GILES 3AC as filed 12.20.12 (1) (1)

TRUJILLO RODRIGUEZ & RICHARDS, LLC Lisa J. Rodriguez 258 Kings Highway East Haddonfield, New Jersey 08033 Tel: (856) 795-9002 [Additional counsel on signature page]

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF NEW JERSEY

CHARLES J. and DIANE GILES, : individually and on behalf of all others similarly situated, : : Civil Action Plaintiffs, : No. 11-6239 (JBS-KMW) : v. : JURY TRIAL DEMANDED : WELLS FARGO BANK, N.A., PHELAN HALLINAN : & SCHMIEG, P.C., LAWRENCE T. PHELAN, : FRANCIS S. HALLINAN, DANIEL S. SCHMIEG, : ROSEMARIE DIAMOND, FULL SPECTRUM : SERVICES, INC., and LAND TITLE SERVICES OF : NEW JERSEY, INC., :

: Defendants. :

THIRD AMENDED CLASS ACTION COMPLAINT

On behalf of themselves and all others situated similarly, plaintiffs Charles J. and Diane

Giles (the “Giles” or “Representative Homeowners”) bring this proposed class action for

damages under Section 1962(c) of the Racketeering Influenced and Corrupt Organizations Act

(“RICO”), 18 U.S.C. § 1962(c).

I. SUMMARY OF ALLEGATIONS

1. This is an action by financially troubled homeowners (“Plaintiffs,”

“Homeowners,” or the “Proposed Class”) against a mortgage servicer, Wells Fargo Bank, N.A.

(“WFB”), acting in concert with its outside mortgage foreclosure law firm, Phelan Hallinan &

Schmieg, P.C. (“Phelan P.C.”), four Phelan P.C. partners – Lawrence T. Phelan (“Lawrence

Case 1:11-cv-06239-JBS-KMW Document 74 Filed 12/20/12 Page 1 of 33 PageID: 1459

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Phelan”), Francis S. Hallinan (“Hallinan”), Daniel S. Schmieg (“Schmieg”) and Rosemarie

Diamond (“Diamond”) – and two “default management” service “vendors” owned and

controlled by Lawrence Phelan, Hallinan, and Schmieg: Full Spectrum Services, Inc. (“Full

Spectrum”) and Land Title Services of New Jersey, Inc. (“Land Title”).

2. Plaintiffs allege that each defendant, acting together in a coordinated fashion,

engaged in an institutionalized scheme to prosecute fraudulent mortgage foreclosure lawsuits

against members of the Proposed Class, using the name of two banks, Wachovia Bank, N.A.

(“Wachovia”) or U.S. Bank, N.A. (“U.S. Bank”), as purported “Trustee for the Pooling and

Servicing Agreement dated as of November 1, 2004, Asset-Backed Pass-Through Certificate

Series 2004-WWF1” (the “Park Place Trust”).

3. Neither Wachovia nor U.S. Bank was trustee of the Park Place Trust or the legal

owner of Plaintiffs’ mortgages when WFB, in concert with Phelan P.C., filed and prosecuted

foreclosure lawsuits against the Giles and other members of the Proposed Class.

4. Under New Jersey law, an entity attempting to foreclose a mortgage must own or

control the underlying debt when a foreclosure action is commenced. Without a demonstration

of ownership or control of a mortgage, such entity lacks standing to proceed with a foreclosure

lawsuit, and its complaint must be dismissed. Under New Jersey law, a foreclosing entity may

not cure a defect of standing in its initial complaint by filing a “corrective” assignment and an

amended complaint; a new lawsuit must be filed by the proper legal party in interest.

5. WFB and Phelan P.C. – unable to determine what party owned Plaintiffs’

mortgages – injected the name “Wachovia” or “U.S. Bank” as plaintiff in foreclosure complaints

against members of the Proposed Class (defined below). They did this despite (a) their

ignorance and indifference to the identity of the bona fide owner of the Homeowners’ mortgages


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and (b) the absence of legal standing to prosecute foreclosure actions against members of the

Proposed Class. Without a legitimate party to represent in court, WFB and Phelan P.C. were

interlopers, incapable of enforcing any legal rights against the Homeowners. Nevertheless, WFB

and Phelan P.C. brought foreclosure actions against members of the Proposed Class on behalf of

manufactured “plaintiffs” that had no interest in the Homeowners’ mortgages.

6. WFB and Phelan P.C. engaged in this fraudulent scheme to: (a) dispossess

Homeowners from their property as quickly as possible, and gain financially from their

indiscriminately assembled foreclosure lawsuits and subsequent disposition of foreclosed

property; and (b) inflate or fabricate foreclosure-related fees charged to Homeowners threatened

with loss of their homes through (i) excessive attorney fees claimed by Phelan P.C. and WFB

and (ii) overstated bills submitted to WFB and Phelan P.C. by Land Title and Full Spectrum, two

litigation support companies owned and controlled by Lawrence Phelan, Hallinan, and Schmieg.

Such fees were passed on to foreclosed-upon homeowners by WFB and Phelan P.C. as

supposedly reimbursable “default management” expenses required to keep their homes.

