How To Beat HSBC & Fremont 2018-02-08 Court Stamped Response To Motion For Summary Judgment 2.8.18 (Filed)
How To Beat HSBC & Fremont 2018-02-08 Court Stamped Response To Motion For Summary Judgment 2.8.18 (Filed)
)SS
COUNTY OF DUPAGE )
)
)
Respondent/HSBC, ) No. 2008 CH 4548
)
vs. )
)
)
SAM PALLADINO AND MARCELLA A. )
PALLADINO )
Old Kent Bank, )
Petitioner/Defendant. )
NOW COMES the Defendant Sebastian (Sam) Palladino, by and through his attorney,
Thomas J. Laz, and in Response to the Plaintiff HSBC’s (hereinafter referred to as HSBC)
Statement of Facts.
1. On August 28, 2006, the Defendant, Sam Palladino and his then wife, Marcella
Palladino, initiated the process to secure a Mortgage with Fremont Investment and Loan
(Fremont). On the same date, Marcella Palladino individually (alone and without Sam Palladino)
initiated the process to secure a loan as evidenced by a Mortgage Note with Fremont
funds for the transactions were not supplied by Fremont, but came from Pacific Western Bank.
Agreement (PSA), an alleged securitized trust named, “The Fremont Home Loan Trust 2006 D
Mortgage Backed Certificates Series 2006-D” was allegedly funded and created (The Fremont
Trust).
4. On November 3, 2006, pursuant to the terms of the aforementioned PSA, the funding
of the Fremont Trust was allegedly completed and closed on November 3, 2006.
(b) "Consideration" means any consideration sufficient to support a simple contract. The
drawer or maker of an instrument has a defense if the instrument is issued without
consideration. If an instrument is issued for a promise of performance, the issuer has a
defense to the extent performance of the promise is due and the promise has not been
performed. If an instrument is issued for value as stated in subsection (a), the instrument
is also issued for consideration.
7. In this case, the alleged originator of the Palladinos Mortgage and Note, Fremont
Investment & Loan, did not provide the consideration for the loan to the Defendants. They did
not provide one penny. As noted in the New Loan Disbursement and Wire Transfer Documents
attached as Exhibit “A” to this Response, the documents show that the ABA number for the
entity that allegedly supplied the funds has an ABA number of 322286447.
with the Routing Number statement attached as Exhibit “B”. Therefore the actual lender of the
monies to the Defendants was not Fremont. Indeed, there is what appears to be an intentional
misrepresentation by Fremont in the original promissory note initiated by one of the Defendant’s
contract. Moehling v. W. E. O'Neil Construction Co., 20 Ill. 2d 255, 265 (1960). This court has
held that the recital "for value received" in a promissory note is a sufficient allegation that valid
consideration exists for a disputed note. Pedott v. Dorman, 192 Ill. App. 3d 85, 93 (1989). We
have further held that consideration is presumed in an action on a validly executed promissory 11
No. 1-11-1405 note and that no further proof of consideration is required beyond the note itself.
Pedott, 192 Ill. App. 3d at 93. The presumption of valid consideration is rebuttable, but the
evidence offered in rebuttal must be of a "very clear and cogent nature." Pedott, 192 Ill. App. 3d
10..In this case, Defendant Sebastian “Sam” Palladino (hereinafter referred to as “Sam”)
asserts that he has indeed overcome the rebuttable presumption that the alleged lender, Fremont
did not provide the consideration for the promissory note. That being the case, the lack of a valid
promissory note means that any assignments of that promissory note are void in that the
presumed assignment to HSBC was not the assignment of a valid promissory note and thus what
11. Therefore there is a question of fact as to whether HSBC has standing and/or can be
12. In this case HSBC is suing as Trustee for a specific Trust. Pursuant to 735 LLCS
5115-1504A of the Illinois foreclosure statute, the HSBC Trust pleads in paragraph 3 (J) that the
capacity under which it is suing is as the “legal holder agent or nominee of the holder” of the
indebtedness and owner of the mortgage given as security. A trust is an artificial entity which
can only do acts which it is legally and expressly permitted to do under the documents which
create it and the law of the state which governs it. For example, 760 ILCS 5/3 which refers to
trusts states that the instrument per se governs. In addition, the objective in this case was to
create a trust to function as a conduit for mortgage backed securities which pass income to
investors. In this case the documents which created the trust were filed with the SEC as Form 8-k
pursuant to the Securities and Exchange Act of 1934. That document is available on Edgar.
Edgar is the Electronic Data-Gathering, Analysis and Retrieval system which enables forwarding
of submissions by companies and others which are required to file forms with the SEC. The
database is free to the public on the internet. The following paragraphs will demonstrate in great
detail according to the terms of the instrument which created the Trust, the HSBC is not the legal
13. Section 2.01 of the Pooling and Servicing Agreement (PSA) creates the Trust as a
New York common law trust. The relevant sections of the PSA are attached as Exhibit {C}. New
York Trust Law and the PSA both govern the purchase of mortgage loans by the Trust. It was
decided by the trustee that that fact issue should be decided by New York trust law. The
beneficiaries of the trust may expect that upon purchase of the trust's certificates the trustee will
use a uniform understanding of the trust's terms regardless of the forum. The Trust is created to
14. As detailed below, the Trust does not own the Note and Mortgage because the
transfer which was alleged in the Complaint did not and could not have occurred per the terms
creating the Trust (PSA) and under New York Trust Law.
15. The Trust which is seeking to foreclose upon the mortgage in this case has in the
PSA, which is its trust agreement, the time, manner and the method to fund the Trust with
Mortgage Loans. The trust documents establish only one way to transfer assets to the Trust,
which is in Section 2.01 of the PSA. A trust can only perform in accordance with its governing
documents.
