IN THE CIRCUIT COURT FOR THE COUNTY OF TALBOT, MARYLAND

JOHN E. DRISCOLL, III, et al *

Plaintiffs, *

v. * Civil Action No. 20-C-12-007978

ELIZABETH M. JACOBSON *

Defendant *

* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *

ELIZABETH M. JACOBSON *

Counter-Plaintiff *

v. *

JOHN DRISCOLL, III *ROBERT E. FRAZIERLAURA D. HARRIS *DANIEL J. PESACHOWITZ andDEENA L. REYNOLDS *Substitute Trustees

*and

*WELLS FARGO BANK, N.A.

*Counter-Defendants

* * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * * *

DEFENDANT/COUNTER PLAINTIFF’S MEMORANDUM IN SUPPORT OF ORAL MOTION TO STAY AND/OR DISMISS FORECLOSURE PROCEEDING PENDING DETERMINATION OF INDEPENDENT FORECLOSURE REVIEW HEARING and MOTION TO DENY ANY

REQUEST FOR DEFENDANT/COUNTER PLAINTIFF TO FILE A BOND

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Elizabeth M. Jacobson, Defendant/Counter Plaintiff, by her attorney, Gerard

P. Uehlinger, Esquire, files this memorandum in support of her position as

stated in open Court at the February 1, 2013, hearing that the foreclosure

action be stayed until a determination has been made under the recent $8.5

billion dollar settlement pursuant to the Independent Foreclosure Review,

and that no bond be required by Defendant/Counter Plaintiff, and in support

hereof, states as follows:

I. The Parties

At the February 1, 2013, hearing the Plaintiff/Counter-Defendant’s attorney

asserted that as Ms. Jacobson has recognized Wells Fargo as the servicer of

her loan, dealt with Wells Fargo in her attempts to modify her loan, and that

as the loan was originated by Wells Fargo, Ms. Jacobson must recognize

that Wells Fargo has the authority to enforce the Note in a foreclosure

action. Ms. Jacobson denies that assertion by first identifying all parties

pursuant to Freddie Mac’s own guidelines.

a. Owner/Investor of subject loan: Freddie Mac’s Document

Custody Procedure Overview, December 2003, at page 25, clearly

states that (emphasis added) ‘Freddie Mac is the owner (holder-

in-due- course) of the property.’ Freddie Mac’s own records

reflect “that Freddie Mac is the owner of your mortgage and it was

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acquired on November 13, 2007. This date is also referred to as

the Freddie Mac settlement date.” (Exhibit A, FreddieMac.com,

Yes! Our records show that Freddie Mac is the owner of your

mortgage. – Freddie Mac). In its December 21, 2011, letter, Wells

Fargo states that Freddie Mac is the investor for this loan (Exhibit

B). There is no dispute that Freddie Mac is the owner/investor of

the subject loan.

b. Originator/Lender of subject loan: Wells Fargo originated the

subject loan on October 15, 2007, and then on November 13, 2007,

Wells Fargo sold the Note and all of its rights under the Note to

Freddie Mac. (See Exhibit A). There is no dispute that Wells

Fargo originated the subject loan and that its role as “lender”

ceased when Wells Fargo sold the subject loan to Freddie Mac.

c. Servicer of the subject loan: Pursuant to the Statement of

Donald Bisenius, Executive Vice President-Single Family Credit

Guarantee Business Freddie Mac to the U.S. Senate Committee on

Banking, Housing and Urban Affairs on December 1, 2010,

“servicers collect loan payments from the borrowers and remit

them to Freddie Mac each month. They are paid for their services

on a monthly basis by retaining the difference between the interest

rate on the note and interest rate paid to Freddie Mac.”