7. With profit and speed as their overriding concerns, WFB and Phelan P.C.

willfully failed to undertake even rudimentary investigations of facts concerning the legality of

their foreclosure actions.

8. Instead, to create the illusion of mortgage ownership and standing, Phelan P.C., in

concert with WFB, systematically filed falsified complaints, certifications, verifications,

affidavits, motions, and other legal documents filed in New Jersey state courts which erroneously

identified Wachovia or U.S. Bank as plaintiff in foreclosure actions against the Giles and other

Proposed Class members. These court filings contained untrue statements of material fact


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purportedly based on “personal knowledge” of Phelan P.C.’s lawyers. Many filings also

contained forged signatures of Phelan P.C. lawyers.

9. The invalidity of foreclosure judgments obtained by the Phelan P.C. and WFB is

not an issue in this lawsuit. Plaintiffs allege that Defendants are liable for fraudulent practices

they systematically used in prosecuting wrongful foreclosure actions and in thereby obtaining

millions of dollars in ill-gotten gains at the expense of Plaintiff homeowners.

10. Prompted by WFB, sworn false and misleading statements filed by Phelan P.C.

lawyers concerning mortgage ownership and legal standing (which the courts and Proposed

Class members justifiably relied upon) operated as a fraud on the judicial system.

11. Homeowners’ reliance on the truth of statements made under oath in court filings

is demonstrated by the fact that fewer than seven percent of mortgage foreclosure lawsuits are

contested in New Jersey state courts. See Nov. 23, 2011 Judith T. Romano Cert. (Dkt. 5-2) at ¶3.

12. The purpose and effect of false and misleading sworn statements by Phelan P.C.

and WFB was to conceal material facts from Plaintiff homeowners and New Jersey Chancery

Court judges prior to entry of default judgments against members of the Proposed Class. Had

the truth been known, the Homeowners would have opposed, and no Chancery Court judge

would have entered, fraudulently obtained default judgments against Homeowners in favor of

“named” plaintiffs Wachovia or U.S. Bank.

13. Plaintiff homeowners suffered monetary damages as a result of the fraudulent

scheme deployed by WFB and Phelan P.C., including:

(a) diminution or complete loss of value of property taken or sold as a result of wrongful foreclosure lawsuits filed by Phelan P.C. and WFB in the name of entities other than the still-undetermined bona fide legal owner of Plaintiffs’ mortgages;


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(b) attorneys’ fees incurred by Proposed Class members who (like the Giles) hired a lawyer to represent their interests in connection with fraudulently obtained default judgments procured by Phelan P.C. and WFB; and

(c) payment of manufactured and inflated foreclosure-related “costs,”

including (i) legal fees charged by Phelan P.C. that exceeded uniform fee schedules established by government-sponsored enterprises, principally the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”); and (ii) payment of foreclosure-related “costs” that exceeded amounts established in uniform fee schedules published by Fannie Mae and Freddie Mac, including real estate title searches, property appraisals and so-called “broker price opinions” (“BPOs”), “services” for property inspection and/or maintenance, and other unexplained, undocumented, and duplicative activities.

14. In consequence of Defendants’ unlawful conduct, Plaintiffs bring this proposed

class action on behalf of all homeowners who, during the period from December 31, 2005

through the present (the “Class Period”):

(a) were defendants in New Jersey mortgage foreclosure lawsuits filed and prosecuted by Phelan P.C., at the direction of and in concert with WFB, which were facilitated through preparation, execution, and certification of fraudulent court documents falsely identifying as plaintiff Wachovia Bank, N.A. or U.S. Bank, N.A. in a purported capacity as “Trustee for the Pooling and Servicing Agreement dated as of November 1, 2004, Asset-Backed Pass-Through Certificate Series 2004-WWF1”; and

(b) sustained economic damage as a result of Defendants’ aforementioned

misconduct. The term “damage” does not include overcharges contained in proofs of claim filed in U.S. Bankruptcy Court pursuant to 11 U.S.C. § 501.

II. JURISDICTION AND VENUE

15. This proposed class action seeks damages from Defendants for injuries suffered

by financially distressed homeowners as a result of Defendants’ RICO violations. Plaintiffs seek

actual and statutory damages (including treble damages), together with costs of suit and

reasonable attorneys’ fees. Federal question jurisdiction is conferred upon this Court by 18

U.S.C. § 1964(c) and 28 U.S.C. §§ 1331 and 1337.

16. This Court has in personam jurisdiction over Defendants because they maintain

offices, have employees and agents, regularly transact business, or reside within this District.


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17. Venue is proper in this District because the events giving rise to the

Homeowners’ claims occurred in or were directed at this District.

III. PARTIES

A. The Representative Homeowners

18. Plaintiffs Charles J. and Diane Giles were homeowners who resided in Barnegat

Township, New Jersey.

