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Page 1 SUPERIOR COURT RUTLAND UNIT STATE OF VERMONT CIVIL DIVISION. DOCKET NO.

408-5-10 Rdcv ) ) ) ) ) ) ) ) ) )

WELLS FARGO BANK, N.A. Plaintiff, VS. RICHARD J. PAUQUETTE, KAREN J. BETIT Defendants.

H E A R I N G

held on Thursday, March 29, 2012, at the Rutland Superior Courthouse, Rutland, Vermont, commencing at 1:04 p.m. HON. MARY MILES TEACHOUT, Presiding

APPEARANCES: SHELDON KATZ, ESQUIRE On behalf of Plaintiff;

LISA CHALIDZE, ESQUIRE On behalf of Defendant, Richard Pauquette. BARRY COHEN, RPR - SHORTHAND REPORTER O'BRIEN REPORTING SERVICES, INC. 223 Killington Avenue Rutland, VT 05701

1-800-559-5775

Page 2 1 2 3 4 5 6 7 8 STEPHANIE DRUM 9 10 11 12 13 14 15 16 Exhibit No. 17 18 19 20 1 21 FHA guideline document 61 Received in evidence: Exhibit Description Page E X H I B I T S 23 38 45 58 48 Witness Name Direct Cross Redirect Recross I N D E X

Page 3 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Honor. THE COURT: We are here for a to that? ATTORNEY KATZ: No objection, your THE COURT: THE CLERK: Please be seated. Vermont Superior Court,

Rutland Civil Division, the Honorable Mary Miles Teachout, presiding. Your Honor, our next case is Docket No. 408-5-10, in the matter of Wells Fargo vs. Richard J. Pauquette, Karen J. Betit. Present

in court is Attorney Sheldon Katz for the plaintiff, also present in court is Attorney Lisa Chalidze for the defendant, Richard Pauquette. THE COURT: Good afternoon. Good afternoon.

ATTORNEY CHALIDZE: THE COURT:

First of all, I

understand that Attorney Chalidze has made arrangements for an independent recording of the proceedings. Mr. Katz, do you have any objection

hearing pursuant to the court's entry order of February 2nd. This is a hearing pursuant to

12 VSA, Section 4635(A), for the Court to make

Page 4 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 a determination as to whether or not the plaintiff has complied with its obligations under 12 VSA, Section 4635(A), the foreclosure mediation statute. The entry order specified that, and I'll quote: "That report indicates that the

plaintiff's position is that this FHA backed loan is ineligible for HAMP modification, (because of delay in seeking modification), so no NPV calculation was run or provided. It is

not clear what the source is of the position that a delay cost in eligibility or whether in taking that position plaintiff has fulfilled its obligations under the statute." So the scope of the hearing is really quite narrow. And I also want to

state, before we get started, that Mr. Katz included quite a bit of material in his objection to the motion to continue that was filed yesterday, a lot of it appeared to be substantive material relating to the subject matter of today's hearing. I did not read it.

It appeared to be what the hearing was about, and so I did not read or absorb the specific facts, since that was the purpose of the

Page 5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 hearing. So anything that needs to be Mr.

presented, needs to be presented orally. Katz, I think you have the burden here. ATTORNEY KATZ: Yes. I'm not

entirely sure about that allocation of the burden, but we'd be happy to initiate. can -THE COURT: The question -- you're I

right, the statute isn't clear; but, on the other hand, it is the purpose of the hearing to determine whether or not your client has complied with it obligations. So I infer from

that statutory requirement that it would be your obligation to show that you have. ATTORNEY KATZ: Just briefly, your

Honor, and I do have a witness here to elaborate, but this is a loan that is owned by the FHA, under FHA regulations; and I understand that you didn't read the entire file yesterday. THE COURT: No, I did not. And I understand why

ATTORNEY KATZ:

you may have chosen not to do that. But, in any event, I did attach the specific FHA regulation that states that loans

Page 6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 that are in arrearage by more than twelve months are not eligible for an FHA HAMP. They

are eligible for alternative modifications, that are -- you'll hear different terminology, sometimes they're called traditional, standard, or in-house, but, in any event, the loan was and actually still is eligible for an alternative modification. I'm not saying that

it's qualified for one, and it wasn't at the time the mediation was handled. And then you asked about the source of the delay. At the time that Mr. Pauquette,

who is a co-borrower, applied -- this is well before mediation, this was in 2009, he was unemployed. He was put on a forbearance plan

with a payment due at the end of that forbearance plan. He didn't -- the purpose of

the forbearance plan was to give him time to get employment so that he could apply for HAMP. As you well may know, your Honor, a

borrower who is unemployed is not eligible for HAMP, unemployment income is not considered for HAMP. THE COURT: Before you go on. I

just want to find out from Ms. Chalidze if

Page 7 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Honor. Honor. THE COURT: And let me just say that there's any objection to representations of facts in this matter? ATTORNEY CHALIDZE: There is, your

what I want to narrow in on is whether there are any disputes of pertinent facts related to this particular matter. ATTORNEY CHALIDZE: Yes, your Honor, And my

there are definitely disputes of fact.

only objection to representation of facts is that we have limited time, and we have witnesses here. So my preference would be

rather than have the attorneys summarize what we think the facts are, is simply to hear from the witnesses and utilize our time that way. THE COURT: Well, What I am going to

do is allow Mr. Katz to continue with his representation, and then I'll give you an opportunity to identify specifically what particular facts are in dispute. Those are

the only facts that we need to hear testimony on. ATTORNEY CHALIDZE: Thank you, your

Page 8 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 ATTORNEY KATZ: So, your Honor, in

November 2009 the borrower was delinquent about three months at that time. contacted Wells Fargo. And he

Wells Fargo issued

this -- or allowed a forbearance plan -- or put a forbearance plan in place. Wells Fargo

wouldn't proceed with foreclosure during that time. During that time it was not necessarily

expected, but the hope was that he would be obtaining employment during that time, and, if he did get employment, then he would possibly become ineligible for HAMP. There was a payment at the end of that forbearance plan. payment. He didn't make that

There was also -- during that time

there were contacts made by Wells Fargo to Mr. Pauquette saying, you know, just saying we need some information about your employment, if you have it. He didn't make the payment.

And, after that foreclosure was commenced, in the period during which he could have been eligible for an FHA HAMP loan modification, which was August 2009 to August 2010, there was no proof or no evidence that he submitted that he had become employed. During that

Page 9 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 program. period of time, when he could have been eligible forever HAMP, if he was employed, he didn't submit any evidence that he was actually employed during that period. So as

of August 2010, he became ineligible for HAMP. He then entered into the mediation Apparently by that time he had -- I He

think he was self-employed by that time. went through the mediation process. As we

advised during the mediation session, he was not eligible for HAMP because he had a -- he was more than twelve month in arrears. THE COURT: But what I haven't heard

is what the source is of that requirement. ATTORNEY KATZ: The source of that If I may

requirement is an FHA guideline. approach. THE COURT: already filed? ATTORNEY KATZ: extra copy. THE COURT:

Is this what you've

It is, but I have an

It's all right; I'll

look at it in the Court record. ATTORNEY KATZ: I've already given

Lisa these two as well, because I copied her

Page 10 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 please. ATTORNEY KATZ: THE COURT: Okay. yesterday. ATTORNEY CHALIDZE: If you have an Thank

extra hard copy, I'd appreciate it. you. ATTORNEY KATZ:

I think this is

really even outside the scope of the mediation statute, in a sense, because this all happened before the mediation statute was even in place. But, in any event, the FHA guideline

is very clear that the arrearage cannot exceed twelve months. It was -- I can't remember --

if I can approach, I've got a copy right here, it might be easier. THE COURT: All right. Thank you.

