Us Bank Trus vs Cgmrc April 2013 Ny 13-Cv-2843-Usdc-sdny-complaint

7/27/2019 Us Bank Trus vs Cgmrc April 2013 Ny 13-Cv-2843-Usdc-sdny-complaint

1/33

Jb 44C/SDNYREV. 7/2012

13 CVIVIL COVER SHEET 2_ s information contained hereinneitherreplace norsupplement the filing and serviceofpleadingsorother papers as required by law, except as provided by local rules ofcourt. This form, approvedbytheJudicial Conference ofthe United States inSeptember1974,is required foruseof theClerk ofCourtforthe purpose ofinitiating the civildocket sheet.

4APR 3 02013

PLAINTIFFSCitigroup Mortgage Loan Trust 2007-AMC3, by U.S. Bank NationalAssociation, solely in its capacity as TrusteeATTORNEYS (FIRMNAME,ADDRESS, ANDTELEPHONE NUMBERMcKool Smith, P.C.One Bryant Park, 47th FloorNew York, NY10036 (212) 402-9400

DEFENDANTSCitigroupGlobal Markets Realty Corporation

ATTORNEYS (IFKNOWN)

CAUSE OFACTION (CITE THE U.S. CIVIL STATUTE UNDER WHICH YOU ARE FILING AND WRITE ABRIEF STATEMENT OF CAUSE)(DONOTCITE JURISDICTIONAL STATUTESUNLESSDIVERSITY)28 U.S.C. 1332 - Brea ch o f Contract

Has this ora similar case beenpreviously filed in SDNY atanytime? No [x] Yes Q Judge PreviouslyAssignedIf yes, was this case Vol. Q Invol. Q Dismissed. No Q Yes If yes, give date & Case No.IS THIS AN INTERNATIONAL ARBITRATION CASE? No 3 YeS Q(PLACEAN[x] INONEBOXONLY) NATURE OF SUIT

ACTIONS UNDER STATUTES

CONTRACT PERSONAL INJURY PERSONAL INJURY FORFEITURE/PENALTY BANKRUPTCY OTHER STATUTESi mo INSURANCE [)310 AIRPLANE [ ]362 PERSONAL INJURY- [1610 AGRICULTURE [ ] 42 2 APPEAL [ I 400 STATE[ ]120 MARINE [ ] 315 AIRPLANE PRODUCT MED MALPRACTICE [ I 6 20 OTHER FOOD & 2 8 U S C 1 58 REAPPORTIONMENT[ ]130 MILLER ACT LIABILITY ( ] 36 5 PERSONAL INJURY DRUG [ ] 42 3 WITHDRAWAL (1410 ANTITRUSTi ]140 NEGOTIABLE [ ]320 ASSAULT. LIBEL & PRODUCT LIABILITY [ J 62 5 DRUG RELATED 28 USC 1 57 [ ] 430 BANKS & BANKINGINSTRUMENT SLANDER ( ]368 ASBESTOSPERSONAL SEIZURE OF [ ] 450 COMMERCE[ 1150 RECOVERY OF [ ]330 FEDERAL INJURY PRODUCT PROPERTY [ J460 DEPORTATIONOVERPAYMENT & EMPLOYERS' LIABILITY 21 US C 88 1 PROPERTY RIGHTS [ J 470 RACKETEER INFLUENFORCEMENT LIABILITY [ ]630 LIQUOR LAWS ENCED & CORRUPTOF JUDGMENT [ ]340 MARINE PERSONAL PROPERTY [ ]640 RR & TRUCK [ J82 0 COPYRIGHTS ORGANIZATION ACTI ] 1 51 MEDICAREACT I I 345 MARINE PRODUCT [ )650 AIRLINE REGS [ ] 83 0 PATENT (RICO)[ ]152 RECOVERY OF LIABILITY ( ] 3 70 OTHER FRAUD [ 1660 OCCUPATIONAL [ I 84 0 TRADEMARK [ 1480 CONSUMER CREDITDEFAULTED [ ] 35 0 MOTOR VEHICLE [ ] 371 TRUTH INLENDING SAFETY/HEALTH [ ]490 CABLE/SATELLITETVSTUDENT LOANS [ I 355 MOTOR VEHICLE I 1380 OTHER PERSONAL [ ]690 OTHER [1810 SELECTIVESERVICE(EXCLVETERANS] PRODUCT LIABILITY PROPERTY DAMAGE SOCIAL SECURITY [ 1850 SECURITIES/[ 1153 RECOVERY OF [ ]360 OTHER PERSONAL [ ] 385 PROPERTYDAMAGE COMMODITIES/OVERPAYMENT INJURY PRODUCT LIABILITY LABOR [ ]861 HIA(1395rt) EXCHANGEOF VETERAN'S [ ]862 BLACKLUNG(923) [ ] 87 5 CUSTOMERBENEFITS [1710 FAIR LABOR [ I 863 DIWC/DIWW (405(g)) CHALLENGE( 1160 STOCKHOLDERS STANDARDS AC T [ I 864 SSID TITLE XVI 1 2 USC 3 41 0SUITS [ I 720 LABOR/MGMT [ I865 RSI (405(g)) [ I 890 OTHER STATUTORYM 190 OTHER

CONTRACTPRISONER PETITIONS [ I 730 RELATIONSLABOR/MGMT ACTIONS[1891 AGRICULTURALACTS( 1195 CONTRACT [ ) 510 MOTIONS TO REPORTING & FEDERAL TA X SUITS [ I 892 ECONOMICPRODUCT ACTIONS UNDER STATUTES VACATE SENTENCE DISCLOSURE ACT STABILIZATION ACTLIABILITY 20 USC22 5 5 [ I 74 0 RAILWAY LABOR AC T [ I 870 TAXES(U.S. Plaintiffor [ 1893 ENVIRONMENTAL[ 1196 FRANCHISE CIVIL RIGHTS [ I 53 0 HABEAS CORPUS [ I 79 0 OTHER LABOR Defendant) MATTERS[ I 535 DEATH PENALTY LITIGATION [ J871 IRS-THIRD PARTY [ 1894 ENERGY[ ]441 VOTING [ 1540 MANDAMUS&OTHER f I 7 91 EMPL RET INC 26 USC 76 09 ALLOCATION ACT[ ]442 EMPLOYMENT SECURITY ACT [ 1895 FREEDOM OFR E A L P R O P ER T Y [ ]443 HOUSING/ INFORMATION ACTACCOMMODATIONS IMMIGRATION [ 1900 APPEAL OF FEE[ ]210 LAND [ 1444 WELFARE PRISONER CIVIL RIGHTS DETERMINATIONCONDEMNATION [ 1445 AMERICANS WITH 1)462 NATURALIZATION UNDER EQUAL| ]220 FORECLOSURE DISABILITIES - [ 155 0 CIVILRIGHTS APPLICATION ACCESS TO JUSTICE( ]230 RENT LEASES EMPLOYMENT ( ] 55 5 PRISON CONDITION [ 1463 HABEAS CORPUS- [ 1950 CONSTITUTIONALITYEJECTMENT [ ]446 AMERICANS WITH ALIEN DETAINEE OF STATE STATUTES[ ] 240 TORTS TO LAND DISABILITIES -OTHER [ 1465 OTHER IMMIGRATION[ ]245 TORT PRODUCT

LIABILITY[ )440 OTHER CIVIL RIGHTS(Non-Prisoner) ACTIONS[ ]290 ALL OTHER

REAL PROPERTY

Check if demanded in complaint:CHECK IF THIS IS A CLASS ACTIONUNDER F.R.C.P. 23

DEMAND $'_ t s x c b s i of 50 .000 .000 OTHERCheck YESonlyifdemandedin complaintJURY DEMAND: S YES NO

DOYOU CLAIMTHIS CASE IS RELATED TOA CIVILCASE NOW PENDING INS D NY fIF SO , STATE:JUDGE .DOCKET NUMBER

NOTE: Please submit at the timeof filing an explanation ofwhycases are deemed related.