B. Defendants

19. Defendant WFB is a national banking association chartered in Sioux Falls, South

Dakota, with principal offices at 420 Montgomery Street, San Francisco, California 94163. WFB

services residential mortgages through its division Wells Fargo Home Mortgage or its trade name

America’s Servicing Company. WFB maintains principal places of business at 7000 Vista Dr.,

West Des Moines, Iowa 50266 and 3476 Stateview Boulevard, Fort Mill, South Carolina 29715.

20. Defendant Phelan P.C. is organized and operates as a professional corporation

under the laws of the State of New Jersey. Phelan P.C. maintains principal offices at 400

Fellowship Road, Suite 100, Mount Laurel, New Jersey 08054.

21. Defendant Lawrence Phelan is principal shareholder of Phelan P.C., as well as its

Pennsylvania alter ego law firm, Phelan Hallinan & Schmieg, LLP (“Phelan LLP”), which

maintains principal offices at 1617 JFK Boulevard, Suite 1400, Philadelphia, Pennsylvania.

Although not licensed to practice law in New Jersey, Lawrence Phelan is president and a major

shareholder of Phelan P.C. He has an approximately 41 percent interest in Phelan P.C. and a 49

percent interest in Phelan LLP.

22. Defendant Francis Hallinan has an equity ownership interest in both Phelan P.C.

and Phelan LLP. Hallinan is administrator of both firms.


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23. Defendant Schmieg has an equity ownership interest in both Phelan P.C. and

Phelan LLP.

24. Defendant Diamond, a New Jersey attorney, is “managing partner” of Phelan P.C.

25. Defendant Full Spectrum is a New Jersey business operating in the same office

building as Phelan P.C. at 400 Fellowship Road, Suite 200, Mount Laurel, New Jersey 08054.

Full Spectrum is owned and controlled by Lawrence Phelan, Hallinan, and Schmieg, and

purportedly provides litigation support services to Phelan P.C. and Phelan LLP and their clients,

including process serving, mortgage and judgment searches, and publication of legal notices.

26. Defendant Land Title is a New Jersey corporation operating in the same office

building as Phelan P.C. and Full Spectrum at 400 Fellowship Road, Suite 220, Mount Laurel,

New Jersey 08054. Land Title is owned and controlled by Lawrence Phelan, Hallinan, and

Schmieg. Land Title purportedly provides real estate title and valuation services to Phelan P.C.,

Phelan LLP and their clients. The building occupied by Phelan P.C., Full Spectrum, and Land

Title is owned by a New Jersey limited liability company known as Camelot Enterprises, LLC,

whose sole members are Defendants Lawrence Phelan and Hallinan.

27. Defendants Phelan P.C., Lawrence Phelan, Hallinan, Schmieg, Diamond, Land

Services, and Land Title, as well as non-defendant Phelan LLP, are referred to collectively as the

“Phelan Foreclosure Organization.”

IV. FACTS

A. Foreclosure Processes of the Phelan Foreclosure Organization and WFB

28. For the past decade, most residential mortgages in the United States have been

sold (i.e., “securitized”) by original lenders to investment banking firms that package revenue

streams of pooled mortgages into instruments known as Residential Mortgage Backed Securities


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(“RMBS”). These instruments are purchased by investors and traded in public securities

markets. Financial institutions (i.e., “Trustees”) are designated as legal owners of securitized

loans held in trusts for the benefit of RMBS investors. The identity and legal duties of Trustees

and mortgage servicers are defined in documents known as Pooling and Servicing Agreements

(“PSAs”).

1. WFB’s Duties and Compensation as Mortgage Servicer

29. As the “master” servicer designated by the PSA establishing the Park Place Trust

(“Park Place PSA”), WFB is authorized to collect income from homeowners’ mortgage

payments for distribution to the Trust’s investors. When homeowners default on their

mortgages, WFB is empowered to take reasonable action, at the homeowners’ expense, to cure

the default (i.e., recover past due payments and costs) and to restore the income-producing value

of the mortgage assets, including, if necessary, by directing the initiation of foreclosure

proceedings to liquidate mortgaged property at public auctions (i.e., “sheriff’s sales”). WFB has

responsibility for retaining and supervising the activities of outside law firms that file and

prosecute such actions.

30. WFB is compensated for its servicing activities on behalf of the Park Place Trust

in three ways: (a) a fixed fee in an amount no greater than 0.50 percent for each loan; (b) “float”

income from interest accrued between the time when WFB receives homeowners’ mortgage

payments and when those payments are transmitted to investors in the Park Place Trust; and (c)

“default management” fees charged to delinquent homeowners.

2. Industry-Wide Standards Established by Fannie Mae and Freddie Mac

31. Fannie Mae and Freddie Mac are the largest RMBS investors in the United States,

collectively owning or guaranteeing about half of all outstanding mortgage debt nationwide.


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These government-sponsored enterprises (“GSEs”) obligate WFB to abide by specific

guidelines, including the requirement that legal work for foreclosures must be referred to a few

law firms in each state granted “designated counsel” or “retained attorney” status by the GSEs.

Fannie Mae and Freddie Mac define the maximum rate of fees that can be charged by WFB and

its foreclosure law firms, as well as the maximum time in which foreclosures must be concluded.

