Tag Archives: securitized mortgages

A case to watch 09-cv-9784 S.D.N.Y.: Deutsche Bank, AG v Bank of America; Complaint Showing that there’s No Honor Among Thieves (aka–in the absence of Fresh Carrion, The Vultures are starting to Feed on Each Other!)

Updates: March 23, 2011 Opinion: 778_F-2.Supp.2d_375 and an unpublished decision in a closely related case before the same Judge Sweet: 08-30-2011 BNP Paribas Mortg Corp v Bank of America NA 2011 WL 3847376.  March 17, 2010 First Amended Complaint: 03-17-2010 USDC SDNY FAC Deutsche Bank v Bank of America 09-cv-9784-RWS

First Amended Complaint adding count for Breach of Fiduciary Duty regarding the Ocala Facility and Ocala Agreements.  Incredibly important litigation: “As late as August 3, 2009, BOA represented to DB that BOA owned and had control of mortgages valued at over one billion dollars securing DB’s investment.  In August 2009, following the bankruptcy of TBW, it was revealed that with respect to the great majority of those mortgages, BOA either never owned them in the first place or already had sold them to Freddie Mac without securing the proceeds of any such sale.”

Printable version of the Complaint attached when first published here on November 30, 2009, at 13:44 from San Clemente, California:

DEUTSCHE BANK, AG, Plaintiff, v. BANK OF AMERICA, N.A. Defendant

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK

DEUTSCHE BANK, AG,

Plaintiff,

v.

BANK OF AMERICA, N.A.

Defendant.

Civil Action No.: 09-cv-9784(RWS)  ECF Case

COMPLAINT

Plaintiff Deutsche Bank AG (“DB”), by and through its attorneys, Williams & Connolly

LLP, as and for its Complaint against Defendant Bank of America, N.A. (“BOA”), as successor

in interest to LaSalle Bank, National Association, alleges as follows:

NATURE OF CASE

1. This is an action for (1) damages for breach of contract resulting from BOA’s

failure to secure and safeguard over $1.25 billion worth of cash and mortgage loans that it was

contractually obligated to secure on behalf of DB and (2) contractual indemnity for the losses

caused by BOA’s negligent performance of its duties to DB.

2. On December 13, 2007, DB invested $750 million in asset-backed commercial

paper (“ABCP”) issued by a special purpose entity called Ocala Funding, LLC (“Ocala”).  On

June 30, 2008, DB increased this investment by approximately $450 million to a total

investment in Ocala’s ABCP of approximately $1.2 billion.  On June 30, 2008, BNP Paribas

Bank (“BNP,” and collectively with DB the “Secured Parties”) also invested approximately

$481 million in the ABCP issued by Ocala.  DB’s investment in Ocala was to be renewed on a

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monthly basis, and Ocala was required to maintain at least $1.25 billion in cash and collateral

as security against its obligations to DB.

3.   Ocala was established for the sole purpose of providing funding for mortgage

loans originated by Taylor, Bean & Whitaker Mortgage Corp. (“TBW”).  Mortgages purchased

by Ocala were required to conform to the requirements of, and were intended to be sold to, the

Federal Home Loan Mortgage Corporation (“Freddie Mac”), a government-sponsored entity

that is implicitly backed by the full faith and credit of the United States government.

4. Ocala’s ABCP was structured to minimize risks to DB’s investment.  Robust

contractual mechanisms existed to ensure that DB’s investment would be protected from credit

risk, market risk, interest rate risk, the risk of bankruptcy by TBW, and the counterparty risk

associated with dealing with TBW as originator of the mortgages.  In that regard, BOA

assumed the responsibility to act as trustee, collateral agent, custodian, and depositary agent on

behalf of the ABCP holders, including DB.

5. One vital mechanism protecting DB against risk was the requirement that DB’s

investment be at all times over-collateralized by a combination of cash and “dry” mortgages

purchased by Ocala.  “Dry” mortgages are mortgages that have been reviewed by the lender

and are actually in the lender’s possession at the time the mortgage loan is acquired by the

lender.  By contrast, “wet” funding of mortgages is riskier from the lender’s perspective

because financing is provided to a borrower before the mortgage note has been received and

reviewed by the lender (i.e., when the ink on the mortgage note is still “wet”).  The lender

providing wet funding for TBW was Colonial Bank (“Colonial”).  In making its investment in

Ocala on June 30, 2008, DB insisted that its investment be used only for dry mortgages.

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6. DB’s investment was further protected by the requirement that Ocala purchase

only mortgages that satisfied the requirements of Freddie Mac, and DB obtained assurances

from Freddie Mac that Freddie Mac would purchase mortgages held by Ocala in the event

TBW became ineligible to sell mortgages to Freddie Mac itself.  In short, DB’s investment was

required at all times to be secured by a combination of cash and dry mortgages that readily

could be sold to Freddie Mac.

7. A number of protections existed to ensure the reliability of the collateral

securing DB’s investment.  First, Ocala was permitted to purchase only fully-documented and

executed mortgages that were in the possession of a collateral agent representing the Secured Parties.

8. Second, the only purpose for which Ocala could use the funds invested by DB

(other than to repay DB or to cover other specified expenses) was to purchase such mortgages.

Any proceeds garnered from the subsequent sale of such mortgages were subject to the same limitation.

9. Third, the Ocala facility could continue operating only so long as the borrowing

base of cash and mortgages allocated to DB as collateral totaled at least $1.25 billion (the

Borrowing Base Condition”).  If the Borrowing Base Condition was not satisfied, the trustee

would trip this “circuit breaker” to suspend any further outflow of cash and to prevent the

automatic monthly renewal of DB’s investment.

10. These carefully crafted safeguards protecting DB’s investment from risk were

only as reliable as the gatekeeper who administered them.  To ensure that Ocala complied with

these measures, DB relied on a credit-worthy trustee/custodian/collateral and depositary agent

to serve as the gatekeeper that would at all times control: (1) the flow of mortgages into and out

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of Ocala; (2) the mortgages and cash that were to be held to secure DB’s investment; and (3) all

accounts in which Ocala’s funds were to be held or to which they were to be distributed.

11. BOA, as successor-in-interest to LaSalle Bank, N.A., assumed this gatekeeper

role.  By way of a series of contracts that governed the existence and activities of Ocala, BOA

accepted the responsibility to enforce the provisions that had been designed to protect DB’s

investment.  BOA represented that it would perform its duties with due care, and was obligated

by the contracts to do so.  It was BOA’s charge to ensure that Ocala at all times retained cash

and mortgages totaling at least $1.25 billion to secure DB’s investment (“DB Collateral”).

12. DB trusted that BOA, one of the nation’s largest and most well-known financial

institutions, would perform the gatekeeper function reasonably and responsibly.  DB’s

confidence was echoed by Moody’s Investors Service, which, in assigning Ocala an investment

grade rating, emphasized the importance of BOA’s role and stated that risk to DB and other

noteholders was “mitigated by the resources, capability and credit strength of BOA as the

trustee, collateral agent, depositary and custodian to provide critical program support services,

including: certifying the borrowing base and checking the delinquency triggers before the

issuance of Ocala’s ABCP; checking in the loan files and creating a collateral transmittal

report; and managing the orderly wind-down of the program.”  Moody’s ABCP Market Review

(July 13, 2009).

13. As it turned out, the faith of DB and other investors was misplaced.  In myriad

ways, BOA failed to carry out its various duties designed to protect DB’s investment, and these

failures substantially damaged Ocala and DB’s investment.

14. First, BOA transferred funds out of the Ocala accounts for unauthorized

purposes.  Ocala was permitted to purchase only dry mortgages, so the only legitimate transfers

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to purchase mortgages for Ocala were those made to an account specified on a bailee letter

from the lender who provided the wet funding for the mortgage.  Because Colonial was the

source of wet funding for TBW, BOA knew that there was only one such account—Account

No. 8026069354 held at Colonial called the Investor Funding Account (the “Colonial IFA”)—

into which Ocala funds could be transferred to purchase mortgages for Ocala.  BOA

nonetheless transferred hundreds of millions of dollars of DB’s investment to other accounts

with no connection to Ocala’s purchase of mortgages.  Further, notwithstanding the express

prohibition on Ocala’s purchase of wet mortgages, BOA nonetheless transferred more than $1.7

billion to a TBW account that BOA knew was used for wet funding of mortgages.  Finally,

even when BOA transferred funds to the Colonial IFA, the size of the transfers, contrary to the

requirements of the Ocala transaction documents, usually bore no relationship at all to the value

of mortgages that BOA understood were to be purchased by Ocala.

15. Second, BOA failed to track and document properly the purchase and sale of

mortgages as would be required for it to report accurately and protect adequately the Secured

Parties’ beneficial interest in the mortgages.  As late as July 2009, BOA represented to DB that

BOA had control of mortgages valued at over one billion dollars securing DB’s investment.  In

August 2009, following the bankruptcy of TBW, it was revealed that with respect to the great

majority of those mortgages, BOA either never had control of them in the first place or already

had sold them to Freddie Mac.

16. Third, BOA breached its express obligation to be able at all times to report to

Ocala and its investors the status of mortgages held by BOA for the benefit of the investors.

Not only did BOA breach this duty, it actually reported on a daily basis to DB that BOA was

holding certain loans as security for DB’s investment when, in reality, these loans already had

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been sold to third parties.  These misrepresentations led DB to believe that its investment was

at all times secured by $1.25 billion of collateral and hid the fact that an event of default

already had occurred under the Ocala facility documents that would have given DB the right to

accelerate the repayment of DB’s investment.

17. Fourth, BOA knew or should have known that the Borrowing Base Condition

was not satisfied for many months prior to the ultimate shut-down of the Ocala facility in

August 2009.  Yet, during that period BOA repeatedly certified and/or confirmed that the

Borrowing Base Condition was satisfied.  As a result, DB’s investment continued to roll over

on a monthly basis, and BOA continued to transfer funds out of Ocala that would have been

frozen had BOA correctly reported that the Borrowing Base Condition was not satisfied.

18. Fifth, BOA failed to segregate and account for the cash and collateral securing

DB’s investment.  The Ocala transaction documents required that funds invested by DB and

BNP and all mortgages purchased with such funds were to be accounted for separately to

protect DB’s and BNP’s security interests in their respective investments.  BOA nonetheless

regularly commingled the funds and failed to segregate effectively the parties’ collateral.  As a

result, BOA has been unable to allocate between DB and BNP what cash and collateral remains

in the Ocala accounts at BOA.

19. In short, BOA had the responsibility for (1) taking possession of mortgages,

checking them for completeness and compliance with the Ocala requirements, (2) paying for

fully-documented and executed mortgages by sending the appropriate amount to the Colonial

IFA, (3) preventing the transfer of Ocala funds for any purpose beyond what was contractually

specified, (4) ensuring that mortgages thus purchased remained within BOA’s control and/or

subject to a BOA lien until BOA obtained payment for such mortgages from a third party, (5)

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reporting accurately to DB the status of the collateral, (6) properly segregating the collateral

securing DB’s and BNP’s respective investments, and (7) renewing those investments on a

monthly basis only if the borrowing base fully secured those investments.  BOA failed to

comply with its contractual obligation to perform these tasks and to do so with due care.

20. Instead, BOA’s breaches of its contractual obligations and negligent acts and

omissions were the direct and proximate cause of the loss of DB’s investment in Ocala.  On

August 20, 2009, based upon an event of default, the Ocala ABCP held by DB totaling

$1,201,785,714 became immediately due and payable.  As a direct result of BOA’s contractual

breaches, Ocala was unable to pay this amount and failed to pay this amount to DB.  This

Complaint seeks to remedy that wrong.

PARTIES

21. Deutsche Bank is a bank organized under the laws of the Federal Republic of

Germany with a branch at 60 Wall Street, New York, New York 10005.

22. Bank of America is a bank organized under the laws of the State of North

Carolina with a branch a 9 West 57th Street, New York, New York 10019.  Bank of America is

successor in interest to LaSalle Bank, National Association, and assumed, by operation of law,

all of the liabilities and obligations of LaSalle Bank, National Association.  BOA has done and

is doing business in the State of New York.

JURISDICTION

23. Personal jurisdiction over the defendant is proper in this Court because Bank of

America conducts business in New York and has agreed in Section 10.09 of the Second

Amended and Restated Security Agreement to irrevocably and unconditionally submit itself to

the jurisdiction of this Court.

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24. This Court has diversity jurisdiction pursuant to 28 U.S.C. § 1332(a) as the

controversy is between a citizen of a State and a citizen of a foreign state and Plaintiff seeks

damages in an amount well in excess of $75,000.

25. Venue is proper under 28 U.S.C. § 1391(a), as BOA is a corporation subject to

personal jurisdiction in this District, and therefore is deemed a resident of this District pursuant

to 28 U.S.C. § 1391(a).

26. Venue in this district is also proper because BOA consented to the jurisdiction

of this Court pursuant to Section 10.09 of the Second Amended and Restated Security

Agreement, which provides:

EACH PARTY HERETO HEREBY SUBMITS TO THE

NONEXCLUSIVE JURISDICTION OF THE UNITED STATES

DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW

YORK AND OF ANY NEW YORK STATE COURT SITTING IN

NEW YORK CITY FOR PURPOSES OF ALL LEGAL

PROCEEDINGS ARISING OUT OF OR RELATING TO THIS

AGREEMENT OR THE TRANSACTIONS CONTEMPLATED

HEREBY. EACH PARTY HERETO IRREVOCABLY WAIVES,

TO THE FULLEST EXTENT PERMITTED BY LAW, ANY

OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO

THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING

BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY

SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS

BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH

PARTY HERETO HEREBY CONSENTS TO PROCESS BEING

SERVED IN ANY SUIT, ACTION OR PROCEEDING WITH

RESPECT TO THIS AGREEMENT, OR ANY DOCUMENT

DELIVERED PURSUANT HERETO BY THE MAILING OF A

COPY THEREOF BY REGISTERED OR CERTIFIED MAIL,

POSTAGE PREPAID, RETURN RECEIPT REQUESTED, TO ITS

RESPECTIVE ADDRESS SPECIFIED AT THE TIME FOR

NOTICES UNDER THIS AGREEMENT OR TO ANY OTHER

ADDRESS OF WHICH IT SHALL HAVE GIVEN WRITTEN OR

ELECTRONIC NOTICE TO THE OTHER PARTIES. THE

FOREGOING SHALL NOT LIMIT THE ABILITY OF ANY

PARTY HERETO TO BRING SUIT IN THE COURTS OF ANY JURISDICTION.

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Section 17 of the Series 2008-1 Depositary Agreement contains a substantially similar forum

selection provision.

FACTUAL ALEGATIONS

I. Introduction

27. Prior to filing for protection under Chapter 11 of the United States Bankruptcy

Code on August 25, 2009, TBW had been the 12th-largest mortgage originator in the U.S. and

third largest source for FHA loans, and had originated thousands of residential mortgages each

year.  As of August 4, 2009, TBW was servicing more than 400,000 mortgages with unpaid

principal balances in excess of $80 billion.

28. In order to originate mortgages in such volumes, TBW required access to

abundant and reliable financing.  In or about April 2005, the Ocala facility was created by

Lehman Brothers, at the direction of TBW, to serve as a single-seller whole-loan mortgage

warehouse conduit for TBW.  Ocala would issue and sell ABCP, the proceeds of which were to

be used to provide financing for fixed-rate Freddie Mac conforming mortgages originated by TBW.

29. On December 13, 2007, DB purchased $750 million of ABCP issued by Ocala

in the form of “Secured Liquidity Notes.”

