Ben's Affirmative Defenses

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This lawsuit is over a breach of contract.  In its verified Complaint, the Plaintiff is claiming to have suffered $__________________ in breach of contract damages, plus interest, costs and attorneys’ fees.  However, such damages must be offset by the amount of damages the Plaintiff caused itself by instructing or encouraging the Defendant to stop making the payments.  The Plaintiff certainly cannot instruct the Defendant to breach the current contract in order to make them eligible to enter into a new contract, and then sue to enforce the very contract it instructed the Defendant to breach ... to do so would be wholly inequitable. The Plaintiff’s representative encouraged and convinced the Defendant to refrain from making payments in order to become sufficiently delinquent in order to “qualify” for assistance; then, and only then, would the Plaintiff be able to help them with some foreclosure alternative.  The Defendant, acting in reliance upon the Plaintiff’s representations, stopped making payments.  Thereafter, when the Defendant approached the Plaintiff for assistance, the Plaintiff refused to help them.  Following the Plaintiff’s refusal to assist the Defendant, and now because of the late payments, the Defendant’s negative credit history prevents them from qualifying for alternative financing.  Thus, where the Plaintiff put the Defendant into this position, and the Defendant changed position in reliance on the Plaintiff’s representations, the Defendant is entitled to have a judge or jury determine the amount of damages that the Plaintiff could have avoided by not encouraging the Defendant to stop making payments, and such amount equitably estops the Plaintiff from seeking a deficiency judgment.

Where the Plaintiff instructed the Defendant to cease making payments, the Plaintiff’s actual damages must be limited to the difference between the net present value of the regular payments, and the net present value of the payments that the Plaintiff would have received had the Plaintiff modified the loan to market terms.

Additionally, Plaintiff’s conduct in instructed Defendant(s) to breach to the note and mortgage agreements constitutes unclean hands and/or triggers the equitable principal that “to get equity, you must do equity”.  Such equitable principal applies here to prevent Plaintiff from foreclosing, in lieu of receiving a money judgment only.

Assumption of the Risk and Contributory Negligence - Real Estate Values



In its verified Complaint, the Plaintiff is claiming to have suffered $__________________ in breach of contract damages, plus interest, costs and attorneys’ fees.  However, such damages must be offset by the amount of damages the Plaintiff caused itself to suffer, or knowingly assumed it would suffer, where Plaintiff knowingly or negligently relying on a falsely-inflated appraisal of the subject collateral property.  Simply; where the Plaintiff made a loan to the Defendant, knowing or anticipating that such loan may not be fully repaid when real estate returned to its historical normal relationship relative to the average incomes, Plaintiff’s recovery is limited to only the amount it anticipated recovering.  In other words, where Plaintiff’s own lending risk models demonstrate a high likelihood of default and predictably limited recovery, Plaintiff’s alleged damages must be reduced by the amount of losses they anticipated they would suffer when they made the subject loan in the first place.

More specifically, by making the loan based on an inflated appraisal, Plaintiff assumed a huge default riskwhen properties returned to their actual value leaving Defendant(s) grossly upside-down.  Plaintiff also assumed a calculable amount of recovery risk from the collateral itself by making the loan using an inflated property value.  Concerning default risk, Plaintiff’s credit risk models show that upside-down borrowers are hundreds of times more likely to default on their loans than borrowers who maintain equity.  In fact, many of the models utilized in the industry assume that a borrower defaults when a property becomes upside down.  By knowingly lending on an inflated appraisal, Plaintiff assumed such default risk when it made the loan.  Concerning the recovery risk, Plaintiff assumed, when it made the loan in the first place, that it would not recover any more than the actual, non-inflated value of the collateral property.  The difference between the actual / non-inflated value of the subject property relative the inflated value of the subject property is the amount of recovery risk assumed by the Plaintiff.  Despite the Plaintiff’s superior knowledge that the subject property was overvalued, Plaintiff made the loan knowingly assuming that the Defendant(s) was both likely to default and that it would not recover the full loan amount. 