Because of their market dominance, Fannie Mae and Freddie Mac establish industry standards

governing servicers like WFB and outside foreclosure law firms like Phelan P.C.

32. Both WFB and the Phelan Foreclosure Organization pay superficial homage to

foreclosure fee guidelines set by Fannie Mae and Freddie Mac. For example, the 2009 version of

Phelan Hallinan & Schmieg’s web site asserted that, “[f]or foreclosures and bankruptcies

involving mortgages secured by one to four family residential dwellings, our firm adheres to the

Fannie Mae and Freddie Mac fee schedules. Any unusual work not covered by this schedule

would be specifically approved by [servicer clients] prior to our taking action.”

33. In actual practice, however, neither WFB nor the Phelan Foreclosure Organization

has been constrained by the limits of GSE fee schedules. Instead, WFB and the law firms in the

Phelan Foreclosure Organization collectively pursue their mutual interest in exploiting economic

incentives to maximize compensation they receive from foreclosure-related fees.

3. Automation Interconnects WFB and The Phelan Foreclosure Organization

34. WFB uses computer software and platforms to administer virtually every aspect

of its mortgage servicing portfolio. For foreclosures, communications between WFB and Phelan

P.C. take place principally through this interactive and “real time” technology.

35. WFB requires Phelan P.C. and other foreclosure law firms to purchase and pay

license fees to use these high-cost technology products, whose vendors assist WFB by: (a)


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referring foreclosure cases to “approved” outside counsel; (b) closely monitoring the activities

and speed of foreclosure firms to ensure compliance with GSE-mandated timelines; (c)

rewarding fast-acting foreclosure firms with additional lucrative work assignments; and (d)

penalizing diligent, but less speed driven, foreclosure firms by reduction or discontinuation of

their services.

36. Foreclosure law firms dedicated single-mindedly to the speed of their

performance operate under a perverse disincentive to identify and solve potentially disabling

problems (such as an inability to identify the actual owner of delinquent mortgages) that might

impede or prevent their foreclosure proceedings.

4. The Phelan Foreclosure Organization’s Business Model

37. The Phelan Foreclosure Organization has long boasted about the “speed and

efficiency” with which it begins and ends its foreclosure cases. According to a 2009 version of

Phelan Hallinan and Schmieg’s web site, such speed is accomplished through its ability to

“leverage technology” by “completely computeriz[ing]” its offices with “every case

management and invoice reporting syste[m]” used in the foreclosure industry. This web site

contrasts the Phelan Foreclosure Organization from other foreclosure firms by emphasizing the

fact that it “owns and controls the majority of its vendors to ensure as quick as possible

turnaround time as humanly possible…. Valuable time is saved in the initial service stage and

the crucial sale stage.”

38. In March 2005, Phelan P.C. and Phelan LLP replaced their title search provider

with Full Spectrum and Land Title, entities owned and controlled by Lawrence Phelan,

Hallinan, and Schmieg. The purposes of new business model were, among other things, to use

cheap labor and rapid processes that could be dominated from the inside to achieve the Phelan


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Foreclosure Organization’s goals for speed, a growing volume of foreclosure referrals and

expansion of shrinking profit margins resulting from changing economic conditions in the

foreclosure industry by generating additional, and often overstated, fees for title search and

other foreclosure-related activities.

39. “Title products” obtained by Phelan P.C. and Phelan LLP from Land Title and

Full Spectrum are also often worthless. This is because they frequently fail to accomplish their

essential purpose: to identify the proper legal owners of properties and mortgages subject to

foreclosure cases filed by Phelan P.C. and Phelan LLP.

5. The Success of the Phelan Foreclosure Organization’s Business Model

40. In 2008 alone, the Phelan Foreclosure Organization filed and prosecuted an

estimated 24,000 to 26,000 foreclosure cases, representing WFB and virtually every other major

servicer. In 2009 and 2010, the Phelan Foreclosure Organization obtained approximately $48

million from Fannie Mae, just one of its many institutional clients.

41. Having run faster and less expensively than its competition, the Phelan

Foreclosure Organization describes itself as the “premier default services operation” in New

Jersey and Pennsylvania. It has achieved this status through a barebones staff of about 20

lawyers. It has been able to function successfully without a larger complement of attorneys

because approximately 97 percent of its foreclosure lawsuits end in default judgment, and the

equity partners of Phelan P.C. and Phelan LLP recognize that their profit margins are enhanced

by a low-overhead business model in which most of the work done on their large inventory of

“fill-in-the-blanks” cases can be performed by non-lawyers operating a lawsuit-processing

assembly line that is seldom interrupted or slowed down by real litigation.


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42. Because of the extremely high volume of foreclosure cases they handle and the

haste with which they dispose of them, Phelan P.C. and Phelan LLP have been awarded coveted

status as “designated counsel” for Fannie Mae and Freddie Mac in New Jersey and Pennsylvania.

Emphasizing their adeptness in meeting and exceeding clients’ speediness requirements, Phelan

P.C. and Phelan LLP call their joint newsletter, “The Timeline.”