“Servicers’ duties also include working with borrowers who fall

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behind in making payments on their mortgages”. (Exhibit C)

Wells Fargo is the Servicer of the subject loan as it is the singular

entity that issues mortgage statements to Ms. Jacobson; the entity

to which Ms. Jacobson applied for her loan modification; and the

entity to which Ms. Jacobson sent her Qualified Written Request

(QWR), which elicited Wells Fargo’s response of December 21,

2011 (Exhibit B). The Servicer is analogous to a property

manager of an apartment complex; like the property manager, the

Servicer collects payments on behalf of the owner of the

loan/apartment complex. There is no dispute that Wells Fargo

services the subject loan on behalf of Freddie Mac.

d. Document Custodian of the subject loan: In his statement to

the Senate Banking Committee, Donald Bisenius describes the

document custodian (Exhibit C) as follows:

Concerns have been raised about the custody of mortgage notes and other documents. When a mortgage is sold to Freddie Mac, the seller must deliver the original note for mortgage loan, together with any power of attorney or modifying instrument (such as a modification agreement, conversion agreement, assumption of liability or release of liability agreement), to a document custodian, which holds the documents in trust for Freddie Mac. Currently, Freddie Mac uses approximately 125 document custodians, with much of the volume concentrated in a relatively small number of large companies.

Our Guide sets forth eligibility standards and various other requirements for document custodians. Each document custodian enters into a tri-party custodial

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agreement with Freddie Mac and the servicer that is servicing a mortgage for which the custodian holds note files.

Freddie Mac Document Custody Procedures Handbook (“the

Handbook”), dated March 2012, details the requirements of the

Custodian. The handbook is 118 pages, so in an effort to conserve

resources and the Court’s time, several pages are attached as

(Exhibit D); certainly, the complete handbook can be produced if the

Court so requests. The Handbook’s Overview states that a

Seller/Servicer (defined as an entity primarily or exclusively selling

Mortgages to, or servicing Mortgages for, Freddie) selling mortgages

to Freddie Mac must ensure that the Notes are delivered to the

Document Custodian. Freddie Mac allows for a ‘Self-Custodian’;

however, the Self-Custodian must ensure that document custody

functions are separate from Mortgage origination, selling or servicing,

pursuant to Chapter 2, page 5 of the Handbook (Exhibit D). The

Document Custodian must certify that the Notes are delivered by the

Seller/Servicer and held in trust for Freddie Mac. (Chapter 2, page 2

of Handbook).

The “Custodial Agreement” is the ‘tri-party agreement’ among

Freddie Mac, the servicer and the custodian as described by Mr.

Bisenius in his December 1, 2010, statement to the Senate Banking

Committee. The “Custodial Agreement” is attached as (Exhibit E).

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In executing this Custodial Agreement, the “Custodian represents and

warrants that it has no, and covenants that it shall hold no, (sic)

adverse interest, by way of security or otherwise, in any Note and

hereby waives and releases any such interest which it may have or

acquire in any such Note. The parties each hereby acknowledge that

neither title, ownership nor right of alienation with respect to the

Notes, nor any books and records relating to the Notes, is hereby

transferred to, or conferred upon, Custodian.” (pp 4-5 of Exhibit E).

Plaintiff’s Counsel stated at the February 1, 2013, that Wells Fargo

has held the Note since it was originated. Assuming that is an

accurate statement, then under the terms of the Handbook and

Custodial Agreement, Wells Fargo is the Document Custodian for the

subject loan.

The parties are now clearly defined: Freddie Mac is the owner of the

Note/loan, and Wells Fargo is both the Servicer and the Custodian of

Documents on behalf of Freddie Mac. Also, it is clearly established that

Wells Fargo is not owner/investor of the subject loan, and that pursuant to

the Custodial Agreement Wells Fargo only holds the Note in trust for

Freddie Mac because Wells Fargo has waived and released any interest it

had in that Note. What has not been clarified from Plaintiff’s counsel,

however, is the capacity in which Wells Fargo is involved in this

foreclosure action – as Servicer or as Document Custodian.

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Nonetheless, Wells Fargo thereby lacks standing to enforce the Note via a

foreclosure action because Wells Fargo is merely the servicer and/or the

document custodian.