  In addition to assuming the risks as described above, Plaintiff contributed to and directly perpetuated the inflated property valuation of the subject property by selecting an appraiser who would “hit the number” or knowingly relied on inflated comps.  Appraisers were told what number they needed to hit and were encouraged to find comps to make the deal work.  In such manner, today’s inflated valuations became tomorrow’s comps and process became near self-perpetuating.  Appraisers that did not regularly hit the number were simply not used.  Prior to the appraisal process reforms of 2009 Home Valuation Code of Conduct and the Appraiser Independence Requirements of the 2010 Dodd-Frank Act, the Plaintiff selected appraisers who were willing to appraise properties for what borrowers could afford to pay under the bubble period’s relaxed lending standards.  As higher and higher loan amounts became more affordable, at least in the short term, the Plaintiff continued pushing appraisals higher and higher, including the appraisal of the subject property. 

  Plaintiff also perpetuated the inflated property valuations by agreeing to remove the financing conditionsarea from the standard appraisal form.  Removal of the financing conditions area helped protect appraisers from possible liability while simultaneously cloaking the underlying cause of hyper-inflated valuations. 

Lastly, Plaintiff’s knowledge of these issues, risks and inflated values put Plaintiff in a superior position relative to Defendant.  Borrowers, including the Defendant, were unaware of the risks and issues described above.  Therefore, such special knowledge on the part of the Plaintiff put Plaintiff in a superior position to assess the risk.  This triggers the age-old legal principal that the party in the position to assess the risk must bear the loss.  As such, Defendant(s) are entitled to have a judge or jury determine the amount of damages the Plaintiff reasonably expected to suffer by knowingly relying on a flawed appraisal.  Such negligence-based defenses are available in contract actions and Plaintiff’s alleged damages should be reduced accordingly. 

Relaxed Lending Standards - Real Estate Values


In its verified Complaint, Plaintiff is claiming to have suffered $____________ in breach of contract damages, plus interest, costs and attorneys’ fees.  The Plaintiff contributed to its own alleged damages where the Plaintiff knowingly made the loan to Defendant in an amount higher than the property would support over time as described in the Preamble and in this Affirmative Defense.  In doing so, Plaintiff knowingly assumed the risks associated with making the subject loan, and a number of similar loans, in amounts that grossly exceed the value of property when property values returned to their historical levels in relation to personal incomes.  More specifically, the relationship between average real estate prices and average incomes over the 2001 to 2007 period in the Tampa Bay Market Statistical Area nearly doubled as referenced in the chart below. 

Further, the Plaintiff, along with a handful of other lenders, is responsible for the above-described unsustainable increase in real estate prices by offering risky loan types, such as 100% financing, stated income, no documentation, and negative amortization, and by adopting and approving lending guidelines that were grossly outside the scope of sound lending practices.  Such relaxed lending practices resulted in the Plaintiff making loans in higher amounts than what the collateral would support – loans that would not have been made under historically sound lending practices.  Therefore, where the Plaintiff’s own conduct caused the unsustainable real estate prices (which grossly exceeded historical price levels relative to average incomes), the Plaintiff caused an un-liquidated amount of its own alleged damages.  Because such an offset is unliquidated, Defendant is entitled to a trial – for the finder-of-fact to determine the portion of Plaintiff’s alleged breach of contract damages that it caused itself to suffer by deviating from sound lending standards.  Stated another way, by abandoning historically sound lending practices and adopting relaxed lending standards, which in turn caused the hyper-inflated real estate prices of the 2001-2007 period, Plaintiff assumed it would experience a good portion of the breach of contract damages it alleged to have suffered. 

After creating the hyper-inflated real estate market as described above, the Plaintiff knowingly or negligently continued to lend into such market, and to purchase such loans in this market, thereby knowingly assuming the risk that the collateral, including the subject real property, would not support the subject loan over time.  Certainly by 2004, the Plaintiff knew that the real estate market was unsustainably high in relation to average incomes.  The Plaintiff, as all large lenders who operate under the watchful eye of the FDIC, has teams of financial analysts dedicated to conduct this type of research.  Plaintiff’s executives traded short-term huge bonuses and profits for an uncertain future. 

