Chapter 11

Suit for Damages From Mortgage Servicers Practices

Michael P. Malakoff has been a member of Malakoff, Doyle & Finberg, P.C. (or its predecessors) in Pittsburgh since 1971, where he specializes in class action litigation. A 1970 graduate of the University of Pittsburgh Law School, he is a charter member and former Chairman of the Allegheny County Antitrust and Class Action Committee. Mr. Malakoff has served on the faculty and as a lecturer on class action programs sponsored by the American Bar Association, American Trial Lawyers Association, Practicing Law Institute, Pennsylvania Bar Institute, New York Academy of Trial Lawyers, and the Allegheny County Bar Association. He serves as a member of the Advisory Boards of the RICO Law Reporter and the Class Action Law Reporter. He is also a NACA Charter Board Member and Chairman of the NACA Issues Committee. Section 11.1 is an amended complaint against a mortgage originator and the purchasers of its mortgages and successors to its mortgage originating and servicing business. The claims asserted in the Amended Complaint are based on five alleged practices: First, the homeowners allege that the mortgage originator and owners improperly charged loan advances to the homeowners outstanding balances where the accounts were not actually in arrears. According to the homeowners, the mortgages assessed periodic bill charges that were too low to cover homeowners property taxes, insurance, water or sewage charges. They then added loan advances to homeowners outstanding balances to cover the shortfall, without notice. Second, the homeowners allege that the mortgage holders improperly placed into escrow periodic bill payments belonging to mortgagors whose mortgages required use of the capitalization method for applying the periodic bill payments. According to the homeowners, the homeowners were entitled to the capitalization method applying periodic bill payments, under which they receive the effect of lowering the interest which accrued annually on the unpaid balance. Third, the homeowners allege that the mortgage holders improperly charged interest on loan advances from the first of each month for loan advances made later in the month. Fourth, the homeowners allege that the mortgage holders improperly delayed payment until March of 1996 on escrow interest that accrued during 1995 that they were entitled to receive by year end 1995. Fifth, the homeowners allege that the mortgage holders improperly sent annual statements on or after April 8, 1987 that implied that a prior mortgage owner was the current mortgage owner. The homeowners allege that the new mortgage owners acquisition of mortgages was deceptively concealed from homeowners. The practices were alleged to involve breach of contract, unfair and deceptive acts and practices, tortious interference with contract, and breach of fiduciary duty.

One of the very interesting opinions issued by the court in the case on which the pleadings in this chapter are based was an opinion denying defendants motion to dismiss and sustaining the homeowners claims that a document under seal was subject to a 20 year statute of limitations in Pennsylvania. This case, although it only included 144 homeowners, was the subject of very, very extensive litigation. Section 11.2 is the homeowners interrogatories to the mortgage servicer about its practices and employees involved and section 11.3 are interrogatories designed to obtain information needed for certification of the class action. Sections 11.4 and 11.5 are motions to produce documents directed to the mortgage servicer and the mortgage owner. Section 11.6 is the homeowners memorandum of law opposing the motion to dismiss filed by the mortgage servicer. The memorandum argues that the complaint states a claim, that the claims were not released in a prior class action against the servicer, and that the claims are not time barred because they were subject to state 20 year limitation period for documents under seal. The motion to dismiss was denied. 1 Section 11.7 is the homeowners memorandum of law opposing the motion to dismiss filed by the transferee of the ownership of the mortgage. The memorandum argues that the transferee was not a government instrumentality entitled to governmental immunity, had engaged in unfair and deceptive acts and practices violating state law, and had violated its obligations as a trustee under the mortgage. This motion to dismiss was granted2. Finally, the parties joint settlement motion (11.8) with attached settlement agreement (11.9), class notice (11.10), and proposed order (11.11) are included in the materials. The proposed settlement established a settlement fund of $235,000 and provided that it would be distributed pro rata to the class members after deducting attorney fees of 30%, costs up to $7000, costs of distribution, and a $2500 incentive payment to the named plaintiffs. The settlement was pending before the court at press time.

1 2

See [Plaintiff] v. Standard Mortgage Corp., 1999 U.S. Dist. LEXIS 15787 (W.D. Pa. 1999). See [Plaintiff] v. Standard Mortgage Corp., 129 F.Supp.2d 793 (W.D. Pa. 2000) (Defendant Freddie Mac dismissed as not liable for acts of its mortgage servicers).

11.1 Amended Class Action Complaint

IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA [FIRST PLAINTIFF] and [SECOND PLAINTIFF], his wife, individually and on behalf of all others similarly situated, Plaintiffs, v. STANDARD MORTGAGE CORPORATION OF GEORGIA, and THREE RIVERS BANK & TRUST COMPANY, and FEDERAL HOME LOAN MORTGAGE CORPORATION Defendants. ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) Civil Action No.: 98-679 [Judge] CLASS ACTION

AMENDED CLASS ACTION COMPLAINT 1. This class action is brought on behalf of certain Pennsylvania mortgagors whose mortgage agreements were originated with or acquired by Community Savings Association (Community). Plaintiffs assert claims against Defendant Standard Mortgage Corporation of Georgia (Standard), which services the mortgages, and Defendants Federal Home Loan Mortgage Corporation (Freddie Mac) and Three Rivers Bank & Trust Company (Three Rivers Bank), which own or owned the mortgages. The claims are based on wrongful actions engaged in by Defendants Standard, Freddie Mac, and Three Rivers Bank and by Community and South View Savings and Loan Association (South View), the Defendants predecessors in interest. 2. The putative class is defined as all Pennsylvania mortgagors who entered into mortgage agreements that originated with or were acquired by Community (Community Mortgagors, and who were subject to one or more of the following practices engaged in by the Defendants, Community, and/or South View: (1) charging the mortgagor for a loan advance used to pay a tax, insurance, water, or sewage bill (the bills, unless the mortgagors monthly payments, as in fact billed, were in arrears; (2) charging the mortgagor interest on a loan advance for time that preceded the disbursement of the loan advance; (3) failing to pay the mortgagor, until March, 1996, for escrow interest that had accrued during calendar year 1995; (4) sending the mortgagor an annual statement on or after April of 1987 that listed Community as the mortgage owner; and/or (5) placing payments made by a mortgagor whose mortgage originated with South View in an escrow account.

STATEMENT OF JURISDICTION 3. This Court has jurisdiction over the claims and parties pursuant to the Emergency Home Finance Act of 1970, 12 U.S.C. 1452(e), and 28 U.S.C. 1367(a). Standard also claims, in its notice of removal, that this Court has jurisdiction under 28 U.S.C. 1332. PARTIES AND PARTICIPANTS 4. Plaintiffs, [First Plaintiff] and [Second Plaintiff] ([First and Second Plaintiffs], are adult individuals who have resided at all relevant times at [Plaintiffs Address]. They had a mortgage relationship with South View until about December, 1983 and thereafter with Community until April 1987 and thereafter with Freddie Mac until they prepaid their mortgage in full in September, 1998. 5. South View Savings and Loan Association (South View) was a Pennsylvania Corporation from March 1974 through late 1983, when it consolidated with Community. It is no longer registered as a Pennsylvania Corporation, and its last known address was P.O. Box 51 South, Pittsburgh, Pennsylvania 15236. 6. Community Savings Association (Community) was a Pennsylvania corporation, with its principal place of business at 2681 Mosside Boulevard, Monroeville, Pennsylvania 15136, until July 18, 1997, when it consolidated with Three Rivers Bank & Trust Company. 7. Defendant, Federal Home Loan Mortgage Corporation (Freddie Mac) is a federal instrumentality created under the Emergency Home Finance Act of 1970, 12 U.S.C. 1452(a). In 1987, it acquired Community mortgages, including the [First and Second Plaintiffs] mortgage. As a successor in interest on the mortgages it acquired, Freddie Mac is liable for Communitys wrongful conduct, as alleged in this Amended Complaint. To the extent that Freddie Mac acquired mortgages originated with South View, it is liable as a successor in interest for South Views wrongful conduct, as alleged in this Amended Complaint.3 8. Defendant, Three Rivers Bank & Trust Company (Three Rivers Bank), is a Pennsylvania corporation registered to do business at Route 51 South, Jefferson Borough, Pennsylvania 15236, into which Community was consolidated in 1997. It is liable as a successor in interest for Communitys wrongful conduct, as alleged in this Amended Complaint. Since Community was a successor in interest to South View, Three Rivers Bank is also liable as a successor in interest for South Views wrongful conduct, as alleged in this Amended Complaint. 9. Defendant, Standard Mortgage Corporation of Georgia (Standard), is a Georgia corporation licensed to do business in Pennsylvania. It began servicing Community and Freddie Mac mortgages in 1994, pursuant to a service contract dated November 15, 1994. As the
3

This defendant, commonly referred to as Freddie Mac was dismissed from the action on the legal finding that it was not responsible for the acts of its mortgage servicers. [Plaintiff] v. Standard Mortgage Corp., 129 F.Supp.2d 793 (W.D. Pa. 2000).

collector of mortgage principal and interest from mortgagors, Standard was an agent for both Community and Freddie Mac. As the collector of tax, insurance, water and sewage bill payments from mortgagors, which were designated to be delivered to third parties to pay the tax, insurance, water, and sewage bills (the bills), Standard was an agent for the mortgagors as well as for Community and Freddie Mac. STATEMENT OF THE FACTS 10. On or about March 22, 1974, the [First and Second Plaintiffs] entered into a Mortgage Agreement with South View, which obligated them to repay $26,000 at an interest rate of 8.5% per annum. See Mortgage Agreement, attached as Ex. 1. Contemporaneously, the [First and Second Plaintiffs] executed a Bond with South View. See Bond, attached as Ex. 2. 11. The Mortgage Agreement and Bond, (collectively, the Mortgage) required the [First and Second Plaintiffs] to repay their mortgage debt in monthly payments of $210.00 for principal and interest. See Ex. 1 & 2. The [First and Second Plaintiffs] agreed to make 300 monthly payments over the course of twenty-five (25) years. See Fed. Reserve Reg. Z Notice, attached as Ex. 3. 12. The Mortgage further provided that, each month, South View would bill the [First and Second Plaintiffs] for 1/12th of the annual real estate taxes levied on the property. See Ex. 1 & 2. The [First and Second Plaintiffs] agreed to pay the amount South View billed for taxes each month, in addition to their monthly payment for principal and interest. 13. South View first billed the [First and Second Plaintiffs] for taxes in 1974, informing them that a $40.00 tax payment was necessary to amortize the [First and Second Plaintiffs] mortgage in accordance with the terms as [the parties] originally agreed to. 8/15/75 South View letter, attached as Ex. 4. Throughout the term of their Mortgage, the [First and Second Plaintiffs] paid the amount they were billed for taxes by South View and its successors. 14. The Mortgage further provided South View discretion to bill the [First and Second Plaintiffs], each month, for 1/12th of the annual cost of insuring the mortgaged property against fire and other hazards. See Ex. 1 & 2. Since the [First and Second Plaintiffs] paid their insurer for sufficient insurance throughout the term of their mortgage, they were never billed for insurance by South View or its successors. 15. South View and its successors estimated the total annual cost of the [First and Second Plaintiffs] tax bill. Therefore, the [First and Second Plaintiffs] payments were expected to and did fall short of their total tax obligation on numerous occasions. To address this problem, the Mortgage required the [First and Second Plaintiffs] to forthwith repay unto the (Bank) any sum or sums of money paid by the (Bank) for or on account of any taxes and premiums of insurance which the obligor has not paid or maintained.. See Ex. 2. 16. To enable the [First and Second Plaintiffs] to fulfill this obligation, South View and its successors were required to notify the [First and Second Plaintiffs] when their monthly payments were insufficient to pay their annual tax bill. Neither South View nor its successors ever notified the [First and Second Plaintiffs] when their tax bill was higher than projected. Moreover, South View and its successors loaned the [First and Second Plaintiffs]

money to cover the shortfalls in their tax payments, and added the loans to their mortgage debt, without giving them any notice. The [First and Second Plaintiffs] were charged interest on these loans at their high mortgage rate. As a result, the [First and Second Plaintiffs] total mortgage debt increased dramatically. 17. In or about late 1983, South View consolidated with Community, which acquired the [First and Second Plaintiffs] Mortgage and other South View mortgages. Thereafter, the [First and Second Plaintiffs] received Annual Loan Account and Annual Escrow Statements bearing the name Community Savings Association. The [First and Second Plaintiffs] thereafter made timely Mortgage payments to Community. 18. Before this consolidation, Financial Accounting Services, Inc. serviced South Views mortgages. See 9/1/83 South View letter, attached as Ex. 5. Afterward, NCR Data Processing Center (NCR) began servicing the mortgages. See Ex. 5. 19. On or about April 1, 1987, Defendant Freddie Mac acquired the [First and Second Plaintiffs] Mortgage and other Community mortgages. Yet the [First and Second Plaintiffs] continued to receive Annual Loan Account and Annual Escrow Statements that bore the name Community, not Freddie Mac. 20. In and after 1994, when Defendant Standard began servicing the [First and Second Plaintiffs] Mortgage and other Freddie Mac and Community mortgages, the [First and Second Plaintiffs] received Mortgage Interest Statements (1098 Forms) identifying Community as the Recipients/ Lenders still not Freddie Mac. See 1996 1098 Form, attached as Ex. 6. 21. In 1996, the [First and Second Plaintiffs] received a1098 Form from Standard stating that they still owed more than $16,000, which effectively notified them that 300 payments were not sufficient to pay off their Mortgage. The payments they had made, for the full amounts billed by South View and its successors, had been insufficient to amortize [their] mortgage in accordance with the terms as [they] originally agreed to, (See Exhibit 6), because of the wrongful conduct engaged in by South View, Community, Freddie Mac, and Standard, as set forth below. 22. On September 8, 1998, the [First and Second Plaintiffs] fully prepaid their Mortgage. The Defendants did not satisfy their Mortgage until November 10, 1998, more than 60 days later. (1) South View Unilaterally Changed From Capitalizing Plaintiffs Monthly Tax and Insurance Payments, As Required by the Mortgage, To Escrowing The Tax and Insurance Payments

23. Under South Views mortgages, South View and its successors were required to capitalize the monthly payments for taxes, insurance, and other bills (the bill payments made by the [First and Second Plaintiffs] and other South View mortgagors (the South View mortgagors. Under capitalization, South View credited each mortgagors bill payments to reduce their unpaid balance until they were due. In other words, South View temporarily reduced the unpaid balance by the amount of the bill payment. When a bill was due,

South View paid the bill on behalf of the mortgage and simultaneously increased the mortgagors unpaid balance by the amount of the bill. The practice had the effect of lowering the interest that accrued annually on the mortgagors unpaid balances. 24. The [First and Second Plaintiffs] Mortgage demonstrates that capitalization was required: [I]t is expressly understood and agreed, that the monthly payments made by Obligor shall be applied first to interest on the unpaid balance of the principal sum and the remainder thereof shall be credited on account of said sum, . . . (emphasis added) Ex. 1. According to this language, payments made by a mortgagor that exceed accrued interest must be credited to reduce the mortgagors unpaid balance, i.e. capitalized. South Views mortgages did not give South View or its successors discretion to otherwise use the mortgagors payments. 25. Until December of 1982, South View complied with its obligations and capitalized the its mortgagors bill payments, effectively paying them interest at their mortgage rate (8.5% per annum for the [First and Second Plaintiffs]) on their tax money. 26. In or about January of 1983, South View breached its contractual obligations by ceasing to capitalize its mortgagors bill payments. Instead, it established tax and insurance escrow accounts into which it placed monthly bill payments belonging to the [Plaintiffs] and other mortgagors, which it later removed to pay bills when they became due. See [First and Second Plaintiffs] 1983 Statement of Loan Account, attached as Ex. 7. 27. In early 1983, the [First and Second Plaintiffs] received a Statement of Loan Account from South View that included an escrow category. Specifically, the Statement showed a $55.00 Escrow Payment and beginning and ending escrow balances as $0.00. See Ex. 7. 28. After South View merged with Community, Community continued the improper practice of placing bill payments in escrow, rather than capitalizing them. In 1984, Community informed the [First and Second Plaintiffs] and other mortgagors that it would pay them interest at the rate of 1% on money held in escrow. This rate was significantly lower than the effective rate of interest under capitalization. See 11/6/84 Community letter, attached as Ex. 8. 29. After Freddie Mac acquired the [First and Second Plaintiffs] mortgage and other mortgages from Community, it continued placing bill payments in escrow, in breach of its mortgage obligations. 30. The accounting change from capitalization to escrow caused the [First and Second Plaintiffs] and other South View mortgagors substantial economic injury. For example, the [First and Second Plaintiffs] effectively received interest on capitalized bill payments at a rate of 8%, but received interest of no more than 1% on bill payments held in escrow. Other mortgagors were likewise injured.

(2)

South View, Community, and Freddie Mac Added Additional Loans To Mortgagors Unpaid Balances, Without Notifying Them

31. Like South Views mortgages, the mortgages owned by Community and Freddie Mac required the mortgagors to make certain bill payments to the mortgagee, including payments for taxes, insurance, water and sewage. 32. South View, Community, and Freddie Mac each engaged in the practice of adding additional loans to mortgagors unpaid balances without notifying them. These loans were made when the actual bills exceeded projections, so that the mortgagors bill payments were insufficient to pay the bills. 33. South Views, Communitys, and Freddie Macs mortgages required them to notify mortgagors when they advanced additional loans and to give the mortgagors the opportunity to repay the loan advances. For example, the [First and Second Plaintiffs] Mortgage required them to forthwith repay unto the [Bank] any sum or sums of money paid by the [Bank] for or on account of any taxes . . . . 34. By failing to notify mortgagors of the loan advances, South View, Community, and Freddie Mac prevented them from timely repaying the loan advances. See Ex. 2. 35. This practice amounted to conversion of the mortgagors home equities.

36. South Views, Communitys, and Freddie Macs practice adding loan advances to mortgagors unpaid balances, without notice, caused serious economic injuries to the [First and Second Plaintiffs] and other mortgagors, who were unable to exercise their contractual rights to fully pay tax, insurance, water, and sewage bills and to promptly repay the lenders for any loans necessary to pay the bills. (3) South View, Community, and Freddie Mac Charged the Plaintiffs Interest On Loan Advances For Time Periods That Pre-dated the Date of Distribution

37. South View charged mortgagors interest on loan advances for days preceding the date on which the loan money with distributed. 38. For example: A. On November 1, 1974, South View began charging the [First and Second Plaintiffs] interest for a $3,000 advance made on November 24, 1974, resulting in a $34.76 overcharge; On August 1, 1975, South View began charging the [First and Second Plaintiffs] interest for an advance made on August 13, 1975;

B.

C.

On March 1, 1976, South View began charging the [First and Second Plaintiffs] interest for advances made on March 5, 1976 and May 6, 1976; and On May 1, 1979, South View began charging the [First and Second Plaintiffs] interest for an advance made on May 21, 1979.

D.

39. Community and Freddie Mac also engaged in the practice of charging interest on advances on the first of a month, although the advances were made later in the month. (4) Community Failed to Timely Pay Plaintiffs At Least One Substantial Interest Payment for Money Held in Escrow

40. On November 6, 1984, Community agreed to pay escrow interest to its mortgagors [at] year end, and on a yearly basis thereafter. See Ex. 8. 41. After Standard began servicing Community and Freddie Mac mortgages in 1994, it failed, at least once, to pay Community mortgagors (including those whose mortgagors had been acquired by Freddie Mac) interest at year end. Standard did not credit the mortgagors accounts until March of 1996 for interest that had accrued during 1995 on money in escrow. 42. Plaintiffs have been injured by this practice, since they lost the use of their money during that time. (5) Community, Freddie Mac, Standard, and Three Rivers Bank Have Deceptively Concealed from Plaintiffs the Fact that Freddie Mac Had Acquired the Mortgages

43. Community, Freddie Mac, Standard, and Three Rivers Bank have intentionally or recklessly concealed from Community mortgagors whose mortgages were acquired by Freddie Mac that Freddie Mac owns their mortgages. 44. On August 9, 1999, Standard disclosed for the first time of record that Freddie Mac owned 95% and Three Rivers Bank owned 5% of the [First and Second Plaintiffs] Mortgage. Thereafter, by letter dated September 16, 1999, Standard disclosed that Freddie Mac owned 100% of the [First and Second Plaintiffs] Mortgage and that Three Rivers Bank had no ownership interest in their Mortgage. 45. On and after April 1987, when Freddie Mac acquired the mortgages, statements sent to mortgagors informed them that Community owned their mortgages. 46. For example, on or about October 28, 1994, a Dear Valued Mortgage Customer letter sent on behalf of Community to Freddie Mac mortgagors deceptively implied that Community owned their mortgages: The servicing of your mortgage loan originated at Community Savings Bank will be transferred to Standard Mortgage Corporation of Georgia (SMCG). Standard Mortgage Corporation is an affiliate of Community

Savings Bank. The effective date of this transfer will be November 16, 1994. The transfer of loan servicing loan will not affect the terms or conditions of your original mortgage loan agreement. *** Thank you for banking with Community Savings Bank. Please keep in mind that since Standard Mortgage Corporation is an affiliate of Community Savings Bank, you can expect to receive the same quality service you have in the past. 47. Standard also sent a Dear Valued Mortgage Customer letter to Freddie Mac mortgagors, like the [First and Second Plaintiffs], that deceptively implied that Community owned their mortgages: Welcome to Standard Mortgage Corporation of Georgia (SMCG). As your were recently notified by Community Savings Bank, the servicing of your mortgage loan will be transferred to SMCG. Standard Mortgage Corporation is an affiliate of Community Savings Bank. SMCG will begin servicing your account on November 16, 1994.

48. Both the account statements and the letters sent to Freddie Mac mortgagors falsely concealed from them that Freddie Mac owned their mortgages. CLASS ACTION ALLEGATIONS 49. The putative class is defined as all Pennsylvania mortgagors who entered into mortgage agreements that originated with or were acquired by Community (Community Mortgagors), and who were subject to one or more of the following practices engaged in by the Defendants, Community, and/or South View: (1) charging the mortgagor for a loan advance used to pay a tax, insurance, water, or sewage bill (the bills), unless the mortgagors monthly payments, as in fact billed, were in arrears; (2) charging the mortgagor interest on a loan advance for time that preceded the disbursement of the loan advance; (3) failing to pay the mortgagor, until March, 1996, for escrow interest that had accrued during calendar year 1995; (4) sending the mortgagor an annual statement on or after April of 1987 that listed Community as the mortgage owner; and/or (5) placing payments made by a mortgagor whose mortgage originated with South View in an escrow account. 50. The class members are so numerous that joinder of all members is impracticable. It is believed and therefore averred that there are over 500 mortgages within each category of claims identified above and in each Count of this Amended Complaint. 51. The claims of the [First and Second Plaintiffs] are typical of the claims of each of the class members, and the [First and Second Plaintiffs] have no claims that are antagonistic to class members. They are aware that they cannot settle this action without Court approval. They have and will continue to vigorously pursue the class member claims.

52. The Representative Plaintiffs, [First Plaintiff] and [Second Plaintiff], will fairly and adequately protect the interests of the class members. Plaintiffs are committed to the vigorous representation of the class members and have retained competent counsel experienced in the prosecution of complex and class action litigation. Counsel have agreed to advance the costs of the litigation contingent upon the outcome. 53. South View, Three Rivers, Community, Standard and Freddie Mac have all acted on grounds generally applicable to the class members, thereby justifying relief against Defendants Standard, Freddie Mac, and Three Rivers Bank for the class members as whole. 54. A class action is superior to other methods for the fair and efficient adjudication of this controversy because prosecution of separate actions by mortgagors creates a high risk of inconsistent and varying adjudications, with inconsistent and varying results. Furthermore, as the damages suffered by many individual class members may be relatively small in relation to the costs of litigation, the expense and burden of individual litigation make it difficult, if not impossible, for class members to individually redress the wrongs done to them. Many, if not most, of the class members are unaware that claims exist against Three Rivers (as successor to Community) or Freddie Mac (as the mortgage owner) or against servicer Standard. There will be no unusual difficulty in the management of this class action. 55. Questions of fact and law common to the class that predominate include: I. Did South View, Community, or Freddie Mac breach their contractual obligations to the class members by: A. B. II. Adding loan advances to their outstanding balances without giving them notice? Charging them interest on loan advances that predated dates on which the loan advances were disbursed?

Did Standard aid and abet Freddie Macs and Communitys breach of their fiduciary duties to their mortgagors by failing to pay escrow interest at year end in 1995, instead delaying payment of interest, without compensation, until March 1996? Are Three Rivers Bank, Communitys successor, and Freddie Mac, as the owner of Community mortgages, liable for their predecessors breach of the mortgage contracts? Did South View, Community, or Freddie Mac violate the Pennsylvania Unfair Trade Practices and Consumer Protection Law (CPL), 73 P.S. 201-2(4)(v) and (vii) by engaging in the following conduct: A. Adding loan advances to their outstanding balances without giving them notice?

III.

IV.

B. V.

Charging them interest on loan advances that predated dates on which the loan advances were disbursed?

Are Three Rivers Bank, Communitys successor, and Freddie Mac, the owner of Community mortgages, liable for their predecessors violations of the CPL? Did South View, Community, and Freddie Mac wrongly benefit making loan advances to the class members at high interest rates, without notice? Are Three Rivers Bank, Communitys successor, and Freddie Mac, as the owner of Community mortgages, liable for their predecessors unjust enrichment? Did Standard wrongly benefit by under-billing the class members so that they or the mortgagee could advance money to the class members at high interest rates? Did South View, Community, or Freddie Mac violate their special duties, such that a constructive trust and accounting should be required to prevent their unjust enrichment from the following activity: A. Wrongfully, and in breach of their contractual obligations, adding loan advances to the class members unpaid mortgage balances, without notifying the class members of the advances? Wrongfully charging the class members interest on loan advances that predates dates on which the loan advances were disbursed?