II. Independent Foreclosure Review/$8.5 Billion Settlement

It is undisputed that Wells Fargo is one of the 10 mortgage servicers to

have entered into settlement agreement/consent orders with the Office of

the Comptroller of the Currency (OCC) and the Federal Reserve Board

(FRB), both which ended their Independent Foreclosure Review (IFR)

programs created by Article VII of an April 2011 Interagency Consent

Order, and have since replaced them with an accelerated remediation

process. Exhibit F, Wells Fargo Press Release dated January 7, 2013. As a

result of the agreement therein, the 10 servicers will pay more than $8.5

billion in cash payments and other assistance to help borrowers. Exhibit G,

Joint Press Release of FRB and OCC dated January 7, 2013. Wells Fargo’s

portion of the cash settlement will be $766 million. The $8.5 billion

agreement ensures that more than 3.8 million borrowers whose homes were

in foreclosure in 2009 through December 2010 with the participating

servicers will receive cash compensation in a timely manner.

Plaintiff’s counsel inaccurately stated at the February 1, 2013, hearing that

borrowers would be contacted in order of submission of their completed the

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Independent Foreclosure Review Form that was due December 31, 2012.

It is unknown upon what information that statement derives. The FRB and

OCC Joint Press Release dated January 7, 2013, (Exhibit G) clearly and

expressly states that borrowers will receive compensation whether or not

they filed a request review form, as stated below (highlighted):

As a result of this agreement, the participating servicers would cease the Independent Foreclosure Review, which involved case-by-case reviews, and replace it with a broader framework allowing eligible borrowers to receive compensation significantly more quickly. The OCC and Federal Reserve accepted this agreement because it provides the greatest benefit to consumers subject to unsafe and unsound mortgage servicing and foreclosure practices during the relevant period in a more timely manner than would have occurred under the review process. Eligible borrowers will receive compensation whether or not they filed a request for review form, and borrowers do not need to take further action to be eligible for compensation.

A payment agent will be appointed to administer payments to borrowers on behalf of the servicers. Eligible borrowers are expected to be contacted by the payment agent by the end of March with payment details. Borrowers will not be required to execute a waiver of any legal claims they may have against their servicer as a condition for receiving payment. In addition, the servicers’ internal complaint process will remain available to borrowers.

Ms. Jacobson is an eligible borrower under this settlement as confirmed

recently, on January 31, 2013, by Wells Fargo customer service

representative Ebise, who provided 1405587196 as the reference number of

Ms. Jacobson’s case pursuant to this settlement. Ebise confirmed that Ms.

Jacobson’s loan qualifies based on the status of the loan being referred to

the foreclosure process between January 1, 2009, and December 31, 2010,

and that the loan remains delinquent but with no sale date.

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As of the writing of this Memo, the most recent status update by the OCC

and the FRB regarding the $8.5 billion settlement was posted January 24,

2013 at http://www.occ.gov/topics/consumer-protection/foreclosure-

prevention/ifr-settlement-faqs.html. At present, the actual wording of the

amended consent orders are not publicly available. As the question from

the link’s site pasted herein below states:

Where can I find a copy of the Independent Foreclosure Review settlement agreement? 

The Office of the Comptroller of the Currency and the Board of Governors of the Federal Reserve System have reached an agreement in principle with the participating servicers. This agreement will be memorialized into amended consent orders for each of the participating servicers. The amended consent orders will be made publicly available the Office of the Comptroller of the Currency’s website, www.occ.gov, and the Board of Governors of the Federal Reserve System’s Web site, www.federalreserve.gov once they are finalized.

Eligible borrowers under this settlement are expected to receive

compensation ranging from hundreds of dollars up to $125,000.00,

depending on the type of servicer error. The OCC and FRB developed a

financial remediation framework (the Framework, Exhibit H) that

“provides examples of situations where compensation or other remediation

is required for financial injury due to servicer errors, misrepresentations, or

other deficiencies.” It is undisputed that Ms. Jacobson entered into a HAMP

modification with Wells Fargo in December of 2010, and remitted seven

Trial Period Payments (TPP), four more than the required 3 TPP. It is

undisputed that Wells Fargo returned all seven payments totaling

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$11,718.001 via check no. 7008190328 dated July 6, 2010, Exhibit I. It is

undisputed that HAMP guidelines clearly state that (highlighted) “In no

event should the Servicer return the funds [TPP] to the Borrower.”

