IN THE COURT OF COMMON PLEAS MONTGOMERY COUNTY, OHIO ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) Case No: 2010-cv-07091 JUDGE Steven K.

Dankof MAGISTRATE David H. Fuchsman DEFENDANTS SUPPLEMENTAL MEMORANDUM IN OPPOSITION TO PLAINTIFFS MOTION FOR SUMMARY JUDGMENT ON DEFENDANTS FDCPA COUNTERCLAIM

PNC Bank, National Association, et al Plaintiff, v. )

Peter K. Newman, et al. Defendants

I.

Background and Summary Response: The only issue is whether or not PNC was the proper party to bring this action.

The determination of this issue turns on how Freddie Mac fits into this situation. It is undisputed Freddie Mac owns the Note.1 As such, it retains the right to foreclose and sell the Note.2 Although PNC dismissively describes the ownership issue as a red herring,3 PNCs inability to prove ownership is conclusive on the fundamental

NCMC sold the Note to Freddie Mac on August 1, 2003 before any merger with PNC. See Plaintiffs Responses to Defendants Interrogatories and Requests for Production #1 & #7 [Attached as Ex. B to Defendants Supplemental Response to Plaintiffs Motion for Summary Judgment on FDCPA Counterclaim]. 2 At oral argument on July 28, 2011, the Court stated that if the Note was sold to Fannie Mae (sic) then you would think Fannie Mae is now the owner and, therefore not National City or later PNC, would be the right one to be bringing this action. 3 Plaintiffs Supplemental Reply at 2 [Discussed in Defendants Supplemental Response (July 5, 2011)]

question of standing.4 PNC is not the real party in interest.5 Moreover, PNCs intentional mischaracterization of Freddie Mac role as merely a6 downstream investor7 only entitled to interest income on the loan indicates the Note was securitized into mortgage-related securities and sold to other investors. 8 II. PNC is not exempt from the FDCPA. PNC maintains this fiction that it has the status as a holder, originator and servicer of Defendant loan and, therefore, cannot be held liable for any alleged violation of FDCPA. However, PNC does not claim to be the owner of either the Note or the Mortgage.9 This is conclusive because the FDCPA defines debt collector to include any person who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.10
4

Deutsche Bank National Trust Co. v. Triplett, 2011-Ohio-478, 94924 (OHCA8) [the putative mortgagee must own the mortgage at the time of the filing of the complaint, otherwise it lacks standing. Wells Fargo Bank, N.A. v. Jordan, Cuyahoga App. No. 91675, 2009-Ohio-1092 Emphasis added]. 5 Id. ["Every action shall be prosecuted in the name of the real party in interest." Deutsche Bank Natl. Trust Co. v. Pagani, 5th Dist. No. 09CA000013, 2009-Ohio-5665; Civ.R. 17(A). A real party in interest is one who is directly benefitted or injured by the outcome of the case. U.S. Bank Natl. Assn. v. Marcino, 181 Ohio App.3d 328, 2009-Ohio-1178, 908 N.E.2d 1032, citing Shealy v. Campbell (1985), 20 Ohio St.3d 23, 24, 485 N.E.2d 701.] 6 Plaintiffs Supplemental Reply at 2 [Freddie Mac is an investor in their loan. Emphasis added]. 7 At the hearing on July 28, PNCs counsel argued that Freddy Mac was merely a downstream investor whose only interest was in receiving interest income. However, when pressed by the Court, even PNCs own witness, PNC Vice President Brian Arthur, would not agree with that characterization. See also In re Jessie M. Arizmend, Bk. No. 09-19263-PB13, U.S. Bankruptcy Court, Southern District of California (6/27/11) [Bank was sanctioned for concealing sale of Note to Freddie Mac.] 8 Ex. A: Letter from Bostrom, Executive Vice President, General Counsel and Corporate Secretary, Freddie Mac, to The Honorable Chief Justice Peggy A. Quince, Supreme Court of Florida (10/15/09). Defendants believe their Note may have been transferred by Freddie Mac to Citigroup Mortgage Loan Trust, Inc. as part of loan securitization transactions sponsored by NCMC in 2004. See SEC Prospectus supplement at page S-44, 48 and 53-55. http://www.sec.gov/Archives/edgar/data/1336311/000091412108000720/0000914121-08-000720.txt 9 Ex. B: Plaintiffs Responses to Defendants Second Set of Interrogatories & Requests for Production #15 [Who owns the Newman Note and Mortgage?] 10 15 U.C.S. sec. 1692a(6) [Emphasis added]