VI.

VII.

VIII.

IX.

B.

X.

Is Three Rivers Bank, Communitys successor, and Freddie Mac, as the owner of Community mortgages, liable for their predecessors violations of their special duties? Did Standard violate its special duties or aid and abet Community, Freddie Mac, or Three Rivers Bank in violating their special duties, such that a constructive trust and accounting should be required to prevent its unjust enrichment from the following activity: A. Wrongfully adding loan advances to the class members unpaid mortgage balances, without notifying the class members of the advances?

XI.

B.

Wrongfully charging the class members interest for loan advances that predates dates on which the loan advances were disbursed?

LEGAL CAUSES OF ACTION Count I Breach Of Contract Against Freddie Mac, For Direct And Successor Liability, And Three Rivers Bank, For Successor Liability, On Behalf Of Plaintiffs Whose Mortgages Originated With South View 56. The allegations of Paragraphs 1 to 55 are incorporated.

57. South View, Community, and Freddie Mac breached their contractual obligations to Plaintiffs whose mortgages originated with South View in at least the following respects: A. Failing to capitalize South View mortgagors tax and insurance payments, as required by the South View Mortgages, and thereby converting to themselves the benefits of the float that Plaintiffs were contractually entitled to receive; Over-billing South View mortgagors to maintain tax and insurance escrow accounts when no such account was contractually required under their South View Mortgages; and Paying South View mortgagors no more than 1% interest on bill payments held in escrow that should have been capitalized at an effective interest rate equivalent to their mortgage rate.

B.

C.

58. Freddie Mac is directly liable to Plaintiffs for its own breaches of contract and liable as a successor for South Views and Communitys breaches of contract. Three Rivers Bank is liable as a successor for South Views and Communitys breaches of contract. WHEREFORE, the [First and Second Plaintiffs] respectfully request, individually and on behalf of the putative class, a judgment declaring that Freddie Mac is liable directly and as a successor and Three Rivers Bank is liable as a successor for the breaches of contract and awarding them compensatory damages, interest and court costs, and such other relief as this Court deems just and proper.

Count II Breach Of Contract Against Freddie Mac, For Direct And Successor Liability, And Three Rivers Bank, For Successor Liability, On Behalf Of All Plaintiffs 59. 60. the Plaintiffs by: Paragraphs 1 to 58 are incorporated. South View, Community, and Freddie Mac breached their contracts with A. B. C. Adding loan advances to their unpaid mortgage balances, without notice; Charging them interest for loan advances that predated the dates on which the loan advances were disbursed; and Failing to pay, until March of 1996, interest that accrued during 1995 on money in escrow.

61. Freddie Mac is directly liable to Plaintiffs for its own breaches of contract and liable as a successor for South Views and Communitys breaches of contract. Three Rivers Bank is liable as a successor for South Views and Communitys breaches of contract. WHEREFORE, the [First and Second Plaintiffs] respectfully request, individually and on behalf of the putative class, a judgment declaring that Freddie Mac is liable directly and as a successor and Three Rivers Bank is liable as a successor for the breaches of contract and awarding them compensatory damages, interest and court costs, and such other relief as this Court deems just and proper. Count III Violations Of Pennsylvanias Unfair Trade And Consumer Protection Act Arising From The Placement In Escrow Of Bill Payments Made By Plaintiffs Whose Loans Originated With South View, Against Freddie Mac, For Direct And Successor Liability, Standard, For Direct Liability, And Three Rivers Bank, For Successor Liability 62. Paragraphs 1 to 61 are incorporated.

63. South View, Community, Freddie Mac, and Standard, the mortgage servicer, have violated the Pennsylvania Unfair Trade and Consumer Protection Law, 73 P.S. 201-2(4)(v), which states that it is an unfair trade practice to [represent[] that goods or services . . . characteristics . . . that they do not have . . . ., by falsely representing that: A. B. The South View mortgage contracts authorized the placement in escrow of bill payments made by South View mortgagors; and The South View mortgagors could be billed for the maintenance of escrow accounts.

64. Freddie Mac is directly liable to Plaintiffs for its own breaches of contract and liable as a successor for South Views and Communitys breaches of contract. Standard is directly liable for its own breaches of contract. Three Rivers Bank is liable as a successor for South Views and Communitys breaches of contract. WHEREFORE, the [First and Second Plaintiffs] respectfully request, individually and on behalf of the class, a judgment declaring that Freddie Mac and Standard are directly liable, and Freddie Mac and Three Rivers Bank are liable as successors, for violations of the Pennsylvania Unfair Trade Practices and Consumer Protection law; and awarding them treble damages as provided for by 73 P.S. 201-9.2(a), attorneys fees and expenses, and such other relief as this Court deems just and proper. Count IV Violations Of Pennsylvanias Unfair Trade And Consumer Protection Act For The Addition Of Loan Advances To Plaintiffs Unpaid Mortgage Balances, Without Notice, Against Freddie Mac, For Direct And Successor Liability, Standard, For Direct Liability, And Three Rivers Bank, For Successor Liability 65. Paragraphs 1 to 64 are incorporated.

66. South View, Community, Freddie Mac, and Standard, the mortgage servicer, have violated the Pennsylvania Unfair Trade and Consumer Protection Law, 73 P.S. 201-2(4)(xxi), which states that it is an unfair trade practice to engag[e] in any other fraudulent or deceptive conduct which creates a likelihood of confusion or misunderstanding, by concealing that they: A. B. Added loan advances to Plaintiffs unpaid mortgage balances, without notice; and Charged Plaintiffs interest for loan advances that predated the dates on which the loan advances were disbursed.

67. Freddie Mac is directly liable to Plaintiffs for its own breaches of contract and liable as a successor for South Views and Communitys breaches of contract. Standard is directly liable for its own breaches of contract. Three Rivers Bank is liable as a successor for South Views and Communitys breaches of contract. WHEREFORE, the [First and Second Plaintiffs] respectfully request, individually and on behalf of the class, a judgment declaring that Freddie Mac and Standard are directly liable, and Freddie Mac and Three Rivers Bank are liable as successors, for violations of the Pennsylvania Unfair Trade Practices and Consumer Protection law; and awarding them treble damages as provided for by 73 P.S. 201-9.2(a), attorneys fees and expenses, and such other relief as this Court deems just and proper.

Count V Violations of Pennsylvanias Unfair Trade And Consumer Protection Act For Misrepresenting And Concealing That Freddie Mac Owned Certain Mortgages, Against Freddie Mac, For Direct And Successor Liability, Standard, For Direct Liability, And Three Rivers Bank, For Successor Liability 68. Paragraphs 1 to 69 are incorporated.

69. The Pennsylvania Unfair Trade and Consumer Protection Law, 73 P.S. 201-2(4) make it an unfair and deceptive trade practice to: (i) (ii) (iii) (v) Pass off goods and services as those of another; Cause likelihood of confusion or of misunderstanding as to the source, sponsorship, approval or certification of goods or services; Cause likelihood of confusion or of misunderstanding as to affiliation, connection with, or certification by, another; and Represent that goods or services have sponsorship they do not have or that a person has a sponsorship, approval status, affiliation or connection that he does not have.

70. Community and Standard falsely represented that: (1) Community owned certain Mortgages that actually were owned by Freddie Mac; and that (2) Standard serviced the Mortgages for Community when, in fact, Standard services the Mortgages for Freddie Mac. 71. Freddie Mac concealed that it was the owner of these Mortgages.

72. Communitys, Standards, and Freddie Macs false representations and concealment deprived Plaintiffs of: (1) the ability to address their mortgage concerns to the true owner of their Mortgages; and (2) important mortgage-related information, including: 1. Many of their state statutory protections, including mortgage satisfaction protections (21 P.S. 681) and mortgage foreclosure protections (42 Pa. C.S.A. 1722(b)), were pre-empted as a result of the transfer of their Mortgages to Freddie Mac, a federal instrumentality; They no longer had the right to sue their mortgagee in state court. See 12 U.S.C. 1452(f); and Only Freddie Mac had the right and the power to resolve Mortgage disputes.

2. 3.

WHEREFORE, the [First and Second Plaintiffs] respectfully request, individually and on behalf of the class, a judgment declaring that Freddie Mac and Standard are directly

liable, and Freddie Mac and Three Rivers Bank are liable as successors, for violations of the Pennsylvania Unfair Trade Practices and Consumer Protection law; and awarding them treble damages as provided for by 73 P.S. 201-9.2(a), attorneys fees and expenses, and such other relief as this Court deems just and proper. Count VI Tortious Interference With Contract Against Standard, For Direct Liability, And Three Rivers Bank, For Direct And Successor Liability 73. Paragraphs 1 to 72 are incorporated.

74. Community, Standard, and Three Rivers Bank tortuously interfered with the mortgage contracts of Plaintiffs whose mortgages were sold to Freddie Mac by concealing from the Plaintiffs, through both affirmative misrepresentations and omissions, that Freddie Mac owned their mortgages. 75. as explained above. As a direct and proximate result, Plaintiffs have suffered economic injury,

WHEREFORE, the [First and Second Plaintiffs] request a judgment, individually and on behalf of the class they seek to represent, a judgment declaring that Standard is directly liable and Three Rivers Bank is liable directly and as a successor for tortuous interference with the Plaintiffs contracts and awarding the Plaintiffs compensatory damages, interest and court costs, and such other relief as this Court deems just and proper. Count VII Breach Of Fiduciary Against Freddie Mac, For Direct And Successor Liability, And Three Rivers Bank, For Successor Liability 76. Paragraphs 1 to 75 are incorporated.

77. South View, Community, and Freddie Mac obtained possession of bill payments belonging to the Plaintiffs for specific purpose of delivering the bill payments to third parties. Thus, South View, Community and Freddie Mac were trustees with respect to Plaintiffs bill payments. 78. As such, South View, Community and Freddie Mac had a special duty to Plaintiffs to act strictly with the bounds of their contractual authorization. In this connection, South View, Community, and Freddie Mac were not contractually authorized to: 1. 2. Place in escrow bill payments belonging to Plaintiffs whose mortgages originated with South View; Add loan advances to Plaintiffs unpaid mortgage balances, without notice;

3. 4.

Charge Plaintiffs interest on loan advances predating the dates on which the loan advance was disbursed; and Fail to pay, until March of 1996, interest that had accrued during 1995 on money in escrow.

79. South View, Community, Freddie Mac, and Three Rivers Bank, Communitys successor, wrongly benefited from and were unjustly enriched through these practices. Plaintiffs were injured, as these practices increased their unpaid mortgage balances and deprived them of the use of their money. WHEREFORE, the [First and Second Plaintiffs] request a judgment, individually and on behalf of the class they seek to represent: (1) declaring Freddie Mac liable, directly and as a successor, and Three Rivers Bank liable, as a successor, for these breaches of fiduciary duty; (2) requiring Freddie Mac and Three Rivers Bank to provide the Plaintiffs an accounting of the amount they actually paid on their mortgages and the amount they would have paid if they had not been subject to these wrongful practices; and (3) requiring Freddie Mac and Three Rivers Bank to make restitution to the Plaintiffs of the difference between the amount they actually paid on their mortgages and the amount they would have paid if they had not been subject to these wrongful practices. Count VIII Aiding And Abetting Breaches Of Fiduciary Duty Against Standard 80. Paragraphs 1 to 79 are incorporated.

81. Standard aided and abetted Community and Freddie Mac, trustees with respect to the bill payments, to violate their fiduciary duties. 82. Plaintiffs by: A. B. C. D. Placing in escrow bill payments belonging to Plaintiffs whose mortgages originated with South View; Adding loan advances to Plaintiffs unpaid mortgage balances, without notice; Charging Plaintiffs interest on loan advances predating the dates on which the loan advance was disbursed; and Failing to pay interest that had accrued during 1995 on money in escrow until March of 1996. Community and Freddie Mac breached their fiduciary duties to the

83. Standard knew that Community and Freddie Mac were violating their fiduciary duties to the Plaintiffs by engaging in these practices.

84. As the servicer, it was Standard who implemented each of these practices. Therefore, Standard substantially assisted Freddie Mac and Community in effecting their breaches of fiduciary duty. WHEREFORE, the [First and Second Plaintiffs] request a judgment, individually and on behalf of the class they seek to represent: (1) declaring Standard liable for aiding and abetting these breaches of fiduciary duty; (2) requiring Standard to provide the Plaintiffs an accounting of the amount they actually paid on their mortgages and the amount they would have paid if they had not been subject to these wrongful practices; and (3) requiring Standard to make restitution to the Plaintiffs of the difference between the amount they actually paid on their mortgages and the amount they would have paid if they had not been subject to these wrongful practices. PRAYER FOR RELIEF WHEREFORE, for the reasons stated above, the Representative Plaintiffs, [First Plaintiff] and [Second Plaintiff], individually and on behalf of the class they represent respectfully request: 1. Compensatory damages including interest against Three Rivers Bank and Freddie Mac resulting from South Views, Communitys, and Freddie Macs breaches of contract, as alleged in Count I of this Amended Complaint; 2. Compensatory damages including interest against Three Rivers Bank and Freddie Mac resulting from South Views, Communitys, and Freddie Macs breaches of contract, as alleged in Count II of this Amended Complaint; 3. Treble damages including interest against Three Rivers Bank, Freddie Mac, and Standard, resulting from South Views, Communitys, Freddie Macs, and Standards violations of the Unfair Trade and Consumer Protection Act, as alleged in Count III of this Amended Complaint; 4. Treble damages including interest against Three Rivers Bank, Freddie Mac, and Standard, resulting from South Views, Communitys, Freddie Macs, and Standards violations of the Unfair Trade and Consumer Protection Act, as alleged in Count IV of this Amended Complaint; 5. Treble damages including interest against Three Rivers Bank, Freddie Mac, and Standard, resulting from Communitys, Freddie Macs, and Standards violations of the Unfair Trade and Consumer Protection Act, as alleged in Count V of this Amended Complaint; 6. Compensatory damages including interest against Three Rivers Bank and Standard resulting from Communitys, Standards, and Three Rivers Banks breaches of contract, as alleged in Count VI of this Amended Complaint; 7. An accounting and restitution against Three Rivers Bank and Freddie Mac resulting from South Views, Communitys, and Standards breaches of fiduciary duty, as alleged in Count VII of this Amended Complaint;

8. An accounting and restitution against Standard resulting from its aiding and abetting South Views, Communitys, and Standards breaches of fiduciary duty, as alleged in Count VIII of this Amended Complaint; 9. 10. Interest and court costs; and Such other relief as this Court deems just and proper.

A JURY TRIAL IS REQUESTED.

By_________________________________ [Attorney for Plaintiffs]

Dated: November 15, 1999

IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA [FIRST PLAINTIFF] and [SECOND PLAINTIFF], his wife, individually and on behalf of all others similarly situated, Plaintiffs, v. STANDARD MORTGAGE CORPORATION OF GEORGIA, and THREE RIVERS BANK & TRUST COMPANY, and FEDERAL HOME LOAN MORTGAGE CORPORATION Defendants. ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) Civil Action No.: 98-679 [Judge] CLASS ACTION

NOTICE TO DEFEND You have been sued in court. If you wish to defend against the claims set forth in the following pages, you must take action within twenty (20) days after this Complaint and Notice are served, by entering a written appearance personally or by attorney and filing in writing with the court your defenses or objections to the claims set forth against you. You are warned that if you fail to do so the case may proceed without you and a judgment may be entered against you by the court without further notice for any money claimed in the Complaint and for

any claim or relief requested by the Plaintiff. You may lose money or property or other rights important to you. YOU SHOULD TAKE THIS PAPER TO YOUR LAWYER AT ONCE. IF YOU DO NOT HAVE OR KNOW A LAWYER, THEN YOU SHOULD GO TO OR TELEPHONE THE OFFICE SET FORTH BELOW TO FIND OUT WHERE YOU CAN GET LEGAL HELP: Fairfax Bar Association Lawyer Referral Service [Address]

11.2 Plaintiffs First Set of Interrogatories

IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA [FIRST PLAINTIFF] and [SECOND PLAINTIFF], his wife, individually and on behalf of all others similarly situated, Plaintiffs, v. STANDARD MORTGAGE CORPORATION OF GEORGIA, and THREE RIVERS BANK & TRUST COMPANY, and FEDERAL HOME LOAN MORTGAGE CORPORATION Defendants. ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) Civil Action No.: 98-679 [Judge] CLASS ACTION A JURY TRIAL IS DEMANDED

PLAINTIFFS FIRST SET OF INTERROGATORIES DIRECTED TO DEFENDANT STANDARD MORTGAGE CORPORATION OF GEORGIA AND NOW come the Plaintiffs, [First Plaintiff] and [Second Plaintiff], on behalf of themselves and all others similarly situated, [Plaintiffs], by their counsel, [Attorney for Plaintiffs], and pursuant to Fed R.Civ.P 34, make this their First Set of Interrogatories directed to Defendant Standard Mortgage Corporation of Georgia (Standard). Defendant is requested to respond to these interrogatories within thirty (30) days, unless the parties mutually agree to an alternate date. I. DEFINITIONS

1. The term person(s) means all entities, and, without limiting the generality of the foregoing, includes natural persons, joint owners, associations, companies, partnerships, joint ventures, corporations, trusts and estates.

2. The term document(s) means all written, printed, recorded or graphic matter, photographic matter or sound reproductions, video tapes and/or films, however produced or reproduced, pertaining in any manner to the subject matter indicated, including computer tapes, discs, or other electronically stored data. 3. The terms identify and identity, when used with respect to a person or persons, means to state the full name and present or last known residence and business address. 4. The terms identify and identity, when used with respect to a document or documents, means to describe the document or documents by date, subject matter, name(s) or person(s) that wrote, signed, initialed, dictated or otherwise participated in the creation of the same, the name(s) of the addressee or addressees (if any) and the name(s) and address(es) of each person or persons who have possession, custody or control of said document or documents. If any such document was, but is no longer, in your possession, custody or control, or is no longer in existence, state the date and manner of its disposition. 5. The term identify, when used with respect to an act (including an alleged offense), occurrence, statement or conduct [hereinafter collectively called act], means to: (1) describe the substance of the event or events constituting such act; and to state the date when such act occurred; (2) identify each and every person or persons participating in such act; (3) identify all other persons (if any) present when such act occurred; (4) state whether any minutes, notes, memoranda or other documentation of such act was made; (5) state whether such document now exists; and (6) identify the person or persons presently having possession, custody or control of each document. 6. The term relate to means directly, indirectly, referring to, relating to, connected with, commenting on, impinging or impacting upon, affecting, responding to, showing, describing, analyzing, reflecting or constituting. 7. The terms Defendant, Standard, you and your refer to Standard Mortgage Corporation of Georgia and all agents, employees, officers, and other representatives acting on its behalf. 8. The term South View refers to South View Savings and Loan Association and all agents, employees, officers and other representatives acting on its behalf. 9. The term Community refers to Community Savings Association and all agents, employees, officers and other representatives acting on its behalf. 10. The term Three Rivers Bank refers to Three Rivers Bank & Trust Company and all agents, employees, officers and other representatives acting on its behalf. 11. The term Freddie Mac refers to Federal Home Loan Mortgage Corporation and all agents, employees, officers and other representatives acting on its behalf. 12. The terms mortgage and mortgages refer to residential mortgages.

13. The term annual bills refers to the aggregate annual cost of all taxes, insurance, and other collateral-related bills that are paid by the mortgagee or its servicer on behalf of the mortgagor. 14. The term monthly bill payments refers to the payments that mortgagors are required to make monthly to the mortgagee or its servicer to cover the annual bills. 15. The terms capitalization and capitalization method refer to the practice of applying mortgagors monthly bill payments to reduce their outstanding mortgage loan balances until their annual bills become due. 16. The terms escrow and escrow account refer to the accounts into which mortgagors monthly bill payments are placed. 17. The term escrow method refers to the practice of placing monthly bill payments into escrow accounts. 18. The terms and and or shall be interpreted conjunctively and disjunctively, to give the interrogatories the broadest interpretation. 19. singular. II. INSTRUCTIONS The singular shall include the plural, and the plural shall include the

1. Dates in Interrogatories. When an interrogatory asks for a specific date or time and you cannot answer precisely, despite reasonable effort, please answer as of the nearest date for which information is available, and specify the date used in your answer. 2. Numbers or Amounts Requested. Where an interrogatory asks for a specific number or amount and you cannot answer precisely, despite reasonable effort, please: (i) (ii) (iii) (iv) (v) determined. provide your best estimate; state that your answer is an estimate, state the basis for your estimate, identify the documents upon which your estimate is based, and identify the documents and method from which an exact answer could be

3. Procedure to Assert Claim of Privilege. If any privilege is claimed as to any document requested herein, state: (i) The nature of the privilege claimed (i.e., attorney-client, work product, etc.);

(ii) The name of the attorney, if any, with respect to whom the privilege is claimed; (iii) The facts upon which Defendant relies as the basis for claiming the privilege as to the specific document; and (iv) The date of the document; identify the type of document (i.e., letter, memo, etc.); set forth the subject matter thereof; identify each person who prepared it and each person (if any) who signed it; identify each person to whom it was directed, circulated, or shown; and identify each person now in possession of the document. 4. In responding to these Interrogatories, do not provide information that you have already provided to Plaintiffs before in response to earlier Interrogatories or Requests for Production of Documents. III. INTERROGATORIES 1. Identify all individuals and groups, whether or not affiliated with or employed by South View or Community, that were involved in evaluation(s) of South Views use of the capitalization method of applying monthly bill payments. Explain the role of each. 2. Identify all individuals and groups, whether or not affiliated with or employed by South View or Community, that were involved in evaluation(s) of the escrow method of applying monthly bill payments prior to South Views implementation of the escrow method. Explain the role of each. 3. Identify all individuals and groups, whether or not affiliated with or employed by South View or Community, that were involved in evaluation(s) of the escrow method subsequent to South Views implementation of the escrow method. Explain the role of each. 4. Identify all individuals and groups, whether or not affiliated with or employed by South View or Community, that were involved in comparison(s) of the escrow method and the capitalization method. Explain the role of each. 5. Identify the Community and/or South View department(s) responsible for determining the amount of mortgagors monthly bill payments. 6. Identify the Community and/or South View department(s) responsible for notifying mortgagors when their mortgages are not being amortized as scheduled. 7. State your policies and procedures for notifying mortgagors that their monthly bill payments are insufficient to amortize their mortgages under the mortgage schedule, including, inter alia, when and how notice is given.

8. Identify, by year, each system you have used at any time between January 1, 1970 and the present to store, organize and/or categorize documents related to each mortgage loan (mortgage documents and mortgage loan histories). 9. Identify, by year, each system you have used at any time between January l, 1970 and the present to locate specific mortgage documents and/or mortgage loan histories. 10. State, as precisely as possible, when you began and ceased using each of your different systems for locating specific mortgage documents and/or mortgage loan histories. 11. For each year from January 1, 1970 to the present identify, by year, your retention and deletion policies for documents related to mortgages were paid off. 12. have been paid off. Describe how you would search for documents related to mortgages that

13. Describe how you would search for documents related to mortgages that have outstanding balances or are still active. 14. and/or categorized. Describe in detail how South Views loan files are stored, organized,

15. Identify how you would locate mortgage documents and/or mortgage account histories for mortgages once owned by South View.

By_______________________________ [Attorney for Plaintiffs]

DATED: April 28 ,2000

11.3 Plaintiffs Class-Related Interrogatories

IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA [FIRST PLAINTIFF] and [SECOND PLAINTIFF], his wife, individually and on behalf of all others similarly situated, Plaintiffs, v. STANDARD MORTGAGE CORPORATION OF GEORGIA, and THREE RIVERS BANK & TRUST COMPANY, and FEDERAL HOME LOAN MORTGAGE CORPORATION Defendants. ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) Civil Action No.: 98-679 [Judge] CLASS ACTION A JURY TRIAL IS DEMANDED

PLAINTIFFS CLASS-RELATED INTERROGATORIES DIRECTED TO DEFENDANT STANDARD MORTGAGE COMPANY OF GEORGIA AND NOW come the Plaintiffs, [First Plaintiff] and [Second Plaintiff], on behalf of themselves and all others similarly situated, by their counsel, [Attorney for Plaintiffs], and pursuant to Fed R.Civ.P 34, make this their Class-Related Second Set of Interrogatories Directed to Defendant Standard Mortgage Company of Georgia, [Standard], pursuant to Fed. R. Civ. P. 33, to be answered fully, in writing and under oath. I. DEFINITIONS AND INSTRUCTIONS These Interrogatories are governed by the same definitions and instruction listed in Plaintiffs First Set of Interrogatories Directed to Standard Mortgage of Georgia, which was served on April 28, 2000. III. INTERROGATORIES 1. State the number of mortgages that Standard has acquired, in whole or part, for which South View Savings and Loan Association was the original mortgagee (South View mortgages). 2. State the number of South View mortgages that Standard has acquired, in whole or part, which South View entered into prior to January of 1983. 3. State the number of South View mortgages that Standard has acquired, in whole or part, for which South View capitalized bill payments at any time.

