Davis Corrected 1stAmend Complaint.Final

Transcription

Case 6:11-cv-00047 Document 23
Filed in TXSD on 03/08/12 Page 1 of 30
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF TEXAS
VICTORIA DIVISION
MACK DAVIS, R. KENNETH BABB,
CHRIS STEWART, CHARLES L.
RYAN, JOANNE F. HESSEY, CARL P.
HOLVECK, FRANCIS MASE, TABE
MASE, KRISTIN YOUNG POWELL,
JAMES MONROE POWELL, IV,
ELMER VELAZCO, CAROLYN
VELAZCO, KIMBERLY BERRY,
SANFORD MILLER, and RANDY
BARFIELD, each Individually,
and on behalf of, Plaintiff Class Members,
Plaintiffs,
vs.
WELLS FARGO BANK, N.A.,
WACHOVIA BANK, N.A.,
GREENLINK, LLC, WELLS FARGO
HOME MORTGAGE, INC., and
AMERICA’S SERVICING COMPANY,
and DOES 1 through 10 inclusive,
Defendants.
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CASE NO. 6:11-cv-00047
Jury Trial Demanded
PLAINTIFFS’ CORRECTED FIRST AMENDED COMPLAINT
TO THE HONORABLE UNITED STATES DISTRICT JUDGE:
This amended complaint is filed within 21-days of the filing of all
Defendants’ Fed. R. Civ. P. 12(b) Motion to Dismiss (Doc. 19)
and, is, therefore, filed without requesting leave. See Rule 15(a)(1)(B).
I. INTRODUCTION AND SUMMARY OF CASE
1.
This is a proposed class action, filed under Federal Rule of Civil Procedure 23, to redress
the rights and losses of purchasers of lots in the resort land development known as The Sanctuary
at Costa Grande (hereinafter referred to as “The Sanctuary”) in Port O’Connor, Calhoun County,
Texas. The losses were, and are, caused by a pattern of unlawful conduct by Wells Fargo Bank,
N.A. (hereinafter referred to as “Wells Fargo”) acting in concert with loan servicing and
appraisal management companies that it directed.
Those entities are Wells Fargo Home
Mortgage, Inc. (hereinafter referred to as “Wells Fargo Home Mortgage”), Greenlink, LLC
(hereinafter referred to as “Greenlink”), and America’s Servicing Company (hereinafter referred
to as “America’s Servicing Company”) (collectively “the loan servicing Defendants” or
“servicing companies”).
The loan transactions involved in this action were originated by
Wachovia Bank, N.A. and became Wells Fargo’s loans when Wells Fargo purchased Wachovia.
The Plaintiffs seek damages under federal and state law claims for, among other losses, loss of
credit, loss of significant amounts of money, the loss of future business dealings, severe
emotional stress and mental anguish, reasonable and equitable attorneys’ fees, exemplary
damages, prejudgment and post judgment interest, and court costs, including but not limited to
expert witness fees and fees for depositions, among other elements of damages.
II. PARTIES
A.
Plaintiffs
2.
Plaintiff Sanford Miller is a resident of Florida.
3.
Plaintiff Randy Barfield is a resident of North Carolina.
4.
Plaintiffs David and Corinthe Freeman are residents of San Bernardino County,
California.
5.
Plaintiff Kimberly Berry is a resident of Lincoln County, North Carolina.
6.
Plaintiff Mack Davis is a resident of Harris County, Texas.
7.
Plaintiffs Elmer and Carolyn Velazco are residents of Harris County, Texas.
8.
Plaintiff R. Kenneth Babb is a resident of Davie County, North Carolina.
9.
Plaintiff Chris Stewart is a resident of Alameda County, California.
2
10.
Plaintiffs Charles L. Ryan and Joanne F. Hessey are residents of Davidson County, North
Carolina.
11.
Plaintiff Carl P. Holveck is a resident of Tarrant County, Texas.
12.
Plaintiff James Monroe Powell, IV, is a resident of Mecklenburg County, North Carolina.
13.
Plaintiff James Monroe Powell, IV, is a resident of Mecklenburg County, North Carolina.
14.
Plaintiff Kristin Young Powell is a resident of Mecklenburg County, North Carolina.
15.
Plaintiffs Dr. Francis and Tabe Mase are residents of New Castle County, Delaware.
B.
Defendants
16.
Defendant Wells Fargo Bank, N.A. (hereinafter referred to as “Wells Fargo”) is a national
banking association with its main office in South Dakota and it is a corporation with its principal
place of business in San Francisco, California. Wells Fargo regularly conducts, and conducted,
business in the Southern District of Texas. References to Wells Fargo include Wells Fargo
individually, and, collectively, all its divisions and/or subsidiaries.
17.
Defendant Wachovia Bank, N.A. (hereinafter referred to as “Wachovia”) is a North
Carolina corporation with its principal place of business in Charlotte, North Carolina. Wachovia
regularly conducted business in the Southern District of Texas. References to Wachovia include
Wachovia individually, and, collectively, all its divisions and/or subsidiaries.
18.
Defendant Wells Fargo Home Mortgage, Inc. (hereinafter referred to as “Wells Fargo Home
Mortgage”) is a California corporation with its principal place of business in Des Moines, Iowa.
Wells Fargo Home Mortgage regularly conducted business in the Southern District of Texas.
References to Wells Fargo Home Mortgage include Wells Fargo Home Mortgage individually,
and collectively all divisions and/or subsidiaries, as well as its successor-in-interest, Home
Equity Group. Defendant America’s Servicing Company (hereinafter referred to as “America’s
3
Servicing Company”), is an assumed name of Wells Fargo Home Mortgage, Inc.
19.
Defendant Wachovia Settlement Services, LLC (hereinafter referred to as “Wachovia
Settlement Services”) is a Delaware corporation with its principal place of business in Charlotte,
North Carolina. Wachovia Settlement Services regularly conducted business in the Southern
District of Texas.
20.
Defendant Greenlink, LLC (hereinafter referred to as “Greenlink”) is a wholly owned
subsidiary of Wachovia Settlement Services. Greenlink regularly conducted business in the
Southern District of Texas.
21.
Defendants America’s Servicing Company Greenlink, and Wachovia Settlement Services
are sometimes collectively referred to herein as “the settlement services companies” or “service
companies”.
22.
Plaintiffs are uninformed as to the true names and capacities of those Defendants sued
herein as DOES 1 through 10, inclusive, and therefore sue said Defendants under such fictitious
names. Plaintiffs are informed and believe that such fictitiously named Defendants are
responsible in some manner for the events and happenings herein referred to, and proximately
caused the damage to Plaintiffs as herein alleged. Plaintiffs will seek leave to amend this
Complaint to allege their true names and capacities when the same have been ascertained.
III. JURISDICTION and VENUE
23.
This Court has original federal question jurisdiction over this class action under 15 U.S.C.
§1692k(d) because it is an action to enforce liability created by the Fair Debt Collection
Practices Act, 15 U.S.C. §§1692, et seq.
24.
This Court has diversity jurisdiction pursuant to the Class Action Fairness Act of 2005,
28 U.S.C. § 1332(d), because the aggregated amount in controversy exceeds five million dollars
4
($5,000,000.00), exclusive of interest and cost, and a member of a class of plaintiffs is a citizen
of a State different from any defendant. 28 U.S.C. §§ 1332(d)(2) and (6).
25.
This Court has supplemental jurisdiction over all the state law claims and causes of action
asserted pursuant to 28 U.S.C. §1367(a).
26.
This Court has personal jurisdiction over the Defendants pursuant to 18 U.S.C. § 1965 (b)
and (d).
27.
The activities of the Defendants, as described herein, have been, and are, within the flow
of interstate commerce on a continuous and uninterrupted basis and have had a substantial and
continuing effect on interstate commerce.
28.
The causes of action alleged in this Complaint arose in the Victoria Division of the
Southern District of Texas because many of the acts and transactions, and the legal violations
alleged, including the unlawful solicitation and procurement of real estate appraisals and
evaluations that failed to comply with federal law, regulations and the Uniform Standards of
Professional Appraisal Practices (“USPAP”), took place there.
The Defendants transacted
business in the Victoria Division of the Southern District of Texas, they continue to conduct
business and perpetrate their schemes on a continuous and on-going basis in such district and
division, which acts and omissions give rise to the causes of action hereinafter alleged, and
therefore make this Court a proper venue for this case.
IV. FACTUAL ALLEGATIONS
29.
The Sanctuary at Costa Grande (hereinafter referred to as “The Sanctuary”) is an 800-
acre resort development stretching alongside one and a half miles of coastline on the Intracoastal
Waterway (“ICW”) in Port O’Connor, Calhoun County, Texas. It has at least 767 single lots and
space for thirty-five (35) multi-family lots.
5
The development’s modern and efficient
infrastructure is complete. Developers spent more than $60 million completing the development,
and it now has over 600 current lot and homeowners that each pay over $2,000/year to maintain
the 150-acre marina, bulkhead, boat slips, roads, electrical, plumbing, waterways, lighting, yacht
club, boating facilities and clubhouse that features sport courts, swimming pools, a private beach
and other amenities.
30.
In the 2006 and 2007 timeframe, the Calhoun and Victoria Counties area of Texas had a
handful of licensed real estate appraisers. During such early stages of The Sanctuary resort
development, one of those licensed appraisers, referred to in this complaint as Appraiser A,
performed hundreds of appraisals of bare lots at The Sanctuary. He identified market
comparables and estimated market values based on methods authorized by USPAP and required
by applicable federal laws and regulations.
31.
In response to the savings and loan crisis of the 1980s, Congress passed the Financial
Institutions Reform, Recovery, and Enforcement Act of 1989 (“FIRREA”). “In evaluating [the]
savings and loan crisis, Congress determined that ‘faulty and fraudulent’ appraisals of real estate
collateral undermined the financial integrity of the various lending institutions.” Fid. Nat’l Info.
Solutions, Inc. v. Sinclair, 02-6928, 2004 WL 764834, at *1 (E.D. Pa. Mar. 31, 2004), citing, H.
Rep. No. 101-54(I), at 311 (1989), reprinted in 1989 U.S.C.C.A.N. 86.