ATTORNEY KATZ: mediation -THE COURT:

So at the

Wait just a minute,

And what is this It doesn't

document that you've given me? look like a regulation. ATTORNEY KATZ:

This is a letter

issued by HUD on January 28th, 2010. THE COURT: But what is it? It

Page 11 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 is that? ATTORNEY KATZ: Okay. He was due We mediated looks like a description of a program. doesn't look like a regulation. ATTORNEY KATZ: It is -- well, it's It

basic program guidelines for FHA home -- for the FHA HAMP program. So the borrower was advised that he was no longer eligible forever HAMP. also reviewed -THE COURT: I'm sorry; you may have He was

said all this, but it hasn't gelled in my mind. ATTORNEY KATZ: THE COURT: Sure.

You say he wasn't

overdue -- I mean he wasn't eligible because? ATTORNEY KATZ: His arrearage was

greater than twelve months. THE COURT: Okay. And what period

for a payment August of 2009. this case in August 2011. started much earlier.

The mediation

There were some issues But, in any

regarding document production.

event, the mediation started well after August 2010, when he became ineligible for an FHA

Page 12 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 HAMP LOAN modification. THE COURT: So -- okay. Would it help -- do

ATTORNEY KATZ:

you want me to draw a time line? THE COURT: No, I just wanted to

have you identify the dates. ATTORNEY KATZ: August 2009. So he defaulted in

As of August 2010 he was no I think some time after that

longer eligible.

he applied for the Court's mediation program. So by the time he even applied for the mediation program he was already ineligible. He was also reviewed -- as the statute requires, he had to be informed of other foreclosure prevention options. He was

also reviewed by Wells Fargo for a traditional modification. And at the time -- and that's

based on net income and household expenses. He was showing a very large deficit that could not be bridged by a modification at that time. So, unfortunately, at that time he did not qualify for a traditional modification. He's still eligible for that if his income increases or if his household expenses are reduced somehow to bridge that gap. He

Page 13 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Honor. may still be eligible. But at this time -- at

the time of the mediation, anyway, based on the numbers that he gave us, he was not eligible. THE COURT: Okay.

So now, Ms. Chalidze, if you could identify any facts in dispute that relate to the narrow issue that is before the Court right now. ATTORNEY CHALIDZE: Thank you, your

I understand that the Court has the

burden of determining whether the mediation took place in good faith and in compliance with the statute. In that regard I think the

following factual disputes are important. First, plaintiff has always been, from our perspective, incorrect on the so-called shortfall that would qualify Mr. Pauquette for a non-HAMP modification. pointed that out. THE COURT: What is the dispute? The bank We

ATTORNEY CHALIDZE:

indicates that Mr. Pauquette makes $700, roughly, and change a month, less than what is needed to support a regular loan, acceptable

Page 14 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 loan payment. ATTORNEY KATZ: Excuse me,

Ms. Chalidze, I think we're really far afield of the scope of the hearing and the scope of the -- we're talking about traditional modification, for which there's absolutely no duty at all for Wells Fargo to provide, is what Ms. Chalidze is talking about. And the

order, as I understand it, has only to do with HAMP. So we're way far afield. I mean I'd be happy to talk about these things, because I was there, I know the numbers. ATTORNEY CHALIDZE: I be permitted to finish? THE COURT: Well, I would like you Your Honor, may

both to just give me a moment here. Okay; you may. But I want to

reiterate, again, that the scope of this hearing is extremely narrow. The mediator did

submit a report that said that no party failed to make a good-faith effort to mediate. However, the Court has to make a determination, under the statute and under the section, about whether or not the

Page 15 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 documentation and so forth was supplied. The

mediator checked yes, but then said, quote, "Lender's position is that this FHA-backed loan is ineligible for HAMP modification because of delay in seeking modification. no NPV calculation was run or provided." The only issues for today are whether in fact this loan is FHA backed, whether there are FHA regs that apply, whether those regs make a person ineligible as a result of delay, and whether there was a delay. Those are the only things that are So So

unclear about from the mediation report. that's the scope of the hearing. It's not about non-HAMP alternatives, because that was not put in issue by the mediator's report. But the

mediator's report suggested that the mediator was restating the plaintiff's position on why there was ineligibility, but it wasn't clear to the Court that that's a valid position. So

it's the validity of that position on the part of the plaintiff that was put at issue and is the reason for the hearing. only facts that are at issue. So those are the And, frankly, I

Page 16 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Honor. Then with that guidance we will leave aside the non-HAMP factual issues that exist, they're for another day apparently. As to HAMP, there is a factual dispute, very definitely, as to whether modification was appropriately sought within the one-year period. And we will submit And it haven't heard sufficient support from the plaintiff yet. But -- on a couple of those.

But in terms of the scope of the hearing, it won't be broader than that, so it's not necessary for you to deal with possible entitlements to non-HAMP. ATTORNEY CHALIDZE: Thank you, your

testimony on that from Mr. Pauquette. is also -THE COURT:

You're saying that you

dispute -- that you have facts indicating that between August of 2009 and August of 2010 there was an attempt to seek a HAMP modification? ATTORNEY CHALIDZE: THE COURT: Okay. And I also want Yes, your Honor.

ATTORNEY CHALIDZE:

Page 17 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 to make it clear that I am not acquiescing in plaintiff's position that this asserted one-year FHA limitation actually applies. I've heard today for the first time that the FHA owns this loan. We haven't seen

the documents that would effectuate that ownership, it's not disclosed in the complaint, we don't have the documents authorizing Wells Fargo on behalf of FHA, the apparent loan owner. So those may or may not

be issues for this area. THE COURT: for this hearing -ATTORNEY CHALIDZE: THE COURT: the issues were: Okay. Those are exactly issues

-- as I identified what

Is this in fact an FHA loan?

