CV 10 5321 (RS)

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Three Embarcadero Center, Suite 1650 San Francisco, CA 94111 (415) 788-4220
ROBERT C. SCHUBERT S.B.N. 62684 WILLEM F. JONCKHEER S.B.N. 178748 JASON A. PIKLER S.B.N. 245722 SCHUBERT JONCKHEER & KOLBE LLP Three Embarcadero Center, Suite 1650 San Francisco, California 94111 Telephone: (415) 788-4220 rschubert@schubertlawfirm.com wjonckheer@schubertlawfirm.com jpikler@schubertlawfirm.com JEFFREY M. NORTON (Pro Hac Vice Application to Be Filed) ROY SHIMON (Pro Hac Vice Application to Be Filed) HARWOOD FEFFER LLP 488 Madison Ave. New York, NY 10022 Telephone: (212) 935-7400 jnorton@hfesq.com rshimon@hfesq.com Counsel for Plaintiffs UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA SAN FRANCISCO DIVISION
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Case No. CV-10-5321(RS) KEITH AND YING FORSTER, WENDY SCRIBNER, MICHELLE WILKINSON, DANA MOODY, FLORIN MOLDOVAN, BRYAN WEISZ, ALMA QUEZADA, and TODD and LISA PHILLIPS, Individually and on behalf of all others similarly situated, FIRST AMENDED CLASS ACTION COMPLAINT Plaintiffs, WELLS FARGO BANK, N.A., WELLS FARGO HOME MORTGAGE, and AMERICAS SERVICING COMPANY, Defendants. JURY TRIAL DEMANDED
FIRST AMENDED CLASS ACTION COMPLAINT Case No. CV-10-5321 RS

Plaintiffs Keith and Ying Forster, Wendy Scribner, Michelle Wilkinson, Dana Moody, Florin Moldovan, Bryan Weisz, Alma Quezada, and Todd and Lisa Phillips (Plaintiffs), by their undersigned attorneys, bring this class action complaint against Wells Fargo Bank N.A., Wells Fargo Home Mortgage, and Americas Servicing Company (ASC). These defendants are sometimes collectively referred to as ASC or Defendants. Plaintiffs allegations are based upon knowledge as to their own acts and upon information and belief as to all other matters. Plaintiffs information and belief is based upon, among other things, the investigation undertaken by Plaintiffs attorneys, which has included, without limitation: (a) interviews of witnesses; (b) review of Defendants published materials and information available on the internet; (c) analysis of public records and documents; (d) news sources, articles, and other publications; and (e) information contained in various newspapers, magazines and other publications concerning the conduct alleged herein. Plaintiffs believe that substantial evidentiary support will exist for the allegations set forth herein after a reasonable opportunity for discovery. NATURE OF THE ACTION 1. Plaintiffs bring this class action against Defendants for business practices in violation
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of California Business & Professions Code 17200, et seq. 2. Defendants are in the business of servicing mortgage loans on behalf of investors,
trustees and lenders. As alleged herein, Defendants have engaged in a common pattern and practice of providing misinformation and insufficient information to borrowers intended to result in borrowers defaulting on their mortgage loans. Defendants have engaged in this pattern and practice with the intention of collecting and retaining substantial late fees, interest, and penalties. 3. Plaintiffs and Class members (as defined below) have or have had a residential
mortgage serviced by Defendants for which they sought a loan modification. At the time of their loan modification requests, Plaintiffs and Class members had been current and in good standing on their mortgage payments. Instead of providing borrowers with their available options and engaging in prescreening to determine if minimum requirements for loan modification could be met, Defendants systematically informed borrowers that they would not become eligible for a loan modification unless and until they defaulted on their mortgage payments.

4.
Plaintiffs and members of the Class were not informed that both the federal loan
modification program and Defendants loan servicing agreements also permitted loan modifications where the borrower could show he or she was in reasonable threat of default. Plaintiffs and members of the Class were also not informed that if they failed to obtain a loan modification, they would be responsible for all past due payments, interest, late fees, and penalties incurred as a result of the default. 5. ASCs pattern and practice of misrepresenting to borrowers that their only option was
to breach their mortgage agreements in order to become eligible for a loan modification was likely to mislead borrowers, including Plaintiffs and the Class, regarding their available options and the ramifications of default. 6. As a consequence of complying with ASCs stated policy requiring borrowers to
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breach their mortgage agreements to become eligible for a loan modification, Plaintiffs and Class members unnecessarily incurred forbearance payments, fees, interest, and penalties. 7. While their loan modification requests were being reviewedan agonizing and
frustrating process that took up to six months or longer and involved borrowers sending and resending financial information to ASC while continually receiving the runaround from ASC employeesPlaintiffs and Class members continued to accrue late fees, interest, and penalties. Regardless of whether their loan modification requests were ultimately granted (a very slim minority) or denied, Plaintiffs and Class members were required to pay back payments, late fees, interest, and penalties accrued during the period that ASC was considering their requests for modification. And, if Plaintiffs and Class members were unable to pay those amounts, they faced the likelihood of foreclosure. 8. Defendants pattern and practice of providing misinformation and failing to disclose
material information to borrowers constitutes fraudulent and/or unfair business practices under California law. Defendants business practices have deceived and are likely to continue to deceive borrowers whose loans are serviced by ASC. 9. Accordingly, Plaintiffs, on their own behalf, and as representatives of the Class, seek
injunctive relief to prevent Defendants from engaging in the deceptive business practices alleged