2/33

(PLACE AN x IN ONE BOX ONLY) " ORIGIN ~ ~Pr^Priinn Ll 2 Removed from O3 Remanded D4Reinstated or D 5 Transferred from Q6 Multidistrict Q7Appeal to DistrictriuoBeging State Court from Reopened (Snerifv nistrirn i iti=(i ...7,__.O a. all parties represented AppellateCourt

I I b. Atleastoneparty is pro se .

(PLACEAN x IN ONEBOXONLY)

(SpecifyDistrict) Litigation Judge fromMagistrateJudgeJudgment

_ BASIS OF JURISDICTIONU 1 U.S. PLAINTIFF 2 U.S. DEFENDANT 3 FEDERAL QUESTION H4 DIVERSITY(U.S. NOTAPARTY) IFDIVERSITY, INDICATECITIZENSHIP BELOW.(28 USC 1332, 1441)CITIZENSHIP OF PRINCIPAL PARTIES (FOR DIVERSITY CASES ONLY)

(Place an[X] in one box for Plaintiff and one box for Defendant)CITIZEN OF THIS STATE

CITIZEN OFANOTHER STATE p >Attorney Bar Code #\

Dierkcagistrate Judge is to be designated by the Clerk of the Court. %.)% i i A *vIV ii./"A.t~lk.k...?Magistrate Judge is so Designated.Ruby J. Krajick, Clerk ofCourt by .Deputy Clerk, DATEDUNITED STATES DISTRICT COURT (NEW YORK SOUTHERN)


3/33

t,..-/ wiM ELSUNITED STATES DISTRICT COURTSOUTHERN DISTRICT OF NEW YORK 1 Q

Civil Action No. a# I

C O M P L A I N T

JURY TRIAL DEMANDED

\***"CITIGROUP MORTGAGE LOAN TRUST 2007-AMC3, by U.S. BANK, NATIONALASSOCIATION, solely in its capacity as Trustee,Plaintiff,

-against-CITIGROUP GLOBAL MARKETS REALTYCORP.,

Defendant.

- r \

cPPlaintiff, Citigroup Mortgage Loan Trust 2007-AMC3 (the "Trust"), acting by andthrough U.S. Bank, National Association, not individually but solely in its capacity as Trustee(the "Trustee") of the Trust, and its attorneys McKool SmithP.C, bringsthis complaint againstCitigroup Global Markets Realty Corp. (the "Sponsor" or "Citigroup"). Except as otherwiseindicated as to its own actions and conduct, the Trustee alleges upon information and belief asfollows:

N A T U R E O F TH E A C T I O N

1. This action arises out of Citigroup's breaches of contract relating to a securitizedpool of 4,946mortgage loans (the "MortgageLoans" or "Loans") selectedand sold by Citigroupand held by the Trust for the benefit of the holders of Certificates issued by the Trust (the"Certificateholders"). The Mortgage Loans were (and remain) the sole source of income fromwhich the Trust makes payments to Certificateholders. Citigroup made extensive contractualrepresentations and warranties regarding the characteristics of these Mortgage Loans, includingtheir credit quality and their compliance with applicable laws. Potential investors in theCertificates relied upon those representations and warranties and did not have access to the

-\


4/33

information necessary to verify whether the Mortgage Loans were accurately described byCitigroup in compliance with them. Thus, Citigroup's representations and warranties wereessential to the securitization of the Mortgage Loans and investors' decision to invest in theCertificates issued by the Trust.

2. Highlighting the critical importance of these representations and warranties,Citigroup further promised to cure any breach of these representations and warranties thatmaterially and adversely affected the value of any Mortgage Loan or the interest ofCertificateholders in the Loans or, if it failed to cure within ninety days, to repurchase the Loan.This obligation to cure or repurchase was not contingent on any action by any other party;Citigroup had an independent obligation both (i) to notify the Trustee, and (ii) to cure orrepurchase the affected Loan within ninety days of becoming aware of a breach of arepresentation and warranty.1 In essence, the parties agreed that Certificateholders wouldassume the risk that there might be defaults on Mortgage Loans which conformed to Citigroup'srepresentations andwarranties butthatCitigroup would assume the risk thatLoans failed tomeetthose representations and warranties in the first instance.

3. Despite clear evidence of numerous breaches of representations and warrantieswith respect to the Mortgage Loans in the Trust, Citigroup has failed, and continues to fail, tofulfill its promise to cure the breaches or repurchase those Loans. A forensic reviewof 1,604MortgageLoans (the "Loan Review") revealed that at least 1,267 Mortgage Loans79percentof the loans reviewedbreached oneor more of Citigroup's representations andwarranties in amanner that materially and adversely affected the value of those Loans and the interests ofCertificateholders in them. The Trustee promptly notified Citigroup of these breaches, including' If the breachwas discoveredwithin the first two years after the Trust was created, Citigroup could also replace thedefective loan with one that complied with the representations and warranties.


5/33

a detailed description of the basis for each breach. The Trustee demanded that Citigroup cure thebreaches or repurchase the defective Mortgage Loans as it had promised. At least ninety dayshave passed since the Trustee's demand, but Citigroup has failed to cure a single breach orrepurchase a single Mortgage Loan.

4. The Trustee's notice was not Citigroup's first indication that material breachesexisted with respect to the Mortgage Loans. Citigroup's routine practice was to conduct duediligence on each mortgage pool it intended to securitize by having a third party review a sampleof the mortgage loans to determine whether they complied with the loan originators'underwriting guidelines. One of Citigroup's third-party due diligence firms, Clayton Holdings,revealed to the Financial Crisis Inquiry Commission that at least 42 percent of the loans itreviewed for Citigroup failed to comply with underwriting guidelines, a fact that would breachone or more representations and warranties. Yet Citigroup knowingly securitized 31 percent ofthose defective loans anyway. Citigroup was engaged in this conduct during the precise sametime period in which Citigroup purchased and securitized the Mortgage Loans. Accordingly,Citigroup's own due diligence would have revealed breaches with respect to a substantialnumberof the Mortgage Loans. Citigroup placed these defective loans into the Trust anywaybutfailed to provide the Trustee with the contractually required notice of the breaches, failed to curethe breaches and failed to repurchase the affected Mortgage Loans.

5. Citigroup's failure to comply with its contractual obligations strikes at the heart ofthe parties' bargain. The Certificates are priced, marketed, and sold based upon the expectedaggregate cash flows generated from principal and interest payments on the Mortgage Loans.Under the terms of the securitization, the Certificateholders assumed the risk that someborrowers might default on their Mortgage Loans and that, as a result, the Trust's cash flows


6/33

could drop below the level necessary to pay scheduled distributions on the Certificates. ButCertificateholders' ability to assess that risk depended on an accurate understanding of the creditqualityandothercharacteristics of theMortgage Loans.

6. Citigroup was the "Sponsor" of the transaction. In its role as Sponsor, Citigroupselected the mortgage companies from which to obtain mortgage loans, selected the loans toinclude in the Trust, and chose the servicer of the loans and the parties to administer the Trust. Ithad far more information about the Mortgage Loans than any other transaction party. Citigrouphad regular contact, and a direct contractual relationship, with the companies that originated theMortgage Loans. Moreover, as part of its purchase, Citigroup also received the documentationsupporting each Mortgage Loan (the "Loan File"), which typically included the borrower's loanapplication, credit report, income, asset and employment verifications, disclosures and anappraisal of the subject property. Citigroup therefore selected the Mortgage Loans to place in theTrust with full access to detailed information on each and thus the ability to ensure itsrepresentations and warranties were accurate.