And do the regs apply? And you're saying that you don't -haven't been provided information about that? ATTORNEY CHALIDZE: satisfaction. Not to my

And I have requested it for

quite some time. I also would request, if the Court thinks it's appropriate, to have plaintiff identify the actual CFR citation, or some

Page 18 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 go back. legal source citation. If in fact its

reliance is on a regulation, I had assumed -perhaps incorrectly -- that there was some sort of loan transfer or transactional document or investment document to document the FHA's role in this. the FHA is an owner. We're now told that

So I certainly feel

there's a lot of unclarity there. THE COURT: All right. Well, we'll

It is Mr. Mr. Katz's responsibility

then to show what FHA's role is, what the regs are, and whether they apply before we even get to the factual dispute as to whether or not modification was sought within the pertinent period. ATTORNEY KATZ: Your Honor, two

quick comments that may cut to the chase here. First, we did -- I mean if this has to be a factual dispute, I don't know -- I mean I was at the mediation. THE COURT: You did what -We clearly said that

ATTORNEY KATZ:

the FHA is the owner, and that was the reason why we couldn't consider him. But the other thing is that all --

Page 19 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 during the time when Mr. Pauquette could have -- was eligible for an FHA loan modification, which was between August 2009 and August 2010, that period is really outside the Court's purview because the mediation statute wasn't even in place at that time. And my understanding of the mediation statute is that it's looking at the way the mediation was handled, not what happened prior to that. I mean I'm happy to put on my witness to explain all this. to make that clear. But I just want

That's really, in my

view, outside the Court's -- the scope of the Court's responsibility under the mediation statute. THE COURT: The question for the

Court is whether or not the plaintiff sufficiently met its obligations under the statute at the mediation. ATTORNEY KATZ: THE COURT: Yes.

But if at the mediation

the plaintiff took a position that was indefensible, then that would call into question whether or not it met its obligations.

Page 20 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 So you've just indicated just now that at the mediation it was stated that this was an FHA loan? ATTORNEY KATZ: THE COURT: at the mediation? ATTORNEY CHALIDZE: were there in person. participated by phone. THE COURT: You just said a moment My client and I Yes.

Ms. Chalidze, were you

Mr. Katz and his client

ago that this was the first that you heard this was an FHA loan? ATTORNEY CHALIDZE: For a long time

I haven't been told that the FHA is an investor. What I'm being told today is that I have -- I'm sorry. It doesn't really matter

FHA owns the loan. THE COURT:

whether it's an owner or investor as long as FHA regs apply. And I think that's the heart

of this issue, was that the mediator said: Well, the plaintiff says that under FHA regs it was ineligible. But the mediator's report

didn't indicate that the mediator really was satisfied with that, that's why the Court has to be involved.

Page 21 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 mediation? ATTORNEY CHALIDZE: Yes, your Honor. ATTORNEY CHALIDZE: THE COURT: And I don't --

So the -- I don't think

we need to get into whether it's owner or investor. Apparently the FHA was identified.

But the question is do the FHA regs apply? And what are they? And, frankly, this summary

would not be sufficient. ATTORNEY CHALIDZE: And your Honor,

just for the sake perhaps of my own clarity, there must be some reason that the FHA is involved; in other words, there must have been a method, there must have been some paperwork, some mechanism. This loan didn't just And that's been

magically become an FHA loan.

part of my frustration, that we can't -there's nothing there to show how that occurred. Plaintiff says it is, and plaintiff

says there's an E regulation that applies. THE COURT: Was that issue raised at

And before that I've asked Mr. Katz to provide me with that information. THE COURT: Mr. Katz. I think I -- well --

ATTORNEY KATZ:

Page 22 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (Continued on the next page.) witness. ATTORNEY KATZ: I would, your Honor. I -THE COURT: I don't want to -Okay. I've got to

ATTORNEY KATZ: put my witness on. THE COURT:

Excuse me.

I don't want

to get into what did or didn't happen at mediation. I know I've asked a couple of

questions about that, but I don't want to get into who said what, who said whom; I just want to find out if that was an issue. The real issue now is the status of FHA, which determines the applicability of any regs, and what those regs are, and whether the position taken at mediation was defendable. So if you would like to put on a

Plaintiff calls Stephanie Drum.

Page 23 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A. Q. A. Q. A. Q. A. Q. A. Q. A. Q. DIRECT EXAMINATION BY ATTORNEY KATZ: Q. Could you state your name for the record, please? Stephanie Drum. Stephanie, do you work for Wells Fargo? Yes. How long have you worked for Wells Fargo? For about three years. And what's your title? Loan adjustor 2. And what are your responsibilities as a loan adjustor 2? To underwrite loans for mediations. So you're underwriting loan modifications? Yes. And do you have -- what qualifications are required of you as a Wells Fargo loan was called as a witness by and on behalf of the Plaintiff, and after having been first duly sworn was examined and testified as follows: STEPHANIE DRUM

Page 24 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A. Q. A. A. Q. Q. A. A. Q. A. Q. Q. A. adjustor? We are required to be delegated with our authority to underwrite these loans. to take tests staying in. You have

We are audited, as

well, to show that we're underwriting correctly. So the testing, is that testing required by the government agencies that have regulatory oversight for Wells Fargo? Yes. Do you know which agencies those are? I do not. You know who audits these loans, these loan modifications? Well, we have our inside with Wells Fargo, and then also Treasury, Treasury checks, to make sure we are abiding Treasury guidelines. And this is an FHA loan. process as well? Yes. And are these audits done for both denials of loan modification and approvals? Yes. What happens if you make a mistake? Well, then, of course, it's fixed and then Does FHA audit this

Page 25 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A. Q. A. Q. A. Q. A. A. Q. A. Q. Q. A. Q. A. Q. there's repercussions. Repercussions? Yeah, for the employee. So you don't want to make too many mistakes? Correct. When was the loan, Mr. Pauquette's and Ms. Betit's loan, when was it originated? I believe it was 2007. Okay. And when did it go into default?

2009, August 2009. Okay. August -- they're due for August 2009? And who owns the loan or who is the investor in the loan? It's an FHA-backed loan. And what's Wells Fargo's role? Wells Fargo is the servicer, we service the loan. So after the loan went into default was there contact between Wells Fargo and the borrowers? Yes. When did that begin? It shows in -- based off my notes -- that we reviewed for modification in 2009, and then we placed -- due to the unemployment we placed on a special forbearance for a couple of months

Page 26 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Honor. about? ATTORNEY CHALIDZE: Excuse me, your A. Q. A. Q. Q. A. Q. to give time for the borrower to become employed. Can I stop you right there for a moment? Yes. So at the time that he first -- that this first encounter between the borrowers and Wells Fargo took place, Mr. Pauquette was unemployed? Yes. And so because he was unemployed, was he eligible for HAMP at that time? No. So Wells Fargo in response to his -- to this encounter, Wells Fargo put him on a special forbearance plan, is what you said? Briefly tell us what that was all

I note that the witness is making

reference to a file that's in front of her. Can we have that marked for identification? THE COURT: You need to turn over

your notes and not look at anything, unless you have permission from the Court.

Page 27 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q. A. Q. All right. And, rather than have it marked for identification, Mr. Katz, it can either be used to refresh you recollection or, if you are going to use it for other purposes, then it would have to be marked. ATTORNEY KATZ: Okay.

Let me know if you need to refresh

your recollection by going to your notes. So we were at the terms of the forbearance plan were what? Based off of the review, just by looking back, I recall it being a four-month forbearance. So we had placed foreclosure on hold for a couple of months to give time for employment, and we asked that we be notified, that way we could take a look at retention options where employment was verified. And after the four

months, we had put a payment at the end for the reinstatement or to -- we just put it there to give time to -- for the unemployment to stop and employment to begin. But then

after we didn't know if there had been any more employment, so we removed from loss litigation. Okay. At the end of the forbearance plan had

Page 28 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Honor. A. Q. A. Q. A. Q. A. Q. you heard from Mr. -- from the borrowers that

there was employment during the period of the forbearance plan? No. Okay. Yes. And you mentioned that at the end of the plan there was a payment due; correct? Yes. Did the borrowers make that payment? No. Did the borrowers contact Wells Fargo and ask for an extension of the forbearance plan? ATTORNEY CHALIDZE: Excuse me, your I've tried And that was a four-month plan?