herein, and restitution in the amount of fees, interest, and related penalties that Defendants collected through their fraudulent and unfair business practices. JURISDICTION AND VENUE 10. This Court has diversity subject-matter jurisdiction over this class action pursuant to
the Class Action Fairness Act of 2005, Pub. L. No. 109-2, 119 Stat. 4 (CAFA), which, inter alia, amends 28 U.S.C. 1332, at new subsection (d), conferring federal jurisdiction over class actions where, as here: (a) there are 100 or more members in the proposed Class; (b) at least some members of the proposed class have a different citizenship from Defendants; and (c) the claims of the proposed Class members exceed the sum or value of five million dollars ($5,000,000) in the aggregate. See 28 U.S.C. 1332(d)(2) and (6). 11. This Court has personal jurisdiction over the parties because Plaintiffs submit to the
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jurisdiction of the Court, Defendants principal place of business is located in the State of California, and by virtue of the fact that Defendants systematically and continually conduct business throughout the State. 12. Venue is proper because Defendants principal place of business is in this District,
they conduct substantial business in this District, and because certain of the violations affecting Class members occurred in this District. 13. Intradistrict Assignment: Pursuant to Northern District of California Civil Local
Rules 3-2 and 3-5, assignment to the San Francisco Division of the Northern District of California is appropriate. Defendant Wells Fargo Bank, N.A. is headquartered in San Francisco, and thus a substantial part of the events or omissions which give rise to the claims occurred in San Francisco County. PARTIES 14. Plaintiffs Keith and Ying Forster (the Forsters) had a residential mortgage serviced
by ASC for which they sought a loan modification during the Class Period, as defined below. The Forsters are residents of San Jose, California. 15. On or around August of 2008, the Forsters were current and in good standing on their
mortgage payments. During the period December 2007 through August 2008, the Forsters

communicated with ASC representatives on multiple occasions both on the telephone and in writing regarding their desire to obtain a loan modification due to financial hardship. The Forsters informed ASC representatives of their financial hardship and also sent numerous documents and letters to ASC, documenting their stated hardship. In response, ASC representatives consistently informed the Forsters that, we [ASC] cant help you unless you are late on your payments. ASC did not provide the Forsters with any assistance in applying for a loan modification during this time. ASC did not inform the Forsters that they could qualify for a modification if they could demonstrate that they were in reasonable threat of default, and that they did not have to actually default on their loan. ASC also did not inform the Forsters that, if they did elect to default, they would immediately begin to accrue late fees, penalties, and interest that they would be required to pay regardless of whether they ultimately were able to obtain a modification. ASC also did not permit the Forsters to apply for a loan modification during this period. In August 2008, because ASC told the Forsters that they must be in default before they could get help, the Forsters finally relented and defaulted on their mortgage. Thereafter, the Forsters incurred substantial penalties, late fees, and interest in connection with their mortgage. The Forsters would not have defaulted on their mortgage in August 2008, and could instead have made an informed decision about their options, had ASC provided them with accurate and complete information. 16. Plaintiff Wendy Scribner had a residential mortgage serviced by ASC for which she
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sought a loan modification during the Class Period. Ms. Scribner is a resident of Hidden Springs, Idaho. 17. In September of 2008, Ms. Scribner was keeping up with her timely mortgage
payments, but was experiencing financial hardship. She contacted ASC about obtaining a loan modification at that time. ASC informed Ms. Scriber that she had to be three months behind on her payments before she could get a modification, because the HAMP program was only available if she had been in default for at least three months. ASC did not inform Ms. Scribner that she could qualify for a modification if she could demonstrate that she was in reasonable threat of default, and did not have to actually default on her loan. ASC also did not inform Ms. Scribner that, if she did elect to default, she would immediately begin to accrue late fees, penalties, and interest that she