30. Around six months later, on June 30, 2008, DB agreed to invest an additional

$450 million in Ocala’s ABCP.  Following this additional investment, DB held Secured

Liquidity Notes with a face value of $1,201,785,714.  Also on June 30, 2008, BNP purchased

Secured Liquidity Notes with a face value of $480,700,000.

31. Both DB and BNP renewed their investments in the Ocala ABCP on June 30, 2009.

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32. The Secured Liquidity Notes purchased by DB were designated “Series 2008-1”

(such notes are hereinafter referred to as “DB Secured Liquidity Notes”).  The collateral

securing DB’s investment was also identified with the designation “Series 2008-1.”

33. The Secured Liquidity Notes purchased by BNP were designated “Series 2005-

1” (such notes are hereinafter referred to as “BNP Secured Liquidity Notes”).  The collateral

securing BNP’s investment was also identified with the designation “Series 2005-1.”

34. The Secured Liquidity Notes, Ocala’s use of the funds provided to it thereby,

and other critical aspects of the Ocala facility were established and governed by a set of

agreements entered into on or about June 30, 2008 (“Ocala Agreements”).  The Ocala

Agreements amended and restated the agreements that had governed the Ocala facility prior to

June 30, 2008.

35. The basic operation of the Ocala facility was fairly straightforward.  Using the

funds that had been invested by DB, Ocala was to purchase dry mortgages from TBW.  Any

mortgages thus acquired would constitute collateral securing DB’s investment.  Ocala would

then sell the mortgages to Freddie Mac.  The proceeds of such sales also constituted collateral

securing DB’s investment.  As long as the Borrowing Base Condition was satisfied, the

proceeds of such sales could be used by Ocala to purchase additional mortgages from TBW,

and the cycle would begin anew.

36. A set of “Swap Agreements” served to transfer to TBW all market risk relating

to the mortgages purchased by Ocala.  Whether mortgages were sold for more or less than

expected, under the Swap Agreements, it would have no ultimate consequence for the value of

the DB Collateral or DB’s return on its investment.  The strict over-collateralization

requirements in conjunction with the Swap Agreements provided assurance that when DB

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redeemed the DB Secured Liquidity Notes, it would recover its entire $1.2 billion principal investment.

37. In short, as long as BOA performed its various roles under the Ocala

Agreements with appropriate care, DB’s principal investment was to be fully secured and

protected, and DB would receive the interest payments provided for in the Secured Liquidity Notes.

II. The Ocala Agreements

38. The Ocala Agreements executed on or about June 30, 2008 included the following:

a. The Second Amended and Restated Mortgage Loan Purchase and

Servicing Agreement (“MLPSA”) was entered into between Ocala, as Purchaser, and TBW, as

Seller and Servicer.  DB was expressly designated as a third-party beneficiary of the MLPSA in

Section 12.15.

b.  The Second Amended and Restated Security Agreement (“Security

Agreement”) was entered into between Ocala, as Issuer, and BOA, as Indenture Trustee and

Custodian.  DB was expressly designated as a third-party beneficiary of the Security

Agreement in Section 10.18.

c. The Second Amended and Restated Custodial Agreement (“Custodial

Agreement”) was entered into among Ocala, as Issuer, TBW, as Seller and Servicer, and BOA,

as Custodian and Collateral Agent.  DB was expressly designated as a third-party beneficiary of

the Custodial Agreement in Section 25.  Furthermore BOA, as Custodial Agent, agreed to

indemnify DB against any losses that DB may sustain to the extent attributable to BOA’s

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“negligence, fraud, bad faith or willful misconduct” in the performance of its duties as

Custodial Agent.  Custodial Agreement § 17.

d. The Second Amended and Restated Base Indenture (“Base Indenture”)

and the Series 2008-1 Supplement to the Base Indenture were entered into between Ocala, as

Issuer, and BOA, as Indenture Trustee and Paying Agent.  DB was expressly designated as a

third-party beneficiary of the Base Indenture in Section 13.20.

e. The Series 2008-1 Depositary Agreement (“Depositary Agreement”)

was entered into between Ocala, as Issuer, and BOA, as Series 2008-1 Depositary.  DB is a

third party beneficiary of the Depositary Agreement pursuant to an indemnification provision in

Section 8(g).  Furthermore, the Indenture Trustee is a third-party beneficiary of the Depositary

Agreement that may enforce its provisions under Section 15.  DB, as the beneficiary of the

Base Indenture, may enforce the rights of the Indenture Trustee under the Depositary

Agreement because BOA’s dual role as both Indenture Trustee and Depositary Agent creates,

with respect to the Depositary Agreement, a conflict of interest for BOA as Indenture Trustee.

III. Parties to the Ocala Agreements

39. The parties to the Ocala Agreements each performed multiple roles with respect to the Ocala facility.

40. DB, by virtue of its investment of $1.2 billion and acquisition of the DB Secured

Liquidity Notes, obtained rights and privileges under the Ocala Agreements as a “Noteholder,”

a “Series 2008-1 Senior Noteholder,” a “Required Senior Noteholder,” and a “Secured Party.” 

41. DB also was a party to the Swap Agreements that served to relieve investors in

Ocala’s ABCP of market risk relating to the mortgages acquired by Ocala.  Pursuant to those

agreements, DB held the roles of “Front Swap Counterparty” and “Back Swap Counterparty.”

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DB’s participation in these two agreements was part of an arrangement that served to transfer

all market risk regarding the value of mortgages from Ocala to DB, and then from DB to TBW.

42. Ocala primarily performed three roles.

a. As “Purchaser,” Ocala would buy from TBW mortgages that would then

be sold directly or indirectly to Freddie Mac.

b. As “Issuer,” Ocala issued ABCP, including the Secured Liquidity Notes.

c. As “Front Swap Counterparty,” Ocala was insulated against any market

risk.  Ocala would not have to absorb various types of potential losses on the mortgages, and by

the same token, would not be able to retain potential profits on the mortgages.

43. TBW primarily performed three roles.

a. As “Seller,” TBW would originate mortgages and sell those mortgages to Ocala.

b. As “Servicer,” TBW serviced loans held by Ocala, performing such

functions as collecting monthly loan payments from mortgagees, handling mortgagees’ escrow

accounts, and paying taxes and insurance from such escrow accounts.

c. As “Back Swap Counterparty,” TBW took on all market risk related to

DB’s investment by agreeing to absorb various types of potential losses on the mortgages. By

the same token, TBW would receive any potential profits on the mortgages.

44. BOA assumed several pivotal roles through which BOA was to secure the DB

Collateral, as well as manage and oversee the accounts into which proceeds from the sales of

loans by Ocala were deposited and from which payments for the purchase of mortgages were drawn:

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a. As “Collateral Agent,” BOA assumed responsibility to hold for the

benefit of DB the security interest in mortgages purchased by Ocala using funds invested by

DB, among other responsibilities, and was authorized to serve as an agent of DB.  As Collateral

Agent, BOA also held and controlled the funds generated by DB’s investment and the

subsequent sale of mortgages, and was permitted to transfer those funds only under certain

specified conditions and for limited purposes.  See Security Agreement §§ 4.01-4.10, 5.01-5.07.

b. As “Custodian,” BOA assumed responsibility to review loan files before

they were purchased by Ocala to ensure they complied with the Ocala Agreements, among

other responsibilities, and was required to take possession of the mortgages and loan documents

acquired by Ocala and hold them for the benefit of the Collateral Agent as representative of

DB.  See Custodial Agreement §§ 3, 20.

c. As “Indenture Trustee,” BOA assumed numerous responsibilities in

connection with the Ocala facility, including the establishment and maintenance of accounts

necessary to allocate and distribute interest payable to the Ocala investors.  Base Indenture §

5.1; Base Indenture Supplement § 3.5(a), (b).

d. As “Depositary,” BOA was required, among other responsibilities, to roll

over the Secured Liquidity Notes on a monthly basis only after certifying that (i) it had all the

necessary information to certify the Borrowing Base Condition and (ii) the Borrowing Base

Condition was, in fact, satisfied.

e. As “Paying Agent,” BOA assumed responsibility to pay DB amounts

owed to it pursuant to the Ocala Agreements.  Base Indenture Supplement §§ 3.3(b), (d); 3.4(b), (d).

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IV. Cash and Collateral Cycle

45. The Ocala Agreements and various bailee letters accompanying the transfer of

mortgages established a predictable cycle of cash and collateral through the Ocala facility.

46. TBW would originate a mortgage with wet funding provided by Colonial, i.e.,

TBW would transfer Colonial funds to the borrower at the closing while the loan documents

were still being signed.

47. In exchange for providing the funds for the closing, Colonial obtained a security

interest in the mortgage thus originated.  Once closing was complete and the promissory note

and other loan documents had all been signed, the complete set of loan documents was

delivered to Colonial.

48. After receiving the loan documents, Colonial would then deliver the loan

documents to BOA as Custodian for Ocala accompanied by a bailee letter (“Colonial Bailee

Letter”) indicating that the loan documents were being transferred under bailment, subject to

Colonial’s security interest.  The Colonial Bailee Letter provided that Colonial would release

its security interest in the loan documents upon payment of and confirmed receipt of a specified

“takeout amount” that represented Ocala’s purchase of the mortgages.  The Colonial Bailee

Letter provided very precise instructions to BOA as to how payment was to be made, and

explicitly stated that Colonial’s security interest in the loan documents would be released only

if BOA made full payment “as set forth” in the Colonial Bailee Letter.  The Colonial Bailee

Letters required that the necessary payment be transmitted to the Colonial IFA.

49. The Ocala Agreements required TBW to provide BOA with a Transfer

Supplement, which was a list of mortgages that TBW proposed that Ocala purchase on any given day.

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50. Within two business days of receipt of the loan documents (via the Colonial

Bailee Letter) for the mortgages listed on the applicable Transfer Supplement, BOA, as

Custodian, was required to review the loan documents and deliver a certificate to the Collateral

Agent (also BOA) certifying whether it had received all of the loan documents related to the

mortgage to be purchased and specifying any deficiencies in the loan documents.

51. Once BOA, as Custodian, confirmed that the loan documents were complete

(i.e., that the mortgages were now dry), BOA, as Collateral Agent, was to transmit to Colonial

the takeout amount, drawn on the appropriate sub-account of the Ocala collateral account

(“Collateral Account”) held at BOA—the sub-account either of DB (the “DB Sub-Account

or BNP (the “BNP Sub-Account”).

52. BOA was permitted to transfer funds to Colonial only after it had confirmed that

BOA was in possession of all necessary loan documents such that once BOA paid the correct

take-out amount, it would become the owner of the mortgages for the benefit of Ocala.

53. Pursuant to the Colonial Bailee Letter, once BOA transmitted the correct takeout

amount to Colonial in accordance with the instructions in the Colonial Bailee Letter, Colonial’s

security interest in the loan documents would be released.

54. By operation of the Ocala Agreements, Ocala immediately pledged any

mortgage thus purchased, including the loan documents, to BOA as the Collateral Agent on

behalf of the appropriate Secured Party under the Security Agreement.

55. The Ocala facility was not permitted to hold mortgages and loan documents for

longer than sixty (60) days, and only 10% by value of the mortgages held by Ocala were

permitted to be held longer than thirty days.   MLPSA, Ex. H.  The expectation of all parties

was that shortly after purchasing a mortgage, Ocala would sell the mortgage to Freddie Mac.

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56. At the start of the sale process, BOA, as Collateral Agent, would deliver the loan

files to Colonial subject to a form of bailee letter required by the Custodial Agreement (“BOA

Bailee Letter”).  Custodial Agreement, Ex. E.  The BOA Bailee Letter specified that BOA

retained its security interest in the loan documents until payment was made pursuant to the

instructions in the letter.  The BOA Bailee Letter required that, within fifteen days, Colonial, as

Freddie Mac’s agent, either return the mortgages or remit payment.

57. Freddie Mac could pay for the mortgages in two ways.  First, if Freddie Mac

were simply purchasing the mortgage for its own account, it would pay with cash deposited

directly into the Ocala Collateral Account at BOA.  Alternatively, if mortgages acquired by

Freddie Mac were part of a group of mortgages being bundled together as part of a

securitization, Freddie Mac would deliver a trust certificate to Bank of New York, the securities

clearing agent, who would transmit the proceeds of the sale of this certificate to Colonial,

which would then in turn transmit the proceeds to the Ocala Collateral Account.

58. BOA’s security interest in the mortgages was to be released only upon payment

by Colonial of the purchase price specified in the applicable BOA Bailee Letter.

59. The proceeds of the sale of the mortgage to Freddie Mac were then to be

deposited in the sub-account of the Ocala Collateral Account from which the funds to purchase

that mortgage originally had been drawn.

V. BOA’s Breach of Its Contractual Duties

60. BOA—like all of the parties to the Ocala Agreements—understood and agreed

that the primary “purpose” of the Security Agreement, as clearly stated in its Recitals, was

“securing and providing for the repayment of all amounts at any time and from time to time

owing by the Issuer to each [Secured Party].”  Indeed, the entire Ocala facility was directed at

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only two purposes: to provide liquidity for TBW to originate mortgages and to protect the

Secured Parties’ investment.

61. BOA’s responsibilities and duties under the Ocala Agreements were likewise

intended to provide multiple layers of protection to preserve the Secured Parties’ investment.

BOA was required to carry out these responsibilities and duties with appropriate care, and each

one of the Ocala Agreements provided that BOA could be liable in the event it performed those

duties negligently.

62. With respect to virtually every key contractual duty required of it under the

Ocala Agreements, BOA failed to act with appropriate care.  BOA’s negligence subverted the

key protections upon which DB depended.  BOA’s breaches of its contractual duties and

negligence in performing those duties caused DB’s investment in Ocala to become severely

under-collateralized and directly has resulted in Ocala being unable to pay amounts owed to

DB under the DB Secured Liquidity Notes.

A. Improper Transfer of Funds from the Collateral Account

63. To protect the funds in the Collateral Account and DB Sub-Account that

ultimately would be used to repay the approximate $1.2 billion in principal invested by DB, the

Ocala Agreements imposed very strict and very clear restrictions on the purposes for which the

funds could be used.

64. Section 8.28 of the Base Indenture permitted funds invested by DB to be used

for two, and only two, purposes:

Section 8.28   Use of Proceeds of Notes.  The

Issuer shall use the proceeds of Notes solely for

one or more of the following purposes: (a) to pay

the Issuer’s Obligations when due, in accordance

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with the Security Agreement; and (b) to acquire

Mortgage Loans from the Seller.

65. Control of all of the funds invested by DB was entrusted to BOA, as Collateral

Agent.  Section 5.01 of the Security Agreement provides that BOA as Collateral Agent was

required to maintain “a special purpose trust account in the name of and under the control of,

the Collection Agent on behalf of the Secured Parties (said account being herein called the

“Collateral Account” . . .) and sub-accounts thereof for each of the Series 2005-1 Purchased

Assets and the Series 2008-1 Purchased Assets.”

66. Section 5.01 of the Security Agreement further provides that BOA, as Collateral

Agent, “shall have complete dominion and control over the Collateral Account and the Issuer

hereby agrees that only the Collateral Agent may make withdrawals from the Collateral Account.”