I apologize for objecting.

to be liberal. here.

But we have no foundation

This witness has worked at Wells Fargo

for three years, and she has indicated that her duties relate to attending mediations. it's unclear to me how she would know what occurred during this time frame, and outside the scope of her duties. THE COURT: foundation questions. ATTORNEY KATZ: Sure. You can ask some So

Page 29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A. Q. Q. A. A. Q. A. Q. Q. Have you become familiar with the history of this loan? Yes. And how did you familiarize yourself with that history? Based on Wells Fargo's system notes. Okay. And I want to know a little bit about Are those system notes

those system notes.

made with the personal knowledge of the person making those notes? Does that person, at the

time the notes are made, is that made with the personal knowledge of that person making the notes? Yes. ATTORNEY CHALIDZE: Foundation. THE COURT: Sustained. So these people who Objection.

Is it the duty -- okay.

are making these notes, are they customer service representatives in the loss mitigation department? Yes. Do they have a duty to record what occurred in encounters with borrowers? ATTORNEY CHALIDZE: Objection.

Page 30 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A. A. Q. A. Q. A. Q. A. Q. A. Q. overruled. You may answer, if you know. don't know, say you don't know. Can you ask me again? Sure. Do these people have a duty to make If you Foundation. ATTORNEY KATZ: Your Honor, I'm

asking if they have a duty to make -THE COURT: The objection is

these notes? Yes. And are they -- and you were not a customer service representative, but you were a mediation specialist; right? Yes. And did you make notes during those mediations? Yes. And is it the regular practice of Wells Fargo to make these kinds of notes and records? Yes. And are adjusting loans or reviewing them for modifications, is that a regularly conducted business activity of Wells Fargo? Yes.

Page 31 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 ATTORNEY KATZ: Your Honor, I think

that the foundation for her testimony is established under 803(6). THE COURT: you're asking. I'm not quite sure what

I'm sure Ms. Chalidze will

object if you ask a question -ATTORNEY KATZ: THE COURT: Sure.

-- that she objects to. Sure.

ATTORNEY KATZ: THE COURT:

But I'm concerned that

you're getting involved in the specifics of the facts of delay, which may become an issue. But the first thing that needs to be shown is the FHA regs. ATTORNEY KATZ: THE COURT: Okay.

And I don't know if

you're going to be able to get that through this witness or not. ATTORNEY KATZ: Yeah. Sure.

And I just wanted to

establish that between August 2009 and August 2010 that no evidence of employment. But I can move on because I think that that is pretty well established, that proof of employment had not been submitted

Page 32 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Honor. during that period. THE COURT: I'm sorry; but I'm

taking very careful notes, and through the evidence I do -- that is not clearly established. ATTORNEY KATZ: Okay. But, again,

that's retrospective, which -- I mean I will establish it then. THE COURT: I understand.

Let me repeat, the reason that we're having a hearing is that it was unclear from the mediation report whether or not the plaintiff had a defensible position that FHA regs apply, that FHA regs made a person ineligible for HAMP after some delay, and that that applied in this case. three of those things. ATTORNEY KATZ: BY ATTORNEY KATZ: Q. Is it your understanding that FHA regulations apply to this loan where the FHA is the investor? ATTORNEY CHALIDZE: Excuse me, your All right. So we need all

We've had no foundation for this. ATTORNEY KATZ: If we can answer the

Page 33 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A. Q. Q. A. Q. sustained. question, I don't understand why there needs to be a foundation. THE COURT: The objection is

Her testimony was that this is an That's

FHA-backed loan, that's all she said. all we know. ATTORNEY KATZ: Okay.

Have you adjusted FHA loans previously? Yes. Okay. And are you familiar with the

guidelines that FHA applies to FHA investor loans? Yes. Is one of those guidelines that the loan has to be -- cannot be twelve months or more in arrearage to be eligible for HAMP? ATTORNEY CHALIDZE: Excuse me, your

Honor, I don't think it's appropriate to lead at this juncture. THE COURT: Sustained. Your Honor, I'm

ATTORNEY KATZ:

trying to get through this. THE COURT: That was a very

specifically leading question. ATTORNEY KATZ: Okay.

Page 34 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Honor. Q. A. Q. A. Q. You're familiar with the guidelines. What do the guidelines have to say about arrearage? As far as for HAMP? Yes. For HAMP it cannot be twelve months past due to be -THE COURT: THE WITNESS: Say it again? The loan cannot be

twelve months past due to qualify for HAMP. And between August 2009 and August 2010 did you ever -- did Wells Fargo receive evidence that the borrower was employed and had an earned income? ATTORNEY CHALIDZE: Excuse me, your

Rather than continuing to object, may

I voir dire? THE COURT: As to what? As to the scope

ATTORNEY CHALIDZE:

of this witness' knowledge and duties. THE COURT: No. You may

cross-examine when it's appropriate. ATTORNEY CHALIDZE: Thank you.

In that case, I make a foundation objection to the pending question.

Page 35 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A. Q. A. Q. A. Q. Q. Do you know whether the borrower offered any proof of earned employment income in the period August 2009 to August 2010? Not that I'm aware of. And you would be aware of it if he had; correct? Correct. Okay. And during that time did Wells Fargo

make any efforts to reach out to the borrower and ask for additional information? Yes. And how were those communications made? Phone, letter, et cetera? ATTORNEY CHALIDZE: Your Honor, I

apologize for -- I keep popping up, and I'm sorry. But this witness has very limited She

duties, as I understand her testimony. attends mediations. So I am making a foundation

objection as to how she can testify as to prior time periods and what occurred, and what didn't. If she is regurgitating some records,

I think we should have those identified and placed in evidence. THE COURT: The objection is

Page 36 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q. A. Relevance. Q. A. Q. A. A. Q. Q. overruled. She has testified that she is

familiar with this loan from system notes, and she testified about what the procedure was for making notes within the system. Okay. And in the mediation or later -- now Were the borrowers back

let's skip to 2011. in loss mitigation? Yes. Okay.

And at that point, based on your past

testimony, the borrowers were no longer eligible for HAMP; correct? Correct. Were they considered for anything else? Yes. They were reviewed for internal

modification. And what was the result of that? ATTORNEY CHALIDZE: Excuse me.

This is outside of the scope of

the issues that your Honor -THE COURT: Sustained.

And does NPV -- explain what NPV is briefly? It is the net present value. Um, but that's

normally -- so with HAMP, if HAMP is not running, then it's not -- the NPV is not running.