4. State the number of South View mortgages that Standard has acquired, in whole or part, for which Standard (or its servicer) has used the escrow method of applying monthly bill payments at any time. 5. State the number of mortgages that Standard has acquired, in whole or part, from Community Savings Association (Community mortgages). 6. State the number of Community mortgages that Standard acquired, in whole or part, subsequent to November 6, 1984. 7. State the number of Community mortgages in which Standard has a partial interest and Community has a partial interest. 8. State whether Standard (or its servicer) has added additional loans to South View or Community mortgage accounts to pay tax, insurance, and/ or other bills related to the mortgaged property. 9. State the number of South View and Community mortgage accounts to which Standard (or its servicer) has added one or more additional loans to pay tax, insurance, or other bills related to the mortgaged property. 10. State whether Standard (or its servicer) has charged interest on loan advances added to South View or Community mortgage accounts for time periods that pre-date the date of the distribution of the loan advance. 11. State the number of South View and Community mortgages for which Standard (or its servicer) has charged interest on loan advances for time periods that pre-date the date of distribution of the loan advance. By_______________________________ [Attorney for Plaintiffs]

DATED: [Date]

11.4 Plaintiffs First Request for Production of Documents Directed to First Defendant
IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA [FIRST PLAINTIFF] and [SECOND PLAINTIFF], his wife, individually and on behalf of all others similarly situated, Plaintiffs, v. STANDARD MORTGAGE CORPORATION OF GEORGIA, and THREE RIVERS BANK & TRUST COMPANY, and FEDERAL HOME LOAN MORTGAGE CORPORATION Defendants. ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) Civil Action No.: 98-679 [Judge] CLASS ACTION A JURY TRIAL IS DEMANDED

PLAINTIFFS FIRST REQUEST FOR PRODUCTION OF DOCUMENTS DIRECTED TO DEFENDANT STANDARD MORTGAGE CORPORATION OF GEORGIA AND NOW come the Plaintiffs, [First Plaintiff] and [Second Plaintiff], on behalf of themselves and all others similarly situated, [Plaintiffs], by their counsel, [Attorney for Plaintiffs], and pursuant to Fed R.Civ.P 34, make this their First Request For Production Of Documents directed to Defendant Standard Mortgage Corporation of Georgia (Standard). Defendant is requested to produce for inspection and copying at the offices of [Attorney for Plaintiffs and Attorneys office address] within thirty (30) days, documents described below, unless the parties mutually agree to an alternate date. I. DEFINITIONS

1. The term person(s) means all entities, and, without limiting the generality of the foregoing, includes natural persons, joint owners, associations, companies, partnerships, joint ventures, corporations, trusts and estates. 2. The term document(s) means all written, printed, recorded or graphic matter, photographic matter or sound reproductions, video tapes and/or films, however produced or reproduced, pertaining in any manner to the subject matter indicated, including computer tapes, discs, or other electronically stored data.

3. The terms Defendant, Standard, you and your refer to Standard Mortgage Corporation of Georgia and all agents, employees, officers, and other representatives acting on its behalf. 4. The term South View refers to South View Savings and Loan Association and all agents, employees, officers and other representatives acting on its behalf. 5. The term Community Savings refers to Community Savings Association and all agents, employees, officers and other representatives acting on its behalf. 6. The term Three Rivers Bank refers to Three Rivers Bank & Trust Company and all agents, employees, officers and other representatives acting on its behalf. 7. The term Freddie Mac refers to Federal Home Loan Mortgage Corporation and all agents, employees, officers and other representatives acting on its behalf. 8. The terms mortgage and mortgages refer to residential mortgages.

9. The term annual bills refers to the aggregate annual cost of all taxes, insurance, and other collateral-related bills that are paid by the mortgagee or its servicer on behalf of the mortgagor. 10. The term monthly bill payments refers to the payments that mortgagors are required to make monthly to the mortgagee or its servicer to cover the annual bills. 11. The terms capitalization and capitalization method refer to the practice of applying mortgagors monthly bill payments to reduce their outstanding mortgage loan balances until their annual bills become due. 12. The terms escrow and escrow account refer to the accounts into which mortgagors monthly bill payments are placed. 13. The term escrow method refers to the practice of placing monthly bill payments into escrow accounts. 14. The terms and and or shall be interpreted conjunctively and disjunctively, to give the interrogatories the broadest interpretation. 15. singular. II. INSTRUCTIONS The singular shall include the plural, and the plural shall include the

1. In responding to these Requests for Production of Documents, it is requested that Standard furnish all information in its possession or that of its attorneys and all other persons acting on behalf of Standard, and not merely such information within the personal knowledge of the person(s) responding to these Requests for Production of Documents. Information supplied in response to these Requests for Production of Documents shall reflect all

information available to Standard and/or counsel for Standard. The Requests for Production of Documents that follow are considered to be continuing to the extent permitted by Pa. R. Civ. P. 4009, and Standard is requested to provide, by way of supplementary answers and responses, such additional information as it or any other person acting on its behalf may hereafter obtain which will augment or otherwise modify its responses now given to these Requests for Production of Documents. 2. to earlier requests. Do not re-produce documents that have already been produced in response

3. When a request seeks documents, by type, produce a copy of each responsive form document. 4. Unless a request states otherwise, it seeks all documents over which you have possession or control that are related to or originated from South View, Community, Three Rivers Bank, Freddie Mac, and/or Standard or any other servicer for South View, Community, Three Rivers Bank, or Freddie Mac. 5. Whenever you remove a document or group of documents from a file folder, binder, file drawer, file box, notebook, or other cover or container, please attach a copy of the label of each cover or other container to the document or group of documents. 6. If any of the Requests for Production of Documents are deemed to call for the production of any privileged materials and a privilege is asserted, a list is to be furnished identifying each document so withheld together with the following information: (a) (b) (c) the reason for withholding; a statement of facts constituting the basis for any claim of privilege, work product or other ground of non-disclosure; and a brief description of the document, including: (1) (2) (3) the date of the document; the name(s) of its author(s), or preparer(s) and an identification by employment and title of each such person; the names of each person who was sent or has had access to, or custody of the documents, together with an identification of each such person; the paragraph of the Requests for Production of Documents to which the document relates; and in the case of any document relating in any way to an oral communication, identification of such oral communication.

(4) (5)

7. Documents that are produced are not to include redactions unless a clear privilege exists. If a document is redacted, you must follow the procedure defined in Instruction No. 5. Further, to ensure that the context of relevant information may be clearly understood, purportedly non-relevant portions of a document are not to be redacted. 8. If any documents requested herein have been lost or destroyed, the documents so lost or destroyed shall be identified by author, date and subject matter. For each lost or destroyed document, state the last known location of the document, the last known person to have custody, care or control of the document, and the circumstances under which the document was lost or destroyed. 9. If any of the following requests comprise documents which you contend contain confidential, business, trade secret or proprietary information, you shall not withhold such documents on the grounds of confidentiality but shall forthwith advise all parties to this litigation of the confidential nature of such material and request all parties to stipulate to the entry of an appropriate order preserving such confidentiality. IV. 1. 2. Community. 3. mortgage. 4. All documents, by type, that you sent or received on a regular periodic basis (weekly, monthly, annually, etc.) relating to the [Plaintiffs] mortgage and/or any other mortgages you purchased from Community. 5. All documents, including service guidelines, handbooks or other manuals, which evidence how you protected your security interest as a mortgagee. 6. All documents that relate to [First Plaintiff] and/or [Second Plaintiff], including all documents you have that contain one or both of their names. 7. All documents that relate to or constitute a file maintained by you with respect to the mortgage and/or note signed by the [First and Second Plaintiffs], including, but not limited to, any account statements, correspondence, and other information with respect to the [First and Second Plaintiffs] mortgage and/or loan. 8. Documents evidencing the application of each payment the [First and Second Plaintiffs] have made on their outstanding debt. 9. Documents evidencing each assessment of interest and/or other charges on the [First and Second Plaintiffs] loan account. All documents that you received or sent relating to the [Plaintiffs] DOCUMENT REQUESTS

All documents that relate to your purchase of the [Plaintiffs] mortgage. All documents that evidence what other mortgages you purchased from

10. Documents evidencing the [First and Second Plaintiffs] monthly payments for taxes, insurance, and/or other bills related to the collateral property (monthly bill payments). 11. Documents evidencing all calculations of the [First and Second Plaintiffs] monthly bill payments. 12. Documents identifying all formulas and/or calculations used to determine the amount of the [First and Second Plaintiffs] monthly bill payments. 13. Documents identifying the data used to determine the amount of the [First and Second Plaintiffs] monthly bill payments. 14. Documents evidencing each application of the [First and Second Plaintiffs] monthly bill payments to their loan account. 15. Documents evidencing each application of the [First and Second Plaintiffs] monthly bill payments to their escrow account. 16. Documents identifying the escrow account(s) that have held the [First and Second Plaintiffs] monthly bill payments. 17. Documents identifying the current balances of all escrow accounts that have held the [First and Second Plaintiffs] monthly bill payments. 18. Documents evidencing each addition of charges to the [First and Second Plaintiffs] loan account to pay for taxes, insurance, and/or other charges. 19. All documents related to the assessment of interest on the [First and Second Plaintiffs] loan account on the first of the month, although the charges on which interest was assessed were posted to the account later in the month. 20. All documents related to Communitys payments to the [First and Second Plaintiffs] of interest on money held in escrow, including documents held by Standard and any other servicer. 21. All documents related to and leading up to South Views decision to change from the capitalization method to the escrow method, including inter alia, all reports, studies, memoranda, organizational minutes, files and notes discussing this issue. 22. All documents related to South Views evaluation of the capitalization method, including inter alia, all reports, studies, memoranda, organizational minutes, files and notes discussing this issue. 23. All documents related to South Views evaluation of the escrow method prior to changing from the capitalization method to the escrow method, including inter alia, all reports, studies, memoranda, organizational minutes, files and notes discussing this issue.

24. All documents related to South Views implementation of the escrow method, including inter alia, all reports, studies, memoranda, organizational minutes, files and notes discussing this issue. 25. All documents related to South Views evaluation of the escrow method subsequent to changing from the capitalization method to the escrow method, including inter alia, all reports, studies, memoranda, organizational minutes, files and notes discussing this issue. 26. All documents related to South Views comparison and/or analysis of the capitalization method and the escrow method, including inter alia, all reports, studies, memoranda, organizational minutes, files, and notes discussing this issue. 27. All documents reflecting any relationship between South Views decision to change from the capitalization method to the escrow method and its sale to or merger with Community. 28. Documents identifying the date South View began to evaluate changing its method from the capitalization method to the escrow method. 29. Documents identifying the date on which South View made its decision to implement the escrow method. 30. the escrow method. Documents identifying the date on which South View began to implement

31. Documents identifying the date on which South View began to evaluate the possibility of merger with or sale to Community. 32. Documents identifying the date on which when South View made the decision to merge with or sell to Community. 33. Documents identifying the date on which South Views merger with and/or sale to Community became final. 34. All documents, by type, that South View provided to mortgagors in conjunction with its change from the capitalization method to the escrow method. 35. All documents, by type, that South View provided to mortgagors addressing its sale to or merger with Community. 36. All documents, by type, that Community provided to mortgagors addressing its purchase of or merger with South View. 37. All documents, by type, that any servicer provided to mortgagors addressing South Views sale to or merger with Community.

38. Documents identifying all mortgagors who made one or more monthly bill payments to South View or its servicer during the twelve months before and one or more monthly bill payments to South View during the twelve months after South View implemented the escrow method. 39. The files for twenty mortgagors, chosen randomly, whose mortgages were owned by South View and who made one or more monthly bill payments to South View or its servicer both before and after South View implemented the escrow method. 40. Documents identifying all past and/or present formulas, calculations, and/or procedures used to determine the amount of mortgagors monthly bill payments. 41. All documents, including reports, studies, memoranda, organizational minutes, files and notes addressing past and present procedures, calculations, and/or formulas used to determine the amount of annual bills. 42. Documents identifying all types of standardized data used to determine the amount of mortgagors monthly bill payments. 43. Documents identifying all types of standardized data used to determine the amount of mortgagors annual bills. 44. Documents identifying past and present formulas, calculations, and/or procedures used as a cross check to determine if monthly bill payments charged to the mortgagors would be sufficient to cover their annual bill payments. 45. All documents, by type, that are or have been used to notify mortgagors that their monthly bill payments are insufficient. 46. All documents identifying past and present policies and procedures used to identify mortgagors whose monthly bill payments had been insufficient to pay off their annual bills. 47. All documents identifying past and present policies and procedures used for notifying mortgagors that their monthly bill payments were insufficient to pay off the mortgage loan as scheduled. 48. All documents identifying past and present policies and procedures for identifying mortgagors whose loans are or were not being amortized as scheduled, as a result of the addition of charges to their unpaid mortgage loans. 49. All documents identifying past, present policies and procedures for notifying mortgagors whose monthly bill payments were insufficient that the remainder due has been or will be added to their unpaid, outstanding mortgage loans. 50. All documents, by type, used to notify mortgagors whose monthly bill payments were insufficient that the remainder due has been or will be added to their unpaid, outstanding mortgage loans.

51. All documents, by type, used to notify mortgagors that, because charges were added to their mortgage loans, their unpaid mortgage loans were not being amortized as scheduled. 52. All documents, including reports, studies, memoranda, organizational minutes, files and notes addressing the addition of charges to mortgage loans to pay annual bills. 53. Documents identifying all mortgagors whose loans were increased, one or more times, to pay the difference between the monthly bill payments and/or the actual annual bill payment. 54. Files for twenty mortgagors whose mortgages are or have been owned by Community and whose mortgage loans were increased, at least once, to pay the difference between their accumulated monthly bill payments and their actual annual bills. 55. All documents identifying past and present policies and procedures for determining the date on which interest should begin to accrue on charges added to mortgage loans. 56. All documents that evidence the practice and policy of accruing interest from the first of the month for all charges made to a mortgage loan during the month, even when a charge is made after the first of the month. 57. All documents identifying changes in the policies and procedures related to the date or day of the month on which interest should begin to accrue on charges added to mortgage loans. 58. All documents, by type, used to notify mortgagors that interest on charges to their loans began or will begin to accrue on the first of the month in which the charges were made, even if the charges were made after the first of the month. 59. All documents, including reports, studies, memoranda, organizational minutes, files and notes addressing past and present policies and procedures related to the date or day of the month on which interest will begin to accrue on charges to a mortgage loan. 60. All documents, including reports, studies, memoranda, organizational minutes, files and notes addressing changes or proposed changes in the policies and procedures related to the date or day of the month on which interest will begin to accrue on charges to a mortgage loan. 61. All documents, including reports, studies, memoranda, organizational minutes, files and notes addressing the effect(s) that accruing interest from the first of the month on charges made after the first of the month has on the cost of the mortgage loan to the mortgagor, the amortization of the loan, and/or the income obtained from the loan by the lender (South View, Community, or Freddie Mac). 62. Documents identifying all mortgagors whose loan accounts have been assessed interest on the first of the month for charges made after the first of the month.

63. The files of ten mortgagors, chosen randomly, whose mortgages are or have been owned by Community and who have been charged interest on the first of the month for charges made after the first of the month. 64. All documents, including form documents by type, relating to Communitys past and present agreements to pay interest on mortgagors escrow accounts. 65. All documents reflecting the dates on which Community or its servicer(s) paid interest on mortgagors escrow accounts. 66. All documents and other communications between Community and Standard or any other servicer with respect to the payment of interest on mortgagors escrow accounts. 67. All reports, studies, memoranda, organizational minutes, files, notes, and other communications with respect to the payment of interest on Communitys mortgagors escrow accounts. 68. All documents, by type, that Community, Standard, or any other servicer mailed to Communitys mortgagors to notify them that they would receive interest on money held in escrow accounts. 69. All documents, by type, that Community, Standard, or any other servicer mailed to its mortgagors in conjunction with the payment of interest on money held in escrow accounts. 70. All documents and other communications between Community and Standard or any other servicer with respect to the payment of interest that accrued in 1995 on money held in escrow accounts. 71. All reports, studies, memoranda, organizational minutes, files, notes, and other communications with respect to the payment of interest that accrued in 1995 on money held in escrow accounts. 72. Documents identifying each Community mortgagor who, at any time after Standard began servicing Communitys mortgages in 1994, earned interest on money held in escrow. 73. All documents identifying the date(s) on which each of the mortgagors identified above has been credited for interest on money held in escrow. 74. Files for five mortgagors, chosen at random, who were sent Communitys November 1984 agreement to pay interest on escrow accounts and who did not receive interest that accrued on their escrow accounts in 1995 until on or about March of 1996. 75. Documents identifying all mortgagors whose mortgages were owned by Community and thereafter purchased in whole by Freddie Mac.

76. All correspondence and other documents, by type, sent to mortgagors whose mortgages were purchased from Community in whole by Freddie Mac. 77. All correspondence and other documents, by type, sent to mortgagors whose mortgages were purchased from Community in whole by Freddie Mac, which identified Freddie Mac as the owner of the mortgages. 78. All correspondence and other documents, by type, sent to mortgagors whose mortgages were purchased from Community in whole by Freddie Mac, which did not identify Freddie Mac as the owner of their mortgages. 79. All documents identifying criteria used to determine which mortgages Freddie Mac would purchase in whole from Community in 1987. 80. All documents identifying criteria used to determine which mortgages Community would sell in whole to Freddie Mac in 1987. 81. The files for twenty mortgagor files, chosen at random, whose mortgages Freddie Mac purchased in whole from Community during 1987. 82. All documents, by type, that Community provided to mortgagors addressing its sale(s) of mortgages to Freddie Mac. 83. All documents, by type, that Freddie Mac provided to mortgagors addressing its purchase(s) of mortgages from Community. 84. All documents, by type, that any servicer provided to mortgagors addressing Freddie Macs purchase(s) of mortgages from Community. 85. All documents reflecting communication between South Community, Three Rivers Bank or Freddie Mac and the [First and Second Plaintiffs]. View,

86. All documents reflecting communications between Standard or any other servicer for South View, Community, Three Rivers Bank, and/or Freddie Mac relating to the [First and Second Plaintiffs] mortgage. 87. All documents reflecting communications between the [First and Second Plaintiffs] to South View, Community, Three Rivers Bank or Freddie Mac. 88. All documents reflecting communications between the [First and Second Plaintiffs] and Standard or any other servicer for South View, Community, Three Rivers Bank, and/or Freddie Mac. 89. All documents reflecting communications between Freddie Mac and Standard relating to the [First and Second Plaintiffs] mortgage. 90. All documents reflecting communications between Freddie Mac and Community relating to the [First and Second Plaintiffs] mortgage.

91. All documents reflecting communications between Freddie Mac and Three Rivers Bank relating to the [First and Second Plaintiffs] mortgage. 92. All documents reflecting communications between Standard and Community relating to the [First and Second Plaintiffs] mortgage. 93. All documents reflecting communications between Standard and Three Rivers Bank relating to the [First and Second Plaintiffs] mortgage. 94. All documents reflecting communications between Community and South View relating to the [First and Second Plaintiffs] mortgage. 95. Documents identifying all system(s) that you use or have used, at any time from January 1, 1970 to the present, to file documents you receive and/or send relating to each of the mortgages you own.

By_______________________________ [Attorney for Plaintiffs]

DATED: April 28 , 2000

11.5 Plaintiffs First Request for Production of Documents Directed to Second Defendant
IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA [FIRST PLAINTIFF] and [SECOND PLAINTIFF], his wife, individually and on behalf of all others similarly situated, Plaintiffs, v. STANDARD MORTGAGE CORPORATION OF GEORGIA, and THREE RIVERS BANK & TRUST COMPANY, and FEDERAL HOME LOAN MORTGAGE CORPORATION Defendants. ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) Civil Action No.: 98-679 [Judge] CLASS ACTION A JURY TRIAL IS DEMANDED

PLAINTIFFS FIRST REQUEST FOR PRODUCTION OF DOCUMENTS DIRECTED TO DEFENDANT FEDERAL HOME LOAN MORTGAGE CORPORATION AND NOW come the Plaintiffs, [First Plaintiff] and [Second Plaintiff], on behalf of themselves and all others similarly situated, [Plaintiffs], by their counsel, [Attorney for Plaintiffs], and, pursuant to Fed R.Civ.P 34, make this their First Request For Production Of Documents directed to Defendant Federal Home Loan Mortgage Corporation, [Freddie Mac]. Defendant is requested to produce for inspection and copying at the offices of MALAKOFF DOYLE & FINBERG, Suite 200, The Frick Building, Pittsburgh, Pennsylvania, 15219 within thirty (30) days, documents described below, unless the parties mutually agree to an alternate date or place. I. DEFINITIONS 1. The term person(s) means all entities, and, without limiting the generality of the foregoing, includes natural persons, joint owners, associations, companies, partnerships, joint ventures, corporations, trusts and estates. 2. The term document(s) means all written, printed, recorded or graphic matter, photographic matter or sound reproductions, video tapes and/or films, however produced or reproduced, pertaining in any manner to the subject matter indicated, including computer tapes, discs, or other electronically stored data. 3. The terms identify and identity, when used with respect to a person or persons, means to state the full name and present or last known residence and business address.

4. The terms identify and identity, when used with respect to a document or documents, means to describe the document or documents by date, subject matter, name(s) or person(s) that wrote, signed, initialed, dictated or otherwise participated in the creation of the same, the name(s) of the addressee or addressees (if any) and the name(s) and address(es) of each person or persons who have possession, custody or control of said document or documents. If any such document was, but is no longer, in your possession, custody or control, or is no longer in existence, state the date and manner of its disposition. 5. The term identify, when used with respect to an act (including an alleged offense), occurrence, statement or conduct [hereinafter collectively called act], means to: (1) describe the substance of the event or events constituting such act; and to state the date when such act occurred; (2) identify each and every person or persons participating in such act; (3) identify all other persons (if any) present when such act occurred; (4) state whether any minutes, notes, memoranda or other documentation of such act was made; (5) state whether such document now exists; and (6) identify the person or persons presently having possession, custody or control of each document. 6. The term relate to means directly, indirectly, referring to, relating to, connected with, commenting on, impinging or impacting upon, affecting, responding to, showing, describing, analyzing, reflecting or constituting. 7. The terms Defendant, Freddie Mac, you and your refer to Federal Home Loan Mortgage Corporation and all agents, employees, officers, and other representatives acting on its behalf. 8. The term South View refers to South View Savings and Loan Association and all agents, employees, officers and other representatives acting on its behalf. 9. The term Community refers to Community Savings Association and all agents, employees, officers and other representatives acting on its behalf. 10. The term Three Rivers Bank refers to Three Rivers Bank & Trust Company and all agents, employees, officers and other representatives acting on its behalf. 11. The term Standard refers to Standard Mortgage Corporation of Georgia and all agents, employees, officers and other representatives acting on its behalf. 12. The terms mortgage and mortgages refer to residential mortgages.

13. The term annual bills refers to the aggregate annual cost of all taxes, insurance, and other collateral-related bills that are paid by the mortgagee or its servicer on behalf of the mortgagor. 14. The term monthly bill payments refers to the payments that mortgagors are required to make monthly to the mortgagee or its servicer to cover the annual bills.

15. The terms capitalization and capitalization method refer to the practice of applying mortgagors monthly bill payments to reduce their outstanding mortgage loan balances until their annual bills become due. 16. The terms escrow and escrow account refer to the accounts into which mortgagors monthly bill payments are placed. 17. The term escrow method refers to the practice of placing monthly bill payments into escrow accounts. 18. The terms and and or shall be interpreted conjunctively and disjunctively, to give the interrogatories the broadest interpretation. 19. singular. II. INSTRUCTIONS In responding to these requests, Defendant Federal Home Loan Mortgage Corporation shall furnish all responsive documents available at the time of production, and shall supplement its responses whenever necessary. If a document was prepared in several copies, or if additional copies were thereafter made, and if any such copies were not identical or are no longer identical by reasons of any notation or modification of any kind whatsoever, including without limitation notations on the front or back of any of the pages thereof, then each such non-identical copy is a separate document and must be produced. Computerized Records. Where documents do not exist in the form of a printed copy, but are contained only on computer tapes, drives or diskettes, a copy of such computer tapes, drives or diskettes are requested. III. CLAIMS OF PRIVILEGE Where a claim of privilege is asserted in response to any document request, or subpart thereof, and a document is not provided on the basis of such assertion, for each document not provided: (1) The party asserting the privilege shall in the objection to the document request, or sub-part thereof, identify the nature of the privilege (including work product immunity) which is being claimed; and The following information shall be provided in the objection: (a) the type of document (letter memorandum, etc.); (b) the general subject matter of the document; (c) the date of the document; (d) the author of the document; (e) the addressee(s) of the document; and (f) all recipients of the document. The singular shall include the plural, and the plural shall include the

(2)

IV. REQUESTS FOR PRODUCTION OF DOCUMENTS 1. [Plaintiffs]. 2. All documents maintained by Freddie Mac relating to the [Plaintiffs] including, but not limited to, any account statements. 3. All documents showing each and every (a) charge made to the [Plaintiffs] mortgage account or (b) payments made by the [Plaintiffs] that were applied to the mortgage account and/or their escrow account. 4. All minutes that show when South Views Board of Directors considered escrowing tax and insurance payments. 5. All documents including agendas, prepared for the South View Board of Directors relating to escrowing tax and insurance payments, including whether to require escrow accounts and/or pay interest on such accounts. 6. All minutes that show when the South View Board of Directors considered whether or not to continue its operations as a Pennsylvania lender. 7. All documents, including agendas, prepared for South Views Board of Directors relating to whether or not it should continue its operations as a Pennsylvania lender. 8. All minutes that show when the South Views Board of Directors considered whether or not to sell or assign its mortgages to Community (or any other lender). 9. All documents, including agendas, prepared for the South View Board of Directors relating to any sale or potential sale of mortgages. 10. All form documents provided to mortgagees relating to South Views 1993 change from capitalizing to escrowing tax and insurance payments. 11. All form documents provided by South View to mortgagees relating to South Views decision to sell or assign its mortgages to Community. 12. All form documents provided by Community to mortgagees relating to Communitys acquisition of South Views mortgages. 13. All form documents provided by Community to mortgagees relating to Communitys decision to sell or assign its mortgages to Freddie Mac. 14. All form documents provided to mortgagees relating to Freddie Macs acquisition of mortgages from Community. 15. mortgage accounts. All documents relating to South Views valuation(s) of its escrow or unpaid All documents showing communications between Freddie Mac and the

16. All documents relating to Communitys valuation(s) of South Views escrow accounts or unpaid mortgage accounts. 17. All documents relating to Freddie Macs valuation(s) of Communitys escrow accounts or unpaid mortgage accounts. 18. All Communitys and Freddie Macs committee reports and/or Board of Director minutes relating to (a) Communitys acquisition of South View mortgages or (b) Freddie Macs acquisition of Community mortgages. 19. All documents, including computer disks and hard copies of the contents of such disks, which tabulate, categorize or summarize mortgage loans by type, form, term or particular provisions, the date and amount of loan, payments made, and/or escrow information. 20. All documents (including computer tapes and disks) showing the loan histories of mortgages, including, without limitation, information such as the date and amount of payments made, the application of payments, escrow information, and all other loan history. 21. All documents relating to South Views sale, assignment or transfer of mortgages to Community, including, without limitation, documents identifying or summarizing the notes and mortgages and/or the escrow accounts transferred. 22. All documents relating to Communitys sale, assignment or transfer of mortgages to Freddie Mac, including, without limitation, documents identifying or summarizing notes and mortgages and/or escrow accounts transferred. 23. All documents listing or summarizing the mortgages Freddie Mac acquired that were initially owned by South View or, if not available, Freddie Macs mortgages that were outstanding on or about March 20, 1992. 24. All instruction manuals or other guides relating to Freddie Macs computer program(s) for processing mortgage and/or escrow payments, including documents showing the capabilities of such program(s). 25. All Freddie Macs instruction manuals or employee manuals relating to how monthly payments are to be applied, as between principal, interest, escrow and/or other charges. 26. All Freddie Macs instruction manuals or employee manuals relating to the method of calculating or assessing and/or debiting or crediting interest, taxes, insurance or other charges to mortgage loans, including without limitation, all documents relating to the formulae or methods used to calculate interest, escrow amounts due and/or current unpaid principal balance. 27. All Freddie Macs documents constituting and/or related to instruction manuals, or employee manuals relating to differences in accounting procedures or treatment between notes and mortgages written on different printed forms such as, but not limited to, differences in procedure or treatment in the method of calculating or assessing interest or escrow payments.