  The chart below is a part of the evidence of the defendant intends to put on at trial as evidence to show the Plaintiff contributed to its own damages through assumption of the risk.

  Historically, average home prices were 2.5 to 3 times the average income of home buyers.  For example, in a neighborhood where the average personal income is $50,000 per year, average home price is $125,000 to $150,000.  This has been a market standard for over fifty years until the 2001 to 2007 bubble.  This is not rocket science – if incomes remain stable and home prices double, it is a short-term anomaly when the financial gimmicks expire.  As the chart above represents, average home prices in the Tampa Bay Market Statistical Area peaked in 2006 at 6 times average incomes – a metric the Plaintiff, with its teams of analysts, would not have missed. 

  The chart above represents the “Alt-A Loans” as a percentage of total loans issued. Alt-A loans are loans to “A-credit” borrowers using alternate (non-standard) loan due diligence or loan underwriting documentation.  These loan type include stated income loans, no doc loans (stated asset / stated income loans) – what lenders themselves called “liar loans.”  In other words, many loans were based solely the borrower’s good credit rating and the Plaintiff “stating” how much annual income the borrower needed to make in order to qualify for the loan. 

  The chart above nearly mirrors the average home price metric for the same period and is demonstrative of the causal relationship between the relaxed lending standards and average home prices.  The causal relationship has a statistical correlation of .8411087, which demonstrates a clear statistical causal relationship – one the lenders would like Congress and class-action Plaintiff’s lawyers to ignore.   

  The chart above is included as evidence to forestall potential lender defenses based on the findings contained in the Financial Crisis Inquiry Report (“FCI Report”) by the United States Congress, January 2011.  In the FCI Report, the Congressional Commission splits the “fault” or negligent conduct that resulted in the financial, banking and real estate crisis, between sub-prime lending – making loans to “B”, “C” & “D” credit borrowers as a partial result of government mandate – and relaxed lending standards (Alt-A loans) and 100% financing.  However, the actual statistics tell a different story.  The statistical correlation between sub-prime lending and home prices in the Tampa Market Statistical Area is relatively low, between .5000 and .6074493.  This statistical relevance is marginal, if it exists at all.

  To summarize the issue, a number of bankers testified before the United States Congress as to the causes of the financial and banking crisis and largely blamed Congress for making the bankers loan money to people with less than stellar credit.  In a word, avoid jail time by incriminating Congress.  It becomes difficult for the various Attorneys General to send to bunch of Wall Street guys to jail where they say that “Congress made us lend money to people having bad credit.”

  Defendant has included these statistics in the affirmative defense to show that there is real merit and evidence behind this affirmative defense.  If Fannie Mae, Feddie Mac and the Department of Justice can sue the Plaintiff, Bank of America, over these same issues, recovering billions of dollars of settlements, these same principles apply to offset Plaintiff’s alleged damages here.  The undersigned counsel is a former banker, financial analyst and loan acquisitions professional and consultant who has worked on behalf of Ocwen, Lehman Brothers, Countrywide and a number of other financial institutions on billions of dollars of transactions. 

  Therefore, where the Plaintiff’s own actions contributed to its alleged losses on this loan, Defendant is entitled to have the finder-of-fact liquidate or determine the percentage of Plaintiff’s alleged damages that the Plaintiff, through its conduct, caused itself to suffer.



The Plaintiff is claiming monetary damages of $___________________ plus interest and collection costs.  The Defendant asserts that any and all claims the Plaintiff may have had against Defendants were fully resolved when the Plaintiff and the Defendant entered into a settlement agreement. More specifically, in exchange for the Defendant’s agreement to deed the property to the Plaintiff in-lieu of foreclosure, the Plaintiff agreed to waive deficiency.  Such settlement agreement resolved all issues between the Plaintiff and the Defendant.  Such agreement by the Plaintiff is binding upon __________ /* Fannie Mae, the owner of subject loan.

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