----------------------------

STAFNE
239 North Olympic Ave Arlington. WA 98223

LAW
Attorneys at Law

FIRM
Phone 360-403-8700 Fax 360-386-4005

August 29, 20]]

Attorney General Rob McKenna ] 125 Washington Street SE PO Box 40100 Olympia. WA 98504-0100 Re: Multistate Investigation/settlements Dear Attorney General McKenna: I note with pride as a Washington citizen that you recently were awarded the Kelley-Wyman award and were elected president of the National Association of Attorneys General. I also am happy that you are a member of the executive board overseeing the multi-state investigation of servicers. I represent several persons who have been injured by servicers, as well as lending institutions and MERS. My understanding is that you are also on the Executive Committee that is attempting to negotiate a global settlement with several large banks. Iowa Attorney General Miller is the chairman of this committee. News outlets reports that Miller has recently terminated Mr. Schneiderman, the New York Attorney General, from the Committee because Mr. Schneiderman does not favor the presently proposed settlement. I am interested in knowing your position with regard to the settlement proposed by Miller's committee. I would appreciate if you or your office could direct me to an internet site where I might review the document. If the proposed settlement is not available online, I would appreciate you sending me a hard copy. Washington existing Washington law, then I am wondering whether you, as the Attorney General of Washington, must take into account Const. art. I § 16 which prohibits any state governmental "taking" of property for the benefit ofa private entity. See e.g. Manufactured HousingCommunitiesof Washingtonv. America, 142 Wn.2d 347, 13 P.3d 183 (2000) (Legislature cannot, consistent with Const. Art 1 §16 give private parties right of first refusal to purchase private owner's land),
If the proposed settlement would allow banks to foreclose on deeds of trust in violation of
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I would ask on behalf of my clients and myself that you and your office perform a "takings" analysis before you agree on behalf of the State of Washington to give any valuable rights held by land owners in Washington to banking interests and/or MERS. If you believe a settlement with the Banks and MERS would be in the public interest, then I would expect that your office will estimate the amount of "just compensation" state owes land owners for any compromise of their existing property and contract rights.

Sincerely,

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SEP 2 7 2011
BY:
Rob McKenna

ATTORNEY GENERAL OF WASHINGTON
800 Fifth Avenue #2000· Seattle WA 98104-3188 September 26, 2011

Scott E. Stafne Attorney at Law 239 North Olympic Ave Arlington, WA 98223 RE: Your letter to Attorney General McKenna regarding multistate investigation Dear Mr. Stafne: Thank you for your inquiry about our ongoing settlement negotiations with the big banks over robo-signing and other foreclosure and loan servicing practices. First, there is no settlement document which I can provide you as the negotiations remain fluid and complex. No terms have been agreed to and there is no single document which incorporates the current status. Second, we would never enter into a settlement that implicated the takings clause. Any conceivable settlement will only release claims of the State of Washington. The only exception to this categorical statement is that sometimes our settlements require consumers to release claims if they wish to receive cash restitution. In those cases, consumers are free to decline restitution and pursue their personal claims by other means, as they would be unaffected by our resolution. And we always advise consumers to consult with legal counsel before signing a release. Third, the MERS issues are currently pending in the state Supreme Courtl. We are monitoring these cases closely. A few additional points: There has been a lot in the news and in the blogosphere lately about these negotiations between the country's largest mortgage loan servicers and a group of state attorneys general and a number of federal agencies. You have read about a dispute between Eric Schneiderman, the New York Attorney General, and the other state attorneys general. Our Attorney General and staff are among the longtime leaders in the fight to protect consumers from unfair or deceptive lending practices. From that perspective, let me give you our perspective on the negotiations and the potential settlement. Beware the misrepresentations, distortions and outright falsehoods being circulated by those who don't know the substance of the settlement negotiations. The truth is that the settlement is still being negotiated and criticism of it at this point is rank speculation. Nevertheless, it is not too early to make a few observations as negotiations continue.
1 WA Supreme Ct No: 86206-1 Bain v. Mortgage Electronic Registration Systems, et at. which may be consolidated with WA Supreme Ct No 86207-9 Selkowitz v. Litton Loan Servicing.