would be required to pay regardless of whether she ultimately was able to obtain a modification. ASC also did not permit Ms. Scribner to apply for a loan modification until and unless she defaulted on her mortgage. Relying on ASCs misrepresentations and omissions of material facts, Ms. Scribner immediately ceased making her timely mortgage payments. Thereafter, Ms. Scribner began incurring substantial late fees, penalties, and interest. Ms. Scribner would not have defaulted on her mortgage in September of 2008, and could instead have made an informed decision about her options, but for ASCs misrepresentations and omissions. 18. Plaintiff Michelle Wilkinson has had a residential mortgage serviced by ASC for
which she has sought a loan modification during the Class Period. Ms. Wilkinson is a resident of Loomis, California. 19. In March 2010, Ms. Wilkinson was current and in good standing on her mortgage
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payments. However, because she was facing financial hardship, she contacted ASC to request a loan modification on her interest only loan. ASCs representative informed Ms. Wilkinson that, according to investor guidelines, she needed to be sixty days delinquent on her loan before ASC would consider a loan modification. ASC did not inform Ms. Wilkinson that, under those same investor guidelines, she could qualify for a modification if she could demonstrate that she was in reasonable threat of default, and did not have to actually default on her loan. ASC also did not inform Ms. Wilkinson that, if she did elect to default, she would immediately begin to accrue late fees, penalties, and interest that she would be required to pay regardless of whether she ultimately was able to obtain a modification. ASC also did not permit Ms. Wilkinson to apply for a loan modification unless and until she defaulted on her mortgage. Relying on the misinformation provided by ASC, Ms. Wilkinson defaulted on her loan and thereafter accrued significant late fees, penalties, and interest. But for ASCs misrepresentations and omissions of material facts, Ms. Wilkinson would not have defaulted on her loan at that time, and could instead have made an informed decision about her options. 20. Plaintiff Dana Moody has had a residential mortgage serviced by ASC for which she
has sought a loan modification during the Class Period. Ms. Moody is a resident of Louisville, Kentucky.

21.
Ms. Moody first contacted ASC on or around August 3, 2007 for a loan modification
because, although she was current and in good standing on her mortgage, she was experiencing financial difficulty. At that time, ASC specifically informed Ms. Moody that she could not apply for a loan modification until she was three months behind in her payments. ASCs representative told Ms. Moody that her only other option was to seek refinancing from another institution. Initially, Ms. Moody continued to make her payments in a timely fashion. However, by October 2007, she decided to heed ASCs advice and defaulted on her loan in order to qualify to obtain a loan modification. ASC never informed Ms. Moody that she could qualify for a modification if she could demonstrate that she was in reasonable threat of default, and did not have to actually default on her loan. ASC also did not inform Ms. Moody that, if she did elect to default, she would immediately begin to accrue late fees, penalties, and interest that she would be required to pay regardless of whether she ultimately was able to obtain a modification. ASC also did not permit Ms. Moody to apply for a loan modification unless and until she actually defaulted on her mortgage. As a result of her reliance upon ASCs misrepresentations and omissions of material fact, Ms. Moody incurred substantial late fees, interest, and penalties. Ms. Moody would not have defaulted on her mortgage at that time, and could instead have made an informed decision about her options, but for ASCs misrepresentations and omissions of material facts. 22. Plaintiff Florin Moldovan had a residential mortgage serviced by ASC for which he
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sought a loan modification during the Class Period. Mr. Moldovan is a resident of Las Vegas, Nevada. 23. On or about December of 2007, Mr. Moldovan was current and in good standing on
his mortgage. However, he was having difficulty maintaining his mortgage payments. Mr. Moldovan contacted ASC at that time to discuss a possible loan modification. The ASC representative told Mr. Moldovan that, because he was current on his mortgage payments, it was proof he could make payments and therefore he was not eligible for a loan modification. The ASC representative told Mr. Moldovan that unless he defaults on his payments, there was no help available. ASC never informed Mr. Moldovan that he could qualify for a modification if he could demonstrate that he was in reasonable threat of default, and did not have to actually default on his

