Citimortgage Lawsuit

7/23/2019 Citimortgage Lawsuit

1/120

UNITED STATES DISTRICT COURTFOR THE SOUTH ERN DISTRICT OF IOWACENTRAL DIVISION

KEITH GOODYK, on behalf of himself and allothers similarly situated,iv. No.:Plaintiff,LAINTIFF DEMA NDSA TRIAL BY JURYV.CITIMORTGA GE, INC.,Defendant.

CLASS ACTION COMPLAINTPlaintiff Keith Goody k ("Plaintiff) brings this action on behalf of him self and a

class of similarly situate hom eowners ("Class M embers") against CitiMortgage, Inc.("Citi" and "D efendant"), and except for information based upon his personal know ledge,alleges upon information and belief based upon investigation of their attorneys and factsthat are a m atter of public record, as follows:

NATURE OF THE ACTIONThis nationwide class action seeks to put an end to C iti s fraudulent and

illegal foreclosure practice and its equivalent of price-gouging schemes of extractingimproper fees and c harges from v ulnerable hom eowners. Specifically, as set forth indetail below, this action also challenges Citi s twin practices of unlawfully seeking toforeclose on residential properties, while at the same time enticing and often entering intomodification agreements with struggling homeow ners that Citi does not intend to honor.This practice allows Citi to extract improper fees and charges in violation of federal andstate law from homeowners who had fallen into arrears on their mortgages. After

Case 4:11-cv-00443-RP -CFB Document 1 Filed 09/23/11 Page 1 of 82


2/120

collecting m assive balloon paym ents (inclusive of excessive/illegal fees and costs) fromvulnerable homeow ners with the assurance that this will bring their accounts current, Citiengages in a fraudulent scheme of keeping the monthly m ortgage payments in suspensionaccounts. By not reflecting receipt of the payments towards the home owners accounts,Citi unlawfully and illegally charges fees and cost in violation of its contractual and otherobligations and also deliberately and w rongfully reports borrowers as delinquent to thecredit reporting agencies. Homeowners have suffered billions of dollars as a result ofCitis unlawful conduct.

2 . Ci ti has routine ly charges Pla inti ffs and Class Members fees , charges andpenalties not permitted by their loan and note contracts, not permitted by federal and statelaws. The fees im properly charged an d collected are in practice and practical effectundisclosed late fees, finance charges, penalties, refinancing penalties, recording fees,inspection fees, levied by C iti on consumers. Citi does n ot inform P laintiffs and the C lasswhen Citi charges and collect improper and unlawful fees. To the co ntrary, Citi routinelymakes affirmative m isrepresentations about such fees. As a result of C iti smisrepresentations and om issions, Plaintiffs (until recently) and many if not m ost Classmem bers remain reasonably unaware that the fees, charges and penalties Citi imposesand collects are improper under the loan and note contracts drafted by C iti or other banks,and under applicable laws, including state laws and federal regulations.

3. These addit ional cos ts , which th is act ion seeks to recover, as well as theunlawful foreclosure actions and w rongfully reporting the hom eowners as delinquent tocredit reporting agencies, has placed P laintiff and other borrow ers whose mortgages areserviced by Citi in difficult financial straits, putting their homes and lives in jeopardy.



3/120

4. In particular, Citi utilized a co mputer system to automatically assess feesfor late paym ents, delinquency, finance charges, p enalties, refinancing penalties,recording fees, inspection fees and other charges w ithout regard to the terms of theborrow ers loans or the relevant circumstances. Instead of being placed on reasonableparameters, the computer system is programm ed to assess as many charges as possibleand to pay first all outstanding fees and c osts before satisfying interest and principal. Bykeeping the m ortgage paymen ts in suspension accounts and failing to reflect receipt ofthe paym ents towards the homeo wners accounts, Citi amplified its fraudulent scheme ofcharging excessive fees and costs.

5. Citi concealed the nature of the fees being assessed on the m onthlystatements mailed to Plaintiff and Class Mem bers by describing them simply as "other"charges or fees. In this manner, Citi victimized and further increased the indebtedness ofpersons who w ere already in danger of losing their homes to foreclosure. Citi s schemehas been ongoing for years and w as in existence when Plaintiff and Class Mem bersobtained their m ortgage. This practice of charging illegal fees was particularlyexasperated in the recent m ortgage foreclosure crisis of 20 07.

6. During the recent foreclosure crisis, between October 2 008 and January2009, Citi made a plea for survival and received $45 billion in funds from the UnitedStates Government as part of the Troubled Asset Relief Program ("TA RP"), funded bythe taxpayers. By accepting these payments, Citi agreed to comply with HomeAffordable Modification Program ("HAM P") - a program under which Citi and othermajor m ortgage services and lenders receive incentive paym ents for providing mortgageloan m odifications and o ther foreclosure prevention services to eligible borrowers such asPlaintiffs and the putative class members.



4/120

7. As a H AM P servicer, Citi aggressively and falsely advertised itscommitment to help homeowners obtain affordable loan modifications. Citi hasadvertised its various hom eowner assistance initiatives, including H AM P, on its website.Further, Citi has assured homeown ers that their homes will not be sold w hile they areawaiting decisions on m odification requests and related internal reviews.

8. After enticing homeow ners to apply for loan m odifications and receivingall their financial information, Citi misrepresented the nature of the loan m odificationprocess, ensnaring hom eowners to apply for loan modifications that they did notunderstand. Specifically, Citi misled homeowners by:

promising to act upon requests for modifications within a specific time, usuallyone or two m onths, but instead stranding consumers without answers for morethan six months to one year;falsely promising consumers that their initial trial modifications would be madepermanent if and wh en they made the required three payments on those plans, butthen failing to conv ert those m odifications;falsely assuring them that their homes would not be foreclosed while theirrequests for modifications were pending, bu t then sending foreclosure notices and

scheduling auction dates and even selling consumers homes;misrepresenting the eligibility criteria for modifications and providing consumerswith inaccurate and deceptive reasons for denying their requests formodifications;falsely notifying consumers or credit reporting agencies that consumers were indefault when they were no t; andoffering modifications on one set of terms, but then providing them withagreements on different terms, or misrepresenting that consumers had been

approved for m odification.9. In an attempt to maxim ize its profits, Citi has consistently delayed,

avoided, and otherwise hindered the m odification process by denying it has receivedborrower paperwo rk, losing paperwork, and n eglecting to inform borrow ers as to the

4



5/120


6/120

increased interest rates (collected on wrongfully capitalized principal balances) andcollection o f imp roper fees, especially late fees, delinquency fees, finance fees onaccount of Citi s tardiness in accounting for payments received by misuse of escrow andsuspense accounts.

JURISDICTION A ND V ENUE13. This is a proposed nationw ide class action. This Cou rt has subject matter

jurisdiction over this action pursuant to 28 U.S.C. 1332(a) because the Plaintiff andDefendant are of d iverse citizenship and the m atter in controversy exceeds seventy-fivethousand dollars ($75,000.00) exclusive of interest and costs; and pursuant to 28 U.S.C. 1332(d)(2), because the P laintiff and the vast majority of the putative class (eachindividual member a "class Member" and collectively the "Class Members") are ofdiverse citizenship from the Defendant and the aggregate am ount in controversy exceedsfive million dollars ($5,000,000.00) ex clusive of interest and costs. This Court also hassubject matter jurisdiction over this action pursuant to 2 8 U .S.C. 1331 as this civil actionarises under the laws of the U nited States.

14. Venue is proper in this Court pursuant to 28 U.S.C. 13 91 because asubstantial part of the events or om issions giving rise to P laintiffs claims occurred hereand D efendant regularly transacts business in this District and is subject to personaljurisdiction in this D istrict.

PARTIES15. Plaintiff Keith Go odyk is a resident in Pella, Marion C ounty, Iowa.16. Defendant CitiMortgage, Inc. is a memb er of CitiGroup, Inc. and services

residential mortgages through out the U nited States. Citi has its principal place ofbusiness at 1000 Technology Drive, Mailstop 730, OFallon, Missouri 63368.

n



7/120

17. As servicer, Citi services loans it originated, as well as loans originatedand/or owned b y other lenders, Government S ponsored Enterprises and private investorswho hold poo ls of loans in securitized trusts. Citis mortgage servicing rights totaled$4.554 billion, $ 6.530 billion, $5.567 billion, $8.380 billion and $5.439 billion onDecem ber 31, 2010, 2009, 2008, 2007 and 2006 respectively.

FACTUAL BACKGROUNDCitis Role as Servicer of Mortgages

18. Every hom e mortgage contains provisions specifying when paym ents aredue and w hen they are considered late, and providing that only reasonable fees may beassessed if payments are not timely.

19. Plaintiffs mortgage and n ote are typical in this regard and provide that thePlaintiffs mortgage pay men t is due the first of each mo nth. The paym ent is consideredlate if they were not received by the end of fifteen calendar days after the date they weredue. In the even t of a late paym ent, the Plaintiffs note provided that a single late chargein the amount of 5% of the overdue payment would be assessed. Plaintiffs mortgagealso permits reasonable fees and costs for services performed in connection withborrowers default.

