Professional Documents
Culture Documents
PLAINTIFF’S EXHIBIT 10
Case 1:15-cv-00293-LTS-RWL Document 428-10 Filed 09/30/19 Page 2 of 51
Plaintiffs,
No. 1 :15-cv-00293-LTS-JCF
v.
Defendants.
JULY 9, 2018
TABLE OF CONTENTS
I. INTRODUCTION....................................................................................................... 3
A. Qualifications ............................................................................................................... 3
B. Compensation Disclosure ............................................................................................ 4
C. Documents Considered ................................................................................................ 4
D. Allegations and Summary of Assignment ................................................................... 4
E. Summary of Opinions .................................................................................................. 5
II. BACKGROUND ......................................................................................................... 6
A. The Plaintiffs ................................................................................................................ 6
B. The Defendants ............................................................................................................ 9
C. The Relationship Between the Parties....................................................................... 10
III. BASIS FOR OPINIONS ........................................................................................... 21
A. Expectation Damages ................................................................................................ 21
B. Restitution................................................................................................................... 38
IV. CONCLUSION ......................................................................................................... 50
I. INTRODUCTION
A. Qualifications
Texas office. Claro is a privately-held, financial and management consulting firm, with offices in
California, Illinois, Texas and Washington D.C. Claro provides litigation support, expert witness,
valuation, and other consulting services to clients throughout the country. Prior to working at
numerous economic and financial issues related to litigation disputes, including damages
quantifications for matters involving securities, anti-trust, intellectual property, fraud, and breach
of contract claims, among others. My studies have been performed across a wide array of
industries, including the energy, high-tech, medical device, residential mortgage, and retail
products industries. I have authored a number of expert reports and have testified in deposition
and at trial.
Thailand. The course I taught at Thammasat was a graduate level finance course on marketing
profitability and intangible asset valuation. I have also taught this course in the Professional MBA
Program at Washington University’s Olin School of Business in St. Louis, Missouri during the
summer of 2008. In the spring of 2012, I was appointed to the faculty of the Department of
Marketing at the University of Texas at Austin, where I taught a graduate-level course on global
management to MBA students. Outside of these assignments, I have been a guest lecturer at other
distinguished universities in the United States and abroad, including the University of Texas’
School of Law. Also, I routinely make presentations on intellectual property, financial and
4. I hold a B.A. in Economics and an M.B.A. from the University of Texas at Austin.
A copy of my curriculum vitae and testimony experience for at least the past four years is attached
B. Compensation Disclosure
5. Claro is compensated at the rate of $500 per hour for my time on this matter.
Research and analysis for this report was also performed by Claro consultants under my direction
and guidance. Hourly rates for these consultants range from $210 to $475 per hour. My
compensation and that of Claro is not determined by the outcome of this case.
C. Documents Considered
supervision, have reviewed and considered certain documents produced by the parties to this
litigation, various deposition transcripts, and information which we gathered from public sources.
A complete listing of the information I have considered to date in forming my opinions is listed in
7. I have been retained by Walker & Di Marco, P.C., counsel for S&A Capital
Partners, Inc. (“S&A”), Mortgage Resolution Servicing, LLC (“MRS”), and 1st Fidelity Loan
Servicing, LLC (“FF”) (collectively, the “Plaintiffs”), to serve as an expert witness in the above
referenced matter. It is my understanding that the Plaintiffs have accused JPMorgan Chase Bank,
N.A. (“JPCB”), Chase Home Finance, LLC (“CHF”), and JPMorgan Chase & Co. (“JPCC”)
related to the damages the Plaintiffs have incurred as a result of the Defendants’ alleged wrongful
conduct.
8. My analysis and evaluation (“study”) discussed in this report are based on certain
assumptions, including the assumption that the Defendants are found liable for the wrongdoing
alleged by the Plaintiffs. No opinions on liability are expressed herein. My study is based upon
the currently available information produced in connection with this litigation, and I am in a
position to render my opinions at this time based upon such information. However, my study is
ongoing and expert discovery is not complete. Accordingly, I respectfully reserve the right to
revise or expand my opinions to reflect any additional opinions I may formulate based upon newly
acquired information, including responding to opinions of expert witnesses for the Defendant.
E. Summary of Opinions
the US Government that they would not have been eligible to receive,
1
Fourth Amended Complaint dated April 18, 2018 (hereinafter, “Complaint”), pp. 73-79.
vacated. To the extent that these loans were used to satisfy the consumer
agreements the Defendants entered into with the U.S. Government (the
II. BACKGROUND
A. The Plaintiffs
10. The Plaintiffs are all entities founded by Laurence Schneider, a Florida business
man, for the purpose of investing in distressed mortgage loans. 2 S&A was incorporated in the
state of Florida in 2002. 3 The company has two principals, Laurence Schneider and Brad Axel,4
with Mr. Schneider serving as S&A’s President. 5 S&A enjoyed considerable financial success
investing in distressed mortgage loans, and when Mr. Schneider “had additional money to create
2
Deposition of Brad Axel dated July 11, 2017 (hereinafter, “Axel Deposition”), pp. 10, 14, 78; Deposition of
Laurence Schneider, dated July 28, 2017 (hereinafter, “Schneider Deposition Vol. I”), pp. 30, 34-35, 39; Complaint,
p.3.
3
Axel Deposition, p. 10; Complaint, p. 3.
4
Axel Deposition, p. 10; Schneider Deposition Vol. I, p. 13.
5
Complaint, p. 3.
6
Axel Deposition, p. 14.
expand his business. 7 Mr. Schneider also founded MRS as a limited liability company in Florida
11. I understand that FF used the same strategy, and MRS intended to use this strategy,
but was precluded from doing so due to the Defendants’ wrongdoing, as discussed further below. 9
Generally, the Plaintiffs’ business strategy is to purchase distressed mortgage loans (loans in
default) from financial institutions, such as the Defendants, at highly discounted prices. 10 Once
they acquire loans, the Plaintiffs typically contact the borrowers directly to work out mutually
agreeable payment solutions. Their philosophy is to find a solution that allows borrowers to remain
in their homes. The difference between the cost to acquire the mortgages and the total outstanding
principal on the respective loans represents the potential profits that the Plaintiffs can earn on their
investments. 11 S&A and FF have demonstrated their ability to generate significant profits via this
strategy.
12. Both S&A and FF were selective about the loans they purchased, and each loan was
subject to a “battery” of due diligence procedures, 12 which included but was not limited to,
verifying the name and address of the owner through the local county clerk or recorder’s office,
an examination of the borrowers credit history, a search for the borrower’s ongoing or previous
bankruptcies, a title search (if necessary), obtaining a broker price opinion to verify the value of
the property (if necessary), and an evaluation of the borrower’s ability to make payments. 13
7
Axel Deposition, p. 14; Complaint, p. 3.
8
Axel Deposition, p. 78; Complaint, p. 3.
9
Schneider Deposition Vol. I, p. 201.
10
Schneider Deposition Vol. I, pp. 108-110.
11
Schneider Deposition Vol. I, pp. 108-110.
12
Axel Deposition, p. 24.
13
Axel Deposition, pp. 24-25; See, for example, SA00066465 – SA00066681; SA00045385 – SA00045877;
SA00041656 – SA00041822; SA00071881 – SA00072100.
13. On February 25, 2009, MRS entered into a Mortgage Loan Purchase Agreement
(“MLPA”) with the Defendants to purchase a pool of 3,529 first lien residential mortgage loans
with a combined principal balance of $156,324,399.24. 14 However, due to the Defendants’ alleged
wrongdoing, I understand that MRS has been unable to execute its business strategy, as the
Defendants have not provided the necessary information and filed the appropriate documentation
to enable MRS to meaningfully pursue loan work-outs on the mortgages it purchased as well as
all other aspects of their business strategy. Despite these challenges, MRS has been able to engage
in workouts with borrowers for a small portion of loans. 15 However, I understand that even these
recoveries were impaired by the Defendants’ wrongdoing, because the Defendants’ wrongdoing
weakened MRS’ bargaining position with the borrowers. 16 Moreover, once the Plaintiffs realized
that they were not going to be receiving the necessary information from the Defendants, these
performing loans were transferred to FF for servicing. 17 As such, while MRS still exists as an
LLC, since the end of 2011, MRS does not have any employees or operations aside from
14. Table 1 below, reports the total income (revenues) and net income for each of the
14
Complaint, pp. 3, 14-15, Exhibit 4.
15
MRS Income Note Payoff - Since Inception.xlsx; MRS Interest Income Since Inception.xlsx; MRS Customer
Report Since Inception.xlsx; MRS Chart of Accounts.xlsx.
16
Interview of Mr. Schneider.
17
See, 1st Fidelity - MRS Acquired Revenue, June 16, 2018.xlsx; 1st Fidelity - MRS Loans -Chart Acct's (Balance
Sheet), June 16, 2018.xlsx.
Table 1 18
l
(1) (2)
FF (1)
(3)
S&A MRS
Total Income $ 15,287,087 $ 13,164,788 $ 640,329
Net Income $ 1,918,706 $ 3,749,935 $ (12,285)
-
Notes: !
(1) - Through July 2, 2018.
(2) - S&A's Net Ordinary Income is shown in place of Net Income to
exclude the Riverside rental property, which is not a part of this litigation.
(1) - Through January 1, 2013.
