United States District Court Northern District of Illinois: Usactive 27104550.15

Case: 1:12-cv-09612 Document #: 1 Filed: 12/03/12 Page 1 of 45 PageID #:1
UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF ILLINOIS
BANK OF AMERICA, NATIONAL ASSOCIATION, as successor by merger to LASALLE BANK NATIONAL ASSOCIATION,
) ) ) ) ) Plaintiff, ) ) v. ) WELLS FARGO BANK, N.A., in its ) Capacity as Trustee for the ) Certificateholders of Commercial Mortgage ) Pass-Through Certificates, Series ) 2006-MF4, Acting by and through ) MIDLAND LOAN SERVICES, ) ) Defendant. )
Case Number:
Judge:
Magistrate Judge:
COMPLAINT Plaintiff, BANK OF AMERICA, NATIONAL ASSOCIATION (Plaintiff or Bank of America), as successor by merger to LaSalle Bank National Association (LaSalle), by and through its attorneys, John M. Riccione, William J. Serritella, Jr. and Amy M. Rapoport of Aronberg Goldgehn and Gregory A. Markel and Jason M. Halper of Cadwalader, Wickersham & Taft LLP, alleges for and as its complaint (the Complaint) as follows: NATURE OF THE ACTION 1. Bank of America has commenced this action to resolve an actual dispute
involving an improper attempt by Wells Fargo Bank, N.A. (Wells) to rescind a transaction consummated almost six years ago involving the sale and securitization of a pool of hundreds of mortgage loans by demanding that Bank of America repurchase all of the remaining loans in the pool notwithstanding the fact that most of the loans at issue are performing in accordance with
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their terms (i.e., the borrowers of the loans are paying their mortgages as payments are due). Indeed, the vast majority of the loans in the pool at issue either is current or already has been paid off completely. 2. Wells is the trustee for the holders of Commercial Mortgage Pass-Through
Certificates, Series 2006-MF4 (MF4). The MF4 certificates (Certificates) are bonds that give the holders (Certificateholders) rights to certain periodic payments from the MF4 securitization trust, which owns several hundred small-balance1 multi-family mortgage loans originally made by LaSalles Multifamily Finance Group (MFG). The MF4 securitization transaction is governed by a Mortgage Loan Purchase Agreement, dated December 20, 2006 (MF4 MLPA) and a Pooling and Servicing Agreement, dated December 1, 2006 (MF4 PSA). 3. In this dispute, Wells is acting by and through the special servicer for the
MF4 trust, Midland Loan Services (Midland). Wells, acting by and through Midland, is also referred to herein as Defendant. By letter dated September 5, 2012 (the September Demand Letter), Midland demanded that Bank of America repurchase by the end of the Initial Cure Period all loans in the MF4 securitization other than those that have been paid off as agreed (Loans or Mortgage Loans) alleging breaches of various representations and warranties in the MF4 MLPA that Midland claims arise from alleged systemic flaws in the way that MFG underwrote the Loans.2 But Defendants demand that Bank of America repurchase all the Loans en masse, and thereby rescind the MF4 securitization transaction, is not permitted by the
1 2
Small-balance loans are typically loans that are $1 million or less.
Under the MF4 PSA and MF4 MLPA, the Initial Cure Period is 90 days after receipt of notice of the alleged breach, which, for the systemic flaws claims raised in the September Demand Letter would be December 4, 2012. For the claims made in the supplemental letter of November 30, 2012, the end of the cure period would be February 28, 2013.
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controlling transaction documents or by applicable law. 4. In essence, Defendant is seeking to rewrite the governing contracts and
rescind the MF4 transaction without having to satisfy the explicit, agreed-upon requirements and procedures under the relevant contracts that apply to each individual Loan as to which repurchase is sought. More specifically, among the requirements to compel a repurchase of any of the Loans is that Defendant demonstrate (1) that LaSalle materially breached a representation it made in the contracts governing its sale of the particular Loan in question and (2) that this material breach caused a material adverse effect on the value of the individual Loan at issue, the value of the mortgaged property serving as collateral for the Loan at issue (Mortgaged Property) or the interests of the Certificateholders in such Loan or property. Because the governing documents require Defendant to demonstrate a material breach and a material adverse effect with respect to each and every Loan for which it seeks repurchase, the documents simply do not allow for a blanket demand like the one Midland has made. This contractual requirement is logical because, among other reasons, it prevents Defendant from demanding the repurchase of performing loansloans that by definition have not been materially or adversely affected by a breach of any representation or warranty. 5. If the Court resolves this issue and determines that any repurchase claim
must be resolved on a loan-by-loan basis, there will be no need for this Court to resolve whether Defendants allegations of systemic flaws are correct and, in fact, they are without merit. In 2011, a jury in Oklahoma implicitly rejected Defendants theory that all of LaSalles MFG underwriting was compromised by these alleged systemic flaws. In that case, which related to three loans underwritten by LaSalles MFG program during approximately the same time period as is at issue here, and involving loans cherry-picked by the plaintiffs to be included in that case, the jury rejected Wells claim and refused to require Bank of America to repurchase one of the -3USActive 27104550.15
three loans at issue in that actiona decision that is impossible to square with Defendants theory that supposed systemic flaws infected each loan underwritten by LaSalles MFG. See Wells Fargo Bank N.A. v. LaSalle Bank National Association, Civ. No. 5:08-cv-1125-C (W.D. Okla.) [Dkt. No. 515]. 6. On November 30, 2012, on the eve of the end of the Initial Cure Period,
Defendant sent another letter (the November Demand Letter) in which it claimed to have discovered numerous technical deficiencies for each of the 47 individual Loans and demanded that Bank of America repurchase these 47 Loans within the Initial Cure Period. Different alleged deficiencies are listed for different loans, and Defendant makes the incorrect conclusory claim that these various deficiencies form the basis of separate alleged breaches of various representations and warranties as to each of the 47 Loans. Tellingly, despite having purportedly reviewed each of the 47 Loans in detail, Defendant fails to set forth how each of them were affected by the alleged systematic flaws in LaSalles underwriting. In other words, despite claiming on the one hand that all of the Loans in MF4 were infected by systematic flaws in LaSalles underwriting, Defendant has already admitted in the other that it has failed to find any evidence that those alleged systematic flaws affected all of the 47 Loans it reviewed. This fundamental inconsistency between Defendants systematic flaws theory and the technical deficiencies it claims to have found when it actually reviewed 47 of the Loans should put an end to any question of the merits of Defendants en masse approach to this dispute. 7. Nonetheless, Defendants assertions in the November Demand Letter not
only fail to cure the deficiencies of the September Demand Letter, but its eleventh-hour allegations concerning each of the 47 individual Loans at issue also fail to satisfy the requirements under the governing contracts and applicable law to compel a repurchase of any of those individual Loans. Not only does Defendant fail to demonstrate how the alleged technical -4USActive 27104550.15
deficiencies (whether individually or in the aggregate) amount to a material breach of a representation and warranty, but Defendant does not even assert the alleged breaches caused a material adverse effect sufficient to trigger Bank of Americas repurchase obligation. Both a material breach of a representation and the requisite material adverse effect proximately caused by the material breach must be demonstrated as to each individual loan in order to compel Bank of America to repurchase that particular loan. 8. Defendant also purported to require a response to the November Demand
Letter within the Initial Cure Period purportedly triggered by the September Demand Letter, which expires on December 4, 2012, just four days after it sent the November Demand Letter. The governing contracts, however, clearly call for a 90 day period to respond to these newly asserted claims. 9. In addition, Defendant is seeking the wrong remedy. Notwithstanding its
November Demand Letter, Defendant continues to seek the equitable relief of repurchase en masse. But equitable relief is inappropriate here because money damages are adequate and equitable considerations weigh strongly against rescinding a transaction completed close to six years ago. 10. Moreover, Defendants demand that Bank of America repurchase
defaulted Loans that were collateralized by Mortgaged Properties that have been sold in foreclosure is invalid because those Loans have been extinguished by those foreclosures and therefore cannot be repurchasedthey no longer exist at all. 11. Defendant also has failed to satisfy the requirement under the governing
contracts to provide prompt notice to Bank of America of the alleged breaches relating to the socalled systemic flaws. Defendant has long been aware of the circumstances it now claims are the alleged systemic flaws in MFGs underwriting and appraisal ordering processes that form -5USActive 27104550.15
the basis of its breach claims. Indeed, Wells has been engaged in litigation relating to LaSalles MFG program since 2008, and, acting through another special servicer, made a nearly identical demand based on the same systemic flaws at issue here that Bank of America repurchase all of the loans in two other MFG trusts in August 2010, more than two years before Midland made the repurchase demand that is the basis for this dispute. 12. Bank of America, as successor to LaSalle, therefore seeks the following