67. Section 5.03 of the Security Agreement authorizes BOA to make withdrawals or

transfers from the Collateral Account and/or DB and BNP Sub-Accounts only for certain

enumerated purposes.  The only permitted transfers out of the Collateral Account and/or the

DB and BNP Sub-Accounts for purposes other than the purchase of mortgages were limited

transfers to Ocala swap transaction participants and the holders of Ocala ABCP and

subordinated notes in accordance with the Ocala Agreements.  The only legitimate transfer out

of the Collateral Account and/or the DB and BNP Sub-Accounts to third parties other than

those swap transaction participants and the holders of Ocala ABCP and subordinated notes was

for the purchase of dry mortgages.

68. BOA knew that the only manner in which dry mortgages could be purchased

from TBW was through payments to the Colonial IFA.  BOA knew this because all mortgages

TBW delivered to BOA as Custodian for review and potential purchase by Ocala were

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accompanied by Colonial Bailee Letters specifying that payment for the mortgages had to be

directed to the Colonial IFA, and that only payment to that exact account would result in the

release of Colonial’s security interest in the mortgages.

69. Despite this knowledge, since June 30, 2008, BOA nonetheless transferred more

than $3.7 billion from the Collateral Account and/or the DB and BNP Sub-Accounts to

accounts that had no legitimate basis for receiving such funds under the Security Agreement

and that were not related to the purchase of dry mortgages for Ocala.  These improper transfers included:

a. Approximately $1.7 billion to TBW Account No. 722347.2 (the “Wet

Funding Account”) held at BOA that was used to provide wet funding for mortgages.

b. Approximately $837 million to a “FHLMC P&I Custodial Account,” an

account to accumulate principal and interest for loans serviced by TBW for Freddie Mac;

c. Approximately $675 million to a “Custodial Funds Clearing Account,”

an account for the initial deposit of funds relating to mortgages serviced by TBW;

d. Approximately $445 million to a “Colonial Master Account,” an account

to fund loans made to settlement agents (i.e., the title company or attorney closing the loan for TBW);

e. Approximately $58 million to a “Colonial Operating Account,” an

account to fund TBW’s operating expenses; and

f. Approximately $2.5 million to an “ITF Henley Holdings Account,” an

account to accumulate principal and interest relating to loans serviced for Henley Holdings LLC.

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70. These unauthorized transfers began on July 1, 2008, the day after the Ocala

Agreements became effective, and continued through August 2009.

71. Moreover, between June 30, 2008 and August 4, 2009, BOA transferred over $1

billion to Colonial and other banks in numerous transfers of whole/round number amounts that

bore no relation to any purchase of mortgages.  Whole/round number transfers to purchase

mortgages would be highly unusual because the aggregation of individual mortgages

themselves would not typically be expected to result in whole/round number amounts.

72. Furthermore, the payments made by BOA to the Colonial IFA on a daily basis

bore no relationship to the value of the mortgages being purchased.  On average, BOA, on

behalf of Ocala, would receive approximately $40-50 million of mortgages for purchase each

day.  In order to pay for those mortgages, BOA was required to pay an amount equal to the face

value of the mortgages to the Colonial IFA.

73. On some days, BOA failed to transmit the funds to the Colonial IFA necessary

to complete the purchase of those mortgages.  For example, on February 27, 2009, BOA

transmitted only $8.8 million to Colonial despite the fact that BOA’s records indicated that

$54.5 million in mortgages were acquired from Colonial that day for the benefit of DB.  By

failing to transmit payment for the mortgages, BOA prevented Ocala from perfecting the

security interests in those mortgages that was intended to serve as the primary collateral for

DB’s investment.  BOA nonetheless represented in daily reports to DB that the security

interests had been perfected by accounting for the mortgages as collateral securing DB’s investment.

74. On other days, BOA transmitted far more money to the Colonial IFA than was

warranted to purchase the mortgages that BOA’s records indicate were acquired by BOA for

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the benefit of Ocala.  For example, on May 29, 2009, BOA transmitted the large sum of $690

million to the Colonial IFA, despite the fact that BOA’s own records indicate that only $36.7

million in mortgages were acquired from Colonial that day for the benefit of Ocala.  By

conducting such transfers, BOA permitted the funds invested by DB to be transferred out of

Ocala without obtaining mortgages in return.

75. Prior to June 30, 2008, the agreements governing Ocala permitted it to purchase

wet mortgages, and, prior to June 30, 2008, BOA regularly transferred Ocala funds to the Wet

Funding Account to purchase wet mortgages.

76. The Ocala Agreements that became effective on June 30, 2008, however,

prohibited the purchase of wet mortgages and, therefore, prohibited the transfer of Ocala funds

to the Wet Funding Account.  After June 30, 2008, BOA disregarded this requirement and

nonetheless continued to transfer Ocala funds to the Wet Funding Account in contravention of

the Ocala Agreements.  In fact, on July 1, 2008, the day after the Ocala Agreements became

effective, BOA transferred $63,939,570 from the DB Sub-Account to the Wet Funding

Account.

77. The transfer of funds by BOA out of the Collateral Account and/or DB and BNP

Sub-Accounts to accounts that BOA knew or should have known had no permissible purpose,

and to the Colonial IFA in amounts that bore no relationship to the value of mortgages

supposedly being purchased, was a direct cause of the loss of the DB Collateral and, therefore,

the loss of a substantial portion of DB’s investment in Ocala.

78. Under the Security Agreement, BOA was not authorized to release any Ocala

funds for the purchase of mortgages unless the Borrowing Base Condition was satisfied.  From

June 30, 2008 through August 2009, BOA regularly breached its obligation to ensure that no

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funds were transferred from the Ocala Collateral Account or the DB or BNP Sub-Accounts

when the Borrowing Base Condition was not satisfied.  BOA’s transfer of Ocala funds out of

the Collateral Account the DB or BNP Sub-Accounts in contravention of this obligation

directly and proximately caused the loss of a substantial portion of DB’s investment in Ocala.

B. BOA’s Misrepresentations of the State of DB Collateral

79. As both Custodian and Collateral Agent, BOA was required to know at all times

which mortgages it physically held at its facility, which mortgages had been delivered under

the required BOA Bailee Letter and which mortgages had been purchased by third parties. 

80. During the summer of 2008, DB requested that BOA provide it with a daily list

of the mortgage loans and cash held by BOA as DB Collateral, so that DB would know on a

daily basis that its investment was secured by $1.25 billion of collateral in accordance with the

Ocala Agreements.

81. BOA was required under the Custodial Agreement to have such information

readily available.  Section 9.1 of the Custodial Agreement required BOA to be able to provide

to Ocala, upon one business day’s notice, a list of all mortgages held for the benefit of DB,

including all mortgages “paid off, repurchased, sold or otherwise released by [BOA].”

Custodial Agreement § 9.1.  In other words, BOA was required to be able to tell Ocala and its

investors at any given time the status of the mortgages held by BOA as collateral for the benefit of investors.

82. In connection with its duties under the Custodial Agreement, BOA agreed to

provide DB with a daily report of all such mortgage loans (the “BOA Loan Reports”), and

began transmitting these reports to DB in September 2008.  The BOA Loan Reports listed each

mortgage loan held by BOA for the benefit of DB, and noted whether the loan was either still

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in the physical possession of BOA or out to a prospective third party purchaser pursuant to a

BOA Bailee Letter.  Having assumed this additional daily reporting obligation, BOA was

required to perform it in a non-negligent manner.

83. In August 2009, after TBW collapsed, DB discovered that the BOA Loan

Reports were false.  For example, the August 12, 2009 BOA Loan Report showed that there

was approximately $1,160,530,265 in mortgages securing DB’s investment.  BOA’s own

internal information, however, shows that at least $470 million of these mortgages already had

been delivered and sold to Freddie Mac at least two weeks prior to the date of the BOA Loan

Report and so could not have constituted collateral securing DB’s investment.  Further, on

information and belief, as of August 12, 2009, there were virtually no mortgages held by BOA

to secure DB’s investment.

84. This false reporting of the state of the collateral securing DB’s investment began

almost a year prior to TBW’s collapse.  For example, on September 15, 2008, the date on

which BOA delivered the first BOA Loan Report, BOA represented that the amount of

mortgages securing DB’s investment was approximately $1,147,268,192.  BOA’s own internal

information, however, shows that only about half of these mortgages totaling about $538

million were either still on hand or had not been delivered and/or sold to Freddie Mac.

85. On information and belief, hundreds (and potentially all) of the BOA Loan

Reports delivered by BOA to DB during the period between September 15, 2008 and August 4,

2009 were similarly false.

86. Had BOA properly reported the amount of mortgages securing DB’s investment,

DB would have known of the under-collateralization of its investment, and could have

prevented the loss of its investment.

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C. BOA’s Failure to Secure the Mortgages

87. As both Custodian and Collateral Agent, BOA was responsible for maintaining

custody and control of the mortgages that secured DB’s investment.

88. In August 2009, however, after TBW and Colonial collapsed, DB discovered

that BOA did not have ownership, possession, or control of virtually any of the mortgages that

were listed on the BOA Loan Reports.

89. BOA has been unable to produce the mortgages that it represented to DB as

being held by BOA on behalf of DB.  Moreover, BOA has been unable to account for where

the mortgages are or even to establish that the mortgages were ever purchased by Ocala. 

90. BOA’s inability to produce or account for the mortgages that were supposed to

be the collateral for DB’s investment stems from, among other things, BOA’s failure to keep

records concerning the purchase and sale of mortgages on behalf of Ocala.

91. With respect to the purchase of mortgages, BOA failed to maintain the internal

documentation necessary to establish Ocala’s ownership of purchased mortgages.  BOA

recently admitted to DB that it failed to maintain loan level detail with respect to the mortgages

it purchased.  As such, BOA has been unable to prove with specificity that it paid for any

particular mortgage or that it was paid by third parties for particular mortgages.

92. BOA also failed to obtain documentation from third parties necessary to

establish Ocala’s purchase and ownership of mortgages.  BOA failed to obtain letters from

Colonial confirming Colonial’s release of its security interest with respect to particular

mortgages for which BOA transmitted payment to Colonial.

93. BOA’s failure to obtain such documentation was particularly egregious because

BOA was fully aware that Colonial was TBW’s and/or Freddie Mac’s agent with respect to the

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sale of mortgages by Ocala to Freddie Mac.  BOA, therefore, would have to transfer mortgages

back to Colonial (as Freddie Mac’s agent) pursuant to a BOA Bailee Letter after having

purchased the mortgages from Colonial (as TBW’s agent).  The possibility existed that once

BOA transferred the mortgages to Colonial, Colonial could assert ownership of the mortgages

and refuse to either return the mortgages or remit payment received from Freddie Mac for the

mortgages unless BOA could prove that Colonial’s security interest had been released.  This

made it even more critical that BOA document that it properly had taken the steps necessary to

release Colonial’s security interest in the mortgages, and that Colonial had in fact released that interest.

94. On information and belief, Colonial, and/or the Federal Deposit Insurance

Corporation (“FDIC”) acting as receiver for Colonial, asserts that mortgages for which BOA

claimed to have paid Colonial, and in which BOA claimed to hold a security interest on behalf

of DB, in fact, belonged to Colonial.  Colonial, and/or the FDIC acting as receiver for Colonial,

contend that BOA never remitted payment to Colonial as required in the Colonial Bailee

Letters pursuant to which the mortgages had initially been transferred by Colonial to BOA. 

95. BOA also failed to maintain proper documentation and to track mortgages over

which it had asserted control and that it subsequently released to prospective third-party purchasers.

96. Pursuant to Section 8 of the Custodial Agreement, BOA as Custodian was

authorized to release mortgages to prospective third-party purchasers only if BOA

accompanied delivery of the mortgage with a BOA Bailee Letter to be executed by the

purchaser.  BOA was further required to collect all transmittal letters executed by prospective

third-party purchasers.

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97. The contractually-required form of the BOA Bailee Letter was set forth in

Exhibit E to the Custodial Agreement, and provided that the third-party purchaser either return

the mortgage or remit the sales proceeds within fifteen days from the date of the letter.  Section

8 of the Custodial Agreement further required that if a prospective third-party purchaser to

whom BOA as Custodian delivered mortgages for review did not proceed with the proposed

purchase, the mortgages were to be returned promptly to BOA as Custodian.

98. BOA as Custodian and Collateral Agent failed to ensure that third-party

purchasers to whom it had transmitted loans for purchase complied with the fifteen-day time

period.  On information and belief, BOA failed even to collect executed copies of transmittal

letters.  The failure of BOA as Custodian and Collateral Agent to promptly recover the

mortgages from third-party purchasers after the fifteen-day time period had passed was a

breach of BOA’s contractual duties and duty of due care and violated customary standards

applicable to an entity charged with maintaining continuous custody and control of mortgages.

99. BOA further breached its duties as Custodian and Collateral Agent by failing to

keep track of the Ocala mortgages that were being sold to Freddie Mac.  In connection with

those sales, Freddie Mac required that BOA submit a specific form of release known as Form

996E, which contained a list of the mortgages to be sold to Freddie Mac.  In contravention of

its contractual duties, BOA failed to keep track of or verify when these Form 996Es were being

submitted to Freddie Mac and which Ocala mortgages were to be sold to Freddie Mac.

100. In dereliction of its responsibilities as Custodian and Collateral Agent, BOA

regularly made no effort to recover mortgages worth hundreds of millions of dollars delivered

to prospective third-party purchasers for review, even after sixty days or more had elapsed

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without the prospective purchasers remitting payment or returning the mortgages as required by

the BOA Bailee Letters.

101. By August 12, 2009, BOA had allowed approximately $158 million of

mortgages delivered by it to prospective third-party purchasers to remain outstanding for more

than sixty days, notwithstanding the fifteen-day limit set forth in the BOA Bailee Letters.

When Colonial went into FDIC receivership, it was too late for BOA to recover the mortgages. 

102. As Custodian and Collateral Agent, BOA’s negligent failure to maintain custody

and control of Mortgages in accordance with the Ocala Agreements, the contractually required

BOA Bailee Letters, and customary standards caused the loss of the DB Collateral and,

therefore, the loss of a substantial portion of DB’s investment.

D. BOA’s False Certifications of the Borrowing Base Condition

103. BOA also failed to properly carry out another of its key responsibilities—the

responsibility to review, certify, and/or confirm that the Borrowing Base Condition was met.  If

BOA had correctly calculated the Borrowing Base Condition, it would have been required to

take actions that effectively would have shut down the Ocala facility and prevented any further

depletion of the DB Collateral.

104.  The Borrowing Base Condition was a built-in “circuit breaker” that was

designed to prevent further deterioration of the cash and collateral in the event that the cash and

collateral securing DB’s investment declined to the point that repayment of DB’s principal was at risk.

105. The Borrowing Base Condition was a calculation that essentially measured the

indebtedness of Ocala (primarily consisting of its obligations to noteholders) against its assets

(primarily consisting of cash and mortgages).  This would reveal whether the DB Secured

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Liquidity Notes were adequately secured in accordance with the Ocala Agreements.  If DB’s

investment was not so secured, then the facility would be in violation of the Borrowing Base

Condition, and this would trigger two important consequences: (1) the Secured Liquidity Notes

would not be rolled over, but instead would become immediately due and payable, and/or (2)

no new purchases of mortgages would be permitted, thus halting Ocala’s outlay of further cash,

unless and until the Borrowing Base Condition was again satisfied.

106. It was BOA’s contractual responsibility to ensure that the Borrowing Base

Condition was satisfied before permitting the Secured Liquidity Notes to be rolled over or

permitting Ocala to transfer funds for the purpose of purchasing additional mortgages.