loan. ASC also did not inform Mr. Moldovan that, if he did elect to default, he would immediately begin to accrue late fees, penalties, and interest that he would be required to pay regardless of whether he ultimately was able to obtain a modification. ASC also did not permit Mr. Moldovan to apply for a loan modification unless and until he actually defaulted on his mortgage. In reliance upon ASCs misrepresentations and omissions, Mr. Moldovan defaulted on his mortgage in January of 2008 in order to qualify for a loan modification. Thereafter, Mr. Moldovan began accruing substantial late fees, penalties, and interest. Unable to secure a modification, Mr. Moldovan was forced to sell his home in a short-sale in February 2010. Had Mr. Moldovan been given accurate information when he spoke with ASCs representative on or about December 2007, he could have made an informed decision about his options and would not have defaulted on his mortgage in January 2008. 24. Plaintiff Bryan Weisz had a residential mortgage serviced by ASC for which he
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sought a loan modification during the Class Period. Mr. Weisz is a resident of Sandy, Oregon. 25. Between July 2009 and August 2009, Mr. Weisz made a number of calls to ASC to
inquire about a loan modification due to financial hardship. Prior to that time, Mr. Weisz was current with his payments and in good standing on his mortgage. ASC informed Mr. Weisz that he was not eligible for a HAMP loan modification specifically because he was current on his mortgage. ASC never informed Mr. Weisz that he could qualify for a modification if he could demonstrate that he was in reasonable threat of default, and did not have to actually default on his loan. ASC also did not inform Mr. Weisz that, if he did elect to default, he would immediately begin to accrue late fees, penalties, and interest that he would be required to pay regardless of whether he ultimately was able to obtain a modification. ASC also did not permit Mr. Weisz to apply for a loan modification unless and until he actually defaulted on his mortgage. In reliance upon ASCs misrepresentations and omissions, Mr. Weisz defaulted on his mortgage in September 2009 in order to qualify for a loan modification. Mr. Weisz was later put into the HAMP program in January 2010 and began making timely forbearance payments through April of 2010. Despite making timely payment under the HAMP program, Mr. Weisz was ultimately denied a modification and accrued significant penalties and interest, including thousands of dollars in unpaid late charges. Had Mr. Weisz been given

accurate information and otherwise been properly informed at the outset, he would not have defaulted on his mortgage in September 2009 and could instead have made an informed decision about his options. 26. Plaintiff Alma Quezada had a residential mortgage serviced by ASC for which she
sought a loan modification during the Class Period. Ms. Quezada is a resident of Ocoee, Florida. 27. Ms. Quezada first contacted ASC in May 2008 to seek a loan modification. At that
time, she was current on her mortgage payments. ASC told her to stop making payments for two months in order to qualify for the loan modification program. ASC never informed Ms. Quezada that she could qualify for a modification if she could demonstrate that she was in reasonable threat of default, and did not have to actually default on her loan. ASC also did not inform Ms. Quezada that, if she did elect to default, she would immediately begin to accrue late fees, penalties, and interest that she would be required to pay regardless of whether she ultimately was able to obtain a modification. ASC also did not permit Ms. Quezada to apply for a loan modification unless and until she actually defaulted on her mortgage. In reliance upon ASCs misrepresentations and omissions, Ms. Quezada defaulted on her mortgage in order to qualify for a loan modification. In October 2008, ASC placed Ms. Quezada on a payment plan and told her that the plan would continue until her loan modification application was processed. Subsequently, ASC again told Ms. Quezada to stop making payments because her loan had purportedly been frozen for the period that ASC considered her application. Shortly thereafter, ASC commenced foreclosure proceedings on Ms. Quezadas home. Had ASC provided Ms. Quezada with accurate and complete information, she would not have defaulted on her mortgage when she did and could instead have made an informed decision regarding how to proceed. Instead, as a result of going into default, Ms. Quezada accrued significant late fees, penalties, and interest. 28. Plaintiffs Todd and Lisa Phillips (the Phillips) had a residential mortgage serviced
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by ASC for which they sought a loan modification during the Class Period. The Phillips are residents of Rodanthe, North Carolina. 29. The Phillips first contacted ASC in or around September and October of 2009 to
inquire about obtaining a loan modification due to financial hardship. Prior to that time, the Phillips