“These inflated appraisals led to savings and loan failures when the properties’
values could not cover the loans after default. To solve this problem, Congress put
several safeguards in place. Under FIRREA, appraisals conducted in connection
with any federally related transaction must be written and performed by
‘individuals whose competency has been demonstrated and whose professional
conduct will be subject to effective supervision.’ 12 U.S.C. § 3331. To this end,
Congress authorized the states to establish state certification and licensing
agencies to provide uniform standards for appraisers utilizing certain minimum
criteria issued by the Appraiser Qualification Board of the Appraisal Foundation
(‘AQB’).”
6
Id. Thus, the FIRREA created a regulatory framework that involves both a federal and state
oversight of appraisers. Bolden v. KB Home, et al., 618 F.Supp.2d 1196, 1203 (C. D. Calif.
2008); Id. at *6. Because the FIRREA’s primary goal was to protect a variety of federal
financial institutions from the dangers associated with fraudulent or poorly executed appraisals,
it defined into its regulatory purview real-estate related transactions engaged in by institutions
regulated by, among others, the Board of Governors of the Federal Reserve System, as well as
those insured by Federal Deposit Insurance Corporation. See Fid. Nat’l Info. Solutions, Inc. v.
Sinclair at *7; 12 U.S.C.§3350(4)(A). Wells Fargo is such an institution.
32. Pursuant to the FIRREA, both the Board of Governors of the Federal Reserve System and
the F.D.I.C. promulgated regulations adopting appraisal standards. Those regulations define an
appraisal as:
“[a] written statement independently and impartially prepared by a qualified
appraiser setting forth an opinion as to the market value of an adequately
described property as of a specific date(s), supported by the presentation and
analysis of relevant market information.”
“Market value” means:
“[t]he most probable price which a property should bring in a competitive and
open market under all conditions requisite to a fair sale, the buyer and seller each
acting prudently and knowledgeably, and assuming the price is not affected by
undue stimulus. Implicit in this definition is the consummation of a sale as of a
specified date and the passing of title from seller to buyer under conditions
whereby:
(1) Buyer and seller are typically motivated;
(2) Both parties are well informed or well advised, and acting in
what they consider their own best interests;
(3) A reasonable time is allowed for exposure in the open market;
(4) Payment is made in terms of cash in U.S. dollars or in terms of
financial arrangements comparable thereto; and
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(5) The price represents the normal consideration for the property
sold unaffected by special or creative financing or sales
concessions granted by anyone associated with the sale.”
12 C.F.R. §225.62(g).
33.
The FIRREA established the Uniform Standards of Professional Appraisal Practice
(USPAP) promulgated by the Appraisal Standards Board of the Appraisal Foundation as the
minimum standards of appraisal practice. Bolden v. K.B. Home, 618 F.Supp.2d at 1202. The
Appraisal Foundation is a non-profit organization that establishes standards and qualifications
for appraisal practice, including the USPAP. Id. at 1202-03. The preamble to the USPAP states
that “[c]ompliance with USPAP is required when either the service or the appraiser is obligated
to comply by law or regulation, or by agreement with the client or intended users.” Appraisers
licensed in Texas “are bound by the Competency Rule and all other provisions of the Uniform
Standards of Professional Appraisal Practice (USPAP) in effect at the time of the appraisal.” 22
T.A.C. §153.8(a)(2).
34.
Beginning in 2006, the 767 lots were made available to qualified buyers across the
United States.1
During on-site visits, prospective purchasers were solicited by lending
institutions, including Wachovia. Most, if not all, lenders offered a three (3) to five (5) year
interest only “balloon” loan that required 10% down, with the assurance that the borrower could
always refinance the loan, if necessary, at the end of the three (3) or five (5) year period.
Between 2006 and early 2008, Wachovia loaned over $45 million, which was secured by at least
275 lots. In the initial phases of the development, approximately 625 lots were sold at prices
ranging from $59,000.00 to $500,000.00.
1
Most, if not all, buyers had credit scores of 700 or higher which at that time was considered
exceptional.
8
35.
In May of 2006, Wachovia purchased Golden West Financial (hereinafter referred to as
“Golden West”) for over $25 billion. Golden West, operated then as World Savings Bank
(hereinafter referred to as “World Savings”), was a major lender in the adjustable rate mortgage
market. Its customers, especially those in its “Pick-A-Pay” program2, had credit scores well
below the industry standard. Each of the named Plaintiffs herein purchased their Sanctuary lots
between 2006 and 2008 – after Wachovia’s ill-fated assumption of World Savings’ toxic
portfolio, but before the 2008 subprime mortgage crisis.
36.
In January of 2008, Bank of America announced its purchase of Countrywide Financial
Corporation and in February of the same year, President George W. Bush signed the Economic
Stimulus Act of 2008. In the second quarter of 2008, Wachovia reported an $8.9 billion loss.
Over the intervening seven months, the Federal Reserve Board, the Federal Housing Finance
Agency, the Securities and Exchange Commission (“SEC”), the FDIC, and the Treasury
Department enacted several measures to deal with the havoc wrought upon the economy by the
subprime mortgage crisis.
In the meantime, on July 9, 2008, Wachovia hired Treasury
Undersecretary Bob Steel as its Chief Executive. Steel had been the Treasury’s liaison with Wall
Street since the fall of 2006, and, at his departure, his boss, Secretary Henry Paulson, praised
Steel, saying, “I know he will excel in his future endeavors.”
37.
On September 15, 2008, Bank of America announced it was purchasing Merrill Lynch
for $50 billion, and Lehman Brothers filed for Chapter 11 bankruptcy protection. After the
September 25, 2008 seizure of Washington Mutual by the Office of Thrift Supervision,
Wachovia suffered a “silent run” that resulted in a one-day loss of $5 billion in deposits. On
2
“Pick-A-Pay” allowed borrowers to make monthly mortgage payments that did not cover their
interest charges; as a consequence, the total principal owed would actually grow over time, rather
than shrink.
9
September 28, 2008, Wachovia became the first bank designated as “too big to fail” and it was
announced that Citigroup would buy Wachovia’s banking operations and be allowed to bypass
the FDIC’s open bank assistance procedures. Wells Fargo also made a bid for Wachovia, but it
was rejected.
38.
Two days later, on September 30, 2008, and at the request of the Treasury Department,
the Internal Revenue Service (hereinafter referred to as the “IRS”) issued Notice 2008-83:
For purposes of section 382(h), any deduction properly allowed after an
ownership change (as defined in section 382(g)) to a bank (as defined in
section 581) with respect to losses on loans or bad debts (including any
deduction for a reasonable addition to a reserve for bad debts) shall not
be treated as a built-in loss or a deduction that is attributable to periods
before the change date.
Historically, Section 382 of the Internal Revenue Code (hereinafter referred to as the “Code”)
prevented profitable companies (like Wells Fargo) from purchasing failing companies (like
Wachovia) in order offset taxable income with their losses. Ordinarily, Section 382 limited use
of the losses to a small percentage each year following the change in ownership. The annual
amount allowable was the product of the value of the loss company’s stock multiplied by a
defined interest rate. By late September 2008, the value of Wachovia stock had fallen to $2
billion (the amount bid by Citigroup). Assuming an interest rate of 4.65% for ownership
changes during September, the allowable annual deduction to a buyer of Wachovia could have
been as low as $93 million.3 At that rate, it would have taken almost 800 years to absorb
Wachovia’s built-in-losses (“BILs”), 780 years longer than the allowable twenty (20) year carry
forward period. Stated differently, less than $2 billion of Wachovia’s BILs would be deducted
during the twenty (20) year carry forward period following a sale under the typical Section 382
rules. But IRS Notice 2008-83 changed all of that. It would allow a buyer of Wachovia to, in
3
Rev. Rul. 2008-46.
10
the words of a Wells Fargo spokeswoman, “accelerate the time when the tax deduction for
certain loan losses can be taken.”
39.
Suddenly, on October 3, 2008, Wells Fargo announced that it and Wachovia had agreed
to merge in an all-stock transaction requiring no FDIC involvement. FDIC Chairwoman Sheila
Blair and Wells Fargo CEO Steel called Citigroup CEO Vikram Pandit at 3 a.m. to inform him
of the news. Pandit was “stunned.” Speaking later, Chairwoman Blair told the Financial Crisis
Inquiry Commission that Wells Fargo’s Board Chairman Richard Kovacevich informed her that
IRS Notice 2008-83 “had been a factor leading to Wells’s revised bid.” On February 17, 2009,
President Barack Obama signed the American Recovery and Reinvestment Act of 2009,
repealing IRS Notice 2008-83. However, the statute specified that the IRS “Notice” would
thereafter have “the force and effect of law with respect to any ownership change [...] occurring
on or before January 16, 2009.”4 Wells Fargo’s purchase of Wachovia closed on December 31,
2008, and the “Wells Fargo Rule” was preserved.
40.
It is against this backdrop of tax savings opportunities, and skewed and unusual loss
incentives, that the victimization of the Plaintiffs herein became possible. As successor to
Wachovia’s three (3) to five (5) year notes at The Sanctuary, Wells Fargo found itself holding
hundreds of lot loans with borrowers with better than average credit scores who were either in, or
about to be in, a position to refinance. However, as the notes neared maturity, Plaintiffs and
Class Members were offered oppressive and unreasonable refinancing terms – $50,000.00 to
$100,000.00 in cash for a down payment only to receive a short-term loan with anywhere from
nine to fifteen percent interest. In addition, Wells Fargo made it very clear that no short sales,
deeds in lieu of foreclosure, or debt forgiveness would be given to anyone. Even though the
4
PL 111-5, §1261(b)(1).
11
borrowers had healthy incomes and impeccable credit ratings, most were unable to come up with
large cash down payments or were unwilling to settle for the one-sided refinancing terms that
were offered by Wells Fargo. But Wells Fargo was in a perfect position – it would receive very
favorable, secured loan terms from credit-worthy individuals, or foreclose and realize the losses
it had uniquely secured from Wachovia. It was a no-lose situation for Wells Fargo; but, it had
one wrinkle it needed to iron out – values.
41.