43. With families struggling to hang onto their homes and a judicial system in New

Jersey that only recently addressed institutionalized abuses of its residential mortgage

foreclosure processes, unbridled speed is not a virtue. For WFB and Phelan P.C., the need for

speed has motivated them to file as many foreclosure cases as they can, without proper

investigation and by any means possible, even if their overstretched support staffs cannot process

them adequately, and even when there is no evidence of ownership of homeowners’ mortgages.

B. The Giles and Other Class Members Were Damaged By Defendants’ Misconduct

44. Along with other members of the Proposed Class, the Representative

Homeowners have sustained monetary damages resulting directly from Defendants’ fraudulent

foreclosure practices.

45. Plaintiffs Diane and Charles J. Giles owned a home in Barnegat Township, New

Jersey, and obtained a mortgage originated by Argent Mortgage Company, LLC (“Argent”). Mr.

Giles, an emergency medical technician, became medically disabled after participating in rescue

and search efforts at the World Trade Center site on and after September 11, 2001. As Mr.

Giles’ disability worsened and his medical bills exceeded $200,000, the Giles fell behind on their

mortgage.

46. Before the Giles’ financial difficulties arose, their mortgage had ostensibly been

securitized and deposited into a pool of other mortgages held in Park Place Trust for the benefit


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of RMBS investors. Under the Park Place PSA, WFB was appointed “Master Servicer” and

“Trust Administrator,” while Wachovia was designated as Trustee, the legal owner of the pooled

Park Place mortgage assets.

47. On December 30, 2005, however (over a year before WFB and Phelan P.C. sued

the Giles in the name of Wachovia), Wachovia sold its entire corporate trust and institutional

custody business to U.S. Bank. After this transaction, Wachovia had no ownership interest in

Park Place Trust mortgages, if it ever did, and it had no legal standing to prosecute any

foreclosure action against the Giles or other members of the Proposed Class.

48. According to Timothy P. O’Brien, WFB’s Senior Vice President and Manager of

Default Documents, “[a]t the time that Wells Fargo asks a foreclosure law firm to initiate a

foreclosure action in New Jersey, Wells Fargo sends that law firm a packet of information,

including the loan documents, the default information and correspondence to the borrower, and

current balance information….” WFB also communicates the purported identity of the legal

owner of a defaulted mortgage to outside foreclosure firms so that the name of a plaintiff can be

inserted into complaints that WFB directs them to file.

1. On Behalf of WFB, Phelan P.C. Filed False and Misleading

Court Documents in Their Foreclosure Action Against The Giles

49. On February 16, 2007, Phelan P.C. filed a foreclosure Complaint (the

“Foreclosure Complaint”) in the name of Wachovia against the Giles in the Superior Court,

Chancery Division for Ocean County, New Jersey (“Ocean County Court”).

50. Paragraph 4 of the Foreclosure Complaint, purportedly signed by defendant

Diamond, alleged that “holder of the obligation and Mortgage” was an entity called “Wachovia

Bank, N.A., Trustee for the Pooling and Servicing Agreement dated as of November 1, 2004,

Asset-Backed Pass-Through Certificate Series 2004-WWF1.” This allegation was false and


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misleading because, as alleged above, Wachovia had already sold its entire corporate trust and

institutional custody business over a year before the Foreclosure Complaint was filed.

51. Paragraph 6 of the Foreclosure Complaint alleged that, other than the mortgage

originated by Argent, a prospective assignment by “Argent to Wachovia,” and legal documents

evidencing the Giles’ marriage, “no other instruments appear of record which may affect the

premises” where the Giles lived. This allegation was false and misleading because it indicated

that WFB and Phelan P.C. had sufficient legal documentation necessary to prosecute a

foreclosure action against the Giles.

52. The following is Diamond’s “signature” as it appeared in the Foreclosure

Complaint:

53. Accompanying the Foreclosure Complaint, Diamond purportedly signed and filed

with the Ocean County Court two Certifications: (a) one attesting that “all parties who should be

joined in this action have been joined”; and (b) the other attesting that “prior to filing the within

Complaint,” Diamond “caused a title search of the public record to be made for the purpose of

identifying any lien holders or other persons or entities with an interest in the property that is the

subject of this foreclosure.”

54. The above representations ascribed to Diamond were false and misleading. The

true owner of the Giles’ mortgage, the actual Trustee of the Park Place Trust, should have been

named as plaintiff in the foreclosure action. Furthermore, Diamond’s statement that she ordered

a “title search of the public record” was misleading because any good-faith investigation would


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have revealed that, for over a year, Wachovia had no legal rights connected to the Park Place

Trust.

2. Default Proceedings Against The Giles

55. Unaware of Phelan P.C.’s fraud on the Ocean County Court and of WFB’s

sponsorship of it, the Giles did not contest the Foreclosure Complaint. The misrepresentations in

Phelan P.C.’s court filings had the purpose and effect of concealing from the Giles material facts

establishing a complete defense to the foreclosure action commenced by Phelan P.C. and WFB

in the name of Wachovia. The Giles relied upon these misrepresentations. Had they known that

Phelan P.C. falsely claimed to represent a party that had divested its interest, if any, in their

mortgage more than a year before the Foreclosure Complaint was filed, the Giles would have

contested the wrongful foreclosure action against them by Phelan P.C. and WFB.