28. All Freddie Macs committee reports or Board of Directors minutes relating to any evaluation of mortgages and/or escrow accounts where monthly payments would continue beyond the scheduled payment date. 29. All form documents provided to South View or Community or Freddie Mac mortgagees from 1974 to the present advising or notifying them (a) that there is a shortage of funds in their escrow accounts; or (b) that their unpaid mortgage principal balance was increased as a result of a shortage of available tax and insurance funds in their escrow accounts; or (c) that their monthly payments would continue beyond the scheduled payment date.

Respectfully submitted, By______________________________________ [Attorney for Plaintiffs]

11.6 Plaintiffs Brief in Opposition to First Defendants Motion to Dismiss

UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA [FIRST PLAINTIFF] and [SECOND PLAINTIFF], his wife, individually and on behalf of all others similarly situated, Plaintiffs, v. STANDARD MORTGAGE CORPORATION OF GEORGIA, and THREE RIVERS BANK & TRUST COMPANY, and FEDERAL HOME LOAN MORTGAGE CORPORATION Defendants. ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) Civil Action No.: 98-679 [Judge] CLASS ACTION A JURY TRIAL IS DEMANDED

PLAINTIFFS BRIEF IN OPPOSITION TO STANDARD MORTGAGE CORPORATIONS MOTION TO DISMISS PLAINTIFFS COMPLAINT I. INTRODUCTION

Defendant Standard Mortgage Corporation of Georgia [Standard] has moved to dismiss Plaintiffs Complaint based on the alleged failure to state a claim. Standard also alleges that Plaintiffs claims have been released by virtue of a prior class action release in a class action entitled Higgins and that their claims are untimely. Standards defenses are based on alleged facts contrary to the pled facts and the relevant documents and are otherwise fatally flawed. Standards Rule 12(b) motion to dismiss should therefore be denied. II. STATEMENT OF THE FACTS

Plaintiffs [First Plaintiff] and [Second Plaintiff] [the [First and Second Plaintiffs]] entered into a Mortgage Agreement with South View Savings & Loan Association [South View] in 1974. There are three relevant paragraphs to the [First and Second Plaintiffs] mortgage tax and insurance claims that are relevant to the resolution of the class in this case. The relevant provisions center around: The [Plaintiffs] duty to repay the lender for the loan; The [First and Second Plaintiffs] duty to secure the loan of the lender by making payments to the lender for taxes and insurance: Finally, the lenders duties with respect to handling the [First and Second Plaintiffs] tax and insurance payments made, not as a repayment, but to secure the Lenders loan: III. SUMMARY OF LEGAL ARGUMENT

Plaintiffs have stated a claim based on Standards breach of their mortgage tax and insurance capitalization obligations. The [First and Second Plaintiffs] have pled that their mortgages mandate capitalization of Plaintiffs tax and insurance payments. (Complaint 17). The Mortgages only require Plaintiffs to repay, on a monthly basis, $210.00, plus additional advances, interest and other charges herein covenanted to be paid. (Complaint, Exhibit A. The other charges herein covenanted to be paid are found immediately thereafter, in a section of the Mortgage that provides, [a]nd conditioned also upon the payment to Mortgagee, in addition to, and concurrently with such monthly installments of principal and interest, a further sum equal to the total of [1/12 of the annual taxes and insurance]. (Complaint, Exhibit A. Since there is no debt owed to the lender for taxes and insurance there is no repayment obligation.

The Mortgage also states that it is thereby expressly understood and agreed that the monthly payments by Mortgagor on account of principal and interest shall be applied first to interest on the unpaid balance of the principal sum and the remainder thereof shall be credited on account of said sum. (Complaint, Exhibit A (emphasis supplied). When capitalizing the monthly tax and insurance payments, all payments, when received, are applied to decrease the principal of the loan. The borrower receives an advantage by this monthly reduction and, in a real sense, receives a return on his monthly payments. Buchanan v. Brentwood Federal Savings & Loan Assn., 457 Pa. 135, ___, 320 A.2d 117, 122 (1974) (Internal quotations omitted). The escrow system, as distinguished from capitalization, envisions that the bank establish individual records, credit an account upon receipt of the monthly payment, and debit it when the bank pays taxes to the appropriate authority. Buchanan v. Brentwood Federal Savings & Loan Assn., 457 Pa. 135, ___, 320 A.2d 117, 121 (1974). The funds deposited by mortgagors are freely commingled with the mortgagees general funds and used to earn income. Id. at 121. Standards unilateral switch to escrowing, in contravention of the express and implied language of the Mortgage Agreements is impermissible and denied Plaintiffs the benefits and fruits of their mortgage contracts. IV. LEGAL ARGUMENT

A motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6) cannot be granted unless the court is satisfied that no relief could be granted under any set of facts that could be proved consistent with the allegation. Hishon v. King & Spalding, 476 U.S. 69, 73 (1984). The issue is not whether plaintiffs will prevail at the end, but only whether they should be entitled to offer evidence to support their claims. Oshiver v. Levin, Fishbein, Sedran & Berman, 38 F.3d 1380, 91-92 (3d Cir. 1994). It is respectfully submitted that because the [First and Second Plaintiffs] have stated claims for relief that are not barred by the statute of limitations and/or by any release, Standards motion to dismiss should be denied. The above-cited language of the Mortgage requires Standard to first apply the monthly payment, inclusive of the tax and insurance payment as other charges to the interest on the unpaid balance of the loan, and then apply the remainder of the sum to the unpaid balance. The tax and insurance payments must be applied to the outstanding balance until due to the appropriate third parties. Thus, the Mortgage Agreement itself conclusively contradicts Standards claim that there is absolutely no language mandating capitalization anywhere in either the Mortgage or the Bond. (Mem. p.10). A. The Mortgage Agreements Require Standard To Capitalize Plaintiffs Tax And Insurance Money Standard argues that Plaintiffs allegations with respect to capitalization are not supported by the Mortgage and Bond. (Mem. p. 10). The explicit language of the Mortgage Agreements refutes this position. Furthermore, Standards position ignores the allegations in Plaintiffs Complaint and the eight years that South View, an original party to the Mortgage Agreements, consistently interpreted the Mortgage Agreement as requiring capitalization.

Under Pennsylvania law [a] contract must be interpreted in light of the meaning which the parties have accorded to it as evidenced by their conduct in its performance.(emphasis added) Capitol Bus Co. v. Blue Bird Coach Lines, Inc., 478 F.2d 556, 560 (3d Cir. 1973). South View, for eight years the only other original party to the mortgage, interpreted the mortgage agreements the same as Plaintiffs. In Capitol Bus, even though the Third Circuit held that standing alone, the contract answered the issue of who was the operating carrier as evidence of the parties intent to identify the operating carrier, the court also looked to the parties conduct. As such, the court concluded that the defendants course of conduct in the performance of the Agreement demonstrated that it interpreted the Agreement as constituting it the operating carrier. Id. Plaintiffs have pled that from March 1974 through December 1982 [South View] complied with its mortgage agreements and capitalized the [First and Second Plaintiffs] tax and insurance payments. (Complaint, 18). Plaintiffs have further alleged that South View did not breach its capitalization obligation until 1983. (Complaint, 19). Moreover, it was not until 1984, i.e., after Community Savings Association acquired the [First and Second Plaintiffs] mortgage, that Community, not South View, began to escrow. (Complaint, Exhibit F).4 In addition to the express language of the Mortgage Agreements, for eight years South View, the only original lender to the transaction, interpreted the mortgage agreements as requiring capitalization. In the instant case, standing alone, as in Capital Bus the Mortgage Agreements demonstrate that capitalization is required. In addition, South Views conduct under the Mortgage Agreements further reveals that it too interpreted the contract as requiring capitalization of the [First and Second Plaintiffs] tax and insurance payments. Therefore, as in Capital Bus, the combination of the language of the Mortgage Agreements combined with South Views own conduct in the course of performing its obligations, reveals the parties clear intention to require capitalization of the [First and Second Plaintiffs] tax and insurance payments. Standards motion to dismiss based on Plaintiffs alleged failure to state a claim for Standards breach of its capitalization obligation should be denied. B. The Mortgage Agreements Establish A Trust Relationship

Standard breached its obligation as trustee when it unilaterally transferred to itself the beneficial interest of the [First and Second Plaintiffs] tax and insurance payments. By escrowing, Standard misappropriated the beneficial interest of the monthly tax and insurance payment in two different ways. First, when Standard fails to apply the payments to the unpaid
Finally, in 1974, when the [First and Second Plaintiffs] entered into their Mortgage Agreements, the escrow approach [was] by far the most commonly used method by savings and loan associations. Buchanan I., 320 A.2d at 122, n. 7. (citing a January 1973 escrow study entitled Department of Research & Economics, United States Savings & Loan League, Factors Governing the Economics of Escrow Accounts. In 1974, South View surely had full knowledge of tax and insurance escrow accounts and could have freely contracted with the [First and Second Plaintiffs] to require escrowing instead of capitalization. Rather, despite the common industry practice of escrowing mortgagors' tax and insurance obligations, South View bound itself and its successor, to capitalization. Thus, Standard may not deviate from its contractually mandated duty to capitalize Plaintiffs' payments.
4

balance of the [First and Second Plaintiffs] loan until it is paid to third parties, it substantially increases the amount of interest paid by the [First and Second Plaintiffs] over the life of the loan. Second, when Standard commingles and invests the payment until it becomes due to third parties, it earns substantial revenues for itself while paying the [First and Second Plaintiffs] only 1 1/2% interest. Plaintiffs have also alleged that under escrowing, Standard financially benefits from the float between the time Plaintiffs money was collected and when it was due third parties. (Complaint, p. 2). Such an impermissible transfer of the benefit of the tax and insurance payments clearly contravenes the Mortgage Agreements. The [First and Second Plaintiffs] have pled that Plaintiffs own the beneficial interest of the tax and insurance payments until they are paid to third parties. (Complaint 21). The [First and Second Plaintiffs] have also pled that [i]n recognition that the [First and Second Plaintiffs] tax and insurance payments was their money until paid to third parties, South View unilaterally agreed to pay the [First and Second Plaintiffs] for the use of their money and began paying them 1 1/2% interest. Standard is contractually bound to the fiduciary duties established in the Mortgage, and is therefore not free to unilaterally alter the parties explicit intention to hold the funds in trust. (Complaint 20). Under the Mortgage, until disbursements are made to third parties, the [First and Second Plaintiffs] are entitled to earn 8 1/2% interest, not 1 1/2% interest, on their payments. The first half of Plaintiffs Mortgage is divided into two relevant sections. It creates a debtor-creditor relationship between the [First and Second Plaintiffs] and Standard for purposes of the mortgage indebtedness owed to Standard. That amount is to be repaid. In addition the mortgage creates a trust relationship with respect to [First and Second Plaintiffs] monthly tax and insurance payments that they paid to Standard but for the express purpose of delivering the sum to third parties. Standard errs when it claims that they were free to unilaterally transfer to themselves the benefits of the [First and Second Plaintiffs] tax and insurance payments prior to payment to the tax authorities or insurers to itself by unilaterally switching to an escrow system. (Mem. p. 9-10). This defense ignores Standards express obligation under the Mortgages to hold the [First and Second Plaintiffs] tax and insurance payments in trust, for the benefit of the [First and Second Plaintiffs], until payable to the designated third parties. Unlike the [First and Second Plaintiffs] monthly principal and tax payments the [First and Second Plaintiffs] did not owe and therefore are not repaying the lender for taxes and insurance but only securing the lenders loan by such payments. Standard had no contractual right to treat the tax and insurance payments as its own and to disregard the Parties agreed upon and explicit mortgage language governing these payments. It is well settled that no particular words or conduct [are] necessary to create a trust. Buchanan v. Brentwood Federal Savings & Loan Assn., 457 Pa. 135, ___, 320 A.2d 117, 122 (1974) (Hereinafter, Buchanan I. Moreover, the Supreme Court has provided specific guidance for the resolution of the question whether the parties intended to create a trust. Buchanan v. Brentwood Federal Savings & Loan Assn., 457 Pa. 135, ___, 320 A.2d 117, 123 (1974). Specifically, in Vosburghs Estate, 279 Pa. 329, 332, 123 A. 813, 815 (1924), the Supreme Court again held that

[a] trust is a relation between two persons, by virtue of which one of them as trustee holds property for the benefit of the other. The term trust is a very broad and comprehensive one. Every deposit is a trust, except possibly general bank deposits; every person who receives money to be paid to another or to be applied to a particular purpose is a trustee. The [First and Second Plaintiffs] have properly pled the creation of a trust. Plaintiffs pled that Standard obtained possession to the Plaintiffs tax and insurance money for a specific purpose, i.e., to pay it over to third parties. Standard and its predecessors therefore had a special duty to Plaintiffs to act strictly and only as contractually authorized. (Complaint, 44). Significantly, Plaintiffs Bond explicitly provides that the monthly payments made by the Obligor shall be applied first to interest on the unpaid balance of the principal sum and the remainder thereof shall be credited on account of said sum, and (except when taxes are paid to the Obligee in monthly installments) shall also well and truly pay all taxeswhich now are and also all those which may hereafter be assessed. (Complaint, Exhibit B. Standard failed to credit the remainder thereof against the sum, i.e., the indebtedness. The [First and Second Plaintiffs] Bond contains nearly identical language to one of the bond agreements considered in Buchanan I and in which the Court in Buchanan I recognized sufficiently alleged the creation of a trust. Id. at 123 n. 9. Here, the Mortgage and Bank documents evidence that the [First and Second Plaintiffs] are the beneficiaries, the trust property is the monthly tax and insurance payment, and the explicit purpose of the trust is for Standard to hold the payments for the [First and Second Plaintiffs] and other Plaintiffs solely to pay the [First and Second Plaintiffs] and other Plaintiffs tax and insurance obligations when they became due. To establish a trust subject matter, [First and Second Plaintiffs] must only prove the amount of the monthly payments tendered to their mortgage lending institution. Buchanan I., 320 A.2d at 123, n. 10. (Citations omitted). The [First and Second Plaintiffs] have adequately pled the existence of the trust subject matter wherein they alleged that South View therefore billed and the [First and Second Plaintiffs] paid $270.00 per month consisting of the $210.00 for principal and interest and $60.00 for taxes and insurance. Throughout the term of their mortgage South View and its successors billed the [First and Second Plaintiffs] monthly for an amount that allegedly represented 1/12 of the taxes and insurance and the [First and Second Plaintiffs] paid the monthly amounts as billed. (Complaint, 12). The amount of the payments representing the trust res therefore do not include the sums advanced by South View as a result of South Views practice of underbilling the [First and Second Plaintiffs] for their tax and insurance obligations. The [First and Second Plaintiffs] recognize that the sum of the advances represents a debt owed by them as expressly provided for in the language of the Mortgage Agreements which bound the [First and Second Plaintiffs] to repay all additional money advanced by the Mortgagee. (Complaint Exhibit A. The [First and Second Plaintiffs] do contend, however, that Standard breached its duty to promptly notify them of the advances and thereby deprived them of their contractual right to forthwith repay the advances.

The clear import of these powers and duties is that [Standard] is equitably bound to deal with the [tax and insurance payments] for the benefit of [First and Second Plaintiffs]], that is to hold the sums to pay the taxes, etc. Buchanan v. Century Fed. Sav. & Loan, ___ Pa.Super. __, __, 542 A.2d 117, 121 (1988). [Hereinafter, Buchanan IV]. Clearly A writing (or writings) will be sufficient evidence of a trust if the beneficiary, the trust property, and the purposes of the trust are set forth therein. First Federal Sav. & Loan Assoc. v. Greater Northern Development Corp., 282 Pa.Super. 337, ___, 422 A.2d 1145, 1146 (1980). More recently the Supreme Court has stated that A trust is a fiduciary relationship; one person holds a property interest subject to an equitable obligation to hold or use that interest for the benefit of another. Rebidas v. Murasko, 450 Pa.Super. 546, ___, 677 A.2d 331, 333 (1996). Rather than being a creditor, Standard is a trustee, contractually bound to make distributions for taxes and insurance when such obligations become due. Thus, Standard is not free to do with the sums as it pleases but is bound to apply them as provided. Buchanan IV, at 121. C. Plaintiffs, In An Alternative Claim, Have Alleged Facts Sufficient To Impose A Constructive Trust

Even if capitalization was required by the express words of the Mortgage Agreements, a duty to account to Plaintiffs for the benefit received by Standard for the use of Plaintiffs tax and insurance money would exist. [I]n the absence of an express provision, the law will imply an agreement by the parties to a contract to do and perform those things that according to reason and justice they should do in order to carry out the purpose for which the contract was made and to refrain from doing anything that would destroy or injure the other partys right to receive the fruits of the contract. USX Corp. v. Prime Leasing Inc., 988 F.2d 433, 439 (3d Cir. 1993). Therefore, even assuming (and Plaintiffs do not) that the mortgage agreements did not require capitalization -- as interpreted by all the original parties to the agreements (including the lender) for 8 years -- a constructive trust would be required to recapture Standards misappropriation of the tax and insurance benefits. D. The Plaintiffs Capitalization And Underselling Claims Are Not Barred By The Higgins Class Settlement Release

Standard argues that both [First and Second Plaintiffs] claims -- the capitalization claim and the underbilling claim -- are barred by the release in the class action styled Higgins v. Community Savings Association, No. 93-4111, Court of Common Pleas of Allegheny County, Pennsylvania. [The Higgins Release]. Specifically, Standard maintains that the claims in this case are covered by the broad language of the Release.(Mem. pp. 13-14). To the contrary Standards defense is inconsistent with the allegations in the [First and Second Plaintiffs] Complaint and disregards the distinguishing underlying facts in Higgins which when explored reveal that neither of the [First and Second Plaintiffs] claims arise from nor relate to the claims in Higgins. The [First and Second Plaintiffs] allegations and the express language of the Mortgages in Higgins and here demonstrate that the representative plaintiffs in

Higgins did not even have standing to raise the capitalization claims brought by the [First and Second Plaintiffs]. 1. The Representative Plaintiffs In Higgins Did Not Have Standing To Assert [First and Second Plaintiffs] Claims For Breach Of The Capitalization Requirement

Standard claims that the [First and Second Plaintiffs] capitalization claim could have been raised in Higgins and is related to the facts of that case. (Br. p. 14). Standard makes a huge conceptual leap, ignoring the fact that the Higgins mortgage did not even require capitalization, and, therefore, the [First and Second Plaintiffs] claim do not even remotely relate to the Higgins claim. In fact, unlike the [First and Second Plaintiffs] Mortgages, the Higgins mortgage explicitly permitted the lenders to escrow the payments. Accordingly, the representative Higgins plaintiffs could not have asserted claims or represented a class consisting of a capitalization claim. The Higgins Complaint is attached to Defendants Memorandum at Exhibit 4. As Standard knows, here the relevant mortgage language T&I in Higgins is conspicuous; and it is asserted in this case: Borrower and Lender covenant and agree as follows: 2. Funds for Taxes and Insurance. Subject to Lenders option Borrower shall pay to the Lender on the day monthly installments of principal and interest are payable under the Notea sum (herein Funds equal to one-twelfth of the yearly taxesplus one-twelfth of yearly premium installments for hazard insuranceFunds shall be held in an institution of deposit or accounts of which are insured or guaranteed by a Federal or state agency (including Lender if Lender is such an institution). (Higgins Compl. at Exhibit B, Attached Hereto as Exhibit 1 (Emphasis supplied). Therefore, because of the language in Higgins mortgage, as cited above, the Higgins lacked standing to assert the claims in this case and therefore the [Plaintiffs] claims here could not have been asserted in Higgins. The requirements to establish a Rule 1702class, as in Higgins, provide important procedural protections for absent class members.5

The Higgins class action was filed pursuant to Pennsylvania Rule of Civil Procedure 1701. Pa.R.C.P. 1702 sets forth the Prerequisites to a Class Action as follows: One or more members of a class may sue or be sued as representative parties on behalf of all members in a class action only if (1) the class is so numerous that joinder of all members is impracticable; (2) there are questions of law or fact common to the class; (3) the claims or defenses of the representative parties are typical of the claims or defenses of the class; (4) the representative parties will fairly and adequately assert and protect the interests of the class under the criteria set forth in Rule 1709; and (5) a class action provides a fair and efficient method for adjudication of the controversy under the criteria set forth in Rule 1708.