Exhibit J, Home Affordable Modification Programs FAQs. It is undisputed

that Freddie Mac’s Bulletin Number 2013-3 requires that “Servicers must

ensure that upon receipt of any Trial Period payment such funds are placed

in the Borrower’s suspense account. When the aggregated amount equals

or exceeds the oldest delinquent payment due, the Servicer must apply such

funds to the Borrower’s account to pay the oldest delinquent payment due

in accordance with the Note and Security Instrument, and any modification

agreement, if applicable.” It is undisputed that Wells Fargo states in its

June 29, 2010, letter to Ms. Jacobson that “Any trial period payments you

have made will be applied to your mortgage in accordance with your

current loan documents.” It is undisputed that Wells Fargo violated both

Freddie Mac and HAMP guidelines when it returned the seven TPP to Ms.

Jacobson. Wells Fargo failed to convert Ms. Jacobson’s written trial period

plan to a permanent modification and it is undisputed that under the

Framework (Exhibit H), Ms. Jacobson qualifies under the category “Error

after Trial Loan Modification Completed” which is 3a.

With the instant case now in the foreclosure process, there are two

“remedies available under the Framework: 1. Suspend foreclosure as

1 Defendant/Counter-Plaintiff’s Counter Complaint filed in this instant case asserts the reasons that Wells Fargo returned the TPP in violation of both HAMP and Freddie Mac.

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required by program; pay $5,000.00, provide permanent loan modification,

correct servicer record for any improper amounts, and correct credit

reports. 2. If servicer cannot provide permanent loan modification; pay

$35,000.00, correct servicer record for any improper amounts, and correct

credit reports.”

By the establishment of Ms. Jacobson’s loan eligibility under this $8.5 billion

settlement, it is just and proper to wait until the end March when a

payment agent appointed to administer payments on behalf of Wells

Fargo has contacted Ms. Jacobson as to the compensation owed to

her by Wells Fargo due to Wells Fargo’s unsafe and unsound

mortgage servicing practices. If Ms. Jacobson is satisfied with the

compensation offered to her pursuant to this OCC/FBR settlement and her

loan is reinstated to a permanent loan modification based on the terms of

December 2009 HAMP modification, the foreclosure action is extinguished,

leaving only the counter claim to proceed.

III. Opposition to Bond

At the February 1, 2013, hearing, Plaintiff’s counsel stated that he would

seek a bond to be set for Ms. Jacobson to pay into the Court.

Defendant/Cross-Plaintiff opposes the requirement of posting a bond, as set

forth herein below.

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It is well-documented that Wells Fargo subjected homeowners, including

Ms. Jacoboson, to unsafe and unsound mortgage servicing and foreclosure

practices, compelling Wells Fargo to enter into at least three settlements.

1. The Consent Order dated April 13, 2011, with the OCC and FRB

that resulted in the initial Independent Foreclosure Review and,

subsequently, in the recent $8.5 billion settlement. This Consent

Order was as a result of the OCC identifying “certain deficiencies

and unsafe or unsound practices in residential mortgage servicing

and in the Bank’s [Wells Fargo] initiation and handling of

foreclosure proceedings”.

2. $25 Billion Mortgage Servicing Agreement among the Justice

Department, the Department of Housing and Urban Development,

attorneys’ general from 49 states (including Maryland), and the

nation’s five largest mortgages servicers, including Wells Fargo, to

address the mortgage loan servicing and foreclosure abuses.

(Exhibit K, Department of Justice press release dated March 12,

2012).

3. Wells Fargo entered into a Consent Order with the United States

on July 12, 2012, to resolve the claims that during and between

2004 and 2009, Wells Fargo engaged in a pattern or practice of

discrimination on the basis of race and national origin in

residential mortgage lending in violation of the Equal Credit

Opportunity Act and the Fair Housing Act2. Wells Fargo agreed to

pay $175 million to settle the claim, Exhibit L

2 The Department of Justice and the City of Baltimore heavily relied on Ms. Jacobson’s whistle-blowing of Wells Fargo’s “reverse redlining” practices in bringing this case forward.