Page 37 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (Continued on the following page.) Honor. A. Q. Q. A. Q. A. Q. Q. And so -- and NPV wasn't run in 2011 for this borrower; correct? Correct. And the reason being? Is because they weren't reviewed for HAMP. Stephanie, let me show you what's been marked as Plaintiff's 1 for identification. (Exhibit No. 1 was marked for identification.) You mentioned before FHA guidelines, one being that the FHA does not allow HAMP modifications for loans that are more than one year in arrearage. Is that the guideline that you were referring to earlier? Yes. Thank you, Stephanie. questions. I don't have any other

Ms. Chalidze may have some

questions, or the Court may have some questions for you. THE COURT: Ms. Chalidze. Thank you your

ATTORNEY CHALIDZE:

Page 38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q. A. A. Q. A. Q. A. Q. A. Q. A. Q. Q. I didn't hear your name very clearly. spell it for me? It is, S-T-E-P-H-A-N-I-E. Drum? D-R-U-M. Did you have a different name earlier? you married recently? It's been three years. What was your name before that? Stephanie Norris, N-o-r-r-i-s. Is it your view that FHA regulations apply to this loan? Yes. And can you tell us where those regulations are found? Well, we have a way of, when we're underwriting the loans and looking at the loans, that it's in our system that we know that it's a FHA loan. Well, I appreciate that. But I guess my Were Can you CROSS-EXAMINATION BY ATTORNEY CHALIDZE:

question is can you tell the Court today where that regulation is?

Page 39 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A. Q. Q. A. Q. A. Q. A. Q. A. Q. A. Q. Honor. Have you read the particular regulations to which you've referred? Yes. And would you know where to find a copy? Of this (indicating)? Of the regulation. This regulation right here (indicating)? Well, I don't know. Is -- from the HAMP? Are you referring to a particular document? Yes. It's the Making Home Affordable -- this rephrase. ATTORNEY CHALIDZE: Thank you, your object. ATTORNEY KATZ: I am going to

I don't -- I have no idea what the Where it is? I mean it's in Where it is?

question means.

cyberspace, it's at the FHA.

It's is just so unclear, your Honor. THE COURT: Sustained. You may

is actually on the Treasury web site. And it's your understanding, as an officer of Wells Fargo, that that's a regulation? Yes. I see. Have you been given any training by

Page 40 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A. Q. A. Q. A. Q. A. Q. A. Q. Honor. Wells Fargo about what constitutes a regulation? ATTORNEY KATZ: Objection, your

We're really getting far afield. THE COURT: Overruled. She

testified as to regulation, and that Plaintiff's 1 is a regulation. Yes. So you have received some training from Wells Fargo in what constitutes a regulation? Yes. And can you tell us whether this particular regulation on which you rely has any sort of identifying number? Number? Yes. Not that I'm aware of. Okay. Can you tell the Court whether this

particular regulation on which you rely is published in any kind of book that the public could go look at? Not that I'm aware of. Okay. Does Wells Fargo ever lose documents? ATTORNEY KATZ: object to that. I'm going to -- I

I also want to just point out

Page 41 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 that this document is available, as she said, on the Treasury web site. THE COURT: That was her testimony.

What's your objection? ATTORNEY KATZ: about lost documents? your Honor. THE COURT: Sustained. Your Honor, may The question was

That's way far afield,

ATTORNEY CHALIDZE:

I state that we'll connect it up through Mr. Pauquette's testimony. THE COURT: Can you make an offer of

proof about how it relates to the narrow issues? ATTORNEY CHALIDZE: Yes, your Honor.

Mr. Pauquette will testify that he applied for a modification before August 1st, 2010, and was told by Wells Fargo that it had been lost. THE COURT: I'm not sure that we're

going to get that far, unless, Mr. Katz, do you have any other testimony about the applicability of FHA regs besides what's been offered? ATTORNEY KATZ: The applicability.

Page 42 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Well, I mean... ATTORNEY CHALIDZE: So far the

testimony has been that this is an FHA-backed loan. ATTORNEY KATZ: investor loan, yes. ATTORNEY CHALIDZE: it's an FHA-backed loan. The testimony is It's an FHA owned or

There's no specific

information about what that is, of what the relationship is between FHA and the plaintiff in this case. There has also been -- Plaintiff's 1 hasn't been admitted, but, even if it were, I haven't seen a regulation. The problem with

the mediation report was that it indicated that plaintiff says that the reason that this isn't a HAMP loan, that it's ineligible for HAMP is that this is an FHA-backed loan and there was a delay in seeking modification. Well, that's only a defensible position if this is in fact an FHA-backed loan, if there are FHA regs that say delays make a person ineligible, and if there was a delay. We don't even need to get to the

question of whether there was a delay unless

Page 43 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 the plaintiff is able to show that its statement at mediation, that FHA regs apply to this loan -- if it's shown, and I haven't heard that yet. ATTORNEY KATZ: Your Honor, with all

due respect, she testified that the relationship between Wells Fargo and the FHA is that the FHA owns the loan or is the investor. THE COURT: She did not -- you asked Her answer was

her if she was the investor. it's an FHA-backed loan. specific than that.

There's nothing more

I do not know what the I

relationship is between FHA and this loan. do not know what the regulations say.

I mean

I think this is why this is set for hearing, because the mediation report indicated that at the mediation the plaintiff took a position that Mr. Pauquette was ineligible and relied on the fact that this was an FHA-backed loan, and that FHA regs applied, that, under FHA regs, a delay makes a person ineligible and that he delayed. The purpose of this hearing

is to see whether or not that was a defensible statement for FHA -- for Wells Fargo to make

Page 44 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 BY MR. KATZ: Q. Stephanie -ATTORNEY CHALIDZE: Excuse me; I'm at the mediation, and, so far, you haven't shown that it was. ATTORNEY KATZ: if I may, I can try. Well, okay. I mean

But, by the way those Delay

are the mediator's words "the delay." is not the operative criterion.

The operative

criterion is twelve months in arrearage. THE COURT: Fine. But I haven't And I haven't seen

seen a reg that says that.

any connection between any regs that I haven't seen and the loan. ATTORNEY KATZ: THE COURT: May I ask --

I've heard your I am

statement, and I've heard her testimony. looking for it. ATTORNEY KATZ: Okay. You know,

maybe I didn't elicit the testimony in the correct way, but if I may. REDIRECT EXAMINATION

in the middle of my cross-examination here. THE COURT: That is true. But you

were cross-examining on an issue that we may

Page 45 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A. A. Q. A. Q. A. Q. not need to get to. ATTORNEY CHALIDZE: And I'm happy

to -- I understand your Honor's comment, and I'm happy to redirect my cross in light of that comment. BY ATTORNEY KATZ: Q. Stephanie -ATTORNEY CHALIDZE: continuing my cross? THE COURT: I was going to let I'm sorry; am I Thank you.

Mr. Katz supplement his direct before you do continue. ATTORNEY CHALIDZE: REDIRECT EXAMINATION BY ATTORNEY KATZ: Q. Stephanie, what agency is the investor in this loan? The FHA. And as to FHA loans, do FHA guidelines apply? Yes. And you're familiar with those guidelines? Yes. And you're familiar with them? You've Thank you.

adjusted many FHA loans in the past; correct? Correct.