were current and in good standing on their mortgage. During one of the Phillips telephone conversations with ASC, ASC Representative Misty Kirkpatrick told the Phillips that they had to be in default to be considered for modification. Ms. Kilpatrick failed to inform them that they could, alternatively, make a showing that they were in reasonable threat of default. Ms. Kilpatrick also failed to inform the Phillips that if they chose to default, they would be responsible for late fees, penalties, back payments, and accrued interest and could face foreclosure. ASC did not permit the Phillips to apply for a loan modification unless and until they actually defaulted on their mortgage. In reliance upon ASCs misrepresentations and omissions of material facts, the Phillips stopped paying their mortgage. Thereafter, in January of 2010, they were placed in a forbearance payment plan that resulted in a savings of $112.00 per month for three months. Shortly thereafter, the Phillips received an acceleration notice and foreclosure proceedings were initiated. Notwithstanding, ASC told the Phillips to ignore all correspondence not associated with the modification, because they were in a special program. Ultimately, however, the Phillips did not obtain a modification of their loan. Instead, the Phillips were told that they would be foreclosed upon and that they owed thousands of dollars in late fees, back payments, penalties and interest. Had the Phillips been provided with full and accurate information at the outset, they would not have defaulted on their loan at that time and could instead have made an informed decision about their options. 30. Defendant Wells Fargo Bank, N.A. (Wells Fargo) is the principal subsidiary and
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primary operating unit of Wells Fargo & Co. Wells Fargo is a federally chartered bank with its principal place of business located in San Francisco, California. In addition to its banking services, Wells Fargo engages in mortgage lending and servicing through its divisions, Wells Fargo Home Mortgage and Americas Servicing Company. 31. Defendant Wells Fargo Home Mortgage, a division of Wells Fargo, is headquartered
in West Des Moines, Iowa, and maintains operations/servicing centers in Springfield, Illinois, West Des Moines, Iowa, and Minneapolis, Minnesota. 32. Defendant ASC is a division of Wells Fargo and Wells Fargo Home Mortgage that
services loans for investors, trustees, and lenders under the ASC name on behalf of Wells Fargo.