7. By contrast, potential Certificateholders had only one source of information abouttheMortgage LoansCitigroup. They hadnomeans to verify the accuracy of information theyreceived from Citigroup. They were forced to rely exclusively on Citigroup's representationsand warranties. Indeed, the closing of the transaction was expressly conditioned on Citigroup'srepresentations and warranties being true and correct. The risk that these representations andwarranties were inaccurate or incomplete was allocated in its entirety to Citigroup through itscure or repurchase obligation.

8. Without Citigroup's representations and warrantiesand its accompanyingpromise to cure or repurchase when such representations and warranties are violatedinvestors


7/33

would not have invested in the Certificates backed by the Mortgage Loans, and Citigroup wouldnot have received the substantial fees and other compensation flowing to it from this transaction.

9. Citigroup's decision to include no fewer than 1,267 defective Mortgage Loans inthe Trust materially breached Citigroup's representations and warranties and, coupled with itssubsequent and further breaches in refusing to cure or repurchase those Loans, fundamentallyalters the transaction contemplated by the parties in the PSA and MLPA. To begin with, thesheer number of defective loans sold to the Trust far exceeds the reasonable expectations of theparties. While the cure/repurchase mechanism provided a safety valve for a handful ofmistakes,it was not a license for Citigroup to securitize thousands of defective Mortgage Loans. Thenature and extent of these breaches further destroyed the economic rationale for the transaction,which was intended to create Certificates backed by a pool of mortgage loans withunderstandable and disclosed risks. The inclusion of at least 1,267 defective Mortgage Loans inthe Trust created a significantly different and riskier investment than the Trust andCertificateholders bargained for.

10. Citigroup's failure to provide notice of breaches it discovered, and its refusal tocure or repurchase the identified Mortgage Loans (identified either through notice from theTrustee or Citigroup's own knowledge), entitle the Trust to compensatory damages and/orspecific performance to compel Citigroup to repurchase the Mortgage Loans for which it hasbeen given notice, as well as for any other Mortgage Loans that Citigroup knows or has reason toknow contain s imi lar breaches.

P A R T I E S

11 . Pla in ti ff CMLTI 2007-AMC3 Trust is a New York common law trust establishedpursuant to a Pooling and Servicing Agreement dated April 1, 2007, among Citigroup MortgageLoan Trust, Inc., as Depositor, Litton Loan Servicing LP, as Servicer, Citibank, N.A., as Trust

5


8/33

Administrator, and U.S. Bank National Association, as Trustee ("PSA").2 U.S. Bank, NationalAssociation is a national banking association organized and existing under the laws of the UnitedStates with its registered main office in Ohio, and serving as Trustee of the Trust under the termsof th e PSA.

12. Defendant, Citigroup Global Markets Realty Corp. is a Delaware corporation witha principal place of business in New York. Citigroup Global Markets Realty Corp. (the"Sponsor" or "Citigroup") was the Seller of the Mortgage Loans under a Mortgage LoanPurchase Agreement, dated April 2, 2007 ("MLPA")3 and was the Sponsor under the PSA.

J U RI SD I CT IO N A N D V E N U E

13. This Court has jurisdiction and venue over this proceeding pursuant to 28 U.S.C.1332 because there is complete diversity of citizenship between the parties and the amount incontroversy, exclusive of costs, exceeds $75,000. For diversity purposes, a national bankingassociation's citizenship is determined solely by the location of its main office.

14. Venue is proper in this district pursuant to 28 U.S.C. 1391(1) because Citigrouphas its principal place of business within this judicial district. Additionally, venue is proper inthis district pursuant to 28 U.S.C. 1391(2) because a substantial part of the events andomissions that give rise to the claims herein occurred in New York. The Trust was formed underNew York law; and Citigroup made the relevant representations and warranties, and undertookthe relevant obligations, in New York in agreements expressly governed by New York law.

2A true and correct copy ofthePSA is attached hereto asExhibit 1.3A true and correct copy of theMLPA is attached hereto asExhibit 2.


9/33

F A C TU A L B A CK G R O UN D

I. TH E C M L T I 2007-AMC3 S E C UR IT IZA T ION .

15. This case concerns mortgage-backed pass-through certificates, more commonlyknown as residential mortgage-backed securities. Asset-backed securitizations distribute risk bypooling cash-producing assets, such as mortgage loans, and issuing securities backed by thatpool of assets. The most common form of securitization ofmortgage loans involves the creationof a trust to which a sponsor entity sells a portfolio ofmortgage loans. The transfer of assets to atrust is typically a two-step process: "the financial assets are transferred by the sponsor first toan intermediate entity, often a limited purpose entity created by the sponsor . . . and commonlycalled a depositor, and then depositor will transfer the assets to the [trust] for the particular asset-backed transaction." Asset-Backed Securities, Securities Act Release No. 33-8518, ExchangeAct Release No. 34-50905, 84 SEC Docket 1624 (Dec. 22, 2004).

16. After receiving a pool of mortgage loans, the trust issues securities, known ascertificates, using the pool of loans as collateral. Investors in the certificates acquire rights to theincome flowing from the mortgages (borrowers' payments of principal and interest on theirmortgages).

17. Citigroup was the Sponsor of the CMLTI 2007-AMC3 securitization, whichclosed on April 30, 2007. As the Sponsor, Citigroup selected a mortgage pool of 4,946 loans(the "Mortgage Loans") with an aggregate principal balance of approximately $1.08 billion.Citigroup purchased the Mortgage Loans from Argent Mortgage Company and AmeriquestMortgage Company and sold them to its affiliate Citigroup Mortgage Loan Trust, Inc. (the"Depositor") on the Closing Date pursuant to the MLPA. Pursuant to the PSA, the Depositorsimultaneously conveyed the Mortgage Loans to the Trust, which issued approximately $1bill ion in Certificates and delivered those Certificates to the Depositor. Another Citigroup


10/33

affiliate, Citigroup Global Markets, Inc., underwrote the Certificates. Each of these Citigroupaffiliates received compensation for their roles in the formation of the Trust.

18. Concurrently with its transfer of the Mortgage Loans, the Depositor alsotransferred, assigned, set over and otherwise conveyed to the Trustee "the rights of the Depositorunder the Mortgage Loan Purchase Agreement." PSA 2.01.

19. The Mortgage Loans were divided into two groups, Group I and Group II. GroupI consisted of approximately 2,776 Mortgage Loans, all ofwhich were supposed to have originalprincipal amounts that conformed to the loan limits set by Freddie Mac. Group II consisted ofapproximately 2,170 Mortgage Loans that were not required to conform to Freddie Mac loanlimits. Cash flows from Group II Mortgage Loans are distributed primarily to particularCertificates, the Group II Certificates. The Group I Certificates receive distributions from thecash flows on the Group I Mortgage Loans. The Group II Certificates were offered to the public;the remaining Certificates were privately placed.

20. The Trust is administered by several entities, including the Trustee, Citibank,N.A., as Trust Administrator, and Ocwen Financial Corp. (successor to Litton Loan ServicingLP) as Servicer. The Servicer is, among other things, responsible for collecting monthlymortgage payments from borrowers and seeking to recover from borrowers who default on theirMortgage Loans, consistent with the PSA and generally accepted servicing standards. The TrustAdministrator is, among other things, responsible for distributions to Certificateholders. Boththe Trust Administrator and the Servicer act independently of the Trustee pursuant to the termso f th e PSA.

21. The Trust therefore holds the Mortgage Loans for the benefit of theCertificateholders and the Trustee, as assignee of the Depositor, has the right to enforce


11/33

Citigroup's representations and warranties under the MLPA and its obligation to cure orrepurchase Mortgage Loans that fail to comply with such representations and warranties in amanner that materially adversely affects the value of the Mortgage Loans or the interests ofCert if icateholders therein.