56. On April 5, 2007, Phelan P.C. filed with the Ocean County Clerk (a) a request for

a default judgment against the Giles in favor of Wachovia and (b) a certification of default. Both

documents were purportedly signed by Diamond, who again claimed, falsely, that her default

judgment request was made on behalf of Wachovia. Defendant Diamond’s signature does not

resemble the handwriting attributed to her in the Foreclosure Complaint and its certifications:

57. On June 5, 2007, relying upon Phelan P.C.’s false representations in sworn court

filings, the Ocean County Court entered a default judgment against the Giles, which authorized a

sheriff’s sale of the Giles’ home and determined that “Wachovia” was entitled to recover from

the Giles an amount of $204,391.70, plus costs of suit and legal fees in an amount of $2,193.92.


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58. Unaware of the duplicity of Phelan P.C. and WFB, and of the fraud they

perpetrated upon the Ocean County Court, the Giles put their house up for sale and attempted to

negotiate a resolution of their debt with representatives of WFB and Phelan P.C., including

Diamond. Had they known that Phelan P.C. falsely claimed to represent a plaintiff that had no

interest in their mortgage, the Giles would not have been disadvantaged in these negotiations and

would have asked the Ocean County Court to void the default judgment fraudulently procured by

Phelan P.C. and WFB in the name of Wachovia.

3. Phelan P.C. Schedules a Sheriff’s Sale of the Giles’ Home

59. Before the default judgment could be executed upon, the Giles hired an attorney

to protect their legal interests.

60. Phelan P.C. obtained a writ of execution on “Wachovia’s” default judgment. By

certified letter dated July 27, 2007 from Ms. Debbie Williams, a Phelan P.C. legal assistant, the

Giles – still believing that good-faith workout discussions were under way with Diamond and

representatives of WFB – were shocked to learn for the first time that a sheriff’s sale of their

home had been scheduled for “August 21, 2207 [sic].”

61. The sheriff’s sale scheduled for August 21, 2007 was adjourned by the Ocean

County Sheriff. On September 12, 2007, Mr. Giles filed with the Ocean County Court an

Emergency Application for a Stay of the Sheriff’s Sale. Mr. Giles’ application explained his dire

health conditions and informed the Court that the Giles were trying to sell their home. Mr.

Giles’ application also informed the Court that, according to a township-wide assessment, the

fair market value of the Giles' home was $287,700.


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4. Wachovia Warned Phelan P.C. and WFB That They Lacked Standing

62. After the Ocean County Court postponed the sheriffs’ sale until October 30, 2007,

friends and supporters of the Giles asked Wachovia’s corporate headquarters for help. It was

only because of this appeal that Wachovia discovered that WFB and Phelan P.C. were acting

improperly in Wachovia’s name without authorization.

63. On October 23, 2007, Mark A. Farmer (“Mr. Farmer”), Wachovia’s senior vice

president and assistant general counsel, sent an e-mail to the Giles’ attorney, thanking him for

identifying “the name of the Plaintiffs firm” in the Giles foreclosure action (i.e., Phelan P.C.) and

advising the Giles’ attorney that Mr. Farmer had “contacted the attorney handling the matter and

informed him that Wachovia has not been the Trustee of the subject Pooling and Servicing

Agreement since 12/30/05.”

64. On October 24, 2007, Mr. Farmer sent a letter by U.S. mail and e-mail to Mr.

Vladimir Palma (“Palma”), a Phelan P.C. attorney working under Diamond’s direction, writing:

This letter is to confirm your voice message to me this morning and our subsequent conversation wherein you advised that you were able to reach your client [i.e., WFB] and verify that Wachovia Bank, N.A. is not the proper Plaintiff as named in the referenced foreclosure action. Accordingly, your client has voluntarily agreed to postpone the sale date to November 19, 2007. During the interim, it is my understanding that you are awaiting the name of the proper Plaintiff from your client. Thereafter, you will file a motion to correct the name of the Plaintiff and ensure that the County records properly reflect the name of the true holder of the mortgage.

As you are aware since Wachovia Bank, N.A. is not the Trustee and not the

holder of the subject mortgage we are unable to address Mr. Charles Giles’ situation. Thank you for your prompt attention to this matter and your efforts to correct the public record. I look forward to receipt of an Order deleting the name Wachovia Bank, N.A. from the foreclosure action and recorded evidence correcting the public records.


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5. WFB and Phelan P.C. Continued To Pursue Foreclosure Against The Giles 65. On several occasions, including November 9, 2007, the Giles’ attorney

communicated with WFB mortgage servicing representative, Ms. Leesa Whit-Potter, about the

possibility of a loan restructuring that would obviate the need for further litigation by

“Wachovia” against the Giles. WFB and Phelan P.C. chose instead to litigate.