It is Hornbook law that [I]f the named plaintiffs in a class action for not have standing, they cannot maintain a class action. Citizens For State Hospital v. Commonwealth of Pennsylvania, 123 Pa. Cmwlth. 150, 156, 553 A.2d 496, 498 (1989). The Citizens court explicitly noted that [t]he core concept [of standing], of course, is that a person who is not adversely affected in any way by the matter he seeks to challenge is not aggrieved thereby and has no standing to obtain a judicial resolution of his challenge. Id. at 499. Since the Higgins mortgage did not require capitalization, the representative plaintiffs did not have standing to raise a capitalization claim. Based on the named plaintiffs lack of standing, alone, a capitalization claim could not have been raised in Higgins and is therefore not barred by the Higgins Release. In addition, the purpose of the Rule 1702(3) typicality requirement is to determine whether the class representatives overall position on the common issues is sufficiently aligned with that of the absent class members to ensure that her pursuit of her own interests will advance those of the proposed members. DAmelio v. Blue Cross of Lehigh Valley, 347 Pa.Super. 441, 458, 500 A.2d 1137, 1146 (1985). Therefore, a class representative must be part of the class and possess the same interest and suffer the same injury as other class members. East Texas Motor Freight System Inc. v. Rodriguez, 431 U.S. 395, 403 (1997). Absent a capitalization requirement in Higgins mortgage, not only lacked standing, but was not even a class member of the class the Plaintiffs here are attempting to represent. Therefore, for multiple reasons, a capitalization claim could not have been maintained in Higgins. 2. Plaintiffs Capitalization Claim Does Not Relate To Or Arise Out Of The Facts Alleged In Higgins

Even if Higgins had started asserting a capitalization claims (and they did not), the Higgins settlement release did not release [First and Second Plaintiffs] capitalization claims for yet other reasons. Standard broadly claims that the facts in Higgins are similar to those in the instant case because in both cases the plaintiffs [sought] relief based on the handling of Plaintiffs Mortgage Agreements. (Mem. p. 11). Specifically, Standard argues that Counts III and IV of the Higgins Complaint were based on exactly the same conduct of which Plaintiffs complain in this case: increasing the mortgagors indebtedness without sufficient notice by charging as an advance monies paid by the Defendant to cover shortfalls in the account used to pay Plaintiffs tax and insurance obligations. (Mem. p. 13). The [First and Second Plaintiffs] capitalization claim does not arise out of and is factually distinct from all claims raised in Higgins. The Higgins plaintiffs complained that the defendants improperly charged interest on advances for taxes and insurance without first providing plaintiffs with the requisite contracted required notice and even before such advances were disbursed to third parties. (Exhibit 1, p. 5). No tax and insurance excrow claim was ever asserted. In fact that tax and insurance escrow claim is inconsistent with the claims asserted in Higgins. In Higgins the claim was that the lender failed to provide notice before adding any T&I ___-to the [First and Second Plaintiffs] _______. Here, it is claimed that the lender properly billed for the T&I payments but failed to properly apply the payments received and held over until paid to the third parties as required of the mortgage deeds. The courts of Pennsylvania have traditionally determined the effect of a release using the ordinary meaning of its language and interpreted the release as covering only such

matters as can fairly be said to have been within the contemplation of the parties when the release was given. Vaughn v. Didizian, 436 Pa.Super. 436, ___, 648 A.2d 38, 40 (1994). (citations omitted). The [First and Second Plaintiffs] capitalization claim cannot fairly be said to have been within the contemplation of the parties when the Higgins Release was given. 5. The Release In Higgins Does Not Apply To The [First and Second Plaintiffs] Or To Any Putative Class Member Entering Into Mortgage Agreements Prior To 1975

Standard also argues that the Higgins Release applies to [a]ll persons who had residential mortgage accounts held by Defendant Community Savings, that were originated by South View Savings in the years of 1975, 1976, 1977 and 1978 and had outstanding balances as of March 9, 1989. (Mem. p. 12). In noticeable contrast to Standards claim that the Higgins Release applies in the instant case, the [First and Second Plaintiffs] have pled that [o]n or about March 22, 1974, the [First and Second Plaintiffs] entered into a Mortgage Agreement with South View and that [c]ontemporaneously with the execution of the Mortgage Agreement, the [First and Second Plaintiffs] executed a Bond. (Complaint 5,6) (Emphasis supplied). Standard simply cannot maintain that the Higgins Release applies either to the [First and Second Plaintiffs] or to any putative class member entering into a mortgage originated by South View prior to 1975. For the reasons stated above, however, this issue does not have to be reached.6 E. Plaintiffs Claims Were Timely Filed

Standard asserts a statute of limitations defense. (Mem. pp. ___). Standards alleged understanding of statute of limitations tolling principles [i.e., discovery rule and/or fraudulent concealment] are in error. (Memo. pp. 5-8). Standard largely ignores what Plaintiffs have in fact pled and primarily focuses on what it claims Plaintiffs have not pled. Fed.R.Civ.P. 8(a)(2), however, only requires a short and plan statement of the claim showing that the pleader is entitled to relief. Focusing on what Plaintiffs have actually pled demonstrates that the correct question is not whether the limitations periods were tolled, but when did the limitations periods begin to accrue. The allegations in Plaintiffs Complaint and controlling Pennsylvania law support the conclusion that their claims are timely. A statute of limitations does not begin to run until the accrual of a cause of action. Pennsylvania Turnpike Commission v. Atlantic Richfield Company, 375 A.2d 890, 892, ___ Pa.Cmwlth. ___, (1977). [W]here installment or periodic payments are owed, a separate and distinct cause of action accrues for each payment as it becomes due. Ritter v. Theodore Pendergrass Teddy Bear Prods., Inc., 356 Pa.Super. 422, ___, 514 A.2d 930, 935 (1986) (citations omitted). The Supreme Court of Pennsylvania has thus held that where there is a continuing contract, the statute of limitations does not [bar] the sums due within [the limitations period]. VanSciver v. VanSciver, 337 Pa. 390, 395, 12 A.2d 108, 110 (1940). Plaintiffs have alleged that [t]he Mortgage Agreement required South View (and its successors) to capitalize the [First and Second Plaintiffs] tax and insurance payments.
All Parties agree that [First and Second Plaintiffs] underbilling claim does not include within its scope the underbilling claims of persons, if any, with mortgages that were originated during the 4 year period 1975 to 1979 with South View and assigned to Community.
6

(Complaint 17). Specifically, Plaintiffs have pled that South View and its successors, including Standard, continually violated their obligation to capitalize Plaintiffs monthly tax and insurance payments. Plaintiffs have clearly stated claims that accrued within the period of limitations based on Standards continuing violation of their capitalization obligation. When, as here, plaintiffs challenge[ ] not just one incident of [unlawful] conductbut an unlawful practice that continues into the limitations period, the complaint is timely so long as it is filed within the appropriate time after one specific occurrence of that practice. Rush v. Scon Specialty Gases, Inc., 914 F. Supp. 104, 107 (E.D. Pa. 1996) (emphasis added) (internal quotations omitted) (citations omitted). See also Refac Financial Corp. v. Patlex Corp., 912 F. Supp. 159, 163 (E.D. Pa.1996) (Court denied defendants motion for summary judgment wherein defendants first breach occurred more than four years before plaintiff filed his complaint because the contract required periodic payments). In Refac, the court held that the plaintiff was not time barred with respect to breaches occurring within four years of filing their complaint, notwithstanding defendants claim that plaintiff was aware of the parties divergent interpretations of the contract more than four years before the complaint was filed. In Ritter v. Theodore Pendergrass Teddy Bear Prods., Inc., 514 A.2d at 934, the Court reversed the lower Courts grant of defendants motion to dismiss and held that where defendant had a continuing obligation to make royalty payments due at least semi-annually a new cause of action, with its own statute of limitations, accrued at least twice a year. check this quote for internal citation. Plaintiffs allegations are in stark contrast to Standards allegation that Plaintiffs have alleged a continuing harm resulting from a single breach. (Mem. pp. 4-5). Rather than a continuing harm, Plaintiffs have clearly pled a continuing violation. Thus, any references made by Standard regarding case law interpreting continuing harms and/or continuing torts are irrelevant. Since the Mortgages require Standard to capitalize the Plaintiffs tax and insurance payments on a continuing basis, a separate and distinct cause of action accrued each time Standard escrowed Plaintiffs payments. Standard erroneously argues that the [First and Second Plaintiffs] reference to a 1990-1991 statement of their loan in paragraph 23 of the Complaint proves that they have failed to allege any wrongdoing within the statutory period. (Mem. p. ___). Standards defense ignores the [First and Second Plaintiffs] allegations which include the claim that after, South Views initial breach in 1983, Standard continued this taxes and insurance Escrow practice in breach of the mortgage agreement. (Complaint 23). In addition, Standards defense ignores the [First and Second Plaintiffs] Mortgage Interest Statement, for 1997 (Exhibit D) which clearly shows that Standard continued escrowing in 1997. Indeed, new and distinct causes of action continue to accrue each month into the future as Standard continues to wrongfully escrow Plaintiffs tax and insurance payments. Thus, Plaintiffs may recover for Standards breaches of contract as alleged in the Complaint for the four years prior to filing the Complaint. Plaintiffs also have a viable Pennsylvanias Unfair Trade and Consumer Protection statutory claim encompassing the six years prior to the filing of the Complaint.

CONCLUSION For the reasons stated above Defendants motion to dismiss should be denied. By__________________________________ [Attorney for Plaintiffs]

DATED:

11.7 Plaintiffs Brief in Opposition to Second Defendants Motion to Dismiss

TABLE OF AUTHORITIES Cases American Bankers Mortgage v. Federal Home Loan Mortgage 75 F.3d 1401 (9th Cir. 1996) Deerman v. Federal Home Loan Mortgage Corporation 955 F.Supp. (1392) Dupris v. Federal Home Loan Mortgage Corporation 879 F.Supp. 139 (D. Maine, 1995) Federal Crop Insurance Corp. v. Merrill 332 U.S. 380 (1947) Liberty Mortgage Banking, Ltd. v. Federal Home Loan Mortgage Corp. 822 F.Supp. 956 (E.D.N.Y. 1993) Lebron v. National Railroad Passenger Corp.115 S.Ct. 961 (1995) Mendrala v. Crown Mortgage Co. 955 F.2d 1132 (7th Cir. 1992) New-Air Mfg. Co. v. Frank B. Hall & Co. of New York 822 F.2d 987 (11th Cir. 1987)

Statutes 12 U.S.C. 1452. 12 U.S.C. 1456(a)

INTRODUCTION Defendant Federal Home Loan Mortgage Corporations (Freddie Mac) has moved to dismiss Plaintiffs Amended Complaint, pursuant to Fed. R. Civ. P. 12(b)(6), based on the alleged failure to state a claim. Freddie Macs defenses are based on allegations contrary to the pled facts and are otherwise fatally flawed. Its Motion to Dismiss therefore should be denied.

STATEMENT OF THE CASE I. The South View Loan Documents

On March 17, 1974, South View, a savings and loan association, provided [First Plaintiff] and [Second Plaintiff] (the [First and Second Plaintiffs]) a loan of $52,000. Am. Compl. Ex. 1 & 2. In conjunction with this loan, South View and the [First and Second Plaintiffs] entered into a Bond and a Mortgage (collectively, the South View Loan Documents), both of which the [First and Second Plaintiffs] signed. Am. Compl. Ex. 1 & 2. In the Bond, the [First and Second Plaintiffs] agreed to repay the loan with monthly payments for principal and interest of not less than $210 per month. Am. Compl. 11; Am. Compl. Ex. 2. In addition, the [First and Second Plaintiffs] agreed to pay South View concurrently with the monthly installments of principal and interest a further sum equal to the total of one-twelfth of the annual taxes, and other annual charges and assessments . . . . Am. Compl. 12; Am. Compl. Ex. 2. Thus, the [First and Second Plaintiffs] were obligated, each month, to make a $210 payment for principal and interest (the principal payment and an additional payment for taxes and other bills (the bill payment). South View obligated itself in the Bond to apply all payments received from the [First and Second Plaintiffs] first to interest on the unpaid balance of the principal and the remainder thereof shall be credited on account of said sum. . .. (emphasis added). Am. Compl. 24; Am. Compl. Ex. 2. To state this differently, South View obligated itself to credit all the monthly payments, including the monthly bill payments, against the [First and Second Plaintiffs] unpaid loan balance. Am. Compl. 24. This procedure reduced the [First and Second Plaintiffs] unpaid balance by the amount of their monthly bill payments until that amount was paid to the taxing authority(s), at which time the amount paid was debited from their unpaid balance. This method of holding mortgagors monthly bill payments, often called the capitalization method, economically benefits the borrower by substantially decreasing the amount of interest that accrues on the unpaid balance over the life of the loan.7 Am. Compl. 24.
The capitalization method was described in Buchanan v. Brentwood Federal Savings and Loan Assn, 320 A.2d 117, 122 (Pa. 1973) (Buchanan I) as follows: Other mortgage lending institutions capitalize the monthly tax payments. Under this system, all payments, when received, are applied to decrease the principal of the loan. When payments (whether for tax, other assessments, or insurance premiums) are paid by the bank, the outstanding
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Another method commonly used today, but not in the early 1970s, when the [First and Second Plaintiffs] entered into their mortgage, is the escrow method. Under this method, monthly tax and insurance payments are placed in a separate so-called escrow account.8 Sometimes, as here, the lender pays the borrower nominal interest (1-1/2%) on the escrow account. The parties also contemplated that South View could find it necessary to advance additional money to the [First and Second Plaintiffs] to further secure their Bond. The Bond therefore provided that the Obligation of this Bond shall cover, as well, any future advances that may be made by Obligee to Obligor, at any time or times hereafter . . . . Am. Compl. Ex. 2. As to any such future advances, the [First and Second Plaintiffs] agreed to forthwith repay unto the Obligee any sum or sums of money paid by the Obligee for or on account of any taxes and premiums of insurance which the Obligor has not paid and maintained as above required . . . . Am. Compl. 33; Am. Compl. Ex. 2. Under this provision, South View and its successors were required to notify the [First and Second Plaintiffs] of any advances made or contemplated, to enable forthwith repay[ment] of the advances. Am. Compl. 33. South Views Bond explicitly provided that a mortgage to secure its Bond would be placed on the [First and Second Plaintiffs] property located at [Plaintiffs Address] (the Mortgage). Am. Compl. Ex. 2. The Mortgage provided that in consideration of the sum of One Dollar to the Mortgagor paid by the Mortgagee . . . and for securing the payment and performance of said protective Bond as aforesaid, does . . . convey unto the said Mortgagee, its successors and assigns . . . . the [Plaintiffs] estate, which was described by metes and bounds. Am. Compl. Ex. 1. As is standard in the industry, the Mortgage summarized some but not all of the terms of the Bond. The Mortgage described the [First and Second Plaintiffs] obligation to pay, in addition to principal and interest, a sum equal to the total of one-twelfth of the annual taxes, water, rent and other charges. Am. Compl. Ex. 1. The Mortgage failed to address many of the other financial commitments set forth in the Bond. For example, the Mortgage did not set forth the [First and Second Plaintiffs] obligation to pay: (1) a delinquent mortgage service charge after the sixteenth (16th) day equal to two cents ($.02) for each dollar ($1.00) so overdue . . . .; or (2) South Views attorneys up to 5% or $200, whichever was the larger amount and costs of suit, if collection activities were required. The Mortgage did not even set forth who was entitled to the insurance proceeds in the event of a covered loss to the property. The most relevant distinction between the Bond and Mortgage for the purposes of this litigation, however, is that, unlike the Bond, which requires

balance is accordingly increased. The borrower receives an advantage by this monthly reduction and, in a real sense, receives a return on his monthly payments. (footnote omitted). 8 In Buchanan I, 320 A.2d at 121, the Court stated: The escrow system envisions that the bank establish individual records, credit an account upon receipt of the monthly payment, and debit it when the bank pays taxes to the appropriate authority. The outstanding balance is carried as a liability on the banks balance sheet under the caption Advance Payment by Borrowers for Taxes and Insurance.

capitalization of the [First and Second Plaintiffs] monthly bill payments, the Mortgage does not address how the monthly bill payments would be applied. II. Freddie Macs Relationship With South View, Community, And Standard

In or about late 1983, South View consolidated with Community Savings Association (Community), which acquired the [First and Second Plaintiffs] Mortgage and other South View mortgages. Am. Compl. 17. Thereafter, the [First and Second Plaintiffs] received Annual Loan Account and Annual Escrow Statements bearing the name Community Savings Association. The [First and Second Plaintiffs] made timely Mortgage payments to Community. Am. Compl. 17. On or about April 1, 1987, Defendant Freddie Mac acquired the [First and Second Plaintiffs] Mortgage and other mortgages. Am. Compl. 18. Nevertheless, the [First and Second Plaintiffs] continued to receive Annual Loan Account and Annual Escrow Statements that bore the name Community, not Freddie Mac. Am. Compl. 19. In 1994, Defendant Standard Mortgage Corporation (Standard) began servicing the [First and Second Plaintiffs] Mortgage and other Freddie Mac and Community mortgages. Am. Compl. 20. Nevertheless, the [First and Second Plaintiffs] continued to receive Mortgage Interest Statements (1098 Forms) identifying Community as the Recipients/ Lenders. Am. Compl. 20; Am. Compl. Ex. 6. In 1996, the [First and Second Plaintiffs] received a 1098 Form from Standard stating that they still owed more than $16,000, which effectively notified them that 300 payments were not sufficient to pay off their Mortgage. Am. Compl. 21. In fact, the payments they had made, for the full amounts billed, had been insufficient to amortize [their] mortgage in accordance with the terms as [they] originally agreed to,(Am. Compl. Ex. 6), because of the wrongful conduct engaged in by South View, Community, Freddie Mac, and Standard. Am. Compl. 21. III. Plaintiffs Claims Against Freddie Mac A. South View Unilaterally Changed From Capitalizing Plaintiffs Monthly Tax And Insurance Payments, As Required By The Mortgage, To Escrowing The Tax And Insurance Payments

Until December of 1982, South View complied with its obligations under the South View loan documents and capitalized its mortgagors bill payments, effectively paying them interest at their mortgage rate (8.5% per annum for the [First and Second Plaintiffs]) on their tax money. Am. Compl. 25. In or about January of 1983, South View breached its contractual obligations by ceasing to capitalize its mortgagors bill payments. Am. Compl. 26. Instead, it established tax and insurance escrow accounts into which it placed monthly bill payments belonging to the [First and Second Plaintiffs] and other mortgagors, which it later removed to pay bills when they became due. Am Compl. 26; Am. Compl. Ex. 7.

In early 1983, the [First and Second Plaintiffs] received a Statement of Loan Account from South View that included an escrow category for the first time. Am. Compl. 27. Specifically, the Statement showed a $55.00 Escrow Payment and beginning and ending escrow balances as $0.00. Am. Compl. 27; Am. Compl. Ex. 7. Community continued the improper practice of placing bill payments in escrow, rather than capitalizing them. Am. Compl. 28. In 1984, Community informed the [First and Second Plaintiffs] and other mortgagors that it would pay them interest at the rate of 1% on money held in escrow. Am. Compl. 28. This rate was significantly lower than the effective rate of interest under capitalization. Am. Compl. 28; Am. Compl. Ex. 8. When Freddie Mac purchased the [First and Second Plaintiffs] mortgage and other South View mortgages from Community, it improperly continued to place bill payments in escrow rather than capitalizing them. Am. Compl. 29. The accounting change from capitalization to escrow caused the [First and Second Plaintiffs] and other South View mortgagors substantial economic injury. Am. Compl. 30. For example, the [First and Second Plaintiffs] effectively received interest on capitalized bill payments at a rate of 8%, but received interest of no more than 1% on bill payments held in escrow. Am. Compl. 30. Other mortgagors were likewise injured. Am. Compl. 30. B. South View, Community, And Freddie Mac Added Additional Loans To Mortgagors Unpaid Balances Without Notifying Them

South View and its successors estimated the total annual cost of the [First and Second Plaintiffs] tax bill, and billed the [First and Second Plaintiffs] based on that estimate. Am. Compl. 32. On numerous occasions, South and its successors underestimated the total annual cost of the tax bill, so that the [First and Second Plaintiffs] payments were insufficient. Am. Compl. 32. Neither South View nor its successors fulfilled their obligation under the South View loan documents to notify the [First and Second Plaintiffs] that their payments were insufficient. Am. Compl. 34. Rather, South View and its successors loaned the [First and Second Plaintiffs] money to cover the shortfalls in their tax payments, and added the loans to their mortgage debt, without giving them any notice or opportunity to cover the shortfalls. Am. Compl. 32. The [First and Second Plaintiffs] were charged interest on these loans at their mortgage rate of 8%. Am. Compl. 36. As a result, their total mortgage debt increased dramatically. Am. Compl. 36. Like the [First and Second Plaintiffs] mortgage, other South View and Community mortgages owned by Freddie Mac required that the mortgagors receive notice when their bill payments were insufficient to give them the opportunity to repay loan advances. Am. Compl. 36. Nevertheless, South View, Community, and Freddie Mac each engaged in the practice of adding additional loans to mortgagors unpaid loan balances without notifying them or giving them an opportunity to cover the shortfall. Am. Compl. 32. By failing to notify mortgagors of the loan advances, South View, Community, and Freddie Mac prevented them from timely repaying the loan advances. Am. Compl. 34. This practice caused serious economic injuries to the [First and Second Plaintiffs] and other

mortgagors, who were unable to exercise their contractual right to promptly repay the lenders for any shortfall in their bill payments. Am. Compl. 36.

C.

South View, Community, And Freddie Mac Charged The Plaintiffs Interest On Loan Advances For Time Periods That Pre-dated The Date Of Distribution

South View charged mortgagors interest on loan advances for days preceding the date on which the loan money with distributed. Am. Compl. 37. For example: (1) On November 1, 1974, South View began charging the [First and Second Plaintiffs] interest for a $3,000 advance made on November 24, 1974, resulting in a $34.76 overcharge; On August 1, 1975, South View began charging the [First and Second Plaintiffs] interest for an advance made on August 13, 1975; On March 1, 1976, South View began charging the [First and Second Plaintiffs] interest for advances made on March 5, 1976 and May 6, 1976; and On May 1, 1979, South View began charging the [First and Second Plaintiffs] interest for an advance made on May 21, 1979.

(2)

(3)

(4) Am. Compl. 38.

Community and Freddie Mac also engaged in the practice of charging interest on the first of a month on advances were made later in the month. Am. Compl. 39. D. Community Failed To Timely Pay Plaintiffs At Least One Substantial Interest Payment For Money Held In Escrow

On November 6, 1984, Community agreed to pay escrow interest to its mortgagors [at] year end, and on a yearly basis thereafter. Am. Compl. 40. After Standard began servicing Community and Freddie Mac mortgages in 1994, it failed, at least once, to pay Community mortgagors (including those whose mortgagors had been acquired by Freddie Mac) interest at year end. Standard did not credit the mortgagors accounts until March of 1996 for interest that had accrued during 1995 on money in escrow. Am. Compl. 41. Plaintiffs have been injured by this practice, since they lost the use of their money during that time and thereafter. Am. Compl. 42. E. Community, Freddie Mac, Standard, And Three Rivers Bank Have Deceptively Concealed From Plaintiffs The Fact That Freddie Mac Acquired The Mortgages

Community, Freddie Mac, Standard, and Three Rivers Bank have intentionally or recklessly concealed from mortgagors whose mortgages were acquired by Freddie Mac that Freddie Mac owns their mortgages. Am. Compl. 43. Account and tax statements, described above, and letters sent to Freddie Mac mortgagors falsely concealed from them that Freddie Mac owned their mortgages. For example, on or about October 28, 1994, a letter sent on behalf of Community to Freddie Mac mortgagors deceptively implied that Community owned the mortgages: The servicing of your mortgage loan originated at Community Savings Bank will be transferred to Standard Mortgage Corporation of Georgia (SMCG). Standard Mortgage Corporation is an affiliate of Community Savings Bank. The effective date of this transfer will be November 16, 1994. The transfer of loan servicing loan will not affect the terms or conditions of your original mortgage loan agreement. *** Thank you for banking with Community Savings Bank. Please keep in mind that since Standard Mortgage Corporation is an affiliate of Community Savings Bank, you can expect to receive the same quality service you have in the past. Am. Compl. 46. Standard also sent a letter to Freddie Mac mortgagors which implied that Community owned the mortgages: Welcome to Standard Mortgage Corporation of Georgia (SMCG). As your were recently notified by Community Savings Bank, the servicing of your mortgage loan will be transferred to SMCG. Standard Mortgage Corporation is an affiliate of Community Savings Bank. SMCG will begin servicing your account on November 16, 1994. Am. Compl. 47. ARGUMENT I. Freddie Mac Is Not Entitled To Immunity From The Class Claims A. Freddie Mac Does Not Satisfy The Lebron Test Of Governmental Immunity

In 1970, when the Federal Home Loan Mortgage Corporation (Freddie Mac) was created, the federal government controlled it. In 1989, however, Congress enacted the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA), 12 U.S.C. 1451 et seq., which restructured Freddie Mac as a privately controlled and owned corporation, no longer controlled by the federal government. American Bankers Mortgage v. Federal Home Loan Mortgage, 75 F.3d 1401, 1408 (9th Cir. 1996). Freddie Mac now has issued 60 million shares of stock, and its shares are publicly traded on the New York Stock Exchange. Id. at 1407. FIRREA authorizes Freddie Mac to . . . make and perform contracts, agreements, and

commitments . . . sue and be sued, complain and defend in any State, Federal or other Court . . . much like any other company traded on the New York Stock Exchange. 12 U.S.C. 1452. Prior to FIRREA, Freddie Mac was entitled to all immunities . . . to which it would be entitled if it were the United States or if it were an unincorporated agency of the United States. 12 U.S.C. 1456(a). FIRREA eliminated this key immunity provision. Therefore, cases holding that Freddie Mac [is] a government entity are not relevant [if] decided before FIRREA restructured Freddie Mac . . .. American Bankers Mortgage, 75 F.3d at 1408. Six years after the Congress restructured Freddie Mac through FIRREA, the Supreme Court announced a new test for determining whether a federal instrumentality is entitled to immunity. In Lebron v. National Railroad Passenger Corp., 513 U.S. 374 (1995), the Supreme Court held that Amtrak, although a federal entity, was not entitled to governmental immunity from suit. Therefore, cases decided before 1995 and cases decided after 1995 that rely on pre-FIRREA or pre-Lebron cases entitled to very little, if any, weight. American Bankers, 75 F.3d 1406 (cases decided before Lebron set forth the appropriate framework for analysis are irrelevant). Cases decided thereafter that failed to consider Lebron are likewise irrelevant. The Lebron test for entitlement to governmental immunity has two prongs: (1) the entitys objectives must be governmental; and (2) the government must control[] the pursuit of those objectives. American Bankers Mortgage, 75 F.3d at 1406. Freddie Mac satisfies the first prong of the test (Id. at 1407), but the second element of the Lebron test for determining whether a federal chartered corporation is a federal entity, the governments control over the corporation, is missing in this case. Id. at 1408 (emphasis added). In fact, the limit of governmental control is [with respect to Freddie Mac] much lower than that incurred in [Lebron] and therefore, upon an application of Lebron principles, Freddie Mac is not a government agency. . . . Id. at 1409. B. Freddie Mac Does Not Satisfy The Merrill Test Of Governmental Immunity

In Federal Crop Insurance Corp. v. Merrill (Merrill, 332 U.S. 380 (1947), Merrill commenced a breach of contract action against the Federal Crop Insurance Corporation (FCIC, a government agency, based on a contract signed by an FCIC agent. However, the FCIC had published and enacted regulations prohibiting its agents from engaging in certain conduct. Id. at 384. The FCIC agent with whom Merrill contracted violated these regulations when it contracted with Merrill. The Supreme Court held that the public has constructive knowledge of the content of government regulations, which therefore are binding on all parties that contract with the government, including Merrill. Id. at 384-385. This immunity has become known as the Merrill doctrine. Merrill doctrine immunity requires a federal statute or regulation governing the conduct at issue. Id. In addition, Merrill doctrine immunity requires a claim that is directed toward the public treasury. Nu-Air Mfg. Co. v. Frank B. Hall & Co. of New York, 822 F.2d 987, 994 (11th Cir. 1987). The Merrill doctrine is inapplicable to this case against Freddie Mac, because: (1) As Freddie Mac has been privately owned and controlled since 1989, a judgment against Freddie Mac would not affect the public treasury;

(2)

FIRREA stripped Freddie Mac of governmental immunity by deleting the governmental immunity provision in 12 U.S.C. 1456(a) and placing Freddie Mac under private ownership and control. See 12 U.S.C. 1452(a) (Common stockholders elect 13 of Freddie Macs 18 board members); Freddie Mac does not satisfy the Lebron immunity test; The [First and Second Plaintiffs] contracted with South View, not Freddie Mac. While South View had the right to assign the contract, no assignee, including Freddie Mac, could assume more rights than South View had under the contract; As the [First and Second Plaintiffs] contracted with South View, a private entity, they had no reason to consult any acts of Congress or regulations relating to Freddie Mac. They therefore cannot be imputed with the requisite constructive knowledge of the risks incurred when contracting with Freddie Mac; Freddie Macs servicer guide does not have the legal effect of a regulation; No known act of Congress or regulation placed the [First and Second Plaintiffs] on notice that, if Freddie Mac purchased their mortgage contract, it could violate the contract with immunity; No known act of Congress or regulation provides Freddie Mac immunity to purchase contracts and breach them; Freddie Macs servicer guide does not authorize it to purchase contract and violate the contract terms with immunity; and finally, Freddie Mac has not identified any regulation, or even a provision in its servicer guide, to demonstrate that its agents conduct was unauthorized.