declarations from this Court pursuant to 28 U.S.C.A. 2201: In order to seek repurchase of any Mortgage Loan under the MF4 MLPA and MF4 PSA, Defendant must establish separately as to each individual Loan that: (i) LaSalle breached a representation and warranty in the MF4 MLPA with respect to that Loan; (ii) the breach was material; and (iii) such material breach caused a material adverse effect on the value of that Mortgage Loan, the value of the related Mortgaged Property or the interests of Certificateholders in such Loan or property; Defendant is not entitled to repurchase en masse and to effectively rescind the MF4 transaction which was consummated almost six years ago because such a remedy is contrary to the contracts and, to the extent any remedy is warranted, money damages are adequate and equitable considerations mandate that such a completed transaction not be rescinded almost six years after the fact; Defendant cannot seek the remedy of repurchase of defaulted Loans collateralized by Mortgaged Properties that have been sold in foreclosure or will be sold in foreclosure during the pendency of this action; There is no merit to Defendants allegations that there existed systemic flaws in MFGs underwriting or appraisal ordering processes or, with respect to those Loans secured by Mortgaged Properties in Oklahoma and Washington, that the mortgage loan documents for those Loans contained insufficient power-of-sale language for non-judicial foreclosures; Defendant is not entitled to the repurchase of any Loan as a result of any so-called systemic flaw because Defendant has failed to demonstrate, as it must to compel repurchase, that the existence of any such systemic flaw is a material breach of any of the representations and warranties at issue here or that any such material breach caused a material adverse effect on the value of a particular Loan in question, the value of the related
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Mortgaged Property, or the interests of the Certificateholders in such Loan or property. Bank of America is not required to repurchase the 47 Loans listed in the November Demand Letter based on the alleged technical deficiencies described therein because Defendant has failed to demonstrate (i) a material breach of any representation as to any of those 47 individual Loans; (ii) that any such material breach caused the requisite material adverse effect and (iii) the conclusory nature of Defendants claim, that an alleged technical deficiency noted as to a particular Loan amounts to a breach of a representation as to that particular Loan, is incorrect and is inadequately noticed under the MF4 PSA. Defendant did not give prompt notice of the alleged systemic breaches as is required under the MF4 governing documents; and Bank of America is entitled to the information it requested by letter, dated October 22, 2012, to Defendant. THE PARTIES, JURISDICTION AND VENUE 13. At the time of the events at issue in this Complaint, LaSalle was a national
banking association with its principal place of business in Chicago, Illinois. LaSalle merged with Bank of America on October 1, 2007 and assumed the Bank of America name on May 5, 2008. At the time of the merger, Bank of America assumed all of LaSalles rights and
obligations under the MF4 MLPA and MF4 PSA. 14. Bank of America is a national banking association, which has its main
office and its principal place of business in the State of North Carolina. 15. Defendant Wells is a national banking association, which has its main
office, as specified in its Articles of Association, in the State of South Dakota and has its principal place of business in the State of California. Wells as the Trustee of MF4 is acting on behalf of the MF4 Trust by and through Midland, the Master Servicer and Special Servicer for MF4. Under the MF4 PSA, the Master Servicer and Special Servicer carry out the legal
prosecution of claims under the MF4 MLPA for the benefit of the Certificateholders and the
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Trustee. 16. Jurisdiction is appropriate in this Court pursuant to 28 U.S.C. 1332(a)
because this action is between citizens of different States and the amount in controversy exceeds the sum or value of $75,000, exclusive of interests and costs. 17. Venue is appropriate in this District pursuant to 28 U.S.C. 1391 because
a substantial part of the alleged events or omissions giving rise to the dispute (described below) occurred in this judicial District and because Defendant is subject to personal jurisdiction in this District. ACTUAL CONTROVERSY 18. In the September Demand Letter, Defendant demanded that Bank of
America agree to repurchase all of the remaining Loans in MF4, despite the fact that a substantial majority of the Loans were performing and a number of MF4 loans had already been repaid in full. Defendant premised its demand on purported (but non-existent) systemic flaws in LaSalles underwriting and appraisal ordering processes. Defendant also seeks repurchase of those Loans with collateral Mortgaged Properties located in Oklahoma and Washington, where the mortgage loan documents for those Loans allegedly contained insufficient power-of-sale language for non-judicial foreclosures. 19. Defendant failed (and is unable) to claim on a loan-by-loan basis that there
was a material breach of a representation and warranty in the MF4 MLPA for each such Loan or that any such material breach caused a material adverse effect on the value of a particular Loan in question, the value of the related Mortgaged Property, or the interests of the Certificateholders in such Loan or property. Instead, Defendant offers the conclusion, devoid of a supporting rationale or factual basis, that the alleged breaches materially and adversely affected the value
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of the Loans, the value of the related Mortgaged Properties, or the interests of the Certificateholders, including but not limited to diminishing the value of the Loans to Certificateholders. 20. This conclusory statement in support of essential elements of its claim
flies in the face of the fact that the vast majority of the Loans are performing or have been repaid in full and that the cause of any defaults is not LaSalles underwriting or appraisal ordering processes, but the worst economic decline since the Great Depression. The high percentage of performing Loans, in and of itself, is strong evidence that the Loans were properly made, especially given subsequent economic events. 21. Rather than acknowledge the consequences of the market and economic
downturn of the past few years, Defendant seeks to require Bank of America to assume guarantee obligations, to which LaSalle never agreed, against non-payments by any borrower on any Loan made and then securitized by LaSalle, and even against speculative future nonpayments on Loans that are currently performing. There is no basis for imposing such
obligations on Bank of America or to effectively rescind the MF4 transaction. 22. Despite being notified by Bank of America in an October 22, 2012 letter
that its repurchase demand is inappropriate and fails to comply with the contractual requirements of the MF4 PSA and MF4 MLPA, Defendant insists that (1) Bank of America is obligated to (a) cure nonexistent defaults or (b) repurchase or replace all of the Loans; and that (2) Defendant has no duty to identify the material breaches or the allegedly resulting material adverse effects on a loan-by-loan basis. 23. Notwithstanding its awareness that repurchase of defaulted Loans that
were collateralized by Mortgaged Properties that have been sold in foreclosure is neither contractually mandated nor possible, Defendant includes such Loans in its repurchase demand. -9USActive 27104550.15
24.
Separately, Defendant is further precluded from obtaining repurchase of
any of the Loans because it cannot establish that there were systemic flaws in MFGs origination or underwriting processes, or in MFGs closing or servicing of the Loans, or that any such systemic flaws caused a material breach of any representations and warranties or that the defaults that have occurred were caused by what Defendant incorrectly alleges are systemic flaws in LaSalles processes. 25. Defendant also failed to comply with its obligation under the governing
contracts to give prompt notice to Bank of America of the alleged breaches notwithstanding that Defendant became aware of the circumstances that it now claims are systemic flaws more than 3 years ago and asserted they existed in other cases. 26. Defendant also has improperly failed to provide Bank of America with
any of the information requested by Bank of America following its receipt of the September Demand Letter. 27. In the late afternoon on Friday November 30, 2012, four days prior to the
end of the Initial Cure Period triggered by the September Demand Letter, Defendant sent the November Demand Letter in which it claimed LaSalle breached various representations and warranties with respect to 47 individual Loans listed on an attached Schedule B and demanded that Bank of America repurchase these 47 individual Loans within the Initial Cure Period. In Schedule B, Defendant discusses numerous and varied technical deficiencies relating separately to each of the 47 Loans, and then makes the conclusory claim in its letter that these various alleged deficiencies form the basis of breaches of various representations as to each separate Loan. The variety and lack of uniformity of the claims asserted with respect to the 47 Loans at issue in that letter is supportive of the fact that Defendants theory that it can seek repurchase of the Loans en masse on a theory of pervasive systemic flaws is wrong and that this dispute will -10USActive 27104550.15
ultimately have to be decided on a loan-by-loan basis. Moreover, nothing in the November Demand Letter cures the deficiencies of the September Demand Letter. 28. The allegations described in the November Demand Letter fail to satisfy
the requirements under the governing contracts and applicable law to compel a repurchase of the 47 individual Loans because Defendant does not (1) allege or attempt to demonstrate that LaSalle materially breached the representation at issue as to each related Loan; or (2) allege beyond an inadequate conclusory sentence that any such material breach caused a material adverse effect on the value of the individual Loan at issue, the value of the Mortgaged Property or the interests of the Certificateholders in such Loan or property. Moreover, Defendant fails to demonstrate how the alleged technical deficiencies noted as to a particular Loan (whether individually or in the aggregate) amount to a breach of a representation as to that particular Loan. Any such conclusory claim of a breach of a representation and warranty is inadequate notice under the MF4 PSA. 29. The November Demand Letter does not give adequate notice under the
MF4 PSA because it purports to give only four days rather than 90 days to cure or repurchase. The plain and unambiguous language of the governing contracts does not support Defendants claim that Bank of America is required to cure the alleged breaches or repurchase the 47 Loans by the end of the Initial Cure Period. FACTS A. The Economic Downturn of 2007 30. The Loans in MF4 were made during a time of strong and expanding
credit markets. From 2004 through mid-2007, market and economic conditions were strong, access to bank credit was abundant and investors demonstrated large appetites for loan products.
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31.
During this same period, real estate markets and values were generally As a result, the
appreciating, loan performance was good, and loan losses were stable.
commercial real estate lending market was also strong during this period. Securitizations were a common investment vehicle for sophisticated investors. 32. Sophisticated investment businesses and financial institutions that