66. On November 14, 2007, Phelan P.C. filed a motion, memorandum, and attorney

certification with the Ocean County Court, seeking an Order “[r]escinding the assignment [to

Wachovia] and amending all pleadings to correct the Plaintiff to U.S. Bank as Trustee” (“Motion

to Rescind”). Given Wachovia’s indisputable lack of legal standing, Phelan P.C. was forced to

admit that (a) the Foreclosure Complaint “incorrectly named” “Wachovia Bank. N.A.” as

plaintiff and “Trustee” of the Park Place Trust, and (b) the actual “holder” of the [Giles’] note

and mortgage” was erroneously identified.

67. To support his Motion to Rescind, Palma blamed WFB for their botched

foreclosure action against the Giles, telling the Ocean County Court that it was WFB, whose

“records, [allegedly] through mistake and inadvertence, named the holder of the note and

mortgage as Wachovia Bank, N.A. as Trustee.” Palma attempted to obscure the seriousness of

this “servicer error,” which, he contended, had “no effect on the validity of the subject mortgage”

because “neither [his proposed substitute Plaintiff] nor Defendants are in no way prejudiced

[sic]” insofar as the Giles “have always communicated with the servicer, America’s Servicing

Company [i.e., WFB].”

68. Palma’s Attorney Certification misrepresented to the Ocean County Court that the

Giles’ “mortgage was … sold by Ameriquest Mortgage Company to Plaintiff, U.S. Bank as

Trustee.” This false and misleading representation, however, was unsupported by any evidence


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demonstrating that U.S. Bank actually became Trustee and acquired ownership of the assets of

the Park Place Trust as required under the terms of the Park Place PSA.

69. Nor was any evidence presented showing that U.S. Bank had ownership at the

time WFB and Phelan P.C. filed their Foreclosure Complaint against the Giles, an indispensable

element of a cause of action for foreclosure in New Jersey. Evidence in other pending federal

litigation undermines any contention that U.S. Bank had effectively succeeded Wachovia as

Trustee of the Park Trust. See Schwend v. U.S. Bank, N.A., 2010 U.S. Dist. LEXIS 127915, at

*6-*8 (E.D. Mo., Dec. 3, 2010).

70. On November 29, 2007, the Giles filed with the Ocean County Court a seven-

page letter brief in opposition to Phelan P.C.'s Motion to Rescind and in support of their own

Cross-Motion to Dismiss. The Giles asserted correctly that “Wachovia Bank, N.A, the Plaintiff

in this action, is not entitled to any relief. Additionally, U.S. Bank, N.A., the party that [Phelan

P.C.] counsel now claims is the appropriate Plaintiff, is not barred from refilling this action and

following the appropriate steps to seek foreclosure after placing its proof upon the record.”

71. In December 2007, the Giles received and accepted a far-below-market-value

offer to buy their house. They agreed to this transaction, not because the offer was fair or

because they lacked legal defenses to the foreclosure action, but because (a) the Giles were

depleted of financial or emotional resources with which to fight the wrongful foreclosure

prosecution of Phelan P.C. and WFB and (b) Mr. Giles’ disability and severe health problems

continued to worsen. Had Phelan P.C. and WFB suspended their wrongful foreclosure

prosecution in the name of Wachovia and allowed the Giles a reasonable opportunity to sell their

property at a price commensurate with its true market value, their liability for damages sustained

by the Giles could have been mitigated. But because WFB and Phelan P.C. operated inflexibly


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under strict “timeline” requirements governing completion of foreclosure actions, further delay

was no acceptable option for these Defendants.

6. Fraudulent Expense Claims by Phelan P.C.

72. The improper motivation behind the wrongful foreclosure lawsuits prosecuted by

Phelan P.C. and WFB against members of the Proposed Class soon became apparent. A letter

dated and faxed on December 10, 2007 by Ms. Jessica Hansbury, a Phelan P.C. employee,

written on behalf of WFB, represented falsely that the Giles owed (a) $7,817 in “Legal Fees and

Costs through December 10, 2007” and (b) $340 in “Property Inspections/BPO” [broker price

opinion] fees.

73. After the Giles objected to overstated foreclosure charges from Phelan P.C., WFB

took the unusual step of retreating from its foreclosure law firm’s claim without insisting upon

payment in full. Without the legal representation that the Giles obtained and paid for, they would

have had to pay inflated or manufactured foreclosure fees to accomplish the sale of their home.

Other members of the Proposed Class, like the 97 percent of foreclosure defendants who endure

a default judgment, did pay such overstated fees when they chose to avoid dispossession from

their home because of wrongful foreclosure actions by WFB and Phelan P.C.

7. The Unadjudicated Outcome of “Wachovia” v. Giles

74. On January 15, 2008, the Giles sold their home for $238,000, $49,000 below its

assessed value. The Giles suffered concrete economic damages in the loss of home equity wiped

out through their coerced distress sale and through nearly $1,800 in legal fees they paid to their

counsel for professional services, including his opposition to Phelan P.C.’s Motion to Rescind.