20. Plaintiff and Class Mem bers make their monthly mo rtgage payments tomo rtgage servicing com panies. Citi is the fourth largest residential mortgag e servicer inthe United S tates and in addition to servicing m ortgages originated by it and its affiliatecompan ies for which it acqu ires servicing rights following their sale to investors orotherwise, Citi also "services 4.3 million mortgages that it does not ow n." SeeTestimony of Vikram P andit dated February 11, 2009, before the House FinancialServices Com mittee, United States House of Representatives.

7



8/120

21. As part of it s mortgage servicing op erations, Citi collects monthlymortgage paym ents from the bo rrowers consisting of principal and interest, taxes andinsurance, and other fees and charges that may be assessed and disburses these paymentsto the appropriate parties such as lenders, investors, taxing authorities, insurers and otherrelevant persons. In addition, as mo rtgage servicer, Citi is also the entity through whichany mo rtgage loan modification request must be made, and has the ability to approve andanalyze mortgage loan m odifications.

22. Servicers receive three main types of com pensation: a servicing fee, whichis a percentage of the outstanding balance of the securitized mortgage pool; float incomefrom investing hom eowners mortgage payments in the period between when thepayments are received and when they are remitted to the trust; and late fees, ancillary feesand charges (these include delinquency fees, finance charges, inspection fees, appraisalfees, title fees, recording fees, process service fees, servicing fees, and other foreclosurerelated fees and expenses).

23. Because C iti earns "float" income on funds held, and retains all or part ofcertain fees that borrowers must pay, Citi has an incentive to imp ose additional fees onconsum ers. Float interest income thus gives servicers, such as Citi, an incentive to favorany resolution that involves a prepayment, such as refinance, a sale of hom e, or aforeclosure. Also, by capitalizing arrears and unpaid fees, Citi augments the principalloan balances, and as su ch its fixed servicing fees. The late fees can tem pt a servicer topost paymen ts in a tardy fashion or not m ake collection calls until late fees are assessed,and capitalize the arrears towards the principal loan balance.

24. In the event of a foreclosure, Citi gets reimbursed and takes the accruedfeesncluding fees for prop erty inspections, purported attorneys fees and costs, and

8



9/120

late fees, among othersoff the top o f the foreclosure proceeds before investors g et theirshare. Mortgage servicers are essentially able to receive cost-plus percentage-of-costcompen sation when fo reclosing. Thus, as mortgage servicer, Citi is incentivized tomaximize the foreclosure-related fees.

25 . Thus, Citi has a natural incentive to inflate the expenses and contract withthese affiliated businesses, such as insurance comp anies, property valuation com panies,inspection companies, title recording comp anies, process servicing com panies and othercompanies specializing in providing services for loans in default, for various services, thecosts of which are imposed o n the borrower. If the borrower is unable to pay the am ountsdemanded, these fees and expenses are taken out from a foreclosure sale.

26. The fees servicers can lard on in foreclosure can be considerable, andthere is effectively no oversight o f their reasonableness or even authorization.

27. Mortgage servicers, like C iti, increases its foreclosure related fees in twoways. First, by charging "junk fees" either for unnecessary work or for wo rk that wassimply never don e and indulging in variety of abusive servicing practices, includingimproper foreclosures or attempted foreclosures; imposition of improper fees, especiallylate fees; exorbitant process servicing costs; forced-placed insurance that is not requiredor called for; and misuse of escrow funds, to max imize the "junk fees." Second, bypadding the costs of the foreclosure by in-sourcing their expenses to affiliates at above-market rates.

28. Citi generates substantial revenues and profits, including un lawful fees,penalties, and charges collected from con sumers w hose m ortgage and home loans it

Katherine M. Porter, Misbehavior and Mistake in Bankruptcy Mortgage C laims, 87 TEX. L. REV.(2008).



10/120

services. The fees improperly ch arged and collected are in practice and practical effectundisclosed finance charges, late fees, inspection fees, prepayment penalties, recordingfees, foreclosure costs, and other m iscellaneous fees and costs. Imposition of these feesand capitalizing arrears results in an increase of the principal balance and servicingcompensation.

29. Therefore, Citi benefits from maintaining borrowers in default andinitiating foreclosure proceedings.

30. According to the annual reports filed with the SEC , Citis Master ServicerRevenues ("MSR ") for the years ended December 31, 2010, 2009, 2008, 2007 and 2006were as follows:In millions of dollars 2010 2009 2008 2007 2006Servicing fees $1,356 $1,635 $2,121 $1,683 1,036Late fees 87 93 123 90 56Ancillary fees 214 77 81 61 45Total MSR fees $1,657 $1805 $2,325 $1,834 $1,137

31. Thus, it is evident from the above chart that although Citi s portfolio ofmortgages has decreased since 2008, its late fees and ancillary charges have increasedsignificantly in proportion to the mortgages being serviced.

32. As detailed below, during this spurge of foreclosure activity, with theintent to increase its revenues, Citi has indulged in a variety of abusive servicingpractices, including im proper foreclosures or attempted foreclosures, imposition ofimproper fees, especially late fees, forced-placed insurance that is not required or calledfor, and misuse of escrow funds. Citi has also breached its obligations to Plaintiff andClass Mem bers by m isrepresenting and/or failing to disclose the nature and scope of itsegregious loan processing errors.

10



11/120

33. By this action, Plaintiff and C lass Mem bers seek restitution of allfraudulent and illegal payments collected by C iti and damages, and declaratory andinjunctive relief for all violations of state and federal law enum erated below.

The Foreclosure Crisis34. During 2007 an d 2008 the nation saw the m eltdown of the real estate

market. This resulted in an unprecedented num ber of foreclosure proceedings being filedthroughout the country.

35. Since mid-2007, around ten m illion hom es entered foreclosure. Over fourmillion borrowers lost their hom es in foreclosure, and another 2.5 million are currentlyscheduled to lose theirs. 2 The nation is now in its fifth year of the foreclosure crisis, andthere is no end in sight.

36. Over a m illion homes en tered foreclosure in 2007 and another two millionin 2008. Half of a million homes were actually sold in foreclosure or otherwisesurrendered to lenders in 2007, and over seven hundred thousand w ere sold in foreclosurein the first three quarters of 2008. In 2009, an additional 2.8 million homeownersentered foreclosure, and a congressional oversight panel noted that on e in eight U .S.mortgages w as currently in foreclosure or default. 5 According to the Mortgage BankersAssociation, as of June 30, 2010, 4.57% of 1-4 family residential mortgage loans(roughly 2.5 million loans) were currently in the foreclosure process, a rate more than

2 1d HOPE Now D ata Reports.Mortgage B ankers Association, Press Release, Delinquencies Increase, Foreclosure Starts Flat in LatestMBA National Delinquency Survey, Dec. 5, 2008,athttp://www.mbaa.orgINewsandMedialPressCenterl66626htm .Written Testimony of Adam J. Levitin, Associate Professor of Law, Georgetown University Law Centerbefore the United States House of R epresentatives Com mittee on the Judiciary, dated January 22, 2008, athttp://judiciary.house.gov/hearings/pdf/Levitin09Ol22.pdf5 Congressionalversightanel,ct .,009eport,vailabletURLhttp://cop.senate.gov/press/releases/release-1 00909-foreclosure.cfm (last visited Decem ber 3, 2010).

1 1



12/120

quadruple the h istorical average. 6 7 An additional 2,618,406 foreclosures were startedand 1,069,867 foreclosure sales occurred from July 2010 to December 2010 alone. 8

37. Increased foreclosures have a de trimental effect on borrowe rs who are atserious risk of losing their homes and h ave a negative imp act on surroundingneighborhoo ds that suffer decreased property values and low tax revenues. Foreclosuresdam age credit, making it difficult for families to purchase another hom e or even rentanother place to live in.

Congressional ResponseAnd Citis Obligations To Help Homeowners

38. In 2007, as a result of irresponsible lending prac tices, Citi had to d eal withan unprecedented number of foreclosures.

39. In response to the financial crisis facing the country, on Oc tober 3, 2008,Congress enacted the Emergency Economic Stabilization Act of 2008, Pub. L. No. 110-343, 122 Stat. 3765 (codified as amende d at 12 U.S.C. 5201-5261,31 U.S.C. 1105,and scattered sections of 26 U.S.C.) (the "EES A"). 9 Citi received $45 billion in federalfunds under the TARP program. By accepting TARP payments Citi agreed to participatein one or more prog rams that TARP authorized the Treasury Secretary to establishnecessary to minimize foreclosures.

40. On Ap ril 13, 2009, Citi signed a Servicer Participation Agreemen t("SPA") with the Treasury Dep artment, which Plaintiff incorporates herein by reference,

6 Moftgage Bankers Association, National Delinquency Survey.Written testimony of Adam J. Levitin on, "Problems in Mortgage Servicing from Modification toForeclosure" dated November 16, 2010, before the Senate Committee on Banking, Housing, and UrbanAffairs.8ow D ata Reports.EESA authorized the Secretary of the Treasury to establish the TARP to "purchase, and to make and fundcommitments to purchase, troubled assets from any financial institution..." 12 U.S.C. 5211. In exercisingits authority to administer TARP , EESA m andates that the Secretary "shall" take into consideration the"need to help families keep their homes and to stabilize comm unities." 12 U.S.C. 5213(3).