acquired the Certificates in this period assumed the risks associated with these securities. As a general matter, investors were aware of these risks because of (1) their sophistication, (2) extensive disclosures, warnings and risk factors in the MF4 Offering Memoranda; (3) the review of loan pools by rating agencies and due diligence by investment banks; and (4) the extensive review of loan files and other due diligence performed by the buyers of the riskiest and most subordinate of the Certificates (also known as the B-Piece). As these sophisticated investors knew, industry lending standards in this period were influenced by the industrys view of a strong, liquid, and competitive commercial real estate market. 33. However, this period of strong and expanding credit markets was
followed, in or around mid-2007, by the worst economic and real-estate downturn since the Great Depression. 34. This downturnwhich negatively and substantially affected, among other
things, employment rates, loan repayments and real estate valuesresulted in a significant increase nationwide in vacancies, tenant delinquencies and unemployment, which in turn caused an increase in borrower delinquency rates on commercial real estate loans. 35. In short, the performance of the Loans in the MF4 securitization was
unquestionably affected by dramatically altered economic conditions that were wholly unrelated to LaSalles underwriting, appraisal or closing practices.
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B.
The Small-Balance Commercial Loan Process 36. The commercial loan process within LaSalles MFG lending operation
involved four separate and distinct processes or phases, which allowed for the segregation of duties. These processes were: (1) loan production or origination, (2) credit control or
underwriting, (3) closing, and (4) servicing and collection. 37. Origination is the sourcing of potential new loans, including first contact
with a prospective borrower or the borrowers broker; discussion of potential financing arrangements and alternatives; and the submission of an application for an extension of credit. During the origination phase, potential borrowers or loan brokers communicated with LaSalle and, based on conversations with LaSalle originators, decided whether to apply for loans. 38. Underwriting is a distinct function from origination and includes the due
diligence and analysis process related to the borrowers and collateral properties, which results ultimately in loan approval or denial. The underwriting process itself includes the review of financial information from the borrower as well as information on the proposed collateral. It often includes third party reports, such as appraisals, inspections, and/or environmental studies. The customary extent of this review will vary depending on the size and complexity of the loan, internal guidelines, and then-prevailing customary industry standards. Decisions on whether to extend credit are reached by credit officers and underwriters, and internal policies and procedures are taken into consideration. However, the judgment of individual underwriters and credit officers is also part of this decision process. As a result, exceptions to underwriting guidelines are common in any underwriting process and, as was disclosed to potential investors, were made in certain instances with respect to the underwriting of MF4 loans. Exceptions to underwriting guidelines are often not violations of industry standards because, among other reasons, underwriting guidelines may set a higher standard than industry standards.
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39.
The closing phase occurs after credit has been approved and includes the
loan funding process. The loan closing function includes the preparation of legal documents, the execution and recording of the loan documents and finally the disbursement of loan proceeds. It is common that certain documents are available at closing, and to the closer, that were not available at the underwriting stage. The closers primary responsibility is to ensure that the appropriate lien is recorded and that the property is titled in the name of the borrower. The closer does not re-underwrite the loan. 40. The final phase of the small-balance commercial loan process is servicing
and collection. This comes after the funds have been disbursed and the loan has been closed. The servicing and collection phase continues until the loan is paid off, liquidated, or transferred to another servicer. Servicing and collection include the preparation of monthly billing
statements regarding the loan, the collection of monthly principal and interest payments and, if applicable, the collection and payment of escrowed expenses, etc. They may also include the receipt of periodic financial reporting and (in the context of a securitization) the distribution of such information to investors. In the event of a non-performing asset, these phases would also include the workout of a loan or its liquidation. C. The MF4 Securitization Transaction 41. LaSalles MFG originated, underwrote, closed and funded the MF4 loans.
Most of the MF4 loans were small-balance multi-family commercial loans supported primarily by the collateral Mortgaged Properties rental income stream. 42. LaSalle thereafter securitized the MF4 loans pursuant to the terms of the
MF4 MLPA and MF4 PSA. Pursuant to the MF4 MLPA, the MF4 loans were transferred to a depositor, LaSalle Commercial Mortgage Securities, Inc., which then deposited the MF4 loans into the MF4 Trust pursuant to the MF4 PSA and transferred certain rights and interests in the -14USActive 27104550.15
MF4 loans to Wells, the Trustee for the MF4 Trust. The MF4 loans were acquired with the proceeds from the issuance of the Certificates, which were sold to institutional investors and represent interests in the MF4 Trust. The Trustee acts on behalf of the MF4 Trust and thereby the interests of the Certificateholders. 43. Memoranda. The Certificates were offered to institutional investors3 via Offering
The Offering Memoranda for the MF4 securitization contained detailed
information concerning the underlying transactions, including information regarding participants, structure, terms, conditions, underwriting guidelines, loan servicing requirements, collateral types, mortgage pool characteristics, loan level characteristics, concentrations, yields, maturities, payouts, considerations, agreements, tax considerations, ratings, and legal aspects. Information about the borrowers (the vast majority of the Loans were recourse), included data such as credit histories, FICO scores, and additional real estate owned. Information about the Loans included loan-to-value ratios, debt service coverage ratios, maturities, amortization characteristics, interest rates, seasoning and pre-payment provisions. Information about the Mortgaged Properties
included property type (multi-family, mobile home park or mixed use), address, year built, occupancy percentage, security type, percent borrower recourse, and the geographic concentration of the MF4 loans, reflected as the total principal amount of Loans on a state-bystate basis and as percentage of the Loans to borrowers in a particular state. The Offering Memoranda also contained numerous and detailed risk factors. This information and these warnings were made available to all investors. 44. Prior to the transaction, potential investors were provided with extensive
The only investors eligible to purchase the Certificates were those which met the criteria to be considered a qualified institutional buyer or institutional accredited investor.
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information concerning the transaction and it was up to each individual investor to determine the degree of review that was required in order to understand the various risks and potential rewards of the investment transaction. In addition to the Offering Memoranda, certain potential investors were given access to data tapes, the loan files, an overview of MFGs loan program, and credit rating reports in order to conduct their own due diligence before purchasing any Certificates. With respect to MF4, LaSalle provided to the B-piece buyerJPMorgan Capital Corp. (JPMorgan Capital), a sophisticated investment fundthe loan file for each loan LaSalle proposed to be included in the MF4 Trust. The loan files contained due diligence materials gathered and analyzed by LaSalle. JPMorgan Capital reviewed the loan files, and spent
additional time reviewing documents for loans it considered potentially problematic. In this case, not only did JPMorgan Capital have access to loan files and other documents but it also had the right (which it exercised) to remove loans proposed by LaSalle for securitization from the final pool of loans. 45. Pursuant to the MF4 PSA, the holder of the most subordinate Certificate at
a given point in time is the Controlling Class Representative which had the right to make certain decisions on behalf of the MF4 Trust, including the appointment of the Special Servicer of the MF4 loans. Midland was appointed the Master Servicer and the Special Servicer for MF4. The master servicer is responsible for servicing the performing loans, while the special servicer is responsible for servicing or managing loans that are in default, delinquent, or perceived as in jeopardy of default or delinquency. 46. To date, the vast majority of the Loans is performing and, as a result, is
being serviced by Midland in its capacity as the Master Servicernot in its capacity as the Special Servicer.
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THE PARTIES DISPUTE A. LaSalles Representations and Warranties 47. In the MF4 MLPA, LaSalle made representations and warranties (each an
RW) concerning certain aspects of the loans being securitized. Through these representations and warranties, the parties to the securitization determined the allocation, as between LaSalle and the Certificateholders, of who would be responsible for losses caused by various risks. LaSalle only assumed the risk of certain losses caused by facts or events as to which it made representations, and the Certificateholders bore all other risks. 48. The MF4 PSA sets forth LaSalles potential repurchase obligation in the
event of a material breach of a representation and warranty in the MF4 MLPA. Specifically, Section 2.03(b) of the MF4 PSA provides: If any Certificateholder, the Master Servicer, the Special Servicer, the Paying Agent, the Custodian or the Trustee discovers . . . or receives notice of . . . a breach of any representation or warranty with respect to a Mortgage Loan set forth in, or required to be made with respect to a Mortgage Loan by [LaSalle] pursuant to, the [MLPA] (a Breach), which . . . Breach . . . materially and adversely affects the value of such Mortgage Loan, the related Mortgaged Property or the interests of the Trustee or any Certificateholder in the Mortgage Loan or the related Mortgaged Property, such Certificateholder, the Master Servicer, the Special Servicer, the Trustee, the Paying Agent, the Custodian or the Controlling Class Representative, as applicable, shall give prompt written notice of such . . . Breach . . . and shall request in writing that [LaSalle], not later than 90 days [after certain events] . . . (i) cure such . . . Breach . . . , (ii) repurchase the affected Mortgage Loan . . . or (iii) substitute a Qualified Substitute Mortgage Loan. . .. (Emphasis added.) To be actionable a breach of a representation and warranty must be material (i.e., a significant breach), and under the MF4 MLPA and MF4 PSA, the breach must also be shown to have caused a material and adverse effect on (a) the value of the Mortgage Loan at issue, (b) the value of the related Mortgaged Property, or (c) the interests of the Trustee or the -17USActive 27104550.15
