title insurers; (2) suppressed values of and/or the inability to sell REO property due


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to suspected or actual title defects; (3) increased expenses to remedy and/or insure against

potential purchaser title defects; and (4) reduced property values and/or increased costs of

carry due to longer timelines between foreclosure and REO sale dates.

BACKGROUNDOTHERIMPACTS

88. Defendants failings could have an additional impact. In an exclusive report,Reuters noted on April 27, 2011 that:

The U.S. Internal Revenue Service has launched a review of the tax-exempt statusof a widely-held form of mortgage-backed securities called REMICs.

The IRS confirmed to Reuters that the review comes in response to mounting

evidence that banks violated tax requirements by mishandling the transfer ofmortgages to REMICs, short for Real Estate Mortgage Conduits.

Should the IRS find reason to take tough action, the financial impact could beenormous. REMIC investments are held by pension funds, in individualretirement plans such as 401(k)s and by state and local government entities.

As of the end of 2010, investments in REMICs totaled more than $3 trillion,according to data supplied by the Securities Industry and Financial MarketsAssociation.

In a brief statement in response to questions from Reuters, the agency said: TheIRS is aware of questions in the market regarding REMICs and proper ownershipof the underlying mortgages as set out in federal tax law, and is activelyreviewing certain aspects of this issue.

The statement said the IRS would not make any further comment. An IRSspokesman declined to say anything about the extent of the review, or whether theagency is likely to take action.

The review, however, is a sign that the widespread bank misdeeds in homeforeclosure cases are spilling over to threaten the interests of investors in

mortgage-backed securities. The banks originated the mortgages and packagedthem into securities.

These banks transgressions, confirmed in court decisions and through recentaction by federal bank regulators, include the failure to formally transferownership of mortgages to the trusts that invested in them and the subsequentcreation of fraudulent mortgage assignments and other false documents.


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These investment trusts already have suffered big drops in income because of vastnumbers of mortgage defaults after the housing boom collapse. They have beenhurt too because in an increasing number of instances they have been blocked bycourts from foreclosing on defaulted mortgages. The courts ruled that because thetrusts never received the required documents establishing that they owned the

mortgages, they have no standing to foreclose.

For investors, one of the big attractions of REMICs has been that they arentdouble-taxed. While individual investors pay taxes on income they receive fromREMICs, the securities themselves are exempt from business income tax.

But if the IRS concludes that the REMIC investments failed to comply with strictrequirements in the federal tax code, the REMIC would have to pay a 100 percenttax on the income from those investments.

That means that the IRS could confiscate the full amount. Tax law experts said

the REMICs also could be subjected to additional penalties for failing to file taxreturns on the income.

Scot J. Paltrow,IRS weighs tax penalties on mortgage securities, Reuters, April 27, 2011,

http://reut.rs/kPqOnE.

BACKGROUNDILLICIT FORECLOSURES

89. Consistent with one of the Knights founding principles of patriotism, the peopleof the United States have long supported members of the United States Armed Forces

during their service. One means of demonstrating this support is to protect active duty

military personnel from foreclosure.

90. According to Thomas E. Perez, Assistant Attorney General for the Civil RightsDivision of the Department of Justice:

The men and women who serve our nation in the armed forces deserve, at thevery least, to know that they will not have their homes taken from themwrongfully while they are bravely putting their lives on the line on behalf of theircountry. [] All lenders have an obligation to do their part to work withservicemembers while these brave men and women focus on keeping us safe.


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91. To support of this policy, Congress enacted the Servicemembers Civil Relief Act(SCRA) (formerly the Soldiers and Sailors Civil Relief Act), which, among other

things, prohibits certain foreclosures absent a court order or specified agreement.

92. On the day the Knights original complaint was filed, the Department of Justiceannounced that the Master Servicer will pay $20 million to resolve a lawsuit alleging

that Countrywide foreclosed on approximately 160 servicemembers between January

2006 and May 2009 without court orders. The complaint supporting the lawsuit alleges

that Countrywide did not consistently check the military status of borrowers on whom it

foreclosed through at least May 31, 2009.