12



13/120

in which it agreed to comply w ith Home A ffordable Modification Program ("HA MP ") --a program un der which Citi and other major mo rtgage services and lenders receiveincentive payments for providing mo rtgage loan modifications to eligible borrowers suchas Plaintiff and the putative class memb ers.

41.y entering into the S PA, C iti covenanted that as a Participating S ervicer,it "shall perform" the activities described in the Program Docu mentation" "for allmortgage loans it services." Under the HAMP Program Documentation, Citi is requiredto follow a protocol to determine bo rrowers eligibility and mod ify mortgages of alleligible borrowers."10 The SP A executed by C iti incorporates all "guidelines," "procedures," and "supplementaldocumentation, instructions, bulletins, letters, directives, or other communications," referred to as"Supplemental D irectives" 1 0 issued by the Treasury, Fannie Mae or Freddie Mac, in conne ction with theduties of Participating Servicers. These docume nts together are known as the "Program D ocumen tation."The Program D ocumentation includes the HAM P Handbook v.3 (and as updated/revised versions issued in2011), the Frequen tly Asked Questions and waivers, and the Supplem ental Directives issued from time totime.

The RA MP Program D ocumentation requires Citi, as Participating Servicer, to evaluate all loans that aredelinquent 60 days or greater for H AM P m odifications. In addition, if a borrower contacts Citi regarding aRAM P modification, Citi must collect income and hardship information to determine if HAM P isappropriate for the borrower. Thus, the HAM P protocol starts with homeo wners providing the lender withrequired documen tation and information. On receipt of all documentation, as HAM P servicer, Citi mustdetermine 31% of the homeow ners gross income and m ust then follow a three-step process to reduce themonthly paym ent to that 31% amo unt. These steps include reducing the interest rate to as low as 2%,extending the loan terms up to 40 yea rs and re-amortizing the loan (if necessary), and finally deferring aportion of the principal if necessary until the loan is paid off. This process is known as the "S tandardWaterfall." Servicers must reduce paymen ts in the precise manner specified by the Standard W aterfall,starting with reducing the interest rate on the m ortgage. All loans that mee t the HA MP eligibility criteriaand are either deemed to be in imminent default (as described above) or 60 or more day s delinquent mustbe evaluated using a standardized NPV test that compares the NPV result for a modification to the NPVresult for no modification. SD 09-01 . This NPV test compa res the net present cash flow from thesemodified loan terms to the net present value of the loan without modification. See SD 09-01 at 4-5. If theexpected value to the lender of the loan after a HAM P modification exceeds the expected value of the sameloan to the lender if it is not modified, then the NP V test result is positive and the servicer must modify theloan. Home Affordable Modification Program, Base Net Present Value (NPV) Model Specificationsupdated June 11, 2009.Once a bo rrower is pre-qualified as required under HA MP rules, as HAMP servicer, Citi must offer theborrower a trial period agreement. If a borrower has complied w ith the terms of the trial period ofmaking timely trial payments and furnishing income documentation, then Citi must provide a permanentmodification. Specifically HAMP regulations state: "Borrowers who make all trial period payments timely

13



14/120

42.AM P rules and directives create explicit rules regarding timelines for theHAMP modification program. Timing is of the essence in the servicers processing ofborrowers m odification requests and evaluating eligibility for a p ermanent m odification.HA MP rules require that servicers evaluate the income documentation submitted "uponreceipt" and no later than 30 days. See HAMP FAQ at 5; SD 09-07 at 1. In all cases,servicers are also directed to prepare the permanent HA MP modification agreement earlyenough to allow processing time for the mod ification to becom e effective on the first dayof the month following the final TPP payment. See SD 09-03.

43. Citi failed to comply with these HAMP mandates. Instead of determiningPlaintiff and C lass Mem bers eligibility in a timely manner as required, Citi has delayedthe process. This delay increases the delinquent amounts payab le by Plaintiff and ClassMem bers, resulting in increase of the interests, principal balance and other fees andcharges for C iti.

44 . HA MP directives mandate specific protections for borrowers applying formodifications.

. Both during the time the borrower is being evaluated for a permanentmodification and during the trial period, any foreclosure action w illbe temporarily suspended. How ever, pursuant to HA MP, should themodification fail, banks and lenders are required to con sider otherprograms b efore foreclosure, including but not limited to short sales

and w ho satisfy all other trial period requirements will be offered a permanent modification." Id. (emphasisadded).

14



15/120

and deed in lieu of debt. In the event that the HAMP or alternativeforeclosure prevention options fail, the foreclosure action m ay beresumed.

Servicers cannot force borrowers to waive their legal rights, ordemand certain fees from them. SD 09-01 at 14.

Servicers must waive any late fees upon completion of the 90-daytrial period if the borrower successfully completes the trial. SD 09-01 at 22.

Servicers may not charge the borrower to cover the administrativeprocessing costs incurred in connection with a HAM P, and must payany actual out-of-pocket expenses such as any required notary fees,recordation fees, title costs, property valuation fees, credit reportfees, or other allowable and docum ented expenses. SD 09-01 at 22 .Finally, servicers are required to report a "full file" status report tocredit reporting agencies w hile they evaluate borrowers foreligibility during the trial period. For borrowers who are currentwhen they enter the trial period, the servicer should report theborrower current but on a modified payment if the borrower makestimely payments by the 30th day of each trial period month at themodified am ount during the trial period, as well as report themodification when c ompleted. SD 09-01 at 22 .

45.s set forth below, C iti has and continues to routinely fail in meeting itsobligations under the SPA and Program Directives. As aptly stated by Julia Gordon inher C ongressional testimony, "[s]ervicers have routinely failed to follow the loss15Case 4:11-cv-00443-RP -CFB Document 1 Filed 09/23/11 Page 15 of 82


16/120

mitigation guidelines contained both in the HAM P program and in the contracts ofinvestors..., and the dual-track system of loss m itigation w hile also proceeding toforeclosure has resulted in foreclosures taking place before evaluation for loanmodifications or other alternatives has occurred, while that that process is occurring, oreven after a successful modification agreem ent has already been reached." W rittenTestimony of Julia Gordon , Center for Responsible Lend ing, Before the U.S. House ofRepresentatives Subcomm ittee on Housing and Comm unity Opportunity of theCom mittee on Financial Services, November 18, 201 0, at 2 (hereinafter, "GordonCongressional Testimony").

Citis Loan Modification Program:Citi Actively Solicited Borrowers To Get Loan Modifications

46. Citi aggressively solicited its borrowers to apply for modifications throughvarious advertisements and representations.

47. In a November 11, 2008 press re lease, Cit i "announced a ser ies ofinitiatives designed to proactively help potential at-risk borrowers remain current on theirpayme nts and ultimately in their homes." Am ong the initiatives were Citi launching aHom eown er Assistance program and extending C iti s moratorium practice. Citi alsoclaimed that it "streamlined its existing loan m odification program."

48. In a M arch 3, 2009 press release, Citi claimed to have rolled out an"innovative initiative" whereby an unemployed homeowner could make significantlylowered m ortgage paymen ts for a three-month period. Within the same timeframe, theaverage length of unemployment in the U nited States was nearly six months.

49. Citi is a founding mem ber of the "Hope No w" alliance, and touts itsability to help ho meow ners stay in their homes when "life happens."

16



17/120

50 .iti advertised its various homeo wner assistance programs on its website,including HAMP and Citis own proprietary modification program.51.iti describes the loan modification process as follows o n its w ebsite:Modification. Sometimes, if your income or financialcircumstances change long-term, you may be unable to pay yourexisting m onthly mortgage paym ents on an on-going basis.While you may not be able to refinance your mortgage, you mayqualify for a mo rtgage modification. An examp le of a modificationprogram is the recently introduced government program- the Hom eAffordable Modification Program, or HAMP. In addition to thisprogram, there are similar lender-specific programs whichCitiMortgage may be able to offer you if you do not qualify forHAMP.

Seehttps :// www.citimortgage.comlMortgage/displayHomeOwnerAssistance.do?page=troublepayment (last visited August 30, 2011 ).

If you are having trouble making payments on your mortgage,CitiMortgage will work with you to find a mortgage solution. Wealso have options if you are currently facing foreclosure.Seehttps :// www.citimortgage.comlMortgage/displayHomeOwnerAssistance.do?page=overview (last visited August 30, 2011 ).

To apply for a modification under HAM P, you must:Be the owner-occupant of a one- to four-unit home.Have an unpaid principal balance that is equal to or lessthan:1 U nit: $729,7502 Units: $934,2003 U nits: $1,129,2504 Units: $1,403,400Have a first lien mortgage that was originated on or beforeJanuary 1, 2009.Have a monthly mortgage payment (including taxes,insurance, and home owners association dues) greater than31% of your monthly gross (pre-tax) income.Have a mortgage payment that is not affordable due to afinancial hardship that can be docum ented.