Certificateholders in such Loan or property. B. Defendant Purports to Notify Bank of America of Breaches of the MF4 MLPAs Representations and Warranties 49. In its September Demand Letter, Defendant claimed that LaSalle had
breached RW-24 and RW-36 of the MF4 MLPA due to what it incorrectly alleges are systemic flaws in LaSalles underwriting and appraisal ordering processes and RW-10(a) and (b) due to inadequate power-of-sale language for non-judicial foreclosures in the mortgage loan documents of Loans with collateral Mortgaged Properties located in Washington and Oklahoma. In the Demand Letter, Defendant demanded that Bank of America repurchase all the remaining Loans by no later than December 4, 2012, the Initial Cure Period. However, the Demand Letter failed to identify either (i) the manner in which any representation and warranty was breached in a material way with respect to any individual Loan or (ii) the material and adverse effect on the individual Loan or Mortgaged Property in question as required by Section 2.03(b) of the MF4 PSA. Thus, not only does the Demand Letter fail to provide Bank of America with the written notice required for Defendant to exercise the MF4 PSA remedy provision, but it also fails to establish the existence of any material breach of LaSalles representations and warranties under the MF4 MLPA or any material adverse effect caused by any alleged breach. 50. Moreover, Defendant made this demand even though certain of the MF4
loans have already been paid off; the vast majority of the Loans are performing and have not suffered any payment defaults; and Defendant does not contend nor could it establish that defaults that have occurred were caused by what Defendant incorrectly alleges are systemic flaws in LaSalles underwriting or appraisal ordering processes. Even if Defendant were able to demonstrate that any systemic flaws existed (which it cannot do), in order to compel a repurchase it still must establish with respect to each Loan in question that such a flaw
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constitutes a material breach of a representation and warranty in the MF4 MLPA and that such a breach caused the requisite material adverse effect. 51. In addition, Defendant improperly includes in its repurchase demand
defaulted Loans that are collateralized by Mortgaged Properties that have been sold in foreclosure and others that will be sold off in foreclosure prior to conclusion of this action. Such Loans are not (or will not be) susceptible to repurchase because, upon the sale of the collateral Mortgaged Property to a third party, such Loans are extinguished and no longer contractually subject to repurchase or available for repurchase by Bank of America. 52. In its November Demand Letter, Defendant made the conclusory claim
that there were additional separate breaches of RWs as to each of the 47 individual Loans listed on Schedule B, and demanded that Bank of America repurchase each of these Loans before the end of the Initial Cure Period. In support of its breach claims, Defendant listed numerous separate alleged technical deficiencies with each of the 47 individual Loans and asserted in a wholly conclusory manner that these various technical deficiencies amounted to breaches of various RWs as to each of the 47 individual Loans. The variety of claims asserted differ on a loan-by-loan basis for the 47 Loans listed on Schedule B. Defendant, however, failed to set forth how each Loan was affected by alleged systemic flaws, notwithstanding that it purportedly discovered numerous loan-specific deficiencies after review of the 47 Loans. Such a failure undermines Defendants claim that it can seek repurchase of the Loans en masse based on a theory of pervasive systemic flaws, and shows that this dispute will ultimately have to be decided on a loan-by-loan basis. Moreover, as to material adverse effect, Defendant merely makes the conclusory and therefore inadequate claim that there existed multiple systemic [breaches], with material and adverse effect. 53. The allegations described in the November Demand Letter fail to satisfy -19USActive 27104550.15
the requirements under the governing contracts and applicable law to compel a repurchase of the 47 individual Loans at issue. Defendant does not allege or attempt to demonstrate that LaSalle materially breached the RW at issue as to each related Loan; or except in conclusory fashion, that any such material breach caused a material adverse effect on the value of the individual Loan at issue, the value of the Mortgaged Property or the interests of the Certificateholders in such Loan or property. Moreover, Defendant also fails to demonstrate how the alleged technical deficiencies (whether individually or in the aggregate) noted for a particular Loan amount to a breach of a particular RW as to that Loan, and therefore did not give adequate notice of a breach of an RW under the MF4 PSA. 54. Finally, Defendant incorrectly claims, contrary to the plain and
unambiguous language of the governing contracts, that Bank of America is required to repurchase the 47 individual Loans within the Initial Cure Period. Rather, Bank of America is entitled to an additional 90 days to consider the allegations in the November Demand Letter. C. Representations and Warranties At Issue (RW-24, RW-36, RW-10) 55. Defendant claims that LaSalle breached three representations and
warranties in the MF4 MLPARW-24, RW-36 and RW-10in support of its claim that it can seek repurchase en masse based on so-called systemic flaws in MFGs underwriting and appraisal ordering processes. RW-24 provides as follows: The origination, servicing and collection practices used by the Seller or, to its knowledge, any prior holder of the related Mortgage Note with respect to such Mortgage Loan have been in all material respects legal and have met customary industry standards. (Emphasis added.) 56. With respect to RW-24, Defendant claims the representation and warranty
was breached with respect to all the loans in MF4 due to alleged systemic flaws in underwriting, closing, and servicing processes (emphasis added). -20USActive 27104550.15
57.
As a threshold matter, although Defendant alleges LaSalle breached RW-
24 based on claims that there were systemic flaws with LaSalles underwriting and closing of the Loans, RW-24, by its clear and unambiguous terms, does not make any representation with respect to underwriting or closing practices (nor does any other representation or warranty contained within the MF4 MLPA), and the term origination does not include other distinct phases of the loan process, such as underwriting and closing. Thus, Defendants allegations concerning LaSalles underwriting and closing of the Loans cannot serve as the basis for a claim that RW-24 was breached. 58. Even if RW-24 applied to Defendants allegations regarding LaSalles
underwriting and closing processes, none of the allegations have merit or caused a material breach of RW-24 or the material adverse effect required to compel repurchase. Specifically, Defendant alleges that the following systemic flaws existed in MFGs underwriting: 1. Alleged Lowering quality standards upon securitizing loans: 59. Defendant alleges that when LaSalles MFG group began making loans to
be sold to investors in a securitization transaction (a for sale platform), rather than retaining loans on its balance sheet, LaSalle loosened its underwriting standards and began making more credit exceptions and overlooking purported errors and mistakes during the loan application and review process. 60. Defendant cannot establish that any alleged changes made to LaSalles
underwriting guidelines or exceptions made to underwriting guidelines were inconsistent with then-prevailing customary industry standards nor can it establish that any such changes or exceptions led to any unwarranted loans being made or more mistakes and errors being made during the loan application and review process. Moreover, there is no evidence that exceptions, let alone unwarranted exceptions, were made for all or even many Loans, or that errors and -21USActive 27104550.15
mistakes were made as to each or even many Loans during the application and review process. There is no evidence that the underwriting of any Loan failed to meet customary industry standards or resulted in a material breach of RW-24. There also is no evidence that even if any exceptions or errors and mistakes were made during the underwriting of a Loan, such exceptions or errors or mistakes caused a material adverse effect required for the repurchase of a Loan. 2. Alleged Emphasis on broker relationships to the detriment of credit quality: 61. Defendant alleges that during the origination and underwriting processes,
LaSalle overly relied on brokers, who had a vested financial interest in closing the loans, by the following: (a) Delegation of essential credit function to loan brokers (i.e., relying on brokerprepared information instead of reviewing or analyzing sourcing operating documents or rent rolls); (b) Brokers control over loan communications (i.e., MFG staff were not permitted to communicate directly with borrowers, and had to do so through the brokers); and (c) Credit exceptions for high volume brokers (i.e., preferential treatment was given to Top Ten brokers). 62. Defendant has not, nor can it, establish that relying to an extent on brokers
during the origination and underwriting processes violated customary industry standards or caused the origination or underwriting of a Loan to be deficient resulting in a material breach of RW-24 or caused the material adverse effect required for a repurchase of a Loan. Defendant also ignores that, to the extent LaSalle relied on a broker for the origination of any given loan, the extent of that reliance will vary widely from loan to loan. Common proof of reliance will not be appropriate or adequate for hundreds of loans made to hundreds of borrowers and originated by many brokers. Such proof is specific to each loan and the role of the specific broker for each loan. This reinforces the need for loan-by-loan analysis and defeats Defendants systemic
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flaws theory. 63. As to Top Ten brokers, it is not the case that all Loans were made