By the fall of 2009, Wells Fargo began to “list” its foreclosed properties for sale with a
local Coldwell Banker office. But what it actually did was dump the properties at prices far
below market value. For example, Lot 117, with a choice location along the ICW, was listed for
$95,000.00 on December 2, 2009. However, two identical properties located on the ICW – Lots
116 and 139 in Phase 1 – had sold and closed for $145,000.00 and $130,000.00, respectively, in
November 2009 as developer sales. These two sales were at actual “market prices” given the
current real estate market at the time. Within a couple of weeks, the asking price of Lot 117 was
suddenly dropped 57% to $41,900.00, and by January 31, 2010, after being on the market for
only two (2) months, it sold for $38,000.00. This market manipulation scheme was intended by
Wells Fargo to drive prices for Sanctuarly lots down, and it succeeded. The result, of course,
was that lot owners lost equity and value at the hand of a fellow owner that had ulterior, and
illegal, motives to manipulate the market. This market manipulation scheme has injured all lot
owners.
42.
The illegal scheme also has foreseeable, and detrimental, consequences to other lot
owners and borrowers who have not defaulted or whose collateral has not been foreclosed on.
The cumulative effect of Wells Fargo’s manipulation of the real estate market within The
Sanctuary has been to artificially reduce the value of every lot. By artificially lowering the lot
12
values, Wells Fargo has been able to execute another strategy that forces customers to pay off
their notes or refinance using the low values as the benchmark and require huge down payments.
It has forced many lot owners to default on their loans, creating additional “losses” that Wells
Fargo has been able to book under its exceptional tax incentive.
43.
Prior to foreclosing, Wells Fargo hired local appraisers to prepare appraisals. Appraiser
A was initially retained to perform some such appraisals, but the lender would not accept them
because he refused to follow the mandate of Wells Fargo, or one of the servicing companies it
utilized, to ignore developer or other market sales as comparables and to look exclusively to
foreclosure sales as comparables. The servicing companies, at all relevant times, worked at the
behest of Wells Fargo and under its direction and control. Appraiser A was instructed to utilize
only prices from foreclosure sales. Appraiser A refused because he was a licensed appraiser
bound to follow USPAP, which prohibited the exclusive use of foreclosure sales as comparables.
When Appraiser A refused to agree with Wells Fargo and the servicing companies to utilize only
foreclosure sale comparables, Wells Fargo and the servicing companies then turned to
Appraisers B and C, who were, and are, also in the Calhoun and Victoria Counties area.
44.
Appraisers B and C were instructed by Wells Fargo and, or, one or more of the servicing
company defendants, to use only foreclosed property sales as comparable sales. They were
further instructed that Wells Fargo “wanted the appraisals lower” than the current true market
value of lots within The Sanctuary. No comparable sales generated by Waterfront Marketing,
LLC, The Sanctuary’s marketing company, could be used to support an appraisal or evaluation.
Rather, only the most recent and lowest priced comparables were to be used. Wells Fargo
rejected appraisals performed by other local Texas-based appraisers because they were
considered “too high.”
In other cases, Wells Fargo requested a “30-day appraisal” which
13
essentially meant the price that the market would bear were the property offered for sale for one
day only, since it usually takes a minimum of thirty (30) days to close a sale.
45.
Upon information and belief, one of the reason Wells Fargo designed and executed this
market value/tax manipulation scheme was to enhance the profitability of each loan -- both in the
context of chargeable losses and in the context of gains upon later resale. For example, and for
illustration purposes only, assume Wells Fargo spent $20,000 to buy a $200,000 note from
Wachovia, secured by a Sanctuary lot. Assume the note went into default and Wells Fargo
arranged to have Appraiser C appraise the lot utilizing only foreclosure sales. Assume that
Appraiser C valued the lot at $40,000, and that at foreclosure, Wells Fargo bid in $40,000. In
such an instance, Wells Fargo would be entitled to immediately charge $160,000 as a loss
against earnings because of the unique and unprecedented tax benefits it received when it
purchased Wachovia. The borrowers would receive a $160,000 1099-C, all of which would be
considered by the IRS to be taxable income because the lots are not primary residences and
therefore the Mortgage Debt Relief Act of 2007 affords them no relief. If Wells Fargo were to
then sell the lot for $60,000, it would end-up with $40,000 in cash and a $160,000 write-off
against earnings; all the product of a $20,000 investment.
46.
However, if the appraisal in the example above had been performed in compliance with
USPAP and appraised to a market value of $80,000, and Wells Fargo were to bid in $80,000 and
be successful, then it would be limited to charging off $120,000, and the borrowers would
receive a $120,000 1099-C. If Wells Fargo were to then sell the lot for $60,000, it would end-up
with another $20,000 charge against earning, but no cash or profit.
47.
The lower appraisals that violate federal and state laws and regulations enabled, and
enable, Wells Fargo to simultaneously book more losses against earnings, and, earn profits upon
14
the sale of foreclosed properties. The borrowers, however, suffer the brunt of the market
value/tax manipulation scheme by receiving larger tax forgiveness income.
The market
value/tax manipulation scheme is illegal because of Wells Fargo’s use of the low appraisals, not
because of the appraisals themselves. Although the appraisals violate USPAP, if they were not
utilized by Wells Fargo or the servicing companies in any fashion they could do no harm. It is
Wells Fargo’s use of the low appraisals that, in part, gives rise to the plaintiffs’ claims.
48.
Plaintiffs David and Corinthe Freeman are victims of the scheme illustrated in paragraphs
41 - 47 above. They purchased Lot 249 in The Sanctuary Phase 1 on January 22, 2007 for the
price of $225,880.00 and financed the purchase with a loan through Wachovia. When they went
into default, and prior to foreclosure, and upon information and belief, Wells Fargo retained
Appraiser B or C to appraise the lot prior to the foreclosure based solely upon other foreclosure
sales. The lot sold at a non-judicial foreclosure sale in December of 2010 for $76,150.00 despite
the fact that the Calhoun County Appraisal District valued it at the same time for $102,740.0. The
Freemans remain liable for a deficiency in the amount of no less than $149,730.00. They lost all
monies invested in the property to date, a sum of approximately $50,000.00. Although they once
had a credit score in excess of 800, the foreclosure has damaged their credit to the point where
they can no longer obtain “Parent Plus” loans for their daughter’s college education and have had
difficulty obtaining a lease for Mr. Freeman’s required company car. Further, they have suffered
emotional distress as a result of the actions of Wells Fargo.
49.
Plaintiffs Sanford Miller and Randy Barfield are victims of the scheme described in
paragraphs 41 - 47 above.
They cumulatively purchased Lots 119, 348, and 258 in The
Sanctuary Phase 1 on or about February 19, 2007. They purchased Lot 119 for $189,880.00 and
Lots 348 and 258 for $325,880.00 and $279,880.00, respectively. Mr. Miller and Mr. Barfield
15
financed the Lots through Wachovia.
The promissory notes are currently in default, and, as a
result of the Wells Fargo’s market value/tax manipulation scheme described herein, they are
currently under a threat of foreclosure by Wells Fargo.
Importantly, prior to initiating a
foreclosure proceeding, Wells Fargo reported on Mr. Miller’s credit rating that the Lots were in
foreclosure and improperly reported the loans as “home equity loans.”
50.
As a result, Mr. Miller’s credit rating, which was a 766, has been diminished to a
dangerously low 566 rating. Prior to the loans going into default and prior to receiving the
Notice of Acceleration, Mr. Miller contacted Wells Fargo on numerous occasions in an effort to
replace the original loan with a new loan. On several occasions, he was told by a Wells Fargo
representative that his only options were to put down 60% of the value of the loan and pay
interest at 9% thereafter. Wells Fargo’s representative further stated that Wells Fargo did not
care whether or not Mr. Miller defaulted, or was foreclosed on, because Wells Fargo was
guaranteed to get paid on Mr. Miller’s Loans through the federal loan loss guarantee, as
described in detail herein.
51.
Thereafter, Wells Fargo’s representative, Tammy Yorba, a consumer advocate for Wells
Fargo, represented to Mr. Miller that she and Wells Fargo were well aware of the various
valuation issues related to The Sanctuary. She vowed to put Mr. Miller and Mr. Mr. Barfields’
loans on hold until the issues could be resolved and a new loan program could be presented to
Mr. Miller and Mr. Barfield. The issues never got resolved and Mr. Miller was never presented
with a new loan proposal. Instead, Wells Fargo’s counsel got involved and informed Mr. Miller
that Wells Fargo no longer wished to communicate with him directly and was not interested in
offering any new loan, short of Mr. Miller and Mr. Barfield putting down close to 60% of the
value of the original Wachovia loans.
16
52.
As a result of Wells Fargo’s various actions and omissions, Mr. Miller has been unable to
continue to borrow money personally or for his business. Further, because Wells Fargo has
substantially devalued the Lots, he cannot find another bank willing to finance the Lots at a
reasonable rate. Thus, Mr. Miller has suffered damages.
53.
Plaintiff Kimberly Berry is a victim of the scheme illustrated in paragraphs 41 - 47 above.
She purchased Lot 226 in The Sanctuary Phase 1 on January 23, 2007, for the price of $189,880.00
and financed the purchase with a loan through Wachovia. When she went into default, and prior to
foreclosure, and upon information and belief, Wells Fargo retained Appraiser B or C to appraise
the lot prior to the foreclosure based solely upon other foreclosure sales. The lot sold at a nonjudicial foreclosure sale in September of 2009. Berry remains liable for the resulting deficiency,
her credit score has been negatively affected and she has suffered emotional distress as a result of
the actions of Wells Fargo.
54.
Plaintiffs Elmer and Carolyn Velazco are also victims of the scheme illustrated in in
paragraphs 41 - 47 above. They purchased Lot 17 in The Sanctuary Phase 1 on March 17, 2007,
for the price of $79,880.00, and Lot 136 in the Sanctuary Phase 1 on April 13, 2007, for the price
of $179,892.00. The purchases of both lots were financed through Wachovia. When the
Velazcos went into default, and prior to foreclosure, and upon information and belief, Wells
Fargo retained Appraiser B or C to appraise Lot 136 prior to the foreclosure based solely upon other
foreclosure sales. Although the Calhoun County Appraisal District valued the lot at $112,000,
Wells Fargo sold Lot 136 at a non-judicial foreclosure sale in May of 2010 for $37,408.83. As a
result of the actions of Wells Fargo, including the wrongful foreclosure of Lot 136, Mr. and Mrs.
Velazco have suffered the loss of their investment, damage to their credit rating, experienced
17
severe emotional distress, and remain liable for a deficiency in the amount of no less than
$142,483.17.
55.
Plaintiff Mack Davis is a victim of the scheme illustrated in paragraphs 41 - 47 above.