According to Wells Fargo Home Mortgage, Americas Servicing Company is the generic label used for this business because some of our competitors do not want the Wells Fargo name associated with their loans. By using the Americas Servicing Company name, we avoid this problem. Defendant ASC conducts significant amounts of business within the State of California, including the County of San Francisco in which Wells Fargo is headquartered. 33. Defendants Wells Fargo, Wells Fargo Home Mortgage, and ASC are hereinafter
referred to collectively as ASC or Defendants. CLASS ACTION ALLEGATIONS 34. Plaintiffs bring this action on behalf of all borrowers whose loans are or were
serviced by ASC during the applicable statute of limitations (the Class Period) and who: (a) were current and in good standing on their mortgage payments prior to contacting ASC for the purpose of obtaining a loan modification; (b) were subjected to ASC policy and practice by communicating with ASC regarding their desire to obtain a loan modification; and (c) subsequently defaulted on their mortgages, thereby incurring liability for back payments, late fees, penalties, and interest (the Class). 35. This action is properly maintainable as a class action pursuant to Fed. Rule. Civ. P.
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Rule 23. The Class is so numerous that joinder of all members is impracticable. By recent estimates, ASC services tens of thousands of mortgage loans throughout the nation. Upon information and belief, thousands of borrowers with loans serviced by ASC who were current on their mortgages were provided misleading information concerning eligibility for loan modifications. 36. The number and identities of the loan borrowers whose mortgages are serviced by
ASC and who were current on their mortgage payments, sought loan modifications, and then ceased making mortgage payments can easily be determined from the records maintained by ASC or its agents. The disposition of their claims in a class action will be of benefit to the parties and to the Court. 37. There is a well-defined community of interest in the questions of law and fact
involved affecting the members of the Class. Among the questions of law and fact which are
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common to the Class, and which predominate over questions affecting any individual Class member, are, inter alia, the following: (a) whether ASC had a business practice during the Class Period of informing
borrowers who were current on their mortgages that they were required to default on their mortgages prior to qualifying for loan modifications; (b) whether ASC had a business practices during the Class Period of preventing
borrowers from applying for loan modifications unless and until they actually defaulted on their mortgages; (c) whether, and to what extent, Plaintiffs and members of the Class have been
damaged by being precluded from applying for loan modifications unless and until they actually defaulted on their mortgages, and the proper measure of restitution to be awarded; (d) whether, and to what extent, Plaintiffs and members of the Class have been
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damaged by breaching their mortgage agreements and consequently incurring late fees, interest, and related penalties, and the proper measure of restitution to be awarded; (e) whether, and to what extent, Plaintiffs and members of the Class have been
damaged by being precluded from making informed decisions regarding their mortgages as a result of ASCs conduct alleged herein; (f) whether ASCs conduct as alleged herein constitutes an unlawful, unfair, or
fraudulent business practice; (g) whether Plaintiffs and members of the Class are entitled to restitution in the
form of recovery of fees, interest, and related penalties that were unlawfully, unfairly, or fraudulently collected and retained by ASC; and (h) 38. whether Plaintiffs and the Class members are entitled to injunctive relief.
Plaintiffs claims are typical of the claims of the other members of the Class in that
they are seeking damages, restitution, and injunctive relief in connection with the same claims being asserted on behalf of each individual Class member. Defendants common business practice and course of conduct caused harm to each member of the Class. Plaintiffs and each member of the
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Class must prove the same facts in order to establish the right to obtain relief on the same causes of action. 39. Plaintiffs are adequate Class representatives because they are members of the Class
and are committed to prosecuting this action. Plaintiffs will fairly and adequately represent and protect the interest of the members of the Class in that Plaintiffs do not have interests antagonistic to or in conflict with those they seek to represent. In addition, Plaintiffs have retained counsel that is competent and experienced in class-action litigation. 40. A class action is superior to other methods for the fair and efficient adjudication of
the claims asserted herein, and no unusual difficulties are likely to be encountered in the management of this action as a class action. The likelihood of individual Class members prosecuting separate individual actions is remote due to the relatively small loss suffered by each Class member as compared to the burden and expense of prosecuting litigation of this nature and magnitude. Absent a class action, ASC is likely to avoid liability for its wrongdoing, and members of the Class are unlikely to obtain redress for the wrongs alleged herein. ASCs improper and deceptive business practices as described herein are continuing, capable of repetition, and will continue unless restrained and enjoined by the Court. Furthermore, the class action device would present far fewer management difficulties than individual trials and would provide the benefit of a single adjudication, economies of scale, and comprehensive supervision by a single court. SUBSTANTIVE ALLEGATIONS 41. In February 2009, President Obama introduced a comprehensive Financial Stability
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Plan to address key problems at the heart of the current financial crisis. A critical piece of that effort is the Making Home Affordable Program, a plan aimed at stabilizing the housing market and helping struggling homeowners get relief and avoid foreclosure. 42. The Making Home Affordable Program provides important options for homeowners,
including, among others, modifying first and second mortgage loans through the Home Affordable Modification Program (HAMP) program to provide eligible homeowners with the opportunity to make their mortgages more affordable.
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43. the borrower:
A mortgage borrower can become eligible for a loan modification under the HAMP if
Is the owner-occupant of a one-to-four unit home. Has an unpaid principal balance that is equal to or less than: o 1 Unit: $729,750
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o 2 Units: $934,200 o 3 Units: $1,129,250 o 4 Units: $1,403,400 Has a first lien mortgage that was originated on or before January 1, 2009. Has a monthly mortgage payment (including taxes, insurance, and home owners association dues) greater than 31% of his or her monthly gross (pre-tax) income. Has a mortgage payment that is not affordable due to a financial hardship that can be documented. 44. Under HAMP, there is no requirement that a mortgage borrower be in default on