through a Top Ten broker, which demonstrates that this theoretical systemic flaw could not possibly affect all Loans. Whether there is a material breach of RW-24 is determined by whether the origination of the Loan at issue met customary industry standards; not whether some consideration was given to a trusted broker because LaSalle did not warrant it would treat all brokers the same. 3. Allegation that MFG did not perform its own site inspections but contracted them to a low-budget vendor that provided poor-quality work: 64. Defendant alleged that MFG contracted on-site inspections to a third-party
site inspection company, namely, National Field Representative (NFR), despite alleged complaints about their work quality. 65. Defendant has not alleged, nor can it establish, that it was a failure to meet
customary industry standards for LaSalle to utilize NFR or any other so-called low-budget vendor for site inspections. Indeed, loan servicers and other lenders customarily use NFR and other low-budget vendors to do their site inspections. Moreover, Defendant ignores that not all property inspections for the Loans were done by NFR, which defeats Defendants systemic flaws theory. Even if some of the Mortgaged Properties at issue were inspected by NFR, the quality of the site inspection would vary from inspector to inspector and there is no evidence that NFR site inspections in each case failed to meet customary industry standards or negatively affected the quality of the underwriting of a Loan resulting in a material breach of RW-24 or had the material adverse effect required for repurchase of a Loan.
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4.
Alleged Poor communications, training, experience and work environment: 66. Defendant alleges that MFGs employees communicated poorly with each
other and lacked sufficient training and experience. 67. Defendant cannot establish that any of these alleged defects existed or led
to any errors in underwriting or closing of the Loans, much less that they existed in all Loans. Moreover, Defendant relies on irrelevant allegations, such as those concerning Project 30, an initiative to shorten loan processing time, which was instituted in January 2007 after MF4 was closed, in support of this claim. The evidence from prior cases in fact suggests that LaSalle employees had a commitment to quality work. Defendant also cannot establish that this or any other efforts to make processing more efficient failed to meet customary industry standards or affected the quality of the underwriting of any, and certainly not all, of the Loans or that such underwriting resulted in a material breach of RW-24 or had the material adverse effect required for repurchase of a Loan. 5. Alleged Minimal, if any, credit analysis of borrowers financial conditions or experience in owning and operating the collateral type being financed: 68. Defendant alleges that MFG failed to sufficiently analyze the borrowers
financial conditions or prior experience in owning or operating the Mortgaged Property being financed. 69. Defendant cannot establish that MFGs practices with respect to analyzing
borrowers financial conditions or experience in owning and operating the Mortgaged Property at issue failed to meet customary industry standards, nor can Defendant establish any such failure to sufficiently analyze the borrowers financial conditions or experience existed as to any or all Loans. Even if there was a specific instance of inadequate underwriting, such an instance does not support Defendants theory that a systemic flaw globally affected all the Loans. Nor is -24USActive 27104550.15
there evidence that the underwriting of the Loans at issue was negatively impacted by any such failure resulting in a material breach of RW-24 or that it caused the material adverse effect required for repurchase of a Loan. 6. Allegation that MF4 default rates are significantly higher than industry average: 70. industry average. 71. The vast majority of the MF4 loans has been paid off or is performing. Defendant alleges that MF4 default rates are significantly higher than
There is no reliable evidence that default rates were higher than the industry average for comparable properties. Defendant cannot establish that any underwriting practices were below the then-prevailing customary industry standards or that LaSalles underwriting standards and practices were the cause of the default rates. Moreover, that a loan defaulted is not evidence of a material breach of RW-24 (or any other RW) or of such breach having caused such default or any material adverse effect. 7. Alleged Failure to Comply with FIRREA: 72. Defendant alleges that LaSalles appraisal ordering process violated the
guidelines under title XI of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA). 73. Defendant cannot demonstrate that LaSalles appraisal ordering process
failed to comply with FIRREA or customary industry standards or that its appraisal ordering process negatively affected the underwriting of each of the Loans resulting in a material breach of RW-36 or caused the material adverse effect required for a repurchase of a Loan. Moreover, for the reasons stated below and under Count V with respect to RW-36, Defendant cannot demonstrate LaSalles appraisal ordering process breached RW-24.
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74.
RW-36 provides as follows:
An appraisal of the related Mortgaged Property was conducted in connection with the origination of such Mortgage Loan, and such appraisal satisfied the guidelines in title XI of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 [(FIRREA)], as in effect on the date such Mortgage was originated. 75. Defendant alleges that RW-36 was breached because the manner in
which MFG ordered its appraisals was not FIRREA compliant. Specifically, according to Defendant, LaSalle breached RW-36 because the appraisals that were obtained in connection with the Loans were ordered by MFG personnel rather than an independent appraisal unit. 76. Defendant cannot demonstrate that LaSalles appraisal ordering process
materially breached RW-36. In RW-36, LaSalle represented that (a) an appraisal had been performed for each collateral property, and (b) each appraisal satisfied the guidelines in Title XI of FIRREA. RW-36 does not make any representation about who within LaSalle could order an appraisal. Moreover, Title XI of FIRREA and the regulations promulgated thereunder do not prescribe who within a financial institution can or should order appraisals. See 12 U.S.C. 3339; 12 C.F.R. 34.44. Both FIRREA and industry practice permitted the MFG personnel in question to order appraisals from the list of appraisers who had been pre-approved by the independent appraisal unit. 77. RW-10(a) provides as follows:
[t]he Mortgage Loan documents for each Mortgage Loan contain enforceable provisions such as to render the rights and remedies of the holder thereof adequate for the practical realization against the Mortgaged Property of the principal benefits of the security intended to be provided thereby, including realization by judicial or non-judicial foreclosure. (Emphasis added). 78. RW-10(b) similarly provides that:
. . . [the] Mortgage Loan documents taken as a whole are -26USActive 27104550.15
enforceable to the extent necessary and customary for the practical realization of the principal rights and benefits afforded thereby. 79. With respect to RW-10(a) and (b), Defendant claims this representation
and warranty was breached with respect to all Loans secured by Mortgaged Properties in Oklahoma and Washington because the mortgage loan documents for the related Loans, as alleged by Defendant, do not include sufficient power-of-sale language to allow for a nonjudicial foreclosure against the collateral Mortgaged Properties located in those states. 80. Defendant cannot demonstrate that the mortgage loan documents for the
related Loans with collateral Mortgaged Properties located in Washington and Oklahoma breached RW-10. RW-10, by its plain and clear language, does not represent that the mortgage loan documents will provide for both judicial and non-judicial foreclosure. Rather, in
representing that the mortgage loan documents would contain enforceable provisions for the practical realization of the rights and benefits intended to be provided under the mortgage loan documents, RW-10 represents that the mortgage loan documents will provide for either judicial or non-judicial foreclosure. As described further below, in a repurchase action filed by Wells against Bank of America in Oklahoma, the jury rejected the same RW-10 claim asserted by Defendant here. See Wells Fargo Bank N.A. v. LaSalle Bank National Association, Civ. No. 5:08-cv-1125-C (W.D. Okla.) [Dkt. No. 515]; infra at 86. 81. None of Defendants allegations is sufficient to trigger the repurchase
obligation under the MF4 PSA for multiple reasons, including that no systemic flaws in MFGs underwriting process exist or constituted a material breach of a representation or warranty or caused a material adverse effect and that each claim depends on an incorrect interpretation of the language of the contract. Moreover, Defendant has failed to demonstrate on a loan-by-loan basis a material breach of a representation and warranty which caused a requisite
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material adverse effect as is required to compel the repurchase of a Loan. 82. Defendant is seeking to rescind the MF4 transaction by rewriting the MF4
PSA so as to compel the repurchase of all the Loans at issue en masse, without having to satisfy the requirements specified in these agreements with respect to each individual Loan as to which repurchase is sought. D. Prior Litigation Involving Allegations of Systemic flaws in MFG 83. In March and June of 2006, LaSalles MFG closed two other
securitizations, MF2 and MF3.4 Wells was also the Trustee for the MF2 and MF3 Trusts. Starting in 2008, acting through the special servicer for MF2 and MF3, Wells commenced actions in several federal courts seeking to have Bank of America repurchase individual MF2 and MF3 loans and then ultimately attempted to have Bank of America repurchase the MF2 and MF3 loans on a pool-wide basis based on identical allegations of systemic flaws as here. Starting in early 2009, extensive discovery on this issue was taken in an attempt to gather evidence in support of Wells theory that systemic flaws infected all MFG loans. In August 2010, the special servicer sent a letter demanding the pool-wide purchase of the MF2 and MF3 loans, relying on identical allegations of systemic flaws in MFGs underwriting and appraisal ordering processes as described in the MF4 Demand Letter and herein. 84. However, Wells theory that systemic flaws infected the entire pool of
MFG loans was rejected by a jury in one of the actions filed by Wells in the United States District Court for the Western District of Oklahoma (the Oklahoma Action) concerning two MF2 loans and one MF3 loan. In the Oklahoma Action, Wells alleged that there were systemic
Commercial Mortgage Pass-Through Certificates, Series 2006-MF2 (MF2) and Commercial Mortgage Pass-Through Certificates, Series 2006-MF3 (MF3).