16. Section 2.01 of the PSA provides the Depositor, Fremont Mortgage Securities
Corporation, for proper conveyance of mortgage loans "hereby sells, transfers, assigns, sets over
and otherwise conveys to the Trustee....”all the right, title and interest of the Depositor in and to
the Trust Fund" in and to each identified Mortgage Loan. However, the court record is
completely void of any evidence that the Mortgage Note, ASSUMING IT IS ENFORCEABLE,
was included in the Trust when the Trust opened on November 1, 2006 and closed on November
3, 2006. There are also no intervening endorsements to the Depositor. There are also no
provisions for direct deposit from the originator, Fremont, directly to HSBC, as Trustee for this
specific Trust. Therefore, the endorsement provided by HSBC, does not comply with the terms
required by the PSA to transfer the Note from the Originator to the Depositor and from the
Depositor to the Trust. Therefore, there was no effective conveyance of the Note to the Trust,
and the Trust acquired no rights in the Note. Sussman v. Sussman, 61 A.D.2d 838 (N.Y. App.
terms of the PSA, HSBC, never was, is not now, and can never be the holder of the note..
Under New York Trust Law, the trustee under a corporate indenture... has his [or her] rights and
duties defined, not by the fiduciary relationship, but only by the terms of the agreement. AG
Capital Funding Partners, L.P. v. State St. Bank & Trust Co., 2008 N.Y. Slip Op. 5766, 7 (N.Y.
2008). This is also the law in Illinois according to 760 ILCS 5/3. A trustee has only the authority
which is granted by the instrument under which he holds. Allison & Ver Valen Co. V. McNee,
170 Misc. 144, 146 (N.Y. Sup. Ct. 1939). According to New York Estates Powers and Trust Law
Section 7-2.1( c ) a trustee is authorized to acquire property "in the name of the trust as such
name is designated in the instrument creating said trust property." For the conveyance of the
property into the trust to be effective, the conveyance shall be done by the terms of the
instrument which created the trust and the conveyance must designate the specific trust and
beneficiary. Absent that, the assignment of the Mortgage Note is not valid. Wells Fargo Bank,
18. According to New York Trust Law, there are four elements in a trust of personal
property: (1) A designated trustee who must not be the beneficiary (2) a designated beneficiary
(3) a fund or other property sufficiently designated to enable title to pass to the trustee; and (4)
the delivery of the fund or property, or of a legal assignment thereof to the trustee, with the
intention of passing legal title thereto to him as trustee. Brown v. Spohr, 180 N.Y. 201, 209-210
(N.Y. 1904). There is not a trust until there is actually a valid delivery of the asset to at issue to
the Trust. If the Trust does not acquire the property, there is no trust over that particular property
which can be enforced. Kermani v. Liberty Mut. Tns. Co., 4 A.D.2d 603 (N.App.Div. 3d Dep't
1957).
the Note there was no effective transfer according to the terms of the Trust. New York's Estates
Section 7-2.4 Act of the trustee in contravention of the trust. If the trust is expressed in
the instrument creating the estate of the trustee, every sale, conveyance or other act of the
trustee in contravention of the trust, except as authorized by this article and by any other
provision of law, is void.
Therefore the Trust never actually possessed the Mortgage Note per the required terms of the
PSA.
20. Any assignment after the closing date is late and not in compliance with the Trust
terms governing documents. The opening for the trust is November 1, 2006, and the cut
off/closing date is November 3, 2006. HSBC has not provided any evidence that the Defendants’
note and mortgage was placed into the trust before it closed. In the Illinois case of U.S. Bank,
N.A. v. Kosterman, 2015 IL App (1st) 133627, the court stated “ But everyone agrees that
supplying a note endorsed in blank is only prima facie evidence of ownership that could
potentially be rebutted As stated in Aurora Bank FSB v. Perry, 2015 IL App (3d) 130673 “
21. Here the Defendant has denied HSBC is the Holder of the Note and did not have to
22. HSBC in its Motion has attached as Exhibit 7 what it purports is a specially endorsed
Allonge. Defendant asserts that there is an issue of fact as to the time such endorsement was
executed and if it in fact is not a document altered after the fact. A clear comparison of the
deemed specially endorsed is the original endorsement with extra wording added to it. All one
has to do is look at the signature on each document and one can clearly take notice that both
signatures are the same. It is well established that one cannot alter an endorsement after the fact,
that all the terms have to be present at the time of the execution. In this case that is not true.
23. Furthermore, if the specially endorsed allonge was to be taken as true, it is not an
effective assignment pursuant to the terms of the PSA. There are no provisions in the PSA for the
mortgage to be assigned directly from Fremont to the Fremont Trust without the Depositor.
24. According to the PSA, all mortgages had to be transferred into the Trust before the
closing date, November 3, 2006 by the Depositor/Purchaser. For the PSA to be followed, the
special endorsement would have to have been made to the Depositor, Fremont Mortgage
Securities Corporation and then HSBC as Trustee, not directly from Fremont to HSBC.
25. Regarding the Note, the original endorsement not being dated, and the alleged
specially endorsed Allonge also not being dated and being altered, does not inform the Court
that the transfer occurred within the time periods required by the PSA. See In re Foreclosure
Cases, 2007 U.S. Dist. LEXIS 95673 (S.D. Ohio Dec. 27, 2007). Thus, there are genuine issue of
26. Furthermore, the mere physical possession of the note does not equate to proper
physical delivery to qualify as a holder of the note. In the New York Case of U.S. Bank Natl.