B. The Defendants
15. Headquartered in New York, NY, JPCC “is one of the world’s oldest, largest, and
best-known financial institutions.” 19 According to its website, JPCC has more than 250,000
employees and operates in more than 100 markets. 20 JPCC’s four main business segments are
Consumer & Community Banking, Corporate & Investment Banking, Commercial Banking, and
Asset & Wealth Management. 21 In 2017, JPCC had total assets of $2.53 trillion, revenues of
18
S & A - Profit & Loss 1.1.04-12.31.04.xlsx, S & A - Profit & Loss 1.1.05-12.31.05.xlsx, S & A - Profit & Loss
1.1.06-12.31.06.xlsx, S & A - Profit & Loss 1.1.07-12.31.07.xlsx, S & A - Profit & Loss 1.1.08-12.31.08.xlsx, S &
A - Profit & Loss 1.1.09-12.31.09.xlsx, S & A - Profit & Loss 1.1.10-12.31.10.xlsx, S & A - Profit & Loss 1.1.11-
12.31.11.xlsx, S & A - Profit & Loss 1.1.12-12.31.12.xlsx, S & A - Profit & Loss 1.1.13-12.31.13.xlsx, S & A -
Profit & Loss 1.1.14-12.31.14.xlsx, S & A - Profit & Loss 1.1.15-12.31.15.xlsx, S & A - Profit & Loss 1.1.16-
12.31.16.xlsx, S & A - Profit & Loss 1.1.17-12.31.17.xlsx, S & A Profit & Loss 1.1.18-7.2.18.xlsx; 1st Fidelity P &
L 1.1.08-12.31.08.xlsx, 1st Fidelity P & L 1.1.09-12.31.09.xlsx, 1st Fidelity P & L 1.1.10-12.31.10.xlsx, 1st Fidelity
P & L 1.1.11-12.31.11.xlsx, 1st Fidelity P & L 1.1.12-12.31.12.xlsx, 1st Fidelity P & L 1.1.13-12.31.13.xlsx, 1st
Fidelity P & L 1.1.14-12.31.14.xlsx, 1st Fidelity P & L 1.1.15-12.31.15.xlsx, 1st Fidelity P & L 1.1.16-
12.31.16.xlsx, 1st Fidelity P & L 1.1.17-12.31.17.xlsx, 1st Fidelity P & L 1.1.18-7.2.18.xlsx; MRS Consolidated
P&L Statements (MRS - P & L since inception.xlsx).
19
https://www.jpmorganchase.com/corporate/About-JPMC/document/shorthistory.pdf.
20
https://www.jpmorganchase.com/corporate/About-JPMC/about-us.htm.
21
JPMorgan Chase & Company Form 10-K for the period ending December 31, 2017, p. 1.
22
JPMorgan Chase & Company Form 10-K for the period ending December 31, 2017, pp. 148-150.
16. JPCB is a wholly-owned subsidiary of JPCC, 23 and operates its U.S. commercial
and consumer banking business. JPCC is also the parent of CHF, which is part of the
17. S&A’s relationship with the Defendants began in 2003, with the purchase of one
mortgage on a property in Garfield Heights, Ohio that had an outstanding principal balance of
$24,450. 25 In April 2005, S&A and CHF entered into a Master Mortgage Loan Sale Agreement
(“MMLSA”), pursuant to which S&A became an “approved note sale buyer”, 26 which allowed
S&A to purchase mortgage loans from CHF on an ongoing basis. 27 Since that time, S&A
purchased 646 first and second lien mortgages from the Defendants. 28
18. Similarly, FF first began purchasing mortgages from the Defendants in May 2009,29
and entered into a MMLSA with CHF in September 2010. 30 To date, FF has purchased a total of
358 first and second lien mortgages from the Defendants. 31 Table 2 below provides a summary
23
Complaint, p. 3.
24
https://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapId=4303321.
25
Complaint Exhibit 1, p. 32.
26
Schneider Deposition Vol. 1, pp. 131-132.
27
Complaint Exhibit 2.
28
The total of 647 loans purchased by S&A in Table 2 is inclusive of the Garfield Heights, Ohio loan purchased in
2003. Additionally, one of the loans included in the total 647 loans purchased did not specify a purchase date. See
Complaint Exhibit 1.
29
Complaint Exhibit 1.
30
Complaint Exhibit 3.
31
The total of 358 loans purchased by FF in Table 2 is inclusive of one loan which did not specify a last name or
purchase date, and one loan (Last Name: Hanks) which did not specify a purchase date, principal balance, or
purchase price. Additionally, loan #26 (Last Name: Williams) with a principal balance of $34,850 and purchase
price of $2,000 from Exhibit 1 of the Complaint has been excluded from Table 2 as it is a duplicative of loan #24.
Table 2 32
As shown in Table 2, the average principal balance outstanding on the loans S&A and FF
19. I understand that, with a few exceptions, the Defendants typically provided S&A
and FF with the following information for the loans that both of these entities purchased:
• A 1-page "Note Sale / Boarding Summary" containing data needed to board and
service the loan, such as the Principal Balance, Unpaid Interest, Unpaid Late
Fees, Total Balance, Interest Rate, Monthly Payment Amount, Due Date, Last
Payment Date, Next Payment Date, Charge-off Date, Original Loan Amount
• "View Summary", "View Activity" and "View Ledger" screenshots from the
RCV1 system;
32
Complaint, pp. 3, 31-32, Complaint Exhibit 1.
• A RESPA letter from Chase to the borrower notifying the borrower that their
20. In contrast to S&A and FF, MRS entered into a single transaction to purchase a
large pool of mortgages from the Defendants (the “MRS Transaction”). The MRS Transaction
was the culmination of discussions between Mr. Schneider and the Defendants over a period of a
number of months in 2008, 34 in which various loan purchase options were discussed, including
“outsourced loans” (i.e., secured loans that Chase would send to collections agencies), 35 “first lien
walks” (i.e., secured loans that Chase had decided not to foreclose), 36 as well as real estate owned
(“REO”) or foreclosed loans. 37 With regards to the first lien walks, Mr. Guerrero, a Chase
employee, informed Mr. Schneider that Chase’s decision to apply new thresholds when
determining whether to foreclose on a loan had resulted in a high volume of first lien walks that
Chase wanted to sell, 38 and getting rid of these loans was an important issue for the “way higher
ups” at Chase. 39
Chase’s first lien walks, Mr. Schneider agreed to perform certain due diligence on certain loan lists
to help Chase identify secured and perfected liens, as well as loans upon which foreclosures had
already occurred. 41 For example, in November 2008, Mr. Guerrero provided Mr. Schneider a loan
33
Interview of Larry Schneider; See, for example, File from Chase.Frizalone.Danette.pdf; File from
Chase.Belle.Cheryl.pdf; File from Chase.Elzholz.Mark.pdf; File from Chase.Lam.Hai.pdf; File from
Chase.Rivers.Clarisse.pdf.
34
Schneider Deposition Vol. I, pp. 114-119, 221-223, 229.
35
Schneider Deposition Exhibit 124; Schneider Deposition Vol. I, pp. 108 -115.
36
Schneider Deposition Exhibit 124; Schneider Deposition Vol. I, pp. 108 -115; 147.
37
Fox Deposition Exhibit 12; Fox Deposition, pp. 106-111.
38
Complaint, p.33; Schneider Deposition Vol. I, pp. 141-142.
39
JPMC-MRS-00000101 - JPMC-MRS-00000107 at JPMC-MRS-00000102.
40
Schneider Deposition Vol. I, p.158.
41
See, for example, JPMC-MRS-00000101 - JPMC-MRS-00000107; Schneider Deposition Exhibit 130.
tape containing 5,785 purportedly first lien mortgages with a charge off amount totaling $230.57
million. 42 In the email accompanying the loan tape, Mr. Guerrero acknowledged that the
information provided was incomplete, and he suggested that Mr. Schneider “[t]ake a look at the
ones that have the info first,” and that he would “help out” with getting the borrower names and
collateral addresses if needed. 43 On November 19, 2008, Mr. Schneider provided Mr. Guerrero a
detailed summary of his due diligence findings to date. Specifically, Mr. Schneider informed Mr.
Guerrero that the due diligence performed by the Plaintiffs was an “unbelievably long and tedious
project which [did] not seem to have an end in sight …” 44 and that the Plaintiffs had “quickly
realized many of these loans were not 1st lien walks but rather full foreclosure actions… .” 45
Amongst other findings, the Plaintiffs had determined that at least 2,300 prime loans totaling $110
million (of the total charge off balance of $230 million in the tape provided by Chase) had been
foreclosed and were no longer owned by the original borrower. 46 In contrast to the amount of
foreclosed loans, the Plaintiffs were only able to identify 230 potential first lien walks with a total
charge off balance totaling $8 million, although additional due diligence was required to confirm
that these loans were secured and perfected first lien loans. And still, a substantial number of loans
were yet to be examined by Mr. Schneider, due to the incomplete nature of the data provided by
the Defendants. 47 In his email, Mr. Schneider offered to purchase this entire loan pool (consisting
of 5,785 loans with a charge off balance of $230 million) for $100,000; 48 however, this transaction
42
JPMC-MRS-00006722 - JPMC-MRS-00006723.
43
JPMC-MRS-00006722.
44
Schneider Deposition Exhibit 130.
45
Schneider Deposition Exhibit 130.
46
Schneider Deposition Exhibit 130.
47
Schneider Deposition Exhibit 130.
48
Schneider Deposition Exhibit 130.
22. By early December 2008, Chase was also discussing the possibility of selling a pool
of over 9,000 REO or foreclosed loans with Mr. Schneider. 49 In fact, according to internal Chase
emails and the testimony of Victor Fox, a Chase Vice President at the time, Chase threatened to
exclude Mr. Schneider from this opportunity to purchase the 9,000 REO loan pool, unless he
increased the amount of his previous November 19, 2008 offer of $100,000 on the November 19,
2008 pool. 50 On December 22, 2008, Mr. Schneider submitted a bid letter to the Defendants
outlining the Plaintiffs’ intent to purchase a pool of impaired first lien mortgages with “an
The bid letter specified the purchase price as $200,000 and the transaction was expected to close
by December 31, 2008. 52 Exhibit A to the bid letter was supposed to identify the loans that were
intended to be purchased, but was left blank as a placeholder at this time. 53 In fact, on December
18, 2008, two days before the bid letter, Mr. Schneider sent Chase a check via FedEx for the
expected purchase price of $200,000. 54 In anticipation of the MRS Transaction, as well as another
loan pool purchase from HSBC, Mr. Schneider “hired additional staff, contracted for additional
office space… and purchased additional computer hardware/software licenses” required to board
23. On December 23, 2008, Mr. Schneider requested Mr. Guerrero to provide boarding
information for the loans that Chase intended to sell to the Plaintiffs. 56 I understand that the
49
Fox Deposition Exhibit 12; Fox Deposition, pp. 106-111.
50
Fox Deposition Exhibit 12; Fox Deposition, pp. 106-111.
51
JPMC-MRS-00004224 - JPMC-MRS-00004227.