It is undisputed that PNC is collecting for Freddie Mac.11 PNC cannot claim it is a holder12 under the UCC given the Note had already been sold by NCMC to Freddy Mac before PNC merged with National City Bank. There is no evidence PNC took the instrument for value13 or in good faith 14 from NCMC, Freddy Mac or anyone else. The Note is an order instrument (not a bearer instrument) made payable to the order of the Lender. 15 Under the Statute of Frauds16 and UCC,17 any transfer or assignment of real property must be in writing with proper endorsements. PNCs name does not appear anywhere as a lender, beneficiary, payee or assignee. Mere possession of an order instrument by someone other than the payee or its assignee does not make that person the owner.18 Therefore, PNC lacks standing to foreclose because it did not own the Note when the complaint was filed.19
11

Both PNC and Freddy Mac are private corporations with shareholders and are publicly traded. Under Freddie Macs guideline 66.26(c) attached to Thomas Affidavit, servicers must notify Freddy Mac of contested foreclosures. Consequently, Freddie Mac is the disclosed principal, a beneficiary and a real party in interest. See, M. Steel, Inc. v. Seltzer, 2011-Ohio-2522, 95336 (OHCA8) [summarizing Ohios law on Agency]. 12 O.R.C. 1301.01(T)(1): Holder means either: (a) If the instrument is payable to bearer, a person who is in possession of the instrument; (b) If the instrument is payable to an identified person, the identified person when in possession of the instrument. 13 O.R.C. sec. 1303.33 14 O.R.C. sec. 1303.01(A)(4): "Good faith" means honesty in fact and the observance of reasonable commercial standards of fair dealing. O.R.C. sec. 1301.01 (S) "Good faith" means honesty in fact in the conduct or transaction concerned. (T)(1) "Holder" with respect to a negotiable instrument means either of the following: (a) If the instrument is payable to bearer, a person who is in possession of the instrument; (b) If the instrument is payable to an identified person, the identified person when in possession of the instrument. 15 Complaint Ex. A; O.R.C. sec. 1303.10 16 O.R.C. sec. 1335.05 17 O.R.C. 1303.21- 1303.22; 1303.24. 18 By analogy, finding a check made payable to someone else does not make the finder the owner. See In re Jessie M. Arizmend, Bk. No. 09-19263-PB13, U.S. Bankruptcy Court, Southern District of California (6/27/11) [Court held that banks physical possession of an endorsed note was insufficient to establish standing for relief from stay where bank admitted it sold the note to Freddie Mac.] 19 Deutsche Bank National Trust Co. v. Triplett, 2011-Ohio-478, 94924 (OHCA8)

Furthermore, PNC cannot in good faith claim to be exempt as the loan originator when it is undisputed the originator (NCMC) sold the loan to Freddie Mac on August 1, 2003 - before any merger with PNC. Under the UCC, any sale of a negotiable instrument requires transfer (delivery) 20 of the original instrument.21 At oral argument on July 28, the Court questioned how PNC could retain possession of the Note if it was sold to Freddy Mac. Although PNC does not explain this legal anomaly, Professor Dale Whitman states: While delivery22 of the note might seem a simple matter of compliance, experience during the past several years has shown that, probably in countless thousands of cases, promissory notes were never delivered to secondary market investors or securitizers, and, in many cases, cannot presently be located at all. The issue is extremely widespread, and, in many cases, appears to have been the result of a conscious policy on the part of mortgage sellers to retain, rather than transfer, the notes representing the loans they were selling.23 This violates state law24 and allows Freddy Mac and other buyers to avoid paying recording fees that are used to support the courts. 25
20

O.R.C. 1303.22 (A) An instrument is transferred when it is delivered by a person other than its issuer for the purpose of giving to the person receiving delivery the right to enforce the instrument. 21 O.R.C. 1303(A) Negotiation" means a voluntary or involuntary transfer of possession of an instrument by a person other than the issuer to a person who by the transfer becomes the holder of the instrument. 22 According to the UCC 3-203, for NCMC to sell the Note to Freddie Mac it had to transfer (deliver) the original instrument to Freddie Mac. See O.R.C. sec. 1303.22. 23 Whitman, How Negotiability Has Fouled Up the Secondary Mortgage Market, and What To Do About It, 37 Pepp. L. Rev 738, 757-758 (2010) [Emphasis added] 24 O.R.C. sec. 1335.05 [Statute of Frauds]; O.R.C. 1303.21- 1303.22; 1303.24 [negotiable instruments]; and O.R.C. 5301.25(A) [recording]. 25 Christopher L. Peterson, Foreclosure, Subprime Mortgage Lending, and the Mortgage Electronic Registration System, 78 U.Cin.L. Rev. 1359, 1361-1363 (2010) ; See, e.g. Oakland County, Michigan (6/23/11)] Oakland County Treasurer Andy Meisner and Oakland County are suing the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) because the two lenders failed to pay the transfer tax on deeds recorded by the Register of Deeds Office, as required by Michigan law. Oakland County stands to recover as much as $1.5 million and the State of Michigan stands to recover $10.5 million." http://www.oakgov.com/about/news/2011/pr_11_98.html