Assn. v Steinberg, 2013 NY Slip Op 52167 persuasively and clearly sets out this requirement.
In sum, a party has standing to foreclose under a "pay to the order" promissory note that
was indorsed in blank — like the Steinberg Note at issue here — by evidencing that the
note was negotiated by the indorser's physical delivery of the note to the foreclosing
party. A party cannot prove prima facie standing to foreclose by claiming mere
(a)
Plaintiff has failed to establish that it became a "holder" of the Steinberg Note, within the
meaning of the UCC, by evidencing the physical delivery of the Steinberg Note from
Hemisphere National Bank to the Morgan Stanley Mortgage Trust. The Labelle Moving
Affidavit is patently insufficient to establish Plaintiff’s standing because it contains no
specific factual details (i.e., when, who, what, where and how) evidencing Hemisphere
National Bank's delivery of the Steinberg Note to the Morgan Stanley Mortgage Trust.
27. HSBC had previously produced before the court the alleged original of the note. All
HSBC has done at this time is demonstrate that is has physical possession of the alleged original
note some time after the filing of the case. It has not been plead or established under the UCC
that it is the holder of the note. HSBC has produced no evidence that, under the UCC, it obtained
physical delivery of the note. While HSBC’s allegation that it is the holder of the note is
sufficient for purposes of the pleading requirements of a mortgage complaint in Illinois, as stated
in U.S. Bank Natl. Assn. v Steinberg, it is incumbent upon the HSBC to establish by factual
details (i.e., when, who, what, where and how) evidencing delivery that it is the Holder of the
note within the meaning of the UCC. HSBC has not done so with either the original endorsement
or the so called specially endorsed Allonge. Without HSBC establishing, in accordance with
genuine issue of material fact as to whether HSBC is the Holder of the note
28. A complaint must contain “substantial allegations of fact” to state a cause of action.
735 ILCS § 5/2-601. Similarly, all pleadings must contain a “plain and concise statement of the
pleader’s cause of action, counterclaim, defense, or reply.” Id. § 5/2-603. The Illinois Supreme
Court has held that “[a] complaint is deficient if it fails to allege the facts necessary for
recovery.” Chandler v. Ill. Cent. R.R. Co., 207 Ill. 2d 331, 348 (2003). The complaint must set
forth the ultimate facts needed to prove the claim, but not the evidentiary facts which tend to
prove the ultimate facts. Separate factual allegations should be arranged in separate and
consecutively numbered paragraphs. Id. § 5/2-603(b). A complaint which does not put the
defendant on notice of the facts necessary for HSBC to recover fails to state a cause of action.
Gonzalez v. Thorek Hosp. & Med. Ctr., 143 Ill. 2d 28, 36 (1991). Defendant also argues that the
law as stated in City National Bank and Trust Co. v. Oberheide Coal Co. applies to pleading and
29. In this case HSBC has only plead that it is basically the holder of the note. HSBC did
not plead in the alternative that it is a non-holder in possession of the note. First HSBC fails to
plead that it is a non-holder in possession of the note and by failing to do so has not met the
requirement as stated in Gonzalez of the need to put the Defendant on notice of any facts which
are necessary to demonstrate that HSBC meets the requirement of being a non-holder in
possession of the note. In Sosa v. Bank of New York v. Mellon No. 4D14–810. (Appellate Court,
“A nonholder in possession may prove its right to enforce the note through: (1) evidence
of an effective transfer; (2) proof of purchase of the debt; or (3) evidence of a valid
assignment.” Id. “A nonholder in possession must account for its possession of the
instrument by proving the transaction (or series of transactions) through which it acquired
the note.”
30. Also, when asserting rights as a nonholder in possession, the prima facia presumption
that applies to a holder does not apply to a nonholder in possession In Elvin v. Wuchetich, 326
“The mere possession of a negotiable instrument payable to order and not indorsed by the
payee is not, alone, evidence of title, either legal or equitable, in the possessor, but the burden is
on the possessor to prove his equitable title by showing a delivery to him with intent to pass
title. Collins v. Ogden, 323 Ill. 594.”
31. HSBC has not plead or provided any such proof and no genuine issue of material fact
32. On April 12, 2017, HSBC filed an Affidavit of Damages executed by Sergio Olmo,
33. The granting of HSBC’s Motion for Summary Judgment is partially dependent on
the admissibility of the Affidavit of Damages executed by Sergio Olmo. (Hereinafter referred to
as “Affiant”)
34. Illinois Supreme Court Rule l9l (a) governs the content of affidavits filed in support
of motions for summary judgment. The Rule requires that affidavits filed in support of motions
shall:
35. The affidavit further fails to comply with Illinois Rule of Evidence 901(9), which
(9) Process or System. Evidence describing a process or system used to produce a result
`and showing that the process or system produces an accurate result.
36. Affiant makes only two statements in his Affidavit as to the software used by Ocwen
upon which he relied to make set forth the calculation of damages as follows (and nothing about
the hardware):
a) “ Service uses “Real Servicing” to automatically track and record mortgage payments.
This type of tracking and accounting program is recognized as standard in the industry.”
37. The affiant fails to state any facts upon which to make any statements about “Real
Servicing” being “recognized as a standard in the industry”. The statement is a conclusion and
contains no evidence that demonstrates that this is within the personal knowledge of affiant.