52
JPMC-MRS-00004224 - JPMC-MRS-00004227.
53
JPMC-MRS-00004224 - JPMC-MRS-00004227.
54
JPMC-MRS-00003179 - JPMC-MRS-00003181; Fox Deposition Exhibit 15.
55
JPMC-MRS-00021391 - JPMC-MRS-00021395 at JPMC-MRS-00021392.
56
JPMC-MRS-00000129.
Plaintiffs expected to receive the same type of information that they had been previously provided
with during the more than 500 loan purchase transactions between S&A and the Defendants prior
to December 23, 2008. 57 On January 5, 2009, Mr. Schneider, responding to an inquiry by Mr.
Guerrero, once again informed Mr. Guerrero of the initial information required to send boarding
letters (borrower and co-borrower names, collateral address, principal balance, mailing address,
phone number, social security number, and chase loan number), as well as information required
by MRS to board and service the loans (monthly payments, interest rate, last payment date, next
payment due date, payoff, copy of the note and mortgage for maturity date, term, rate information
including the margin and index for adjustable-rate mortgages, and the payment history). 58
However, Mr. Schneider was informed that this information would be provided after the signing
of the MLPA. 59
24. On January 28, 2009, Mr. Schneider sent Mr. Guerrero an email indicating that he
was aware that the MRS Transaction loan pool would include both secured and unsecured loans,
and that he was willing to sign a final deal with very seller friendly terms. 60 When discussing this
email during his deposition, Mr. Schneider testified that he was getting very nervous about the
deal, as he had not received any data from Chase. Mr. Schneider assumed that the delays were
due to some unsecured loans being included in the pool, and out of desperation to get the deal
closed, informed Chase that he was aware that some unsecured loans would be included. 61
However, Mr. Schneider testified that that “there could have been some unsecured loans, and that's
57
S&A had purchased over 500 loans from the Defendants prior to December 23, 2008. In fact, S&A and FF
continued to receive such information on 475 additional loans purchased from Chase subsequent to December 23,
2008. Complaint Exhibit 1.
58
JPMC-MRS-00003418 - JPMC-MRS-00003421.
59
Complaint, pp. 41-42.
60
Schneider Deposition Exhibit 133.
61
Schneider Deposition Vol. 1, pp. 239-240.
okay, as long as [he] got [his] secured loans,” 62 but his offer was in no way “a request to buy loans
25. Initially, Chase sent Mr. Schneider an unsigned draft agreement on February 4,
2009, which stated that the MRS Transaction was for the sale of 4,271 loans with an outstanding
principal balance of $172.09 million. 64 Even though the draft agreement included loans with
principal balances totaling approximately $72 million more than the $100 million outlined in Mr.
Schneider’s December 22, 2008 letter, the purchase price for the loans remained unchanged at
$200,000. 65 Additionally, this draft agreement failed to identify the loans included in the MRS
Transaction. 66 Nevertheless, Mr. Schneider executed this agreement and returned it to Chase on
February 5, 2009. 67 However, this agreement was not the final agreement between MRS and CHF.
Internal Chase communications on February 23, 2009 indicate that Chase had “missed” several
accounts that had been sent to collection agencies. 68 As early as July 2008, Chase was aware that
it was the practice of collections agencies to release liens on first lien walks to avoid the liability
associated with the underlying property. 69 According to Chase’s internal communications, the
Defendants removed the loans that had been sent to the collections agencies from the loan pool to
26. The MRS Transaction was finally consummated on February 25, 2009 with the
execution of the MLPA, which specifies a pool of “Mortgage Loans having an outstanding
62
Schneider Deposition Vol. 1, p. 241.
63
Schneider Deposition Vol. 1, pp. 239-240.
64
SA00256470; JPMC-MRS-00000322 - JPMC-MRS-00000323; JPMC-MRS-00000324 - JPMC-MRS-00000330.
65
JPMC-MRS-00000324 - JPMC-MRS-00000330.
66
JPMC-MRS-00000324 - JPMC-MRS-00000330.
67
JPMC-MRS-00000322 - JPMC-MRS-00000323; JPMC-MRS-00000324 - JPMC-MRS-00000330.
68
Fox Deposition Exhibit 13; Fox Deposition, pp. 113-115.
69
Fox Deposition Exhibit 2.
70
Fox Deposition Exhibit 13; Fox Deposition, pp. 113-115.
aggregate principal balance as of December 22, 2008 (the “Cut-off Date”) in the amount of
MLPA defines “Mortgage Loans” as “nonperforming and/or impaired closed end first lien
mortgage loans (emphasis added) that are or have been delinquent for 180 days or more and have
been or may otherwise be in default.” 72 Under the terms of the MLPA, CHF agreed to bear the
costs of delivering the servicing/origination files for the Mortgage Loans, preparing and recording
any assignments of mortgages (including any intervening assignments necessary to perfect title to
MRS) and endorsing notes to MRS, delivering complete master-file tape information and other
electronically stored information, notifying the mortgagers, hazard, flood and mortgage insurance
companies and others, as necessary, and shipping all Mortgage Loans records and servicing-related
files to MRS. 73
27. The MLPA states that the loans were being sold as is, with faults, with no
(i) The information set forth on the data tape provided by Seller to Purchaser with
respect to the Mortgage Loans is true and correct in all material respects as of the
date such data tape was compiled;
(ii) Seller is the sole owner of the Mortgage loans and has full right to transfer and
sell the Mortgage Loans to Purchaser; and
(iii) Each Mortgage Loan complies in all material respects with all applicable
federal, state, or local laws, including, without limitation, the Federal Truth in
Lending Act of 1969, the Federal Equal Credit Opportunity Act, the Federal Real
Estate Settlement Procedures Act of 1974, and state and federal usury, consumer
credit protection and privacy, predatory and abusive lending laws applicable to the
Mortgage Loans. 74
71
Complaint Exhibit 4.
72
Complaint Exhibit 4.
73
Complaint Exhibit 4.
74
Complaint Exhibit 4.
28. The 3,529 Mortgage Loans purchased under the MLPA were supposed to be listed
in a schedule attached to the MLPA as Exhibit A. However, Mr. Schneider was not provided this
list prior to executing the MLPA. 75 Rather, after the MLPA had been signed, Mr. Schneider
received an email from Mr. Guerrero which stated “All yours…”, and to which was attached a file
(with a password “rich4life”) containing a list of 3,528 loans (not 3,529) with an account balance
totaling $156,324,613.80. 76 However, this list did not even contain basic information required to
service the loans, including but not limited to borrower names and phone numbers, property
addresses, outstanding principal balance for each loan, or the status of the property as occupied or
vacant. 77 For example, only 1,035 of the 3,528 loans identify a property address, 78 and less than
29. The Plaintiffs attempted to cure the deficiencies in the loan tape provided by Chase
(which Chase had represented as being “true and correct in all material respects”). The Plaintiffs’
efforts included engaging with Chase to obtain the information necessary to begin servicing the
mortgages purchased in the MRS Transaction, and attempting to piece together the information
needed through their own independent efforts. 80 For a few MRS Transaction loans, the Plaintiffs
were able to work with borrowers and get them to make payments to the Plaintiffs. 81 Some of
these loans were eventually transferred from MRS to FF for servicing. 82 However, for the rest of
75
Deposition of Laurence Schneider, Volume II, dated November 16, 2017 (hereinafter, “Schneider Deposition Vol.
II”), pp. 285-287.
76
JPMC-MRS-00000751; JPMC-MRS-00014130.
77
JPMC-MRS-00014130.
78
All full addresses (including state and zip code) immediately following “PROPERTY ADDRESS:”, “PROP
ADDR:”, or “PROP:” anywhere in Column G-N are considered to be identified.
79
Any numeric values immediately following “INTEREST RT:” are considered explicitly identified.
80
Complaint p. 45.
81
See, MRS - P & L since inception.xlsx; 1st Fidelity - MRS Acquired Revenue, June 16, 2018.xlsx; 1st Fidelity -
MRS Loans -Chart Acct's (Balance Sheet), June 16, 2018.xlsx.
82
See, 1st Fidelity - MRS Acquired Revenue, June 16, 2018.xlsx.
the loans sold by the Defendants to MRS in the MRS Transaction, the Defendants’ misconduct
precluded the Plaintiffs from executing this strategy; either the data provided to the Plaintiffs were
existed. 83
30. A December 28, 2009 email from Launi Solomon, a Chase employee, to Mr.
Schneider highlights the inconsistencies in the information received by the Plaintiffs, even as to
what loans were actually purchased by the Plaintiffs. The correspondence provided Mr. Schneider
with a list of loans purportedly sold to MRS, for the purpose of ensuring that Chase’s and MRS’
records both reflected the same loans being purchased by MRS; 84 however, this list contained
3,693 loans instead of the 3,528 loans provided by Chase on February 25, 2009. 85 There were 198
loans in the December 28, 2009 list that were not included in the February 25, 2009 list, as well as
31 loans in the February 25, 2009 list that were not in the December 28, 2009 list.86 Just one day
later, Ms. Solomon provided Mr. Schneider with another list containing additional loan
information, containing 4,387 rows of data. 87 These data, however, contain 695 duplicative
accounts in which the same borrower with the same account number (OLD ACCOUNT #) is
associated with multiple social security numbers and addresses. Of the remaining 3,692 loans,
177 with a principal balance totaling $6.97 million were not in the February 25, 2009 list. Thirteen
loans in the December 29, 2009 list with principal balance totaling $696,236 were not included in
the February 25, 2009 list. Additionally, even for the 3,515 loans included on both lists, the
83
See for example, Deposition of Launi Solomon dated May 17, 2017 (hereinafter, “Solomon Deposition”) Exhibit
5.
84
SA00277444 - SA00277446.
85
SA00277444 - SA00277446; JPMC-MRS-00000751; JPMC-MRS-00014130.
86
SA00277444 - SA00277446; JPMC-MRS-00000751; JPMC-MRS-00014130.