He purchased Lots 124 and 125 in The Sanctuary Phase 1 on November 28, 2007, for the price
of $179,880.00 each and financed the purchase with loans through Wachovia. Both promissory
notes are currently in default, and, as a result of the Wells Fargo’s market value/tax manipulation
scheme described herein, he is currently under a threat of foreclosure by Wells Fargo. To
compound the harm, Wells Fargo has falsely reported to credit reporting agencies that one of Mr.
Davis’ loans (loan number 02070000639) has been foreclosed or “transferred” even though
neither is true. Discovery in this matter will illustrate whether this mischaracterization of the
status of Mr. Davis’ loan is another facet of one or more of Wells Fargo’s schemes. As a result
of the actions of Wells Fargo alleged and referred to herein, Mr. Davis has suffered the loss of
his investment, substantial loss to both his personal and business credit rating, damage to his
personal and business reputations, his home building business has been crippled, and he has
suffered health problems arising from emotional distress and mental anguish. Additionally, he
has incurred in excess of $6,000.00 in attorney’s fees in vain attempts at securing a loan
modification agreement with Wells Fargo.
56.
Plaintiff R. Kenneth Babb is Davis is a victim of the scheme illustrated in paragraphs 41 -
47 above. He purchased Lot 363 in The Sanctuary Phase 1 on May 11, 2007, for the price of
$249,880.00 and financed the purchase with a loan through Wachovia. Mr. Babb made payments
through May of 2011. Payments on the promissory note are past due and foreclosure has been
threatened. As a result of the actions of Wells Fargo, including their unwillingness to offer
reasonable refinancing options and their looming foreclosure on Lot 363, Mr. Babb has and/or
18
will suffer damages for the loss of his investment, a potential deficiency in a foreclosure action,
damage to his credit rating, and damages to his personal and business reputations.
57.
Plaintiffs Charles L. Ryan and Joanne F. Hessey, like Mssrs. Davis and Babb, are victims of
the scheme illustrated in paragraphs 41 - 47 above. Ryan and Hessey purchased Lot 120 in The
Sanctuary Phase 1 in January of 2007, for the price of $189,880.00 and financed the purchase with a
loan through Wachovia. Mr. Ryan and Ms. Hessey then purchased Lot 109 in The Sanctuary Phase
1 on April 9, 2007, for the price of $189,880.00 and again financed the purchase with a loan through
Wachovia. When Wells Fargo failed to offer any meaningful refinancing options, Mr. Ryan and
Ms. Hessey obtained a home equity loan on a second home through another bank and were able to
pay off the balances on the promissory notes. Mr. Ryan and Ms. Hessey currently own the two lots.
However, as a result of the actions of Wells Fargo, Mr. Ryan and Ms. Hessey have suffered damage
to their credit ratings and loss of the value of their property. Appraisals conducted on behalf of
Wells Fargo have fraudulently reduced the value of Lots 120 and 109 to $30,000.00 and
$30,109.00, respectively.
58.
Plaintiffs Chris Stewart, Carl P. Holveck, James Monroe Powell, IV, Kristin Young Powell,
and Dr. Francis and Tabe Mase are victims of the scheme illustrated in paragraphs 41 - 47 above.
Chris Stewart purchased Lot 311 in The Sanctuary on December 21, 2006, for the price of
$84,880.00. Mr. Stewart purchased Lot 165 in The Sanctuary on August 27, 2007, for the price
of $202,900.00. Mr. Stewart owns both lots, whose present market values have been artificially
and illegally reduced because of Wells Fargo’s market-manipulation/tax-savings scheme
described herein. Due to Wells Fargo’s less than arms-length “fire sale” comparables and
fraudulent appraisals, Lots 311 and 165 are currently “valued” at $24,760.00 and $64,910.00,
19
respectively.
But for Wells Fargo’s market value/tax manipulation scheme, Mr. Stewart’s
property value would be significantly higher, based upon actual market comparables.
59.
Plaintiff Carl P. Holveck purchased Lot 120 in The Sanctuary Phase 2 on September 24,
2007, for the price of $259,000.00. The current market value of Mr. Holveck’s lot has been
artificially and illegally reduced because of Wells Fargo’s market value manipulation tax savings
scheme, and sub-schemes, described herein. Due to Wells Fargo’s requirement that appraisers
exclusively utilize less than arms-length “fire sale” comparables (a violation of USPAP), and the
resulting fraudulent, unreliable and illegal appraisals, Mr. Holveck’s lot is currently “valued” at
$35,000.00.
But for Wells Fargo’s scheme(s), Mr. Holveck’s property value would be
significantly higher, based upon actual market comparables.
60.
Plaintiff James Monroe Powell, IV purchased Lot 162 in The Sanctuary Phase 1 on
December 21, 2006, for the price of $174,880.00 and financed the purchase with a loan from Bank
of America. Mr. Powell made payments through March 1, 2011. Payments on the promissory note
are now past due and foreclosure has been threatened. The current market value of Mr. Powell’s lot
has been artificially and illegally reduced because of Wells Fargo’s market value manipulation
tax savings scheme, and sub-schemes, described herein. Due to Wells Fargo’s requirement that
appraisers exclusively utilize less than arms-length “fire sale” comparables (a violation of
USPAP), and the resulting fraudulent, unreliable and illegal appraisals, Mr. Powell’s lot is
currently “valued” at an artificially low market value. But for Wells Fargo’s scheme(s), Mr.
Powell’s property value would be significantly higher, based upon actual market comparables.
61.
Plaintiff Kristin Young Powell purchased Lot 222 in The Sanctuary Phase 1 on December
21, 2006, for the price of $189,880.00 and financed the purchase with a loan from Bank of America.
Ms. Powell made payments through March 1, 2011. Payments on the promissory note are now past
20
due and foreclosure has been threatened. The current market value of Ms. Powell’s lot has been
artificially and illegally reduced because of Wells Fargo’s market value manipulation tax savings
scheme, and sub-schemes, described herein. Due to Wells Fargo’s requirement that appraisers
exclusively utilize less than arms-length “fire sale” comparables (a violation of USPAP), and the
resulting fraudulent, unreliable and illegal appraisals, Ms. Powell’s lot is currently “valued” at an
artificially low market value. But for Wells Fargo’s scheme(s), Mr. Powell’s property value
would be significantly higher, based upon actual market comparables.
62.
Plaintiffs Dr. Francis and Tabe Mase purchased Lots 52, 417 and 426 in The Sanctuary
Phase 1 on March 13, 2007, for the prices of $79,880.00, $129,880.00 and $129,880.00
respectively. They financed the purchases with loans through First National Bank of Port Lavaca.
Those loans are currently in default. Due to Wells Fargo’s less than arms-length “fire sale”
comparables and fraudulent appraisals, Lots 52, 427 and 426 are currently “valued” at
$19,560.00, $38,500.00 and $31,420.00, respectively. But for Wells Fargo’s scheme, Dr. Mase’s
property values would be significantly higher, based upon actual market comparables.
63.
While its downward manipulation of the real estate market at The Sanctuary has resulted
in more Net Operating Losses (“NOLs”) becoming available for use in reducing Wells Fargo’s
tax liabilities, it has negatively affected all owners at The Sanctuary – not only the
Wachovia/Wells Fargo borrowers. Wells Fargo has manipulated the real estate market at The
Sanctuary through the use of appraisals that violate FIRREA, FDIC regulations and USPAP. As
a result of Wells Fargo’s fraudulent behavior, many Plaintiffs have lost their entire life savings,
business owners have lost lines of credit at their respective banks, and others have had their once
near perfect credit scores destroyed seemingly overnight. Other Plaintiffs have experienced
severe emotional distress and mental anguish in addition to physical health problems.
21
64.
By requesting that appraisers opine at certain values, that they ignore certain comparable
sales, and by requiring that USPAP and other sound and reasonable valuation method violations
be disregarded, Wells Fargo and the servicing companies have violated, and continue to violate,
safe and sound banking practices and therefore, applicable federal regulations, laws, and
guidelines, among them: 12 C.F.R. §§ 323 (a) or (b); 12 C.F.R. § 323.4, as well as their enabling
statutes, 12 U.S.C. § 1818, 1819, and Title XI of the Financial Institutions Reform, Recovery,
and Enforcement Act of 1989 ("FIRREA") 12 U.S.C. 3331 et seq., and, FDIC Financial
Institution Letter (FIL--74--94).5
65.
In the refinance, workout, and foreclosure avoidance (successful and unsuccessful)
negotiations with Wachovia borrowers at The Sanctuary, Wells Fargo failed, and continues to
fail, to keep independent from each other the credit underwriting processes and personnel, and
the loan production staff. These failures were, and continue to be, a violation of both the 1994
Interagency Guidelines and the December 10, 2010 guidelines.
66.
By utilizing evaluations and appraisals that violate12 C.F.R. §§ 323 (a) or (b); 12 C.F.R. §
323.4, as well as their enabling statutes, 12 U.S.C. §§ 1818, 1819, and Title XI of the Financial
Institutions Reform, Recovery, and Enforcement Act of 1989 ("FIRREA") 12 U.S.C. 3331 et
seq., and FDIC Financial Institution Letter (FIL--74--94), Wells Fargo failed to follow sound
banking practices.
67.
Wells Fargo holds, or has held, notes on as much as approximately 45% of the total
number of lots at The Sanctuary. Under such circumstances, it is reasonably foreseeable that if a
lender in such a position undertook the market value manipulation tax savings scheme described
5
The Interagency Appraisal and Evaluation Guidelines were amended, effective December 10,
2010, and published at 75 FR 77450. They rescinded the 1994 guidelines cited; however, to the
extent they apply to this matter their restrictions are even more onerous than those cited and have
also been violated.
22
herein, it would cause the values of real estate in the development to drastically trend lower
under the pressure of such scheme. The federal laws, regulations and guidelines cited herein
were designed to prevent distorted appraisals or evaluations, founded on factors other than true
market value, to jeopardize federally-insured banks, and, the very real estate markets within
which such lenders and their borrowers operate. It was, and is, reasonably foreseeable that Wells
Fargo’s manipulation of the real property values at The Sanctuary would cause the exact
damages that have been suffered by the Plaintiffs and Plaintiffs Class herein because had true
market values been allowed to guide the lending and borrowing described herein – as the cited
federal laws, regulations and guidelines prescribed – then the Plaintiffs and Plaintiff Class would
not have suffered the damages that are solely a result of the artificially low “market” values.