II. C I T I GR OUP ' S R E P R E S E N T A T I O N S AN D W A R R A N T I E S22. Citigroup's representations and warranties regarding the Mortgage Loans are

specified in Section 5 and Exhibit A of the MLPA and include, without limitation, the following: "The Mortgage Loans conform in all material respects to the UnderwritingGuidelines;" MLPA, Exh. A(53). "Any and all requirements of any federal, state or local law including, withoutlimitation, usury, truth in lending, real estate settlement procedures, consumercredit protection, equal credit opportunity, disclosure laws and/or all predatoryand abusive lending laws applicable to the origination and servicing of theMortgage Loan have been complied with. Any and all disclosure statementsrequired to be made by the Mortgagor relating to such requirements are and willremain in the Mortgage File;" MLPA, Exh. A(8). "No fraud was committed in connection with the origination of any MortgageLoan; provided, however, the Seller does not represent or warrant the accuracy ofthe qualifying income stated (provided that such stated income is not grossly

unreasonable when considering all relevant factors relating to such Mortgagor,including without limitation, geographic area, unique expertise, years in the fieldof employment, etc.) by the related Mortgagor(s) in connection with a MortgageLoan that does not require income verification as defined in the UnderwritingGuidelines;" MLPA Exh. A(59).

"As of the Closing Date, the Mortgage has not been satisfied, canceled,subordinated or rescinded, in whole or in part, and the Mortgaged Property hasnot been released from the lien of the Mortgage, in whole or in part, nor has anyinstrument been executed that would effect any such satisfaction, cancellation,subordination, rescission or release;"MLPA, Exh. A(9). "The related Mortgage is a valid, exist ing and enforceable first or second lien, asapplicable, on the related Mortgaged Property, including all improvements on therelated Mortgaged Property . . .;" MLPA, Exh. A( l 1). "As of the Closing Date, no Mortgage Loan has an LTV [loan-to-value ratio] of

more than 100%;" MLPA, Exh. A(41).


12/33

"As of the Closing Date, there is no default, breach, violation or event ofacceleration existing under the Mortgage or the Mortgage Note and no eventwhich, with the passage of time or with notice and the expiration of any grace orcure period, would constitute a default , breach, violation or event of acceleration;. . . ,"MLPA,Exh.A(19).

"The information set forth in the Mortgage Loan Schedule is complete, true andcorrect asof the Cut-off Date;" MLPA, Exh. A (l).423. Cit igroup's representations and warranties were, and remain, material to the Trust

and the Certificateholders. Indeed, Section 7 of the MLPA expressly makes the accuracy ofCitigroup's representations and warranties a condition to the closing of the transaction: "Theclosing shall be subject to each of the following conditions: (a) All of the representations andwarranties of [Citigroup] under this Agreement shall be true and correct in all material respectsas of the date as of which they are made and no even t shall have occurred which, with notice orthe passage of time, would constitute a default under this [MLPA]."

24. Through the representations and warranties, Citigroup promised that, as of theClosing Date, the Mortgage Loans met certain credit quality thresholds regarding the borrowers'ability to repay their loans on time and in full, that the Mortgage Loans were originated incompliance with legal requirements, and that the documentation required to issue (and enforce)the Mortgage Loans was complete. Without these assurances, the Certificates would not havebeen purchased by investors, or at the very least, would not have been purchased on the sameeconomic terms.

25. The MLPA provides that within ninety days of "the earlier of either discovery byor notice to [Citigroup] of any breach of a representation and warranty made by [Citigroup] that4The Mortgage Loan Schedule ("MLS") includes important information to Certificateholders, such as the balanceremaining on a property's senior lien, the original appraisal value of the property, whether the loan is a balloon loan,the loan's current interest rate, the borrower's debt-to-income ratio, the borrower's monthly income and FICO score,whether the property is a primary residence, second home or investment property, the original balance of the loan,the original LTV ratio, property type descriptions, and purchase price. The MLS is typically the Certificateholders'primary means of obtaining this information on a loan-by-loan basis.

10


13/33

materially and adversely affects the value of a Mortgage Loan or the Mortgage Loans or theinterest therein of [the Depositor], [Citigroup] shall use its best efforts promptly to cure suchbreach in all material respects." MLPA 6. If the breach cannot be cured, then Citigroup "shall,at [the Depositor's] option, repurchase such Mortgage Loan at the Purchase Price." Id.(emphasis added). Section 6 also gives the Depositor the option to request that Citigroupsubstitute a compliant mortgage loan for the breaching Mortgage Loan. Both repurchase andsubstitution must be made in a manner "consistent with Section 2.03 of the [PSA]." Id. Pursuantto Section 2.03 of the PSA, substitution of a breaching Mortgage Loan may only occur withintwo years of the Closing Date. This option is thus no longer available to the Trust, as theClosing Date was in 2007.

26. Consistent with the clear allocation of risk between the Trust and Citigroup, theMLPA requires Citigroup to repurchase defective Mortgage Loans regardless of whetherCitigroup was aware of the breach at the time the representations and warranties weremadeevenwith respect to representations andwarranties made to the best of Citigroup's knowledge.

With respect to the representations and warranties contained hereinthat are made to the knowledge or the best knowledge of[Citigroup], or as to which [Citigroup] has no knowledge, if it isdiscovered that the substance of any such representation andwarranty is inaccurate and the inaccuracy materially and adverselyaffects the value of the related Mortgage Loan, or the interesttherein of the [Depositor] or the [Depositor's] assignee, designeeor transferee, then notwithstanding [Citigroup's] lack ofknowledge with respect to the substance of such representation andwarranty being inaccurate at the time the representation andwarranty was made, such inaccuracy shall be deemed a breach ofthe applicable representation and warranty and [Citigroup] shalltake such action [as the MLPA requires].

MLPA 6.

11


14/33

27. The PSA provides that upon any party's discovery of a breach, that party mustnotify the other parties. The Trustee is then charged with requesting that Citigroup, as Sponsor,cure the breaches or repurchase the Mortgage Loans:

Upon discovery or receipt ofnotice by the Depositor, the Servicer,the Trust Administrator or the Trustee of . . . the breach by theSponsor of any representation, warranty or covenant under theMortgage Loan Purchase Agreement in respect of any MortgageLoan which materially adversely affects the value of suchMortgage Loan or the interest therein ofthe Certificateholders, theparty so discovering or receiving notice shall promptly notify theother parties to this Agreement, and the Trustee thereupon shallpromptly notify the Sponsor of such defect, missing document orbreach and request thatthe Sponsor deliver such missing documentor cure such defect or that the Sponsor cure such breach within 90days from the date the Sponsor was notified of such missingdocument, defect or breach.

PSA 2.03(a). If, after such notification, Citigroup fails to cure or repurchase within theprovided ninety-day period,

the Trustee shall enforce the obligations of the Sponsor under theMortgage Loan Purchase Agreement (i) to repurchase suchMortgage Loan from REMIC I at the Purchase Price within 90days after the date on which the Sponsor was notified (subject toSection 2.03(e)) of such missing document, defect or breach, and(ii) to indemnify the Trust Fund in respect of such missingdocument, defect or breach.