(3) (4)

(5)

(6) (7)

(8) (9) (10)

For these ten (10) reasons, Freddie Macs Merrill doctrine defense is totally meritless. C. Freddie Macs Reliance On Mendrala And Its Progeny Is Misplaced

Plaintiffs agree that Freddie Macs relationship with its servicers is governed by its servicer guide. Freddie Macs Brf. p. 17. However, Freddie Macs relationship with the mortgagors whose mortgages it purchases on the secondary mortgage market is governed by the mortgagors bonds and mortgage contracts. Freddie Mac cannot purchase a bond and mortgage and then unilaterally alter its terms. See United States v. Winstar Corp., 166 S.Ct. 2432 (1996) (Even the United States must honor its contracts, even if the contract binds a future Congress). In its Merrill doctrine defense, Freddie Mac relies primarily on a pre-Lebron Seventh Circuit case, Mendrala v. Crown Mortgage Co., 955 F.2d 1132 (7th Cir. 1992), and its

progeny. See Deerman v. Federal Home Loan Mortgage Corporation, 955 F. Supp. 1392 (N.D. Ala. 1999); Dupris v. Federal Home Loan Mortgage Corporation, 879 F. Supp. 139 (D. Maine, 1995). These cases are contrary to other better-reasoned decisions, including a post-Lebron Ninth Circuit case, American Bankers Mortgage v. Federal Home Loan Mortgage, 75 F.3d 1401 (9th Cir. 1996), which held that Freddie Mac is a private entity. See also Liberty Mortgage Banking, Ltd. v. Federal Home Loan Mortgage Corp., 822 F. Supp. 956 (E.D. N.Y. 1993) (Freddie Mac is a private entity). In Mendrala, the Court held that Freddie Mac was not a federal agency under the Federal Tort Claims Act, 28 U.S.C. 1346(b) (Mendrala, at 1139), but was a federal agency under the Merrill Doctrine (Id. at 1141). Mendrala does not support Freddie Macs Merrill doctrine defense for at least two reasons. First, in Mendrala, Freddie Mac acquired the mortgage in April 1984, immediately after the closing. The initial mortgage explicitly provided that the mortgage was to be immediately assigned to Freddie Mac. Id. at 1133. The Mendralas stopped their monthly payments four years later and filed suit. Id. The Mendrala Court did not focus on Freddie Macs post-1989 private status, presumably because the claims at issue arose prior to 1989. The Court in Mendrala heavily relied on pre-FIRREA case law, without analyzing FIRREA, apparently presuming that FIRREA was not relevant. See, e.g., Mendrala, at 1140. Therefore, as recognized by the Ninth Circuit in American Bankers Mortgage Corporation, decisions like Mendrala are not relevant because [they] were decided before FIRREA restructured Freddie Mac . . . (emphasis added) 75 F.3d at 1408. Second, the Mendrala decision was filed in 1992, preceding the Supreme Courts decision in Lebron by about three years. The Mendrala Court therefore did not have the benefit of the Lebron test for determining governmental immunity. Under Lebron, the Mendrala Courts conclusion that the federal government lacked control over Freddie Mac (Mendrala, at 1138)), mandated a finding that Freddie Mac was not entitled to governmental immunity. The district courts in both Dupris and Deerman relied on the 1992 opinion in Mendrala. Neither decision addressed: (1) the significance of FIRREA, which changed Freddie Mac into a privately owned and controlled corporation; or (2) the Lebron test for determining governmental immunity. For these reasons, Mendrala, Dupris and Deerman are inapplicable. D. Even If Mendrala Had Been Correctly Decided In 1992, The Governmental Immunity Standard It Applied Was Inconsistent With The Standard Subsequently Announced By The Supreme Court In Lebron

Whether or not Freddie Mac is a federal instrumentality that can avail itself of Merrill immunity, its immunity defense still fails because it has failed to establish it has a regulation that prohibits capitalizing tax and insurance payments when required by the Bond it purchased. Moreover, Freddie Mac has failed to identify regulations, or even provisions in its service guide, that were violated by its agent-servicers in this case. As Freddie Mac candidly admits, it does not provide any direction to servicers as to how to administer escrow accounts

other than its general direction to comply with applicable law. Freddie Macs Brf. p. 26. This admission should be dispositive of its Merrill defense.9 Of the five (5) claims asserted here against Freddie Mac, at most, one is arguably addressed in Freddie Macs servicer guide. Most of the other improper conduct charged in this Complaint, including making advances to mortgagees without notice to the mortgagee (Am. Compl., 31-36) and charging interest on loan advances before the time the advance was actually made (Am. Compl., 37-39) are not addressed in Freddie Macs servicer guide. Freddie Macs servicer guide clearly does not authorize the servicer to escrow a mortgagees tax and insurance payments when the bond requires Freddie Mac to capitalize (credit against the unpaid principal value) the tax and insurance payments. Am. Compl., 23-30; Contrast Freddie Macs Brf. p. 18. Finally the servicer guide does not authorize the servicer to affirmatively and falsely represent that Freddie Mac mortgages are owned by another entity. Moreover, it is unknown why a mortgagee, after being notified by a respectable lender like Community that it owned the mortgage, would ask if the real owner was Freddie Mac. Am. Compl., 43-48; but see Freddie Macs Brf. p. 18, n.14. In any event, there is no conflict between the [First and Second Plaintiffs] allegations and Freddie Macs servicer guide. Freddie Macs servicer guide does, however, direct the servicer to pay interest on money held in escrow accounts pursuant to the contract documents (Freddie Macs Brf. p. 18). For the calendar year 1995, the servicer belatedly made the payment for payment in 1995 in March 1996. See Am. Compl., 40-42. This is the only challenged overcharge where the servicer acted in a manner that was inconsistent with Freddie Macs servicer guide. Assuming under Merrill and Lebron, Freddie Mac is entitled as a federal instrumentality to assert this governmental defense (and, as argued, it is not), and further assuming Freddie Macs servicer guide has the same legal status as a duly enacted federal regulation (and it does not) plaintiffs would like an opportunity to prove that the servicers were acting at the direction of Freddie Mac when they delayed these payments. But, as indicated, this issue does not have to be reached. With respect to the regulations versus servicer guide issue, in Mendrala v. Crown Mortgage Co., 955 F.2d 1132 (9th Cir. 1992), plaintiff mortgagors agreed at the outset to contract with Freddie Mac. Id. at 1133. In Mendrala, both the parties Bond and Freddie Macs servicer guide prohibited the servicer from accepting prepayments. Freddie Macs servicer, in accepting the borrowers prepayments, thus violated both the terms of the Bond and Freddie Macs servicer guide. The Mendrala Court, based on these circumstances, without analysis, assumed that Freddie Macs servicer guide was the equivalent of the regulation in Merrill and held that Freddie Mac could avail itself of the Merrill immunity defense in its pre-1992 Lebron opinion. The decision in Dupris v. Federal Home Loan Mortgage Corporation, 879 F.Supp. 139 (D. Me. 1995) is equally inapposite. In Dupris, the mortgagor (Fidelity) improperly withheld loan funds in the amount of $30,997.56 from the mortgagee before the Bond was
9

Only the Department of Housing and Development (HUD, not Freddie Mac, can issue regulations governing residential housing. 24 CFR 3500.4(a). Because of the need to maintain the integrity of the mortgage market, only properly enacted regulations, not other HUD issued materials, qualify for status as regulations under RESPA. 24 CFR 3500.4(a)(ii).

assigned to Freddie Mac. Id. at 141. After the assignment, Freddie Mac, without knowledge of Fidelitys earlier and improper conduct retained Fidelity as its servicer. Id. Fidelity, as Freddie Macs servicer, thereafter failed to timely pay the Dupris homeowner insurance premiums and real estate taxes from the tax and insurance escrow (sometimes, but not always, the escrow was insufficient) and consistently failed to pay Dupris any interest on this escrow. Id. The Court explicitly found that all Fidelitys conduct violated the Dupris mortgage loan contract. Id. at 142. Moreover, such illegal conduct was also unauthorized under Freddie Macs servicer guide. Unlike Dupris, Freddie Mac has not identified a single servicer guide provision that its servicers violated even assuming Freddie Mac is entitled to assert immunity as a federally controlled entity and that its servicer guides have the status of a duly enacted regulation. Finally, in Deerman v. Federal Home Loan Mortgage Corporation, 955 F. Supp. 1393 (N.D. Ala. 1997), the plaintiff mortgagee made various claims, all of which centered around the payment of private mortgage insurance. Id. at 1396. The Deerman plaintiffs did not assert, as here, that either Freddie Mac or its servicer violated the terms of the Bond. Instead, they only advanced statutory unfair practice claims. The Deerman Court held that even if the Freddie Mac servicers had violated state statutory laws, since Freddie Macs servicer guide had explicitly directed all servicers to follow state laws, Freddie Mac could assert a Merrill immunity defense. Id. at 1400-01. The Deerman Court, like the Mendrala and Dupris courts, without analysis simply assumed that Freddie Macs servicer guide had the same legal status as a duly published and enacted regulation in the federal register. Nor did the Court analyze whether Freddie Mac could claim governmental immunity under the stringent control tests announced by the Supreme Court in Lebron, Finally, it remains unknown precisely what servicer guidelines its serviceragents violated in serving the mortgages as they did or how Freddie Mac as a federal instrumentality can break its contracts that are purchased on the open market from private parties. United States v. Winstar, 116 S.Ct. 2432 (1996) (Not even the federal government has immunity to breach its contracts).10 II. Under Buchanan I, Plaintiffs Have Stated A Cause Of Action For Breach Of Fiduciary Duty Against Freddie Mac

Another issue presented here is whether the Obligee(s) under the Bond are creditors or fiduciaries, with respect to the [First and Second Plaintiffs] monthly bill payments. That question was answered by the Pennsylvania Superior Court in Buchanan I, 320 A.2d 117 (Pa. 1974). In Buchanan v. Brentwood Federal Savings & Loan Association, 320 A.2d 117 (Pa. 1974) (Buchanan I), a variety of mortgages and bonds were before the Pennsylvania Supreme
10

The phrase successor-in-interest in different contexts may have different meanings. Cf. Pa. R.Civ.P. 2351. Successor is anyone who by operation of law . . . has succeeded to an interest . . .. Here, Freddie Mac succeeded to the interests of the prior obligees under the Bond. Freddie Macs distinction between successor-ininterest and assignee is [not] determinative. . .. In Re Sunrise Securities Litigation, 818 F. Supp. 830, 837 (E.D. Pa. 1993).

Court, some of which included explicit trust language, but most of which did not. The Supreme Court held that the inclusion of express trust language was not dispositive, stating, it is well settled that no particular form of words or conduct is necessary to create a trust . . . . Buchanan I, 320 A.2d at 122. The language of one bond before the Pennsylvania Supreme Court was identical to the language of [First and Second Plaintiffs] Bond: It stated: 9. One personal bond agreement provides that the monthly payments made by Obligor shall be applied first to interest and premium on the unpaid balance of the principal sum and the remainder thereof shall be credited on account of said sum, and (except when taxes are paid to the Obligee in monthly installments) shall also well and truly pay all taxes . . . which are now and also all those which may hereafter be assessed . . .. Buchanan, at 123 n.9. Freddie Mac alleges that this language is garbled, because there is a subject missing after the second comma, for the syntax makes no sense . . .. Freddie Macs Brf. p. 9. The Supreme Court of Pennsylvania in Buchanan I apparently disagreed, as it interpreted the language as evidence that the bond created trust relationship with respect to the monthly bill payments:11 Appellants, having sufficiently alleged the creation of a trust must be afforded the opportunity to prove that money was paid to a mortgage lending institution for the specific purpose of satisfying tax and other obligations. (footnote omitted, but cited and quoted above) Buchanan I, 320 A.2d at 123. Moreover, in its March 10, 1999, Opinion, this Court recognized that: The Buchanan plaintiffs, relying on mortgages and bonds similar to those in this case, Buchanan, 320 A.2d at 123 n.9, alleged that a trust relationship existed which prohibited the lender from investing plaintiffs escrow payments for the lenders account prior to disbursement. Respectfully, both Buchanan I and this Courts Opinion are binding on Freddie Mac.

11

Unlike the plaintiffs in Wiernik, the [First and Second Plaintiffs] do not assert that Freddie Mac improperly withheld their escrow payments after they repaid their loan, or that Freddie Mac was required to pay interest whether or not the escrow funds were held in an interest bearing account. Wiernik, 736 A.2d at 622. In addition, the shall be credited on account of said sum language here is more restrictive than language like to be held by Mortgagee in trust to pay paid rents, premiums and taxes . . ., because under the latter type of language enables the lender to avoid liability by holding the money in a non-interest bearing escrow account. See Wiernik v. P.H.H. U.S. Mortgage Corp., 736 A.2d 616, 622 (Pa. Super. 1999).

III.

Plaintiffs Have Stated A Cause Of Action Against Freddie Mac Under The Pennsylvania Unfair And Deceptive Practice Act

In Count IV of the Amended Complaint, Plaintiffs stated claims against Freddie Mac under the Pennsylvania Unfair Trade and Consumer Protection Law, 73 P.S. 201-1, et seq. (UTPCPL). A. The Catch-All Provision of the UTPCPL Covers Deceptive Conduct

Plaintiffs assert that Freddie Mac violated the catchall provision of the UTPCPL, 73 Pa. C.S.A.. 201-2(4)(xxi), as amended December 4, 1996, which provides that it is unfair or deceptive to [e]ngage[ ] in any other fraudulent or deceptive conduct which creates a likelihood of confusion or misunderstanding. (emphasis added) Freddie Mac relies on case law that interpreted a narrower pre-December 4, 1996, of this provision, which may not have included only fraudulent conduct within its scope. See Freddie Macs Brief, p. 25. Prior to the December 4, 1996 amendment, the catch-all provision read: [e]ngag[] in other fraudulent conduct which creates a likelihood of confusion or of misunderstanding. See 201-2(4)(xvii). Freddie Macs analysis of cases that discussed the UTPCPL as it existed before the December 4, 1996 amendment therefore has little if any relevance to whether the [First and Second Plaintiffs] stated a claim under the catchall provision. Prior to December 4, 1996, two distinct lines of cases developed in Pennsylvania one which narrowly interpreted the UTPCPL fraudulent conduct to include only fraud, the other of which broadly interpreted this phrase to include deception. Representative of the narrower view was Delucido v. Terminix Intl, Inc., 676 A.2d 1237 (1996) (common law fraud must be pled). Representative of the broader view was Culbreth v. Lawrence J. Miller, Inc., 477 A.2d 471 (1984) (catch-all fraud provision includes deceptive conduct). Cf. Commonwealth v. Monumental Properties, Inc., 329 A.2d 812 (Pa. 1974) (adopting liberal view). On December 4, 1996, in response to this conflicting authority, the General Assembly amended the catch-all provision to explicitly include deceptive conduct, thereby adopting the broader view that the catch-all provision covers deception. McParland v. Keystone Health Plan Central, Civ. Action No. 98-SV-00770-01 (Ct. of Common Pleas of York County, Nov. 18, 1998) (attached), recently addressed this pre-December 4, 1996 case law split, stating: In response to this split of authority, the Legislature apparently has amended the subsection to include deceptive conduct. The Defendant argues that this amendment means nothing. The Commonwealth Court has defined deceptive as the meaning and impression arising from the sum total not only of what is said but also of all that is reasonably implied that is significant. Comm. v. Hush-Tone Industries, Inc., 4 Pa. Commw. Ct. 1 (1971). Showing that conduct was deceptive does not approach the stringent pleading requirement of common law fraud. See also Carolyn L. Carter, Pennsylvania Consumer

Law, 2.5.4.21(B) (1997). We, therefore, hold that common law fraud does not need to be pled under the subsection as amended. (McParland, pp. 14-15). Freddie Macs reliance on cases discussing an earlier statutory version is misplaced. B. Freddie Macs Conduct Was Deceptive, Within The Meaning Of 201-2(4)(xxi)

In its March 10, 1999 Opinion, this Court described some of the wrongful conduct that Plaintiffs alleged in their Amended Complaint: Plaintiffs under-billing claim alleges two types of wrongful conduct; the under-billing and concomitant increase in principal and the subsequent charging of interest on the inflated principal balance during the term of the loan. The capitalization claim alleges wrongful conduct each time a Monthly Payment is deposited in the escrow account and further alleges that defendant has continued this practice through the present. In this case, Freddie Macs servicers engaged in a number of deceptive practices to overcharge Plaintiffs as alleged in the Amended Complaint. Before and after the date Freddie Mac acquired the [Plaintiffs] mortgage in 1987, five specific acts of overcharging are pled in the Amended Complaint: (1) charging the mortgagor for a loan advance used to pay a tax, insurance, water or sewage bill (the bills), unless the mortgagors monthly payments as in fact billed, were in arrears; (2) charging the mortgagor interest on a loan advance for time that preceded the disbursement of the loan advance; (3) failing to pay the mortgagor, until March 1996 for escrow interest that had accrued during calendar year 1995; (4) sending the mortgagor an annual statement on or after April of 1987 that listed Community as the mortgage owner; and/or (5) placing payments made by a mortgagor whose mortgage originated with South View in an escrow account. Each of these five activities were deceptive as that term is used under the UTPCPL. Therefore, the [First and Second Plaintiffs] have pled claims under the catch-all provision of the UTPCPL. C. Freddie Mac Also Violated 201-2(4)(i), (ii), (iii) And (v)

Under 201-2(4)(i), (ii), (iii) and (v), it is illegal to pass off . . . services of those of another, or cause likelihood of confusion or of misunderstanding as to the source of the services, or cause likelihood of confusion or of misunderstanding as to affiliation, connection with [ ] another and/or represent that a service has sponsorship they do not have. Claims under 201-2(4)(i), (ii), (iii) and (v) of the UTPCPL do not require a showing of fraud. See Weinberg, 740 A.2d at 1166-1167. In Weinberg v. Sun Company, the court recognized that, for UTPCPL sections that are not fraud-based, causation does not require a showing of reliance. Weinberg, 740 A.2d at 1167. The explosion of the secondary mortgage market has caused vast confusion among mortgagors, who often do not even know who owns their mortgage and so are unable to contact the owner of their mortgage to address various issues or problems as they arise. This serious problem was recently addressed by Congress in the Real Estate Settlement Procedure Act, 12 U.S.C. 2601 et seq. (RESPA). While the passage of RESPA, which regulates the

transfer of mortgages (12 U.S.C. 2605 (1990)), came too late to help the [First and Second Plaintiffs] and the other mortgagors in this case, they fortunately are not without a remedy under the UTPCPL.12 There can be no serious question that Communitys representations that it owned the [Plaintiffs] mortgage and that Standard serviced the mortgage for Community were deceptive.13 All Plaintiffs whose mortgages were acquired by Freddie Mac suffered loss when their mortgages were sold to Freddie Mac, because Freddie Mac, by operation of law, does not have to provide mortgagors the same protections as private mortgagees. In this connection, Plaintiffs relinquished: A. Many of their state statutory protections, including mortgage satisfaction protections (21 P.S. 681) and mortgage foreclosure protections (42 Pa. C.S.A. 1722(b)), were pre-empted as a result of the transfer of their Mortgages to Freddie Mac, a federal instrumentality; Their right to sue their mortgagee in state court. See 12 U.S.C. 1452(f);14 and Their right to have the identity of the owner of their mortgages publicly recorded. See Freddie Macs Brf p. 28.15

B. C.

Further, if, as Freddie Mac argues, it may assert the Merrill doctrine as a defense against mortgagors claims, then Freddie Macs acquisition of a mortgage has an even more detrimental impact on the mortgagor.16
Other amendments of RESPA, however, create an affirmative duty that all servicers must explicitly and annually notify mortgagors of shortfalls in their escrow accounts and the methods that can be used to recover such shortfalls. 12 U.S.C.A. 2609 (c) and 12 C.F.R. p. 3500.17(f). 13 Freddie Mac argues that Plaintiffs fraud claims failed to provide it the proper notice under Fed.R.Civ.P. 9(b) to respond and otherwise prepare a defense. Freddie Macs Brf. p. 27 n.20. Freddie Macs brief, which sets forth and analyzes each of Plaintiffs claims, belies this contention. The [First and Second Plaintiffs] Amended Complaint properly placed Freddie Mac on notice of all claims made. See Fed.R.Civ.P. Rules 8 and 9. 14 Freddie Mac professes it is unaware that the ability to select federal or state court constitutes a legally cognizable interest. Freddie Macs Brf. p. 29. Freddie Mac presumably is aware, however, of Caterpillar Inc. v. Williams, 482 U.S. 386, 391 n.7 (1987), which provides plaintiffs the right to be the master of their complaints and to select a forum. 15 In 1998, the [First and Second Plaintiffs] exercised their prepayment option because of the many difficulties they had experienced. If the [First and Second Plaintiffs] had known the true owner of their mortgage was Freddie Mac, they may have been able to resolve their multiple mortgage problems through Freddie Mac. Instead, they attempted to resolve their mortgage problems with Community who asserted itself as the owner, but was not. Accurate and full information as to mortgage ownership is material to mortgagors at all times. 16 Many UTPCPL cases focus on purchasing decisions, (Freddie Macs Brf. pp. 23-24), the Third Circuit has long recognized that UTPCPL deceptive conduct can occur after the purchase decision has been made. In In re Smith, 866 F.2d 576, 583 (3d Cir. 1989) the court held: The language of the statute places only two express limitations: (1) the purchase of goods or services must lead to a loss as a result of an unfair or deceptive act or practice, and (2) the class of litigants includes only those persons who purchase or lease goods or services primarily for consumer use rather than for commercial use. Although it is clear that the loss must follow the
12

Moreover, issuing a mortgage and servicing a mortgage both constitute UTPCPL service. See In Re Smith, 866 F.2d 576, 584 (3d Cir. 1989). In connection with this service, Freddie Mac and its servicers, in their monthly and annual statements, represented the Bond as requiring escrow payments. To the contrary, the Bond required capitalization. Therefore, as alleged in Count III of the Complaint, Freddie Mac violated UTPCPL 201-2(4)(v). Freddie Mac also argues that, if its servicers overcharged the Plaintiffs, that there is no cognizable injury. Freddie Macs Brf. p. 21. As indicated above, Plaintiffs have sustained substantial damages from the overcharges. Freddie Mac also erroneously argues that UTPCPL 201-2(4)(v) requires a false advertisement. (Freddie Macs Brf. p. 22) The term advertisement does not even appear in this section, which broadly applies to all misrepresentation, whether in advertisement or not. Moreover, the question presented is not whether mortgagees were notified of the escrowing practice (Freddie Macs Brf. p. 23), but whether the documents sent by South View and its servicers falsely asserted the Bond and Mortgage allowed South View and its servicers to escrow. A recent and succinct analysis of this alternative UTPCPL provision is found in McFarland v. Keystone Health Plan Contract Inc. (McFarland, No. 98-___-00770-01 (Ct. of Comm. Pleas, York County, Nov. 18, 1998), which is attached hereto. The Court in McFarland correctly identified the prerequisites to a claim under 201-2(4)(v), as follows: Subsection (v) prohibits representing that goods or services have sponsorship, approval, characteristics, ingredients, uses, benefits, or qualities that they do not have or that a person has a sponsorship approval, status, affiliation, or connection that he does not have. 73 P.S. 2012(4)(v). Under this subsection a Plaintiff needs to show that (1) a Defendants advertisement is a false representation of fact, that (2) it actually deceives or has a tendency to deceive a substantial segment of its audience and that (3) the false advertising is likely to make a difference in the purchase decision. Comm. v. Hush-Tone Industries, Inc., 4 Pa. Commw. Ct. 1, 21 (1971). Op. p. 10. In McParland, as here, money was collected from the plaintiffs as a result of false representations that a service had characteristics that it did not have. A fortiori, Plaintiffs have stated a claim against Freddie Mac under 201-2(4)(v).17

purchase of goods or services, the language does not compel the conclusion that the unfair or deceptive conduct must have induced the consumer to make such a purchase. (emphasis added). 17 In recognition that not all damages are mathematically quantifiable, the UTPCPL provides for statutory damages of $100. It is respectfully submitted that Freddie Macs blatant violation of 201-1(i), (ii) and (iii) would entitle each class member to a recovery of at least $100.

IV.