68.
Upon information and belief, Wells Fargo has either already booked the losses that it has
artificially created, or is in the process of doing so, or has the ability to retain and apply such
losses in the future. Under any such scenario, its market value manipulation tax savings scheme
is fraudulently reducing its tax burden, and/or is an unlawful attempt to justify a prior ill-gotten
tax savings.
V. PLAINTIFFS’ CAUSES OF ACTION
A.
Civil Liability under Fair Debt Collection Practices Act (15 USC §1692k)
69.
Plaintiffs adopt and incorporate by reference and repeat verbatim herein, the allegations
contained in Paragraphs 29 through 68, the same as if set forth fully hereafter in this Section VA.
The market value/tax manipulation scheme and its sub-schemes involved the use of
appraisals that contained values that were the product of such schemes. The “market” prices
manipulated by Wells Fargo and the servicing companies, and the appraisals based upon such
prices, resulted in the utilization by Wells Fargo and the servicing companies of data and
23
compilations of data that were not representative of the actual market. In its negotiations with
borrowers geared toward collection, attempted collection, or the entering of new credit facilities
with Wachovia customers whose loans were bought by Wells Fargo, Wells Fargo has utilized
false, inaccurate, deceptive, misleading, and manipulated information. Wells Fargo’s use of the
manipulated, low appraisals (made so through the active assistance of the servicing companies)
in their attempts at collection of the subject promissory notes constitutes the making of false
representations regarding the character, amount, or legal status of such debt under the Fair Debt
Collection Practices Act (15 USC §1692k). Defendants are, therefore, liable to each Plaintiff
and Plaintiff Class Member for any actual damage sustained by such person as a result of such
active use of false, manipulated data because such false values serve to dictate the extent of
potential debt, or, upon foreclosure, artificially increase the amount of deficiencies which are
sought to be collected or forgiven.
70.
Wells Fargo, the servicing companies, or their agents or assignees have tried to collect
outstanding balances on promissory notes from Plaintiffs Freeman, Berry, Velazco, Miller,
Barfield, Davis, Babb, Ryan and Hessey. In the course of such collection efforts, and acting as
“debt collectors”, Wells Fargo, the servicing companies, or their agents or assignees have
engaged in the conduct specified in paragraphs 27 through 68. Included in such conduct is the
use of fraudulent appraisals in the course of their negotiations with such Plaintiffs.
71.
Plaintiffs Freeman, Berry, Velazco, Miller, Barfield, Davis, Babb, Ryan and Hessey, and
all persons similarly situated to them, have claims against Wells Fargo and the servicing
companies under the Fair Debt Collection Practices Act because each of them has suffered
money damages, including but not limited to, loss of credit, loss of significant amounts of
money, the loss of future business dealings, severe emotional stress and mental anguish, and
24
reasonable and equitable attorneys’ fees caused by Wells Fargo’s and the servicing companies’
active use of false, manipulated data that mischaracterized the extent of their potential debt, or,
upon foreclosure, artificially increased the amount of deficiencies that were sought to be
collected or forgiven. In addition, each individual plaintiff seeks additional damages as the court
may allow, but not exceeding $1,000.00; or, in the case of class certification, such actual
damages, and such amount as the court may allow for all other class members, without regard to
a minimum individual recovery, not to exceed the lesser of $500,000.00 or one (1) per cent of the
net worth of the liable defendants; and, court costs and reasonable attorney’s fee as determined
by the court.
72.
At all material times, Defendants’ downward manipulation of the real estate market at
The Sanctuary was rooted in false, deceptive, or misleading representations related to market
value of lots at The Sanctuary that were created and communicated by Wells Fargo and the
servicing companies to the Plaintiffs and others. Had Defendants not engaged in those unfair
debt collection practices, the Plaintiff Class would not have lost significant amounts of money,
had their credit ratings ruined, lost out on future business dealings, or experienced severe
emotional stress and mental anguish.
73.
The course of action, conduct, acts, and omissions alleged constitute unfair debt
collection practices upon the Plaintiff Class, and were a direct, producing and proximate cause of
injury and damages to the Plaintiff Class.
Such unfair debt collection practices were a
substantial factor in bringing about the injury and damages to the Plaintiff Class, and without
such unfair debt collection practices, the injury and damages would not have occurred.
Moreover, a person of ordinary intelligence would have foreseen that the injury and damages
alleged herein might result from those unfair debt collection practices.
25
B.
74.
Civil Liability under the Texas Debt Collection Act
contained in Paragraphs 29 through 68, the same as if set forth fully hereafter in this Section VB. Many of the acts and omissions specified in Section V-A above related to defendants’
liability under the Federal Fair Debt Collection Practices Act also gives rise to liability under
Texas’ Debt Collections Act.
Under such Act, creditors themselves are considered debt
collectors. Tex. Fin. Code §391.001(5). The market value/tax manipulation scheme and its subschemes involved the use of appraisals that contained values that were the product of such
schemes. The “market” prices manipulated by Wells Fargo and the servicing companies, and the
appraisals based upon such prices, resulted in the utilization by Wells Fargo and the servicing
companies of data and compilations of data that were not representative of the actual market. In
its negotiations with borrowers geared toward collection, attempted collection, or the entering of
new credit facilities with Wachovia customers whose loans were bought by Wells Fargo, Wells
Fargo has utilized false, inaccurate, deceptive, misleading, and manipulated information. Wells
Fargo’s use of the manipulated, low appraisals (made so through the active assistance of the
servicing companies) in their attempts at collection of the subject promissory notes constitutes
the making of false representations regarding the character, amount, or legal status of such debt
under Texas’ Debt Collection Act.
Defendants are, therefore, liable to each Plaintiff and
Plaintiff Class Member for any actual damage sustained by such person as a result of such active
use of false, manipulated data because such false values serve to dictate the extent of potential
debt, or, upon foreclosure, artificially increase the amount of deficiencies which are sought to be
collected or forgiven.
26
75.
Plaintiffs Freeman, Berry, Velazco, Miller, Barfield, Davis, Babb, Ryan and Hessey, and
all persons similarly situated to them, have claims against Wells Fargo and the servicing
companies under Texas’ Fair Debt Collection Act because each of them has suffered money
damages, including but not limited to, loss of credit, loss of significant amounts of money, the
loss of future business dealings, severe emotional stress and mental anguish, and reasonable and
equitable attorneys’ fees caused by Wells Fargo’s and the servicing companies’ active use of
false, manipulated data that mischaracterized the extent of their potential debt, or, upon
foreclosure, artificially increased the amount of deficiencies that were sought to be collected or
forgiven. In addition, each individual plaintiff seeks additional damages as the court may allow,
but not exceeding $1,000.00; or, in the case of class certification, such actual damages, and such
amount as the court may allow for all other class members, without regard to a minimum
individual recovery, not to exceed the lesser of $500,000.00 or one (1) per cent of the net worth
of the liable defendants; and, court costs and reasonable attorney’s fee as determined by the
court.
76. Because Wells Fargo, with the active assistance of the servicing companies, used false
representations or deceptive means to collect a debt, and, used one or more fraudulent, deceptive,
or misleading representations regarding the character, extent, or amount of Plaintiffs’ debt,
Plaintiffs seek injunctive relief to prevent or restrain the Defendants’ violations of the Texas
Debt Collection Act, actual damages sustained as a result of such violations, and attorney's fees
reasonably related to the amount of work performed and costs.
77.
At all material times, Defendants’ use of fraudulent appraisals and wrongful foreclosures
were done in an attempt to falsely represent the value of lots in The Sanctuary and thereby
unfairly collect misrepresented debt. Had Defendants not engaged in those unfair debt collection
27
practices, the Plaintiff Class would not have lost significant amounts of money, had their credit
ratings ruined, lost out on future business dealings, or experienced severe emotional stress and
mental anguish.
78.
The course of action, conduct, acts, and omissions alleged constitute unfair debt
collection practices upon the Plaintiff Class, and were a direct, producing and proximate cause of
injury and damages to the Plaintiff Class.
Such unfair debt collection practices were a
substantial factor in bringing about the injury and damages to the Plaintiff Class, and without
such unfair debt collection practices, the injury and damages would not have occurred.
Moreover, a person of ordinary intelligence would have foreseen that the injury and damages
alleged herein might result from those unfair debt collection practices.
C.
79.
Texas Deceptive Trade Practices Act
contained in Paragraphs 29 through 68, the same as if set forth fully hereafter in this Section VC. This matter is also brought pursuant to the Deceptive Trade Practices – Consumer Protection
Act, codified at § 17.41, et seq., of the Texas Business & Commerce Code (hereinafter “DTPA §
_______”). Plaintiffs Freeman, Berry, Velazco, Miller, Barfield, Davis, Babb, Ryan and Hessey
were consumers as defined in DTPA § 17.45(4) under the relevant time periods because each of
them engaged in negotiations with Wells Fargo related to new loans that would replace the
original notes entered into with Wachovia. Defendants violated the DTPA by engaging in an
unconscionable action or course of action that, to Plaintiffs’ detriment, took advantage of
Plaintiffs’ lack of knowledge, ability, experience, or capacity to a grossly unfair degree.
Specifically, Wells Fargo’s use of the by-products of its scheme to drive down the appraisal
value of all lots, to sell lots at rock bottom prices thereby further manipulating the surrounding
28
market, to manipulate appraisals so that only the lowest, foreclosure “sales” are used as
comparables, and to then reap the tax benefits imposed by the Wells Fargo Rule by reporting
“losses” on the original Wachovia-owned lots to the IRS was an unconscionable action or course
of action. During their negotiations with Wells Fargo and the servicing companies, Plaintiffs
Freeman, Berry, Velazco, Miller, Barfield, Davis, Babb, Ryan and Hessey were confronted with
severely depressed, and manipulated, appraised values of their lots and comparable lots. Wells
Fargo’s and the servicing companies’ use of those false values was an unconscionable action or
course of action under the DTPA. Economic damages suffered by Plaintiffs as a result of the
foregoing violations of the DTPA are well in excess of $200,000.00, for which Plaintiffs hereby
sue. The foregoing violations of the DTPA were severally and jointly the producing cause of
losses and damages sustained by Plaintiffs, all of which exceed the minimum jurisdictional limits
of this Court, for which Plaintiffs hereby sue. All of the violations of the DTPA were made
knowingly by Defendants, and occurred at a time when the true facts were known to Defendants,
but disregarded. Thus, Plaintiffs seek an award of discretionary damages in an amount not to
exceed three times the economic actual damages as authorized by DTPA § 17.50(b)(1).