17



18/120

If you answered Y ES to all of these questions, you may be eligiblefor a modification under HA MP . Only your servicer will be able totell you if you qualify.Seehttps :// www.citimortgage.comlMortgage/displayHomeOwnerAssistance.do?page=troublepayment_3 (last visited Aug ust 30, 2011).

52. Regarding the HA MP program, Citi also advertized that:Citi believes the approach to loan modifications under theAdministrations Homeowner Affordability and Stability Plan willhelp keep borrowers in their homes, forestall foreclosures andstabilize communities around the country. We are also confidentthat this new approach will streamline servicers ability to makeloan modifications more effectively and efficiently.

Citi Global Comm unity Relations, SUMM ARY of The Am erican Recovery andReinvestment Act and the Homeowner Affordability and Stabili ty Plan, February 24, 2009(Revised: March 4, 2009)53. In an August 25, 2009 press release, Citi quoted Sanjiv Das, CE O of C iti,

who stated that:CitiMortgages main concern is to help as many of our distressedcustomers as we can with a solution that is appropriate for theirindividual financial circumstances and needs. We are encouragedby the success of our initiatives, and are dedicated to doing more.Many Americans are still struggling which is why Citi remainscommitted to working with home owners and partnering withnational and local community leaders to provide the programs,resources, and information necessary to keep distressed borrowersin their homes.

54. According to Harold Lew is, the M anaging Director of CitiMortgage andHead of Citis Homeowner Assistance Program:

[A]s the housing crisis worsened, Citi s main focus has been to wo rk withborrowers to keep them in their homes... That has always been our firstpriority.

We believe it is our responsibility to help A merican families infinancial distress, and in particular, to help families stay in their homes.We remain comm itted to helping borrowers facing hardship.18



19/120

W ritten Testimony of H arold Lewis, Managing Director, CitiMortgage, Before theCom mittee on Financial Services, Subcom mittee on Housing and Comm unityOpportunity, Novem ber 18, 2010, at 2 and 3 (hereinafter, "Lewis CongressionalTestimony").55 . Citi further advertized that a distressed borrower, who is in d anger of

defaulting upon their loan, can negotiate a proprietary loan modification with Citi. Citiwill send the borrower a modification package which requires the borrow er to fill outpaperwork and sup ply certain proofs.

56 . Loan m odifications, by which m ortgage servicers change the terms ofborrowers m ortgage terms, have been a co rnerstone of public and private efforts topreserve home o wnership in the recent financial crisis. Through the mod ificationprocess, servicers reduce borrow ers interest rates, extend their loan terms, and/or forgiveor forbear principal in order to reach a monthly mo rtgage payment that borrowers canafford.

57 . In a M arch 4, 2010 press release which recounts the prepared testimony ofM r. Vikram Pandit, Chief Executive Officer of Citigroup, before the Cong ressionalOversight Panel, M r. Pandit stated that "Citi today is fundamentally different from thecompan y we inherited when I becam e CEO tw o years ago." Mr. Pandit stated: "[w]ithregard to financial institution reform, we at Citi believe that banks should operate asbanks, focused com pletely on serving their clients," and "[w]ith regard to consum ermarket reform, a key lesson of the financial crisis is that what starts as an issue thataffects consumers can becom e an issue for the entire financial system. Recent experiencereinforces the truism that what is best for consum ers is also best for the financial systemand the economy."

19



20/120

58.n response to Citis numerous solicitations, Plaintiff and Class Memberssought m odification of their mortgage loans.Citis Practices59 . As noted above, Citi does not have any incentive to mo dify the mortgage

loans. If a servicer modifies a loan in a w ay that reduces monthly paym ents, the servicerwill have a reduced income stream itself. This reduced income stream w ill only last aslong as the loan is in the servicing portfolio. Thus, when a servicer modifies a loan, theservicer loses servicing and float income (w hich it will not have long into the futureanyhow) and incurs expenses. Because of this Citi and other servicers are reluctant tomodify a mortgage loan. M oreover, loan servicers, like Citi, who fail to m odifymortgage loans, face few consequences.

60 . To further its profits, after aggressively soliciting its borrowers to applyfor mod ifications under HA MP through various advertisements and representations, Citiengaged in a scheme to capitalize arrears to increase principal balances, create additionalfloat income by putting borrowers in foreclosures, short sales, or refinance of theirmortgages, m aintain borrowers in default, delay decisions on m odifications and fail toapply their mortgage payments towards the homeow ners accounts by keeping them insuspension accounts, so that Citi can generate income through im position of late fees,delinquency fees, inspection fees, recording fees, appraisal fees etc., and impose junkfees" for unnecessary work or for work that was sim ply never done or padding the costsby in-sourcing their exp enses to affiliates at abo ve-market rates.

a .itis Charging/ Collecting Excessive Fees and Costs61. To m aximize its profits, Citi manages and administers its residentialmortgage servicing tasks through the use of general computer software programs withI mCase 4:11-cv-00443-RP -CFB Document 1 Filed 09/23/11 Page 20 of 82


21/120

little or no hu man intervention. Entries on the loan accoun ts serviced by Citi are trackedby a licensed computer software program. Wh en paymen t is received for a mortgage loanaccount from a b orrower, that payments are entered into the software program anddeposited. The computer software then applies the payments towards the homeownersaccounts.

62. Citi regularly condu cted its mortgage servicing by d esigning, operating,and m anaging the com puter software to intentionally charge borrowers unreasonable,improper and unlawful fees.

63. Citis software program applies computer logic to certain events,triggering automatic action on the loan file. More p articularly, guidelines for themanag ement of loans serviced by Citi - e.g. late fees, delinquent fees - are imported intothe comp uter softwares internal logic and autom atically apply. Other charges and fees,such as fees for p roperty inspections, are assessed against the account by virtue of "wraparound" software maintained by C iti.

64. Thus, if a borrower is late in making a paym ent or Citi is tardy inrecording receipt of the paym ent, the computer system automatically charge late anddelinquency fees and gen erates an order for property inspection and charges theborrowers account for this inspection after the loan has been in default for a certainnumber o f days regardless of whether there is a reasonable need for inspection or whetherCiti was tardy in applying the payment towards the hom eowners account.

65. Citis computer generates late fees, delinquency charges and orders forinspection, appraisal of property, recording of title etc. without hu man intervention. Noperson or employee of Citi is involved in the determination of wh ether inspection isreasonably necessary to protect the lenders interest in the property.

21



22/120

66.nstead of being placed on reasonable parameters, the computer system isprogramm ed to access as many charges as possible and pay first the outstanding fees andcosts before satisfying interest and principal.67. For exam ple, the computer system transmits property inspection work

orders to one of the approved vendors w ith which Citi has an agreement, if the borrowerhas been in default for 20 to 45 days. Once the approved vendor receives the computergenerated work o rder, the inspection is performed and the cost is charged to theborrowers accoun t. After the first inspection is triggered by a default, the Citi computersystem will continue to order property inspections every 20 to 45 days until the default iscured. Even when the borrower only misses one payment, and is current on allsubsequent paymen ts, the computer will automatically trigger the inspection work orderand charge the borrower every m onth. Further, because the property inspections areordered based on a computer program rather than hum an decision-making, propertyinspections m ay be perform ed on a borrowers property regardless of the fact that theproperty has already been inspected numerous times and w as previously deemedoccupied, well-maintained and in good condition. Thus, homeowners like the Plaintiffare charged for numerous hom eowner inspection work orders.

68. Mo reover, the limited nature of the inspection orders, which are merely"drive through" inspections, to ostensibly assess whether the house is o ccupied, beingmaintained, and has not been damaged, prov ide little, if any, real opportunity todetermine w hether the lenders interest in the property is at risk. Indeed, Citis inspectorsdo not read the inspection reports. Rather, these files are stored in the propertymanagement department and not reviewed by anyone.

22



23/120

69.imilarly, Citi s com puter program does not take into account the fact thatthe monthly m ortgage paymen ts received are being placed in a suspension account, andwill trigger default and foreclosure related fees and costs even if the bo rrower is currenton the mortgage. Indeed, Citi has also misused the escrow accounts and suspenseaccounts during the loan m odification process - and this has resulted in significantincrease of the late fees, delinquency fees, inspection fees, and other foreclosure relatedcharges. Plaintiffs claim is typical in this regard. Although Plaintiff has been makingtimely monthly m ortgage paymen ts and is current on his mortgage, Citi has issued noticeof default and intent to foreclose and also collected and/or seeks to collect excessive feesand costs to wh ich it is not entitled.