Plaintiffs Have Stated A Cause Of Action For Breach Of Contract Against Freddie Mac A. The South View Loan Documents Require Capitalization Of Monthly Bill Payments

The South View loan documents unambiguously require capitalization of monthly loan payments. The Bond expressly states that all monthly payments must be capitalized: [T]he monthly payments made by Obligor shall be applied first to interest on the unpaid balance of the principal sum and the remainder thereof shall be credited on account of said sum, and (except when taxes are paid to the Obligee in monthly installments) shall also well and truly pay all taxes . . . . Am. Compl. Ex. 2 (Emphasis added). Freddie Mac argues that this language is ambiguous or garbled, and that the ambiguity should be construed in its favor. Specifically, Freddie Mac asserts that the entire sentence is tainted, because at least one word allegedly has been omitted from the clause and (except when taxes are paid to the Obligee in monthly installments) shall also well and truly pay taxes. This is absurd. In fact, the Bond is perfectly clear. In the Amended Complaint, Plaintiffs cited only the first portion of the sentence, which precedes the allegedly garbled clause, because only that portion is relevant. The first part of the sentence addresses the Obligees agreement to capitalize all monthly payments; the second part of the sentence deals with the Obligors agreement to pay taxes. This sentence is not ambiguous. It requires the Obligee to capitalize monthly payments and also requires the Obligor to pay taxes. As the Bond does not distinguish between monthly payments for principal and interest and monthly bill payments, it expressly requires the Obligee to capitalize all monthly payments, including monthly bill payments. Moreover, even assuming that the Bond is ambiguous, any ambiguity must be construed against the drafter and in favor of the Plaintiffs. See RESTATEMENT (SECOND) OF CONTRACTS 206 (1981)(In choosing among the reasonable meanings of a promise or agreement or a term thereof, that meaning is generally preferred which operates against the party who supplies the words or from whom a writing otherwise proceeds.). The Mortgage, in contrast, is silent on the issue of how monthly bill payments will be applied. It addresses only payments for principal and interest, stating, the monthly payments made by the Mortgagor on account of principal and interest shall be applied first to interest on the unpaid balance of the principal sum and the remainder thereof shall be credited on account of said sum. Am. Compl. Ex. 1. Freddie Mac argues that the Mortgages silence regarding the application of monthly bill payments demonstrates that the Obligee is not bound to capitalize monthly bill payments.

However, a Bond and mortgage are separate obligations that must be construed in light of their different functions. Courtney v. Ryan Homes, Inc., 497 A.2d 938, 942 (1985). The Bond is evidence of the debt; and the mortgage provides collateral security for the debt. Id. Here, the contents of the Bond and the Mortgage belie their different functions. The Bond provides a full account of the parties rights and obligations related to the [First and Second Plaintiffs] debt, while the Mortgage merely summarizes some of the debt-related rights and obligations. In contrast, the Mortgage addresses the parties rights and obligations related to the security for that debt, the mortgaged premises, while the Bond addresses the mortgage-related rights and obligation tangentially. Freddie Mac ignores the distinct functions of the Bond and Mortgage in its discussion of capitalization of monthly bill payments. As a result, Freddie Mac reaches the faulty conclusion that the Mortgages silence regarding the application of monthly bill payments overrides the express language of the Bond, which requires capitalization of all monthly payments, including monthly bill payments. While, as Freddie Mac observes, the Bond and the Mortgage must be read together, they nevertheless must be construed in light of their respective functions. Therefore, since application of the monthly payments is a debt-related issue, one must look to the Bond for guidance, not to the Mortgage. Even if this Court determines that the Bond and the Mortgage should be read together without respect to their separate functions, the express language of the Bond requiring capitalization of all monthly payments, including monthly bill payments, still controls. Under Pennsylvania law, where, as here, documents must be construed together, the express language of one document overrides the silence of the other. In Dollar Bank v. Swartz, 540 Pa. 369, 657 A.2d 1242 (1995), the parties contemporaneously signed mortgage, Bond, and guaranty and suretyship agreement. The Plaintiff bank sought foreclosure on the Defendant borrowers residence, and the mortgage contained no restrictions on the Plaintiff banks right of foreclosure. However, the guaranty and suretyship agreement did restrict the Plaintiff banks right of foreclosure -- it required that the Plaintiff bank make a reasonable effort to recover its security from the sale of personalty, prior to foreclosing on the Defendant borrowers residence. The Supreme Court affirmed the trial courts holding that the mortgage was subject to the guaranty and suretyship agreements restriction on foreclosure, even though the mortgage itself contained no such restriction. Thus, the Supreme Court upheld summary judgment in favor of the Defendant borrowers. Similarly, here the Bonds express language requiring capitalization of all monthly payments, including monthly bill payments, overrides the Mortgages silence concerning application of monthly bill payments. Thus, when the Mortgage and Bond are read as a whole, the South View loan documents expressly require capitalization of monthly bill payments.

B.

The Parties Course Of Conduct Provides Further Evidence That The South View Loan Documents Require Capitalization Of Monthly Bill Payments 1. South Views course of conduct gave rise to an implied contract to capitalize monthly bill payments, which South View, Community, and Freddie Mac breached by placing monthly bill payments into escrow accounts

The parties course of dealing does not support Freddie Macs defense. In fact, the parties course of dealing provides further evidence that the South View loan documents require capitalization. First, capitalization is required when the South View loan documents are interpreted in light of the meaning which the parties have accorded to its by their conduct in its performance. Freddie Mac Brief at p. 11, quoting Capitol Bus Co. v. Blue Bird Coach Lines, Inc., 478 F.2d 556, 560 (3d Cir. 1973). The best evidence of the meaning South View accorded to the South View loan documents is South Views conduct at the time it entered into the South View loan documents with Plaintiffs. Here, South View capitalized monthly bill payments at the time the South View loan documents were consummated, and for many years thereafter. When the Bond, which states that the monthly payments made by Obligor shall be applied first to interest on the unpaid balance of the principal sum and the remainder thereof shall be credited on account of said sum (Am. Compl. Ex. 2), is read in light of South Views long-standing practice of capitalizing monthly bill payments, it is evident that the Bond requires capitalization of monthly bill payments. Second, even assuming arguendo that the South View loan documents do not require capitalization of monthly bill payments, South Views long-standing practice of capitalizing monthly bill payments gave rise to an implied contract requiring capitalization of such payments. An implied contract is one where the parties assent to the formation of a contract, but instead of being expressed in words, the intention to incur an obligation is inferred from the conduct of the parties in light of the surrounding circumstances, including the course of dealing. Crawfords Auto Center, Inc.v. Commonwealth of Pennsylvania, 655 A.2d 1064, 1066 (Pa. Commonw. Ct. 1995); see also, Cameron v. Eynon, 3 A.2d 423, 424 (1939) ([A] contract implied in fact . . . is an actual contract . . . which arises where the parties agree upon the obligations to be incurred, but their intention, instead of being expressed in words, is inferred from their acts in the light of the surrounding circumstances.). Here, South Views intention to incur the obligation to capitalize monthly bill payments can be inferred from its capitalization of monthly bill payments at the time it entered into the loan agreements at issue and for many years thereafter. This long-standing practice of capitalizing monthly bill payments created an implied contract that requires capitalization of monthly bill payments. Thus, even assuming arguendo that the South View loan documents do not require capitalization of monthly bill payments, capitalization is required by South Views course of dealing with Plaintiffs. When South View, Community, and Freddie Mac placed monthly bill payments into escrow accounts, rather than capitalizing them, they breached the implied contract.

2.

Plaintiffs have not waived their right to capitalization of monthly bill payments

According to Freddie Mac, the [First and Second Plaintiffs] have acquiesced in the servicers/Freddie Macs interpretation of the escrow provisions so that they may not now assert a contrary interpretation. Def.s Brief, at p. 12. However, the authority that Freddie Mac cites as support is clearly inapplicable for two reasons. First, the South View loan documents are governed by the statute of frauds, which acts as a bar to unwritten modifications. Second, Plaintiffs cannot be imputed to have knowledge of the nature of the performance, a necessary prerequisite to waiver. Def.s Brief, at p. 12, citing RESTATEMENT (SECOND) OF CONTRACTS 202(4) (1981). An agreement to lend money to be secured by a mortgage on real property is subject to the Statute of Frauds, 33Pa. C.S.A. 1 et seq. See also Temp-Way Corp. v. Continental Bank, 139 B.R. 299 (E.D. Pa. 1992). The celebrated Statute of Frauds is one of the most formidable and salutary safeguards of property in the entire lexicon of law. Through its application, title to land acquires a firmness and permanence as solid and enduring as the particular piece of earth to which it gives metes, bounds and a name. Klingensmith v. Klingensmith, 100 A.2d 76, 77 (Pa. 1953). Here, the Mortgage expressly incorporates the Bond by reference. Am. Compl. Ex. 1. Thus, the Bond is subject to the Statute of Frauds. Freddie Mac has not satisfied the very heavy burden of proving a contract modification under the State of Frauds. See generally Eastgate Enter., Inc. v. Bank and Trust Co. of Old York Rd., 345 A.2d 279. Moreover, even if the Statute of Frauds is not applicable, Plaintiffs could not have waived their right to capitalization. In each of the cases that Freddie Mac cites as support the party alleged to have waived rights was sophisticated and knowledgeable about the rights allegedly waived.18 In contrast, Plaintiffs in this case are mortgagors and are alleged to have waived the right to have their monthly bill payments capitalized rather than placed into escrow accounts. Mortgagors cannot, by their nature, be presumed to understand the right to capitalization of monthly bill payments and or the consequences of waiving that right. That is, Plaintiffs cannot
In Agathos v. Starlite Motel, 977 F.2d 1500 (3d Cir. 1992), the court held that, given the plaintiff Union's ten year practice of collecting union dues from only two of the defendant's employees, a reasonable fact finder could conclude that the Union knew that Starlite employed other maids and housekeepers throughout the many years in question and agreed by course of conduct to waive or modify the requirement that Starlite employ only Union members. Id. at 1509. In Metal Marketplace v. United Parcel Service, 733 F. Supp. 976, 980 (E.D. Pa. 1990), the court held that the plaintiff Bank had ratified any breach of the 'cash only' provision with its acceptance of other negotiable instruments on at least 70 recent prior occasions. In Burger King Corp. v. Family Dining, Inc., 426 F. Supp. 485 (E.D. Pa. 1977), the court held that the plaintiff, Burger King, waived its right, under its franchise agreement, to require the defendant to open ten Burger King restaurants within ten years, by failing to demand strict compliance with that provision for more than ten years. Each of the plaintiffs in these cases was sophisticated, and the rights that each plaintiff was alleged to have waived were within that plaintiff's area of knowledge and expertise. The union may be presumed to understand the right to exclusive employment of union members; the bank may be presumed to understand the right to accept only currency; and Burger King may be presumed to understand the right to development of ten Burger King restaurants in ten years. As a result, each of these plaintiffs knows the consequences of waiving the right at issue.
18

be presumed to know that the transition from capitalizing monthly bill payments to placing them in escrow accounts was economically disadvantageous to them, they could not have waived their right to capitalization of their monthly bill payments. RESTATEMENT (SECOND) OF CONTRACTS 202(4) (1981). CONCLUSION For the reasons stated above, Representative Plaintiffs, [First Plaintiff] and [Second Plaintiff], respectfully request this Court to deny Defendant Federal Home Loan Mortgage Corporations Motion to Dismiss. Respectfully submitted, By_______________________________ [Attorney for Plaintiffs]

DATED: [Date]

11.8 Joint Motion for Preliminary Approval of Settlement and Approval of the Manner and Form of Notice
JOINT MOTION FOR PRELIMINARY APPROVAL OF SETTLEMENT AND APPROVAL OF THE MANNER AND FORM OF NOTICE Counsel for all Parties in this action jointly move this Court, pursuant to Federal Rule of Civil Procedure 23(e), for preliminary approval of the Parties Settlement Agreement and Approval of the Manner and Form of Notice to the Settlement Class Members. In support of this motion, the Parties state: 1. The Plaintiffs, [First Plaintiff] and [Second Plaintiff], filed this Class Action lawsuit on March 23. 1998. The Amended Complaint asserts claims on behalf of a Class of persons who entered into mortgage agreements that originated with or were acquired by Community (Community Mortgagors), and who were subject to one or more of the following practices engaged in by the Defendants, Community, and/or South View: (1) charging the mortgagor for a loan advance used to pay a tax, insurance, water, or sewage bill (the bills), unless the mortgagors monthly payments, as in fact billed, were in arrears; (2) charging the mortgagor interest on a loan advance for time that preceded the disbursement of the loan advance; (3) failing to pay the mortgagor, until March 1996, for escrow interest that had accrued during calendar year 1995; (4) sending the mortgagor an annual statement on or after April of 1987 that listed Community as the mortgage owner; and/or (5) placing payments made by a mortgagor whose mortgage originated with South View into an escrow account. Plaintiffs have sought damages against Standard Mortgage Corporation of Georgia (Standard), Three Rivers Bank & Trust Company (Three Rivers Bank), and Federal Home Loan Mortgage Corporation (Freddie Mac)) on behalf of the Class. Freddie Mac has been dismissed from the litigation.

2. At all relevant times, Defendants have asserted and continue to assert that their conduct with respect to the matters complained of in this Action was entirely proper and lawful. Defendants further have asserted and continue to assert that the Plaintiffs claims are all without merit and deny all allegations of wrongdoing. 3. The Parties have engaged in substantial discovery related to the issues. The Parties, however, recognize that further litigation of this Action would be protracted and expensive and the outcome uncertain. Accordingly, the Parties have agreed to settle this Action based on the terms set forth in the Stipulation of Settlement, attached hereto as Exhibit 1, so as to end all Class Claims which are, or could have been, asserted in this Action. Class Counsel has engaged in extensive arms length negotiations in order to evaluate and reach a settlement they have concluded is fair and equitable to the Class. 4. If the Settlement receives final approval from this Court, Defendants will create a Settlement Fund totaling Two Hundred Thirty-Five Thousand Dollars ($235,000). Defendants will not be required to escrow or otherwise set aside specific monies to create the Settlement Fund. 5. If the Settlement is approved, this money will be distributed to Class Members based upon their pro rata share of the amount of the Settlement Fund remaining after any court approved attorneys fees, costs of litigation, costs of notice, and incentive awards have been deducted. Plaintiffs counsel expects to apply to the Court for an award of attorneys fees and reimbursement of costs and expenses incurred in the pursuit and Settlement of this litigation. In addition, Plaintiffs counsel expects to apply to the Court for an incentive award for the Representative Plaintiffs, [First Plaintiff] and [Second Plaintiff]. Plaintiffs counsel will seek payment from the Settlement Fund of a fee of thirty (30%) percent, costs and expenses in the amount of no more than Seven Thousand Dollars ($7,000), and an incentive award for the [First and Second Plaintiffs] of Two Thousand Five Hundred Dollars ($2,500). Any fees, costs and expenses, and incentive payments that the Court awards shall be paid out of the Settlement Fund prior to the distribution of the Settlement Fund to settling Class Members. 6. Consistent with the Settlement Agreement and the facts adduced through discovery, the Parties move that a settlement class be certified and be defined as all individuals identified on the November 20, 2000, letters of Jane Doe. Defendants represent that Ms. Does letters contain the names of each individual that satisfies the class definition stated above in Paragraph 1. If, through inadvertence or otherwise, the Class size has been underestimated, the Stipulation of Settlement will remain in effect, and up to ten (10) Settlement Class Members may be added without altering the amount of the Settlement Fund. If, through inadvertence or otherwise, the Class size has been underestimated by more than ten (10) individuals, the Stipulation of Settlement is voidable upon written notice of Plaintiffs notification that the Class size had been undersized by more than ten (10) persons. 7. The attorneys for the Parties believe that the settlement of this action on the terms and conditions set forth in the Settlement Agreement is fair, reasonable and adequate, especially in light of the risks of further litigation.

8. The Parties recommend that notice of the proposed Settlement, in the form attached hereto as Exhibit 2, be sent by First Class mail to the last known address of all Settlement Class Members. WHEREFORE, the Parties jointly move this Court to preliminarily approve the Settlement Agreement, approve the form and manner of notice, and schedule a final hearing addressing the fairness of the proposed Settlement, pursuant to Federal Rule of Civil Procedure 23(e). A proposed Order preliminarily approving this settlement and the proposed class notice is attached hereto as Exhibit 3. Respectfully submitted,

11.9 Settlement Agreement and Release

UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA [FIRST PLAINTIFF] and [SECOND PLAINTIFF], his wife, individually and on behalf of all others similarly situated, Plaintiffs, v. STANDARD MORTGAGE CORPORATION OF GEORGIA, and THREE RIVERS BANK & TRUST COMPANY, and FEDERAL HOME LOAN MORTGAGE CORPORATION Defendants. ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) Civil Action No.: 98-679 [Judge]

SETTLEMENT AGREEMENT AND RELEASE MADE this _____ day of February 2001, by and between representative plaintiffs [FIRST PLAINTIFF] and [SECOND PLAINTIFF] (Representative Plaintiffs or the [First and Second Plaintiffs]) in their capacity as representatives by and through their counsel on behalf of all Plaintiffs as defined in Paragraph 1.05, infra, and Defendants, Standard Mortgage Corporation of Georgia (Standard) and Three Rivers Bank & Trust Company (Three Rivers), by and through their counsel.

I. DEFINITIONS 1.01 Agreement shall mean this Settlement Agreement.

1.02 Defendants shall mean Standard Mortgage Corporation of Georgia and Three Rivers Bank & Trust Company, and their respective predecessors, successors or assigns; and their past or present personal representatives, parents, subsidiaries, affiliates, officers, directors, employees, trustees, agents or partners, including all mortgage servicers. 1.03 Final Approval of this Agreement shall occur at such time as: (1) final judgment is entered herein by the United States District Court for the Western District of Pennsylvania approving this Agreement as fair, reasonable and adequate; and (2) Plaintiffs claims are barred by Court Order of the United States District Court for the Western District of Pennsylvania from being prosecuted; and (3) the United States District Court for the Western District of Pennsylvania has awarded attorneys fees to Plaintiffs Counsel from the Settlement Fund; and (4) the judgment approving this settlement and award of attorneys fees has become final by the expiration of the appeal period without an appeal having been taken, or, if an appeal has been taken, by an order affirming the judgment becoming final with the appeals being dismissed or otherwise terminated. 1.04 Parties shall mean Plaintiffs and Defendants.

1.05 Plaintiffs shall mean the Representative Plaintiffs and all persons who come within the definition of the class certified by the United States District Court for the Western District of Pennsylvania on September 20, 2000, and shall include all persons who entered into mortgage agreements with Community Savings Association (Community) or that were acquired by Community and who were subject to one or more of the following practices allegedly engaged in by Standard, Three Rivers and/or South View Savings and Loan Association (South View): (1) charging the mortgagor for a loan advance used to pay a tax, insurance, water, or sewage bill unless the mortgagors monthly payments, in fact, were in arrears; (2) charging the mortgagor interest on the loan advance for time that preceded the disbursement of the loan advance; (3) failing to pay the mortgagor until March, 1996 for escrow interest that accrued during the calendar year of 1995; (4) sending the mortgagor an annual statement on or after April of 1987 that listed Community as the mortgage owner; and/or (5) placing payments paid by the mortgagor whose mortgage originated with South View in an escrow account. This settlement class release, however, shall not include within its scope: a. b. Claims arising out of disputes unrelated to the Parties notes and mortgages that are at issue in this lawsuit; and That may arise out of calculation methods instituted for the first time at a future date.

1.06 Plaintiffs Claims shall mean all claims which were asserted in this action, or which could have been asserted as class claims in the present action, on behalf of the Plaintiffs, including but not limited to claims relating to mortgage agreements with Community Savings

Association (Community) or that were acquired by Community and who were subject to one or more of the following practices allegedly engaged in by Standard, Three Rivers and/or South View Savings and Loan Association (South View): (1) charging the mortgagor for a loan advance used to pay a tax, insurance, water, or sewage bill unless the mortgagors monthly payments, in fact, were in arrears; (2) charging the mortgagor interest on the loan advance for time that preceded the disbursement of the loan advance; (3) failing to pay the mortgagor until March, 1996, for escrow interest that accrued during the calendar year of 1995; (4) sending the mortgagor an annual statement on or after April of 1987 that listed Community as the mortgage owner; and/or (5) placing payments paid by the mortgagor whose mortgage originated with South View in an escrow account. Plaintiffs Claims shall include any claims or causes of action which any of the Plaintiffs, their respective predecessors or successors, or any of their past or present personal representatives, assigns, parents, subsidiaries, affiliates, officers, directors, employees, agents, or partners may have against Defendants, or any one of the entities or individuals that come within the definition of Defendants as per Paragraph 1.02 herein, including those which arise out of, relate to, or are based upon the facts, matters, acts, activities, or occurrences which are alleged, described, set forth or referred to in the Complaint or Amended Complaint. 1.07 Plaintiffs Counsel shall mean the firm of [Firm of Attorney for Plaintiff] and, particularly, [Attorney for Plaintiff] of that firm. 1.08 Representative Plaintiffs shall mean [First Plaintiff] and [Second Plaintiff].

1.09 Settlement Class shall mean the class, certified by the United States District Court for the Western District of Pennsylvania, on September 20, 2000, which includes mortgagors on all residential mortgages agreements with Community Savings Association (Community) or that were acquired by Community and who were subject to one or more of the following practices allegedly engaged in by Standard, Three Rivers and/or South View Savings and Loan Association (South View): (1) charging the mortgagor for a loan advance used to pay a tax, insurance, water, or sewage bill unless the mortgagors monthly payments, in fact, were in arrears; (2) charging the mortgagor interest on the loan advance for time that preceded the disbursement of the loan advance; (3) failing to pay the mortgagor until March, 1996 for escrow interest that accrued during the calendar year of 1995; (4) sending the mortgagor an annual statement on or after April of 1987 that listed Community as the mortgage owner; and/or (5) placing payments paid by the mortgagor whose mortgage originated with South View in an escrow account. The Parties agree that the class consists of the persons that are listed on Ms. Does letters dated November 20, 2000. In the event that as a result of inadvertence or otherwise class members had been excluded from her letters, up to ten (10) class members may be added to our class list by the Defendants without the payment of any additional settlement funds. 1.10 Settlement Fund shall mean the common fund in the amount of Two Hundred Thirty Five Thousand Dollars ($235,000.00) to be paid to Plaintiffs to be distributed by Plaintiffs counsel as class trustee as provided for in Section III of this agreement.

1.11 Tentative Approval of this Agreement shall mean that the Court has preliminarily approved this Agreement subject to a fairness hearing after notice to the Plaintiffs. 1.12 The Court shall mean United States District Court for the Western District of Pennsylvania. 1.13 This Action shall mean the case entitled [First Plaintiff] and [Second Plaintiff] v. Standard Mortgage Corporation of Georgia, Three Rivers Bank & Trust Company and Federal Home Loan Mortgage Corporation, No. 98-679 in the United States District Court for the Western District of Pennsylvania. 1.14 As used herein, the plural of any defined term includes the singular thereof and the singular of any defined term includes the plural thereof. II. RECITALS 2.01 WHEREAS, the Representative Plaintiffs brought this action on behalf of themselves and all other persons similarly situated as residential mortgagors having mortgages at or through Defendants which were formerly held by Community; and 2.02 WHEREAS, in order to end this litigation and controversy between Plaintiffs and Defendants, to secure total and final settlement of all Plaintiffs Claims against Defendants arising out of or relating to the alleged acts and omissions set forth in Plaintiffs Complaint and/or Amended Complaint, and to avoid further expense, inconvenience and the distraction of burdensome and protracted litigation, the Parties desire to settle and terminate this action and all claims asserted therein, as well as any and all other claims Plaintiffs may have against the Defendants which could have been asserted against the Defendants by the Representative Plaintiffs, including those in connection with or arising out of or relating to any of the facts underlying this Action, regardless of the legal theory on which such claims may be based including all claims for violations of federal, state, common or other law alleged in this Action; and 2.03 WHEREAS, the Representative Plaintiffs and Plaintiffs counsel are satisfied that the terms and conditions of this Agreement are fair, reasonable and adequate and that a settlement of this action is in the best interests of the Plaintiffs; and 2.04 WHEREAS, counsel for Plaintiffs warrant that this Agreement has been entered into in good faith and that no conflicts of interest exist on their part; 2.05 NOW THEREFORE, in mutual consideration of the covenants and conditions recited herein, the Parties hereby agree that this action shall be fully and finally settled, discontinued and dismissed with prejudice, subject to the approval of this Honorable Court, upon the terms and conditions set forth herein.

III. AGREEMENT TERMS 3.01 In final settlement of all of Plaintiffs claims, Defendants will pay within forty (40) days after final approval of this Settlement Two Hundred Thirty Five Thousand Dollars ($235,000.00) by a check made payable to [Attorney for Plaintiffs], Class Trustee. 3.02 In the event that Tentative Approval of this Agreement is not obtained within ninety (90) days from the date hereof, or Final Approval of this Agreement does not occur, then this Agreement shall become null and void after written notice by one of the Parties to the other party. The Court shall not have the power to change any provision of this Agreement without the agreement of counsel to all Parties who are signatories hereto. 3.03 Plaintiffs and/or their attorneys shall make application to the court for an award of reasonable attorneys fees, costs and expenses to be paid exclusively from the Settlement Fund, and shall not seek any recovery for attorneys fees, costs or expenses or any monies whatsoever from the Defendants or from any person or entity, other than from the Settlement Fund. The total sought to be recovered from the Settlement Fund by Plaintiffs or their attorneys for Plaintiffs Counsels fees shall not exceed thirty (30%) percent and costs and expenses not to exceed Seven Thousand ($7,000) Dollars. 3.04 Effective upon Final Approval of this Agreement, Defendants, The Federal Home Loan Mortgage Corporation and all other persons or entities, including those persons or entities identified in Paragraph 1.02 above who are or may be liable to Plaintiffs based upon the claims asserted in this Action or based upon causes of action or claims which could have been raised in this Action by the Representative Plaintiffs on behalf of the class members, are forever released from all claims on behalf of Plaintiffs, either asserted in this Action or which could have been asserted against Defendants and/or The Federal Home Loan Mortgage Corporation in this Action by the Representative Plaintiffs on behalf of the class members, including those which arise from or might arise from, relate to, or deal with the facts involved in this Action, including all claims for violations of federal, state, common or other law. Effective upon Final Approval of this Agreement, Defendants, The Federal Home Loan Mortgage Corporation and all other persons or entities who may be liable to Plaintiffs, including but not limited to all persons and entities identified in Paragraph 1.02 hereof, are released by Plaintiffs from any and all claims or causes of action which were or could have been asserted by the Representative Plaintiffs in this Action on behalf of the class members arising out of or relating to the facts underlying this Action. 3.05 It is expressly understood and agreed by and between the Parties and by their respective Counsel that the amount paid in Settlement includes an amount paid in consideration for monies which will or could accrue to Plaintiffs in the future. 3.06 It is hereby agreed by and between the Parties and by their respective Counsel that, upon entry of an order of the Court providing Final Approval of this Agreement, the docket for this Action will be marked settled within twenty days of Final Approval of this agreement. Plaintiffs will take all steps necessary to have the case marked settled and discontinued as per Paragraph 5.03 and will provide official evidence of same to Defendants.