107. Pursuant to Section 4(d) of the Depositary Agreement, BOA as Depositary was

precluded from issuing or delivering any Secured Liquidity Notes unless it received from Ocala

a completed certificate demonstrating that the Borrowing Base Condition was met, and then

BOA “upon review, determined that it can (and it does) certify as to [satisfaction of the

Borrowing Base Condition]”  The Secured Liquidity Notes had a thirty day maturity.  Thus,

each month BOA had the obligation to review and certify a calculation establishing whether the

DB Secured Liquidity Notes were secured by $1.25 billion of collateral.

108. As BOA acknowledged orally to DB and in a letter to BNP dated March 27,

2009, BOA’s duty to certify whether the Borrowing Base Condition was met pursuant to

Section 4(d) of the Depositary Agreement “play[ed] an important role in mitigating the risks”

that the Secured Parties “would otherwise incur.”

109. Furthermore, pursuant to Sections 5.03(a) and (b) of the Security Agreement,

BOA as Collateral Agent was precluded from transferring or withdrawing funds from the

Collateral Account and/or the DB and BNP Sub-Accounts for the purpose of enabling Ocala to

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purchase additional mortgages from TBW unless the Borrowing Base Condition was met.

Thus, on every occasion BOA transferred funds to pay for Ocala’s acquisition of new

mortgages, BOA was required first to confirm whether the DB Secured Liquidity Notes were fully secured.

110. BOA regularly certified and/or confirmed that the Borrowing Base Condition

was met when, based on BOA’s own information, BOA knew or should have known that, in

fact, the Borrowing Base Condition was far from satisfied.  The key to the Borrowing Base

Condition was determining whether Ocala actually held $1.25 billion in cash and mortgages

securing the DB Secured Liquidity Notes.  This was a determination that only BOA could make

because only BOA knew what mortgages it held in its vault and which mortgages already had

been sold to Freddie Mac.  BOA knew what mortgages had been sold to Freddie Mac because,

as a condition of each sale to Freddie Mac, BOA was required to execute a Freddie Mac Form

996E that served as a release of the security interest in the Ocala mortgages to be sold to Freddie Mac.

111. On information and belief, from June 30, 2008, through August 4, 2009, BOA,

on hundreds of occasions, either falsely certified or failed in its contractual duty to confirm that

the Borrowing Base Condition was satisfied.

112. BOA has failed to provide DB with the vast majority of Borrowing Base

Condition certificates.  The few certificates that BOA provided are clearly and demonstrably

false showing that DB’s investment was severely under-collateralized:

a.  On May 20, 2009, BOA certified that it held mortgages worth

$1,134,028,581 as DB Collateral.  In reality, on May 20, 2009, BOA knew or should have

known that it held or had a lien on approximately $547 million in mortgages as DB Collateral.

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b.  On June 20, 2009, BOA certified that it held mortgages worth

$1,208,009,892 as DB Collateral.  In reality, on June 20, 2009, BOA knew or should have

known that it held or had a lien on approximately $440 million in mortgages as DB Collateral.

c.  On June 30, 2009, BOA certified that it held mortgages worth

$1,226,886,314 as DB Collateral.  In reality, on June 30, 2009, BOA knew or should have

known that it held or had a lien on approximately $468 million in mortgages as DB Collateral.

d.  On July 20, 2009, BOA certified that it held mortgages worth $1,216,398,908

as DB Collateral.  In reality, on July 20, 2009, BOA knew or should have known that it held or

had a lien on approximately $476 million in mortgages as DB Collateral.

113. On information and belief, between June 30, 2008 and August 4, 2009, BOA

falsely certified that the Borrowing Base Condition was satisfied at least thirteen times when, in

fact, the Borrowing Base Condition was not satisfied.

114. Had BOA acted with due care in reviewing the Borrowing Base Condition,

BOA would have known that it could not certify and/or confirm that the Borrowing Base

Condition had been met.  By operation of the Ocala Agreements, the “circuit breaker” then

would have tripped, shutting down further financing and further purchases of mortgages and

minimizing losses to the collateral.  BOA’s failure to perform its obligations with respect to

reviewing, certifying, and confirming the Borrowing Base Condition prevented those

safeguards from taking effect, resulting in the loss of a substantial portion of DB’s investment.

E. BOA’s Failure to Segregate Loans and Proceeds

115. The Ocala Agreements required that DB’s investment and BNP’s investment be

kept separate.  This was necessary to ensure that the cash and collateral separately securing the

DB and BNP Secured Liquidity Notes would be identifiable.  If cash and collateral were not

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carefully and accurately identified and segregated, it would be difficult or impossible to know

which Secured Party had a secured interest in any particular cash or collateral, and the

possibility of competing claims could arise.

116. The Security Agreement contained provisions that, if adhered to, would preclude

any chance of such confusion or commingling of funds.  Pursuant to Section 5.01 of the

Security Agreement, BOA as Collateral Agent was required to maintain two distinct sub-

accounts of the Collateral Account; one relating to the Series 2005-1 Collateral (the BNP Sub-

Account) and the other relating to the Series 2008-1 Collateral (the DB Sub-Account).

117. Careful segregation by BOA of cash and collateral was essential not only to

identifying each Secured Party’s individual security interests, but also to key operational

aspects of the Ocala facility.

118. For example, most of the authorized purposes for which funds could be

transferred out of the Collateral Account pursuant to Section 5.03 of the Security Agreement

make reference to the specific DB and BNP Sub-Account from which funds can be drawn to

make such payment.

119. Most critically, Section 5.03 required that only funds from the DB Sub-Account

be used to fund the purchase of Series 2008-1 Mortgage Loans, and, similarly, that only funds

from the BNP Sub-Account be used to fund the purchase of Series 2005-1 Mortgage Loans.

120. Thus, as a practical matter it was also necessary for BOA as Collateral Agent,

Indenture Trustee, and Custodian to track whether mortgages being purchased correlated to

Series 2005-1 or Series 2008-1, because BOA had to ensure that funds were withdrawn from

the appropriate DB or BNP Sub-Account to purchase any given loan, and that the proceeds

from the sale of such a loan were deposited in the appropriate DB and BNP Sub-Account.

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121. BOA acted in disregard of its contractual duty to maintain the DB and BNP Sub-

Accounts separately, and to withdraw from and deposit into the DB and BNP Sub-Accounts the

appropriate funds.  On information and belief, BOA did not just commingle the accounts—it

made no meaningful attempt to segregate either mortgages purchased or the proceeds from sale of mortgages.

122. BOA’s failure to segregate appropriately the mortgages and funds became

evident after an event of default under the Base Indenture was declared in August 2009.  At that

time, BOA had not allocated between the DB and BNP Sub-Accounts what few mortgages and

funds remained in its possession.  BOA’s initial effort at allocation—a simple 50/50 split of

mortgages and funds between the two accounts (disregarding that DB’s investment was more

than twice the size of BNP’s investment) revealed the extent to which BOA had disregarded its

duties to keep loans and mortgages properly segregated.  BOA quickly withdrew that arbitrary

allocation.  To date, BOA has been unable or unwilling to make a proper allocation of the

mortgages and funds.

123. As a result of BOA’s failure to properly segregate the mortgages and funds,

BOA has impaired DB’s security interest in the mortgages and funds that should have properly

been segregated into the DB Sub-Account.  BOA’s continuing delay in allocating the

mortgages and funds has caused and continues to cause damage to DB.

VI. BOA’s Failure to Pay Amounts Due under the Secured Liquidity Notes

Following Ocala Default

124. On or about August 4, 2009, the FHA announced that it had disqualified TBW

from making FHA-insured loans, stating that TBW had failed to submit a required financial

report and to disclose certain irregular transactions that raised concerns of fraud.  Shortly

Case 1:09-cv-09784-UA     Document 1      Filed 11/25/2009     Page 33 of 44

34

thereafter, Freddie Mac and the Government National Mortgage Association terminated TBW

as a servicer of their mortgages and barred TBW from selling mortgages to them.

125. On August 4, 2009, the New York Times reported that the FBI and the Special

Inspector General of the Treasury Department’s Troubled Asset Relief Program had raided

Colonial and TBW.

126. On information and belief, on August 6, 2009, BOA requested that Colonial

return all of the loans held by Colonial pursuant to the BOA Bailee Letters.  The vast majority

of these loans had been out to Colonial on BOA Bailee Letters for more than 60 days, grossly

exceeding the fifteen-day limitation set forth in the BOA Bailee Letter.

127. On August 7, 2009, Colonial BancGroup disclosed that it was the target of a

criminal investigation by the U.S. Department of Justice relating to its mortgage lending unit

and related accounting irregularities, and that it might be placed under receivership.

128. On August 10, 2009, BOA as Indenture Trustee declared an indenture event of

default stating that the notes were due and payable because of TBW’s loss of approved seller status.

129. On August 14, 2009, Colonial was closed by the Alabama State Banking

Department, and the FDIC was named Receiver.

130. On August 20, 2009, the outstanding DB Secured Liquidity Notes in the amount

of $1,201,785,714 held by DB became immediately due and payable.  Ocala has failed to pay

this amount.

131. On August 24, 2009, TBW filed for relief pursuant to Chapter 11 of the United

State Bankruptcy Code in the United States Bankruptcy Court for the Northern District of

Florida.

Case 1:09-cv-09784-UA     Document 1      Filed 11/25/2009     Page 34 of 44

35

132. To date, BOA has failed to recover any DB Collateral and to pay the amounts

due to DB under the DB Secured Liquidity Notes.

COUNT I

BREACH OF CONTRACT (SECURITY AGREEMENT)

133. Plaintiff repeats and realleges each and every allegation above as if fully set

forth herein.

134. DB was expressly designated as a third-party beneficiary of the Security

Agreement.  Security Agreement §§ 10.08, 10.18.

135. BOA understood that a primary “purpose” of the Security Agreement was

“securing and providing for the repayment of all amounts at any time and from time to time

owing by the Issuer to each [Secured Party].”  Security Agreement at 1.

136. The Security Agreement created a continuing security interest in the Collateral

in favor of BOA for the benefit of the Secured Parties.  Security Agreement, Sched. III, § 1.

The Security Agreement provided that BOA, as Collateral Agent, was an agent of each of the

Secured Parties.  Id.

137. BOA was required to exercise due care in performing its duties under the

Security Agreement.  If BOA failed to perform those duties and/or was negligent in performing

those duties, the Security Agreement provides that BOA would be liable to DB for resulting

damages.

a. Pursuant to Section 4.10 of the Security Agreement, BOA is liable for

negligent actions taken or omitted to be taken by it relative to the DB Collateral.

Case 1:09-cv-09784-UA     Document 1      Filed 11/25/2009     Page 35 of 44

36

b. Pursuant to Section 8.01 of the Security Agreement, BOA is liable for

actions taken or omitted to be taken by it as Collateral Agent that are negligent, fraudulent, in

bad faith, or that constitute willful misconduct.

138. BOA breached its duties under the Security Agreement and was negligent in

performing those duties, including by:

a. Failing to ensure that the security interest it held on behalf of the Secured

Parties was perfected by obtaining written confirmation from Colonial that it had released any

security interest in mortgages for which BOA paid Colonial; and

b. Failing to keep accurate and adequately detailed records sufficient to

permit BOA to establish and prove with specificity the security interest it held on behalf of the

Secured Parties.

139. BOA violated the Security Agreement by transferring funds out of the Collateral

Account and/or the DB and BNP Sub-Accounts to accounts and for purposes not specifically

permitted by the relevant provisions of the Security Agreement, including by:

a. Pursuant to Section 8.28 of the Base Indenture, BOA was aware that

Ocala was prohibited from using the proceeds of the Secured Liquidity Notes for any reason

other than (a) to pay obligations owed by Ocala under the Security Agreement to security

holders and (b) to acquire dry mortgages from TBW.

b. BOA was permitted to transfer funds only for the purposes established in

Sections 5.03(a) and (b) of the Security Agreement.  The sole purpose for which funds could be

transferred (other than in connection with the internal operation of the facility) was for the

purchase of dry mortgages.  BOA was aware that dry mortgages could be purchased only by

transfer of funds to the Colonial IFA Account.

Case 1:09-cv-09784-UA     Document 1      Filed 11/25/2009     Page 36 of 44

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c. BOA transferred hundreds of millions of dollars to accounts that BOA

knew or should have known were unrelated to any of the purposes enumerated in Sections

5.03(a) and (b) of the Security Agreement.  Every transfer by BOA of funds out of the

Collateral Account and/or the DB and BNP Sub-Accounts to such accounts violated Sections

5.03(a) and (b) of the Security Agreement.

d. BOA transferred more than $1.7 billion to the Wet Funding Account for

the purchase of wet mortgages when BOA knew that the Ocala Agreements prohibited the

purchase of wet mortgages.

140. BOA violated Sections 5.03(a) and (b) of the Security Agreement by

transferring funds out of the Collateral Account and/or the DB and BNP Sub-Accounts when

BOA knew or should have known that the Borrowing Base Condition was not satisfied and that

funds in the Collateral Account and/or the DB and BNP Sub-Accounts could therefore not be

used to purchase mortgages.

141. BOA violated Sections 5.01 and 5.03 of the Security Agreement by failing to

properly segregate mortgages it purchased and funds it received from the sale of such

mortgages as between the DB Sub-Account and the BNP Sub-Account.

142. As a result of its contractual breaches, BOA directly and proximately caused the

loss of a substantial portion of the cash and mortgages from which Ocala was required to repay

the DB Secured Liquidity Notes, and to which DB would have had recourse in the event of a

failure by Ocala to repay the DB Secured Liquidity Notes.

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COUNT II

BREACH OF CONTRACT (DEPOSITARY AGREEMENT)

143. Plaintiff repeats and realleges each and every allegation above as if fully set

forth herein.

144. Pursuant to Section 8(g) of the Depositary Agreement, DB is a third party

beneficiary of the Depositary Agreement.  Section 8(g) specifically provides DB the right to be

indemnified for losses to Ocala caused by BOA’s negligence under the Depositary Agreement.

145. Furthermore, Section 15 of the Depositary Agreement provides that the

Indenture Trustee is a third-party beneficiary of the Depositary Agreement that may enforce its

provisions.  The Indenture Trustee is obligated to act for the benefit of the Secured Parties, but

BOA, as Indenture Trustee, is incapable of doing so here due to the fact that BOA has a conflict

and cannot sue itself.  Because BOA faces an irreconcilable conflict rendering it unable to carry

out its duty as Indenture Trustee, DB, as the beneficiary of the Base Indenture, is entitled to

assert the Indenture Trustee’s rights under Section 15 directly against BOA as Depositary.

146. BOA was required to exercise due care in performing its duties under the

Depositary Agreement.  If BOA was negligent in performing those duties, the Depositary

Agreement provides that BOA would be liable to DB for resulting damages.

a. Pursuant to Section 8(d) of the Depositary Agreement, BOA is liable for

actions taken or omitted to be taken by it as Depositary that are negligent, fraudulent, in bad

faith, or that constitute willful misconduct.

b. Pursuant to Section 8(d) of the Depositary Agreement, BOA must

indemnify DB against any losses sustained by the Issuer attributable to BOA’s negligence,

fraud, bad faith, or willful misconduct in the performance of its duties.

Case 1:09-cv-09784-UA     Document 1      Filed 11/25/2009     Page 38 of 44

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c. Pursuant to Section 11(d) of the Depositary Agreement, BOA is liable

for errors in judgment made by in good faith by a responsible officer if BOA was negligent in

ascertaining the pertinent facts or in making such judgment based on available facts.