Page 46 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Honor. Q. A. A. Q. A. Q. A. Q. A. Q. Q. And the guidelines -- what was the relevant criterion in 2011, when Mr. Pauquette applied for a loan modification and he was denied for HAMP, what was the reason for that? Because he was past twelve months due. And is that an FHA guideline? Yes. And does that apply to this loan? Yes. And the reason being because the FHA is the investor in this loan? Yes. And, again, the relationship between the plaintiff and the FHA with regard to this loan? Wells Fargo's the servicer, FHA is the investor. And delay, that's not really a criterion under the FHA guidelines; right? ATTORNEY CHALIDZE: Excuse me, your

This is certainly leading. THE COURT: Sustained.

BY ATTORNEY KATZ: Q. Again, the relevant criterion on which that was denied for a HAMP modification in 2011 was

Page 47 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (Continued on the next page.) A. Q. A. Q. Was what? Delinquency past twelve months. And what was the -- okay. past twelve months. in this case? Because it's an FHA loan, and delinquency past twelve months are not eligible for HAMP view. ATTORNEY KATZ: Your Honor, can I I'm doing my So it's delinquent what? ATTORNEY CHALIDZE: Asked and answered. THE COURT: Overruled. Objection.

And why is that relevant

just seek some guidance here.

best to give you what you need to make a decision here. THE COURT: I'm going to give

Ms. Chalidze an opportunity to cross anymore if she likes, not on the delay, not on the facts of delay, but on the applicability of FHA regs. ATTORNEY CHALIDZE: Honor I would like that. Thank you, your

Page 48 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 question. What is the purpose that you're showing her this? ATTORNEY CHALIDZE: The allegation complaint. ATTORNEY KATZ: I'm going to object ATTORNEY CHALIDZE: the witness, your Honor. THE COURT: Yes. And for the sake May I approach RECROSS-EXAMINATION BY ATTORNEY CHALIDZE:

ATTORNEY CHALIDZE:

of the court and counsel, I am showing the witness a copy of the plaintiff's complaint in this matter. ATTORNEY KATZ: copy of that, please? ATTORNEY CHALIDZE: It's your And could I get a

to that, the relevance, that there's no requirement in the rules of federal procedure that the investor in the loan be identified, and the investor could change over time. THE COURT: You're anticipating the

in paragraph 5 refutes the testimony this

Page 49 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 me. ATTORNEY CHALIDZE: I'm sorry; I complaint. ATTORNEY KATZ: I don't have it with Lisa? ATTORNEY CHALIDZE: It's your witness has given. ATTORNEY KATZ: Can I get a copy,

don't have it -- well, you're welcome to look at my pleading book. ATTORNEY KATZ: It's customary, when

you show the witness an exhibit, that you provide -THE COURT: offering it to you. BY ATTORNEY CHALIDZE: Q. Ms. Drum, will you please direct your attention to paragraph 5 of the complaint. And would you be so kind as to read that aloud? ATTORNEY KATZ: Relevance. I object. Excuse me; she is

Wells Fargo may be the

holder of the note; that doesn't mean that -I mean Ms. Chalidze should know this. THE COURT: The objection is

Page 50 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A. Q. Honor. Would you be so kind as to read paragraph 5 into the record? "Said promissory note was transferred by endorsements from CTX Mortgage Company, LLC, to plaintiff, who further endorsed said promissory note in blank, and plaintiff is in possession of the note." not. sustained. ATTORNEY CHALIDZE: I be heard on that point. relevant. THE COURT: How so? Because this Your Honor, may

I think it is

ATTORNEY CHALIDZE:

witness has testified that Wells Fargo is simply the servicer for FHA. That is directly

contradicted by paragraph 5 in the complaint in which it alleges that it is the transferee and assignee. ATTORNEY KATZ: Your Honor, it's

Wells Fargo can be the holder of the

note, that doesn't mean -THE COURT: The objection is

overruled; it does go to credibility. ATTORNEY CHALIDZE: Thank you, your

Page 51 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 object. A. Q. sustained. You may lay a foundation. BY ATTORNEY CHALIDZE: Q. Ms. Drum, will you describe for us, please, the document by which FHA invested in this loan? I don't have the document to that. Have you ever seen that document? ATTORNEY KATZ: I -- again, I A. Q. Q. I apologize if I've been confused by your testimony, ma'am, but would you tell me is FHA an investor in this loan or an owner of this loan? FHA is the investor. Okay. And is there -- excuse me, I'll just

approach to take my document back, if I might -- is this a different set of regulations for loans that are invested in by the FHA as opposed to owned by the FHA? ATTORNEY KATZ: I object. I mean

I'm not sure that -- I object to the foundation. any loans. THE COURT: The objection is I'm not sure that the FHA owned

This is going way beyond the scope of

Page 52 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 me. A. Q. A. Q. Q. Honor. Have you ever seen the document by which FHA invested in this loan? I have not. Do you know how much money FHA invested in this loan? I do not. Do you know the general mechanism by which FHA invested in this loan? ATTORNEY KATZ: Again, objection. overruled. the hearing. investor. She's testified that FHA is the

I don't think we have to show the

papers that show that. THE COURT: The objection is

This is cross-examination on the

specific point on which she gave direct testimony. ATTORNEY CHALIDZE: Thank you, your

She's testified that the regulations -- that the guidelines apply, and that she's applied them in several instances in the past where she's adjusted loans. It's just getting a

little ridiculous, your Honor, really. THE COURT: Mr. Katz, that's up to

Page 53 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A. Q. Q. A. Q. Honor. Do you have the question in mind, Ms. Drum? Can you please repeat. Yes, of course. Do you know the mechanism by which the FHA invested in this loan? I do not. Do you know when the FHA invested in this loan? ATTORNEY KATZ: suggesting. THE COURT: I will make a ruling. That's what I'm

It's an exaggeration, I think, and not a professional way of making an objection to the Court. The objection's overruled. Whether

FHA has a role in this loan and, therefore, whether or not its regs apply and what its regs say is exactly the issue for today's hearing. So questions may be asked pertinent

to her knowledge on that point. She has testified that FHA is the investor, and she may be cross-examined on what that means. ATTORNEY CHALIDZE: Thank you, your

Page 54 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A. Q. A. Q. A. Q. A. Q. A. Q. A. Q. I do not. Do you know who input into the Wells Fargo computer system that this is a, quote, FHA-backed loan, close quote? I do not. Has that ever been part of your duties at Wells Fargo? To know that? Okay. No.

Did you receive any instruction or

training from Wells Fargo in regard to how FHA investments are made? We had to identify the FHA loans. And to identify them you look at a computer system and see a designation made by someone else? Yes. Do you know that the FHA made its investment in this loan prior to May of 2010? I don't remember. Thank you. ATTORNEY KATZ: asked and answered. question. You know, it's been

But I object to the last

May 2010 has no relevance. THE COURT: Sustained. I'm sorry; is

ATTORNEY CHALIDZE:

Page 55 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A. Q. Q. Honor. it -THE COURT: The objection is

sustained, the answer is stricken. ATTORNEY CHALIDZE: Thank you, your

The relevance was that the foreclosure

was filed in May of 2010 and the witness has indicated that she does not know whether the FHA investment was in place at that time. ATTORNEY KATZ: THE COURT: Still not relevant.

We'll take the evidence. Thank you.