93. In announcing the settlement, Andr Birotte Jr, U.S. Attorney for the CentralDistrict of California, noted:

Countrywide Home Loans failed to protect and respect the rights of ourservicemembers, failed to comply with clearly mandated procedures andforeclosed against homeowners who are valiantly serving our nation. Militaryfamilies lost their homes when Countrywide violated the law, causing unduestress to wartime personnel who have been protected from such actions since theCivil War.

94. James T. Jacks, U.S. Attorney for the Northern District of Texas, added:With the numerous sacrifices our servicemembers make while they are servingour country, the last thing they need to worry about is whether or not theirfamilies will be forced from their homes. These lenders callous disregard for theSCRA, a law which was designed to insulate these patriots from unlawfulforeclosures and other civil and financial obligations while they are on activeduty, is deplorable.

95. The allegations that the Master Servicer engages in illicit foreclosures are notlimited to foreclosures against only servicemembers, however. For example, a Collier

County, Florida Court found that the Master Servicer wrongfully tried to foreclose on a

Florida couple. The Court found that the couple, who bought the house for cash, did not


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even have a mortgage. The Court ordered the Master Servicer to pay the couples legal

fees, but, for more than five months, the Master Servicer failed to comply with the

Courts order.

96. Finally, on or about June 5, 2011, the couple foreclosed on a Bank of Americabranch, showing up with their attorney and a deputy sheriff, seizing property, and locking

out a visibly shaken bank manager for about an hour until he presented the couple with

a check for their legal fees. Theyve ignored our calls, ignored our letters, legally this is

the next step to get my clients compensated, said the couples attorney.

97.

The fees, costs, and liabilities associated with wrongful foreclosures should not be

borne by borrowers or each Trusts beneficiaries.

BACKGROUNDMARKED UP FEES FORDEFAULT-RELATED SERVICES

98. According to a complaint filed by the Federal Trade Commission (the FTCComplaint) on June 7, 2010, styled Federal Trade Commission v. Countrywide Home

Loans, Inc. and BAC Home Loans Servicing, LP, Case No. CV-10-4193 (C.D. Cal.), the

Master Servicer engaged in unlawful acts and practices in servicing mortgage loans

for a particularly vulnerable class of consumers: borrowers in financial distress who are

struggling to keep their homes. As with the loans in each Trust, [m]any of the loans

serviced by Defendants are risky, high-cost loans that had been originated or funded by

Defendants parent company, Countrywide Financial Corporation (CFC) and its

subsidiaries.

99. According to the FTC Complaint 15: The scheme works as follows.Defendants order default-related services from the default subsidiaries, which in turn

obtain the services from third-party vendors. The default subsidiaries then charge


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Defendants a fee significantly marked up from the third-party vendors' fee for the service,

and the Defendants, in turn, assess and collect these marked-up fees from borrowers.

100. The FTC Complaint 15 quotes the President, Chief Operating Officer, andDirector of Countrywide Financial Corporation, who indicated that this is a deliberate

strategy created to profit from increased delinquencies:

Now, we are frequently asked what the impact of our servicing costs and earningswill be from increased delinquencies and [loss] mitigation efforts, and whathappens to costs. And what we point out is, as I will now, is that increasedoperating expenses in times like this tend to be fully offset by increases inancillary income in our servicing operation, greater fee income from items likelate charges, and importantly from in-sourced vendor functions that represent part

of our diversification strategy, a counter-cyclical diversification strategy such asour businesses involved in foreclosure trustee and default title services andproperty inspection services.