147. BOA breached its duties under the Depositary Agreement and was negligent in

performing those duties, including by:

a. Falsely certifying on a monthly basis that the Borrowing Base Condition

was satisfied pursuant to Section 4(d) of the Depositary Agreement when BOA knew or should

have known that the Borrowing Base Condition had not been satisfied.

b. Improperly issuing on a monthly basis new Secured Liquidity Notes

pursuant to Section 4(d) of the Depositary Agreement when BOA knew or should have known

that the Borrowing Base Condition had not been satisfied.

148. As a result of its contractual breaches, BOA directly and proximately caused the

loss of a substantial portion of the cash and mortgages from which Ocala was required to repay

the DB Secured Liquidity Notes, and to which DB would have had recourse in the event of a

failure by Ocala to repay the DB Secured Liquidity Notes.

COUNT III

BREACH OF CONTRACT (CUSTODIAL AGREEMENT)

149. Plaintiff repeats and realleges each and every allegation above as if fully set

forth herein.

150. The Custodial Agreement provides that DB is entitled to the rights and benefits

of the Custodial Agreement and may enforce the provisions of the Custodial Agreement as if it

were a party.  Custodial Agreement § 25.

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151. BOA was required to exercise due care in performing its duties under the

Custodial Agreement.  If BOA failed to perform those duties and/or was negligent in

performing those duties, the Custodial Agreement provides that BOA would be liable to DB for

resulting damages.

a. Pursuant to Section 19(c) of the Custodial Agreement, BOA is liable for

actions taken or omitted to be taken by it as Custodian that are negligent, fraudulent, in bad

faith, or that constitute willful misconduct.

b. Pursuant to Section 17 of the Custodial Agreement, BOA must

indemnify DB as a Secured Party against any losses sustained by Ocala attributable to the

Custodian’s negligence, fraud, bad faith, or willful misconduct in the performance of its duties

as Custodian.

c. Pursuant to Section 6(b)(i) of the Custodial Agreement, BOA was

required to maintain continuous custody and control of the Mortgages on behalf of Ocala

subject to the security interest of the Collateral Agent in accordance with customary standards

for such custody, and was liable for any loss resulting from the Custodian’s negligence or misconduct.

152. BOA violated Section 8 of the Custodial Agreement by either releasing

Mortgages to third-party purchasers without transmittal letters in the form specified by Exhibit

E to the Custodial Agreement and/or by failing to collect from the third-parties the executed

transmittal letters.

153. BOA violated Section 8 of the Custodial Agreement by failing to ensure that

prospective third-party purchasers to whom it had transmitted loans for purchase either returned

Case 1:09-cv-09784-UA     Document 1      Filed 11/25/2009     Page 40 of 44

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the mortgages or remitted payment for the mortgages within the fifteen day time period set

forth in the required transmittal letters.

154. BOA breached its duties under the Custodial Agreement and was negligent in

performing those duties, including by:

a. Failing to obtain and/or keep records adequate to identify the mortgages

purchased by Ocala and held by BOA;

b. Failing to obtain and/or keep records adequate to demonstrate that

Colonial had released its security interest in mortgages for which BOA transferred payment to

Colonial and of which BOA took possession on behalf of Ocala;

c. Failing to ensure that with respect to mortgages released by BOA to

third-party purchasers as bailees, BOA recovered either the mortgage or the proceeds from the

sale of the mortgage; and

d. Misrepresenting to DB on a daily basis that BOA had custody and

control of DB Collateral over which it knew or should have known it did not have custody or control.

155. BOA negligently performed the daily reporting obligation it expressly undertook

to provide in connection with its performance under the Custodial Agreement.

156. As a result of its contractual breaches, BOA directly and proximately caused the

loss of a substantial portion of the cash and mortgages from which Ocala was required to repay

the DB Secured Liquidity Notes, and to which DB would have had recourse in the event of a

failure by Ocala to repay the DB Secured Liquidity Notes.

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COUNT IV

INDEMNIFICATION

157. Plaintiff repeats and realleges each and every allegation above as if fully set forth herein.

158. Pursuant to Section 8(g) of the Depositary Agreement, Section 17 of the

Custodial Agreement, and Section 8.05 of the Security Agreement, BOA must indemnify DB

against any losses attributable to the BOA’s negligence, fraud, bad faith, or willful misconduct

in the performance of its duties.

159. BOA was negligent in performing its duties as Depositary, Custodian and

Collateral Agent, including by:

a. Falsely certifying on a monthly basis that the Borrowing Base Condition

was satisfied pursuant to Section 4(d) of the Depositary Agreement when BOA knew or should

have known that the Borrowing Base Condition had not been satisfied.

b. Improperly issuing on a monthly basis new Secured Liquidity Notes

pursuant to Section 4(d) of the Depositary Agreement when BOA knew or should have known

that the Borrowing Base Condition had not been satisfied.

c. Failing to obtain and/or keep records adequate to identify the mortgages

purchased by Ocala and held by BOA as Custodian;

d. Failing to obtain and/or keep records adequate to demonstrate that

Colonial had released its security interest in mortgages for which BOA transferred payment to

Colonial and of which BOA took possession on behalf of Ocala;

Case 1:09-cv-09784-UA     Document 1      Filed 11/25/2009     Page 42 of 44

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e. Failing to ensure that with respect to mortgages released by BOA to

third-party purchasers as bailees, BOA either recovered the mortgage or the proceeds from the

sale of the mortgage; and

f. Providing false reports to DB indicating that BOA had custody and

control of DB Collateral over which it knew or should have known it did not have custody or control.

160. As a result of its negligence, BOA directly and proximately caused the loss of a

substantial portion of the cash and mortgages from which Ocala was required to repay the DB

Secured Liquidity Notes, and to which DB would have had recourse in the event of a failure by

Ocala to repay the DB Secured Liquidity Notes.

161. BOA is required to indemnify DB for this loss and has failed to do so.

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RELIEF REQUESTED

Wherefore, Plaintiff prays for relief and judgment as follows:

a. An award of compensatory damages and other damages available by law

in an amount to be proved at trial, plus pre-judgment interest as permitted by law;

b. An award of Plaintiff’s attorneys’ fees, costs and other expenses; and

c. Such other and further relief as is just and proper.

Dated: November 25, 2009

WILLIAMS & CONNOLLY LLP

By:

William E. McDaniels

Stephen D. Andrews

Stephen P. Sorensen

Daniel M. Dockery 

Katherine O’Connor (KL-0902)

725 Twelfth Street, N.W.

Washington, DC 20005

Telephone: (202) 434-5000

Facsimile: (202) 434-5029

ssorensen@wc.com

sandrews@wc.com

ddockery@wc.com

Attorneys for Plaintiff Deutsche Bank, AG

Case 1:09-cv-09784-UA     Document 1      Filed 11/25/2009     Page 44 of 44

Atten: Michael T. Pines, Please Call Lincoln for California, 310-300-4088, 949-276-1970, or 512-968-2666

One of the most interesting people on the foreclosure resistence scene over the past few years has been California Attorney Michael T. Pines.  Like the author of this blog, Mr. Pines is now no longer entitled (“active” or “licensed”) to practice law in the State of California.  His Complaint filed last year in the Northern District of California Michael T Pines’ NDCA Complaint for FDCPA-Wrongful Foreclosure 10-02622 Class Action was excellent and came closest to showing him a blood brother of mine as any (licensed or unlicensed) attorney’s or lawyer’s work I have ever read, as I have several times stated, but he abandoned it without much of a fight 09-27-2010 10-cv-02622-RS Case Status Report.  Since then, he has moved south into Ventura, Orange and San Diego counties where he has both preached and practiced civil disobedience.  I found this order (“prejudicial preliminary judgment”) on-line under Pines’ name at the California State Bar Website (http://members.calbar.ca.gov/courtDocs/11-TE-10948-1.pdf) concerning his suspension from practice by my dear old friends at the missnamed State Bar Court of California, (by the cognoscenti, it is more accurately called “The Star Chamber & Bar Court of California”).  

Just a couple of weeks ago (on June 11, 2011 at 9:07 PM—Can I recommend any attorney that is “on the cutting edge of the securitization issues” here in California?) on these blogs, I listed Pines as among the Attorneys “Blacklisted” by the Kokopelli Community Workshop.  I there repeated what some of my most admired allies (e.g. Catherine Bryan) had made by way of disparaging comments concerning Mr. Pines based on his clients’ complaints, and I am now very confused—I simply do not know what to think about Michael T. Pines.  Sometimes the radical approach is hopelessly ineffective in the short run, but necessary for the long-run, and after reading the learned Bar Court Judge’s summary and order, I believe that Michael T. Pines may be lacking in practical wisdom—a charge which has been repeatedly aimed at my own very quixotic self, soul, and career….

Pines’ Complaint filed and dismissed last year  expressed many thoughts near and dear to my heart (attached above).   As I stated on June 11, 2011, and even before that, I cannot understand why he gave up the fight (CAND-ECF-10-02622 Michael T Pines v Silverstein Docket 09-19-2010) and turned to what looks for all the world like a career of guerrilla warfare involving residential trespassing and burglary.  However, he and I now share at least in some regards—a lot in common.  In the State of Texas, one of the most despicable attorneys’ who ever lived (Michael P. Davis of Round Rock, Williamson County, Texas) accused me of living in a “parallel universe” where the U.S. Constitution controls all aspects of court procedure and jurisprudence *(Well, in fairness to myself, I only contend that the Constitution SHOULD control all aspects of court procedure and jurisprudence—I would be daft indeed if I thought I lived in a place where the Constitution DOES actually control or limit the government AT ALL).  

The State Bar’s accusations against Michael T. Pines, that he considers himself a modern day Henry David Thoreau engaging in Civil Disobedience by Walden Pond….  also suggest that he lives in that same parallel universe in which I have been alleged to reside.  So I find I suddenly have a lot of empathetic feelings and sympathy for Michael T. Pines—as one inhabitant of the parallel universe of “American Constitutional Supremacy” to another…. and accordingly…

In the spirit of “ET”, I would ask that Michael T. Pines call me at his earliest convenience so we can talk about the past, present, and future.  

Perhaps we should go Dragon-(or Shark) hunting together….. Not that I would ever harm a flesh-and-blood dragon nor any of the increasingly endangered sea-sharks, except in self-defense of course….. but spiritual poison-breathing dragons/sharks like Steven D. Silverstein… who seek to implement the final stages of perfecting the Communist Manifesto by the abolition of private property in land (as imported either from Russian Soviet or Maoist Communist Chinese origins and Nixon/Kissinger-led introduction to the United States) are a totally different matter….. those kinds of dragons/sharks have no heart or soul…. (As Renada Nadine March as repeatedly noted—Silverstein chooses the Shark for his own alter-ego in the iconography of his pins and ties—and the name of his company that took Renada’s home—Meglodon….)

As Dragons are described and named in German and Anglo-Saxon Silverstein is merely a really gross worm—Ein Grosser Wurm….

All the world’s a stage, and all the men and women merely players: but on that stage, are courtroom dramas sometimes pre-scripted to produce results and/or social effects? Do these scripts negate due process of law? A Northern California Example.

In the eight years since AAMES Vice-President Deborah S. Gershon in Los Angeles explained to me that AAMES loans could not be modified because they did not belong to AAMES…. strike that, in the 17 years since I first participated in the preparation of an SEC-acceptable registration statement for an MBO (Mortgage Backed Obligation, actually a Mortgage Bundled-Bond, in that case) IPO on Wall Street at Cadwalader, Wickersham, & Taft, I have been almost obsessed with trying to understand and undo the evil caused by securitized mortgages.  It’s a lonely obsession, like so many of my interests: from Wagnerian Opera, Gilbert & Sullivan’s operettas, Tom Lehrer’s and Weird Al Yankovich’s “comic pop-cultural folklore”, to the reconstruction of Proto-Indo-European Language, Culture, and Mythology, the calibration of the Maya and Christian calendars by and through archaeological stratigraphy and ceramic seriation, the comparative structural analysis of dual, tripartite, and quadripartite forms of religious and social organization, and then over to the comparative American graveyard organization and iconography of Colonial New England and the South, especially New Orleans, the detailed history of the Oracle at Delphi, the best approximation of Moses’ route through the Sinai Peninsula in Exodus. But of all my interests and obsessions, only securitized mortgages have become not merely a national but a worldwide crisis and obsession as well.   Since my happy days as a young (or at least a much younger) judicial extern clerk for Stephen Reinhardt (Ninth Circuit, Los Angeles) and later a judicial law clerk for Kenneth L. Ryskamp (Southern District of Florida, Miami & West Palm Beach), on the opposite coasts of America, since those days when I believed that Federal judges all worked late hours into the morning with their clerks sifting through pleadings and motions and agonized over the proper disposition of cases, never “pre-judged” anything, and that federal judges in particular were basically among the hardest working and most honorable members of society at large, never mind the much maligned legal profession, I have learned a lot and become very cynical.

Sadly, I have to say that I repeatedly, and with increasing frequency, see evidence that at least some federal judges either manipulate or fix cases, and that the putatively adversarial attorneys may sometimes participate in this process.   I have neither the time nor the energy to review all the cases where I have suspected this, except that I saw the process directly for the first time in September 1997 in Austin, Texas, when I saw Judge James R. Nowlin take charge of a case (ALL sides), primarily for the purpose of attacking and ultimately destroying me (well, actually, my “ordinary” legal career: which by ending that very ordinary phase of my life began the “extraordinary” phase in which I have been living ever since).  But I’ve seen some evidence of staging and restructuring cases many times since, though no one has ever been quite as outrageously blatant about it as Judge James R. Nowlin of the Western District of Texas (that was one for the Guinness Book of World Records), until perhaps right now, September 2010, in the Northern District of California.

A couple of weeks ago, I became aware that a respected an experienced attorney by the name of Michael Pines had filed a truly extraordinary lawsuit against the foreclosure and eviction consequences against the securitization of mortgages, and in particular against one marvelously slimy fellow by the name of Steven D. Silverstein who operates a rather vicious shark tank out of Tustin, Orange County, California.  Michael Pines’ complaint was, frankly, music to my ears: as eloquent as Wagner while as socially apt, “right on the mark” and stinging as the comedies of Gilbert & Sullivan, or the satires of Tom Lehrer and “Weird Al.”  Everything that Michael Pines said was true, or at least reflected MY version of truth and reality to a very reassuring degree: Michael T Pines’ NDCA Complaint for FDCPA-Wrongful Foreclosure 10-02622 Class Action

Finally, a non-disbarred, currently licensed attorney with community respectability, standing had become so thoroughly acquainted with the truth as even to go record as giving CLE Courses to other lawyers on the topic, see e.g.: http://www.free-press-release.com/news-securitization-in-litigation-workshop-6hrs-mcle-michael-t-pines-esq-certified-forensic-loan-auditors-llc- 1268337159.html

Surely a lawyer like this knows at least as much as a pathetic disbarred attorney such as myself would know.  Inception of a major lawsuit, especially a class action, means that you must design your litigation according to a very careful strategy, frame issues to match your defendants, and you must thoroughly research every topic prior to launching litigation.  Above all, before you file your complaint, you must anticipate vigorous and violent opposition—especially if you’re suing other lawyers, but even if you’re “ONLY” suing certain major banks and loan servicing companies in the largest financial industry in the WORLD in a state (California) whose, by itself, would rank right after that of France and just above Italy’s if California were a separate and independent nation, apart from the rest of the US.  Anyone who goes into Federal Court knows that the first thing to expect is the ALMOST inevitable 12(b)(6) Motion.  Few and far between are the cases where anyone just files an “answer” in Federal Court, when Federal judges, even the good ones, LOVE to throw out cases without allowing a jury trial if they possibly can, because all Federal judges are “judged” and rated by their “case statistics” which rewards a LOW case load (which requires less work) than a HIGH case load (conscientious management of which would require MUCH more work).   Congress has built in some VERY perverse incentives for Federal Judges but that is, as they say, a “Political Question” which we need not address here.