Mr. Scott E. Stafne September 26,2011 Page 2

ATTORNEY

GENERAL

OF WASHINGTON

A settlement promises significant benefits for distressed homeowners. We estimate the final settlement amount will be in the tens of billions of dollars in total value - unless it is allowed to be indefinitely stopped by critics who insist on diverting our focus away from the needs of homeowners. Those harmed by the mortgage meltdown need relief now, not months or years down the road. Every day we delay, more homeowners face losing their homes to foreclosure. A settlement promises new approaches to the problems. For example, principal reduction for "under water" borrowers is very much on the table and will likely be part of any settlement. The settlement will also set new and stronger standards for loan servicing, including provisions that will ensure greater accuracy, timeliness and greater responsiveness to borrowers. A settlement will not give the banks "total immunity" or a "blanket" or other broad release of matters not covered by the settlement. As is typical of all multi state settlements, the States will provide the servicers with a release appropriate to the relief they provide homeowners, including increased loss mitigation efforts and reformed systems to ensure that these servicing problems do not reoccur. Moreover, there will be no amnesty from criminal prosecution. This is a civil investigation not a criminal one. The states have never contemplated doing anything that would interfere with any criminal prosecution. While some state attorneys general have criminal jurisdiction, many are like Washington State, where the Attorney General does not have original criminal jurisdiction. If you have concerns regarding criminal prosecutions, you should address those to criminal prosecutors such as the U.S. Attorney's Office or local county prosecutors. But you should also understand that over a decade ago, Congress deregulated the financial services industry. That meant there were a lot fewer rules to accuse bankers of violating. A settlement will not interfere with the work of other state or federal agencies or of attorneys general who elect not to join the settlement nor will it waive any rights of individuals without their consent. The settling states may only release the claims of their own states. They cannot release the claims of states that do not choose to settle or the claims of individuals without their consent. If a state is unhappy with the settlement, they are not required to join it. The settlement will thus have no effect on that state or its citizens. New York Attorney General Eric Schneiderman has a unique statute, called the Martin Act, which gives him broad powers over the financial markets in New York that other attorneys general do not have. He does not need the blessing or assistance of other states to investigate securities violations or pursue his claims under New York law. The attorneys generals involved in multi state negations with the banks maintain a laserlike focus on bringing as much help to distressed homeowners as soon as we can. Mr. Schneiderman and his allies are wrong to try to divert that focus. The interests of homeowners are not the same as those of the hedge funds and other Wall Street investors he seeks to include in our negotiations. Diverting our energy and losing precious time while investigating the securities industry will only delay relief to homeowners and could blow up our whole effort. Contrary to what some have alleged, this settlement will give us more, not less, leverage with the servicers to ensure that the home mortgage servicing industry serves the needs of America's homeowners, and puts in place national servicing standards they will have to adhere to. We

Mr. Scott E. Stafne September 26, 2011 Page 3

ATTORNEY GENERAL OF WASHINGTON

are at a critical juncture in our settlement talks. These negotiations are being handled by a savvy and experienced group of consumer protection professionals who have a long track record of bringing real relief to defrauded mortgage borrowers. If they agree to a settlement, it will be because they believe the terms are in the best interests of America's homeowners. Combining the claims of private institutional investors with the claims of investors puts homeowners' interests on the back burner at a crucial time. We believe the settlement holds the prospect of significant and immediate relief to distressed homeowners, which is good for homeowners, good for the real estate marketplace and good for the economy. In closing, we recognize that there is much conversation in the blogosphere and that emails from various interest groups are being circulated. However, what I've offered here is the view from one of the states actually leading the settlement talks. These remarks are based on factual information about the actual substance of the negotiations. Please take accusations from those not involved in the talks with a healthy dose of skepticism.

Senior Assistant Attorney General Chief, Consumer Protection Division Email: dougw@atg.wa.gov DDW:mf

Attorneys at Law 239 North Olympic Ave Arlington, WA 98223 October 11,2011 Phone 360-403-8700 Fax 360-386-4005

Douglas D. Walsh Senior Assistant Attorney General Chief, Consumer Protection Division 800 Fifth Avenue #2000 Seattle, Washington 98104 Re: Multistate settlement of private "choses of action." Dear Mr. Walsh:

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Thank you for your response to my letter. I have attached hereto a copy of my letter as exhibit A. This is because your response (which is attached as Exhibit B) does not appear to address the legal issue raised in my letter. Perhaps this was because my letter was not clear. Therefore, I will attempt to re-state my concerns in light of your response. In your response to me you state: ... [W]e would never enter into a settlement that implicated the takings clause. Any conceivable exception to this categorical statement is that sometimes our settlements require consumers to release claims if they want cash restitution. In those cases, consumers are free to decline restitution and pursue their claims by other means, as they would be unaffected by our resolution. And we always advise consumers to consult with legal counsel before signing a release .... [Emphasis Supplied] As you suggest, the Attorney General (AG) likely has no legal authority to enter into a settlement agreement on behalf of private persons to settle State claims with private banks or businesses. In this regard, as you know, the Supreme Court has re-affirmed the AG has no authority beyond that which is stated in the Constitution or provided by statute. See e.g. Seattle v McKenna, 090111 WASC, 84483-6 (2011); Goldmarkv McKenna, 090111 WASC, 84704-5 (2011). I am aware of no statute which provides the AG can settle "choses of action]" belonging to private persons. Even if there were such a statute it would be subject to challenge under Const.
] Under Washington law a "chose of action" is private personal property. Ennis v. Ring, 49 Wash.2d 284, 289, 300 P.2d 773 (1956); Mueller v. Rupp, 52 Wn. App. 445, 450-51, 761 P. 2d 62 (1988).