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flaws in MFGs underwriting and appraisal processes and those allegations are being asserted again now with respect to MF4. In that action, Wells claimed that the same alleged systemic flaws as are now alleged as to MF4, provided a basis for finding breaches of representations and warranties with respect to the three loans at issue in that action. The jury did not find that LaSalle had breached representations and warranties with respect to all loans and concluded that it was not true that systemic flaws affected all of the loans. See Wells Fargo Bank N.A. v. LaSalle Bank National Association, Civ. No. 5:08-cv-1125-C (W.D. Okla.) [Dkt. No. 515]. 85. Specifically, the plaintiff in the Oklahoma Action asserted that LaSalle
breached three representations and warranties made in the MF2 and MF3 MLPAs (which are identical to the three representations and warranties at issue here), based on systemic flaw allegations that are identical to those asserted in this action: (1) that LaSalle violated customary industry standards in underwriting the loans at issue because of systemic flaws in MFGs underwriting process; (2) LaSalles appraisal ordering process was not sufficiently independent; and (3) that the mortgage loan documents lacked sufficient power-of-sale language for nonjudicial foreclosure. See supra 55-82 (discussing the representations and warranties at issue); Oklahoma Action Amended Complaint, Civ. No. 5:08-cv-1125-C [Dkt. No. 41] at 81(b)81(c), 81(e)-81(f). The jury found in favor of LaSalle with respect to one of the three loans at issue, finding that none of the representations and warranties at issue were breached with respect to that loan. Thus, the issue of whether the alleged systemic flaws affected all loans
underwritten by MFG has already been decided in the negative by a jury. 86. The Oklahoma jury also rejected the plaintiffs claim (which is identical to
Defendants RW-10 claim in this action (see supra 80) that the mortgage loan documents for the two loans at issue with collateral properties in Oklahoma breached the representation and warranty concerning power-of-sale language in the mortgage loan documents for non-judicial -29USActive 27104550.15
foreclosure. That finding clearly was a rejection of the systemic flaw theory with respect to RW-10. E. Defendants Failure to Provide the Information Requested in Bank of Americas October 22, 2012 Letter 87. By letter dated October 22, 2012, Bank of America requested certain
information relevant to Defendants September 5, 2012 repurchase demand. 88. The information sought by Bank of America includes basic information
regarding the Loans and/or Defendants allegations, including, but not limited to, documents: (i) referenced in the Demand Letter itself or provided to Midland for purposes of preparing the Demand Letter, (ii) showing the Loans that are or were in Special Servicing, as well as documents relating to the value of such Loans, (iii) relating to actions Midland has taken as Master Servicer and Special Servicer with respect to the Loans, (iv) relating to the performance of MF4, (v) relating to the property condition of the Mortgaged Properties serving as collateral for any of the Loans, and (vi) relating to financial information for the Mortgaged Properties or the borrowers of the Loans. 89. Defendant has ignored Bank of Americas request and has provided no
legitimate reason for its refusal to provide this information, notwithstanding that this information is directly tied to the Loans that Defendant is seeking to compel Bank of America to repurchase and/or Defendants allegations with respect to its repurchase demand. Defendants failure to provide this information in these circumstances constitutes a breach of its obligations of good faith and fair dealing under the MF4 MLPA and MF4 PSA. F. The MF4 Transaction Has Not Experienced Excessive Delinquency Rates and Most of the Loans Are Performing 90. Defendant cannot demonstrate the requisite adverse material effect with
respect to any of the foregoing alleged breaches, and this is supported by the fact that Defendant -30USActive 27104550.15
alleges the same breaches with respect to all of the Loans in the pool, even though the majority of the Loans are performingi.e., the loan payments are current and are being paid as required and expected, or have been paid off in full. The Loans fall into three categories: (1) loans which have been paid off and, as to which, Certificateholders have suffered no harm; (2) loans which are performing and are not in payment default (or written down), as to which Defendant has demonstrated no harm; and (3) loans which are in payment default, but as to which Defendant has not come forward with any evidence, as it must, to demonstrate that the payment defaults on each Loan were caused by any material breach of a representation and warranty by LaSalle. 91. There is no evidence that, with respect to each individual performing
Loan, there will ever be a payment default, and likewise there is no evidence as to any performing Loan that it will not pay off in full as a number of MF4 loans have. Further, there is no evidence that Loans which are in payment default are incapable of returning to performing status. Thus, unless and until there is some material harm (which must be shown to have been caused by the alleged breaches), Defendant cannot seek repurchase of the Loans under Section 2.03(b) of the MF4 PSA, which requires a showing of material adverse effect caused by a material breach. 92. Defendant has refused to identify which Loans are in payment default and,
of those, the basis for any claim that such defaults were caused by alleged breaches of a representation and warranty by LaSalle. Moreover, there is no evidence that any alleged breach was the cause of any of the payment defaults. Defendant tacitly concedes as much by its conclusory allegation in the Demand Letter of the existence of a material and adverse effect without attempting to show the required causal relationship between an alleged material breach and the alleged material adverse effect for each Loan.
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COUNT I: DECLARATORY RELIEF (RW-10, RW-24 AND RW-36) 93. Plaintiff realleges and fully incorporates herein by reference each and
every allegation contained in paragraphs 1 through 92 above. 94. An actual and ripe controversy exists between the parties in that
Defendant has demanded repurchase on a pool-wide basis of all Loans under the applicable provisions of the MF4 MLPA and MF4 PSA without demonstrating, on a loan-by-loan basis, a material breach of a representation and warranty with respect to each Loan which caused a material adverse effect as to that Loan or Mortgaged Property or the interests of Certificateholders in such Loan or property. 95. Under the MF4 MLPA and MF4 PSA and contrary to Defendants (i) LaSalle breached a
contention, Defendant must demonstrate as to each Loan, that:
representation and warranty in the MF4 MLPA with respect to a particular Loan; (ii) the breach was material; and (iii) that material breach caused a material adverse effect on the value of the Mortgage Loan in question, the value of the related Mortgaged Property or the interests of Certificateholders in such Loan or property. 96. Defendant has failed to and cannot identify any material breach of a
representation and warranty applicable to any individual Loan. Defendant also has failed to and cannot identify any material adverse effect caused by any alleged breach of a representation and warranty with respect to any individual Loan, related Mortgaged Property or the interests of Certificateholders in such Loan or property. 97. Bank of America is entitled to declarations that Defendants September
Demand Letter is not sufficient to trigger a repurchase obligation and that Defendant is not entitled to compel repurchase of any of the Loans without demonstrating, on a loan-by-loan basis, that a representation and warranty was materially breached as to each Loan and that such
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material breach caused the requisite material adverse effect. Resolution of this cause of action as requested by Bank of America will make it unnecessary for the Court to resolve a number of the issues raised in the causes of action which follow. WHEREFORE, Plaintiff, BANK OF AMERICA, respectfully requests that this Honorable Court enter judgment in its favor and against Defendant on Count I granting: A. A declaration pursuant to 28 U.S.C.A. 2201 that in order to compel repurchase of a Loan under the MF4 MLPA and MF4 PSA, Defendant must establish separately as to each individual Loan that: (i) LaSalle breached a representation and warranty in the MF4 MLPA with respect to that Loan; the breach was material, and
(ii)
(iii) such material breach caused a material adverse effect on the value of that Mortgage Loan, the value of the related Mortgaged Property or the interests of Certificateholders in such Loan or property; B. A declaration pursuant to 28 U.S.C.A. 2201 that Defendant has failed to establish any of the elements set forth in subparagraph (A) above with respect to any of the Loans and, therefore, has not triggered any obligation by Bank of America under the MF4 MLPA and MF4 PSA to repurchase any of the Loans; Costs of this suit and attorneys fees Plaintiff has and will incur in connection with this action; and Any such further relief as justice and equity may require.
C.
D.
COUNT II: DECLARATORY RELIEF: DAMAGES ARE AN ADEQUATE REMEDY 98. Plaintiff alleges and fully incorporates herein by reference each and every
allegation contained in paragraphs 1 through 97 above. 99. Defendants attempt to require Bank of America to repurchase all the
remaining Loans in the MF4 Trusteven those that are performingwithout demonstrating the elements required by the MF4 PSA on a loan-by-loan basis is a demand for injunctive relief and
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effectively a request for rescission of the MF4 transaction; these are equitable remedies. 100. An actual and ripe controversy exists between the parties because the
equitable relief that Defendant is seeking, including repurchase and rescission, is not appropriate because the remedy Defendant seeks is contrary to the applicable contracts and, to the extent any remedy is warranted, money damages are adequate, and equitable considerations weigh strongly against rescinding a transaction consummated nearly six years ago. WHEREFORE, Plaintiff, BANK OF AMERICA, respectfully requests that this Honorable Court enter judgment in its favor and against Defendant on Count II granting: A. A declaration pursuant to 28 U.S.C.A. 2201 that Defendant is not entitled to rescission of the MF4 transaction because such a remedy is contrary to the applicable contracts and, to the extent any remedy is warranted, money damages are adequate and equitable considerations weigh strongly against rescinding a transaction completed nearly six years ago; Costs of this suit and attorneys fees Plaintiff has and will incur in connection with this action; and Any such further relief as justice and equity may require.
B.
C.
COUNT III: DECLARATORY RELIEF: DEFENDANT CANNOT SEEK REPURCHASE OF LOANS COLLATERALIZED BY MORTGAGED PROPERTIES THAT HAVE BEEN SOLD OR WILL BE SOLD IN FORECLOSURE 101. Plaintiff alleges and fully incorporates herein by reference each and every