Affiant fails to state any facts that “Real Servicing” accurately records mortgage payments when
properly operated” That statement is a conclusion and contains no evidence that demonstrates
that this is within the personal knowledge of the affiant. Affiant fails to state facts that “Real
Servicing was properly operated when computing damages in this case. Affiant fails to state
facts, in violation of Rule 901 (9) describing and showing that the process or system used by
Ocwen produces an accurate result. This also violates Supreme Court Rule 191(b), since it is a
No. 98-2267 (United States Court of Appeals, Seventh Circuit) the court stated the
The district court also granted the defendants' motion to strike various items of evidence
submitted by the Plaintiff’s for consideration on summary judgment. In our discussion of
the Plaintiff’s' contentions on appeal, we assume, for the sake of argument, that the
excluded material was admissible. Nevertheless, we set forth, for the sake of
completeness, the district court's evidentiary rulings. First, the district court found that
HSBCs' Exhibits 22 and 23 — which appear to be computer data extractions listing
contractors and dollar amounts — lacked adequate authentication because they contain
no legend or other means of identifying what the figures represent and because no
showing had been made that the process or system used to create the computer
records produced an accurate result. (Emphasis added)”
The Appellate court did not overturn the District Court’s refusal to admit the Exhibits.
39. The case that sets forth the total standard and explains what is meant in rule 901(9) is
the case of In re Vee Vinhee, BAP No. CC-04-1284-KMoP (United States Bankruptcy
Appellate Panel of the Ninth Circuit, 2005) In that case, the court stated the following as the
single issue: “Whether the court erroneously refused to admit computer generated records as not
properly authenticated.”
40. In regards to what is required for the admissibility of computer generated records,
that court in In re Vee Vinhee, adopted the following eleven step foundational requirements that a
witness who testifies to computer generated records must evidence:
Although this is a generally serviceable modern foundation, the fourth step warrants
amplification, as it is more complex than first appears. The “built-in safeguards to ensure
accuracy and identify errors” in the fourth step subsume details regarding computer
policy and system control procedures, including control of access to the database, control
of access to the program recording and logging of changes, backup practices, and audit
procedures to assure the continuing integrity of the records.
With that qualification, we evaluate American Express’ exhibits through the prism of the
Imwinkelried foundation.”
10. Examining the present case through the prism of the Imwinkelried foundation we see
41. Thus the Federal Court stated and made the following finding in In re Vee Vinhee,:
“Regardless of the question of the declarant’s qualifications, the trial court also ruled that
the declaration was deficient as to basic foundational requirements for admission of
electronic records, noting particularly the need to show the accuracy of the computer in
the retention and retrieval of the information at issue. The declaration merely identified
the makes and models of the equipment, named the software, noted that some of the
software was customized, and asserted that the hardware and software are standard for
the industry, regarded as reliable, and periodically updated. There is no information
In view of the cursory nature of the declaration and the lack of basic information that
would provide assurance that the record reproduced from the electronic media is identical
to the record that was originally stored, we perceive no error and do not have a definite
and firm conviction that there was a clear error of judgment in determining that the
evidentiary foundation was inadequate”
42. Based on In re Vee Vinhee, the affiant failed to state in his affidavit the following:
b) Did not assert that the hardware was the standard of the industry.
access to the pertinent programs, recording and logging of changes to the data,
backup practices, and audit procedures utilized to assure the continuing integrity
of the records.
43. Furthermore, the affidavit should be stricken because Ocwen itself has admitted to the
deficiencies of the “Real Servicing” software to produce and accurate result. On April 27, 2017,
The State of Illinois department of Financial and Professional Regualtion Division of Banking,
In Case, No. 2017-MBR-CD-01, which named Ocwen in the case, entered an order against
PROBATION”. (Exhibit “D”) In its findings, the Department stated “A number of the
18. The CFPB (Consumer Federal Protection Bureau) findings include, among other
things, that Ocwen has illegally foreclosed on borrowers; improperly calculated loan
balances; misapplied borrower payments; failed to correctly process escrow and
insurance payments; failed to check the accuracy of account information for loans for
which it acquired servicing rights from other servicers; and sold servicing rights to new
servicers without fully disclosing or correcting errors in borrowers’ loan files.
45. The Department made the following Conclusions of Law related to Ocwen:
46. The following was imposed by the Department on Ocwen in a Consent Order entered
September 28, 2017. (Exhibit “E”) The relevant part of the order states as follows:
Except as set forth in paragraphs (b), (c) and (e) below, Ocwen Financial Corporation and its
subsidiaries and affiliates (collectively, “Ocwen”) shall not acquire any residential mortgage
servicing rights (MSRs) until April 30, 2018.
b. REALSERVICING RESTRICTION. Ocwen shall not board any new loans onto the
REALServicing platform at any time. This restriction does not apply to loans that are (i) already
c. NEW ORIGINATIONS. Ocwen may originate through broker, retail, or wholesale, or acquire
through correspondent lender relationships, new residential mortgage loans, including, but not
limited to, traditional mortgage loans, and reverse mortgages so long as they will not be boarded,
even temporarily, to the REALServicing platform. Any such loans must, instead, be sub-serviced
by an unaffiliated, licensed and/or exempt entity, although Ocwen may retain the associated
MSRs. Until April 30, 2018, any growth through acquisition from correspondent relationships
must be limited to no more than ten (10) percent per calendar year of the total number of loans
held by Ocwen at prior calendar year end.
d. NEW SERVICING PLATFORM. Ocwen shall develop a detailed Plan of Action and
Milestones (POAM) for the transfer of all residential mortgages currently administered on the
REALServicing platform to other servicing platform(s) that will enable Ocwen to comply with
applicable mortgage servicing standards for its residential mortgage portfolios. The POAM shall
include a timeline for accomplishing each milestone in the POAM in order to complete the
transfer within a commercially reasonable time. The proposed POAM shall be submitted to the
designated representative of the state regulator identified in the Consent Order (“State
Regulator”). Ocwen shall provide to the designated representative quarterly updates on the
POAM until the transfer of all residential mortgages has been completed.