ATTORNEY CHALIDZE:

Ms. Drum, would you agree with me that if in fact an FHA one-year post-default prohibition applied, the HAMP modification, which is what I believe you've testified, and if the payment default of Mr. Pauquette occurred as of August 1st, 2009, would you agree with me that going to mediation to consider HAMP alternatives in October of 2011 would be futile? ATTORNEY KATZ: Objection.

Would you repeat the question, please. Yes. Would it be futile to go to a mediation

in October of 2011 if the lender took the position that there was an FHA prohibition against HAMP modification more than twelve

Page 56 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q. Honor. One last question, and, if the Court tells me this is irrelevant for today, I will sit down with no further. Ms. Drum, is it your understanding Q. months after the payment default, and the payment default was as of August 12, 2009? ATTORNEY KATZ: foundation. I object to the

I didn't offer her as an expert

on Vermont's mediation statute. THE COURT: Objection is sustained. I'll try and

ATTORNEY CHALIDZE: rephrase it. I apologize.

I'm looking for your understanding. As an officer and employee of Wells Fargo, is it your understanding that it would be futile to mediate a HAMP loan modification on what Wells Fargo considered an FHA loan that was past twelve months from date of default? ATTORNEY KATZ: I object to the

characterization that HAMP is the only thing that's considered in mediation. THE COURT: Sustained. Thank you, your

ATTORNEY CHALIDZE:

Page 57 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Q. A. Q. A. A. Q. that Wells Fargo N.A. owns this loan? We service the loan. Is it your understanding that Wells Fargo owns the loan? ATTORNEY KATZ: Foundation. Objection.

She testified that FHA is the

investor and that -- and Wells Fargo is the servicer. Ownership -- if she want to define

what ownership is, she can ask that question. THE COURT: fair question. ATTORNEY CHALIDZE: Thank you. It's overruled. It's a

I have not seen the assignment for these, if ownership has changed as far as the deed of trust in the note. Is it your testimony, as you sit here today, that you do not know who owns this loan? I know that Wells Fargo services the loan and FHA is the investor of the loan. I appreciate that information. And I'll try

again; perhaps I'm not being clear. Do you know who owns this loan? ATTORNEY KATZ: I object to the term

ownership; she's not a legal expert. THE COURT: If you don't know, you

Page 58 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A. Q. Q. A. Q. A. A. can say you don't know. I don't know. ATTORNEY CHALIDZE: Nothing further. THE COURT: Again confining it to Thank you.

the issue of applicability of FHA, Mr. Katz, do you have any redirect? ATTORNEY KATZ: Sure. Yes.

REDIRECT EXAMINATION BY ATTORNEY KATZ: Q. You have -- again, you've been an adjustor of loans? Yes. And how do you know that they're FHA loans? In our system, where all of the information is input, we can go in and see who the investor of the loan is. guidelines. Okay. And those records -- is it your You have to go by the You've done FHA loans; right?

understanding that those records are made by someone who knows the facts that they're recording, inputting into your records? Yes. And are they generally done at the time of the event?

Page 59 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 A. Q. A. Q. A. Q. A. Q. A. Q. A. Q. A. Q. A. Q. Yes. And are those the kind of records that are regularly kept by Wells Fargo? I'm not sure. Well, does Wells Fargo regularly keep records of the identity of the investor in the loan? Yes. And are those records kept in the course of a regularly conducted business activity of Wells Fargo? As far as maintained? Yes. Yes. And as a loan adjustor you rely on those records; correct? Yes. And the other adjusters rely on those records; correct? Yes, correct. And your files are audited; right? So if

someone made a mistake on this, and it wasn't an FHA loan, that could show up in an audit of Wells Fargo's loan files; correct? Correct. And Wells Fargo -- I mean the individual who

Page 60 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 I object. testimony. A. Q. A. Q. put in the wrong information would be subject to penalties? Correct. And Wells Fargo could be subject to penalties? I'm sure, yeah. Thank you, Stephanie. THE COURT: That completes your

You may step down. ATTORNEY CHALIDZE: May I have my

pleadings back, please. ATTORNEY KATZ: Your Honor, I'm

going to move Plaintiff's 1. THE COURT: Any objection? Yes, your Honor. We

ATTORNEY CHALIDZE:

This is completely hearsay.

haven't had adequate authentication, and we really haven't had adequate identification. ATTORNEY KATZ: Your Honor, I've

pulled this off the Treasury's web site. THE COURT: Objection is overruled.

Admissibility is supported by her testimony that these were the FHA guidelines that she referred to in her testimony, that a loan cannot be more than twelve months past due to qualify for HAMP.

Page 61 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (Exhibit 1 received in evidence.) THE COURT: Okay. We all know that

the foreclosure mediation statute is new, it's unique, and it's something that we all need to work with and understand and figure out how to apply in the large number of cases to which it's applicable. The mediation report in this case indicated that the NPV calculation was not run or provided because of the plaintiff's position that the loan was an FHA-backed loan and, therefore, ineligible for HAMP modification. The wording of the report -- and perhaps I'm putting a fine point on it -- but the wording of the report suggested that the mediator took no position on whether that was true or not, the mediator was informed by the plaintiff that the reason that the NPV calculation was not provided or done at the mediation was that the case was not eligible for HAMP, and the mediator simply reported what the plaintiff's position was on HAMP eligibility. That's the reason for which this And, as I identified

hearing was scheduled.

Page 62 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 earlier, the issue is a narrow one. The Court

has to determine whether or not the plaintiff complied with its obligations, and the obligations including -- include providing accurate information about eligibility. What I, frankly, expected to have happen at the hearing was that -- this hearing -- is that the plaintiff would provide to the defendant and the Court the specifics about the status of FHA's role. We have had

testimony, and it is credible and undisputed, that FHA is an investor in this loan. It's

not very specific, but there does not seem to be a dispute about that, and there has been a representation that that information was provided at the mediation session. However, in order for the plaintiff's position at mediation to have -that there -- about ineligibility, there are a couple of further pieces of information that are important. One is on what basis do

specific regulations apply, and what are those regulations, and that's before we even get to the facts of the defendant's situation. the plaintiff has not provided credible And

Page 63 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 information about that. The -- I haven't been shown the provisions of HAMP that show that -- show why the investor regulations or the regulations of FHA in this particular case would apply. also haven't been shown the regulations. Plaintiff's 1 has been admitted. The witness identified it as regulations that establish that nonpayment for over twelve months makes a person ineligible, but I do not find that evidence credible. Plaintiff's 1 I

does not, in and of itself, look like a regulation at all. It may be a summary of a It is not

program, but it's not a regulation. specific.