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mortgage payments before he or she can become eligible for consideration for a loan modification. 45. At the time when Plaintiffs and the other members of the Class requested loan
modifications with ASC, under either HAMP or directly with ASC, they were current in their mortgage payments. Thus, at the time they sought loan modifications with ASC, Plaintiffs and members of the Class had fully performed their contractual obligations under their mortgage agreements to make timely mortgage payments. 46. However, throughout the Class Period, ASC engaged in a business practice of
uniformly informing borrowers who were current on their mortgages that they must default on those mortgages in order to qualify for loan modifications. 47. Furthermore, throughout the Class Period, ASC prevented borrowers from applying
for loan modifications unless and until they had actually defaulted on their loans.
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48.
Throughout the Class Period, when a borrower who was current on his or her
mortgage contacted ASC for the purpose of seeking a loan modification, ASC instructed the borrower that he or she was ineligible for a modification as long as the borrowers loan payments were current, and he or she could not become eligible until he or she defaulted on the mortgage payments. 49. Borrowers were not given an initial assessment or prescreening to determine whether
they would or could satisfy the minimum requirements for loan modification. In addition, borrowers were not informed of critical information that there were alternative prerequisites for a loan modification. Borrowers were not permitted to apply for a loan modification from ASC unless and until they actually defaulted on their loans. 50. In truth, under both HAMP and ASCs loan servicing agreements, modifications are
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permitted where the borrower is in reasonable threat of default. This would be crucial information to a borrower struggling with his or her options, particularly because actual default can result in foreclosure. Furthermore, ASC did not inform borrowers that if their loan modification request was denied (which the overwhelming majority were), they would immediately be responsible for all past due amounts plus interest, late fees, and penalties. For a borrower already struggling to stay current on a mortgage, incurring a debt comprised of back loan payments, accrued interest, late fees and penalties could make foreclosure inevitable. 51. ASC intended to and did deceive borrowers who were current on their mortgages
concerning eligibility requirements for loan modifications. ASC engaged in this business pattern and practice with the intent to deceive borrowers into defaulting on their mortgage loans and to subsequently charge borrowers substantial fees, interest, and penalties in connection with that default. 52. As a loan servicer, ASC has limited financial interest in loans that are current, and
has no financial interest in or incentive to approve loan modifications. In fact, loan servicers like ASC make money in the following principal ways:
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a.
On the monthly servicing fee paid by the loan holder (i.e., the lender) that is typically a fixed percentage of the unpaid principal balance of the loans in the pool;
b.
Fees charged to borrowers in default, including late fees, penalties, and a host of unspecified charges ostensibly tied to enforcement and foreclosure;
c.
Float income or interest income generated from the time between when the servicer collects payments from the borrower and turns it over to the loan holder. Float income is also generated from borrower escrow accounts and suspense accounts (i.e., payments made by borrowers but not applied to their loan); and
d.
Income from investment interests in the pool of mortgage loans the loan servicer is servicing.
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Based on ASCs sources of revenue, it has no financial incentive to offer loan
modifications to borrowers, and every incentive to push borrowers into default and foreclosure. Stated otherwise, ASC sets up borrowers to fail. 54. ASC, unlike its investor clients or the borrowers whose loans it services, does not
lose money on mortgages in distress or even in foreclosure. In fact, ASC makes significantly more money under those circumstances. Loan modifications, conversely, cause ASC to lose money, because ASC is then limited to loan servicing fees generated by a smaller pool of investments. 55. Because the monthly fees that ASC receives from the loan holders based on a
percentage of the outstanding principal of the loans in the pool provides some incentive to keep loans in the pool rather than foreclosing on them, ASC notoriously strings borrowers along for months ostensibly considering their modification applications. 56. Often, what ASC will then call a modification will simply involve allowing the
borrower to start making payments again that are greater than the payments the borrower was making previously. Instead of reducing principal, ASC increases the size of the loan by adding back payments, fees, penalties, and interest on the end of the loan thereby increasing the loan pool and guaranteeing ASC a short-term higher servicing fee until the loan finally fails.
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57.
The fees that ASC generates from borrowers in default are substantial. And, as they
grow, these fees make a modification less and less feasible and the borrower will, ultimately, go into foreclosure. 58. However, foreclosure is not bad news for ASC because it will be able to recoup from
the foreclosure sale proceeds all the fees and penalties it generated on that account before turning the balance over to the loan holder. 59. ASCs pattern and practice of misinforming borrowers who are in good standing
about loan modification eligibility, and its pattern and practice of preventing borrowers from applying for loan modification unless and until they actually have defaulted on their loans, hasten this cycle of events. If borrowers go into default immediately (which they are informed they must do in order to be considered for modification), ASC begins generating increased revenue streams. Conversely, if ASC told borrowers who were in good standing the truth, and permitted them to apply for loan modifications without going into default, this lucrative revenue stream might never begin. FIRST CAUSE OF ACTION (Violation of California Business & Professions Code, 17200, et seq., Fraudulent Business Practices) 60. California Business and Professions Code 17200, et seq., prohibits acts of unfair
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competition, which shall mean and include any unlawful, unfair, or fraudulent business act of practice. 61. Defendants conduct alleged herein constitutes fraudulent conduct under Cal. Bus.
& Prof. Code 17200, et seq. 62. Plaintiffs have standing to pursue this claim as Plaintiffs have suffered injury in fact
and have lost money or property as a result of Defendants actions. 63. ASC has ignored federal guidelines regarding modifications and otherwise engaged