87
SA00277360 - SA00277361.
principal balances according to both lists were different. Less than 5% of these loans have a
matching principal balance on both lists, and more than one-third show a difference of $10,000 or
more in the principal balance. For example, a loan with account number 100001414880022673 is
reported as having a balance of $307,061.06 (ACCTBAL) in the February 25, 2009 list, but a zero
balance (CHGPRIN) in the December 29, 2009 list, a difference of $307,061.06. 88 Moreover, ten
months after the MRS Transaction was consummated, loan data provided by Chase continued to
be incomplete. The December 29, 2009 list also did not include property addresses, interest rate
information, mortgage position, and other information for a large amount of the loans.
31. I note that S&A and FF continued purchasing loans from the Defendants through
October 2010, while attempting to work with the Defendants to obtain the information they needed
to service the MRS loans. 89 I understand the Defendants provided the Plaintiffs with the
information required to service the loans that they sold to S&A and FF. 90 However, the
Defendants’ misconduct that is the subject of this litigation also affected loans purchased by S&A
and FF. For example, in December 2012, the Defendants informed the Plaintiffs that in connection
with a recent mortgage servicing settlement with the states and federal government, borrowers on
certain loans sold to the Plaintiffs had erroneously been sent debt forgiveness letters. 91 After
further unsuccessful efforts to work with the Defendants to resolve the issues, the Plaintiffs filed
88
SA00277360 - SA00277361; JPMC-MRS-00000751; JPMC-MRS-00014130.
89
Complaint Exhibit 1.
90
Complaint pp. 32-33.
91
Complaint Exhibit 7.
92
JPMC-MRS-00386982; Notice of Removal dated January 15, 2015.
32. I understand that the Plaintiffs have three damages interests under the laws of the
state of New York, which are applicable in this case. 93 Specifically, Plaintiffs can seek remedies
under their: (1) expectation interest, which seeks to put the Plaintiffs in the position they would
have been in had the contract been performed; (2) reliance interest, which seeks to put the Plaintiffs
in the position that they would be in if the contract had never been made; and (3) restitution interest,
which seeks to put the Defendants in the position they would have been in if the promise had never
been made. Based on the Plaintiffs’ allegations, I have quantified damages in this case under the
A. Expectation Damages
33. Expectation damages are sometimes referred to as the “benefit of the bargain”
damages, as they seek to put Plaintiffs in the position that they would have been in, had the
breaching party performed the contract as promised. 94 In other words, expectation damages allow
Plaintiffs to recover their lost profits resulting from the Defendants’ alleged wrongdoing. I
understand that under New York state law, Plaintiffs are allowed to recover their lost profits as
damages if: (1) they can show that the “damages were actually caused by the breach, (2) that the
‘particular damages were fairly within the contemplation of the parties to the contract at the time
it was made,’ and (3) that the alleged loss is ‘capable of proof with reasonable certainty’ ” 95
34. In this case, the Plaintiff MRS’s lost profits were caused by the Defendants’ breach.
Specifically, MRS’s ability to execute its business strategy and generate profits on the loans
93
Based on information from Counsel.
94
I also understand that lost profits damages is an appropriate remedy for the other causes of action in this litigation.
95
See for example, Awards.com v Kinko's, Inc., 42 AD3d 178, 183 [2007], affd 14 NY3d 791 [2010],
quoting Kenford Co. v County of Erie, 67 NY2d 257, 261 [1986]; Latham Land I, LLC v TGI Friday's, Inc, 96 AD3d
1327, 1333 [2012].
purchased in the MRS Transaction was impaired by at least the following wrongdoing by the
Defendants:
• Inclusion of second lien and unsecured loans in a transaction that was supposed to only
• Provision of incomplete and inaccurate loan tape despite representations and warranties
that the loan tape was “true and correct in all material respects…”; 97
• Refusal/inability to provide information necessary to board and service the loans sold
in the MRS Transaction despite selling the loans on a service released basis; 98
• Refusal to file assignments of mortgages and send RESPA letters at all or in a timely
manner; and
• Post-sale consumer relief actions on loans sold to the Plaintiffs (which the Defendants
no longer owned), including releasing liens, forgiving debt, and modifying loans.
Additionally, I understand that, to date, the Defendants have not produced data to show that they:
• incurred the costs associated with preparing and recording assignments of mortgages; 99
and
• incurred costs associated with notifying the mortgagers, hazard, flood and mortgage
insurance companies, and others as necessary, that the mortgages had been sold to
MRS.
The non-performance by the Defendants of these obligations further impaired MRS’ profits. 100
96
Complaint, p. 46; Complaint Exhibit 4.
97
Complaint, p. 44; Complaint Exhibit 4.
98
Complaint, p. 45; Complaint Exhibit 4.
99
According to email communications, Chase’s attorneys charged Chase $150 to file an assignment for a loan. See
Solomon Deposition Exhibit 5.
100
It appears that the Defendants are filing assignments of mortgages as late as July 2018, over 9 years after the
MRS Transaction. For example, on July 2, 2018, Chase filed an assignment of mortgage on a loan included in the
35. Moreover, lost profits damages caused by the Defendants’ breaches were fairly
within the contemplation of the parties at the time of the MRS Transaction. The record produced
in this litigation supports that the Defendants were well aware of the Plaintiffs’ purpose for buying
the loans, Plaintiffs’ business strategy, and their financial results. I understand that it is the
Defendants’ policy to vet its counterparties prior to approving them to be able to purchase loans.101
The Defendants’ vetting process includes reviewing the prospective counterparty company’s
history, time in business, buying history, financial statements, sources of funding, as well as the
history and background of its principals (owners). 102 Additionally, the Defendants also require
three references and verification of the prospective counterparty company’s standing. 103 S&A and
FF had both signed MMLSA’s with the Defendants, 104 and purchased over 500 loans from the
Defendants prior to the execution of the MLPA, 105 and shared a strong and mutually beneficial
relationship at the time of the MRS Transaction. For example, Mr. Guerrero wrote a glowing
reference in support of S&A’s efforts to purchase mortgages from HSBC. Specifically, Mr.
Guerrero stated that CHF had “been extremely fortunate to work with S&A Capital Partners over
the past 5 years” during which time they had “developed a strong professional relationship.”106
Mr. Guerrero went on to say that CHF “continued to sell [its] loans [to S&A] with confidence”
knowing that S&A treated its borrowers with professional courtesy and respect. 107
MRS Transaction. It appears that the reason for filing the assignment is related to foreclosure actions being
undertaken by a city attorney for the city in which the property is located. Additionally, even though this loan was
sold to MRS, Chase assigned the mortgage to S&A Capital. See, Brooks.Betty Dean assignment from chase to
sa.pdf.
101
JPMC-MRS-00007918 - JPMC-MRS-00007922; Schneider Deposition Vol 1, p. 131-132; JPMC-MRS-
00003479.
102
JPMC-MRS-00007918 - JPMC-MRS-00007922 at JPMC-MRS-00007918 - JPMC-MRS-00007921.
103
JPMC-MRS-00007918 - JPMC-MRS-00007922 at JPMC-MRS-00007918 - JPMC-MRS-00007921.
104
Complaint Exhibits 2 – 3.
105
Complaint Exhibit 1.
106
JPMC-MRS-00000507 - JPMC-MRS-00000508.
107
JPMC-MRS-00000507 - JPMC-MRS-00000508.
36. Finally, Plaintiffs’ lost profits can be estimated with reasonable certainty. S&A
and FF have an established track record of profitability from investments in similar mortgage
loans, using the same business strategy as MRS intended to use, but was precluded from executing
as a result of the Defendants’ alleged wrongdoing. I have used S&A and FF’s historical financial
performance in similar investments as a basis to determine lost profits damages in this matter. My
lost profit analysis is based on the following three-step methodology. First, I determined the
amount of proceeds that MRS could reasonably expect to receive from the loans purchased in the
MRS Transaction based on S&A and FF’s past performance with similar loans. Second, I
determined the incremental costs associated with generating these proceeds based on information
provided to me by Mr. Schneider, as well as my review of the available record and the Plaintiffs’
financial statements and records. Finally, I quantified the proceeds that the Plaintiffs were able to
generate from loans they purchased in the MRS Transaction. The expected proceeds, less the
incremental costs associated with the proceeds and amounts recovered by the Plaintiffs on the
MRS Transaction loan pool, is equal to MRS’ lost profit damages. Each of these steps is discussed
further below.
determined based on sufficiently comparably assets. 108 In this case, the proceeds that MRS could
reasonably expect to generate from the MRS Transaction loans can be determined by analyzing
S&A and FF’s historical financial performance on sufficiently similar loans, with adjustments to
reflect the characteristics of the subject asset. Specifically, between March 2, 2004 and October
108
The use of comparables to determine asset value includes the use of valuation multiples, as well as the use of
tracking portfolios that replicate the cash flows of the investment at issue. Titman, Sheridan and Martin, John.
Valuation: The Art and Science of Corporate Investment Decisions. Pearson Addison Wesley. 2008.
28, 2010, S&A and FF purchased over 240 first lien mortgages from Chase and utilized the same
business strategy that MRS would have utilized to generate returns on its investments. 109 I used
these loans to create a comparable portfolio which was utilized to determine the expected cash
flow from the MRS Transaction loan pool. In order to ensure that the financial performance of the
comparable portfolio reflects the economic conditions prevalent during the time period in which
MRS would have attempted to monetize the MRS Transaction loan pool, I excluded loans
purchased by S&A and FF prior to February 25, 2009. Eliminating purchases prior to February
25, 2009 resulted in a comparable portfolio of 182 first lien mortgages purchased by S&A and FF
that I used to estimate proceeds from the MRS Transaction loan pool. 110 As described further
below, I also made adjustments to ensure that the target pool and the comparable pool were of
38. In order to determine the proceeds from the subject assets, one must first understand
the manner in which the Plaintiffs maintain their accounting records. I understand that the
Plaintiffs accounting records reflect the IRS’ classification of their investments in distressed
mortgage loans as “speculative investments.” 111 The IRS requires that any payments received
from speculative investments first reduce the basis of the asset. Revenue (or income) is only
recognized after the entire basis in the asset is recovered. For example, consider a loan with a
109
S & A Capital Partners - 1st Lien Chase - Chart of Accounts (Balance She....xlsx; S & A Capital - 1st Lien Chase
– Customer.xlsx; 1st Fidelity - 1st Lien Chase - Chart of Accounts (Balance Sheet).xlsx; 1st Fidelity - 1st Lien
Chase - Customer Report.xlsx. There are 163 loans in 1st Fidelity - 1st Lien Chase - Chart of Accounts (Balance
Sheet).xlsx (“FF Chart of Accounts”) and 89 loans in S & A Capital Partners - 1st Lien Chase - Chart of Accounts
(Balance She....xlsx (“SA Chart of Accounts”), totaling 252 loans. Of these loans, four loans were determined not to
be 1st lien loans sold by Chase, and were eliminated from my analysis (FF loans of borrowers “Ageledor, Almette”
and “Williams, James/Judy” and SA loans of borrowers “Miron, Ronald & Juanita” and “Reese, Irene/Dolly”).