47. In summary, the Department has found and Ocwen has admitted that the REAL
Servicing Software it uses is so defective that it cannot be trusted to be considered “a system that
48. For the reasons cited, the Affidavit of Sergio Olmo should be stricken as
damages were suffered by HSBC, assuming HSBC is found to have standing and is the holder of
the note.
50. Section 1635 of the Federal Truth In Lending Act states as follows:
Except as otherwise provided in this section, in the case of any consumer credit transaction
(including opening or increasing the credit limit for an open end credit plan) in which a security
interest, including any such interest arising by operation of law, is or will be retained or acquired
in any property which is used as the principal dwelling of the person to whom credit is extended,
the obligor shall have the right to rescind the transaction until midnight of the third business day
following the consummation of the transaction or the delivery of the information and rescission
forms required under this section together with a statement containing the material disclosures
required under this subchapter, whichever is later, by notifying the creditor, in accordance with
regulations of the Bureau, of his intention to do so. The creditor shall clearly and conspicuously
disclose, in accordance with regulations of the Bureau, to any obligor in a transaction subject to
this section the rights of the obligor under this section. The creditor shall also provide, in
accordance with regulations of the Bureau, appropriate forms for the obligor to exercise his right
to rescind any transaction subject to this section.
When an obligor exercises his right to rescind under subsection (a), he is not liable for any
finance or other charge, and any security interest given by the obligor, including any such
interest arising by operation of law, becomes void upon such a rescission. Within 20 days after
receipt of a notice of rescission, the creditor shall return to the obligor any money or property
given as earnest money, downpayment, or otherwise, and shall take any action necessary or
appropriate to reflect the termination of any security interest created under the transaction. If
the creditor has delivered any property to the obligor, the obligor may retain possession of it.
Upon the performance of the creditor’s obligations under this section, the obligor shall tender the
property to the creditor, except that if return of the property in kind would be impracticable or
inequitable, the obligor shall tender its reasonable value. Tender shall be made at the location of
the property or at the residence of the obligor, at the option of the obligor. If the creditor does not
take possession of the property within 20 days after tender by the obligor, ownership of the
property vests in the obligor without obligation on his part to pay for it. The procedures
prescribed by this subsection shall apply except when otherwise ordered by a court.
TILA requires lenders to make certain disclosures on loans subject to the Real Estate Settlement
Procedures Act (RESPA) within three business days after their receipt of a written application.
This early disclosure statement is partially based on the initial information provided by the
consumer. A final disclosure statement is provided at the time of loan closing. The disclosure is
Consumers such as the Defendants have a 3 day right of rescission after consummation and all
proper disclosures have been made, whichever is later. In this case, the proper disclosures have
never been made in that it was never disclosed to the Defendants who the true creditor was. It
was only through Sam’s independent efforts that he discovered that the lender/creditor was
actually Pacific Western Bank, not Fremont. Thus the three day right of rescission limitation
52. 12 CFR 1026.2 - Definitions and rules of construction is the Section of the CFR that applies
(13) Consummation means the time that a consumer becomes contractually obligated on
a credit transaction.
53. Also, since the loan was never consummated in that the Defendants never became
contractually obligated to anyone, the 3 day limitation on the time for rescission did not apply.
54. Defendant Sam followed all the proper procedures in executing his right of rescission.
Just by sending the rescission notice, the mortgage and note are nullified by operation of law
unless the “lender” (and in this case there is a question of fact as to who the lender is) files a
lawsuit within 20 days contesting the notice of rescission. No entity responded within 20 days or
ever contesting the notice, so if the court even finds that a legitimate mortgage and note exists,
the matter is closed and that is the end of the note and mortgage. And if there is no note and
mortgage then anything that happens afterwards is void because the lender cannot foreclose on a
mortgage that legally does not exist, even if there is an assignment of the note and mortgage, as
such are nullities. Therefore, as a matter of law, the note and mortgage are void pursuant to the
TILA rules.
55. Attached in support of the motion is the affidavit of Sebastian “Sam” Palladino.
THOMAS J. LAZ
No. 25792
608 S. Washington St.
Naperville, Illinois 60540
630.717.7555
EMAIL: [email protected]
Like 56
Home PACIFIC WESTERN BANK Routing Number : 322286447
Office Code
PACIFIC WESTERN BANK
Main office
low prices
Servicing FRB Number
121000374
on original
Servicing Fed's main office routing number
Telephone 760-476-5413
Find
Find Routing
Routing Number
Number
1|2|3|4|5|6|7|8|9
A|B|C|D|E|F|G|H|I|J|K|L|M|N|O|P|Q|R|S|T|U|V|W|X|Y|Z
Link to The Pooling and Servicing Agreement, dated as of November 1, 2006, among Fremont
Mortgage Securities Corporation, as depositor, Fremont Investment & Loan, as sponsor, servicer and
originator, Wells Fargo Bank, N.A., as master servicer, trust administrator and swap administrator
and HSBC Bank USA, National Association, as trustee.
http://www.sec.gov/Archives/edgar/data/1099390/000095013706012610/v25287exv4w1.htm
STATE OF ILLINOIS
DIVISION OF BANKING
STATUTORY PROVISIONS
1. Section 4-1 (h-1) of the Act provides that the Department, as part of its Supervision of
licensees, may issue orders against any person if the Department has reasonable cause to
believe that an unsafe, unsound, or unlawful practice has occurred, is occurring, or is
about to occur, if any person has violated, is violating, or is about to violate any law, rule,
or written agreement with the Department, or for the purposes of administering the
provisions of this Act and any rule adopted in accordance with this Act.