SO how can it be that Michael T. Pines, a distinguished lawyer known for speaking on this topic, had not filed (by September 2010) even a single answer to the motions to dismiss his complaint filed in June, 2010?  CAND-ECF-10-02622 Michael T Pines v Silverstein Docket 09-19-2010 Michael T. Pines did the almost unthinkable: he filed and served a major, complex lawsuit in his special field of expertise and advocacy and then, faced with the totally predictable barrage of motions to dismiss and for sanctions, never filed any responses and finally, on September 21, 2010, VOLUNTARILY DISMISSED HIS CASE.  09-21-2010–PINES AND ASSOCIATES—Notice of Voluntary Dismissal.  The Notice provides no explanation whatsoever why Plaintiffs’ Counsel so utterly and completely failed to file any response or contest to the Defendants’ Motions to Dismiss, but only lamely “advised the court:”

2. Further investigation is occurring and will be helpful.

3. Many new party defendants need to be added.

4. The case may be re-filed in a court where other class actions are pending as this

case is related to other similar actions not only in California, but in Florida,

New York, and Seattle.

5. In an attempt to further conceal their wrongful conduct, with the exception of a

few defendants, no demand for defense was made to insurance carriers and

plaintiffs wish to make sure this occurs.

6. If the case is re-filed in this court, this action will be brought to the attention of

the court so it can be reassigned here if the court desires such.

Steven D. Silverstein’s lawyer Larry Rothman responded  09-27-2010 10-cv-02622-RS Case Status Report in a more mild-mannered and civilized way than I would have thought possible, because Larry Rothman is nothing if not a fairly consistent shark in the tradition of his client (and mentor?) Silverstein—and yet Rothman pounced on 09-22-2010 THE VERY DAY AFTER Michael T. Pines’ Notice of Voluntary Dismissal and demanded that jurisdiction to impose sanctions be retained.  Judge Seeborg of the Northern District could do nothing other than comply with Rothman’s request: 09-27-2010—10-2622 McComas order re pending motions—Rule 11 Sanctions Remain.

This story is clearly not yet “over”—it remains to be seen what Judge Seeborg will do about the motions for sanctions and the administration or implementation of Rothman’s California “anti-Slapp” motion in Federal Court.  (The idea that Silverstein’s use of the California Superior Courts of Limited Jurisdiction [solely to eviscerate the rights and lives of hundreds of thousands of Californians] could be protected against a “Suit to Limit Access to Public Process” [a “SLAPP” is usually conceived of as a harassing lawsuit designed for no purpose except to silence environmentalists or civil rights advocates, or historic or coastal neighborhood preservations—NOT as a vehicle to insulate criminals like Silverstein from very meritorious lawsuits] is beyond preposterous and downright offensive.   I believe and have submitted in two lawsuits of my own that California Anti-SLAPP legislation is the “mother of all First Amendment Constitutional Violations”—even more reprehensible for its vagueness and obviously realized potential for overbreadth than the “Vexatious Litigant” index which I can only imagine Silverstein would like to have me registered on).

It also remains to be seen whether Michael T. Pines actually WILL refile his class action against Silverstein and his cronies and seriously litigate the Complaint once he DOES file it again.

In the meantime, Michael T. Pines has voluntarily dismissed his very fine complaint without even attempting to defend it.  And I have never seen anything this suspicious in my life, except for Judge Nowlin’s conduct towards me in September 1997 [footnote/sidebar: it was a civil case, but Judge Nowlin appointed a very expensive downtown Austin lawyer, a former law clerk of his, to represent the crook I was suing as Defendant, who was proceeding pro se —when I say “crook” I mean Donald Richmond was a forger, an interstate racketeer in real estate before it was even fashionable, and we had the certificate from the North Dakota Secretary of State confirming that he had forged a notary seal—and then he arranged to have me fired as counsel for the Plaintiff by strong-arming my housekeeper into giving outrageously and obviously false testimony against me, and on that occasion expressed his gratitude in open Court, on the record, to her and anyone else who would assist him in procuring evidence leading to my disbarment…..]

I submit that this all looks just a little bit too STAGED to me.   Even if it were true, as Michael T. Pines so weakly claims that:

1. Counsel is working with several agencies including the State Of California to

coordinate proceedings against named defendants and others (and criminal proceedings in other states).

2. Further investigation is occurring and will be helpful.

3. Many new party defendants need to be added.

4. The case may be re-filed in a court where other class actions are pending as this

case is related to other similar actions not only in California, but in Florida,

New York, and Seattle.

These facts SIMPLY do not excuse Michael T. Pines failure even to defend himself for filing the Complaint in any way, shape or form.  (Aside from submitting the Complaint, Pines had submitted a TRO and motion for reconsideration of denial of TRO, and no other substantive papers in the case WHATSOEVER).

And frankly, all of it would be pretty inconclusive and not nearly so suspicious if it were not for the judgment obtained in the California Attorney General’s case against a certain Mitchell Roth in Los Angeles in August of this year.   I wrote a critical letter to the Attorney General immediately after learning of the Mitchell Roth judgment, saying that I did not believe that the Attorney General had acted in the best interests of the people of California in attacking Mitchell Roth’s abortive crusade against non-judicial foreclosures and evictions.  CEL to EDMUND G BROWN CAL AG 08-26-2010.  I feared then and still fear that the end result as far as the public is concerned will be that everyone who pushes the “securitized note” issue, as a defense to wrongful foreclosure and the evictions that follow therefrom will be lumped with “the scammers” and the filers of frivolous lawsuits, such as Roth and, I’m going to predict, Michael T. Pines.  I note in the attorney general’s summary of Roth’s conduct the disturbing sentence: “Roth filed lawsuits on behalf of homeowners, pushing a novel legal argument that a borrower’s loan could be deemed invalid because the mortgages had been sold so many times on Wall Street that the lender could not demonstrate who owned it.” Isn’t THIS suit, by the Attorney General of the State of California, the ultimate “SLAPP” in the face to the movement of which I am apart, the advocacy in which I believe and have fought ever since it effectively cost me my high-paying, high-prestige job at the (they claim) oldest lawfirm in the United States (allegedly traceable back to a law office founded in lower Manhattan near the battery in 1792).

However, even more suspicious and odd, California Attorney General Edmund G. Brown had made precisely the same claim against Mitchell Roth as the demonstrable reasons for the voluntary dismissal of Plaintiffs’ case in the NDCA: “Once the lawsuit was filed, Roth did next to nothing to advance the case and often failed to make required court filings, respond to legal motions, comply with court deadlines or appear at court hearings.”http://ag.ca.gov/newsalerts/release.php?id=1979

Honestly, it just doesn’t get much more suspiciously coincidental than this: on or about August 12, 2010, the Attorney General enters into a consent judgment with Mitchell Roth preventing Mitchell Roth from “pushing” his novel legal argument that a borrower’s loan could be deemed invalid because the mortgages had been sold so many times on Wall Street that the lender could not demonstrate who owned it”—Mitchell Roth’s alleged “M.O.” was to file lawsuits and then never do anything else about it.

Slightly over a month later, on or about September 21, 2010, Michael T. Pines, supposedly one of the leading advocates AGAINST SECURITIZED MORTGAGES, voluntarily dismisses his very strong complaint against wrongful foreclosures, after having identified the issues correctly, named all the right defendants, after initiating a lawsuit and never filing any other papers or attempting even taking steps towards the serious prosecution of the lawsuit, (i.e. (without ever answering the Defendants’ Motions to Dismiss or defending his complaint in any way) .  (Perhaps it is significant that Pines’ Complaint named too many plaintiffs and defendents to be practically combined into a single suit, especially one seeking class certification, where “identity of injury and identity of nature of causation of injury” must be proven, but that’s a quibble about strategy).

Two nearly identical case histories, flawed legal strategies, associated with the same legal issue, both leading to potential legal sanctions or stigmatization of the very meritorious legal issues involved in attacking the securitization of home mortgages as the direct and proximate and therefore legal cause of the present mortgage foreclosure crisis.

The end result of both the stories of Mitchell Roth and Michael T. Pines’ case histories, as of Tuesday, September 28, 2010, is that two “seasoned” lawyers in the State of California who wanted to push that self-same “Novel Argument” about securitization leading to unenforceability of mortgages have both bit the dust without adequately developing or examining the legal theories or factual evidence which could be marshaled in favor and support of either Roth’s Complaint or Pines’ Complaint.  This is going to lead to a lot of “See, I told you so” comments which those trying to dissuade homeowners from fighting foreclosure on this issue will now be able to use.   Litigation on the scale of the Pines’ now voluntarily dismissed complaint or (I assume, without ever having looked at an example) Roth’s Complaint supposedly filed (???) 2,000 times without a single genuine litigation is expensive and difficult, and scares away even many serious people, but that is because it must be fought against all odds against such tough enemies—the international banking & finance industry, its attorneys, and its servicers.

In other words, I charge, without any inside knowledge, that Mitchell Roth’s cases and Michael Pines’ case were both staged, fraudulent situations specifically staged to discredit and destroy the causes which I so passionately support: the abolition of securitized mortgages and the modification of the foreclosure and eviction laws in the state of California and elsewhere, especially in those Western U.S.A. states which tend to slavishly copy California Codes, by inertia and gravity, as physical factors relating to size and proximity, rather than virtue or success of theoretical arguments.

And that, therein, is the biggest problem.  In almost all pro se complaints, the systems-loyal state and federal judges all have an easy time throwing out the desperate homeowners who demand to see the note or ask how their property can be taken from them by a party who appears to have no relationship to them or their original mortgage application and promissory note whatsoever.

The continuing lack of argument and exposition of evidence and theories is perhaps the most devastating consequence of the Mitchell Roth judgment and the Michael T. Pines’ voluntary dismissal (with continued exposure to punitive sanctions under both Rule 11 of the Federal Rules of Civil Procedure and the ABSURD California “Anti-SLAPP” Motion filed by Rothman for Silverstein).

“Due Process” never occurs on stage.  It is true that the language used to describe and explain legal “representation” and thespian performance is sometimes eerily similar:  the lawyer “acts on behalf” of another by “representing him” as accurately as possible in his “presentation” to the Court.   An actor, like an attorney in court, is to be judged on the “quality” or “accuracy” of his representation of both the character and the “original intent” of the author of the movie, the play, the book (before being made into a movie or play), or of the statutory and constitutional provisions underlying the lawsuit brought to be “put on” in Court—under the best of circumstances to a small, non-paying, poorly paid, “captive” audience of 12, and more often, to an even smaller audience of one judge, one or two bailiffs or courtroom deputies, and one-or-two law clerks.

Meaningful argument, substantial dialogue or “Due Process” on stage is impossible, except of course in completely “ad libbed” dramas (where no preset script is to be followed), because all the arguments and outcomes are normally predetermined (“Shear Madness” is a notable exception).

What aggravates so many Americans who get caught up in one or more aspects or elements of the litigation system in this country is how “pre-set” and “pre-determined” the outcome of all proceedings seems to be.  There is no room for open or free argument or debate—there is no “due process” for the free development of ideas or evidence—there are rote formulas and outcomes which in some courts seem totally fixed—the opposite of freedom.

In Florida for several years now I’ve been working intermittently with Dr. Kathy Garcia-Lawson on the question of why every divorce litigation must end in a divorce.   Why are there not multiple, possible outcomes, as unique as the individuals and families involved?  Why can one not question the “pre-fixed” outcome that all divorce proceedings must end in a divorce?   There is no such thing as a “not guilty” verdict.  As Kathy and others have said—every marriage is doomed once it goes to court—there are no pardons and no hung juries, every marriage must die.

Likewise, in California Unlawful Detainer Courts—the outcome is even more fixed.  In divorce court, there is at least some diversity of outcome with regard to who gets the house and who gets the house, the shares of Bristol-Myers-Squibb, the kids, the dog, the parakeet, and all those ancient plates inherited from one spouse’s great aunt who collected Royal Doulton (but whose eyesight was so bad in her old age that every set is hopelessly mismatched in the China cabinet).

In Unlawful Detainer Court, as in California non-judicial foreclosure, there is no diversity of outcome, and Judges have been known to tell defendants out right that only one outcome is possible—the homeowner must lose and be evicted.  Contractual defenses are not allowed.  Defects in property title are not allowed.  Violations of due process and allegations of fraud are not allowed—or if a good humored judge allows these arguments, the Plaintiff still wins, anyhow.

Accordingly, “due process”, has become meaningless in many American Courts: there is a “prix-fixe” menu of “notice and opportunity” whereby you have notice of some dire event—either your marriage is about to be torn apart or your home is about to be sold (and possession delivered) to the Mainland Chinese and/or Saudi Arabian investors who’ve been stalking your neighborhood or both.

“Due process” is ordinarily defined as “meaningful notice and reasonable opportunity to be heard” but even those qualifying words are extravagant compared to what’s really given in most American Courts of limited and/or specialized jurisdiction (i.e. Divorce/Family/Domestic Relations Courts or Courts of Limited Jurisdiction/Municipal Courts/Justice of the Peace Courts specializing in evictions/foreclosures).   The State of Florida is setting up special “foreclosure courts” just to speed the destruction of private property in that state along at a merry pace.

But then there are the real problems—where the Courts are of unlimited jurisdiction, like the Northern District of California—but a “show” is apparently planned and put on to discredit an idea.   A case is made up and then litigated in such a way that one side must lose.  It is exactly like fixing a boxing match or a baseball game so that the “gamblers” and “bookies” will be happy, or make money, or both.

When lawyers participate in the fixing of cases, they betray their clients and themselves, but they also betray the concept of due process and the constitutional meaning of the courts as a part of government.

When judges participate in the fixing of cases, well, it’s just too horrifying for words.

Did any of these happen either in the Mitchell Roth case in Los Angeles or the Michael Pines case in the Northern District of California?   Similar fact patterns, similar outcomes, identical legal-factual subject matter relating to the effect of securitized mortgages.

I think that “due process” should be redefined as meaningful dialogue concerning all facts and issues.  The Judges would be primarily responsible for enforcing the Court as an arena for such discussions.   Last year I was involved in an unfortunate case of ill-repute in Orange County wherein I worked with a lawyer who brought some very controversial claims of great national interest, and that lawyer then intentionally sabotaged her own claims on several levels by rushing the process, and then by ignoring it once she had a chance to get into court.  The judge granted this particular lawyer an extraordinary opportunity to correct some past mistakes, the attorney made more.  The judge then wrote an opinion outlining everything that this attorney needed to do to make her case and claims stronger, and the lawyer called the judge a traitor on the internet.  It was all just tragic and disgusting, because this one particular judge really DOES get that “meaningful dialogue” is at the heart of due process.  “Due process” is simply not satisfied by summary executions where the doomed defendant has a few words to say by way of complaint before his head is lopped off or he is thrown bodily out of his house.

The world goes faster and faster, and it is time to slow some things down.  Legal process, for instance, should NEVER be streamlined.  It should ALWAYS be slow and deliberate and give adequate opportunity for thought, reflection, and debate both on legal theories and evidence.   Above all, there must be no fixed or pre-determined outcomes.