110
This resulted in the elimination of 62 loans purchased prior to February 25, 2009. Four additional loans were
eliminated from the comparable pool as all the information needed for my analyses was not available (De La Cruz,
Elena; Kelley, Lawrence; Sandoval, Ruben; and Sullivan, Sheila).
111
Interview of Mr. Schneider.
purchase price of $5,000, which generates 12 monthly payments of $500 each, and a final loan
payoff of $3,000. The total proceeds received by the Plaintiffs from this loan are $9,000 ($6,000
in monthly payments, plus the payoff amount of $3,000). However, the Plaintiffs’ income
statement would only report $1,000 in “Interest Income” and $3,000 in “Income Note Payoff”112
because the first $5,000 in proceeds would be used to reduce the loan’s basis (which is reported
on the balance sheet and not on the income statement). 113 Accordingly, in order to determine the
total amount of proceeds generated from a particular loan, one must add the total amount of the
reduction in basis, plus the Interest Income and Income Note Payoff from the loan.
39. I have determined the proceeds generated from the comparable portfolio based
primarily on an analysis of two QuickBooks reports generated for all first lien loans purchased by
S&A and FF’s from Chase, a “Chart of Accounts” and “Customer Payment Report”. 114 The Chart
of Accounts reports the purchase price, any additional basis in the loans (such as expenses to
purchase new appliances prior to selling the property, etc.), reductions in basis from monthly
payments, payoffs or charge offs, and the Income Note Payoff related to each loan. The Customer
Payment Report includes information on the payments made by each customer, including the
112
“Interest Income” represents income from monthly payments in excess of basis, while “Income Note Payoff”
represents final payment from the loan, after which the Plaintiffs no longer receive payments.
113
I note that once an asset’s basis is written down to $0, it no longer shows up on the balance sheet in QuickBooks.
Accordingly, in practice, Plaintiffs’ maintain the basis of a loan on which they expect to continue receiving proceeds
at $0.01 so that it appears on their balance sheet as an asset. In other words, the Plaintiffs would report a basis
reduction of $4,999.99 (instead of $5,000.00), which would enable them to reflect the loan on the balance sheet at a
basis of $0.01. However, subsequent payments on the loan would be reported on the income statement as either
Interest Income or Income Note Payoff.
114
S & A Capital Partners - 1st Lien Chase - Chart of Accounts (Balance She....xlsx; S & A Capital - 1st Lien Chase
– Customer.xlsx; 1st Fidelity - 1st Lien Chase - Chart of Accounts (Balance Sheet).xlsx; 1st Fidelity - 1st Lien
Chase - Customer Report.xlsx. Please note that in certain circumstances when discrepancies in these two reports
were identified, I was able to reconcile the discrepancies based on additional information provided by Mr.
Schneider. The sources for the adjustments are provided in the footnotes to Attachment III.
amounts applied to basis reduction, Interest Income and Income Note Payoff for each loan. 115 I
understand that these reports were based on accounting records maintained in the regular course
of business, with the following modifications. First, Mr. Schneider categorized certain loans in
QuickBooks as “Chase 1st Liens” to allow the reports to be run only for the Chase first lien loans
purchased by S&A and FF. Second, I understand that after S&A and FF outsourced their servicing
to BSI, Interest Income was not disaggregated for each individual loan/borrower, but was reported
on a consolidated basis for all loans. Mr. Schneider disaggregated the Interest Income for the
Chase 1st Liens based on the loan servicing reports provided by BSI (which have be produced in
this litigation) in order to allow me to quantify total proceeds on a loan by loan basis for the
comparable portfolio. 116 These adjustments did not change the overall profitability of S&A or FF.
40. As reported on Attachment III, I have compiled the principal balance (at the time
of loan purchase), purchase price, additional basis, reduction in basis, income note payoff, charge
off amount, interest income and net proceeds recovered for each of the 182 loans in the comparable
portfolio. 117 Additionally, I categorized each loan into one of five categories: (i) Charge Off,
representing loans that were charged off; (ii) Payoff, representing loans that were paid off without
the receipt of any negotiated monthly payments; (iii) Pmt + Payoff, representing loans where
negotiated monthly payments were received initially, but which were eventually paid off; (iv)
Active – stop payment, representing loans that have not been charged off or paid off, but for which
115
While there is some overlap in the information presented on each of these reports (payments applied to basis
reduction, and Income Note Payoff), the Chart of Accounts is primarily related to entries affecting the balance sheet,
while the Customer Payment Report reflects both balance sheet and income statement entries.
116
The Customer Reports, which contain information on Interest Income, contain a column labeled “Memo”.
Interest Income that was disaggregated based on BSI reports is noted with a 4 digit number followed by a three digit
number in parenthesis, e.g., “4061 (429)”. This number designates the BSI report which was used to disaggregate
the Interest Income amount.
117
I note that due to the manner in which this information was compiled, the amount of the Income Note Payoff and
Charge Off was also included in the reduction in basis. They have been listed separately to help identify loans that
have been paid off or charged off.
monthly payments have not been received since January 2018; and (v) Active, representing loans
that have not been charged off or paid off, and for which monthly payments continue to be
received. Table 3 reports the aggregate purchase price, outstanding principal balance, net
proceeds and net proceeds as a percentage of principal balance for loans in each of these five
categories.
Table 3 118
41. Next, I used the net proceeds generated by the comparable portfolio to estimate
proceeds that MRS would have recovered, but for the Defendants’ wrongdoing. As discussed
above, the MLPA specified closed end first lien mortgages with an aggregate principal balance of
$156.32 million. In addition to the language of the MLPA, two factors indicate that the parties
intended the MRS Transaction loan pool to be almost exclusively first lien loans. First, the parties
were discussing a separate transaction for over 9,000 REO or foreclosed loans at the same time
that they were negotiating the MRS Transaction. 119 As such, there was a separate transaction being
contemplated involving loans that were known to be unsecured. Moreover, Chase made increasing
Mr. Schneider’s bid for the November 19, 2008 loan pool a requirement to access the opportunity
118
Attachment III.
119
Fox Deposition Exhibit 13; Fox Deposition, pp. 113-115.
to bid on the transaction involving the foreclosed loans. 120 Chase also removed loans from the
MRS Transaction loan pool that had been sent to collections agencies. Chase knew the collections
agencies released liens on first lien walks to avoid the liability associated with the underlying
properties. If the MRS Transaction was intended to include such unsecured properties, Chase
would not have needed to remove these loans from the MRS Transaction. To control for the
possibility that the MRS Transaction loan pool includes lower quality and unsecured loans
compared to the loans in the comparable portfolio, and that the Plaintiffs were aware of and
accepted these issues, I eliminated $56.32 million in outstanding principal balance from the MRS
Transaction pool prior to estimating the amount of proceeds the pool could reasonably be expected
to generate. The $56.32 million reduction is equivalent to additional principal balance included in
the MRS Transaction, over and above the $100 million principal balance that Mr. Schneider
offered to purchase in his December 22, 2009 letter to Chase, and effectively reduces the $156.32
million outstanding principal balance specified in the MLPA by approximately 36% to $100
million. My analysis of the net proceeds recovered from the comparable portfolio indicates that
MRS would have been able to generate net proceeds of $38.32 million from the MRS Transaction
loan pool. Additional details regarding this calculation are reported on Attachment IV. I note
that this analysis includes additional charge offs of $9.33 million in outstanding principal
balance. 121 As such, the total principal balance charged off from the MRS Transaction pool is
42.0% of the total outstanding principal balance of the MRS Transaction pool, compared to 9.3%
120
Fox Deposition Exhibit 13; Fox Deposition, pp. 113-115.
121
MRS is estimated to recover $368,394 from this pool. See Attachment IV.
42. In addition to the forecasting the expected cash flow based on the comparable
pool. Specifically, I regressed the net proceeds for each loan in the comparable portfolio against
the purchase price of the loan and the outstanding principal balance at the time it was purchased.
The results of my regression analysis are reported on Attachment V and reflect a statistically valid
correlation between both the purchase price and the outstanding principal balance. If the details
of the MRS Transaction (3,529 loans with an outstanding principal balance of $156.32 million and
a $200,000 purchase price) are substituted into the regression equation derived based on the
comparable portfolio, my regression analysis predicts the estimated net proceeds from the MRS
loan pool are also $37.64 million. As such, the regression analysis confirms the results of
43. Next, I determined the incremental costs associated with generating the expected
proceeds from the MRS Transaction loan pool, based on my review of the information produced
in this case (including the Plaintiffs’ financial statements and records), as well as information
provided to me by Mr. Schneider. The quantification of incremental costs typically involves the
identification and quantification of variable costs, which change based on changes in revenues or
production (in this case loan work outs), and which are deducted from the amount of the
incremental revenues (in this case, the net expected proceeds) to determine lost profits. Fixed
costs, which do not vary with a different levels of sales or production, are not deducted from
incremental revenues when quantifying the amount of incremental profits, because the company
would have incurred those costs regardless of whether or not the company would have made more
or less revenue. The record in this case indicated that the Plaintiffs incurred a number of expenses
associated with the MRS Transaction loan pool, and as such would not have to re-incur those costs.