70.iti s practices with respect to property inspection, late fees, delinquencyfees, and other foreclosure related charges are also in stark contrast to the FederalHousing Adm inistrations guidelines for property inspections on homes that are federallyinsured. For example, FH A guidelines provide that a mortgage servicer should performand can b e reimbursed for o ne initial property inspection that should be calculated if amortgagors payment is not received within 45 days of the du e date and efforts to reachthe borrower by telephone are un successful. If the initial property inspection reveals thatthe property is occupied or if occupancy is confirmed through ano ther method (i.e. theborrower m akes a paym ent or contract is made by a telephone), FHA guidelines state thatthe mortgagor servicer w ill not be reimbursed for any additional inspections andadditional inspections are not required. Citi allows property inspections to be cond uctedevery 20 to 45 days until a borrow er cures a default regardless of whether the previousinspection revealed that the house was occup ied and well m aintained.

23



24/120

71.o similar affect are the other work order an d charges such as delinquencycharge, higher insurance recommendation and charge, escrow delinquency fees,recording fee, and other foreclosure related fees and expenses. M ost of these chargesshow up as "other charges" or "miscellaneous charges" on the account statements.

72. These computer-generated orders for inspection, appraisal, title recording,etc. are excessive and unreasonable and confer no benefit on Citi, and serve nodiscernable function other than to gen erate revenue for Citi is further evidenced by thelimited nature of the inspections themselves. The p roperty inspections are mere "drive-by" inspections, i.e., the inspector "drives by" the property ostensibly to access wh etherthe house is occupied, being maintained, and has not been dam aged - a practice thatprovides little, if any, real opportunity to determine whether the lenders interest in theproperty is at risk. Indeed, Citis personnel do n ot read the inspection reports. Rather,electronic files of property inspections are never read by anyone at Citi.

73. Citi has also misused the escrow accounts and suspense accounts, and thispractice exasperated during the loan m odification process - and this has resulted insignificant increase of the late fees, delinquency fees, inspection fees, and otherforeclosure related charges.

74. Upo n information and belief, Citis corporate policy fails to notifyPlaintiffs and C lass Mem bers that fees, costs, or charges are being assessed against theiraccounts. The failure is fatal to Citi s decision to pay itself from paym ents sent byDebtors for other purposes and is contrary to the requirements of the N ote and M ortgage,the terms of w hich are incorporated herein by reference.

24



25/120

75. Citis software program is not tied to Plaintiff or Class Mem bersmortgage agreements, but was d esigned to operate in a centralized fashion to defraudthousands of borrowers that had their mortgage serviced by C iti.

76. Plaintiffs claim is typical of the class members. In August 2010, inAugust 201 0, Goody k paid $1,363.80 in late charges, $138.00 for inspection fees, $84.00for BPO appraisal, $0.87 for servicing fee, and $1 ,130 for legal fees and co sts, in additionto the mortgage payments.

77. In order to maxim ize its revenue, Citi also imposes an additional $10charge for payment over the phone up on Plaintiff and Class Mem bers who have nobargaining pow er or leverage - and as charges Plaintiff and Class M embers for sumswhich are not perm itted by the original mortgage agreement.

78. Plaintiff and mem bers of the proposed Class have been charged late feesand other undisclosed fees even while they are making regular monthly payments.Plaintiff and Class M embers have also been persuaded to "agree" to pay u nreasonable

fees that only enrich Citi, such as fees for telephone paym ents, which, on information andbelief, further enrich Citi at the expense of m ortgagors. Plaintiff and C lass Mem bershave been charged excessive interest on principal amounts for which C iti refused to applypaym ents in a timely mann er, adding substantially to mortgagors overall debt.

79. By failing to apply the mortgage payments to Plaintiff and Class mem bersaccounts, Citi s computer program automatically charges late fees, delinquent fees,finance charges, and other foreclosure related fees and und isclosed charges. Impositionof these illegal fees and capitalizing of unaccounted m ortgage payments h as resulted inan increase of the interest payments, principal balance and servicing com pensation forCiti.

25



26/120

80. This practice of charging illegal fees was particularly exasperated in therecent mortgage foreclosure crisis of 2007.

81. As noted above, in a foreclosure action, Citi recovers all fees and expensesoff the top from foreclosure sale proceeds before mortgage backed securities investors arepaid. This reimbursem ent structure limits Citi s incentive to rein in costs and actuallyincentives them to pad the costs of foreclosure. Citi s ability to retain foreclosure-relatedfees has even led it to attempt to foreclose on properties when the homeow ners arecurrent on the mortgage or w ithout attempting any sort of repayment plan. As detailedbelow, Plaintiff and Class Mem bers have paid significant fees and costs to avoidforeclosure proceedings.

82. Plaintiff and Class Memb ers have suffered on account of Citis unlawfulforeclosure practices.

83. Specifically, and as discussed in detail below, Plaintiff Goodyk has aprincipal and interest payment only mortgage account. After making a lump-sumpayment in A ugust 2010 (wh ich was also illegally charged and is challenged herein),Good yk has been current on all his original mortgage pay men ts. How ever, Citi has notapplied the mortgage paymen ts against his monthly m ortgage account, and instead hasreported him delinquent to the credit agencies.

84. By failing to apply the mortgage paym ents to Goodyk s account, Citiscomputer prog ram autom atically charges late fees, delinquent fees, and other fees,finance charges, and other foreclosure related fees and undisclosed charges. Impositionof these illegal fees and capitalizing arrears, also results in an increase of the interestpayments, principal balance and servicing com pensation for Citi.

26



27/120

85. The com puter generated fees are unreasonable, confer no benefit on thelender, and serve no discernable purpose other than to gen erate revenue for Citi. Citirepeatedly sent to Plaintiff and C lass Mem bers materially false and misleadingagreemen ts, contracts and m onthly m ortgage statements. Specifically, Citi conceals thenature of the improper and unlawful fees and charges from borrow ers by listing them onthe borrowers statement only as "other charges."

86. These il legal fees and charges are in practice and practical effectundisclosed finance charges, late fees, inspection fees, escrow overdrafts, recording fees,foreclosure costs and other m iscellaneous fees, including attorney fees.

87. Despite repeated requests, Citi refuses to m ake Plaintiff and Class accountcurrent, and Plaintiff and Class M embers have been asked to pay the afore-mentionedillegal fees and ch arges to avoid foreclosure proceedings.

88. Plaintiff and Class Memb ers have suffered damages on accoun t of Citisunlawful foreclosure practices. Specifically, Plaintiff and m embers of the proposed C lasshave been charged late fees and other undisclosed fees even while they are mak ingregular monthly payments. Plaintiff and Class Members have been charged excessiveinterest on principal amounts for w hich Citi refused to apply paymen ts in a timelyman ner, adding substantially to mortgagors overall debt. Indeed, as enumerated below ,Plaintiff has incurred significant fees and charges.

89. Indeed, as enum erated below, Plaintiff has incurred significant fees andcharges. In January 2011 G oodyk w as informed that he is in default of his payments, andthat his total loan payoff am ounted to $206,695.54 an amo unt greater than his originalloan of $205,000 which was funded in Nov ember 2007 and u pon which Plaintiff hasmade significant principal and interest payments. Good yk was also informed that he

27



28/120

owed C iti interest payments in the amount of $5,801.40, escrow overdraft of $1,860.00,late charges of $272.76, delinquency expenses of $144 .10, and unsecured servicing feesin the amount of $0.87 w hen his payments w ere admittedly sitting in an unapplied orsuspended fund account.

90. Goody k was quite surprised to learn that he has an escrow delinquency,when h e has never had an escrow accou nt for his mortgage, and that his mortgagepayments have not been applied towards h is account. Citi s representative Sareana, IDNum ber FN63 175 confirmed that his payments were sifting in an unapplied or suspendedfund account. In the meantim e, Goodyk is required to pay excessive fees and charges toavoid foreclosure proceedings.

91. In addition, Plaintiff and Class Members have suffered, among otherthings, emotional distress, wrongfully being placed in imm inent danger of losing theirhom es, impairmen t in their ability to sell their property, and attorneys fees in defendingfraudulent foreclosures. Moreover, Plaintiff and Class Members have suffered damages,including, but not limited to, uncertainty of clear title, which causes a sm aller pool ofpotential buyers, lowers home values, real estate ow ned sales resulting in higherdeficiency judgment, and decreased time to n egotiate a modification or workout of theloan.

b .iiis Unlawful Foreclosure PracticesDuring Loan Modification Process92. Citi scheme of charging illegal fees and costs has increased significantly

since 2007 w hen on account of its irresponsible lending practices Citi had to deal with anunprecedented num ber of foreclosures and has been especially predominant during theloan mo dification process.

28



29/120

93. As dem onstrated below, instead of providing timely permanentmodifications to eligible borrowers, Citi delayed the process, while capitalizing thearrears into the principal balance accounts, increasing interest charges, inspection fees,late and delinquent fees. Ultimately, instead of receiving the prom ised loan m odification,Citi filed w rongful foreclosure actions, and Plaintiffs and Class Mem bers were forced topay these foreclosure fees to avo id losing their hom es. In addition, Plaintiffs and C lassMem bers incurred additional costs of engaging a foreclosure attorney to represent themin court.