in systematic fraudulent business practices by providing misleading and incomplete information to borrowers who were current on their mortgage payments with the intention of hastening default. ASC has deceived Plaintiffs and members of the Class, and is likely to continue to deceive members
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of the public by misinforming borrowers that they will only be eligible for loan modification if they are in default on their mortgage payments. ASC then charges these borrowers exorbitant fees, interest, and penalties for being in default. 64. ASCs business practices, as alleged herein, are fraudulent because they are likely
to deceive mortgage borrowers, including Plaintiffs and members of the Class. 65. Plaintiffs and members of the Class have been injured by Defendants business
practices because Plaintiffs and members of the Class have lost a substantial amount of money in fees, interest, and penalties that Defendants have collected and retained from them. Accordingly, Plaintiffs seek restitution to recover all money paid to ASC by Plaintiffs and members of the Class for fees, interest, and penalties that were fraudulently collected and retained from them by ASC, as alleged herein. 66. Because Defendants fraudulent business practices as described herein are
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continuing, capable of repetition, and will continue unless restrained and enjoined by the Court, Plaintiffs also seek injunctive relief requiring Defendants to cease from their fraudulent business practices, as alleged above. 67. Plaintiffs, on behalf of themselves and the Class, seek an order of this court awarding
restitution, injunctive relief and all other relief allowed under Cal. Bus. & Prof. Code 17203 and Civil Code 3345, plus interest, attorneys fees and costs pursuant to, inter alia, Code of Civil Procedure 1021.5. SECOND CAUSE OF ACTION (Violation of California Business & Professions Code, 17200, et seq., Unfair Business Practices) 68. California Business and Professions Code 17200, et seq., prohibits acts of unfair
competition, which shall mean and include any unlawful, unfair, or fraudulent business act of practice. 69. Defendants conduct as alleged herein constitutes unfair conduct under Cal. Bus. &
Prof. Code 17200, et seq.
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70.
Plaintiffs have standing to pursue this claim as Plaintiffs have suffered injury in fact
and have lost money or property as a result of Defendants actions. 71. As alleged herein, ASC provides misleading and incomplete information to
borrowers who were current on their mortgage payments with the intention of hastening default. ASC then charges these borrowers exorbitant fees, interest, and penalties for being in default. ASC is likely to continue to instructing borrowers that they will only be eligible for loan modification if they are in default on their mortgage payments. 72. Also as alleged herein, ASC prevents borrowers from applying for loan modification
unless and until they have actually defaulted on their loans. ASC is likely to continue precluding borrowers from applying for loan modifications unless and until they default on their loans. 73. ASCs business practices, as alleged herein, are unfair because they are immoral,
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unethical, oppressive, unscrupulous and/or substantially injurious to mortgage borrowers. ASCs conduct is also unfair because the utility, if any, of its conduct alleged herein is vastly outweighed by the gravity of the harm this practice imposes on Plaintiffs and members of the Class. Furthermore, ASCs business practices offend the legislatively declared policy of providing opportunities for mortgage borrowers to make their loan payments more affordable, as illustrated by the federal HAMP program. 74. Plaintiffs and members of the Class have been injured by Defendants business
practices because Plaintiffs and members of the Class have lost a substantial amount of money in fees, interest, and penalties that Defendants have collected and retained from them. Accordingly, Plaintiffs seek restitution to recover all money paid to ASC by Plaintiffs and members of the Class for fees, interest, and penalties that were unfairly collected and retained from them by ASC, as alleged herein. 75. Because Defendants unfair business practices as described herein are continuing,
capable of repetition, and will continue unless restrained and enjoined by the Court, Plaintiffs also seek injunctive relief requiring Defendants to cease from their unfair business practices, as alleged above.
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76.
Plaintiffs, on behalf of themselves and the Class, seek an order of this court awarding
restitution, injunctive relief and all other relief allowed under Cal. Bus. & Prof. Code 17203 and Civil Code 3345, plus interest, attorneys fees and costs pursuant to, inter alia, Code of Civil Procedure 1021.5. PRAYER FOR RELIEF WHEREFORE, Plaintiffs pray for judgment and relief as follows: (a) Declaring that this lawsuit is properly maintainable as a class action and certifying Plaintiffs as representatives of the Class; (b) Declaring that Defendants engaged in fraudulent and/or unfair business practices as to Plaintiffs and the members of the Class; (c) Awarding restitution to Plaintiffs and members of the Class (and disgorgement from Defendants) for all funds unlawfully acquired by Defendants by means of any business practices declared by this Court to violate Cal. Bus. & Prof. Code 17200, et seq.; (d) Permanently enjoining and restraining ASC directly or indirectly, through its subservicers, warehouse lenders, wholesale lenders, retail lenders, document custodians, settlement agents, title companies, insurers and investors and others, from collecting any fees, interest, or penalties as a result of ASCs wrongful practice of providing misinformation and insufficient information concerning loan modification eligibility to borrowers who are current on their mortgages, and of precluding borrowers from applying for loan modifications unless and until they actually default on their loans; (e) Awarding Plaintiffs and the Class their costs and disbursements and reasonable allowances for Plaintiffs counsel and experts fees and expenses; and (f) Granting such other and further relief as may be just and proper. JURY DEMAND Plaintiffs demand a trial by jury on all causes of action so triable.
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Dated: April 6, 2011
SCHUBERT JONCKHEER & KOLBE LLP _________/s/______________________ ROBERT C. SCHUBERT S.B.N. 62684 WILLEM F. JONCKHEER S.B.N. 153748 JASON A. PIKLER S.B.N. 245722 Three Embarcadero Center, Suite 1650 San Francisco, California 94111 Telephone: (415) 788-4220 HARWOOD FEFFER LLP JEFFREY M. NORTON ROY SHIMON 488 Madison Ave. New York, NY 10022 Telephone: (212) 935-7400 Fax: (212) 753-3630 Counsel for Plaintiffs
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CV 10 5321 (RS)

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FIRST AMENDED CLASS ACTION COMPLAINT Case No. CV-10-5321 RS

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43. the borrower:

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Based on ASCs sources of revenue, it has no financial incentive to offer loan

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Prof. Code 17200, et seq.

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Dated: April 6, 2011

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