HOT TOPIC LEGAL UPDATES

1. HOT TOPICLEGAL UPDATES Presented by the AFN’s Legal Services Committee

2. SPEAKERS William M. LeRoy - Moderator CEO American Legal & Financial Network “AFN” Matthew C. Abad, Esq. - Panelist Partner Burke, Costanza & Cuppy L.L.P. Asha Shravah, Esq. - Panelist Senior Associate Rosicki, Rosicki & Associates, P.C. Michelle Garcia Gilbert, Esq. - Panelist Attorney Kass, Shuler, Solomon, Spector, Foyle & Singer, P.A.

3. Nosek - Update • Sanctions: • Ameriquest - $250,000 • Wells Fargo - $250,000 • Various law firms • Creditors’ rights firm #1 - $25,000 • Partner/Atty at firm #1 - $25,000 • Creditors’ rights firm #2 - $100,000

4. Practice Pointers From Nosek Sanctions • Holder of the note, servicer, creditor’s rights attorneys must accurately inform • Themselves, debtor, the Court • Communication with Parties/Court must be • Reasonable, Accurate, and • Not increase the burden on the trustee/debtor or the Court • Holder of the note, servicer, creditor’s rights attorneys must accurately inform Re: • Status of debt • Pre-petition • Post-petition • Changes in escrow requirements • Changes in interest rate and payments

5. Why The Practice Pointers Matter • Holder of the note, servicer, creditor’s rights attorneys may be sanctioned for failures to: • Accurately communicate status of account • Identify actual holder of note • Identify the servicing relationship • Reliance on another party’s assertion not a defense to potential sanctions • No Finger Pointing – PPPPPP - Power Proper Preparation Prevents Poor Performance) • Strict liability for misrepresentation • Scienter not relevant. In assessing sanctions – court uses objective or reasonableness standard while analyzing behavior of parties

6. Nosek Best Practices Not Followed • Timely and appropriate communication re: status of mortgage loan during the: • POC • Notice of Transfer of claim • Motion for Relief • Adversary proceedings

7. Facts • 11-25-97 - Debtor gave Ameriquest a note and mortgage • 11-30-97 – Ameriquest assigned to Norwest • 5-22-00 – Assignment recorded • 3-31-05 – Ameriquest assigns servicing rights to AMC • Ameriquest not a holder since 11-30-97 • Not a servicer of loan since 3-31-05 • Ameriquest and its various attorneys continually made contrary representations as to status as • Servicer • Note holder

8. Facts (Cont) • 2-13-03, Ameriquest filed POC Claim #1 • No reference to assignment or status as servicer • 4-22-03 Ameriquest filed an Amended POC • No reference to assignment or status as servicer • Debtor objected to POC • 2-17-03 – Atty signed a pleading in response to objection – Part of the pleading: • Ameriquest is the holder of the first mortgage on real property known as 60 Bolton Road, South • False assertion – resulted in sanctions • 2-24-03 - Same atty signed a Motion for Relief identifying Ameriquest as “. . .the holder of a first mortgage ....”

9. Facts (Cont) • Ameriquest sent several letters over a period of time identifying itself as the holder, for e.g. • 10-26-02 – Ameriquest’s Customer Serv. Dept letter • 4-26-03 - Ameriquest sent another letter containing this language stated: • Both letters stated that Ameriquest Mortgage Company (AMC) holds an Adjustable Rate Note secured by a mortgage (or Deed of Trust) • These failures violate BR 4001-1(b)(2)(F), a (not part of the rules at the time • Nothing in previous rules allowed misrepresentation of movant’s role • At time of trial, Ameriquest was not the servicer

10. Facts (Cont) • 1-3-05 another atty at the same firm signed the answer to the Adversary Complaint • Admitted the allegation in the complaint filed December 2, 2004 (Ameriquest “is” the holder of the first position mortgage) • Atty defending Ameriquest failed to advise the Court that Ameriquest was neither the note holder nor mortgagee • 2nd creditor’s rights firm entered the melee • 7-17-06 – atty filed an appearance in Adversary Proceeding 04-4517 • 1-9-08 finally notified the court on 1-9-08 in another Adversary of Ameriquest’s true role

11. Analysis • Court noted mistakes in the residential mortgage industry: • Not limited to confusion, lack of knowledge, sloppiness, as to the entities roles • Servicer’s reputation in industry is poor • Sloppiness causes court/debtor/trustee to expand valuable resources

12. In re: Laskowski - Lessons • Follow all applicable laws (that do not conflict) • RESPA, BK, FDCPA, State statutes • Follow the Best Practices • Liability can result from multiple sources • Federal Statutes • State Law • Servicers must comply with RESPA • Respond to QWR inquiries(20 and 60 day letters) • Annual escrow analysis • Increase post-petition mortgage and escrow payments to reflect increases in taxes/insurance • Notify Debtor/Trustee/Court of changes • Principal, interest, insurance and tax payments • Escrow deficiencies or changes • Bound by the plan • If the terms are not favorable – violate your rights – you must object • Failure to object results in a waiver of your rights