94. According to a survey conducted by National Association of ConsumerAdvocates, in conjunction with National Con sumer L aw C enter, of attorneys representinghomeow ners in foreclosure pending nationwide, the foreclosures can be classified intothe following categories:

Homeowners who had been placed into foreclosure while awaitinga loan modification (which is 99% of the homeow ners).Homeowner who had been placed into foreclosure despite making

modified payments as required by the banks during the trial periodplan (90% of homeowners).Homeowners had been placed into foreclosure due to a servicersimproper failure to accept payments (87% of the hom eowners).Homeowners had been placed into foreclosure as a result of force-placed insurance alone, or on account of the impact of illegal feesand the misapplication of payments (50% of the homeowners).

See, Written Answers from Diane E. Thompson, National Consumer Law Center, toQuestions for the Hearing on "The N eed for N ational Mortgage Servicing Standards"dated May 12, 2011.

95. These foreclosures are unlawful because they w ere either brought inviolation of the under the HAM P guidelines, while homeo wners who w ere being

29



30/120


31/120

(a) should apply only for first mortgages secured by the owners principaldwelling.Helping Families Save Their Homes Act of 2009 (5. 896), effective May 20, 2009(emphasis added).

98 . The HAMP Supplemental Directives, adopted on March 4, 2009 andsupplemented on April 6, 2009 and November 30, 2009, require, inter alia, that:

Any foreclosure action will be temporarily suspended during the trial period,or while borrowers are considered for alternative foreclosure preventionoptions. In the event that the Home Affordable Modification or alternativeforeclosure prevention options fail, the foreclosure action may be resumed.99 . Notwithstanding the aforesaid, Citi routinely files foreclosure actions

against homeowners whose financial paperwork is being evaluated for modificationpurposes.

100. Here, Goodyk was being considered for loan modification at the time offiling of foreclosure, and had been asked by Citi s representative to make trial paymentsof reduced amounts. Goodyk had indeed made modified payments in July and August2010.

101. Unaware of the illegality of the foreclosure proceedings, and to avoidlosing his residence, in August 2010, Goodyk paid $1,363.80 in late charges, $138.00 forinspection fees, $84.00 for BPO appraisal, $0.87 for servicing fee, and $1,130 for legalfees and costs, in addition to the mortgage payments. Despite being current on hismortgage payments, Goodyk continues to incur illegal fees and costs on account of Citisunlawful practices. In the mean time, Citi continues to illegally capitalize the mortgagepayments into the principal balance and increase its interest and servicing payments.

31



32/120

C .i ti W rongfully Reports Borrowers asDelinquent to C redit Reporting Agencies102. In a further attempt to m aximize its profits, Citi declares Plaintiff and

Class M embe rs as delinquent to credit rating agencies. Thus, although P laintiff and ClassMem bers were making regular or modified payments an amount that will match theirpayments under a p ermanent m odification or is the listed amo unt under the originalmortgage - their accounts are not reported as current to credit scoring agencies. Thus,Citi has engaged in a practice of reporting even homeo wners w ho are making fullpayments of their mortgages as delinquent to the credit agencies by failing to timelyapply their payments towards their accounts and/or maintaining their mortgage paymentsin separate suspension accounts. As demonstrated below, Plaintiffs case is typical in thisregard.

103. These false credit reports make it harder and m ore expensive forconsum ers to obtain credit. In addition, misrepresenting the delinquency status ofconsumers loans allows C iti to impose late fees and other charges that are excessiveand/or inadequately disclosed and are who lly unexplained "other fees" or "othercharges", making it even harder for Plaintiff and Class Mem bers to remain or becom ecurrent on their mortgages.

104. These fees and penalties would not have been im posed on, or paid by,Plaintiff and Class Mem bers, had Citi properly accounted for their monthly m ortgagepaym ents in a timely m anner. Also, by lowering the credit reporting of its customers,Citi is able to deny m odifications to eligible homeow ners since this is one of the criteriaof the NP V test. In addition, Citi is able to charge high er default interest rates bylowering the credit scores of its customers.

32



33/120

105. Citi s action of wrongfully declaring the hom eowners as delinquent tocredit agencies is violative of the Fair C redit Reporting Act and the Fair Debt C ollectionPractices Act ("FDPCA "), 15 U.S.C. 1692e(2)(A) & (8). In addition, the HA MPProgram G uidelines require Citi to report borrowers who w ere previously current whenthey entered the trial period as "current but on a modified paym ent." HAM P FAQ s,Q2004 at 20. However, Citi improperly reports such borrowers as delinquent.

d .iti s Intentional Misrepresentations andDelay in the Mortgage Loan M od ification Process106. Citi has repeatedly breached its obligations to Plaintiff and Class M embersand deceived hom eowners abou t the loan modification process. Citis deceptions andomissions include, but are not limited to, the following: (1) Citi would make prom ptdecisions on mod ifications on quickly access the Plaintiff and Class M embers for loanmodification; (2) Citi would not foreclose upon consum ers homes wh ile modificationrequests were pending or while homeow ners were making trial modification paym ents;(3) Citi would convert consumers to permanent m odifications if and when they made thepayments required by trial modification agreements, (4) C iti will do its best to help thehomeo wners reduce their payments and their mortgages, and keep their homes.

107. Citi has engaged in a pattern and practice of soliciting Plaintiff and ClassMember to seek a modification of their mortgage loan. During this process, Citi firstseeks all financial information from Plaintiff and C lass Mem bers in order to determinehow b est to modify their mortgage loan, and whether Plaintiff and Class Mem bers arequalified for the HAM P program . Citi promises that its customers that they will not beforeclosed during the mo dification process or w hile their paperwork was being evaluatedby C iti for a modification.

33



34/120

108. Notwithstanding these promises and in violation of the HAM P guidelines,if the borrower is delinquent or in im minent default, Citi refuses to accept the originalmortgage paym ents and returns the same to Plaintiff and Class Members, wh ile stillevaluating their paperw ork. Thereafter, Citi initiates foreclosure proceeding s againstPlaintiff and Class Mem bers and reports them as delinquent to the credit reportingagencies.

109. W hile defending the foreclosure action, Plaintiff and Class Mem bers areinformed that they are eligible and pre-qualified for a HAM P m odification, and willreceive a permanent m odification agreement if they m ake timely mo dified trial paymentsunder the trial period, and subm it requested paperwork. Citi promises to provide thepermanent m odification agreemen t to Plaintiff and Class Mem bers at the end of the threemonth trial period or within one m onth thereafter.

110. Citi then delays the modification of the m ortgages and blames m ost of thedelays in processing loan mo dification requests on customers failure to provide requireddocum entation. Citi has engaged in a pattern and practice of routinely claiming that ithas not received a borrow ers paperwork, or that it was lost. Yet, Citi rarely sendsconsumers w ritten notification that documents are missing, and often fails to no tifyconsumers orally that documen ts are missing.

111. Plaintiff and Class M embers have exp erienced a remarkably uniformpattern of repeatedly sending the same do cuments to C iti, receiving confirmation thatdocum ents are received and adequate, and then being told that the documents are lost,missing, incomplete, or otherw ise defective.

112. After delaying the process of loan m odification for m onths, Citi repeatedlyand inappropriately demands that borrowers update their application materials, while

34



35/120

warning hom eowners that their modification is at risk and threatening to deny themo dification if they fail to comp ly with these requests. Typically, Citi requests the samedocum ent(s) over and over. Citis demands that borrow ers submit duplicative orunnecessary docum entation creates opportunities for Citi to reject otherwise eligibleborrowers for permanent modifications. The requests for documents are unnecessary,duplicative, burdensom e, and harassing.

113. Citis delay in providing a perm anent loan mo dification has seriousconsequences. Citi "recapitalizes" the unpaid loan b alance at the end of the three m onthtrial period by adding the difference between the original m ortgage and the m odifiedmo rtgage to the new principal balance. Becau se Citi s servicing fees is directlyproportionate to the outstanding principal loan balances of the mortgages it services, Citideliberately delays the perm anent m odification so that it could substantially increase theunpaid principal balance amounts by extending the trial period.

114. Relying on these representations, Plaintiff and Class M embers m ake themodified paym ents with the hope of receiving a permanent m odification.

115. To further frustrate Plaintiff and Class M embers, Citi then dem andsballoon payments from Plaintiff and Class Mem bers claiming that they need to be currenton their mortgage in order to receive a m odification.

116. After receiving the modified and balloon paymen ts, instead of showing thePlaintiff and Class Mem bers as current, Citi fails to reflect the receipt of the p aymentstowards Plaintiff and Class Mem bers accounts, and keeps the same in a suspensionaccount. This failure to reflect the paym ents received against the mortgage acco unttriggers the computer software ch arging automatic delinquency fees, late fees, inspectionfees etc.



36/120

117. Citi has been charging/dem anding and collective excessive and illegal latefees, delinquency fees, inspection fees, appraisal fees, escrow delinquency fees, title fees,recording fees, process servicing fees, other servicing fees, miscellaneous fees and otherforeclosure related fees and expenses from Plaintiff and Class Mem bers. Asdem onstrated below, Plaintiffs experiences are comm on to the entire class, and Citi hascollected significant illegal fees and charges from the Plaintiff.