D.
80.
Fraud by Non-Disclosure
contained in Paragraphs 29 through 68, the same as if set forth fully hereafter in this Section VD. Each of the loans entered into by Plaintiffs Freeman, Berry, Velazco, Miller, Barfield, Davis,
Babb, Ryan and Hessey, and, Wachovia, and every loan transaction proposed or entered into by
Wells Fargo, was a “federally-related” transaction because, among other reasons, Wachovia and
Wells Fargo are FDIC-insured. In addition, each and every representation by Wells Fargo and
the servicing companies between 2009 and the present that referenced the manipulated appraised
29
values created by Appraiser B or C in their negotiations with Plaintiffs Freeman, Berry, Velazco,
Miller, Barfield, Davis, Babb, Ryan and Hessey constituted frauds by non-disclosure. Federal
laws and regulations related to the use of appraisals in “federally-related” transactions, such as
but not limited to, the extension of credit by Wells Fargo to Plaintiffs Freeman, Berry, Velazco,
Miller, Barfield, Davis, Babb, Ryan and Hessey, the refinancing of loans that were, and are,
“federally related” transactions, and, the foreclosure of collateral securing a “federally-related”
transaction, mandated that Wells Fargo and the servicing companies utilize only appraisals from
licensed appraisers that complied with USPAP. They did not do so and they did not inform
Plaintiffs Freeman, Berry, Velazco, Miller, Barfield, Davis, Babb, Ryan and Hessey that such
appraisals did not comply with USPAP, despite a legal obligation that they do so. That duty
arises under Texas law’s requirement that a party in Wells Fargo’s or the servicing companies’
position not conceal such material facts (that the appraisals violate USPAP and federal laws and
regulations). Further, Wells Fargo and the servicing companies knew that Plaintiffs Freeman,
Berry, Velazco, Miller, Barfield, Davis, Babb, Ryan and Hessey did not know that their property
values had been manipulated by fraudulent appraisals and they knew that Plaintiffs did not have
an equal opportunity to discover how or why the manipulated appraisal values were so low.
Defendants were deliberately silent despite a duty to disclose such information to Plaintiffs
Freeman, Berry, Velazco, Miller, Barfield, Davis, Babb, Ryan and Hessey. Defendants intended
to and did induce Plaintiffs Freeman, Berry and Velazco into wrongful foreclosures, with
resulting larger deficiencies and tax benefits for Wells Fargo, and, prematurely forced others into
debt relief programs.
Plaintiffs Freeman, Berry, Velazco, Miller, Barfield, Davis, Babb, Ryan
and Hessey relied on Wells Fargo’s and the servicing companies’ failure to disclose that the
appraisal values they were citing in their discussions with Plaintiffs Freeman, Berry, Velazco,
30
Case 6:11-cv-00047 Document 23-1
Miller, Barfield, Davis, Babb, Ryan and Hessey were false and manipulated by Wells Fargo and
the servicing companies. Obviously, had Wells Fargo and the servicing companies been candid - as was their legal obligation under Texas’ fraudulent concealment common law and federal
laws and regulations related to the subject transactions -- and informed Plaintiffs Freeman,
Berry, Velazco, Miller, Barfield, Davis, Babb, Ryan and Hessey that the reputed values of their
lots, and comparable lots, were actually the product of Wells Fargo’s market manipulations
scheme whereby values were intentionally driven down and that the appraisals and their values
were not actually reflective of the market, but, were not compliant with applicable state licensing
regulations and applicable federal laws and regulations, then Plaintiffs Freeman, Berry, Velazco,
Miller, Barfield, Davis, Babb, Ryan and Hessey would have had the opportunity to take action to
prevent their credit ratings from being destroyed, to prevent the loss of significant amounts of
money, to prevent the loss of future business dealings, and to avoid severe emotional stress and
mental anguish.
81.
The course of action, conduct, acts, and omissions alleged herein constituted a fraud by
nondisclosure upon Plaintiffs Freeman, Berry, Velazco, Miller, Barfield, Davis, Babb, Ryan and
Hessey, and were a direct, producing and proximate cause of injury and damages to such
Plaintiffs. Such fraud by nondisclosure was a substantial factor in bringing about injury and
damages to Plaintiffs, and without such fraud by nondisclosure, the injury and damages would
not have occurred. Moreover, a person of ordinary intelligence would have foreseen that the
injury and damages alleged herein might result from the fraud by nondisclosure.
E.
82.
Statutory Fraud
contained in Paragraphs 29 through 68, the same as if set forth fully hereafter in this Section V-
31
E. Defendants are liable to Plaintiffs Freeman, Berry, Velazco, Miller, Barfield, Davis, Babb,
Ryan and Hessey for Statutory Fraud pursuant to Texas Business & Commerce Code § 27.01.
At all material times, the transactions in question involved real estate.
Throughout the
transactions complained of herein, and by and through the acts, omissions, conduct and
misconduct alleged herein, Defendants made material false misrepresentations of fact, made
false promises and/or benefited by not disclosing that a third party’s representations or promises
were false that concerned or related to the value of lots in The Sanctuary.
Defendants’
misrepresentations of the true market value of the lots in The Sanctuary was a knowingly false
representation of past or existing material fact and was made with actual awareness and for the
specific purpose of inducing Plaintiffs to act, or refrain from acting, based upon such
misinformation. Plaintiffs relied on these false representations or promises by entering into
wrongful foreclosures and premature and unnecessary debt relief.
83.
Had Defendants not perpetrated a statutory fraud pursuant to Texas Business &
Commerce Code § 27.01, Plaintiffs would not have had their credit ratings destroyed, lost
significant amounts of money, lost out on future business dealings, or experienced severe
emotional stress and mental anguish. Further, and as a result of Defendants’ actual awareness of
the falsity of their representations about the true value of lots in The Sanctuary, Plaintiffs are
entitled to exemplary damages.
84.
The course of action, conduct, acts, and omissions alleged constituted statutory fraud
pursuant to Texas Business & Commerce Code § 27.01 upon Plaintiffs, and were a direct,
producing and proximate cause of injury and damages to Plaintiffs.
Such statutory fraud
pursuant to Texas Business & Commerce Code § 27.01 was a substantial factor in bringing about
injury and damages to Plaintiffs, and without such statutory fraud pursuant to Texas Business &
32
Commerce Code § 27.01, the injury and damages would not have occurred. Moreover, a person
of ordinary intelligence would have foreseen that the injury and damages alleged herein might
result from the statutory fraud pursuant to Texas Business & Commerce Code § 27.01.
F.
85.
Negligence
contained in Paragraphs 29 through 68, the same as if set forth fully hereafter in this Section VF. Plaintiffs affirmatively allege that the appraisals violated the FIRREA and its implementing
regulations because (1) Wells Fargo is a federally-regulated entity and the servicing companies
are federally-regulated; (2) the transactions and proposed transactions involved the services of an
appraiser; (3) each appraisal was required to be a “market value” appraisal (as defined by 12
C.F.R. §§225.62(a) and (g)) prepared in accordance with the Uniform Standards of Professional
Appraisal Practice ("USPAP"); (4) none of the manipulated appraisals was a market value
appraisal; and, (5) none of the appraisals complied with USPAP. Such legal and regulatory
standards were borne out of legislation passed to regulate the deleterious effects that corrupted
appraisal practices can have both on the credit transactions entered by lending institutions and
the related markets such transactions affect.
86.
Defendants were required to comply with the FIRREA and USPAP, but, their failure to do
so was a failure to exercise reasonable care; i.e., what a reasonable and prudent lender or would
have done, or not done, under the same or similar circumstances. Defendants’ duty of ordinary
care that they owed every Plaintiff was, and is, to a certain extent, informed and shaped by those
federal laws and regulations related to appraisers, appraisals, and the use to which federally
regulated lending institutions may utilize appraisals. Standards of care applicable to Wells Fargo
and the servicing companies are found within at least one federal statute (FIRREA) and its
33
implementing regulations. The Defendants were already under duties imposed by those laws,
rules, and incorporated industry standards (USPAP); therefore, reference to them in evaluating
whether a negligence claim is plausibly pleaded is instructive.
87.
Texas law also independently supports the imposition of a duty of ordinary care on the
Defendants that was owed to all lot and home owners at The Sanctuary. All of the Plaintiffs
herein were within “the zone of foreseeable risk” of Wells Fargo’s and the servicing companies’
acts, and, therefore, duties to all such Plaintiffs arose. FIRREA and USPAP mandated the
quality and content of appraisals that should have been used in the subject foreclosures and
proposed transactions. The U. S. Congress, the Board of Governors of the Federal Reserve, the
F.D.I.C., and the Texas appraisal licensing agency, and, The Appraisal Foundation all agree that
the appraisals in the subject transactions should have been market-value reports in order to not
threaten the marketplace of owners,
lenders, and borrowers.
Thus, Wells Fargo and the
servicing companies owed a duty of reasonable care to all Plaintiffs to ensure it cited to, relied
upon, and utilized only truthful, accurate, reliable and legally-compliant appraisals.
88.
The damages suffered by the Plaintiffs and Class were a reasonably foreseeable result of
the acts and omissions undertaken by the Defendants. Further, Defendants’ acts and omissions
constitute violations of FIRREA, FDIC regulations and USPAP.
Plaintiffs plead that
Defendants’ status and activities as regulated entities under the FIRREA, FDIC regulations and
guidelines, the Fair Debt Collection Act, and Texas’ Debt Collection Act compelled them to
follow standards of care contained within such statutes (and its implementing regulations), and
that failure to do so constituted negligence. In addition, under a traditional risk/utility analysis, a
duty of reasonable care should be imposed on Defendants, and through the acts and omissions
described herein, it was repeatedly violated and has damaged each Plaintiff and Class Member.
34
Moreover, Texas imposes a duty of reasonable care on each Defendant to the extent it voluntarily
undertook to perform lending or collection activities. Defendants were under a duty to perform
such activities in a reasonable and prudent manner, the failure of which constituted acts of
omission and commission, which collectively and severally constitute negligence.
Such
negligence was a proximate cause of Plaintiffs’ damages.
89.