By December 2008, Mr. Schneider had “hired additional staff, contracted for additional office
space… and purchased additional computer hardware/software licenses” required to board and
service the loans. 122 Mr. Schneider informed me that these expenses were distributed among the
Plaintiffs. Specifically, these costs were initially absorbed by S&A and/or FF, prior the decision
to use MRS as the entity to purchase the first lien pool from the Defendants. Once the MLPA was
signed, MRS incurred the expenses. And finally, as the Plaintiffs realized the extent of the
Defendants’ wrongdoing, certain expenses were transferred back to S&A and/or FF. 123
44. I interviewed Mr. Schneider to determine the incremental costs that would have
been incurred had the MRS Transaction loan pool performed as expected. Based on this interview
and my analysis of the available record produced in this litigation, I have quantified the following
incremental costs:
• Wages and associated taxes and benefits: Mr. Schneider informed me that the
and temporary labor, were sufficient to process the loans acquired in the MRS
staff, were reduced. 124 Additionally, Mr. Schneider has informed me that due
122
JPMC-MRS-00021391 - JPMC-MRS-00021395 at JPMC-MRS-00021392; scan0001.pdf.
123
Based on interview of Larry Schneider.
124
Initially, some staff were transferred to S&A and FF to retain the Plaintiffs’ ability to service the portfolio if the
Defendants provided them with the information required. However, even these staff members were ultimately let
go, particularly once the Plaintiffs outsourced their servicing to BSI. I understand that currently, the Plaintiffs have
only one employee. Interview of Mr. Schneider.
MRS Transaction loan pool had performed as expected, MRS would have
continued to maintain its existing staffing levels through April 2011, and
subsequent to the decision to outsource loan servicing to BSI, MRS would have
required at most two full-time employees, being paid a salary of $40,000 per
year (or $3,333.33 per month). 126 Based on this information, I quantified the
average wages expense from April 2009 through August 2009 was $18,806 per
month. 127 This indicates that MRS’ total salary expenses from September 2009
through April 2011 would have been $376,120. 128 Additionally, from May
2011 through June 2018, MRS would have incurred salary expenses of
$573,333, 129 resulting in total expected salary expense through June 2018 of
$949,453. 130 Next, I deducted from the total expected salary expense the
benefits and taxes associated with these employees, which provides an estimate
125
Interview of Mr. Schneider.
126
Interview of Mr. Schneider.
127
MRS - Payroll Expenses.xslx.
128
$376,120 = $18,806 per month * 20 months.
129
$576,333 = $3,333.33 per month per employee * 2 employees * 86 months.
130
I note that this estimate is conservative because it does not include an offset for the cost of MRS employees that
were transferred to S&A and FF.
131
MRS - Payroll Expenses.xslx.
$978,968. 132
• BSI Servicing Costs: As previously stated, starting in April 2011, the Plaintiffs
decided to outsource the servicing for most of their loans to BSI. 133 Mr.
Schneider informed me that the Plaintiffs’ BSI serving fee is $15.50 per month
per loan. 134 I have estimated the BSI fees that the Plaintiffs would have
incurred for the MRS loans as follows. Mr. Schneider confirmed to me that
loans that were charged-off or paid off without any negotiated monthly
payments, would not have been sent to BSI for servicing. Accordingly, there
Attachment IV), I determined the average length of time that the loans would
have needed to be serviced. For the Active and Active – stop payment loans, I
have assumed that the Plaintiffs would have incurred BSI servicing fees from
April 2011 through June 2018. 135 For the Pmt + Payoff loans, I determined the
average amount of time that each of these loans would need to be serviced by
calculating the average amount of time between the borrowers first and last
132
1.11x = (Total Insurance of $994 + Total Payroll Expenses of $179,034) / Wages of $161,631. See MRS - P & L
since inception.xlsx.
133
I understand from Mr. Schneider that loans where the borrower stops making negotiated monthly payments are
withdrawn from BSI and serviced by the Plaintiffs.
134
I understand that BSI’s servicing fees increase for loans in default, but that these loans are typically recalled by
the Plaintiffs and serviced in-house through the Mortgage Office software, for which Plaintiffs still retain licenses.
Interview with Mr. Schneider.
135
This assumption is conservative, because according to Mr. Schneider, Plaintiffs typically pull loans where the
borrowers stop making payments from BSI, and service those loans in-house.
payment. For the loans in each of these three categories, Table 4 reports the
total amount of loans per category, the average number of servicing months,
and the BSI servicing fees that the Plaintiffs would have incurred had the MRS
Table 4 136
I I ·
Active 240 87 $ 1,348.50 $ 323,640.00
Active - stop pmt 386 87 1,348.50 520,521.00
Pmt + Payoff 376 41 633.35 238,138.56
Total BSI Servicing Fees 1 $ 1,082,299.56
understand that if the Plaintiffs are unable to establish contact with a borrower
over the phone or via mail, they sometimes hire a service to knock on the
borrowers’ door, to establish contact and begin negotiations. 137 Mr. Schneider
estimated that this service is needed for approximately 5% of the loans the
Plaintiffs purchase, and MRS’ financial records indicate that this service costs
between $110 to $125 per loan. 138 As such, the Plaintiffs would have incurred
136
See Attachment IV for Estimated # Loans for each category.
137
The name of the service provider is Coface Collections North America. See MRS - Research Expenses.xlsx.
138
MRS - Research Expenses.xlsx.
139
$11,875 = ROUND (5% * 1,899 (Total number of loan in the adjusted portfolio per Attachment IV),0) * $125.
fees associated with the foreclosure. Mr. Schneider estimated that the legal fees
associated with each foreclosure total $2,500 on average, and that the Plaintiffs
incremental legal fees associated with the expected foreclosures on the MRS
Transaction loan pool at $237,500. 140 Total additional expenses related to loan
• Rent Expense: As previously stated, the Plaintiffs had contracted for additional
office space required for MRS by December 2008. The Plaintiffs’ financial
records reflect that the Plaintiffs continued to bear the cost of the additional
space, 141 except that starting in September 2010, the Plaintiffs sublet excess
space for $2,000 per month. Assuming that the MRS Transaction has
performed as expected, Plaintiffs would have been unable to sublet the space
until at least April 2011, which is when they made the decision to outsource
their servicing the BSI and further reduced their staffing levels. Accordingly,
the Plaintiffs would have incurred additional rent expense of $26,000. 142
• Overhead: In addition to the costs discussed above, the profit and loss
statements for the Plaintiffs also contain general overhead expenses, such as
etc. that MRS would have incurred to generate the expected proceeds from the
140
$237,500 = ROUND (5% * 1,899 (Total number of loan in the adjusted portfolio per Attachment IV),0) *
$2,500.
141
MRS’s financial records reflect that MRS incurred monthly rental expenses of $4,039 per month between April
2009 and November 2009, with the exception of October 2009. In October 2009 and from December 2009 onwards,
FF paid the rent for the additional contracted space. See, MRS - Rent.xlsx; 1st Fidelity Rent Since Inception.xlsx.
142
$26,200 = 13 months (March 2010 through April 2010) * $2,000 per month. 1st Fidelity Rent Since
Inception.xlsx.
MRS Transaction loans. I have estimated the overhead costs that MRS would
have incurred based on level of these costs incurred by S&A and FF. 143 As
shown on Attachment VI and related work papers, S&A and FF’s overhead
expenses as a percentage of their Total Income from 2009 through June 2018
are 6.38% and 5.49%, respectively. Based on this analysis, I estimate that MRS
would have incurred additional overhead expenses totaling no more than 6.4%
of the $38.32 million expected proceeds from the MRS portfolio. This provides
Based on the analysis discussed above, I have determined that the incremental costs associated
with the expected proceeds from the MRS Transaction are $4.78 million. Table 5 below, provides
Table 5
45. As previously discussed, the Plaintiffs have been able to generate proceeds from a
few loans purchased in the MRS Transaction. MRS’ profit and loss statement indicates that MRS
received Interest Income and Income Note Payoff of $311,066 and $308,763, respectively,
143
Because MRS was only operational for a short period of time during which it was severely impacted by
Defendants’ wrongdoing, I did not consider MRS’ profit and loss statement representative of the overhead that
would have been incurred to generate the expected proceeds from the MRS Transaction loans.
indicating total proceeds of at least $619,829 from these loans. 144 Additionally, in July and
October 2010 certain MRS Transaction loans were sold to FF for ongoing servicing. 145
Attachment VII reports the Interest Income and Income Note Payoff for each loan transferred to
FF. 146 The total amount of Interest Income and Income Note Payoff FF received from these loans
is $659,213 and $130,212 respectively. 147 As such, the FF received Interest Income and Income
Note Payoff totaling $789,425 from the MRS Transaction loans. Table 6 below reports the Interest
Income and Income Note Payoff received by MRS and FF from the MRS Transaction loans.
Table 6
Finally, I note that because the MRS Transactions involved a pool of loans, each loan was not
assigned or allocated a basis in the Plaintiffs’ records, and therefore the reported Interest Income
and Income Note Payoff may under report the payments received from the borrowers for the MRS
loans. For the purposes of my analysis, I have assumed that the basis for the entire pool (i.e.,
$200,000) was recovered. Based on this assumption, I have quantified the total proceeds received
144
MRS - P & L since inception.xlsx. Interest Income and Income Note Payoff proceeds exclude payments received
from borrowers that reduce basis.
145
1st Fidelity - MRS Acquired Revenue, June 16, 2018.xlsx; 1st Fidelity - MRS Loans -Chart Acct's (Balance
Sheet), June 16, 2018.xlsx.
146
I have determined the Interest Income and Income Note Payoff proceeds generated from each performing MRS
Transaction loan based on an analysis of the “Chart of Accounts” and “Customer Payment Report” for the MRS
Transaction transferred to FF. See, 1st Fidelity - MRS Acquired Revenue, June 16, 2018.xlsx; 1st Fidelity - MRS
Loans -Chart Acct's (Balance Sheet), June 16, 2018.xlsx.
147
1st Fidelity - MRS Acquired Revenue, June 16, 2018.xlsx; 1st Fidelity - MRS Loans -Chart Acct's (Balance
Sheet), June 16, 2018.xlsx.