118. After increasing the principal balance am ounts to sum s greater than theoriginal mortgage, instead of providing prom ised permanent m odification agreemen t, Citidemand s balloon payments of the outstanding loan amounts to avoid foreclosureproceedings. Indeed, as demon strated below, Plaintiff was informed that his outstandingtotal loan payoff am ounted to $206,695.54 - an amount greater than his original loan of$205,000 wh ich was funded in November 2007 and up on which Plaintiff has madesignificant principal and interest payments.

119. Citi reports these borrowers, who were m aking modified paym ents duringa trial period, as late or in default to credit bureaus. As a result, Plaintiff and ClassM emb ers credit scores have been detrimen tally affected, and significantly so, whichsubstantially and negatively im pacts their ability to rent if they lose their hom es, amongother problems.

120. Citi has engaged in a practice of failing to ad here to its trial periodagreements by negligently and/or recklessly rejecting loan m odification app licationsand/or treating Plaintiff and Class M embers as being in default of their loans by notapplying the pay ments received ag ainst their accounts, notwithstanding that Plaintiff andClass Mem bers tendered the mortgage payments on a timely basis, which Citi accepted.



37/120

Citi has a duty of ho nesty and disclosure to borrowers w ith respect to processing loanmodification applications, settlements, and foreclosures.

121. Plaintiff and Class Mem bers reasonably and actually relied on Citisrepresentations with respect to suspending or reducing p ayments during the loanmodification applications process.

122. Hom eowners like Plaintiff and Class Members, who are denied amodification after making several mo nths of trial payments, are worse off than if theyhad never started the trial at all, because the process dam ages their credit scores and theyhave expended funds wh ich could have been used for other purposes.

123. Citi s misrepresentations and omissions were material to the transactionsat hand.

124. Citi and its authorized agents made the previously described m aterialmisrepresentations and/or om issions with the intent and purpose of m isleading borrow ers,including Plaintiff and Class M emb ers. Citi knew o r should have know n that itsrepresentations regarding the status of Plaintiffs and Class Mem bers loans, as well asthe status of any purported m odification w ere inaccurate and that Plaintiff and C lassMem bers would act in accordance with and in reliance on Citi s representations.

125. Citi s omissions and misrepresentations were made w ith the knowledge oftheir falsity, or with utter disregard and recklessness as to w hether they w ere true or false,with the intent of inducing Plaintiff and Class Mem bers into relying upon them .

126. Citi has a financial interest in avoiding loan m odifications and keepingmortgages in default in part because doing so generates more fees than modifying a loanto decrease its principal. Citi was m otivated by the foregoing.

37



38/120

127. Had Citi provided Plaintiff and Class Members with accurate informationregarding the status of borrower loans, purported defaults, and what m easures could betaken to cure the defaults or modify the loans, Plaintiff and the Class Members w ouldhave pursued other m easures to cure a potential default, would n ot have defaulted, and/orwould not have been led to believe that Citi would assist the Plaintiff and Class Mem bersin order to avoid default and be able to keep their hom es. Had they know n they wou ldlose their homes despite making paym ents, Plaintiff and Class Memb ers would havesought alternative help, might have sought short sales or other foreclosure alternatives, orsimply allowed their homes to be foreclosed, saving the money from the additionalpayments for other necessary expenses. Other consumers lost willing buyers who couldhave m itigated their own (and Citis) financial losses by stepping in to purchase theirhomes.

128. As a direct and proximate result of Citis misconduct, Plaintiff and ClassMembers have suffered damages. Specifically, Plaintiff and Class Members have

suffered, among other things, emotional distress, wrongfully being placed in imm inentdanger of losing their hom es, harm to their credit scores, depressed hom e values,impairm ent of the ability to sell their property, attorneys fees involved in defending thefraudulent foreclosure proceedings and illegal fees and charges. M oreover, Plaintiff andClass Mem bers have suffered dam ages, including, but not limited to, uncertainty of cleartitle, which causes a smaller pool of potential buyers, lower hom e values, real estateowned sales resulting in a higher deficiency judgm ent, and decreased time to negotiate amodification or workout of the loan.

38



39/120

Experience of the Named P laintiff129. Plaintiff incorporates by reference all the allegations made hereinabove to

his experiences listed below. The experiences of the P laintiff are typical of all ClassMembers.

Keith Goodyk130. Plaintiff, Keith Good yk, is a single person and currently resides at 1262

Iowa Street, Pella, Marion County, Iowa 50219.131. On No vember 13, 2007, M r. Goodyk obtained a residential mortgage from

CitiMortgage for his residence set forth above in the amount of $205,000.00. A copy ofthe mortgage and n ote is attached herewith as Exhibit A.

132. In accordance with the terms of the note, Mr. Goody k made timelypayments of $1,363.87 (representing principal and interest only) until Spring of 2010when he began to fall behind on his home payments. However, Mr. Goodyk continuedto make his payments.

133. M r. Goodyk then began wo rking with Citi Mortgage to obtain a loanmodification, after having received com munications about Citi and its loan m odificationprograms and sent his financial information for consideration for a loan m odification.

134. During this time, Mr. Good yk made a full loan payment of $1,363.87 onJune 25, 2010 by check #22908.

135. M r. Goodyk m ade another full loan payment of $1,363.87 on July 7, 2010by check #22925.

136. M r. Goodyk had every reason to believe that these two (2) mortgagepayments had b een received and applied accordingly.

39



40/120

137. At the same time that he w as making full payments on his loan, Mr.Goodyk continued working with Defendants telephone customer service representativesin order to take those steps necessary to obtain a permanent loan m odification.

138. After his second full loan paym ent on July 7, 2010, Mr. Goodyk receivedletters dated June 30 and July 28, 2010 that returned the above loan p ayments becausethey were insufficient to cure his delinquency and alerting him that his loan was inforeclosure. Copies of these letters are attached hereto as E xhibit "B".

139. Notwithstanding that he was working towards obtaining a permanent loanmodification, Citi initiated foreclosure proceedings against Mr. Go odyk on or about July20, 2010 in Marion County, Iowa.

140. Mr. Good yk was served w ith Notice of the Foreclosure proceedings onJuly 23, 2010.

141. On July 2 9, 2010, a telephone customer service representative of Citiadvised Mr. Good yk that in fact he did qualify for the three-month trial loan modificationprogram an d, pursuant to the representatives instructions M r. Goodyk m ade a modifiedpaym ent by telephone in the amount of $1,156.91, plus a $10.00 phone paym ent fee. Inaddition to principal and interest, this sum also included M r. Goodyk s real estateproperty taxes and insurance payments.

142. The real estate property taxes and insurance w ere not previously part ofPlaintiffs original principal and interest payment of $1,363.87. Mr. Goodyk was toldthat if he would continue to make the three trial payments of new reduced amoun ts,which included real estate property taxes and insurance payments, he w ill receive apermanent m odification that will his total monthly payment for sam e by approxim ately$700.00.

40



41/120


42/120

only amou nt that he owed. Relying on these instructions, Mr. Good yk mad e the saidpayment.

148. Thereafter, Citi told Mr. Goody k that he had completed all his trialpayments successfully and will receive a permanent mod ification of his m ortgage.

149. Thereafter, Mr. Goodyk, continued to m ake his full mortgage payments ashe had b een making in the past under the original mortagage agreement, while waitingfor the permanent modification agreement. Mr. Goodyk made a full October payment of$1,363.87.

150. Mr. Goodyk continued to make his monthly mortgage payments under theterms of the original mortgage. Mr. Goodyk made one two-month payment forNovem ber and December in the full amount of $2,727.74

151. Mr. Goodyk, in January 2011, m ade another full payment in the amount o f$1,363 .87 to C iti under the original terms and conditions, and continues to mak e the fullmortgage paym ents till date.

152. Since he had not heard anything to the contrary, Mr. Goodyk co ntinued tobelieve that he will receive a perman ent modified agreement.

153. On January 18, 2011 , Mr. Goodyk called CitiMortgage Customer Serviceto check the status of his loan and b alance, and to find out wh en he w ill get thepermanen t modified agreem ent. Plaintiff first spoke with Citi representative, Sareana, IDNum ber FN63 175, who informed him that his loan was in foreclosure and that he wasdelinquent by the sum of $5,660.92 from October 1, 2010 to January 1, 2011.

154. Mr. Good yk pointed out to Sareana that he had a confirmation of October3, 2010 paym ent to Citi in the amount of $1,363 .87, and that he could prove that he had

42



43/120

made all his mon thly mortgage pay ments. Sareana indicated that upon further research,the amount of $4,091.61 w as sitting in an unapplied or suspended fund account.

155. On being asked why C iti had been accepting but failing to apply hispaym ents and Sareana answered, "Thats a good question."

156. Mr. G oodyk attempted to determine the status of his account and his statusin the loan mo dification program, but was u nable to receive confirmation from Sareanathat he had com pleted the program successfully. She noted that he needed to talk to hisloan counselor, Tiffany.