allegation contained in paragraphs 1 through 100 above. 102. An actual and ripe controversy exists between the parties in that
Defendant is seeking the repurchase of the Loans, which include defaulted Loans collateralized by Mortgaged Properties that have been sold in foreclosure or will be sold in foreclosure during the course of this action. 103. Defaulted Loans that are collateralized by Mortgaged Properties which
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have been sold in foreclosure, or will be sold off in foreclosure during the course of this action, are not susceptible to repurchase as Defendant seeks because, upon the sale of the collateral Mortgaged Property to a third party, such loan is extinguished and no longer contractually subject to repurchase or available for repurchase by Bank of America. WHEREFORE, Plaintiff, BANK OF AMERICA, respectfully requests that this Honorable Court enter judgment in its favor and against Defendant on Count III granting: A. A declaration pursuant to 28 U.S.C.A. 2201 that Defendant is not entitled to seek repurchase of defaulted Loans that were collateralized by Mortgaged Properties which have been sold in foreclosure or will be sold in foreclosure during the course of this action; Costs of this suit and attorneys fees Plaintiff has and will incur in connection with this action; and Any such further relief as justice and equity may require. COUNT IV: DECLARATORY RELIEF (RW-10) 104. Plaintiff realleges and fully incorporates herein by reference each and
B.
C.
Defendant contends that LaSalle breached RW-10(a) and (b) with regard to all Loans secured by Mortgaged Properties located in Oklahoma and Washington because the mortgage loan documents for the related Loans do not contain sufficient power-of-sale language to provide for non-judicial foreclosure, and Bank of America is therefore is now obligated to repurchase such Loans. Bank of America contends that no breach of RW-10 has occurred and that any purported breach is not material and did not cause a material adverse effect on the value of a particular Loan in question, the value of the related Mortgaged Property, or the interests of the Certificateholders in such Loan or property.
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106.
Bank of America is entitled to a declaration that the absence of a provision
in the mortgage loan documents for the related Loans providing for non-judicial foreclosure does not constitute a material breach of RW-10 so long as Defendant has been or is able to achieve practical realization of the principal benefits of the security provided by the Mortgaged Property in question. 107. In addition, Defendant has failed to identify any material and adverse
effect caused by an alleged breach of RW-10 with respect to any of the Loans secured by Mortgaged Properties located in Oklahoma and Washington. Defendant has not identified any Loan secured by Mortgaged Property located in Oklahoma or Washington that is in payment default and as to which Defendant has been unable to achieve practical realization of the principal benefits of the security provided by the Mortgaged Property in question. 108. Bank of America is entitled to declarations that Defendants Demand
Letter is not sufficient to trigger a repurchase obligation of any Loans with collateral Mortgaged Properties located in Oklahoma and Washington based on a claim that LaSalle breached RW-10 as to those Loans, and that a prerequisite to Defendant being able to compel a repurchase of any such Loan is that it demonstrate, with respect to each individual Loan as to which repurchase is sought on this basis, a material breach of RW-10 and the requisite material adverse effect caused by that material breach. 109. Moreover, Bank of America is entitled to a declaration that Defendant is
not entitled to repurchase of any of the Loans with collateral Mortgaged Property in Washington and Oklahoma because it has failed to demonstrate a material breach of RW-10 for those Loans, and the requisite material adverse effect caused by that material breach for each such Loan. WHEREFORE, Plaintiff, BANK OF AMERICA, respectfully requests that this Honorable Court enter judgment in its favor and against Defendant on Count IV granting: -36USActive 27104550.15
A.
A declaration pursuant to 28 U.S.C.A. 2201 that in order to compel repurchase of a Loan under the MF4 MLPA and MF4 PSA based on a claim that RW-10 was breached, Defendant must establish separately as to each individual Loan at issue that: (i) (ii) LaSalle breached RW-10 with respect to the Loan at issue; the breach was material, and
(iii) such material breach caused a material adverse effect on the value of that Mortgage Loan, the value of the related Mortgaged Property or the interests of Certificateholders in such Loan or property; B. A declaration pursuant to 28 U.S.C.A. 2201 that Defendant has failed to establish any of the elements set forth in subparagraph (A) above with respect to any of Loan at issue and, therefore, has not triggered any obligation by Bank of America under the MF4 MLPA and MF4 PSA to repurchase any Loan at issue based on a breach of RW-10; A declaration pursuant to 28 U.S.C.A. 2201 that Defendant has failed to establish that the mortgage loan documents for Loans with collateral Mortgaged Property located in Oklahoma and Washington lacked sufficient power-of-sale language, or that any such failure to include sufficient power-of-sale language in the mortgage loan documents at issue constituted a material breach of RW-10 as to any Mortgage Loan or caused a material adverse effect on the value of any Mortgage Loan, the value of the related Mortgaged Property or the interests of Certificateholders in such Loan or property; A declaration pursuant to 28 U.S.C.A. 2201 that the absence of a provision in the mortgage loan documents for the Loans with collateral Mortgaged Property located in Oklahoma and Washington providing for non-judicial foreclosure does not constitute a material breach of RW-10; Costs of this suit and attorneys fees Plaintiff has and will incur in connection with this action; and Any such further relief as justice and equity may require. COUNT V: DECLARATORY RELIEF (RW-36) 110. Plaintiff realleges and fully incorporates herein by reference each and
C.
D.
E.
F.
every allegation contained in paragraphs 1 through 109 above. 111. An actual and ripe controversy exists between the parties in that -37USActive 27104550.15
Defendant contends that LaSalles appraisal ordering process violated FIRREA and, therefore, constituted a breach of RW-36, and that Bank of America is therefore obligated to repurchase the Loans, whereas Bank of America contends that MFGs appraisal ordering process did not violate FIRREA, that RW-36 was not materially breached, and that any such material breach did not cause a material adverse effect on the value of a particular Loan in question, the value of the related Mortgaged Property, or the interests of the Certificateholders in such Loan or property. 112. Bank of America is entitled to a declaration that RW-36 does not make a
representation or warranty regarding who within LaSalle could order an appraisal, that FIRREA does not prescribe who within a financial institution can or should order appraisals, and that Defendants notice of alleged flaws with respect to LaSalles appraisal ordering process does not trigger a repurchase obligation. 113. Even if there were a material breach of RW-36 (there is not), Defendant
has no basis to suggest that any material adverse effect was caused by the appraisals allegedly being ordered by the wrong entity or person. There is no evidence of the appraisal reaching an incorrect valuation. Demonstrating a material adverse effect is thus impossible for Defendant and such an effect is a prerequisite to Defendant establishing its right to seek repurchase. 114. As a result of the foregoing, Defendant has failed to allege and cannot
demonstrate that LaSalle breached RW-36 in any way, let alone in a material way, causing the material adverse effect required for repurchase of a Loan. 115. Bank of America is entitled to declarations that Defendants Demand
Letter is not sufficient to trigger a repurchase obligation based on a claim that LaSalle globally breached RW-36 as to all Loans and that a prerequisite to Defendant being able to compel a repurchase of any Loan is that it demonstrate, on a loan-by-loan basis, a material breach of RW36 and the requisite material adverse effect caused by that material breach. -38USActive 27104550.15
116.
Moreover, Bank of America is entitled to a declaration that Defendants
allegations with respect to appraisal ordering do not constitute a material breach of RW-36 and that it has failed to demonstrate on a loan-by-loan basis, as it must to compel a repurchase of a Loan, the requisite material adverse effect caused by a material breach of RW-36. WHEREFORE, Plaintiff, BANK OF AMERICA, respectfully requests that this Honorable Court enter judgment in its favor and against Defendant on Count V granting: A. A declaration pursuant to 28 U.S.C.A. 2201 that in order to compel repurchase of a Loan under the MF4 MLPA and MF4 PSA based on a claim that RW-36 was breached, Defendant must establish separately as to each individual Loan that: (i) (ii) LaSalle breached RW-36 with respect to the Loan at issue; the breach was material, and
(iii) such material breach caused a material adverse effect on the value of that Mortgage Loan, the value of the related Mortgaged Property or the interests of Certificateholders in such Loan or property; B. A declaration pursuant to 28 U.S.C.A. 2201 that Defendant has failed to establish any of the elements set forth in subparagraph (A) above with respect to any of Loan at issue and, therefore, has not triggered any obligation by Bank of America under the MF4 MLPA and MF4 PSA to repurchase any Loan at issue based on a breach of RW-36; A declaration pursuant to 28 U.S.C.A. 2201 that Defendant has failed to establish that LaSalles appraisal ordering process failed to meet customary industry standards or the guidelines promulgated under Title IX of FIRREA, or that any such failure constituted a material breach of RW36 as to any Mortgage Loan or caused a material adverse effect on the value of any Mortgage Loan, the value of the related Mortgaged Property or the interests of Certificateholders in such Loan or property; A declaration pursuant to 28 U.S.C.A. 2201 that RW-36 does not make a representation or warranty regarding who within LaSalle could order an appraisal, that FIRREA does not prescribe who within a financial institution can or should order appraisals; Costs of this suit and attorneys fees Plaintiff has and will incur in connection with this action; and -39USActive 27104550.15
C.
D.
E.
F.
Any such further relief as justice and equity may require. COUNT VI: DECLARATORY RELIEF (RW-24)
117.
Plaintiff realleges and fully incorporates herein by reference each and