I hope that Michael Pines did not intentionally “throw” his case by failing to answer the Defendants’ Motions to Dismiss, but I’d say it looks very suspicious.  I hope that there is nothing more than great  and random coincidence between the allegations made (and established by a consent judgment) against Mitchell Roth in Los Angeles and the obvious conduct of Michael Pines’ case in the Northern District of California.

Full and open debate and exposition of evidence is absolutely critical both to resolving important issues facing the country and for the future of the free rights and enforceability of contract and the maintenance of the right to keep and own private property.  In other words, due process, by which I mean “well-developed and meaningful dialogue” (i.e. dialectical reasoning and process) in the evaluation of petitions for redress of grievance concerning impairments of the rights to enforce and maintain obligations of contract, for the benefits of acquiring and maintaining ownership of private property, and the presentation of these arguments to juries, is key to the future of the United States of America, and there is some evidence that such dialectical debate and the adversarial process itself is being regularly subverted in these United States as we teeter on the verge of a major transformation in our country, as one economy, the “capitalist mode of production” gasps for air and tries to survive against creeping socialism and collectivism which deeply threatens our way of life.

In Plato’s Republic, Book VII, men are chained to a wall and never see the sunlight, and they believe that their shadowy reflections in the torchlight is the only reality of life, because they either never knew or have forgotten the sun and how the world looks by day.  We in America are chained in our caves by lack of due process in court, lack of full debate on important aspects of our lives, such as WHERE and HOW we live.  The judicial courts need to be a radiant source of light for all people to see evidence and theories concerning what is right and what is wrong, what is true and what is false, especially in the economy, especially in regard to the essential elements of life, such as food and shelter.

DEO VINDICE—AS OF JANUARY 19, 2009, PINELLAS COUNTY, FLORIDA, WILL REQUIRE ALL INSTITUTIONAL PLAINTIFFS IN FORECLOSURES TO FILE THE ORIGINAL PROMISSORY NOTE WITH THE COURT!

 

 

THE MOTTO OF THE CONFEDERATE STATES OF AMERICA WAS “DEO VINDICE”
=BY GOD VINDICATED—THE “VINDICATIO” WAS A ROMAN LEGAL CAUSE OF ACTION JUSTIFYING OWNERSHIP OF LAND AND THE INSTRUMENTS OF AGRICULTURAL PRODUCTION, also known as “RES MANCIPI”—I now feel somewhat PERSONALLY VINDICATED, given as I have been one of the few people in the Country who realised that
as of August 18, 2005, Pinellas County was GROUND ZERO for the “ORIGINAL NOTE”(holder-in-due course, privity of contract) theory of MORTGAGE FORECLOSURES, by this ADMINISTRATIVE ORDER OF THE SIXTH JUDICIAL CIRCUIT IN PINELLAS COUNTY—ALL NEW FORECLOSURE SUITS IN JUDGE WALT LOGAN’S OLD DISTRICT
MUST NOW INCLUDE THE ORIGINAL PROMISSORY NOTE!  THIS IS A VICTORY FOR THE COMMON LAW OVER PROFITABLE CORPORATE COMMERCIAL PRACTICE—THIS IS A VICTORY OF JUSTICE AND COMMON SENSE OVER DECEIPT—THIS IS A MAJOR
VICTORY WHICH SHOULD BE COPIED ALL OVER THE UNITED STATES AND I AM PROUD TO HAVE BEEN ONE OF THE ADVOCATES OF THIS POSITION FOR MANY YEARS “

DEO VINDICE”


http://www.jud6.org/LegalCommunity/LegalPractice/

AOSAndRules/aos/aos2008/2008-081.htm


IN THE CIRCUIT COURT, SIXTH JUDICIAL CIRCUIT

IN AND FOR PASCO AND PINELLAS COUNTIES, FLORIDA

 

ADMINISTRATIVE ORDER NO. 2008-081 PA/PI-CIR

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RE:     MORTGAGE FORECLOSURE ACTIONS BY INSTITUTIONAL LENDERS

           

            Mortgage foreclosure cases have increased at an unprecedented rate in the Sixth Judicial Circuit.  In the Sixth Judicial Circuit in the last year alone, mortgage foreclosure case filings increased approximately 118%.  Frequently, attorneys who handle a large volume of mortgage foreclosure cases do not have their pleadings in order or fail to appear at scheduled hearings, causing the court to reschedule or delay hearings in mortgage foreclosure cases.  The volume of the cases and the resetting of these hearings results in difficulties scheduling these summary proceedings.  In light of the court’s finite resources, it is necessary to establish procedures for more efficient handling of mortgage foreclosure cases. 

 

            Pursuant to Rule of Judicial Administration 2.215, the Chief Judge has the authority to adopt administrative orders necessary to administer the court’s affairs.  Therefore, it is

 

ORDERED:

 

            1.   Filing of Initial Mortgage Foreclosure Complaint:  An institutional mortgagee lender that after January 19, 2009, files a complaint to foreclose a mortgage on homestead property must provide the following to the Clerk of Circuit Court with the initial filing:

 

            a.    A Notice to Homeowner, a copy of which is attached to this Administrative Order as Attachment A.

            b.   A Plaintiff/Lender’s Contact Information Sheet, a copy of which is attached to this Administrative Order as Attachment B.

 

Homestead property is property designated as “homestead” by the property appraiser’s office on the date of filing the complaint.  The plaintiff must include the Notice to Homeowner and Plaintiff/Lender’s Contact Information Sheet with each summons serving a complaint on the owner of residential homestead property.

 

            2.   Certificate Filed Prior to Requesting Summary Judgment Hearing Dates:  Prior to requesting a mortgage foreclosure summary judgment hearing date from the court, the attorney of record for the plaintiff must file a uniform certificate titled “Certification of Compliance with Foreclosure Procedures” with the Clerk.  The uniform certificate is 
Attachment C to this Administrative Order.  The uniform certificate provides the attorney’s certification of the completion of requisite actions and the dates on which they were completed.

 

            3.   Foreclosure Judgment Packet Prior to Hearing:  Unless the presiding judge provides otherwise, the plaintiff’s attorney must deliver a foreclosure judgment packet to the presiding judge’s office at least five (5) business days prior to the scheduled hearing date for a motion for summary judgment.  The foreclosure judgment packet consists of the following documents:

a.    Proposed Uniform Final Judgment.  Include sufficient copies for conforming and stamped, addressed envelopes for all parties;

b.   Original Promissory Note (unless previously filed);

c.    Notice of Sale;

d.   A copy of the Certification of Compliance with Foreclosure Procedures; and

e.    A copy of the Notice of Hearing.

 

            4.    Uniform Final Judgment:  All proposed final judgments of foreclosure shall be in the format of the Uniform Final Judgment of Foreclosure for the Sixth Judicial Circuit as provided in Attachment D unless otherwise specifically approved by the judge entering the final judgment.  Any changes to the Uniform Final Judgment of Foreclosure from that prescribed in Attachment D shall be brought to the attention of the presiding judge at the final judgment hearing.

 

            5.    Cancellation of Foreclosure Sale by Clerk upon Suggestion of Bankruptcy:  If the Clerk of Circuit Court receives, prior to the commencement of a foreclosure sale, a mailed or faxed suggestion of bankruptcy on behalf of a named defendant in a pending foreclosure action, the Clerk is directed to cancel the foreclosure sale.  The Clerk shall not cancel the sale if subsequently directed otherwise by the presiding judge or a United States Bankruptcy Judge.  The plaintiff is responsible to separately file with the Clerk any order from a United States Bankruptcy Judge that would preclude the Clerk from canceling a foreclosure sale; such filing must not be an attachment or exhibit.

 

            6.    Additional Procedures:  The judicial practice preferences of each judge, which may contain a judge’s individualized procedures for mortgage foreclosure cases, may be found on the Circuit’s Internet site at http://www.jud6.org/LegalCommunity/PracticeRequirementsofJudges.html.  The Chief Judge may update or make other amendments to the attachments of this Administrative Order without further amendment to this Administrative Order.

 

            7.    Application:  This Administrative Order applies to all mortgage foreclosure actions by institutional lenders except that paragraph one only applies to homestead property.

 

            8.    Effective Dates:  All mortgage foreclosure complaints filed after January 19, 2009, and all mortgage foreclosure summary judgment hearings scheduled to occur after January 19, 2009, must comply with this Administrative Order.    

 

            A plaintiff, who as of the date of this Administrative Order, has filed a mortgage foreclosure complaint and already has a foreclosure summary judgment hearing scheduled to occur after January 19, 2009, may keep the scheduled date and time.  However, the plaintiff’s attorney must file the Foreclosure Judgment Package, as prescribed in paragraph 3 of this Administrative Order, including the “Certification of Compliance with Foreclosure Procedures” with the Clerk of Circuit Court at least five (5) business days prior to the scheduled hearing date.  The presiding judge may cancel a schedule hearing that does not have the Foreclosure Judgment Package filed by that day. 

 

            A plaintiff, who as of the date of this Administrative Order, has filed a mortgage foreclosure complaint and has yet to schedule a foreclosure summary judgment hearing, must comply with paragraph 2 of this Administrative Order and file a “Certification of Compliance with Foreclosure Procedures” prior to requesting a hearing date.  Additionally, the plaintiff must file the Foreclosure Judgment Package, as prescribed in paragraph 3 of this Administrative Order, with the Clerk of Circuit Court at least five (5) business days prior to the scheduled hearing date.

 

            A plaintiff who files a mortgage foreclosure complaint after January 19, 2009, must comply with all requirements of this Administrative Order.

                         

DONE AND ORDERED in Chambers at Clearwater, Pinellas County, Florida this _____ day of December 2008.

 

 

 

_____________________________

Robert J. Morris, Jr., Chief Judge

 

Attachment:   

(A) Notice to Homeowner (html)
(A) Notice to Homeowner (word version)
(B) Plaintiff/Lender’s Contact Information Sheet (html)
(B) Plaintiff/Lender’s Contact Information Sheet (word version)
(C) Certification of Compliance with Foreclosure Procedures (html)
(C) Certification of Compliance with Foreclosure Procedures (word version)
(D) Uniform Final Judgment of Foreclosure for the Sixth Judicial Circuit (html)
(D) Uniform Final Judgment of Foreclosure for the Sixth Judicial Circuit (word version)

 

                    

                    

                      

 

 

cc:        All Judges

            The Honorable Ken Burke, Clerk of the Circuit Court, Pinellas County

            The Honorable Jed Pittman, Clerk of the Circuit Court, Pasco County

            Paula O’Neil, Chief Deputy, Pasco County Clerk’s Office

            Debbie Gay, Assistant Court Services Director, Pasco County Clerk’s Office

            Carol Heath, Executive Director, Pinellas County Clerk’s Office

            Gay L. Inskeep, Trial Courts Administrator

            Bar Associations, Pasco and Pinellas County

            Law Libraries, Pasco and Pinellas County

   

State Control over the Economy, Part I: JPMorganChase & Washington Mutual

Attention today (Monday September 29, 2008) has been focused on the House of Representatives in Washington, D.C., which made a “show vote” against “socialism” and government bailout of the financial industry.  Yet everyone over the age of 6 knows that today was just partisan showmanship, and that Congress will rescue the starving billionaires and “small timers” (i.e. mere millionaires) on Wall Street as surely as they will vote themselves a pay raise sometime in the next few years and create more exemptions for fraud or acts of oppression committed by government officials.  No one in the Republican leadership or the 94 Democrats who joined them in voting down the Republican President’s bill admitted that it is GEORGE W. BUSH’S America, the nightmare of corporate welfare and immunity for financial sleight of hand artists, largely envisioned by Daddy George H.W. and implemented by and under William Jefferson Clinton, which is collapsing.  Populism will blame Wall Street, but it was Bill Clinton’s repeal of the Glass-Steagal Act in 1999 and all the concommitant removal other “brakes” places on the rampage of international bankers on cocaine which has led to the current meltdown.  Why is it that we are amazed at the puppet theatre played out in Congress today?  The members on both sides of the aisle are actually clamouring for yet MORE government intervention because we have repeatedly voted for the worst of the worst of both Republicrat and Democan Parties over the past two decades.  The Republican leadership made it pretty clear that the ONLY reason Bill 3997 failed today was because Nancy Pelosi opened her mouth and said a few semi-rational and coherent things about the effects of deregulation and greed on the collapse of the most insane paper-money manufacturing scheme (securitized mortgages) in the history of the world.  But until SECURITIZED MORTGAGES ARE EITHER ABOLISHED or fully regulated like ALL OTHER SECURITIES in this country, the exponentially increasing risks will continue to pile up. 

As of the present moment, I think that insufficient attention has been played to the government’s intervention in the collapse of Washington Mutual.  Late Thursday night, an incredible thing happened: Washington Mutual made known to the government that it was on the verge of collapse, and OVERNIGHT the government brokered a takeover of Washington Mutual whereby 100% (or something very close) to the government insured deposits, loans, credit card accounts, and other “assets” of Washington Mutual were transferred to JPMorganChase while 100% (or something very close) of the corporate liabilities (i.e. equity shares and bonds, implying UNSECURED obligations of the bank) were declared WORTHLESS. $1.8 BILLION in financial manipulation OVERNIGHT. 

Where is the “wall of separation between government and the private sector these days?”  Since when, in a non-Communist, non-Fascistic economy, can the government in effect order a merger of two major businesses without shareholder consent or litigation of any kind?  This is called a “Command and Control” or “Fiat” economy.  Nothing of this level of dictatorial efficiency was ever achieved or implemented in Nazi Germany, the U.S.S.R., or anywhere else to the best of my knowledge.  The Kings of England up through William of Orange, Adolph Hitler, Joseph Stalin, and Mao Tse-Tung all had more constituencies with whom to contend and negotiate than the financial authorities who merged these two gigantic banks—which happen to be the greatest single offenders in the whole securitized “mortgage backed equity/collateral backed obligation” debacle.  The lack of discussion or any widespread dissemination of information regarding the details or the mechanisms of the Washington Mutual/JP Morgan Chase “overnight shotgun marriage” last week was just a prelude to the “show trial” in Congress today, where amateur actors tried to pretend that Congressional approval of the bailout is all but pro forma. 

The Great Leader GWB will, within a few days, achieve the complete reimbursement of his buddies in high finance if he has to do so by (hush-hush) executive orders—I have no doubt of that.  What I wonder is whether Ron Paul or anybody else on the House Floor was thinking how completely content-free the debate really was, and how pointless the show of posed opposition to the implementation of something close to pure communism in the financial sector.  IF the Federal government can, without comment, by mere announcement merge JPMorgan Chase and Washington Mutual OVERNIGHT in one week, there is really no meaningful limit to what the Government and and will do, given a week or two, with or without rubber-stamped congressional approval. 

So in short, to those of you who were in favor of the Bill 3997 bailout, I say, “be of good cheer, Big Brother will take care of you whether the Puppet Actors in Congress approve it outloud today, tomorrow or never.”  To those of you who think that Congress struck a blow for economic integrity and allowing the free markets to take care of their own greatest leaders’ failures, I would say: look at JPMorganChase and Washington Mutual merger that took place without application to the Antitrust Division of the DOJ, the Federal Commerce Commission, or anyone else, and tell me that it makes any difference what Congress does.  Look at all the dozen or so mergers of the past couple of weeks and tell me that there is a rule of law or free market economy at work here.  Where were the shareholder votes necessary to approve these mergers?  Where were the bids and white knights and marketplace speculation?  ALL of these things have been suppressed and coopted by the government to hide the failures of the corporate-communistic policies of the past 20 years.  Had the free market or even free discussion of these issues been allowed, all the truth about who is responsible for the present state of affairs, and who authorized the exemption of securitized mortgages from securities fraud regulation (and even private civil litigation complaints or demands concerning such securities fraud).  