101. The FTC Complaint 18 provides a specific example of the manner in which theMaster Servicer charged for default-related services: Countrywide Field Services

Corporation (CFSC), now doing business as BAC Field Services Corporation, is one of

the default subsidiaries used by Defendants in servicing borrowers mortgage loans. Until

at least July 1, 2008, CFSC was a subsidiary of Defendant CHL. Defendants order

property inspections and property preservation services, such as lawn cuts, from CFSC,

which in turn orders the services from third-party vendors. The vendors charge CFSC

prices for the performance of these services, which prices CFSC then marks up in

numerous instances by 100% or more before charging them to Defendants. Defendants

then charge the marked-up fees to the borrower. Defendants collect these marked-up fees

from borrowers through various means, including in connection with repayment plans,

reinstatements, payoffs, bankruptcy plans, and foreclosures.

102. The FTC Complaint 19 details other examples of the manner in which theMaster Servicer on each Trust charged for default-related services: Defendants obtain


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services through other default subsidiaries in similar fashion and then charge borrowers

fees for default services that are substantially marked up from the actual cost of the

services. These other default subsidiaries are LandSafe Default, Inc., also known as

LandSafe National Default, (LandSafe) and ReconTrust Company, N.A.

(ReconTrust). Defendants order pre-foreclosure title reports from LandSafe at the very

beginning of a foreclosure referral. As soon as the report is completed, the borrower is

billed for it, and Defendants send the report with the foreclosure referral to a foreclosure

attorney or trustee. In many instances, Defendants send foreclosure referrals to

ReconTrust. ReconTrust acts as the Defendants foreclosure trustee in non-judicial

foreclosure states, such as California. LandSafe hires vendors to perform pre-foreclosure

title services and then charges fees to Defendants for those services that are

substantially marked up from the vendors prices. Likewise, ReconTrust provides

foreclosure trustee services that have been substantially marked up from the actual cost of

the services. Defendants then pass on these marked-up fees to borrowers.

103. The Utah Attorney General has determined that ReconTrust, N.A., is not incompliance with Utah Code 57-1-21(3) and 57-1-23 when conducting real estate

foreclosures in the state of Utah.15.

104. According to the Utah Attorney General, Utah Code 57-1-21(3) and 57-1-23provide that the only valid trustees of trust deeds with the power of sale are those who

are either members of the Utah State Bar or title insurance companies. Because

ReconTrust is neither of these, all real estate foreclosures conducted by ReconTrust in the

State of Utah are not in compliance with Utahs statutes, and are hence illegal.

15 See Letter from Utah Attorney General to Bank of America, May 19, 2011, at

http://1.usa.gov/pzW8bF


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105. The FTC Complaint omits one other method by which the Master Servicer cancollect for these marked-up services: by charging them to a Trust and its beneficiaries as

expenses incurred in foreclosure.

106. In the most common instance, the borrower in default on the loan lacks sufficientfunds to pay the Master Servicer for these charges. Therefore, the Master Servicer takes

its reimbursement for the default-related services from the amount recovered from the

foreclosure sale of the home, which reduces the amount to be distributed to each Trusts

beneficiaries. In exchange, each Trusts beneficiaries are provided with a deficiency

claim against the borrower for these default-related services, which is of debatable

validity and has little chance of being collected.

107. Unfortunately, the detail of these charges is not reported in a manner that allowseach Trusts beneficiaries to discern whether or not the Trust fund is incurring these

marked-up services as expenses.

108. The FTC Complaint 17 alleges that the charges for default services violate theborrowers loan documents: In charging marked-up fees for default services, Defendants

have violated the mortgage contract by charging borrowers for default services that

exceed the actual cost of the services and that are not reasonable and appropriate to

protect the note holders interest in the property and rights under the security instrument.

In addition, Defendants have charged borrowers for the performance of default services,

such as property inspections and title reports, that in some instances were not reasonable

and appropriate to protect the note holders interest in the property and rights under the

security instrument.


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109. Any inflated fees charged by the Master Servicer for default related services areneither customary, nor reasonable, nor necessary, and reflect more than the cost of the

services.

110. Based on the information presented above, each Trust has been charged for thesemarked-up default-related services, and additional consequences could be incurred by the

Trusts in addition to the marked-up charges.