Defendant contends that MFG failed to originate or service the Loans according to customary industry standards, with deficiencies tied directly to systemic flaws in MFGs underwriting, closing, and servicing processes[,] in breach of RW-24, and has demanded that Bank of America repurchase the Loans, whereas Bank of America contends that no such systemic flaws existed or caused a material breach of RW-24, denies that any such material breach caused a material adverse effect on the value of a particular Loan in question, the value of the related Mortgaged Property, or the interests of the Certificateholders in such Loan or property and denies that it is obligated to repurchase the property. 119. RW-24, by its clear and unambiguous terms, does not make any
representation with respect to underwriting or closing practices. Bank of America is entitled to a declaration that RW-24 does not apply to underwriting or closing practices and that Defendants notice of alleged flaws in such practices does not trigger a repurchase obligation. 120. Defendant has not made any allegations regarding MFGs servicing of the
Loans, by either alleging systemic flaws which impacted MFGs servicing of the Loans as to each individual Loan or for that matter on a pool-wide basis. 121. Defendant has failed to identify any Loan as to which Defendant has
adequately alleged that a purported systemic flaw was a material breach of RW-24 or a material breach relating to the underwriting, closing or servicing of that Loan. To the extent
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Defendant can prove any of the facts it claims support its assertion there were systemic flaws, the practices in question did not constitute a material breach of an RW with respect to any of the Loans. Such a showing is a prerequisite to Defendant being able to compel a repurchase of any or all of the Loans. In addition, Defendant has failed to and cannot identify any material and adverse effect caused by an alleged material breach of RW-24 with respect to any of the Loans. 122. Defendants Demand Letter is not sufficient to trigger a repurchase
obligation as Defendant is not entitled to repurchase of any of the Loans based on a global claim that systemic flaws constitute a material breach of RW-24, and that a prerequisite to Defendant being able to compel a repurchase of any of the Loans is that it must demonstrate, on a loan-byloan basis, that there existed a material breach of RW-24 and the requisite material adverse effect caused by that material breach. 123. Moreover, Bank of America is entitled to a declaration that the systemic
flaws alleged by Defendant have not been demonstrated to exist and to the extent they existed, they did not constitute deviations from then-prevailing customary industry practices, and therefore, do not constitute a material breach of RW-24, and that Defendant has failed to demonstrate that any such material breach of RW-24 caused the requisite material adverse effect as to each Loan at issue. WHEREFORE, Plaintiff, BANK OF AMERICA, respectfully requests that this Honorable Court enter judgment in its favor and against Defendant on Count VI granting: A. A declaration pursuant to 28 U.S.C.A. 2201 that in order to compel repurchase of a Loan under the MF4 MLPA and MF4 PSA based on a claim that RW-24 was breached, Defendant must establish separately as to each individual Loan that: (i) (ii) LaSalle breached RW-24 with respect to the Loan at issue; the breach was material, and -41USActive 27104550.15
(iii) such material breach caused a material adverse effect on the value of that Mortgage Loan, the value of the related Mortgaged Property or the interests of Certificateholders in such Loan or property; B. A declaration pursuant to 28 U.S.C.A. 2201 that Defendant has failed to establish any of the elements set forth in subparagraph (A) above with respect to any of Loan at issue and, therefore, has not triggered any obligation by Bank of America under the MF4 MLPA and MF4 PSA to repurchase any Loan at issue based on a breach of RW-24; A declaration pursuant to 28 U.S.C.A. 2201 that Defendant has failed to establish any systemic flaws in MFGs underwriting or appraisal ordering processes existed, and that to the extent they existed, they did not constitute deviations from then-prevailing customary industry practices nor did they constitute a material breach of RW-24 as to any Mortgage Loan or caused a material adverse effect on the value of any Mortgage Loan, the value of the related Mortgaged Property or the interests of Certificateholders in such Loan or property; A declaration pursuant to 28 U.S.C.A. 2201 that that RW-24 makes no representation with respect to underwriting or closing practices and, therefore, RW-24 does not apply to underwriting or closing practices; Costs of this suit and attorneys fees Plaintiff has and will incur in connection with this action; and Any such further relief as justice and equity may require.
C.
D.
E. F.
COUNT VII: DECLARATORY RELIEF: DEFENDANT FAILED TO PROVIDE PROMPT NOTICE OF THE ALLEGED BREACHES BASED ON CLAIMS OF SYSTEMIC FLAWS 124. Plaintiff alleges and fully incorporates herein by reference each and every
allegation contained in paragraphs 1 through 123 above. 125. Section 2.03(b) of the MF4 PSA provides, in relevant part, that Defendant
shall give prompt notice of the alleged breaches to Bank of America. 126. Wells, the Trustee for MF4, was also the trustee for two other LaSalle
securitization trusts, MF2 and MF3, and was, from 2008 to 2011, involved in several actions concerning the repurchase of individual MF2 and MF3 loans as well as an effort to seek the
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repurchase of MF2 and MF3 loans on a pool-wide basis based on identical allegations of systemic flaws in MFGs underwriting and appraisal ordering processes (as well as identical claims regarding insufficient power-of-sale language in mortgage loan documents for loans with collateral properties located in Oklahoma and Washington). In early 2009, the special servicer for MF2 and MF3 conducted extensive discovery in support of its allegations of systemic flaws. In August 2010, the special servicer sent a demand letter seeking the pool-wide purchase of the MF2 and MF3 loans, relying on identical allegations of systemic flaws in MFGs underwriting and appraisal ordering processes as described in the MF4 Demand Letter and herein. Thus, Defendant was aware, or should have been aware, of the facts underlying the allegations of breaches caused by alleged systematic flaws before early 2009. 127. Defendant, however, waited until September 5, 2012 to send its September
Demand Letter seeking repurchase en masse based on alleged breaches of the representations and warranties in the MF4 MLPA. Defendant has provided no legitimate reason for its failure to promptly notify Bank of America of the alleged breaches based on claims of systemic flaws, notwithstanding that more than three years ago Defendant knew of the circumstances it alleged form the basis of its breach claims. WHEREFORE, Plaintiff, BANK OF AMERICA, respectfully requests that this Honorable Court enter judgment in its favor and against Defendant on Count VII granting: A. A declaration pursuant to 28 U.S.C.A. 2201 that Defendant is not entitled to seek repurchase of the Loans because it failed to promptly notify Bank of America of the alleged breaches of representations and warranties based on claims of systemic flaws as is required under the MF4 PSA and MF4 MLPA to seek repurchase; Costs of this suit and attorneys fees Plaintiff has and will incur in connection with this action; and Any such further relief as justice and equity may require. -43USActive 27104550.15
B.
C.
COUNT VIII: DECLARATORY RELIEF: DEFENDANT FAILED TO PROVIDE THE INFORMATION REQUESTED BY BANK OF AMERICA 128. Plaintiff alleges and fully incorporates herein by reference each and every
allegation contained in paragraphs 1 through 127 above. 129. By letter dated October 22, 2012, Bank of America requested certain
information relevant to Defendants September 5, 2012 repurchase demand. 130. Defendant has not responded to the request for information and has
provided no legitimate reason for its refusal to provide this information, notwithstanding that this information is directly tied to the Loans that Defendant is seeking to compel Bank of America to repurchase. 131. Defendants failure to provide this information in these circumstances
constitutes a breach of its obligations of good faith and fair dealing under the MF4 MLPA and MF4 PSA. WHEREFORE, Plaintiff, BANK OF AMERICA, respectfully requests that this Honorable Court enter judgment in its favor and against Defendant on Count VIII granting: A. A declaration pursuant to 28 U.S.C.A. 2201 that Bank of America is entitled to the information requested in its October 22, 2012 letter; Costs of this suit and attorneys fees Plaintiff has and will incur in connection with this action; and Any such further relief as justice and equity may require.
B.
C.
-44USActive 27104550.15
Dated:
December 3, 2012 BANK OF AMERICA
By:
/s/ John M. Riccione One of its attorneys
ARONBERG GOLDGEHN John M. Riccione, ARDC # 6209375 jriccione@agdglaw.com William J. Serritella, Jr., ARDC # 6210001 wseritella@agdglaw.com Amy M. Rapoport, ARDC # 6293612 arapoport@agdglaw.com 330 North Wabash, Suite 1700 Chicago, Illinois 60611 (312) 828-9600 OF COUNSEL: CADWALADER, WICKERSHAM & TAFT LLP Gregory A. Markel Greg.markel@cwt.com Jason M. Halper Jason.halper@cwt.com One World Financial Center New York, New York 10281 Telephone: (212) 504-6000
-45USActive 27104550.15

United States District Court Northern District of Illinois: Usactive 27104550.15

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UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF ILLINOIS

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Small-balance loans are typically loans that are $1 million or less.

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Trustee. 16. Jurisdiction is appropriate in this Court pursuant to 28 U.S.C. 1332(a)

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Separately, Defendant is further precluded from obtaining repurchase of

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The Offering Memoranda for the MF4 securitization contained detailed

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As a threshold matter, although Defendant alleges LaSalle breached RW-

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RW-36 provides as follows:

. . . [the] Mortgage Loan documents taken as a whole are -26USActive 27104550.15

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contention, Defendant must demonstrate as to each Loan, that:

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Bank of America is entitled to a declaration that the absence of a provision

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Moreover, Bank of America is entitled to a declaration that Defendants

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Plaintiff realleges and fully incorporates herein by reference each and

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December 3, 2012 BANK OF AMERICA

/s/ John M. Riccione One of its attorneys

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