1*28 . The PSA defines Purchase Pr ice as :

With respect to any Mortgage Loan or REO Property to bepurchased pursuant to or as contemplated by Section 2.03 orSection 9.01, and as confirmed by an Officers' Certificate from theparty purchasing the Mortgage Loan to the Trustee and the TrustAdministrator, an amount equal to the sum of: (i) 100% of theStated Principal Balance thereof as of the date of purchase (or suchother price as provided in Section 9.01), (ii) in the case of (x) aMortgage Loan, accrued interest on such Stated Principal Balanceat the applicable Mortgage Loan Remittance Rate in effect fromtime to time from the Due Date as to which interest was lastcovered by a payment by the Mortgagor or an advance by the

12


15/33

Servicer, which payment or advance had as of the date of purchasebeen distributed pursuant to Section 4.01, through the end of thecalendar month in which the purchase is to be effected, and (y) anREO Property, the sum of (1) accrued interest on such StatedPrincipal Balance at the applicable Mor tgage Loan RemittanceRate in e ff ec t f rom t ime to t ime from the Due D ate as to whichinterest was last covered by a payment by the Mortgagor or anadvance by the Servicer through the end of the calendar monthimmediately preceding the calendar month in which such REOProperty was acquired, plus (2) REO Imputed Interest for suchREO Property for each calendar month commencing with thecalendar month in which such REO Property was acquired andending with the calendar month in which such purchase is to beeffected, minus the total of all net rental income, InsuranceProceeds, Liquidation Proceeds and P&I Advances that as of thedate of purchase had been distributed as or to cover REO ImputedInterest pursuant to Section 4.01; (iii) any unreimbursed ServicingAdvances and P&I Advances and any unpaid Servicing Feesallocable to such Mortgage Loan or REO Property; (iv) anyamounts previously withdrawn from the Collection Account inrespect of such Mortgage Loan or REO Property pursuant toSections 3.11(a)(ix) and Section 3.16(b); and (v) in the case of aMortgage Loan required to be purchased pursuant to Section 2.03,expenses incurred or to be incurred by the Trust Fund in respect ofthe breach or defect giving rise to the purchase obligationincluding any costs and damages incurred by the Trust Fund inconnection with any violation of any predatory or abusive lendinglaw with respect to the related Mortgage Loan.

PSA 1.01.29. Citigroup additionally agreed to pay the Trust Fund for any costs and expenses,

including attorney's fees, resulting from a breach of a representation and warranty. First, thedefinition of Purchase Price includes "expenses incurred or to be incurred by the Trust Fund inrespect of the breach or defect giving rise to the purchase obligation." PSA 1.01. Second,Section 6 of the MLPA requires Citigroup, in addition to repurchasing a defective MortgageLoan at the Purchase Price, to "indemnify the [Depositor] and hold it harmless against anylosses, damages, penalties, fines, forfeitures, reasonable and necessary legal fees and relatedcosts, judgment, and other costs and expenses resulting from any claim, demand, defense or

13


16/33

assertion based on grounded upon, or resulting from, a breach of the representations andwarranties contained in Section 5 of [the MLPA]."

30. Citigroup's cure or repurchase obligation was central to the securitization of theMortgage Loans because it (1) incentivized Citigroup to ensure theMortgage Loans were issuedusing prudent lending practices and (2) allocated the risk of poor lending practices to the partybest able to detect and prevent themCitigroup. Traditionally, loan originators financed theirmortgage business through customer deposits, retained ownership of the loans they originated,and directly received mortgage payments from borrowers. They earned a profit based on thespread between the interest they received on the loans and the interest they paid on thedepository accounts. When an originator held a mortgage through the term of the loan, it alonebore the r isk of loss if t he bor rower defau lt ed and the value of the collateral was insufficient torepay the loan. As a result, originators had a strong economic incentive to apply prudentunderwriting standards to verify the borrower's creditworthiness.

31. Mortgage securitization can remove these incentives toward prudent lending. Inthe securitization context, originators earn a profit from the sale of the loan rather than theinterest spread. Once the loans are sold, the credit risk on those loans shifts to investors. Thus,the more loans an originator issues, the more product it has available for sale and the more profitit can generate. Rather than being a key component of profitability, underwriting guidelines andother credit criteria act as a constraint on profitability, because they restrict a lender from issuingmore loans to less creditworthy borrowers. By undercutting or ignoring those credit criteria, thelender can issue more loans. As long as the lender sells the loan, it does not take on additionalrisk by issuing riskier loansit just makes more money.

14


17/33

32. Likewise, if a sponsor originates or purchases loans to hold on its books asinvestments, the risk of default will loom large in its decision to issue or purchase the loans. Butbecause securitization sponsors intend to sell and securitize most of the loans, their primaryfocus is increasing volume, even at the expense of credit quality. If they are allowed to escapetheir obligation to cure or repurchase defective loans, they can pass the risk of default ontoinvestors, and thereby will have little incentive to carefully scrutinize the loans they acquire.

33. The cure/repurchase mechanism provides an essential deterrent to suchmisconduct. If a sponsor is faced with the risk that it will be forced to repurchase a materiallydeficient loan, the sponsor will have the necessary incentive to ensure that its representations andwarranties are accurate. And because the sponsor is in the best position to verify the quality ofthe loans it intends to securitize, allocating the risk of deficiencies in the loans to the sponsor isappropriate and reasonable.

34. The cure/repurchase mechanism was not a cure-all by which investors or trustsaccepted the possibility of pervasive breachesbreaches that would leave the trust and investorswith either a significantly riskier pool of assets that were far less likely to perform or a farsmaller pool of assets (with more limited cash flows) from which to pay investors after thesponsor repurchased the defective loans. Indeed, a sponsor that intended in good faith to abideby its repurchase obligation would never securitizeand would take steps to insure it did notsecuritizea pool ofmortgage loans rife with violations of representations and warranties.III. C IT IGR OUP 'S BREACHES OF I TS R E P R E S E N TA T IO N S AN D W A R R A N T I E S .

35. The Mortgage Loans in the Trust have experienced high rates of defaults anddelinquencies. Consequently, the Trust has suffered over $354 million in realized losses as ofApril 2013, including over $196 million in realized losses with respect to Group II. In light of

15


18/33

these losses, certain Certificateholders instructed the Trustee to obtain the Loan Files for certainGroup II Mortgage Loans from the Servicer.

36. A full forensic review of the credit, collateral and compliance components of1,604 Group II Mortgage Loans (the "Loan Review") was conducted. This review, whichcompared the underwriting parameters and standards in place at the time of origination againstthe representations and warranties contained in the MLPA, is also known as a "re-underwriting"because it repeats the loan underwriting exercise the loan originator was supposed to conductprior to issuing the loan.

37. The Loan Review did not reveal merely that some Mortgage Loans breachedCitigroup's representations and warranties; it revealed rather that the Group II Mortgage Loanswere riddled with thousands of breaches. Of the 1,604 Group II Mortgage Loans reviewed,1,267 Loans (79 percent) contained at least one breach that had a material and adverse impact onthe Mortgage Loan or the Certificateholders' interests therein; many had multiple such breaches.These breaches included such fundamental issues as misrepresentations of borrower income, theoccupancy status of the property and the borrower's debt obligations; reliance on grosslyunreasonable stated incomes where verification was not required; violations of underwritingguidelines without any compensating factors; incorrect calculations of debt and debt-to-incomeratios; excessive loan-to-value ratios; violation of high cost loan statutes and other applicablelaws; and significant inaccuracies in the Mortgage Loan Schedule. The specific representationsand warranties breached with respect to each of the 1,267 Group II Mortgage Loans are listed inExhibi t 3 hereto.

38. These breaches substantially undermine the value of these Mortgage Loans andthe interests of Certificateholders by, among other things, concealing the heightened risks

16


19/33

inherent in the loans. Among other things, a borrower's income and other debt obligations areprimary factors used to assess whether the borrower is able to repay a loan. Indeed, the ratio ofmonthly debtpayments to monthly income (also knownas the debt-to-income or "DTI" ratio) isa primary criterion in the underwriting process. Loan-to-value ("LTV") and combined loan-to-value ("CLTV") ratios arealso keycriteria for assessing the likelihood that a borrower will repaya loan, and are also used to determine the ability of the owner of the loan to recoveragainst thesubject property in event foreclosure is necessary. The LTV ratio reflects the percentage of theproperty value covering the Mortgage Loan. The CLTV ratio reflects the percentage of theproperty value covered by all loans secured by that property. For example, a 75% LTV ratiomeans that the mortgage equals 75% of the property's value, and the borrower owns theremaining 25% in value as equity. That 25% equity provides the borrower with an importantincentive not to default (and potentially lose his/her equity in the property) and also acts as acushion in the event a borrower is unable to pay. The higher the LTV ratio, the higher the riskthat the Trust will be unable to recover the full value of the loan through foreclosure.