BACKGROUNDFORCE-PLACED INSURANCE

111. A November 10, 2010 article in AMERICAN BANKER describes the MasterServicers practice of using an affiliate to force-place insurance at inflated rates on

homeowners struggling to make payments, with investors like Plaintiff ultimately bearing

the cost:

Nominally purchased to protect the owners of mortgage-backed securities, suchforce-placed insurance can be 10 times as costly as regular policies, raisingstruggling homeowners' debt loads, pushing them toward foreclosure andworsening the loss to investors on each defaulted loan.

Evidence of abuses and self-dealing in the force-placed insurance industrysuggests that there may be far larger problems in how servicers are handlingdistressed loans than the sloppy document recording that has been the recent focusof industry woes.

Behind banks servicing insurance practices lie conflicts of interest that alignservicers and their insurer partners against borrowers and investors. Bank ofAmerica Corp. owns a force-placed insurance subsidiary, and most other majorservicers receive commissions or reinsurance fees on the very same policies theypurchase on investors and borrowers behalf.

There's no arms-length transaction here, and that creates all sorts of incentivesfor the servicer to force-place excessive insurance and overcharge consumers forpolicies that provide minimal benefit, said Diane Thompson, of counsel for theNational Consumer Law Center. Servicers and insurers have turned this into agravy train.[]


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Foreclosure defense and legal aid attorneys say force-placed insurance is found onmost of the severely delinquent loans in this country. If so, the cost to investorsmay well be in the billions of dollars.[]With little regulatory oversight or even private investor awareness, force-placed

insurance has helped make drawn-out foreclosures lucrative for servicers farmore so, in some cases, than helping a borrower return to performing status. Asthe intermediary between borrower and investor, servicers appear to be benefitingthemselves at the expense of both.

112. As the AMERICAN BANKER article suggests, force-placed insurance at inflatedrates damages Plaintiff and other investors in the Trusts in two ways. First, force-placing

exorbitant insurance premiums on a struggling borrower makes the borrower less likely

to recover from the default and make payments on the loan in the future. Second, if the

borrower fails to pay the exorbitant premium, as most of them do, then the Master

Servicer collects those payments from the proceeds of a foreclosure before passing the

remaining funds through to the Trust. By thus reducing the amount paid to each Trust

from the foreclosure sale, the Master Servicer has effectively charged its exorbitant

premiums to the Trust.

113. Further, well-respected analyst Laurie Goodman notes that by extending time toforeclosure, Bank of America/Countrywide are not only able to obtain hefty late fees

(which payment is at the top of the waterfall at liquidation; paid before investors recover

a single dime), but they are also profiting though their Balboa subsidiary [part of the

Countrywide Insurance Group]. AMHERST MORTGAGE INSIGHT, May 20, 2010, at 23.

114. Charges for unnecessary insurance coverage at inflated rates increases the lossesto investors associated with defaulted loans while benefiting the Master Servicer and its

affiliates.


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COUNT I:BREACH OF CONTRACT

115. Plaintiff incorporates by reference this Complaints preceding paragraphs, andmakes the following allegations on information and belief on the basis set forth in the

Complaints preceding paragraphs.

116. Defendant entered into the PSA for the benefit of Plaintiff, as a beneficiary ofeach Trust.

117. On the inception date of the PSA, Defendant failed to perform its fundamentalobligation to obtain the corpus of each Trust.

118.

Subsequently, Defendant failed to perform its obligations concerning inventories

of each Trusts corpus and assignments of each Trusts corpus.

119. Defendant failed to perform its obligations to hold each Trusts corpus.120. Defendant covered up its failures by certifying that the Trust assets weremaintained and safeguarded as required by certain transaction agreements.

121. At a minimum, Defendant also witnessed the Master Servicer initiate and executea scheme to cover up the failure to deliver the corpus of each Trust to Defendant.

122. The cover-up scheme included the act of filing thousands of false affidavits inCourts throughout the country, very often in Defendants name, which had the effect of

denying due process of law to borrowers

Documents

Case File New York Supr Ct Amended Complaint in Re Knights of Columbus v Bonym