Real property sales and assignments must be recorded under Ohio law.26 Proof of a recorded chain of assignments of the mortgage to the present holder is essential to a valid foreclosure. 27 It is undisputed that there is no recorded assignment from NCMC to Freddie Mac or PNC or back from Freddie Mac to PNC. PNC has produced nothing in this regard.28 Finally, the FDCPA does not exclude servicers from the definition of debt collectors. 29 Here, PNC is acting as a debt collector for Freddie Mac.30 III. Thomas Affidavit does not comply with Civ. R. 56(E). At the end of the hearing on July 28, PNCs counsel asked for leave of court to provide affidavits and other evidence to establish what exactly was sold by NCMC to Freddie Mac and what PNC acquired when the merger took place. Rather than provide that evidence, PNC objected to discovery31 and submits the affidavit of Dorothy Thomas.
26 27

O.R.C. 5301.25(A). According to Professor Dale Whitman, Lenders often seem resistant to taking (or even understanding) the necessary steps. See In re Schwartz, No. 06-42476-JBR, 2009 WL 530278 at 81 (Bankr. D. Mass. 2009), for an example of where the court castigated the foreclosing lender for presenting a jumble of documents and conclusory statements, some of which are not supported by the documents and indeed even contradicted by them. Whitman, How Negotiability Has Fouled Up the Secondary Mortgage Market, and What To Do About It, 37 Pepp. L. Rev 738, 764 and fn. 160 (2010). 28 See Ex. A. See also, Whitman, How Negotiability Has Fouled Up the Secondary Mortgage Market, and What To Do About It, 37 Pepp. L. Rev 738, 744-745 (2010): Every loan delivered to Fannie Mae must be accompanied by the note (endorsed in blank), any documents modifying the note, any applicable power of attorney, an original unrecorded assignment of the mortgage to Fannie Mae (unless the original mortgagee was MERS), and a Delivery Transmittal form. 29 15 U.S.C.. sec. 1692a(6) 30 According to Ms. Thomas, Servicing involves collecting and crediting payments from the borrower, administering the loan, handling escrow, maintaining loan paperwork, etc. See Thomas Affidavit at pg. 2, para. 4 [Emphasis added]; this in consistent with the unsworn testimony of Brian Arthur, PNC Assistant Vice President, PNC Mortgage at the July 28, 2011 hearing. 31 Ex. B: Plaintiffs Responses to Defendants Second Set of Interrogatories & Requests for Production

However, her affidavit does not comply with Civ. R. 56(E) and should be stricken.32 Ms. Thomas is identified only as a Mortgage Office of PNC Mortgage without further elaboration on her education or experience. There is no evidence she worked for NCMC or Freddie Mac. It fails to affirmatively show she has personal knowledge or is otherwise competent to testify as to the lender/investor relationship in general and the PNC/Freddie Mac relationship with respect to the Note in particular.33 Moreover, the guidelines attached to her affidavit are hearsay and irrelevant because they are for 2011, not 2003 when the Note was sold by NCMC to Freddie Mac. IV. Conclusion PNC is not the Note owner and, therefore, not the real party in interest. PNC is a debt collector for Freddy Mac and liable for violation of FDCPA. Dated: August 24, 2011 Respectfully submitted, /s/ - Peter K. Newman Attorney for Defendants Ohio Supreme Court Reg. 0010468 THE NEWMAN LAW GROUP 594 Garden Road Dayton, Ohio 45419 (937) 475-6282 newmanlawgroup@gmail.com

CERTIFICATE OF SERVICE I hereby certify that on August 24, 2011, the foregoing was electronically filed with the Clerk of the Court system which will send a notice of electronic filing to the following:
32 33

See, e.g. Discovery Bank v. Peters, 2011-Ohio-3480, 2010CA00309 (OHCA5) PNC Supp. Response at 2 [citing Thomas affidavit at para. 5 and 7].

Gary W. Gottschlich Mary E. Lentz 201 East Sixth Street Dayton, OH 45402 PH: (937) 913-0200 Fax: (937) 824-2818 gary@gplawdayton.com; mlantx@gplawdayton.com George B. Patricoff Assistant County Prosecutor 301 West Third Street; 5th Floor Dayton, Ohio 45402 Counsel for Montgomery County Treasurer David E. Cliffe 525 Vine Street, Suite 800 Cincinnati, Ohio 45202 Attorney for Defendant PNC Bank State of Ohio, Department of Taxation c/o Ohio Attorney General 150 E. Gay Street, 21st Floor Columbus, OH 45315