39. Inaccurate LTV, CLTV and DTI ratios further create material inaccuracies in theMortgage Loan Schedule ("MLS"). The MLS is often a critical source of information regardingkey characteristics of the Mortgage Loans that both the credit rating agencies' and potentialinvestors use to assess the risks in the mortgage pool (and thus in the Certificates). Becauseneither rating agencies' nor potential investors have access to the underlying Loan Files prior topurchasing Certificates, they have no way to verify that the information on the MLS is correct.They must rely instead upon the Sponsor's representation and warranty that the MLS is correctin all material respects.

17


20/33

40. Occupancy status also directly impacts the risk profile of the loan because theborrower is much less likely to default on a mortgage secured by her primary residence than sheis on a loan secured by a second home or investment property. Likewise, accurate informationconcerning a borrower's cash and other assets is important in assessing risk because these assetsprovide an alternative source of loan repayment in the event a borrower losses his/her job.

41. Finally, mortgage loans with missing documentation or that fail to comply withapplicable law can, among other things, be more difficult to enforce against the borrower orsubject property, may increase the difficulty and expense of servicing the loans, and make itvirtually impossible to fully and completely verify that the Mortgage Loan was as represented.

42. The defective Mortgage Loans in the Trust at issue here often contain breaches ofmore than one representation and warranty, further increasing the risk to Certificateholders anddecreasing the value of the loans. The following examples are illustrative:

Loan xxxxl048: This loan was originated in 2006 under an Alternative LoanProgram with an original principal balance of $320,000. The borrower stated onhis loan application that he was employed as a "supervisor driver" earning$15,366 per month. The borrower's stated income was grossly unreasonable.The borrower filed for bankruptcy in 2008. In his bankruptcy court filings, theborrower listed his actual annual income for 2006 as $11,405, or only $950 permonth. The underwriting guidelines further required the borrower to disclose alldebt obligations, including all pending transactions that would result in a changein the borrower's monthly debt obligations. A property and credit records searchdetermined that the borrower also had three other mortgages of $482,400,$120,600, and $810,000 respectively, none of which were disclosed. Theseadditional mortgages increased the borrower's monthly debt obligation by $9,660,which severely decreased the borrower's ability to repay the subject loan.Moreover, based on the borrower's actual monthly income and debt obligations,the borrower's DTI ratio was 1,434.54%, which far exceeded the underwrit ingguideline cap of 50%. The borrower (and the Mortgage Loan Schedule) furtherrepresented that he occupied the subject property as his primary residence, yet theLoan File revealed that the property was in fact an investment property. Theborrower's bankruptcy filings confirmed that the borrower's "former" residenceremained his primary residence. The underwriting guidelines further required atleast one borrower on the mortgage note to occupy the subject property for theloan to be approved. Finally, the warranties (and the underwriting guidelines)

18


21/33

required loans to comply with all federal, state and local regulatory requirementsand to maintain the final HUD-1 in the Loan File. Despite this requirement, thefinal HUD-1 was missing from the Loan File.Loan xxxx4315: This is a second lien loan originated in 2006 under a FullDocumentation Loan Program with an original principal balance of $97,843. Theborrower stated on his loan application that he was employed as a "marketingrepresentative" earning $9,500 per month. The borrower's stated income wasgrossly unreasonable. The borrower filed for bankruptcy in 2008 and listed hisactual annual income for 2006 as $21,609, or only $1,801 per month. Thisseverely decreased the borrower's ability to repay the subject loan. Moreover,based on the borrower's actual monthly income, the borrower 's DTI ratio was infact 78.34%, which exceeded the underwriting guideline maximum of 50% for asecond lien such as this one. Further, a complete verification of employment wasrequired under the loan program, which should have included a writtenverification of employment, as well as a verbal verification of employment toconfirm the borrower's information. No employment verification of any kind wasin the loan file. The underwrit ing guidelines required a fully executed first liennote when the first lien was originated simultaneously with the second lien. Here,the first lien and second lien were originated at the same time, yet the loan file didnot contain a copy of the first lien note as required. Finally, the warranties (andthe underwriting guidelines) required loans to comply with all federal, state andlocal regulatory requirements and to maintain the final HUD-1 in the Loan File.Despite this requirement, there was no final HUD-1 in the Loan File.Loan xxxx4299: This second lien loan was originated in 2006 under a StatedIncome Loan Program with an original principal balance of $92,000. Theborrower stated on his loan application that he was employed as a "senior careeradvisor" earning $10,542 per month. This stated income was grosslyunreasonable and, together with other red flags in the Loan File, should have put areasonably prudent underwriter on notice of borrower fraud. Indeed, thisborrower filed for bankruptcy in 2008, and listed his actual annual income for2006 as $26,814, or $2,235 per month. Further, the borrower underreported hisdebt obligations. A property and credit records search identified two additionalmortgages for $473,600 and $118,400, neither of which were disclosed by theborrower. These additional mortgages increased the borrower's monthly debtobligation by $6,249, severely decreasing the borrower's ability to repay thesubject loan. Moreover, based on the borrower's actual monthly income and debtobligations, the borrower's DTI ratio was in fact 475.99%, which far exceeded theunderwriting guideline cap of 50%. The underwrit ing guidelines required a fullyexecuted first lien note when the first l ien was originated simultaneously with thesecond lien. Here, the first lien and second lien were originated at the same time,yet the loan file did not contain a copy of the first lien note as required.Loan xxxx8308: This loan was originated in 2006 under a Stated Income LoanProgram with an original principal balance of $119,162. The borrower stated onhis loan application that he was employed as a "truck driver" for 1.6 years earning

19


22/33

$66,000 a year, or $5,500 per month. The borrower filed for bankruptcy in 2008.In his bankruptcy court filings, the borrower listed his actual annual income as$27,468, or only $2,288 per month. In addition, based on the borrower's actualmonthly income, the borrower's DTI was 109.97%, which exceeded the lender'sguideline maximum of 50%. Further, the lender's guidelines required theborrower to submit a signed and dated letter of explanation if the borrower hadany derogatory credit on his credit report. The borrower's credit historydemonstrated a history of multiple revolving and installment accounts withpayments more than 30, 60 and 90 days late. Yet, the underwriter failed to obtaina letter of explanation for the derogatory credit. No compensating factors werelisted in the file to explain why the loan was originated outside of the guidelinerequirements.

IV. CITIGROUP K N E W OF MATERIAL BREACHES PRIOR TO MAK ING THEREPRESENTAT IONS A ND W A R R A N T I E S .

43. Citigroup discovered the vast extent of breaches in the Group II Mortgage Loansat the time it made its representations and warranties in the MLPA. First, Citigroup purchasedthe Mortgage Loans and selected them for securitization and thus had the Loan Files for eachMortgage Loan in its possession.

44. Prior to making its representations and warranties, Citigroup performed its owncomprehensive re-underwriting of a sample of theMortgage Loans. According theUnited StatesCongress' Congressional Oversight Panel on the mortgage crisis, Citigroup was one of severalsecuritization sponsors that hired third-party due diligence firm Clayton Holdings, Inc.("Clayton") to conduct due diligence on loans before securitizing them.5

45. The Congressional Oversight Panel explained this due diligence as follows:[B]efore purchasing a pool of loans to securitize, the securitizationsponsors, usually banks or investment firms, hired a third-partydue diligence firm to check if the loans in the pool adhered to theseller's underwriting guidelines and complied with federal, state,and local regulatory laws. The sponsor would select a sample ofthe total loan pool, typically around 10 percent, for the due

5 See Congressional Oversight Panel November Oversight Report Examining the Consequences of MortgageIrregularities for Financial Stability and Foreclosure Mitigation, Nov. 16, 2010, Exhibit XX, ("CongressionalOversight Report"), at 31.