3.07 After Final Approval of this Agreement and within thirty (30) days after receipt of the Settlement Fund as provided in Paragraph 3.01, the Settlement Fund as provided in Paragraph 3.01, shall be distributed by Plaintiffs Counsel as trustee as follows: a. b. The approved attorneys fees and expenses shall be deducted from the Settlement Fund and paid to Plaintiffs Counsel as directed by the Court; The remainder of the Settlement Fund (the Net Settlement Fund) shall be prorated equally among the Plaintiffs (i.e., the class members). Plaintiffs Counsel will provide to the Court and to Counsel for Community Savings an Affidavit of Distribution within twenty (20) days of each cash distribution to the class members. It is expressly understood and agreed by and between the Parties and by their respective counsel that Plaintiffs Counsel will seek all costs and expenses attendant to the prosecution and settlement of this action only from and against the Settlement Fund. It is agreed that neither Plaintiffs, nor their Counsel, will seek any costs or expenses relative to this lawsuit from Defendants.

c.

3.08 The share of any Class Member who cannot be located within six (6) months of the date of Final Approval of this Agreement shall be held in the Settlement Fund and be available to be claimed by any such person for a period of six (6) months from the date of Final Approval of this Agreement. After such initial six (6) month period, any such sums shall be held in the Settlement Fund for an additional six (6) month period and will serve as a source of funds to correct for any administrative errors in the computation of distributive shares or other errors or costs arising in the administration of the Settlement Fund. Any portion of the Settlement Fund, (including interest thereon) remaining in the Settlement Fund one (1) year after Final Approval, shall be repaid by Plaintiffs Counsel, as Trustee to the Class, to Neighborhood Legal Services of Pittsburgh. 3.09 Plaintiffs Counsel, at their own cost, shall be responsible for the administration and distribution of the Settlement Fund, including the obligations set forth in Paragraph 3.08 and the obligation to administer and implement all legally required withholdings from the shares distributed to the Plaintiffs. Plaintiffs counsel will seek compensation from the Settlement Fund for their costs incurred in distributing the fund. Neither Defendants, nor their counsel, shall have any obligation whatsoever with respect to the administration and distribution of the Settlement Fund except as provided in Paragraph 3.01 and Paragraph 3.10. 3.10 Defendants shall not be liable for any claims including, but not limited to, claims for damages, monies, attorneys fees, costs or expenses or any of the Plaintiffs or of any other person or entity in connection with this Action or the settlement, beyond the amount provided in the Settlement Fund. Moreover, neither Plaintiffs nor their Counsel, nor Defendants nor their counsel, shall be liable for any errors of computation or errors in the distribution or administration of the Settlement Fund. Defendants, having delivered the required funds ($235,000.00) to [Attorney for Plaintiffs], Class Trustee, as described in Paragraph 3.01 above, will not be liable or accountable if said funds are not available for distribution to Plaintiffs for

any reason. Further, it is agreed that, if there is Final Approval of this Agreement, but the Settlement Fund is not later available, through no fault (in whole or in part) of Defendants, or if Plaintiffs, or any one of them, for any reason do not receive their proper share of such Settlement Fund, Defendants prior delivery of the required funds ($235,000.00) to [Attorney for Plaintiffs], Class Trustee, is hereby agreed to be delivery to said Plaintiffs and said Plaintiffs are considered to have been paid by Defendants. 3.11 This Court shall not have the power to change any provision of this Agreement without the written agreement of counsel for all Parties. IV. CLASS SETTLEMENT PROCEDURES 4.01 Plaintiffs Counsel shall submit this Agreement to the Court for its Tentative Approval within five (5) days after it is signed by all Parties. 4.02 Defendants agree, solely for the purposes of this Settlement and its implementation, if such Settlement fails to be approved or otherwise fails, then Defendants retain all rights to object to the maintenance of this action as a class action. 4.03 Following Final Approval by the Court of the Settlement, counsel for both Parties shall, within five (5) days, jointly file a motion for a final judgment declaring this Action as a proper class action and dismissing all claims in this Action with prejudice. 4.04 Simultaneously with the submission of this Agreement to the Court, Plaintiffs Counsel shall submit to the Court a motion to tentatively approve settlement, including a request to approve the form and manner of notice of the proposed settlement to the classes and to set a fairness hearing date with a proposed order. 4.05 At the fairness hearing conducted after approved notice to the Plaintiffs, Plaintiffs Counsel will request the Court to enter a final order approving this Agreement, and to enter judgment, approving the Agreement as fair, reasonable, adequate and binding on all Plaintiffs (i.e., on all class members). 4.06 The Court will be requested to retain jurisdiction over all matters pertaining to the administration of this Agreement, including the allocation and distribution of the Settlement Fund, until such time as the Court receives the certification that final distribution of the Settlement Fund has been made as provided in Section 5.03. V. ADMINISTRATION OF THE SETTLEMENT 5.01 Notice to Plaintiffs of this Settlement and the request for attorneys fees, costs and expenses shall be made in such manner and form as the Court directs. Unless the Court directs otherwise, Plaintiffs Counsel and Defendants Counsel agree that Plaintiffs Counsel will send notice by first-class United States Mail to the last known address of all Plaintiffs, including those persons for whom the address is known but the identity of the mortgage is unknown, using Defendants records.

5.02 Plaintiffs whose notice is returned or remains undeliverable within six (6) months from the date of Final Approval of this Agreement, shall be ineligible to share in the Settlement Fund. Plaintiffs Counsel may contact the Social Security Administration, United States Postal Service or take other reasonable steps to locate Plaintiffs. The Settlement Fund shares of unlocated individuals shall, for an additional six (6) month period, serve as a source of funds to correct for any errors in the computation or distribution of the Settlement Fund. Any sums remaining in the Settlement Fund after one year from the date of Final Approval of this agreement shall be paid to Neighborhood Legal Services of Pittsburgh. Such use and payment of the Settlement Fund shall fully discharge the entitlement or claim of Plaintiffs whose shares are unclaimed against the Settlement Fund or otherwise in connection with Plaintiffs claims. 5.03 Within twenty (20) days after the final distribution of the Settlement Fund in accordance with Section 3.07, Plaintiffs Counsel shall certify to the Court that such distribution has been made and shall have the docket for this Action marked settled and discontinued. 5.04 Plaintiffs Counsel and Defendants Counsel shall use their best efforts to cause this Agreement to be tentatively approved by the Court as promptly as possible, and to take all steps contemplated by this Agreement to effect such Settlement on the stated terms and conditions. If there is neither a Tentative Approval nor a Final Approval of this Agreement, the Parties shall make a good faith effort to renegotiate the affected provisions. If no agreement is reached in such renegotiations, Defendants and Plaintiffs may withdraw from this Agreement. 5.05 This Agreement represents the full and complete agreement of the Plaintiffs and Defendants, and no other agreement of the Plaintiffs and Defendants, and no other agreements or understandings exist. This Agreement may only be modified in writing, signed by counsel for the Parties. 5.06 Defendants agreement to and participation in this Settlement is not an admission of liability on the part of the Defendants or on the part of any of the persons or entities identified in Paragraph 1.02 above and Plaintiffs agree that they will not attempt to utilize this Settlement Agreement or the actions of the Defendants pursuant thereto as any evidence of liability on the part of the Defendants. IN WITNESS WHEREOF, the undersigned, being duly authorized, have caused this Agreement to be executed this [Date]. ON BEHALF OF PLAINTIFFS:

By: [Attorney for Plaintiffs]

Date: [Date]

ON BEHALF OF DEFENDANTS:

By: [Attorney for Defendants] Date: February ___, 2001

11.10

Notice of Proposed Class Action Settlement

THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA

[FIRST PLAINTIFF] and [SECOND PLAINTIFF], his wife, individually and on behalf of all others similarly situated, Plaintiffs, v. STANDARD MORTGAGE CORPORATION OF GEORGIA, and THREE RIVERS BANK & TRUST COMPANY, and FEDERAL HOME LOAN MORTGAGE CORPORATION Defendants.

) ) ) ) ) ) ) ) ) ) ) ) ) ) )

Civil Action No.: 98-679 [Judge] CLASS ACTION

NOTICE OF PROPOSED CLASS ACTION SETTLEMENT YOU ARE NOT BEING SUED PLEASE READ THIS NOTICE CAREFULLY YOUR RIGHTS MAY BE AFFECTED BY THIS PENDING LITIGATION

TO:

CERTAIN PENNSYLVANIA MORTGAGORS WHO ENTERED INTO MORTGAGE AGREEMENTS THAT ORIGINATED WITH OR WERE ACQUIRED BY COMMUNITY SAVINGS ASSOCIATION (Community).

IMPORTANT INFORMATION ABOUT YOUR RIGHTS You have been identified as a potential member of the Class on whose behalf certain claims are being asserted in the above-captioned Civil Action, pending in the United States District Court for the Western District of Pennsylvania (the Court). The Court certified this Action to proceed as a Class Action on behalf of the Class described below. The purpose of this Notice is to advise you of the pendency and proposed settlement of this Action against Standard Mortgage Corporation of Georgia (Standard) and Three Rivers Bank & Trust Company (Three Rivers Bank), so that you may make whatever decision you deem appropriate for the protection of your interests. Records provided by Standard and Three Rivers Bank indicate that you are a Class Member as defined in the proposed Settlement Agreement, whose rights may be affected by the Settlement. If the Settlement is approved by the Court, it will permanently settle your claims against Standard, Three Rivers Bank and The Federal Home Loan Mortgage Corporation (Freddie Mac). YOUR CLAIMS AGAINST STANDARD AND THREE RIVERS BANK WILL BE RELEASED BY THIS ACTION, UNLESS YOU EXCLUDE YOURSELF FROM THIS CLASS DESCRIPTION OF THE LITIGATION On January 23, 1998, [First Plaintiff] and [Second Plaintiff] filed this Class Action on behalf of themselves and all others similarly situated (Plaintiffs). The Complaint, as amended (the Amended Complaint), asserts claims against Standard, a mortgage servicer, and Three Rivers and Freddie Mac, mortgage lenders. II. THE CLAIMS

The claims asserted in the Amended Complaint and now pending before the District Court are based on five alleged practices engaged in by Standard, a mortgage servicer, and three past or present mortgage owners, South View and Community. First, Plaintiffs allege that Standard and the mortgage owners improperly charged loan advances to Class Members outstanding balances, where the accounts were not actually in arrears. According to Plaintiffs, Standard and the mortgage owners assessed periodic bill charges that were too low to cover Class Members property tax, insurance, water or sewage. They then added loan advances to Class Members outstanding balances to cover the shortfall, without notice. Second, Plaintiffs allege that Standard and the mortgage holders improperly placed into escrow periodic bill payments belonging to mortgagors whose mortgages required use of the capitalization method for applying the periodic bill payments. According to Plaintiffs, Class Members whose mortgages originated with South View are entitled to the capitalization method

applying periodic bill payments, under which they receive the effect of lowering the interest which accrued annually on the unpaid balance. Third, Plaintiffs allege that Standard and the mortgage holders improperly charged interest on loan advances that pre-dated disbursement of the loan advances. According to Plaintiffs, Class Members have been charged interest from the first of each month for loan advances made later in the month. Fourth, Plaintiffs allege that Standard and the mortgage holders improperly delayed payment until March of 1996 on escrow interest that accrued during 1995. According to Plaintiffs, Class Members were entitled to receive the escrow interest by year end 1995. Fifth, Plaintiffs allege that Standard and the mortgage holders improperly sent annual statements on or after April 8, 1987, that implied that Community was the mortgage owner to Class Members whose mortgages had been sold or assigned in whole or in part to Freddie Mac. According to Plaintiffs, Freddie Macs acquisition of mortgages from Community was deceptively concealed from Class Members. II. THE DEFENDANTS

In their Amended Complaint, Plaintiffs sued three Defendants, Standard, Three Rivers Bank, and Freddie Mac. Nevertheless, at this stage of the litigation, only two Defendants, Standard and Three Rivers Bank (Defendants) remain because the Court dismissed Plaintiffs claims against Freddie Mac. Defendants have denied all liability on the charges made in this litigation and have asserted defenses to all of Plaintiffs claims. Plaintiffs have not sued Community and South View, because these entities no longer exist. South View ceased to exist in 1983, when it consolidated with Community. Community ceased to exist in 1997, when it consolidated with Three Rivers Bank. Plaintiffs therefore have sued Three Rivers Bank, asserting that it is liable, as a successor in interest, for Community and South Views alleged practices. III. THE CLASS The Court has certified a Class consisting of: All Pennsylvania mortgagors who entered into mortgage agreements with Community or were acquired by Community (Community Mortgagors), and who were subject to one or more of the following practices engaged in by the Defendants, Community, and/or South View: (1) charging the mortgagor for a loan advance used to pay a tax, insurance, water, or sewage bill (the bills), unless the mortgagors monthly payments, as in fact billed, were in arrears; (2) charging the mortgagor interest on a loan advance for time that preceded the disbursement of the loan advance; (3) failing to pay the mortgagor, until March, 1996, for escrow interest that had accrued during calendar year 1995; (4) sending the mortgagor an annual statement on or after April of 1987 that listed Community as the

mortgage owner; and/or (5) placing payments made by a mortgagor whose mortgage originated with South View in an escrow account. You have been identified as a member of this Class. DESCRIPTION OF THE SETTLEMENT The following is a summary of certain terms of the parties Stipulation of Settlement, which governs the proposed Settlement between the Plaintiff Class, Defendants and Freddie Mac. If the Settlement receives final approval from the Court, Defendants will create a Settlement Fund, consisting of Two Hundred Thirty-Five Thousand Dollars ($235,000) in cash. Defendants will not be required to escrow or otherwise set aside specific monies to create the Settlement Fund. If the Settlement is approved, the Settlement Fund will be distributed to Class Members based upon their pro rata share of the amount of the Settlement Fund remaining after deduction of: (1) any Court-awarded attorneys fees, (2) any Court-awarded reimbursement of the costs and expenses of litigation, (3) any Court-awarded payment to the Representative Plaintiffs, and (4) any costs of Notice to the Class Members. Plaintiffs Counsel will petition the Court for payment from the Settlement Fund of attorneys fees of thirty (30%) percent, reimbursement of costs and expenses totaling no more than Seven Thousand Dollars ($7,000), and a payment of Two Thousand Five Hundred dollars ($2,500) to the Representative Plaintiffs. I. DISTRIBUTION OF THE SETTLEMENT

The Settlement will be administered and distributed by Plaintiffs Counsel, who shall distribute Settlement proceeds to settling Class Members in the following manner: 1. Within forty days after final approval of the proposed Settlement, Defendants will create the Settlement Fund by providing Plaintiffs Counsel a check for Two Hundred ThirtyFive Thousand Dollars ($235,000) made payable to Plaintiffs Counsel, as Class Trustee. Within thirty days after receiving the Settlement Fund, Plaintiffs Counsel will deduct from the Settlement Fund any Court-awarded attorneys fees, reimbursement of costs and expenses, payment for the Representative Plaintiffs, and costs of Notice to the Class Members, and distribute a pro rata share of the remaining balance in Settlement Fund to each Class Member. Within twenty days after distributing the Settlement Fund to the Class Members, Plaintiffs Counsel will provide an Affidavit of Distribution to the Court and Counsel for Defendants. Plaintiffs Counsel will seek compensation from the Settlement Fund for their costs incurred in distributing the Fund.

2.

3.

4.

5.

The share of any Class Member who cannot be located shall be held in the Settlement Fund for six months from the date on which the settlement receives Final Approval and be available to be claimed by any such person during that time. After those six months have lapsed, the shares of Class Members who have not been located shall be held in the Settlement Fund for an additional six month period and will serve as a source of funds to correct any errors or costs arising in the administration of the Settlement Fund. Any portion of the Settlement Fund (including interest thereon) remaining one year after Final Approval shall be paid by Plaintiffs Counsel, as Trustee to the Class, to Neighborhood Legal Services of Pittsburgh. REASONS FOR THE SETTLEMENT

II.

The Settlement that is being submitted to the Court for approval includes a release and dismissal with prejudice of the claims of the Members of the Settlement Class against Standard, Three Rivers Bank and Freddie Mac. The Representative Plaintiffs and Plaintiffs Counsel view this Settlement as advantageous to the Class. The Settlement provides for substantial compensation to the Class. In addition, the Class faces risks in continuing litigation, with respect to both proof of liability and proof of damages. Standard and Three Rivers Bank, while denying that they are liable to anyone or have committed any wrongdoing, wish to avoid further lengthy, costly, and time-consuming litigation, to obtain a total and final Settlement of the Plaintiffs claims, and to extinguish any liability under any laws with respect to the matters alleged in the Complaint. III. RELEASE OF CLAIMS

In exchange for the distribution of Settlement proceeds by Standard and Three Rivers Bank to the settling Class Members, the Plaintiffs will dismiss the Complaint, which includes that claims of the Class, with prejudice and without costs, which dismissal will be approved in a final judgment approving the Settlement. All Members of the Class who have not excluded themselves will be bound by any final judgment entered by the Court. Pursuant to the Settlement, Standard, Three Rivers Bank, Freddie Mac, and each of their parent companies, affiliates, assignors, assignees, subsidiary companies, predecessors, successors, assigns, and former and current attorneys, accountants, representatives, officers, inside and outside directors, shareholders, employees, and/or agents (referred to collectively as the Released Parties, shall be forever released and discharged from any and all claims, liens, suits, obligations, demands, liabilities, damages (whether compensatory, punitive or otherwise), rights and causes of action, whether known or unknown, suspected or unsuspected, that the Representative Plaintiffs or the non-excluded Plaintiff Class Members now have or have ever had based upon the violation of any state or federal law, regulation or other statutory or common law which arise out of, relate to, or are based in any way upon the matters alleged, or which could have been alleged, in this Action.

DESCRIPTION OF YOUR RIGHTS AND OBLIGATIONS I. YOU CAN REMAIN IN THE CLASS

Unless you file a timely Request for Exclusion (see below), you will remain in the Class. If the Court approves the Settlement, those individuals who remain in the Class will receive of a pro rata share of the amount of the Settlement Fund remaining after payment of Court-awarded attorneys fees, costs and expenses, and payment for the Representative Plaintiffs. If the Court does not approve the Settlement, then the parties will continue to litigate, and those who remain in the Class will be eligible to participate in whatever settlement or litigation award that Plaintiffs ultimately receive. However, they will also undertake the risk that Plaintiffs will not prevail in the litigation, will receive nothing for their claims, and will have judgment entered against them. As a Class Member, you automatically will continue to be represented by the [First and Second Plaintiffs] and the Class Counsel, [Attorney for Plaintiffs]. If you choose, you may seek legal representation separate from that provided by the [First and Second Plaintiffs] and Class Counsel, at your own expense, to enter an appearance in this Action on your behalf and represent you. Please note that you must continue to make timely monthly payments and timely perform all of your contractual obligations owed Standard, Three Rivers Bank. II. YOU CAN REMAIN IN THE CLASS AND OBJECT TO THE SETTLEMENT

If you choose to remain in the Class, you may object to the Settlement. Any Class Member who has not excluded himself or herself (see below) may file a written objection to the Settlement, the Settlement distribution procedures, the request for attorneys fees and costs made by Class Counsel, the request for payment to the Representative Plaintiffs, and/or any other proceedings in the case. ANY SUCH OBJECTION MUST BY MAILED TO THE CLERK OF THE COURT AND TO COUNSEL FOR THE PARTIES AT THE ADDRESSES SET FORTH BELOW. THE OBJECTION MUST BE POSTMARKED ON OR BEFORE [Date]. Any objection to the Settlement must begin with the following statement: I object to the proposed Settlement in [Plaintiff] v. Standard Mortgage Corp. of Ga., Civil Action No. 98-679. All objections must be in writing, must state the objectors name, address, and mortgage account numbers, and must state in detail the factual basis and legal grounds for the objection. III. YOU CAN REMAIN IN THE CLASS, OBJECT TO THE SETTLEMENT, AND ATTEND THE COURT HEARING FOR FINAL APPROVAL OF THE SETTLEMENT

If you choose to remain in the Class and object to the Settlement, you may attend the Court hearing for Final Approval of the Settlement. The proposed Stipulation of Settlement must be finally approved by the Court. A hearing will be held on July 11, 2001, at 10:00 a.m., before the Honorable [Judge], in Courtroom No. 2, U.S. Post Office and Courthouse, Pittsburgh, Pennsylvania to consider whether the proposed Settlement should be approved as fair, reasonable, and adequate.

If you file a timely written objection and have not requested exclusion from the Class (see below), you may appear at the hearing in person or through an attorney retained at your expense. If you wish to appear at the hearing to object to the Settlement, you must provide the Clerk of the Court and counsel for the parties a written notice of your intention to appear at the hearing to object. This notice must be sent to the Clerk of the Court and counsel for the parties, along with your written objection, by [Date]. Any written objection to the Settlement and notice of intent to appear at the hearing must be delivered to the Clerk of the Court and counsel for the parties as set forth above. IV. YOU CAN EXCLUDE YOURSELF FROM THE CLASS

Any individual who would otherwise fall within the definition of Class will be excluded from the Class if that member files an Exclusion Request. If a timely and effective request for exclusion is made by any member of the Class who is a co-borrower or co-obligor of a residential mortgage, then all borrowers or obligors on the mortgage will be excluded from the Class. Class Members who request exclusion will not be entitled to participate in the settlement, if approved, or any settlement or litigation award that Plaintiffs ultimately receive, nor will they be bound by any judgment entered against Plaintiffs in this Action or by the release of claims executed by Plaintiffs in conjunction with settlement. An Exclusion Request is attached hereto. Should you choose to opt out of the class, sign the attached Exclusion Request. THE EXCLUSION REQUEST MUST BE MAILED TO THE CLERK OF THE COURT AND TO COUNSEL FOR THE PARTIES AT THE ADDRESSES SET FORTH BELOW. THE EXCLUSION REQUEST MUST BE POSTMARKED BY JUNE 26, 2001. If you exercise your right to be excluded from the Class, you will not be granted an opportunity to object to the proposed settlement of this Action, the request for attorneys fees and costs made by Class Counsel, the request for payment to the representative Plaintiffs, or any other proceedings in the case. ADDITIONAL NECESSARY INFORMATION I. ADDRESSES

Objections, Notices of Intent to Attend Hearing, and Requests for Exclusion must be sent to each of the following three individuals: THE CLERK OF THE COURT: [Clerk of the Court] UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA [Address]

COUNSEL FOR THE REPRESENTATIVE AND CLASS PLAINTIFFS: [Attorney for Plaintiffs]

COUNSEL FOR STANDARD AND THREE RIVERS BANK:

[Attorney for Defendants]

II.

FURTHER INFORMATION

This Notice does not provide a complete description of the Action. For additional information about the Action and the parties, please refer to the pleadings and other documents on file at the Clerk of Courts office at the address listed above, which you may examine in person during normal business hours. If there is any inconsistency between the Class Notice and the parties Settlement Agreement, the parties Settlement Agreement will control. ALL INQUIRIES regarding this Notice, or the class action, or the proposed Settlement should be addressed, in writing, to Counsel for the Representative Plaintiffs and the Settlement Class at the following address: [Attorney for Plaintiffs]

DO NOT TELEPHONE THE COURT, THE CLERK, STANDARD, THREE RIVERS BANK, OR COUNSEL FOR STANDARD AND THREE RIVERS BANK ABOUT THIS NOTICE, THE MATTERS SET FORTH HEREIN, OR THE LAWSUIT. DATED: [Date]

11.11

Order Preliminarily Approving Settlement and Approving and Form of Notice

ORDER PRELIMINARILY APPROVING SETTLEMENT AND APPROVING AND FORM OF NOTICE

And now this [Date], upon consideration of the Parties Motion for Preliminary Approval of the Proposed Settlement, pursuant to Rule 23 of the Federal Rules of Civil Procedure and other applicable rules, it is ordered, adjudged and decreed that: 1. The proposed settlement in the above-captioned matter is preliminarily approved.

2. All members of the class previously certified by this Court shall receive notice of settlement in the form and manner proposed in the parties Joint Motion. At their own expense, Plaintiffs shall send the Notice attached to the Joint Motion as Exhibit 2 to all class members within 45 days after entry of this Order. 3. A Final Approval hearing addressing the fairness of the proposed settlement is

scheduled for ________________________.

BY THE COURT:

_______________________________________ [Judge]