Damages and remedies sought by Plaintiffs for the negligence alleged herein include but
are not limited to the loss of credit, the loss of significant amounts of money, the loss of value,
the loss of investment, loss of equity, the loss of future business dealings, severe emotional stress
and mental anguish, reasonable and equitable attorneys’ fees, exemplary damages, prejudgment
and post judgment interest, and court costs.
G.
90.
Wrongful Foreclosure
contained in Paragraphs 29 through 68, the same as if set forth fully hereafter in this Section VG. Wells Fargo made self-serving bids for lots at foreclosure sales which were artificially and
fraudulently low and unrelated to market value, having been calculated with the intent of
minimizing the lot acquisition costs and maximizing their reported “losses” to the IRS. Wells
Fargo and the servicing companies intentionally procured bogus appraisals that violated federal
and state laws and regulations prior to foreclosing on Plaintiffs Freeman, Berry and Velazco.
The acquisition and use of such false and illegal appraisals and evaluations procured in the
course of Wells Fargo’s foreclosure on the lots owned by Plaintiffs Freeman, Berry and Velazco
is itself a violation of federal banking laws and regulations and is, therefore, a defect in such
foreclosure sale proceedings. In addition, Wells Fargo’s and the servicing companies’ acts in
manipulating the market prior to such foreclosure proceedings is, at a minimum, a defect in the
35
foreclosure proceedings. In addition, as each such foreclosure is a part of the overall Wells
Fargo’s market value/tax manipulation scheme, each such foreclosure was, by definition,
defective.
91.
Damages and remedies sought by Plaintiffs Freeman, Berry and Velazco, and all others
similarly situated, for the wrongful foreclosures alleged herein include but are not limited to the
loss of real property, improper deficiency amounts, rescission, loss of credit, the loss of
significant amounts of money, the loss of future business dealings, severe emotional stress and
mental anguish, reasonable and equitable attorneys’ fees, exemplary damages, prejudgment and
post judgment interest, and court costs.
H.
92.
Texas Common Law Unreasonable Debt Collection
contained in Paragraphs 29 through 68, the same as if set forth fully hereafter in this Section VH. Each Defendant’s acts of omission and commission described herein that constitute all, or a
part, of the market value manipulation tax savings scheme were efforts that amount to a course
of harassment that was willful, wanton, malicious and intended to inflict mental anguish and
bodily harm.
93.
Damages and remedies sought by Plaintiffs for the unreasonable debt collections alleged
herein include but are not limited to the loss of credit, the loss of significant amounts of money,
the loss of future business dealings, severe emotional stress and mental anguish, reasonable and
equitable attorneys’ fees, exemplary damages, prejudgment and post judgment interest, and court
costs.
I.
Usury under National Banking Act
36
94.
contained in Paragraphs 29 through 68, the same as if set forth fully hereafter in this Section V-I.
Wells Fargo made self-serving bids for lots at foreclosure sales which were artificially and
fraudulently low and unrelated to market value, having been calculated with the intent of
minimizing the lot acquisition costs and maximizing their reported “losses” to the IRS. Wells
Fargo and the servicing companies intentionally procured bogus appraisals that violated federal
and state laws and regulations prior to foreclosing on Plaintiffs Freeman, Berry and Velazco.
When Wells Fargo utilized those appraisals and sold the lots securing such debtor’s promissory
notes, the resulting “principal” deficiencies for each such indebtedness were artificially and
illegally manipulated to be lower than what they would have been had laws and regulations
dictating the quality of appraisals been followed.
The result is that the principal of remaining
indebtedness post-foreclosure is artificially high. The difference between that price and what
should have been the deficiency based upon an un-manipulated foreclosure sale price constitutes
interest charged by Wells Fargo that is in excess of that permitted under The National Bank Act,
12 U.S.C. §§11, et seq. §85 of the Act provides that “[a]ny association may [...] charge on any
loan or discount made, or upon any notes, bills of exchange, or other evidences of debt, interest
at the rate allowed by the laws of the State, Territory, or District where the bank is located, or at
a rate of 1 per centum in excess of the discount rate on ninety-day commercial paper in effect at
the Federal reserve bank in the Federal reserve district where the bank is located, whichever may
be the greater, and no more [...]”. 12 U.S.C. §85. §86 provides that “[t]he [...] charging a rate of
interest greater than is allowed by section 85 of this title, when knowingly done, shall be deemed
a forfeiture of the entire interest which the note, bill, or other evidence of debt carries with it, or
which has been agreed to be paid thereon.” Plaintiffs Freeman, Berry and Velazco seek all
37
damages and relief to which they, and others similarly situated, are entitled under the National
Banking Act.
J.
95.
Negligent Misrepresentation
contained in Paragraphs 29 through 68, the same as if set forth fully hereafter in this Section V-J.
Throughout the transactions complained of herein, and by and through the acts, omissions,
conduct and misconduct alleged herein, Defendants made material false misrepresentations of
fact, made false promises and/or benefited by not disclosing that a third party’s representations
or promises were false that concerned or related to the value of lots in The Sanctuary.
Defendants’ misrepresentations of the true market value of the lots in The Sanctuary were made
by Defendants to Plaintiffs Freeman, Berry, Velazco, Miller, Barfield, Davis, Babb, Ryan and
Hessey in the course of such Defendants’ business and in the context of a transaction in which
Wells Fargo had an interest. The illegal appraisals and appraisal amounts were supplied to the
Plaintiffs Freeman, Berry, Velazco, Miller, Barfield, Davis, Babb, Ryan and Hessey for their
guidance in determining what to do in light of the depressed value of the property securing their
promise to pay Wachovia. For all of the reasons discussed earlier in this complaint, Wells Fargo
and the servicing companies did not exercise reasonable care or competence in obtaining the
appraisals nor in communicating their results to Plaintiffs Freeman, Berry, Velazco, Miller,
Barfield, Davis, Babb, Ryan and Hessey. Such Plaintiffs justifiably relied on such information
provided by Wells Fargo and the servicing companies and by entering into wrongful foreclosures
and premature and unnecessary debt relief.
96.
But for the acts of negligent misrepresentations specified in paragraph 92, Plaintiffs
Freeman, Berry, Velazco, Miller, Barfield, Davis, Babb, Ryan and Hessey and other similarly
38
situated would not have had their credit ratings destroyed, lost significant amounts of money, lost
out on future business dealings, or experienced severe emotional stress and mental anguish. As a
result, Defendants are liable to Plaintiffs for negligent misrepresentation.
K.
97.
Gross Negligence
contained in Paragraphs 29 through 68, the same as if set forth fully hereafter in this Section VK. Plaintiffs also adopt and incorporate by reference and repeat verbatim herein, the allegations
contained in Paragraphs 85 through 89, the same as if set forth fully hereafter in this Section VK. The wrong(s) done by Defendants in deliberately driving down the appraisal values of lots
within The Sanctuary, manipulating the real estate market within The Sanctuary, and then
reaping the tax benefits from its fraudulent scheme was aggravated by the kind of gross
negligence, malice and disregard for which the law and equity require the imposition of
exemplary damages. The conduct of Defendants, when viewed objectively from Defendants’
standpoint at the time of the conduct, involved an extreme degree of risk, considering the
probability and magnitude of the potential harm to others, and Defendants were actually and
subjectively aware of the risk involved, but nevertheless proceeded with conscious indifference
to the rights or welfare of others.
Plaintiffs therefore seek exemplary damages against
Defendants.
98.
Damages and remedies sought by Plaintiffs for the gross negligence alleged herein
include but are not limited to the loss of credit, the loss of significant amounts of money, the loss
of future business dealings, severe emotional stress and mental anguish, reasonable and equitable
attorneys’ fees, exemplary damages, prejudgment and post judgment interest, and court costs.
L.
Unjust Enrichment
39
99.
contained in Paragraphs 29 through 98, the same as if set forth fully hereafter in this Section VL. Every dollar of tax savings that Wells Fargo has realized as a result of the market value
manipulation tax savings scheme is an unjust enrichment of Wells Fargo because it wrongfully
secured a benefit or passively received one which would be unconscionable to retain. See City of
Corpus Christi v. S.S. Smith & Sons Masonry, Inc., 736 S.W.2d 247, 250 (Tex. App.—Corpus
Christi 1987, writ denied). Wells Fargo was unjustly enriched when it, among other bad acts,
fraudulently and artificially drove down lot values within The Sanctuary, then sold these lots for
pennies on the dollar (amounts that were grossly under their actual value), and ultimately
reported “losses” to the IRS thereby gaining tax benefits. Wells Fargo has obtained a benefit
from each of the Plaintiffs, and Plaintiff class members, by taking undue advantage of them and
the situation presented by Wells Fargo’s acquisition of the notes owed by Plaintiffs. Plaintiffs
were powerless to stop Wells Fargo’s schemes as alleged herein. The benefits received by Wells
Fargo that flow from the market value/tax manipulation scheme, and sub-schemes, cannot be
justifiably and equitably retained by Wells Fargo. Plaintiffs seek and are entitled to recover from
Wells Fargo all such ill-gotten benefits.
M.
100.
Civil Conspiracy
contained in Paragraphs 29 through 99, the same as if set forth fully hereafter in this Section VM. Wells Fargo and each of the servicing companies, and the Doe Defendants, combined to
accomplish all of the acts necessary for the successful execution of the market value/tax
manipulation scheme, and sub-schemes, they agreed to the acts necessary to complete such
schemes, they accomplished such overt, and unlawful acts, and such conspiracy proximately
40
caused Plaintiffs’ damages. Defendants had a meeting of the minds to plan and implement the
market value manipulation tax savings scheme that, among other things, fraudulently and
artificially decreased the appraisal and/or evaluation values of lots in The Sanctuary. Wells
Fargo then reaped the financial benefits of this arrangement in the form of tax savings and gains
on resale. By the facts, acts, and omissions alleged herein, the objective of the combination was
to accomplish an unlawful purpose and/or to accomplish a lawful purpose by unlawful means,
the members of the combination had a meeting of the minds on the object or course of action,
and at least one or more of the members, as alleged herein, committed an unlawful, overt act to
further the object or course of action.
101.
The civil conspiracy alleged herein, and the individual predicate misconduct, wrongful
acts and omissions alleged were a substantial factor in bringing about the injury and damages
would not have occurred. Moreover, a person of ordinary intelligence would have foreseen that
the damages alleged herein might result from the civil conspiracy alleged herein, and the
individual predicate misconduct, wrongful acts and omissions alleged.