2. Section 4-5 of the Act in subsection (h)(3) provides that the Department may enter an
order placing a licensee on probation for a period of time subject to all reasonable
conditions as the Department may specify. The Department may enter said order upon
finding the licensee in violation of the grounds set forth in subsection (i). The grounds in
subsection (i) include items (11) failure to comply with any order of the Department or
rule made or issued under the provisions of this Act and (17) failure to comply with or
violation of any provision of this Act.
3. Section 1050.870 of the Rules provides, in part, that the servicing procedures of a
licensee shall comply with applicable federal and State statutes and regulations.
5. OLS at all relevant times herein was a wholly-owned subsidiary of OMS, which was a
wholly-owned subsidiary of OFC. OLS, OMS, and OFC are collectively referred to
hereinafter for purposes of Multi-State Examination and Consumer Financial Protection
Bureau (“CFPB”) findings as “Ocwen.” OFC further has ownership of subsidiaries
LHES and Homeward Residential Holdings, Inc., the parent company of Homeward
Residential. The Department is adding Homeward Residential and LHES to this Order,
although not part of the Ocwen Multi-State Examination, so that financial and loan
activities that are the subject to this Order are not transferred to or conducted by any
Ocwen subsidiary holding an Illinois Residential Mortgage License.
6. The Department has jurisdiction over the licensing and regulation of persons and entities
engaged in the business of residential mortgage loan servicing, purchasing, and
originating in Illinois pursuant to the Act and Rules. The Department has issued Illinois
Residential Mortgage Licenses to OLS, Homeward Residential, and LBES authorizing
each entity to conduct their activities noticed to the Department of servicing, purchasing,
and originating of residential mortgage loans subject to the Act and Rules. The Illinois
Residential Mortgage Licenses held by each entity are as follows: OLS holds Illinois
Residential Mortgage License No. MB.6759457, Homeward Residential holds Illinois
Residential Mortgage License No. MB.6760570, and LHES holds Illinois Residential
Mortgage License No. MB.6760159.
8. Pursuant to Sections 4-1 and 4-2 of the Act, the Department is authorized to inspect the
books, accounts, papers, records, and files of residential mortgage licensees transacting
business in Illinois to determine compliance with the provisions of the Act and Rules, and
with any law, rule, or regulation applicable to the conduct of the licensed business.
Pursuant to Section 4-7 of the Act, the Department is authorized to accept and rely upon
examination reports made by other government officials, within or without the State of
Illinois.
FINDINGS OF FACT
9. During the examination, the Examining States identified violations by Ocwen of state and
federal laws and regulations, including, but not limited to consumer (borrower) escrow
accounts, lender placed insurance, loan transfers and boarding, and default servicing. A
number of the violations were connected to Ocwen’s nationwide system of record
REALServicing and deficiencies within that system.
10. The MMC examination found that Ocwen has been unable to accurately manage many of
the consumer escrow accounts in its portfolio. Consumer escrow accounts are accounts
that contain consumer funds held for payment of taxes and insurance. The MMC
examination further found that Ocwen failed to make timely disbursements to pay for
taxes and insurance from escrow accounts on numerous loans. The MMC examination
also found that Ocwen routinely sent consumers inaccurate, confusing and/or misleading
escrow statements.
11. Based on the findings of the examination and subsequent communications with OFC, the
state regulators and Ocwen entered into a Memorandum of Understanding (“MOU”) on
December 7, 2016.
12. The MOU required Ocwen to retain an independent auditing firm to perform a
comprehensive audit reconciliation of all consumer escrow accounts, with a report to be
furnished by the Auditor to Ocwen and the MMC within five business days thereafter.
The audit plan was to be submitted to, and approved by, the MMC no later than January
13, 2017.
13. Ocwen’s response to the state regulators on January 13, 2017, was that the reconciliation
of escrow accounts, which is paramount in ensuring the appropriate management of
consumer funds, would cost $1.5 billion and well beyond Ocwen’s financial capacity.
Ocwen has suggested instead a sample of 457 escrow accounts be reconciled out of 2.5
million active first lien escrow accounts that Ocwen has serviced since January 2013.
This proposal would leave a vast number of consumers with unreconciled escrow
accounts.
14. The MOU required Ocwen to provide, among other things, a viable going forward
business plan that encompassed an analysis of its financial condition going forward. The
purpose of the plan was to analyze Ocwen’s future financial condition incorporating and
encompassing all known or reasonably certain liabilities.
15. Ocwen’s going forward plan submitted in response to the MOU did not provide a
complete assessment of its financial condition because it excluded significant liabilities.
If the going forward plan accurately accounted for known or anticipated regulatory
penalties and other operational costs, including, but not limited to, the expenses of
moving to a new servicing platform and complete reconciliation of consumer escrow
accounts with restitution to impacted borrowers, it would indicate the company would not
continue as a going concern.
16. During the course of the MMC process and as of the end of the calendar year 2016 fourth
quarter, the Department was provided updated information that Ocwen was servicing
56,512 Illinois residential mortgage loans with an unpaid principal balance of
$7,360,938,328.
17. The Department, and other state regulators, became apprised of CFPB findings from an
investigation of Ocwen’s loan servicing practices. The CFPB found that Ocwen has
engaged in numerous violations of federal laws and regulations, including, among others,
the Real Estate Settlement Procedures Act and regulations promulgated thereunder as
Regulation X, and the Truth in Lending Act and regulations promulgated thereunder as
Regulation Z and causing and continuing to cause substantial consumer harm.