20


23/33

diligence firm to review. The due diligence firm reviewed thesample on a loan-by-loan basis and categorized each as notmeeting the guidelines, not meeting the guidelines but havingcompensating factors, ormeeting the guidelines.646. The Financial Crisis Inquiry Commission ("FCIC") described Clayton's review

process in particular:The review fell into three general areas: credit, compliance, andvaluation. Did the loans meet the underwriting guidelines(generally the originator's standards, sometimes with overlays oradditional guidelines provided by the financial institutionspurchasing the loans)? Did the loans comply with federal and statelaws, notably predatory-lending laws and truth-in-lendingrequirements? Were the reported property values accurate? And,critically: to the degree that a loan was deficient, did it have any"compensating factors" that offset these deficiencies? Forexample, if a loan had a higher loan-to-value ratio than guidelinescalled for, did another characteristic such as the borrower's higherincome mitigate that weakness? The due diligence firm wouldthen grade the loan sample and forward the data to its client.Report in hand, the securitizer would negotiate a price for the pooland could "kick out" loans that did not meet the stated guidelines.7

47. According to Clayton, 42% of the mortgage loans it reviewed for Citigroupbetween January 2006 and June 2007the period during which the Mortgage Loans wereoriginated, purchased and securitized in the Trustfailed to meet guidelines, possessed nocompensating factors and thus should have been rejected.8 Yet Citigroup generally securitizednearly one third of these loans anyway. According to Clayton, Citigroup "waived in" 31percent of the mortgage loans that Clayton determined failed to comply with underwritingguidelines and had no compensating factors.9 Thus, given that each ofCitigroup's samples were6 Congressional Oversight Report at31-32.Financial Crisis Inquiry Commission, Final Report of the National Commission on the Causes of the Financial andEconomicCrisis in the United States, January 2011 ("FCIC Report") at 166.

8 Id. at 166-67.9 FCIC Report at 167, Figure 9.1.

21


24/33

supposed to be representative of the entire sampled pool, Citigroup knew at the time that it washighly likely that more than one out of every eight loans it securitized between January 2006and June 2007 did not comply with the applicable underwriting guidelines.

48. It is, at the very least, reasonably plausible that Citigroup conducted due diligenceon the Mortgage Loans in a manner consistent with the due diligence it conducted on othermortgage pools examined during the same time period in which Citigroup purchased andsecuritized the Mortgage Loans. Based on the due diligence practices described by Clayton, inconnection with its pre-securitization due diligence, Citigroup discovered material violations ofunderwriting guidelines that breach its representations and warranties regarding the Group IIMortgage Loans. But Citigroup failed to notify the Trustee of any breaches of representationsand warranties regarding the Group II Mortgage Loans that it discovered, as the MLPA required,and also failed to cure or repurchase such defective Mortgage Loans, as both the MLPA and PSArequired.

49. Citigroup's failure to notify the Trustee of the breaches it discovered and itsfailure to cure or repurchase the affected Mortgage Loans, constitute separate and independentbreaches ofmultiple provisions of the MLPA.V . C I T I GR OUP ' S B R E A C H O F IT S C UR E O R R E P U R C H A S E OB LIGA T ION .

50. In January 2013, certain Certificateholders notified the Trustee of breaches ofrepresentations and warranties with respect to 1,267 Mortgage Loans. On January 28, 2013, theTrustee promptly sent notice of these breaches to Citigroup (the "Breach Notice"). The BreachNotice included two voluminous reports detailing breaches found with regard to each of the1,267 defective Mortgage Loans, including both (i) the specific representation and warrantiesbreached for each Mortgage Loan and (ii) a detailed narrative description of the facts

22


25/33

establishing the breach. The Breach Notice demanded that Citigroup repurchase the defectiveMortgageLoans in the event Citigroupwas unable to cure them.

51. Citigroup responded to the Trustee's Breach Notice three days later, on January31, 2013, with a blanket assertion that it could not repurchase even a single loan because theBreach Notice did not provide "sufficient detail concerning the alleged breaches ofrepresentations and warranties to permit [Citigroup] to evaluate [the Trustee's] demands."Citigroup requested reams of additional information that the Trustee was not required to provideand that, without exception, was either wholly irrelevant to Citigroup's cure or repurchaseobligation ("the identity(ies) of the employees of such vendor who performed the Review," "adescription of how the Loan Files were obtained in connection with the review"), or wasinformation that Citigroup, as Sponsor, should have had in its possession already, including theLoan Files themselves.10

52. In addition, Citigroup wrongly suggested that Loans that "have been liquidated"were "outside the scope of the relief requested"repurchase of the defective Loans. Not onlyisthis assertion contrary to the terms of the parties' agreements, it is flatly contradicted byCitigroup's practice under contracts with substantially similar terms. The DepositorCitigroup's affiliateis required to file quarterly ABS-15G reports with the Securities &Exchange Commission disclosing, among other things, the numberand dollar value of loans thatwere the subject of a repurchase demand and the number and dollar value of loans repurchasedby the responsible party. The ABS-15G reports explain that the dollar value of the loanssubmitted for repurchase is based on the outstanding principal balance of each loan as of "theend of the reporting period or the most recent balance available for assets that remain in the pool

As discussed above, Citigroup gained possession of the Loan Files when it purchased theMortgage Loans.

23


26/33

at that time or the latest balance reported if the asset was liquidated or removedfrom thepoolprior to the end of the reporting period."11 The reports also state that the number of loans thatCitigroup actually repurchased, or had actually agreed to repurchase, "may include [loans] thatwere previously liquidated, and for which a make-whole payment was made in lieu ofrepurchased Citigroup is the responsible party for eighteen of the twenty-eight trusts includedin the Depositor 's filings in which loans were actually repurchased or make-whole paymentswere made.

53. Citigroup's practice is consistent with industry practice. The term "repurchase" isa recognized industry term that is understood to refer to a mechanism to make a mortgage loanpurchaser whole for a seller's breach of its representations and warranties with respect to thesecuritized loans. The mechanism ensures that the sponsor is responsible for and retains theentirety of the risk of loss associated with any breach of the representations and warranties.Make-whole payments also ensure that disputes between the Trustee and Citigroup relating torepresentation and warranty breaches do not hinder loss mitigation efforts with respect to Loansin default. Under the PSA, the Servicer is required to service the Mortgage Loans in the bestinterests of the Certificateholders, consistent with industry standards and in the same way itwould service loans in its own portfolio. When a borrower has ceased making mortgagepayments, industry standards require the Servicer to diligently pursue repayment from theborrower on whatever timeline was deemed the most economically sensible to maximizerecovery on that loan. Once a decision is made that foreclosure is the best way to mitigate loss tothe Trusta decision that would also minimize Citigroup's potential repurchase liability (by" See, e.g., Citigroup Mortgage Loan Trust Inc. Form ABS-15G filed Feb. 14, 2013, available athttp://www.sec.gov/Archives/edgar/data/1257102/000089109213001355/0000891092-13-001355-index.htm(emphasis added).12 Id. (emphasis added).

24


27/33

offsetting foreclosure proceeds against the Purchase Price)that process should be allowed toproceed unimpeded in order to protect the best interests of the Certificateholders.

54. The MLPA required Citigroup to attempt to cure the identified breaches withinninety days of receiving notice from the Trustee and, if it could not cure the breaches, torepurchase the affected Group II Mortgage Loans. Citigroup has failed either to cure or torepurchase a single such Loan.

55. Citigroup's opportunity to cure has long since expired with respect to the breachesof representations and warranties Citigroup itself discovered, or should have discovered, duringor after its due diligence.

F IR S T C A U SE O F A C T I O N

Breach of Contract: Specific Performance56. Plaintiff incorporates by reference the allegations in the preceding paragraphs 1-

56 as if they were set forth fully herein.57. The MLPA is a valid, enforceable agreement to which Citigroup is a party. The

PSA is a valid and enforceable agreement related to, and executed contemporaneously with, theMLPA .