N.
102.
Aiding or Abetting
contained in Paragraphs 29 through 101, the same as if set forth fully hereafter in this Section VN.
By the course of conduct, acts and omissions alleged herein, the settlement services
companies intentionally aided and abetted, by assisting and participating with, and by assisting
or encouraging Wells Fargo to commit one or more individual torts as alleged herein. By the
course of conduct, acts and omissions alleged herein, the settlement services companies also
intentionally aided and abetted, by assisting and participating with, and by assisting or
encouraging Wells Fargo in the civil conspiracy as alleged herein. With respect to assisting or
41
encouraging, Wells Fargo committed a tort as alleged herein, and the settlement services
companies (a) had knowledge that the primary actor’s conduct constituted a tort; (b) had the
intent to assist the primary actor in committing the tort; (c) gave the primary actor assistance or
encouragement; and (d) its assistance or encouragement was a substantial factor in causing the
tort. With respect to assisting and participating, (a) the primary actor’s activity accomplished a
tortious result as alleged herein, and the settlement services companies (a) provided substantial
assistance to the primary actor in accomplishing the tortious result; (b) their own conduct,
separate from the primary actor’s conduct, was a breach of duty to Plaintiffs; and (c) their
participation was a substantial factor in causing the tort.
103.
Damages and remedies sought by Plaintiffs for the aiding and abetting alleged herein, and
the individual predicate torts, wrongful acts and omissions alleged include but are not limited to
the loss of credit, the loss of significant amounts of money, the loss of future business dealings,
severe emotional stress and mental anguish, reasonable and equitable attorneys’ fees, exemplary
damages, prejudgment and post judgment interest, and court costs.
VI. THE PLAINTIFF CLASS ALLEGATIONS
104.
This action is brought as a class action pursuant to Rule 23(b)(3) of the Federal Rules of
Civil Procedure.
105.
Plaintiffs and Class Representatives, Sanford Miller, Randy Barfield, David Freeman,
Corinthe Freeman, Kimberly Berry, Mack Davis, Elmer Velazco, Carolyn Velazco, R. Kenneth
Babb, Chris Stewart, Charles L. Ryan, Joanne F. Hessey, Carl P. Holveck, James Monroe Powell,
IV, Kristin Young Powell, Francis Mase, and Tabe Mase, are members of the Plaintiff Class as
defined herein, and bring this action on their own behalf and on behalf of those similarly
situated. Plaintiffs seek to recover damages, which they and the Class Members, suffered as a
42
result of the illegal, fraudulent, and predatory lending practices of Defendants.
The class
represented by the Plaintiffs (hereinafter referred to as the "Plaintiff Class") includes all persons
and entities, other than the Defendants named herein, who purchased, held or otherwise acquired
both directly and indirectly, ownership interest in land or homes in The Sanctuary between
January 1, 2006 and the present, except for those who divested their ownership interests prior on
or before October 2, 2008 (hereinafter referred to as the “Class Period”).
106.
The named Plaintiffs are members of the Plaintiff Class.
107.
Because over $90 million of interests were purchased by over 350 people during the
Class Period, the members of the Plaintiff Class are so numerous that joinder of all members is
impracticable. While the exact number of Plaintiff Class Members can only be determined by
appropriate discovery, the named Plaintiffs are informed and believe that Class Members number
in excess of 200 and the total damages sustained by the Class Members exceed $90 million.
108.
The claims of the named Plaintiffs, Sanford Miller, Randy Barfield, David Freeman,
Corinthe Freeman, Kimberly Berry, Mack Davis, Elmer Velazco, Carolyn Velazco, R. Kenneth
Babb, Chris Stewart, Charles L. Ryan, Joanne F. Hessey, Carl P. Holveck, James Monroe Powell,
IV, Kristin Young Powell, Francis Mase, and Tabe Mase, are typical of the claims of the
members of the Plaintiff Class. Plaintiffs and all members of the Plaintiff Class sustained
economic and property damage as a result of the Defendants' wrongful, intentional, and illegal
misconduct complained of herein.
109.
Plaintiffs will fairly and adequately protect the interests of the members of the Plaintiff
Class and have retained counsel competent and experienced in class action litigation as well as
commercial, banking and real estate litigation.
110.
A class action is superior to other available methods for a fair and efficient adjudication
43
of this controversy. Since the damages suffered by the individual Plaintiff Class Members may
be relatively small and geographically diverse, the expense and burden of individual litigation
makes it impossible for the Plaintiff Class Members individually to seek redress for the wrongful
conduct alleged.
111.
Plaintiffs know of no difficulty that will be encountered in the management of this
litigation that would preclude its maintenance as a Plaintiff Class action.
112.
Common questions of law and fact exist as to all members of the Plaintiff Class that
predominate over questions affecting solely individual members of the class.
Among the
questions of law and fact common to the Plaintiff Class are:
(a)
Whether Defendants planned, implemented and perpetrated a scheme and artifice
to defraud the Plaintiffs and Class Members as set forth herein;
(b)
Whether Wells Fargo, by virtue of its purchase of Wachovia, holds a larger
percentage than any other lender of the typical three (3) to five (5) year balloon notes at The
Sanctuary that were entered in the 2006 to 2008 timeframe;
(c)
Whether evaluations or appraisals performed at the behest of Defendants were
performed in accordance with Title XI of the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989 (“FIRREA”);
(d)
performed in accordance with Federal Deposit Insurance Corporation (“FDIC”) regulations;
(e)
performed in accordance with the Uniform Standard of Professional Appraisal Practices
(“USPAP”);
(f)
Whether Wells Fargo communicated a predetermined, expected, or qualifying
estimate of value, or a loan amount or target loan-to-value ratio, to any appraiser or person
performing an evaluation or appraisal;
(g)
Whether market values of lots and homes at The Sanctuary have been artificially
lowered as a result of evaluations or appraisals procured by Defendants;
(h)
Whether Wells Fargo had, and has, a financial incentive to realize losses on the
balloon notes due to “The Wells Fargo Rule” tax incentive created in the Wachovia purchase
transaction;
44
(i)
Whether Defendants knowingly, intentionally and willfully undertook the market
value manipulation tax savings scheme and sub-schemes alleged herein;
(j)
Whether Defendants’ market value manipulation tax savings scheme and subschemes have damaged Plaintiffs’ and Class Members’ financial health, credit ratings, the losses
of property value, business goodwill, personal reputations, emotional wellbeing, and personal
health;
(k)
Whether Defendants’ market value manipulation tax savings scheme has affected
the property rights and values of each of the foreclosed Plaintiffs and Class members at The
Sanctuary;
(l)
Whether Wells Fargo breached its contracts with the Plaintiffs and Class Members
with which it contracted;
(m)
Whether Defendants intentionally and tortiously interfered with the existing
rights, contracts, promises, agreements, guarantees, amenities and privileges held by the
Plaintiffs and each Class Member at The Sanctuary;
(n)
Whether the members of the Plaintiff Class have sustained damages, and if so, the
proper measure of damages;
(o)
Whether federal and state banking and appraisal standards, regulations and
guidelines enacted under FIRREA were designed to protect the Plaintiff Class from the market
value manipulation tax savings scheme as alleged herein;
(p)
Whether Defendants conspired in a civil conspiracy to violate federal and state
(q)
Whether Defendants aided and/or abetted each other in violating federal and state
law;
law;
(r)
Whether the Plaintiff Class has a remedy under substantive federal law for the
wrongs complained of;
(s)
Whether the Plaintiff Class has a remedy under substantive state law for the
wrongs complained of;
(t)
Whether exemplary damages should be awarded to Plaintiffs and Class Members
and the amount that is appropriate under law;
(u)
Whether, and in what amount, attorneys’ fees and costs should be awarded to the
Plaintiffs and Class Members.
45
VIII. CONDITIONS PRECEDENT
113.
All conditions precedent, if any, to the claims and causes of action alleged herein have
been met, waived or are excused.
IX. JURY DEMAND
114.
Plaintiffs hereby make application for a jury trial and request that this cause be set on the
Court’s Jury Docket. In support of his application, the appropriate jury fee has been paid to the
Clerk at least thirty (30) days in advance of the trial setting.
WHEREFORE, PREMISES CONSIDERED, Plaintiffs Sanford Miller, Randy Barfield,
David Freeman, Corinthe Freeman, Kimberly Berry, Mack Davis, Elmer Velazco, Carolyn
Velazco, R. Kenneth Babb, Chris Stewart, Charles L. Ryan, Joanne F. Hessey, Carl P. Holveck,
James Monroe Powell, IV, Kristin Young Powell, Francis Mase, and Tabe Mase pray for a trial
before a jury of their peers, a judgment against the defendants, jointly and severally, for actual
and exemplary damages, prejudgment and post judgment interest, attorneys fees, costs, and all
other and further relief, at law, or in equity, to which they may be reasonably entitled.
Respectfully submitted,
/s/ Craig M. Sico
Craig M. Sico
Federal I.D. NO. 13540
Texas Bar No. 18339850
SICO, WHITE, HOELSCHER & BRAUGH, L.L.P
802 N. Carancahua, Suite 900
Corpus Christi, Texas 78401
Telephone: 361-653-3300
Facsimile: 361-653-3333
ATTORNEY IN CHARGE FOR PLAINTIFFS
Of counsel:
Roger S. Braugh, Jr.
Federal I.D. No. 21326
46
SICO, WHITE, HOELSCHER & BRAUGH, L.L.P
Telephone: 361-653-3300
Facsimile: 361-653-3333
John Flood
FLOOD & FLOOD
Telephone: 361-654-8877
Facsimile: 361-654-8879
Michael Johnson
121 S. Main Street
P. O. Box 1667
Victoria, Texas 77902
Telephone: 361-579-6700
Facsimile: 361-485-0465
CERTIFICATE OF SERVICE
I certify that on March 8, 2012, I electronically filed the foregoing with the Clerk of the
Court using the CM/ECF filing system who sent a Notice of Electronic filing to my co-counsel
and the following lawyers for Defendants:
Robert T. Mowery
Thomas G. Yoxall
Johnathan E. Collins
Matthew H. Davis
Ralph F. Meyer
Ronald W. Dennis
/s/ John Flood
John Flood
47

Davis Corrected 1stAmend Complaint.Final

Transcription

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