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As evidenced by the aforementioned settlements, and by Wells Fargo’s

mishandling of Ms. Jacobson’s loan modification; by its violation of HAMP

and Freddie Mac requirements in returning the TTP to her; and by its odd

assertion that it has the power to enforce the Note when all evidence shows

that it is only a document custodian holding the Note in trust for Freddie

Mac, Wells Fargo presents a convincing history of “unclean hands”. The

Court in Wells Fargo v. Neal, 922 A.2nd 538, 398 Md. 705 (Md. App. 2007)

addresses the issue of “unclean hands” in a foreclosure action as noted

below:

Thus, the venerated equity doctrine of clean hands which requires that "he who comes into equity must come with clean hands," Hlista v. Altevogt, 239 Md. 43, 48, 210 A.2d 153, 156 (1965), is applicable in foreclosure proceedings such as the one implicated in the present case.

The clean hands doctrine states that "courts of equity will not lend their aid to anyone seeking their active interposition, who has been guilty of fraudulent, illegal, or inequitable conduct in the matter with relation to which he seeks assistance." Hlista, 239 Md. at 48, 210 A.2d at 156; see also Hicks v. Gilbert, 135 Md.App. 394, 400, 762 A.2d 986, 989-90 (2000). The doctrine does not mandate that those seeking equitable relief must have exhibited unblemished conduct in every transaction to which they have ever been a party, but rather that the particular matter for which a litigant seeks equitable relief must not be marred by any fraudulent, illegal, or inequitable conduct. Hlista, 239 Md. at 48, 210 A.2d at 156; Hicks, 135 Md.App. at 400-01, 762 A.2d at 990 ("There must be a nexus between the misconduct and the transaction, because `[w]hat is material is not that the plaintiff's hands are dirty, but that he dirties them in acquiring the right he now asserts.'") (quoting Adams v. Manown, 328 Md. 463, 476, 615 A.2d 611, 617 (1992)). As we have stated previously, the NHA and its implementing regulations compel FHA mortgagees to pursue loss mitigation strategies before initiating foreclosure. In the present case, if Neal's contentions regarding Wells

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Fargo's failure to comply with the loss mitigation directives are proven to the satisfaction of the trial court, such a failure may constitute improper and/or inequitable conduct, depending on the proven circumstances. Thus, under the doctrine of clean hands, while Neal technically may be said to be in default, the legal fiction that no default exists may be maintainable until such time as Wells Fargo complies with the statutory and regulatory imperative to pursue loss mitigation prior to foreclosure.

Thus Ms. Jacobson should not be required to post a bond, in light of the

doctrine of “unclean hands” and that Wells Fargo has dirtied it hands “in

acquiring the right he now asserts” by refusing to convert Ms. Jacobson’s

loan modification to a permanent loan modification after the 3rd TPP was

made and further “dirt[ied] its hands” by violating both HAMP and Freddie

Mac requirements by returning all 7 TPP. Pursuant to the Framework,

Exhibit H, it is Wells Fargo which should be required to pay what it owes

to Ms. Jacobson: At least $5,000.00 for Wells Fargo’s failure to convert her

loan modification to a permanent loan modification.

IV. Conclusion

For the foregoing reasons, Defendant/Cross-Plaintiffs requests this Court to

Dismiss the Foreclosure action as Wells Fargo does not have standing as

Servicer or Document Custodian to enforce the Note, or in the alternative,

Stay the Foreclosure until after Wells Fargo has compensated Ms. Jacobson

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under the OCC/FRB agreement and to not require that any bond be posted

during that time.

Respectfully Submitted,

___________________________Gerard P. Uehlinger28 West Allegheny AvenueSuite 1210Towson, Maryland 21204Phone: 410-821-0025

CERTIFICATE OF SERVICE

I hereby certify that on February 20, 2013, a copy of the foregoing Memorandum with Exhibits was mailed by first class mail, postage prepaid to Robert H. Hillman, 611 Rockville Pike, #100, Rockville, MD 20852 and that the foregoing Memorandum without Exhibits was faxed to 301-838-1954.

___________________________Gerard P. Uehlinger

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