October 3, 20 I I Page 2of2

Art. 1§16 2. To the extent the AG believes any settlement of private "choses of action" would be in the public interest, Const., Art 1, Sec. 16 provides that the judiciary shall be the final arbiter of that decision. "Whenever an attempt is made to take private property for a use alleged to be public, the question whether the contemplated use is really public shall be a judicial question, and determined as such, ... " Const., Art. 1§16. Accordingly, to the extent the AG contends its proposed settlements of private "choses of action" can be settled, i.e. taken for public use, then compliance with RCW Title 8 might be mandatory prior to entering into any settlement. I bring these issues to your attention because I am handling litigation by homeowners against lenders, servicers, alleged beneficiaries and MERS. Virtually all my clients have affirmative causes of action, as well as strong defenses to any foreclosures. Most of these cases are highly fact specific and the nature and amount of the damages are very diverse. I do not see how the AG can negotiate a "one size fits all" settlement. To the extent, the AG's office can identify various types of injured parties and propose different remedies for each, the attempt to settle might be more acceptable from a political point of view. But without legislative authorization to resolve all ofthe various types of "choses of action" involved in these complex litigations, I question whether the AG has any authority to enter into proposed settlements for private homeowners owning different "choses of actions" against a multitude of private parties, which include, but are not limited to, banks. In summary, although Seattle v McKenna supports your authority to enter into litigation on behalf of the State, it does not support the assertion in your letter that the AG has the power to settle private "choses of action" any more than any other lawyer can settle a case on behalf of a person, which is not his/her client. I would greatly appreciate a response to this letter. Please clarify how any attempt by the AG to settle private "choses of action" would be appropriate under the recent Supreme Court cases cited above and the AG's existing Constitutional and statutory authority. Thank you.

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Sincerely,

E.Stafu;'

Manufactured Housing Communities of Washington v. America, 142 Wash.2d 347,142 Wash.2d 347 (Wash. 11109/2000) "The eminent domain provision of the Washington State Constitution provides a complete restriction against taking private property for private use: 'Private property shall not be taken for private use .... '"
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RECEIVED
OCT 1 3 2011 BY:
Rob McKenna

ATTORNEY GENERAL OF WASHINGTON
800 Fifth Avenue #2000 • Seattle WA 98104-3188

October 12,2011

Scott E. Stafne Attorney at Law 239 North Olympic Ave Arlington, WA 98223 Dear Mr. Stafne: This is in response to your email of October 11,2011. You misread what I said in my previous letter. We do not pretend to have the authority to settle claims belonging to private persons, and our settlements have never purported to release any such claims. Even if we had that authority, we would not exercise it unilaterally, that is, without the informed consent of the claimant. The only claims the attorney general settles are claims belonging to the State ofWashington--period. You say in your letter, "I question whether the AG has any authority to enter into proposed settlements for private homeowners owning different "choses of actions" against a multitude of private parties, which include, but are not limited to, banks." I will go you a step farther. I don't just question that an attorney general has that authority; I fully acknowledge that an attorney general does not have that authority. However, as I attempted unsuccessfully to point out in my original response to your letter, our settlements sometimes do involve the release of private claims but then only by the voluntary act of the private party with the claim and only for adequate consideration. For example, the Consumer Protection Act, specifically, RCW 19.86.080 allows us to seek certain equitable remedies, including in the appropriate case, consumer restitution. In some past settlements where the restitution payment was substantial, we have permitted the restitution paying defendant to require the consumer to execute a release of claims as a condition of receiving the restitution payment. But in such a case it is not the attorney general that is releasing the consumer's claim; rather, it is the consumer himself or herself. The consumer is perfectly free to decline payment and walk away with all claims intact. Indeed, if the consumer does nothing, that is precisely the result.

ATTORNEY GENERAL OF WASHINGTON
Mr. Scott E. Stafue October 12,2011 Page 2

Of course, whenever payment of restitution has been conditioned on the execution of a release, we have always carefully explained the consumer's options and recommended they seek the advice of a licensed attorney before agreeing to the release. I am sorry I was not clearer in my original response. Your clients have nothing to fear from any of our settlements. I hope this answers your concerns.

Senior Assistant Attorney General Chief, Consumer Protection Division Email: dougw@atg.wa.gov DDW:mf