46. I have determined Plaintiffs’ lost profits from the MRS Transaction by
deducting from the estimated net proceeds ($38.32 million), the incremental costs associated with
generating this revenue ($4.78 million), and the proceeds recovered by the Plaintiffs from loans
acquired in the MRS Transaction ($1.61 million). Based on this calculation, the Plaintiffs’ lost
profits on the MRS Transaction are $31.93 million. Additionally, I believe that this estimate is
conservative, as it does not include an estimate of the additional costs incurred by the Plaintiffs for
litigation related to the liabilities resulting from the MRS Transaction due the Defendants’
wrongdoing, as well as the Plaintiffs’ lost profits on S&A and FF loans as a result of post-sale
consumer relief actions by the Defendants. As such, it is my opinion that lost profits damages due
B. Restitution
47. I understand that restitution allows the injured party to recover the benefit conferred
on the other party as a result of the other party’s wrongdoing. 148 Disgorgement is a form of
restitution which “measures the defendant’s gain and then requires the defendant to disgorge a sum
equal to the gains that are traceable to the subject transaction or wrongdoing.” 149 Further, in order
to prevent the wrongdoer from benefitting from the wrongdoing and provide an adequate
disincentive to unlawful behavior, the amount of the disgorgement is permitted to be greater than
the claimant’s provable loss. I understand that disgorgement is a permissible remedy for a number
148
Israel, Donald L. and O’Neill, Brian P., Disgorgement as a Viable Theory of Restitution Damages, Wolf &
Samson PC, New Jersey.
149
Israel, Donald L. and O’Neill, Brian P., Disgorgement as a Viable Theory of Restitution Damages, Wolf &
Samson PC, New Jersey.
48. In this case, the Plaintiffs allege that the Defendants’ wrongdoing allowed them to
requirements, and sales of loans from the RCV1 system to the Plaintiffs and
loans allowed the Defendants to claim compliance and evade detection of non-
• The Defendants’ post-sale consumer relief actions on loans that they had sold
to the Plaintiffs, which included granting lien releases, sending loan forgiveness
letters, and approving short sales of properties securing the loans sold to the
Plaintiffs, allowed the Defendants to claim credit for their obligations under two
150
Israel, Donald L. and O’Neill, Brian P., Disgorgement as a Viable Theory of Restitution Damages, Wolf &
Samson PC, New Jersey, citing Restatement (Third) of Restitution and Unjust Enrichment.
151
Complaint, pp. 5-14.
152
Complaint, pp. 14-16.
49. The MHA program, introduced in February 2009, was part of the U.S. federal
government’s efforts to “stabilize the housing market by facilitating first lien mortgage loan
providing home price decline protection incentives, encouraging foreclosure alternatives, such as
short sales and deeds in lieu of foreclosure, and making other foreclosure prevention services
available to the marketplace (collectively, the “Services”).” 154 HAMP, one of the sub-programs
of the MHA program, was “designed to help financially struggling homeowners avoid foreclosure
by modifying loans to a level that is affordable for borrowers now and sustainable over the long
term.” 155 HAMP provided incentives to borrowers, servicers and investors to enter into long-term,
50. In order to participate in the MHA program and receive incentives for loan
modifications under HAMP, servicers were required to “register and execute a Servicer
Participation Agreement, related documents, and, if applicable, one or more Service Schedules
(SPA) with the Program Administrator on or before October 3, 2010.” 157 Michael R. Zarro, Jr.,
then a Senior Vice President of JPMC, executed a Servicer Participation Agreement (“SPA”) with
153
Complaint, pp. 16-31.
154
JPMorgan Chase Bank, N.A. SPA available at
https://www.nclc.org/images/pdf/foreclosure_mortgage/loan_mod/servicer_participation_agreements/jpmorgan_cha
se.pdf.
155
https://www.hmpadmin.com/portal/programs/hamp.jsp#2.
156
https://www.hmpadmin.com/portal/programs/hamp.jsp#2.
157
MHA Handbook v5.2 (hereinafter, “MHA Handbook”), available at
https://www.hmpadmin.com/portal/programs/docs/hamp_servicer/mhahandbook_52.pdf, p.10.
the federal government on July 31, 2009. 158 Under the terms of the SPA, and as outlined in the
MHA Handbook, the Defendants were required to “fully comply” with “all federal, state, and local
laws, including statutes, regulations, ordinances, administrative rules and orders… including, but
not limited to…” section 5 of the Federal Trade Commission Act (prohibiting unfair or deceptive
acts or practices), the Equal Credit Opportunity Act (ECOA) and the Fair Housing Act (prohibiting
discrimination on a prohibited basis in connection with mortgage transactions), the Real Estate
Settlement Procedures Act (RESPA) (imposing certain disclosure requirements and restrictions
relating to transfers of the servicing of certain loans and escrow accounts), the Fair Debt Collection
Practices Act (restricting certain abusive debt collection practices by collectors of debts, other than
the creditor, owed or due to another), Fair Lending Laws (aimed at ensuring that servicers and
lenders do not treat a borrower less favorable on grounds, such as race, religion, etc. in connection
with any loan modification, and prohibiting red-lining), and the Fair Credit Reporting Act
(regulating the collection, dissemination, and use of consumer information, including consumer
credit information). 159 The Defendants were also required to periodically certify their compliance
with the MHA Handbook’s guidelines to the Federal Home Loan Mortgage Corporation (Freddie
Mac), in its capacity as the Compliance Agent for the U.S. Treasury. 160
51. As documented in the Complaint, the Plaintiffs allege that the Defendants were not
in compliance with the applicable laws and mortgage servicing standards. 161 Accordingly, if the
Plaintiffs allegations are found to be true, the Defendants would have been ineligible to participate
158
JPMorgan Chase Bank, N.A. SPA available at
https://www.nclc.org/images/pdf/foreclosure_mortgage/loan_mod/servicer_participation_agreements/jpmorgan_cha
se.pdf
159
MHA Handbook, pp. 21–22.
160
https://www.hmpadmin.com/portal/programs/docs/hamp_servicer/mhahandbook_52.pdf, p. 25.
161
Complaint, pp. 5-31.
in the MHA program and receive HAMP incentives. Moreover, it is my understanding that the
Defendants continue to use RCV1 to date, and as such, would have been ineligible to receive
incentives from the time the MHA program was implemented to the present. 162 Reports published
by the U.S. Treasury indicate that JPCB was one of the largest recipients of incentives under
HAMP, and received incentives totaling over $2.95 billion through March 2018. 163 This amount
and $551.10 million in servicer incentives. 164 The structure of HAMP and the incentive categories
suggest that some portion of these incentive payments should be passed through to third-parties,
while some portions were retained by the Defendants. For example, it appears that borrower
incentives of $855.10 million should have been passed on to borrowers, while servicer incentives
of $551.10 million were retained by the Defendants, in their capacity as servicers. However, it is
unclear what portion of the $1.55 billion lender/investor incentives were related to loans where the
Defendants were lender/investors (in addition to being the servicer), compared to loans they simply
serviced for third-party lender/investors. To date, the Defendants have not produced information
related to this issue, and this information is not available publicly. As such, I have been unable to
determine the amounts of the $1.55 billion lender/investor incentives that were retained by the
Defendants compared to the amounts paid out to third-parties However, it appears that alleged
wrongdoing by the Defendants allowed them to be eligible to receive between $551.10 million
(the amount of the servicer incentives) to $2.10 billion (the Servicer + lender/investor incentives)
162
Solomon Deposition, pp. 21-22.
163
https://fraser.stlouisfed.org/scribd/?item_id=577879&filepath=/files/docs/historical/fct/treasury/treasury_tarp_housi
ngreport_20180327.pdf, p.101.
164
https://fraser.stlouisfed.org/scribd/?item_id=577879&filepath=/files/docs/historical/fct/treasury/treasury_tarp_housi
ngreport_20180327.pdf, p.101.
in HAMP incentives, that they would not have been eligible to receive if the Plaintiffs allegations
52. The Plaintiffs allege that the Defendants’ wrongdoing also allowed the Defendants
to satisfy the consumer relief requirements of the National Mortgage Settlement (“NMS”) and
“Lender Settlements”). Specifically, as described below, both Lender Settlements required the
Defendants to provide consumer relief in the form of loan forgiveness, modification of loan terms,
refinancing, etc.
53. The NMS is a settlement that was reached on April 5, 2012, in which a number of
financial institutions, including the Defendants, settled a lawsuit related to fraudulent and unfair
mortgage lending practices in a case brought jointly by the federal and various state
governments. 165 Under the terms of the NMS the Defendants are required to adhere to new
servicing standards established in the NMS. 166 Additionally, the Defendants were required to
provide $6.8 billion dollars of monetary relief to various parties, including $4.2 billion of consumer
relief in the form of loan forgiveness and refinancing to eligible borrowers. 167 In return for their
165
The lawsuit alleged violation of numerous laws including, but not limited to, the Unfair and Deceptive Acts and
Practices law, the False Claims Act, the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, the
Service members Civil Relief Act, and the Bankruptcy Code and Federal Rules of Bankruptcy Procedure. NMS
Agreement Consent Judgement, dated April 4, 2012 (hereinafter, “Consent Judgment”), pp. 1-2.
166
Consent Judgment, pp. 3-4. The NMS servicing standards require the Defendants to maintain procedures to
ensure accuracy and timely updating of borrower’s account information, including posting of payments and
imposition of fees, maintain adequate documentation of borrower account information (electronically or in paper),
take appropriate action to promptly remediate any inaccuracies in borrowers’ account information, including,
correcting the account information, providing cash refunds or account credits, and correcting inaccurate reports to
consumer credit reporting agencies; report that they have developed and implemented policies to ensure that real
estate owned by the Servicer do not become blighted; establish an easily accessible and reliable single point of
contact for each potentially-eligible 1st mortgage; not instruct, advice, or recommend that a borrower go into default
in order to qualify for loss mitigation relief, and provide accuracy and transparency in foreclosure and bankruptcy
proceedings. https://d9klfgibkcquc.cloudfront.net/Consent_Judgment_Chase-4-11-12.pdf, pp. A-4 – A-40.