157. According to Sareana, it appeared from T iffanys file notes that Mr.Goodyk needed to provide one m ore piece of information for Citi to complete his loanmodification.

158. Mr. Go odyk asked Sareana for confirmation of the current balance or pay-off of his loan was and she referred M r. Goodyk to the foreclosure department.

159. A C ustomer Service Representative in the foreclosure department told Mr.Goodyk that his original loan had been made in the amoun t of $205,000.00, which wasfunded on or about November 30, 2007. As of January 18, 2011, Plaintiffs total loanpay-off amounted to $206,695.54an am ount greater than his original loan.

160. Mr. Goody k inquired what the amounts were and how it could be possiblethat his three years of making full payments, including the charges, penalties, interest,fees, etc., he could owe in excess of his original loan amount. He was told that he owedamounts including late charges, reinstatement fees and now an escrow deficiency.

161. Mr. Go odyk w as again told that he needed to speak w ith Tiffany, his loancounselor. After calling Custom er Service once again, he was told by Custom er Servicethat they could not give out Tiffanys direct number since it was not an 800 number. In

43



44/120

addition, they could not give out her em ail address, but they would send her an email toonce again have her call him.

162. Customer Service indicated that they had file notes indicating that Tiffany

last tried to contact Mr. Goodyk on his cellular phone on November 30, 2010. However,Mr. Go odyk do es not recall ever receiving a telephone call, nor did he ever receive avoice mail on his cell phone. Indeed, Plaintiff believes that no such call was ever sent tohis cell phone.

163. On January 18 , 2011, Citi issued a payoff statement to M r. Goodyk.Pursuant to this statement, Mr. Good yk ow es the Citi the following paym ents:

Principal Balance as of 09/01/10198,904.61Interest from 09/01/10 to 02/01/11 @7%5,801.40Escrow Overdraft1,860.00Late Charges272.76Delinquency Expenses144.10Total Secured by Mortgage206,694.67Total To Pay Loan in Full206,695.54A co py of this payoff statement is attached hereto as Exhibit "E".164. O n January 26, 2011, M r. Goodyk received yet another notice of default

from Citi informing him that he was delinquent and must make paym ents of $5,728.24,including $27 2.78 in late charges. He was instructed that this payment mu st be made byFebruary 26, 2011. In this letter Citi also informed Plaintiff that "[t]his is an attempt tocollect a debt, and any information w ill be used for that purpose." A cop y of this letter isattached hereto as Exhibit "F"

165. Upon information and belief, Plaintiff believes that Citi has misapplied hispayments to p ay illegal fees and charges.

166. Plaintiff has been current on his mortgage since Au gust 25, 2010, and hasbeen regularly making all mortgage payments under his mortgage and note. Yet, Citi has

44



45/120

reported Plaintiff as delinquent to the credit agencies and is dem anding late fees anddelinquent fees.

167. Plaintiff has suffered damages as a result of Citis deceptive practices,including but not limited to dam ages to his credit, having to defend against a wrongfullyinstituted foreclosure proceeding, illegal fees and charges wh ich are being collected fromhis escrow account and emotional distress.

Class Action Allegations168. Plaintiff brings this suit as a class action on behalf of him self and all

others similarly situated (the "Class") pursuant to Fed.R.Civ.P. 23 . Plaintiff seeks torepresent the following Class:

a. Class of all homeowners nationwide with mortgage loansserviced by Citi, and who, since April 2009 through the finaldisposition of this and related actions, (i) have entered into an oraltrial period agreement with Citi and (ii) made all payments asrequired by their oral trial period agreement and complied withCitis requests for documentation, (iii) but have not received orhave been denied a permanent Modification Agreement thatcomplied with H AM P rules (the "Oral Modification Class").b. Class of all homeowners nationwide with mortgage loansserviced, and who, since April 2009 through the final dispositionof this and related actions, (i) have entered into an oral trial periodagreement with Citi and made all payments as required by theiroral trial period agreement and (ii) complied with Citis requestsfor documentation, (iii) but were improperly reported to creditreporting agencies as delinquent ("Credit Reporting Class").c. Class of all homeowners nationwide with mortgage loansserviced, and who, since April 2009 through the final dispositionof this and related actions, (i) have entered into an oral trial periodagreemen t with Citi and (ii) made all paymen ts as required by theirTPP Agreement and complied with Citis requests fordocumentation, (iii) but were improperly placed in foreclosureand/or charged for various foreclosure-related fees ("ForeclosureClass").

45



46/120


47/120

through the final disposition of this and related actions, (i) haveentered into an oral trial period agreement with Citi and (ii) madeall payments as required by their oral trial period agreement andcomplied with Citis requests for documentation, (iii) but wereimproperly but were charged for various fees, includingforeclosure fees and costs (the "Fee C lass").

170. In the alternative, Plaintiff brings this suit as a class action on behalf ofhimself and all others similarly situated within the State of Iowa, pursuant toFed.R.Civ.P. 23, defined as follows:

a. Class of all Iowa homeowners with mortgage loans serviced byCiti, and who, since Ap ril 2009 through the final disposition of thisand related actions, (i) have entered into an oral trial periodagreement w ith Citi and (ii) made all paym ents as required by theiroral trial period agreement and complied with Citis requests fordocumentation, (iii) but have not received or have been denied apermanent Home Affordable Modification Agreement thatcomplied with HA MP rules (the "Oral Modification Class").b. Class of all Iowa homeowners with mortgage loans serviced,and who, since April 2009 through the final disposition of this andrelated actions, (i) have entered into an oral trial period agreementwith Citi and made all payments as required by their oral trialperiod agreement and (ii) complied with Citis requests fordocumentation, (iii) but were improperly reported to creditreporting agencies ("Credit Repo rting Class").c. Class of all Iowa homeow ners with mortgage loans serviced, andwho, since April 2009 through the final disposition of this andrelated actions, (i) have entered into an oral trial period agreementwith Citi and (ii) made all payments as required by their oral trialperiod agreement and complied with Citis requests fordocumentation, (iii) but were improperly placed in foreclosureand/or charged for various foreclosure-related fees ("ForeclosureClass").d. Class of all Iowa homeowners with mortgage loans serviced,and who, since April 2009 through the final disposition of this andrelated actions, (i) have entered into an oral trial period agreementwith Citi and (ii) made all payments as required by their oral trialperiod agreement and complied with Citis requests fordocumentation, (iii) but were improperly but were charged forvarious fees, including foreclosure fees and costs (the "FeeClass").



48/120

171. Excluded from the Class are governmental entities, Citi, its affiliates andsubsidiaries, Citi s current employees and current or former officers, directors, agents,representatives, and their family m embers.

172. Plaintiff reserves the right to re-define the Class prior to moving for classcertification.

173. Plaintiff does no t know the exact size or identities of the propo sed Class,since such inform ation is in the exclusive control of Citi. Plaintiff, howev er, believes thatthe Class encomp asses thousands of individuals who are geo graphically dispersedthroughout the United States, including within the State of Iowa. Therefore, the numberof persons who are m embers of the Class described above are so numero us that joinder ofall members in one action is impracticable.

174. All mem bers of the Class have been subject to and affected by a uniformcourse of co nduct by Citi that was designed to evade the requirements of HA MP andavoid permanent loan m odifications in an effort to increase Citi s income through, interalia, maintaining high service fees on larger principal balances, collecting additional latefees and process managem ent fees and avoiding increased fixed overhead co sts.

175. This course of co nduct also includes: stringing out, delaying or otherwisehindering the modification process in violation of HA MP rules by:

(1) instituting or pursuing forec losure actions w hile borrow ers are in the trialperiod o r instituting foreclosure ac tions before the start of the trial period,(2) charging bo rrowers late fees and penalties during their trial periods,(3) reporting borrow ers to credit agencies for delinquency w hile they are onthe trial period,

48



49/120

(4) repeatedly requesting that borrowers send the required documen tation overand over again,(5) failing to allocate adequate resources such as sufficient trained staff tofacilitate the modification process,(6) failing to establish proper co mm unication between internal corporatedepartments necessary to facilitate borrowers modification requests,(7) failing to timely notify borrow ers at the end of the three m onth trial periodthat they have been provided or have been denied a permanent H AM Pmodification, and(8) denying permanen t HAM P m odifications for reasons that are false, untrueand/or entirely inaccurate.

176. The claims are based on standardized written form con tracts (the TPPAgreem ents) and the uniform HA MP rules contained in the Servicer Handbook whichgovern the entirety of the Making Ho me A ffordable Program and all aspects of loanmodification under H AM P.

177. Questions of law and fact that are comm on to the entire Class predominateover individual questions because the actions of Citi comp lained of herein were generallyapplicable to the entire Class. These legal and factual questions include, but are n otlimited to:

a. The nature, scope and operations of Citis wrongful practices;b. W hether there is widespread fraud in the foreclosure process;

W hether Citi should be required under the doctrine of promissory estoppelto offer permanent modification to Class M embers;d. Whether Citi breached

Citimortgage Lawsuit

Documents

Transcript of Citimortgage Lawsuit