18. The CFPB findings include, among other things, that Ocwen has illegally foreclosed on
borrowers; improperly calculated loan balances; misapplied borrower payments; failed to
correctly process escrow and insurance payments; failed to check the accuracy of account
information for loans for which it acquired servicing rights from other servicers; and sold
servicing rights to new servicers without fully disclosing or correcting errors in
borrowers’ loan files.
19. While Ocwen is currently facing numerous substantiated complaints filed by consumers
nationwide, the Department is in receipt of complaints filed by Illinois consumers against
Ocwen encompassing the aforementioned practices identified by the MMC and CFPB.
Many of the Illinois complaints have a connecting theme tied to errors in Ocwen’s
servicing records. The Illinois consumers’ complaints include, among other things, that
Ocwen’s servicing records contain incorrect information and payment discrepancies,
updates of loan modifications and other changes are delayed or lost in the system,
property hazard insurance has been late paid or wrongly cancelled, property taxes have
been paid for the wrong tax parcels, transfer of servicing and notices wrongly sent to
consumers such as for transfer of servicing and flood insurance, and consumer debts
wrongly reported to the credit reporting bureaus.
CONCLUSIONS OF LAW
20. Based upon the aforementioned information and findings from multiple state and federal
agencies and the systematic impact on residential mortgage loans serviced by Ocwen
throughout the U.S., including Illinois, the Department has reasonable cause to believe
that:
a. OLS has engaged in, is engaging in, or is about to engage in an unsafe, unsound, or
unlawful practice in violation of Section 4-1(h-1) of the Act and has engaged in servicing
procedures not in compliance with applicable federal and State statutes and regulations in
violation of Section 1050.870 of the Rules. OLS is in further violation of Section 4-5(i)
(11) and (17) of the Act.
b. Homeward Residential and LHES have engaged in, are engaging in, or are about to
engage in an unsafe, unsound, or unlawful practice in violation of Section 4-1(h-1) of the
Act. Homeward Residential and LHES are in further violation of Section 4-5(i) (17) of
the Act.
c. The public interest will be irreparably harmed by delay in issuing a cease and desist
order to OLS, Homeward Residential, and LHES.
I. OLS, Homeward Residential, and LHES shall immediately cease acquiring new
mortgage servicing rights, and acquiring or originating new residential mortgage loans
until they can demonstrate to the Department’s satisfaction pursuant to the Act and Rules
that:
a. OLS, Homeward Residential, and LHES are a going concern by providing a financial
analysis that encompasses OLS, Homeward Residential, LHES, OFC, and OMS as to
all of the liabilities currently maintained and for which they have knowledge they will
incur in the course of their business;
b. provide the state regulators with a full and complete reconciliation of their escrow
accounts showing that consumer funds are appropriately collected, properly
calculated, and disbursed accurately and timely; and
II. The Department places the Illinois Residential Mortgage Licenses of OLS, Homeward
Residential, and LHES on Probation pursuant to Section 4-5(h)(3) of the Act until such
time they are in compliance with this Order. During the period of Probation, OLS,
Homeward Residential, and LHES shall submit to the Department reports on a monthly
basis on financial condition and reconciliation of escrow accounts.
DIVISION OF BANKING
______________________________
KERRI A. DOLL, DIRECTOR
You are hereby notified that this Order is an administrative decision. Pursuant to 205
ILCS 635/4-12 and 38 Ill. Adm. Code, 1050.1510 et seq. any party may file a request for a
hearing on an administrative decision. The request for a hearing and $500 hearing fee by
certified check or money order shall be filed with the Department at 320 West Washington
Street, 5th Floor, Springfield, IL 62786 within 10 days after the receipt of an administrative
decision. The request for hearing must include an explicit admission, denial, or
appropriate response to each allegation or issue contained in the administrative decision
pursuant to 38 Ill. Adm. Code 1050.1570. A hearing shall be held on the administrative
decision, by the Department of Financial and Professional Regulation, Division of Banking.
Absent a request for a hearing, this Order shall constitute a final administrative Order
subject to the Administrative Review Law [735 ILCS 5/3-101 et seq.].
STATE OF ILLINOIS
DIVISION OF BANKING
CONSENT ORDER
RESIDENTIAL, INC., and LIBERTY HOME EQUITY SOLUTIONS, INC. (collectively the
“Petitioners”) hereby enter into this Consent Order pursuant to the Residential Mortgage License Act of
1987 (“Act”) [205 ILCS 635] and the Rules of the Residential Mortgage License Act of 1987 (“Rules”)
[38 Ill. Adm. Code 1050] and stipulate and agree to the following:
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The Department and Petitioners stipulate that the Department, pursuant to its authority under the
Act and Rules, issued Order No. 2017-MBR-CD-01 (entitled “Order to Cease and Desist and Placing
Licenses on Probation”) to the Petitioners on April 20, 2017. The Petitioners requested an administrative
hearing on Order No. 2017-MBR-CD-01 on April 27, 2017. The Department and Petitioners execute this
Consent Order No. 2017-MBR-CD-01-b (“Consent Order”) to avoid further proceedings. By entering
into this Consent Order, the Petitioners do not admit to the allegations of Order No. 2017-MBR-CD-01
other than those facts deemed necessary to evidence the authority of the Department.