Free Market Capitalism is dead.  Socialism is managed by and for the primary benefit of the operators and managers of the major financial corporations.  Even the small private shareholders in financial institutions can be wiped out NOT by the Market but by the Government, in a moment, in twinkling of an eye—but without any trumpets…..

Trillions of Dollars of Mortgage-Backed Securities Waiting to Unravel Worldwide: they’re 80% illegal, so “let ’em all rip;” sometimes you have to break a few eggs to make an omlette, and if the eggs are rotten, throw them out….

The New York Times

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August 17, 2008

Dr. Doom

 

 

On Sept. 7, 2006, Nouriel Roubini, an economics professor at New York University, stood before an audience of economists at the International Monetary Fund and announced that a crisis was brewing. In the coming months and years, he warned, the United States was likely to face a once-in-a-lifetime housing bust, an oil shock, sharply declining consumer confidence and, ultimately, a deep recession. He laid out a bleak sequence of events: homeowners defaulting on mortgages, trillions of dollars of mortgage-backed securities unraveling worldwide and the global financial system shuddering to a halt. These developments, he went on, could cripple or destroy hedge funds, investment banks and other major financial institutions like Fannie Mae and Freddie Mac.

The audience seemed skeptical, even dismissive. As Roubini stepped down from the lectern after his talk, the moderator of the event quipped, “I think perhaps we will need a stiff drink after that.” People laughed — and not without reason. At the time, unemployment and inflation remained low, and the economy, while weak, was still growing, despite rising oil prices and a softening housing market. And then there was the espouser of doom himself: Roubini was known to be a perpetual pessimist, what economists call a “permabear.” When the economist Anirvan Banerji delivered his response to Roubini’s talk, he noted that Roubini’s predictions did not make use of mathematical models and dismissed his hunches as those of a career naysayer.

But Roubini was soon vindicated. In the year that followed, subprime lenders began entering bankruptcy, hedge funds began going under and the stock market plunged. There was declining employment, a deteriorating dollar, ever-increasing evidence of a huge housing bust and a growing air of panic in financial markets as the credit crisis deepened. By late summer, the Federal Reserve was rushing to the rescue, making the first of many unorthodox interventions in the economy, including cutting the lending rate by 50 basis points and buying up tens of billions of dollars in mortgage-backed securities. When Roubini returned to the I.M.F. last September, he delivered a second talk, predicting a growing crisis of solvency that would infect every sector of the financial system. This time, no one laughed. “He sounded like a madman in 2006,” recalls the I.M.F. economist Prakash Loungani, who invited Roubini on both occasions. “He was a prophet when he returned in 2007.”

Over the past year, whenever optimists have declared the worst of the economic crisis behind us, Roubini has countered with steadfast pessimism. In February, when the conventional wisdom held that the venerable investment firms of Wall Street would weather the crisis, Roubini warned that one or more of them would go “belly up” — and six weeks later, Bear Stearns collapsed. Following the Fed’s further extraordinary actions in the spring — including making lines of credit available to selected investment banks and brokerage houses — many economists made note of the ensuing economic rally and proclaimed the credit crisis over and a recession averted. Roubini, who dismissed the rally as nothing more than a “delusional complacency” encouraged by a “bunch of self-serving spinmasters,” stuck to his script of “nightmare” events: waves of corporate bankrupticies, collapses in markets like commercial real estate and municipal bonds and, most alarming, the possible bankruptcy of a large regional or national bank that would trigger a panic by depositors. Not all of these developments have come to pass (and perhaps never will), but the demise last month of the California bank IndyMac — one of the largest such failures in U.S. history — drew only more attention to Roubini’s seeming prescience.

As a result, Roubini, a respected but formerly obscure academic, has become a major figure in the public debate about the economy: the seer who saw it coming. He has been summoned to speak before Congress, the Council on Foreign Relations and the World Economic Forum at Davos. He is now a sought-after adviser, spending much of his time shuttling between meetings with central bank governors and finance ministers in Europe and Asia. Though he continues to issue colorful doomsday prophecies of a decidedly nonmainstream sort — especially on his popular and polemical blog, where he offers visions of “equity market slaughter” and the “Coming Systemic Bust of the U.S. Banking System” — the mainstream economic establishment appears to be moving closer, however fitfully, to his way of seeing things. “I have in the last few months become more pessimistic than the consensus,” the former Treasury secretary Lawrence Summers told me earlier this year. “Certainly, Nouriel’s writings have been a contributor to that.”

On a cold and dreary day last winter, I met Roubini over lunch in the TriBeCa neighborhood of New York City. “I’m not a pessimist by nature,” he insisted. “I’m not someone who sees things in a bleak way.” Just looking at him, I found the assertion hard to credit. With a dour manner and an aura of gloom about him, Roubini gives the impression of being permanently pained, as if the burden of what he knows is almost too much for him to bear. He rarely smiles, and when he does, his face, topped by an unruly mop of brown hair, contorts into something more closely resembling a grimace.

When I pressed him on his claim that he wasn’t pessimistic, he paused for a moment and then relented a little. “I have more concerns about potential risks and vulnerabilities than most people,” he said, with glum understatement. But these concerns, he argued, make him more of a realist than a pessimist and put him in the role of the cleareyed outsider — unsettling complacency and puncturing pieties.

Roubini, who is 50, has been an outsider his entire life. He was born in Istanbul, the child of Iranian Jews, and his family moved to Tehran when he was 2, then to Tel Aviv and finally to Italy, where he grew up and attended college. He moved to the United States to pursue his doctorate in international economics at Harvard. Along the way he became fluent in Farsi, Hebrew, Italian and English. His accent, an inimitable polyglot growl, radiates a weariness that comes with being what he calls a “global nomad.”

As a graduate student at Harvard, Roubini was an unusual talent, according to his adviser, the Columbia economist Jeffrey Sachs. He was as comfortable in the world of arcane mathematics as he was studying political and economic institutions. “It’s a mix of skills that rarely comes packaged in one person,” Sachs told me. After completing his Ph.D. in 1988, Roubini joined the economics department at Yale, where he first met and began sharing ideas with Robert Shiller, the economist now known for his prescient warnings about the 1990s tech bubble.

The ’90s were an eventful time for an international economist like Roubini. Throughout the decade, one emerging economy after another was beset by crisis, beginning with Mexico’s in 1994. Panics swept Asia, including Thailand, Indonesia and Korea, in 1997 and 1998. The economies of Brazil and Russia imploded in 1998. Argentina’s followed in 2000. Roubini began studying these countries and soon identified what he saw as their common weaknesses. On the eve of the crises that befell them, he noticed, most had huge current-account deficits (meaning, basically, that they spent far more than they made), and they typically financed these deficits by borrowing from abroad in ways that exposed them to the national equivalent of bank runs. Most of these countries also had poorly regulated banking systems plagued by excessive borrowing and reckless lending. Corporate governance was often weak, with cronyism in abundance.

Roubini’s work was distinguished not only by his conclusions but also by his approach. By making extensive use of transnational comparisons and historical analogies, he was employing a subjective, nontechnical framework, the sort embraced by popular economists like the Times Op-Ed columnist Paul Krugman and Joseph Stiglitz in order to reach a nonacademic audience. Roubini takes pains to note that he remains a rigorous scholarly economist — “When I weigh evidence,” he told me, “I’m drawing on 20 years of accumulated experience using models” — but his approach is not the contemporary scholarly ideal in which an economist builds a model in order to constrain his subjective impressions and abide by a discrete set of data. As Shiller told me, “Nouriel has a different way of seeing things than most economists: he gets into everything.”

Roubini likens his style to that of a policy maker like Alan Greenspan, the former Fed chairman who was said (perhaps apocryphally) to pore over vast quantities of technical economic data while sitting in the bathtub, looking to sniff out where the economy was headed. Roubini also cites, as a more ideologically congenial example, the sweeping, cosmopolitan approach of the legendary economist John Maynard Keynes, whom Roubini, with only slight exaggeration, calls “the most brilliant economist who never wrote down an equation.” The book that Roubini ultimately wrote (with the economist Brad Setser) on the emerging market crises, “Bailouts or Bail-Ins?” contains not a single equation in its 400-plus pages.

After analyzing the markets that collapsed in the ’90s, Roubini set out to determine which country’s economy would be the next to succumb to the same pressures. His surprising answer: the United States’. “The United States,” Roubini remembers thinking, “looked like the biggest emerging market of all.” Of course, the United States wasn’t an emerging market; it was (and still is) the largest economy in the world. But Roubini was unnerved by what he saw in the U.S. economy, in particular its 2004 current-account deficit of $600 billion. He began writing extensively about the dangers of that deficit and then branched out, researching the various effects of the credit boom — including the biggest housing bubble in the nation’s history — that began after the Federal Reserve cut rates to close to zero in 2003. Roubini became convinced that the housing bubble was going to pop.

By late 2004 he had started to write about a “nightmare hard landing scenario for the United States.” He predicted that foreign investors would stop financing the fiscal and current-account deficit and abandon the dollar, wreaking havoc on the economy. He said that these problems, which he called the “twin financial train wrecks,” might manifest themselves in 2005 or, at the latest, 2006. “You have been warned here first,” he wrote ominously on his blog. But by the end of 2006, the train wrecks hadn’t occurred.

Recessions are signal events in any modern economy. And yet remarkably, the profession of economics is quite bad at predicting them. A recent study looked at “consensus forecasts” (the predictions of large groups of economists) that were made in advance of 60 different national recessions that hit around the world in the ’90s: in 97 percent of the cases, the study found, the economists failed to predict the coming contraction a year in advance. On those rare occasions when economists did successfully predict recessions, they significantly underestimated the severity of the downturns. Worse, many of the economists failed to anticipate recessions that occurred as soon as two months later.

The dismal science, it seems, is an optimistic profession. Many economists, Roubini among them, argue that some of the optimism is built into the very machinery, the mathematics, of modern economic theory. Econometric models typically rely on the assumption that the near future is likely to be similar to the recent past, and thus it is rare that the models anticipate breaks in the economy. And if the models can’t foresee a relatively minor break like a recession, they have even more trouble modeling and predicting a major rupture like a full-blown financial crisis. Only a handful of 20th-century economists have even bothered to study financial panics. (The most notable example is probably the late economist Hyman Minksy, of whom Roubini is an avid reader.) “These are things most economists barely understand,” Roubini told me. “We’re in uncharted territory where standard economic theory isn’t helpful.”

True though this may be, Roubini’s critics do not agree that his approach is any more accurate. Anirvan Banerji, the economist who challenged Roubini’s first I.M.F. talk, points out that Roubini has been peddling pessimism for years; Banerji contends that Roubini’s apparent foresight is nothing more than an unhappy coincidence of events. “Even a stopped clock is right twice a day,” he told me. “The justification for his bearish call has evolved over the years,” Banerji went on, ticking off the different reasons that Roubini has used to justify his predictions of recessions and crises: rising trade deficits, exploding current-account deficits, Hurricane Katrina, soaring oil prices. All of Roubini’s predictions, Banerji observed, have been based on analogies with past experience. “This forecasting by analogy is a tempting thing to do,” he said. “But you have to pick the right analogy. The danger of this more subjective approach is that instead of letting the objective facts shape your views, you will choose the facts that confirm your existing views.”

Kenneth Rogoff, an economist at Harvard who has known Roubini for decades, told me that he sees great value in Roubini’s willingness to entertain possible situations that are far outside the consensus view of most economists. “If you’re sitting around at the European Central Bank,” he said, “and you’re asking what’s the worst thing that could happen, the first thing people will say is, ‘Let’s see what Nouriel says.’ ” But Rogoff cautioned against equating that skill with forecasting. Roubini, in other words, might be the kind of economist you want to consult about the possibility of the collapse of the municipal-bond market, but he is not necessarily the kind you ask to predict, say, the rise in global demand for paper clips.

His defenders contend that Roubini is not unduly pessimistic. Jeffrey Sachs, his former adviser, told me that “if the underlying conditions call for optimism, Nouriel would be optimistic.” And to be sure, Roubini is capable of being optimistic — or at least of steering clear of absolute worst-case prognostications. He agrees, for example, with the conventional economic wisdom that oil will drop below $100 a barrel in the coming months as global demand weakens. “I’m not comfortable saying that we’re going to end up in the Great Depression,” he told me. “I’m a reasonable person.”

What economic developments does Roubini see on the horizon? And what does he think we should do about them? The first step, he told me in a recent conversation, is to acknowledge the extent of the problem. “We are in a recession, and denying it is nonsense,” he said. When Jim Nussle, the White House budget director, announced last month that the nation had “avoided a recession,” Roubini was incredulous. For months, he has been predicting that the United States will suffer through an 18-month recession that will eventually rank as the “worst since the Great Depression.” Though he is confident that the economy will enter a technical recovery toward the end of next year, he says that job losses, corporate bankruptcies and other drags on growth will continue to take a toll for years.

Roubini has counseled various policy makers, including Federal Reserve governors and senior Treasury Department officials, to mount an aggressive response to the crisis. He applauded when the Federal Reserve cut interest rates to 2 percent from 5.25 percent beginning last summer. He also supported the Fed’s willingness to engineer a takeover of Bear Stearns. Roubini argues that the Fed’s actions averted catastrophe, though he says he believes that future bailouts should focus on mortgage owners, not investors. Accordingly, he sees the choice facing the United States as stark but simple: either the government backs up a trillion-plus dollars’ worth of high-risk mortgages (in exchange for the lenders’ agreement to reduce monthly mortgage payments), or the banks and other institutions holding those mortgages — or the complex securities derived from them — go under. “You either nationalize the banks or you nationalize the mortgages,” he said. “Otherwise, they’re all toast.”

For months Roubini has been arguing that the true cost of the housing crisis will not be a mere $300 billion — the amount allowed for by the housing legislation sponsored by Representative Barney Frank and Senator Christopher Dodd — but something between a trillion and a trillion and a half dollars. But most important, in Roubini’s opinion, is to realize that the problem is deeper than the housing crisis. “Reckless people have deluded themselves that this was a subprime crisis,” he told me. “But we have problems with credit-card debt, student-loan debt, auto loans, commercial real estate loans, home-equity loans, corporate debt and loans that financed leveraged buyouts.” All of these forms of debt, he argues, suffer from some or all of the same traits that first surfaced in the housing market: shoddy underwriting, securitization, negligence on the part of the credit-rating agencies and lax government oversight. “We have a subprime financial system,” he said, “not a subprime mortgage market.”

Roubini argues that most of the losses from this bad debt have yet to be written off, and the toll from bad commercial real estate loans alone may help send hundreds of local banks into the arms of the Federal Deposit Insurance Corporation. “A good third of the regional banks won’t make it,” he predicted. In turn, these bailouts will add hundreds of billions of dollars to an already gargantuan federal debt, and someone, somewhere, is going to have to finance that debt, along with all the other debt accumulated by consumers and corporations. “Our biggest financiers are China, Russia and the gulf states,” Roubini noted. “These are rivals, not allies.”

The United States, Roubini went on, will likely muddle through the crisis but will emerge from it a different nation, with a different place in the world. “Once you run current-account deficits, you depend on the kindness of strangers,” he said, pausing to let out a resigned sigh. “This might be the beginning of the end of the American empire.”

Stephen Mihm, an assistant professor of economic history at the University of Georgia, is the author of “A Nation of Counterfeiters: Capitalists, Con Men and the Making of the United States.” His last feature article for the magazine was about North Korean counterfeiting.