There's no specific linkage between

actual content of regulations and the reason given by the plaintiff at the mediation for obtaining eligibility. So as of now plaintiff That's not to

has not yet shown compliance.

say that it couldn't, it's just that it hasn't been shown. Because this is a new procedure, and because it may not have been clear what the Court's expectations were for what had been shown at the hearing today, there are really

Page 64 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 two possible choices. One is to give the

plaintiff an opportunity to provide more information; in other words, continue the hearing to another time where the necessary information can be provided. In that case it

would seem to me to be reasonable that if the defendant has incurred additional attorney's fees in having to come back twice for this hearing, plaintiff may need to be responsible for that. The second is, just simply, I'll make the decision just based on what I heard today, which there is an insufficient basis to determine that the plaintiff has complied with obligations, in which case the next step is the termination of sanctions. And that is not

something we will do today in any case. So let me ask, Mr. Katz, you may want a moment or two to reflect on whether or not you'd like to have a continuation of the hearing in order to have another chance to provide the information that I've identified as what would be needed, or is it your request to have the Court just simply make its determination today?

Page 65 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 ATTORNEY KATZ: No, that's not my --

that's not what I'm asking the Court to do. I will note that this Plaintiff's 1, which was admitted, is -- it's on U.S. Department of Housing and Urban Development letterhead. It talks about FHA loans and the I'm not -- this -- it comes I'm not sure -- if you

FHA HAMP program.

from the HUD web site.

could just give me a little bit of guidance, because this should be easy to do -- and I'm not sure that we need to come back for a hearing. THE COURT: missing links. apply? Well, there are two

One is why do fed regulations What's

And, secondly, what are they?

the content? a program. regulation.

This appears to be a summary of It does not appear to be a

ATTORNEY KATZ:

Yes.

And I'm not But I'll go

sure that there is a regulation. back and look for it. THE COURT: regulation -ATTORNEY KATZ: There is no

This may be it.

You may be -- speaking of the --

Page 66 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 what we're all familiar with, those HAMP guidelines that we've all seen and have been circulated to people who are interested in these sorts of things, and that is specifically not the -- specifically not pertinent to GSE-backed loans, GSE meaning like the FHA, Fannie Mae, and Freddie Mack. So to the extent that you're thinking that that is not applicable in this case. THE COURT: I'm thinking about. I don't really know what But all I can say is that

you haven't shown that the plaintiff had a defensible support for its statement, at mediation, that this loan was ineligible because of FHA requirements. ATTORNEY KATZ: And Stephanie's

testimony, that this is what they look to is not -THE COURT: It's not credible. It's

not sufficiently supported.

And, you know,

there may be legal materials that you could provide that would do the job. ATTORNEY KATZ: Well, we'll

certainly be providing the Court with something.

Page 67 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 THE COURT: Okay. I certainly don't

mean to be critical of Ms. Drum's role, because she has a particular role in the process. This may be beyond her. So I don't

mean to imply that she should know something that she doesn't know. But the purpose of the hearing is to determine whether or not there was a -- that was a position that was -- that was a defensible position, and, therefore, properly justified not making an NPV calculation. so it may not be within the purview of her work to do that analysis. purpose of today's hearing. But, again, because this is all new, I'm certainly willing to continue the hearing to give you another opportunity. ATTORNEY KATZ: Yes. And I have to But it was the And

say I read the order and I tried to do -- I tried to provide the Court with what -reading the order -- what it appeared to request. And I did not know that I needed to

bring, you know, some sort of legal expert to talk about FHA regulations. THE COURT: Certainly issues of law

Page 68 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 and applicability of legal principals are something a lawyer can argue. ATTORNEY KATZ: THE COURT: Yes.

But they're also -- it

needs to be more than a flat statement. Invite somebody who is perhaps trained to look at the computer and say this is an FHA loan, therefore, something or other happens; but that isn't the same as showing that this is a proper -- that the regs apply, that the regs say a certain thing; and then finally the factual basis. So. And, as you say, due

ATTORNEY KATZ:

to the newness and the unclarity of the statute. I mean I guess we can argue this at another time, but I think attorney's fees would be particularly inappropriate. And,

even if they were, and to the extent they are assessed -- it would be totally inappropriate if they would be -- but they should be an offset to the judgment. THE COURT: We'll reserve the issue

of attorney's fees for another day. ATTORNEY CHALIDZE: Thank you, your

Page 69 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Honor. THE COURT: So I take it you are

asking to be able to continue the hearing to present more evidence? ATTORNEY KATZ: Yes, your Honor. Or

being able to maybe provide something and having the Court determine that meets the Court's -- what the Court is looking for. THE COURT: It may be that that

would be a practical solution, that you could offer affidavits or something in writing, and then give Ms. Chalidze an opportunity to identify any disputes of facts on that issue or make a request for a hearing, and why a hearing would be needed, so that we could avoid an unnecessary hearing. ATTORNEY CHALIDZE: Your Honor, I do

have outstanding document production requests. What I don't want is to be put at the disadvantage is just simply having to get an affidavit, and not be able to view the paper trail myself to really test the validity of that. I think there are roughly a couple

of weeks left of response period on the document production request. So I think once

Page 70 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 we get those -- and I have asked for things for a long time, like what is the document -ATTORNEY KATZ: Excuse me; there has

not been any requests, your Honor, and nothing in writing. THE COURT: Okay. What I am going

to do is set April 20th as a date by which -well, I'll give a little bit more time than that -- April 30th, a full month, for Mr. Katz to make a written submission, and then you'll have the fifteen-day response time. And I

will determine from that whether or not there is need for a continued oral hearing. ATTORNEY CHALIDZE: May I also

request then, your Honor, that plaintiff is ordered to respond to my request to produce by the same date, April 30th. THE COURT: propounded? ATTORNEY CHALIDZE: propounded some weeks ago. THE COURT: already a due date. ATTORNEY CHALIDZE: Yes, your Honor. Well, then there's Yes, they were Have they already been

But if they don't do it, then they don't do

Page 71 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (Whereupon, the hearing was adjourned at 2:25 p.m.) * * * * * Honor. Honor. ATTORNEY KATZ: Thank you, your it, and I'll be at the same disadvantage. Whereas, if the Court orders them to, then I would be able to make an informed assessment and then assist the Court in doing the same. THE COURT: I'm not going to do that

because any hearing of the type that we're having today should actually be a short summary hearing, it shouldn't open the case wide up. And part of that is that I think it

is the expectation of the statute, and the requirement to have this kind of a hearing, that plaintiffs do at mediation provide the necessary documentation to support the position. happen. And that is what I do expect to And I'd hope that prior to today that

might have happened so that this hearing might not have even been necessary. ATTORNEY CHALIDZE: Thank you, your

Page 72 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 __________________________________ Barry Cohen, RPR and Notary Public My Commission Expires: February 10, 2015 RE: DOCKET NO. C E R T I F I C A T E STATE OF VERMONT Wells Fargo v. Pauquette, et al. 408-5-10

I, BARRY COHEN, a Registered Professional Reporter and Notary Public in and for the State of Vermont, do hereby certify as follows: 1. That the hearing before the Superior Court, Rutland Division, whose testimony is hereinbefore set forth, was duly recorded by me on March 29, 2012; 2. That such testimony was transcribed by me and is a true and accurate record of the testimony given at the said hearing, to the best of my knowledge, skill and ability; 3. I further certify that I am neither attorney for, nor related to or employed by any of the parties, nor financially interested in this matter; and 4. That a dash as used through this transcript is meant to represent an interruption in thought or between a question and answer. IN WITNESS THEREOF, I hereunto set my hand and Notarial seal this 3rd day of April, 2012.