The Petitioners and the Department have agreed to this Consent Order to resolve Order No. 2017-
MBR-CD-01 in its entirety. This Consent Order resolves only those issues raised in Order No. 2017-
MBR-CD-01 and does not alter or set aside any other orders, settlements, or agreements between the
Petitioners and the Department. Should new issues arise not addressed by either Order No. 2017-MBR-
CD-01 or this Consent Order, nothing in this Consent Order precludes the Department from taking further
administrative action. This agreement may be executed in multiple counterparts, each of which shall be
deemed an original, but all of which shall constitute one and the same agreement.
I. Upon execution of this Consent Order, the Petitioners will promptly take the actions
described in Exhibits A and B, which are hereby incorporated into this Consent Order.
II. The Request for Proposal referenced in Exhibit A is attached and incorporated as Exhibit
B.
III. For two years from the date of this Consent Order, the Petitioners will provide a quarterly
report to the Department listing all new borrower complaints received by the Petitioners
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processing previous complaints, until those complaints have been resolved. The first report
is due on October 16, 2017, and fifteen (15) days after the end of each subsequent calendar
IV. The Department agrees that, provided the Petitioners comply with the terms of the Consent
Order, it will not seek additional penalties related to the allegations contained in Order No.
nothing in the Consent Order prohibits the Department from taking administrative action
on new issues discovered during the pendency of the Consent Order or thereafter.
V. The terms of the Consent Order may be enforced by the Department pursuant to the Act
and Rules, but the Department will provide the Petitioners with an opportunity to meet and
confer to discuss and attempt to resolve any allegations that the Petitioners have violated
the Consent Order seven calendar days before taking any action to enforce the Consent
Order.
VI. For the purposes of the Consent Order and the requirements set forth in Exhibits A and B,
the designated representative for the Department will be Mark Clayton; communications
the Petitioners will be Michael Hollerich; communications should be sent via email to
VII. By executing this Consent Order, the Department hereby rescinds Order No. 2017-MBR-
VIII. By executing this Consent Order, the Petitioners hereby withdraw their petition for
for judicial review of Order No. 2017-MBR-CD-01, and further agree to not file any
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Order. The Petitioners acknowledge that they were represented by legal counsel in this
matter, and that they willingly enter into this Consent Order after full review, evaluation,
and consideration with full knowledge of their rights under the Act, Rules, and Illinois
IX. The Department enters into this Consent Order for the purpose of imposing measures that
are fair and equitable under the circumstances and that are consistent with the best interests
X. This Consent Order shall become effective upon all of those hereinafter designated by
signing and dating the Consent Order, and on the date that the last of those designated for
______________________________________________ date:_________________
KERRI A. DOLL
DIRECTOR
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b. REALSERVICING RESTRICTION. Ocwen shall not board any new loans onto
the REALServicing platform at any time. This restriction does not apply to loans
that are (i) already serviced on the REALServicing platform, including those that
are subsequently modified and/or refinanced or those that are subsequently
converted to an arrangement whereby Ocwen acts as sub-servicer, or (ii) required to
be repurchased by Homeward Residential, Inc. or Ocwen.
c. AUDIT PLAN. The Auditor’s testing methodology shall be consistent with the
RFP and shall be set forth in a plan (“Audit Plan”) agreed to by Ocwen and the
Auditor and not objected to by the signatory states. The Audit Plan will be
submitted to the signatory states within sixty (60) days of the Auditor’s
engagement, unless otherwise agreed to by the parties, and the states must submit
any objections within ten (10) days after submission. The Audit Plan must be
completed by February 1, 2018, and the Auditor must begin testing by March 1,
2018. The Auditor may revise the Audit Plan to the extent revisions become
necessary during its testing, provided it is consistent with the RFP and provided
Ocwen agrees to the revision and the signatory states do not object to the revision.
d. SAMPLING METHODOLOGY.
4. For the Pro-Rata Allocation Only strata, the Auditor will ensure the
strata testing population is allocated on a pro-rata basis amongst the
signatory states based on the percentage of Ocwen’s overall
portfolio attributable to each state.
5. For the Pro-Rata Allocation Plus strata, the pro-rata allocation will
be adjusted, as necessary, to ensure the Auditor reviews at least five
(5) escrowed loans per strata for each signatory state.
g. ESCROW REPORT. The Auditor will generate a report setting forth the results of
its audit (“Escrow Report”), pursuant to the timeframes agreed upon in the Audit
Plan. The Escrow Report will identify any information that, in the Auditor’s
opinion, is relevant to its report. At a minimum, the Escrow Report will include
the information described in Paragraphs II.(d)-II.(f) of this Agreement. The final
report, and any drafts, shall be provided simultaneously to Ocwen and the signatory
states. Ocwen shall have the right to submit written comments to the Auditor,
which shall be appended to the final version of the Escrow Report.
a. No later than sixty (60) days after this Consent Order is issued by the State
Regulator, Ocwen shall submit to the State Regulator for review and determination
of non-objection a comprehensive consumer complaint resolution plan (“Complaint
Plan”) designed to ensure that the company will properly document, timely
investigate and remediate consumer complaints as defined in 12 CFR 1024.35. The
Complaint Plan shall include, at a minimum:
a. ONE YEAR FINANCIAL CONDITION PLAN. Within thirty (30) business days,
Ocwen will submit a written plan demonstrating how it will remain a going concern
for a period of one (1) year from the Effective Date of this Order (“One-Year
Financial Condition Plan”). The One-Year Financial Condition Plan, at a minimum,
must take into account, in accordance with Generally Accepted Accounting
Principles, all known and reasonably anticipated future liabilities including, but not
limited to, costs of necessary audits and anticipated regulatory, law enforcement,