167
Complaint, pp. 17, 19-20; Consent Judgment, pp. 3-4, Exhibit D.
compliance with the consumer relief provisions, the Defendants would “be entitled to receive
credit against [the Defendants’] outstanding settlement commitments for activities taken on or after
[the Defendants’] start date, March 1, 2012.” 168 Further, the Defendants would earn an additional
25% in credit against outstanding settlement commitments for any reduction in first and second
lien principal and any amounts credited pursuant to a refinancing program within 12 months of
March 1, 2012. 169 The Defendants were required to complete at least 75% of their consumer relief
obligations within two years of March 1, 2012. 170 Failure to comply within three years of March
1, 2012 would require the Defendants to pay an amount equal to 125% of the unmet commitment
amount. 171 If the Defendants had not complied after three years, they would be responsible to
provide consumer relief totaling 140% of the unmet commitment amount. 172 Additionally, if the
Defendants’ obligation to pay either 125% or 140% of the unmet commitment would be reduced
by the amount the state would have received under the consumer relief provisions of the NMS and
54. On March 18, 2014, Joseph A. Smith, Jr., in his capacity as monitor for the NMS,
filed a Final Crediting Report with the U.S. District Court for the District of Columbia announcing
and confirming that the financial institutions subject to the NMS, including the Defendants, had
satisfied all servicing standards and consumer relief provisions as outlined under the NMS. 174 Mr.
168
Complaint, pp. 17, 19-20; Consent Judgment, p. D-11.
169
Consent Judgment, p. D-11.
170
Consent Judgment, p. D-11.
171
Consent Judgment, p. D-11.
172
Consent Judgment, p. D-11.
173
Consent Judgment, pp. D-11-D-12.
174
Office of Mortgage Settlement Oversight, The National Mortgage Settlement Monitor’s Final Crediting Report
(hereinafter, “Final Crediting Report”), dated March 18, 2014, p. 2.
Smith’s report credits the Defendants with providing $4.5 billion in consumer relief, which was
allocated across first lien modifications, second lien modifications, enhanced borrower transitional
second lien holders (see Chart 1 for a graphical depiction of this allocation). 175 In total, 125,553
loans were affected by the Defendants’ compliance with the consumer relief provisions of the
NMS. 176
Chart 1 177
■ Anti-blight activities
$37,499,126
■ Refinances
$623,424,705
■ Payments to unrelated second
lien holders
$9,780,918
55. In addition to the NMS, the Defendants entered into the RMBS Settlement on
November 19, 2013, to settle charges brought by the federal government, California, Delaware,
“packaging, marketing, sale and issuance of residential mortgage-backed securities” between 2005
175
Final Crediting Report, p. 12.
176
Final Crediting Report, p. 13.
177
Final Crediting Report, p. 12.
and 2008. 178 According to a press release from the DOJ on November 19, 2013 regarding the
public – including the investing public – about numerous RMBS transactions” and would provide
$13 billion in restitution as part of the RMBS Settlement. 179 Of the $13 billion, $4 billion was to
be provided as consumer relief in the form of forgiveness of principal, modification of loan terms,
targeted originations and blight mitigation efforts. 180 In return for compliance with the terms of
the RMBS Settlement, the Defendants would receive complete civil immunity. 181 If the
Defendants failed to comply with the terms of the RMBS Settlement by December 31, 2017, they
would be responsible for paying damages in an amount equal to the shortfall to NeighborWorks
America, a non-profit organization that provides affordable housing and facilitates community
development. 182
56. The RMBS Settlement was also monitored by Joseph A. Smith, Jr. 183 On
September 22, 2016, Mr. Smith issued his final report detailing the progress of the Defendants’
consumer relief efforts as of March 31, 2016. 184 In the RMBS Settlement Report, Mr. Smith states
that Defendants had satisfied the consumer relief requirements by crediting $4.1 billion in
consumer relief to 168,960 borrowers through forgiveness/forbearance on first lien and second
178
Complaint, p. 21; Chase RMBS Settlement Report: Consumer Relief through March 31, 2016 (hereinafter,
“RMBS Settlement Report”), p. 1.
179
https://www.justice.gov/opa/pr/justice-department-federal-and-state-partners-secure-record-13-billion-global-
settlement.
Complaint, pp. 21-22; RMBS Settlement, pp. 1-5.
180
https://www.justice.gov/opa/pr/justice-department-federal-and-state-partners-secure-record-13-billion-global-
settlement.
RMBS Settlement, p. 5.
181
Complaint, p. 22.
182
https://www.justice.gov/opa/pr/justice-department-federal-and-state-partners-secure-record-13-billion-global-
settlement.
RMBS Settlement, p. 5.
183
RMBS Settlement, pp. 5-6; https://www.jasmithmonitoring.com/.
184
RMBS Settlement Report, p. 1.
lien loans, rate reduction/refinancing, low- to moderate-income and disaster area lending, and anti-
blight. 185
57. The data produced by the Defendants demonstrates that they undertook a number
of post-sale consumer relief actions (including processing lien releases and sending debt
forgiveness letters), for hundreds of loans that they had sold to the Plaintiffs. For example, two
excel files produced by the Defendants in order to comply with Magistrate Judge Francis’
Memorandum and Order of May 18, 2017 (the “May 2017 Lists”) report lien releases for hundreds
of loans sold by the Defendants to the Plaintiffs. 186 However, these lists do not contain information
to determine whether these consumer relief actions were used to claim credit for the consumer
relief requirements of the Lender Settlements. I understand the Defendants have refused to
produce information requested by the Plaintiffs that would allow for a more accurate and reliable
determination of the amount of credit claimed based on these actions. In particular, Defendants
have not produced information related to codes identified by Plaintiffs that Defendants used to
identify various lien release initiatives. 187 As such, a determination of the Plaintiffs’ restitution
interests for the consumer relief portion of my disgorgement analysis is limited by accuracy and
reliability of the Defendants’ data production, as well as the information the Defendants have not
produced.
58. Despite these challenges, I have estimated this category of the Plaintiffs’ restitution
interest based on the available information by identifying Plaintiffs’ loans for which the
185
RMBS Settlement Report, pp. 1-2.
186
JPMC-MRS-00387298 and JPMC-MRS-00387337.
187
Plaintiffs requested this information on numerous occasions and it was the subject of a Motion to Compel filed in
this case on December 13, 2017, with the accompanying attachments delineating requests for this information. See
DE 262 and accompanying attachments in S&A Capital Partners, et al. v. JP Morgan Chase, et al., 15-293-LTS-
RWL; Letter from Brent Tantillo to Christian Pistilli dated June 15, 2017.
Defendants provided some form of post-sale consumer relief from March 1, 2012 onwards.188
Specifically, I have compiled a list of the loans for which Defendants’ records reflect some form
of post-sale consumer relief action that would impair the Plaintiffs’ ability to collect on the loan,
and allow Defendants to claim credit for the consumer relief provisions of the Lender Settlements
• I relied on the May 2017 Lists, in which the Defendants identify loans sold to
the Plaintiffs that were subject to lien releases and for which debt forgiveness
letters were sent. These lists identify a total of 649 lien releases and 25 debt
forgiveness letters. Of these, I have determined that the Defendants issued 621
lien releases and 23 debt forgiveness letters for mortgages owned by the
Plaintiffs. 189 From these May 2017 Lists, I eliminated all lien releases or debt
forgiveness on loans prior to March 1, 2012. This yielded 363 loans for which
the Defendants released liens or sent debt forgiveness letter on or after March
1, 2012.
• Next, I searched through the documents produced in this litigation for Plaintiffs’
loans that were not identified as released in the May 2017 Lists. Specifically, I
188
Under the terms of the NMS, the Defendants post-sale actions on the Plaintiffs’ loans were eligible to be used as
credit for their consumer relief. Because I lack the information to determine which individual loans were submitted
to the Trustee for credit against the consumer relief requirements of the Lender Settlements, I have assumed that all
loans affected from March 1, 2012 onward were used to satisfy these commitments. To the extent that new
information becomes available, I respectfully reserve the right to modify this assumption.
189
For the purposes of this analysis, loans listed in Complaint Exhibit 1, JPMC-MRS-00014130, SA00277361,
SA00227445 are considered to be owned by the Plaintiffs. There are 4,730 unique loans contained in the two May
2017 Lists. Of these, 4,632 loans were considered to have been sold to the Plaintiffs by the Defendants. There are
41 loans (4 released, 0 DFL) represented in both lists, 4,304 loans (566 released, 3 DFL, 7 released and DFL) in
JPMC-MRS-00387298 only, and 287 loans (34 released, 3 DFL, 10 released and DFL) in JPMC-MRS-00387337
only.
action by the Defendants for each loan, the date of the action, and the unpaid
principal balance associated with the action. This analysis yielded 171
additional loans with some form of consumer relief by the Defendants. Of these
• Based on the analysis above, I have identified 399 of loans with a total
outstanding balance of $16.18 million owned by the Plaintiffs for which the
Defendants granted some form of consumer relief after March 1, 2012. 190
Additionally, I also found that in certain cases, the Defendants realized that the
post-sale consumer relief actions were improper, and rescinded and vacated
certain lien releases associated with the improper actions. Table 7 below
with the Defendants’ post-sale consumer relief actions, as well as any vacations
and rescissions of these actions for each of the Plaintiffs. A complete listing of
190
Of these loans, 36 loans with principal balance totaling $1,913,468 were released between March 1, 2012 and
March 1, 2013. Under the terms of the NMS, the Defendants were eligible to receive a credit of 1.25x of the
consumer relief provided during this time. Therefore, it is possible that the Defendants received a credit of
$2,391,835 towards their consumer relief requirements.
Table 7
A ] ,32
Ff 9' ,1 3
Tot a.I 174
As I have previously stated, the Defendants have not provided information related to their
consumer relief actions that were used to satisfy the consumer relief requirements of the Lender
Settlements. Additionally, it is also unclear whether the Trustee was informed of vacations and
rescissions on the Defendants’ improper post-sale consumer relief actions. Accordingly, based
on the information available to me, I have concluded that the Defendants received between $6.04
million and $16.18 million of improper credit towards satisfaction of the Lender Settlements
IV. CONCLUSION
59. Based on the preceding analyses, I have determined that the Defendants’
misconduct caused the Plaintiffs lost profit damages of approximately $31.93 million.
Additionally, the Defendants have been enriched by their beneficial breach by at least $557.14
million, of which $551.10 million is related to HAMP incentives, and $6.04 million is related to
Jeffrey S. Andrien
191
I understand that an award of disgorgement and an award of lost profits may be allowed, to the extent that they
are not duplicative or overlapping. Accordingly, an adjustment to eliminate duplication may be required if both
categories of damages are awarded to the Plaintiffs.