13. In re: Laskowski - Facts • Confirmed Ch 13 Plan required monthly payments to servicer • Principal interest, and escrow (taxes and insurance) • Servicer provides a “refund” of overpayments during course of Bk • Debtor completes the Plan payments 10/06 • Trustee sends QWR to servicer requesting final accounting pursuant to RESPA

14. Facts (Cont) • Servicer fails to respond to QWR • No 20 day letter • No 60 day letter • After the Bk plan is complete/discharged • Servicer notifies trustee of post-petition fees due Amounts owed in the escrow account in 04/06 • Servicer admitted it didn’t analyze escrow accounts for loans in bankruptcy • Trustee filed an Adversary claiming contractual, and statutory damages, legal fees and costs • RESPA Violations • Failure to conduct annual escrow analysis • Failure to notify debtor of surplus or deficiency • Failure to acknowledge receipt of QWR (20 days) • Failure to respond with written explanation (60 days) • Servicer delays caused Debtor to remain in bankruptcy

15. Facts (Cont) • Servicer Response to Debtor: • Pre-emption - Bankruptcy Code has priority and precludes RESPA claim • No Private Cause of Action under RESPA § 2609 • Trustee Lacks standing to bring QWR claim • RESPA doesn’t require annual accounting for bankrupt borrowers • Bankruptcy Code precludes state based contract claim. • Contract law doesn’t apply to Ch. 13 plan

16. Court’s Analysis (Judge Dees) • RESPA and Bankruptcy are different statutes • Different Purposes • Different requirements • Different remedies • RESPA does grant private rights of action for certain violations (including the violations claimed in this case) • Trustee has standing to bring RESPA claim as agent of debtor • Servicer must conduct annual analysis • Servicer not required to provide debtor with annual statement • Bankruptcy Code does not preclude state contract claims. • No showing that state law claims actually conflict with Bankruptcy Code • Contract claims are allowed: • Ch. 13 plan operates like a court-approved contract • Ch. 13 provided that creditor must notify debtor of change in payments

17. In Re: Laskowski – Best Practices Best Practices Not Followed • Communication – accurately re: identify of parties, amount of debt (pre- and post-petition • Allows debtor and Trustee to make appropriate, timely post-petition and claim payments • Servicer failed to inform trustee/debtor of changes in post-petition payments • Servicer failed to take action to ensure • accuracy and completeness of the balances to reduce litigation • Accurate balances and amounts due post-petition

18. Best Practices (Cont) • Failed to analyze not only this loan, but any loan in Bankruptcy on an annual basis • Servicers Policy was to not analyze escrow accounts for Bk loans • Court held that RESPA requires servicer to conduct annual analysis • Servicer failed to provide a dedicated phone line and contact for Ch. 13 trustee inquires • Although not required, assists with inquiries and resolutions • Dedicated line would have avoided sixth month gap between mailing of QWR and response

19. Best Practices (Cont) • Servicers should supply and maintain a contact for debtor’s counsel and trustees for the purpose of loss mitigation for active bankruptcy accounts • This was not done in Laskowski and trustee later brought a claim alleging that the creditor delays re responding caused the debtor to remain in bankruptcy longer and prevented the debtor from re-financing the home • This claim brought by the trustee seemed likely to succeed so the practice of maintaining such a creditor contact seems to be very important given the negative effect of delays caused by the creditor

20. Best Practices (Cont) • But what about the Professional Rules of Ethics • As creditors’ rights attorneys representing the servicer, we could not call the debtor’s directly • How is it that the Trustee and the debtor’s attorney are exempted from this requirement in this suggestion • Servicer failed to inform debtor’s attorney and trustee of changes in payment/interest/taxes as they occurred • Servicer should have notified of the changes no later than 30 days before the effective date • Servicers should have concurrently filed a notice of the payment change with the court clerk • Servicer did not have an appropriate Corporate Governance Process in Place • Did not appear to have any mechanism to catch or notify anyone of the charges until the completion of the bankruptcy

21. Best Practices (Cont) Corporate Governance – LACRP • Legal – advise as to the legal risks (statutory, regulatory, litigation) • Audit – check to see that the other departments are following the procedures • Compliance – checks for compliance with regulations • Risk – Credit and Reputational • Privacy – checks for compliance with privacy regs • The groups should coordinate with the line of business • Set-up the appropriate processes and procedures for the line of business (servicing) • Prevent litigation, regulatory or reputational risk • Prevent debtors from going straight into foreclosure after completing their Ch 13 • Servicer in this case failed to file escrow changes with the BK court • Remember PPPPP – Proper Power Planning Prevents Poor Performance

22. ConclusionQuestion & Answer Period If you have any further questions that were not addressed in this presentation, or want to contact one of our speakers, please email Matt Bartel, COO of AFN, at mbartel@e-afn.org. Thank you for your participation in this webinar. Please complete the brief survey which you will be directed to at the conclusion of this presentation. * AFN provides the information contained in these webinars as a public service for educational and general information purposes only, and not provided in the course of an attorney-client relationship. It is not intended to constitute legal advice or to substitute for obtaining legal advice from an attorney licensed in the relevant jurisdiction.