58. Under the terms of the MLPA, and through the assignment in the PSA of theDepositor's rights under the MLPA, the Trustee is given the right to enforce the obligations ofCitigroup to the Trust and Certificateholders.

59. The Trustee has performed all of its obligations and prerequisites with regard toand in advance of filing this action described herein. In particular, the Trustee delivered theBreach Notice to Citigroup on January 28, 2013. More than ninety days have passed since theTrust notified Citigroup of its breaches of representations and warranties.

25


28/33

60. Section 2.03(a) of the PSA and Section 6 of the MLPA require Citigroup torepurchase any Mortgage Loan within 90 days of discovery or notice of a breach of itsrepresentations and warranties if that breach has not been cured by Citigroup and materiallyadversely affects the value of such Mortgage Loan or the interest therein of theCertificateholders.

61. Citigroup breached its obligations under the MLPA and PSA by discoveringbreaches of representations and warranties and not curing the breaches or repurchasing theaffected Mortgage Loans.

62. Citigroup's response to the Breach Notice has unequivocally indicated that it willnot repurchase Mortgage Loans in the Trust. Citigroup has thus repudiated its contractualobligation to do so.

63. Based on its behavior to date, it is reasonable to expect that Citigroup willcontinue to refuse to repurchase most or all of the defective Mortgage Loans that are identified inth e future.

64. The Trust has been damaged by Citigroup's breaches. Citigroup's breachesmaterially and adversely affect the value of the Mortgage Loans and the interests of theCertificateholders.

65. The Trust is therefore entitled to an order that Cit igroup must specifically performits obligations under the PSAsspecifically, that it must repurchase all Mortgage Loansbreaching Citigroup's representation and warranties, both those listed in the Breach Notice andthose ident i fied in the future.

26


29/33

S E C O N D C A U S E O F A C T I O N

Breach o f Con t rac t

66. Plainti ff incorporates by reference the allegations in the preceding paragraphs 1-56 as if they were set forth fully herein.

67. The MLPA is a valid, enforceable agreement to which Citigroup is a party. ThePSA is a valid and enforceable agreement related to, and executed contemporaneously with, theMLPA.

68. Under the terms of the MLPA and PSA, the Trustee is given the right and duty toenforce the obligations of Citigroup to the Trust and Certificateholders.

69. The Trustee has performed all of its obligations and prerequisites with regard toand in advance of filing this action described herein. In particular, the Trustee delivered theBreach Notice to Citigroup on January 28, 2013 identifying 1,267 Group II Mortgage Loans inbreach of one or more representations and warranties. More than ninety days have passed sincethe Trust notified Citigroup of its breaches of representations and warranties.

70. Citigroup has failed to cure or repurchase any Mortgage Loans identified in theBreach Notice in violation of Section 2.03(a) of the PSA and Section 6 of the MLPA.

71. Citigroup should be required to pay damages for the losses caused to the Trust byCitigroup's breaches of its contractual duties. As Citigroup has refused to comply with itsrepurchase obligations, the Trust is not limited to its contractual repurchase remedy. This isespecially true where, as here, Citigroup, the responsible party, has frustrated the implementationof that remedy.

72. The Trust is therefore entitled to damages, in an amount to be determined at trial,for Citigroup's breaches of contract.

27


30/33

T H IR D C AU SE OF ACTIONBreach o f Contrac t

73. Plaintiff incorporates by reference the allegations in the preceding paragraphs 1-56 as if they were set forth fully herein.

74. The MLPA is a valid, enforceable agreement to which Citigroup is a party. ThePSA is a valid and enforceable agreement related to, and executed contemporaneously with, theMLPA .

75. Under the terms of the MLPA, and through the assignment in the PSA of theDepositor's rights under the MLPA, the Trustee is given the right to enforce the obligations ofCitigroup to theTrust andCertificateholders.

76. The Trustee has performed all of its obligations and prerequisites with regard toand in advance of filing this action described herein.

77. Section 6 of theMLPA requires Citigroup to notifythe Trustee of a breach of anyof its representations and warranties in Section 5 of the MLPA that materially and adverselyaffects the value of the Mortgage Loan or the interests of the Trustee or Certificateholdersthereinpromptly upon its discoverof such breach.

78. Section 6 further requires Citigroup to repurchase any Group II Mortgage Loanwithin 90days ofitsdiscovery of such a breach if thatbreach hasnot been cured byCitigroup.

79. Based on the due diligence it conducted on a sample of the Mortgage Loans,Citigroup discovered that certain of the Group II Mortgage Loans breached its representationsand warranties.

80. Citigroup breached its obligations under the MLPA by (a) failing to providenotice to the Trustee of breaches identified during its due diligence and otherwise with respect to

28


31/33

Group IIMortgage Loans; (b) failing to cure the discovered breaches or repurchase thedefectiveGroup II Mortgage Loans.

81. Citigroup's breaches of the MLPAhave fundamentally defeatedthe protection thecure/repurchase mechanismwas intended to provide.

82. The Trust is entitled to an order that Citigroup must specifically perform itsobligation to repurchase Group II Mortgage Loans with respect to which Citigroup discoveredbreaches of representations andwarranties, whichmaterially andadversely affectthe valueof theLoans and/or the interests of the Trust and Certificateholders therein.

83. The Trust is further entitled to an award of damages for Citigroup's failure tonotify the Trustee ofbreaches of representations and warranties that Citigroup discovered and itssubsequent failure to cure such breaches or repurchase such Group II Mortgage Loans, in anamoun t t o be det ermined a t trial.

P R A Y E R F O R R E LI EF

WHEREFORE, Plaintiff prays for the following relief:(a) On the first cause of action, for anorder of specific performance that Citigroup be

required to repurchase allMortgage Loans identified intheBreach Notice;(b) On the second cause of action, for an award of damages against Citigroup

compensating the Trust for Citigroup's breaches of the PSA and MLPA, in an amount to beproven at trial;

(c) On the third cause of action, for an order of specific performance that Citigroupbe required to repurchase all Group II Mortgage Loans with respect to which Citigroupdiscovered breaches of representations and warranties, and an award of damages for Citigroup'sfailure to complywith its obligationto notifythe Trusteeof such breaches.

29


32/33

(d) All costs of the Trusts associated with this action (including the Trustee'sattorneys' fees), in an amount to be proven at trial;

(e) Prejudgment interest as approved by the Court; and(f) For all such other reliefto which the Plaintiff is entitled under law or in equity.

D EM AN D F OR T R I A L B Y J U R Y

Plaintiff demands a trial by jury for all issues so triable as a matter of right.

MCKOOXSMITH, P.QrBy: ^tyle R. Klein

ibert W. Scheef

One Bryant Park, 47th FloorNew York, NY [email protected]@mckoolsmith.com(t) (212) 402-9400(f) (212) 402-9444

Kirk D. Dillman (Motionfor AdmissionPro Hac Vice to be Filed)

865 South Figueroa St.Suite 2900Los Angeles, CA [email protected](t) (213) 694-1200(f) (213) 694-1234Attorneysfor Plaintiff

30


33/33

Citigroup Mortgage Loan Trust 2007-AMC3, by U.S. Bank National Association v. Citigroup GlobalMarkets Realty Corporation, Docket No. 1:13-cv-02843 (S.D.N.Y. Apr 30, 2013), Court Docket

General Information

Case Name Citigroup Mortgage Loan Trust 2007-AMC3, by U.S. Bank

National Association v. Citigroup Global Markets RealtyCorporation

Docket Number 1:13-cv-02843

Status Open

Court United States District Court for the Southern District of NewYork

Primary Date 2013-04-30 00:00:00

Nature of Suit Contract: Other

Documents

Us Bank Trus vs Cgmrc April 2013 Ny 13-Cv-2843-Usdc-sdny-complaint