If the Representative Homeowners had the financial and emotional wherewithal necessary to

litigate “Wachovia” v. Giles through to an adjudicated decision on the merits, WFB and Phelan


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P.C. would have been unable to displace the Giles from their home under the improperly invoked

authority of Wachovia or the unsubstantiated authority of U.S. Bank.

75. The Giles’ distress sale was the result of a bitter, though temporary,

“compromise” of their legal rights. On January 18, 2008, just three days after sale of the Giles’

property, the Ocean County Court entered an Order that: (a) granted Phelan P.C.’s Motion to

Rescind; (b) confirmed Phelan P.C.’s “voluntary” dismissal of its foreclosure action against the

Giles; and (c) preserved the Giles’ rights “as to all affirmative claims” resulting from foreclosure

action by Phelan P.C. and WFB. The litigation ended without a final judgment.

8. Epilogue to “Wachovia” v. Giles

76. On March 12, 2008, Phelan P.C. filed a discharge of a lis pendens on the Giles’

former home with the Ocean County Clerk. The discharge falsely identified Wachovia as

plaintiff, despite Palma’s earlier representation to the Ocean County court that it was necessary

to “amen[d] all pleadings to correctly identify the foreclosing Plaintiff as U.S. Bank as Trustee.”

(Emphasis added). Diamond’s “signature” on this legal document appears below:

9. WFB, Phelan P.C. and Phelan LLP Continued to File Wrongful

Foreclosure Lawsuits in the Name of Wachovia and U.S. Bank

77. Even after Phelan P.C. and WFB were forced to admit to the Ocean County Court

that their Foreclosure Complaint in Wachovia v. Giles “incorrectly named” Wachovia Bank as

plaintiff and Trustee of the Park Place Trust, and that Wachovia was not the actual “holder” of

the [Giles’] note and mortgage,” WFB and Phelan P.C. (and its alter-ego law firm, non-defendant

Phelan LLP) continued to make identical false claims in foreclosure lawsuits brought in the name


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of Wachovia or U.S. Bank as plaintiff in the purported capacity of Trustee of the Park Place

Trust. A non-exhaustive sample of such wrongful foreclosure cases includes:

a. Wachovia Bank, N.A. v. Spivey, No. 07-004303 (Pa. C.P. Phila. Co.);

b. Wachovia Bank, N.A. v. Smith, No. F-1358107 (N.J. Super., Ch. Div., Essex Co.);

c. Wachovia Bank, N.A. v. Moshe, No. F-997506 (N.J. Super., Ch. Div., Monmouth Co.);

d. Wachovia Bank, N.A. v. Bender, No. 07-6730 (Pa. C.P. Berks Co.);

e. Wachovia Bank, N.A. v. Hrubosky, No. 07-0102422 (Pa. C.P. Phila. Co.);

f. U.S. Bank, N.A. v. Kidd, No. 07-001014 (Pa. C.P. Phila. Co.); and

g. Wachovia Bank, N.A. v. Good, CI-06-05585 (Pa. C.P. Lancaster Co.).

78. Phelan P.C. also continued to prosecute foreclosure actions in the name of other

foreclosure “plaintiffs” without legal standing to bring them. See, e.g., U.S. Bank v. Spencer,

2011 N.J. Super. Unpub. LEXIS 746, at *33-*34 (N.J. Super. Ch. Div. Bergen Co. March 22,

2011) (Phelan P.C., purportedly on behalf of U.S. Bank, “provided no documentation or support

for its position [that U.S. Bank] is the trustee for [a RMBS trust], and therefore has not

established its right to sue on behalf of [the Trust]”).

V. CLASS ACTION ALLEGATIONS

79. The Representative Homeowners bring this lawsuit, individually and as a class

action, under Fed. R. Civ. P. 23(b)(3), on behalf of all members of the following Class:

All homeowners who, during the period from December 31, 2005 through the present (“Class Period”):

(a) were defendants in New Jersey mortgage foreclosure lawsuits filed and prosecuted by Phelan Hallinan & Schmieg, P.C., at the direction of and in concert with Wells Fargo Bank, N.A., which were facilitated through preparation, execution, and certification of fraudulent court documents falsely identifying as plaintiff Wachovia Bank, N.A. or U.S. Bank, N.A. in a purported capacity as “Trustee for the Pooling and Servicing Agreement dated as of November 1, 2004, Asset-Backed Pass-Through Certificate Series 2004-WWF1”; and


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(b) sustained economic damage as a result of Defendants’ aforementioned misconduct. The term “damage” does not include overcharges contained in proofs of claim filed in U.S. Bankruptcy Court pursuant to 11 U.S.C. § 501.

80. This litigation is properly maintainable as a class action.

81. The Proposed Class is so numerous and dispersed that joinder of all members is

impracticable. Approximately 583 New Jersey mortgages were deposited into the Park Place

Trust, the vast majority of which were of the high-risk, sub-prime variety. A large percentage of

those mortgages went into default and resulted in foreclosure actions filed by Phelan P.C. in

concert with WFB. The exact number and identity of those foreclosures can be ascertained

without difficulty through discovery.

82. There are questions of law and fact common to the Class which relate to the

existence of the pattern of wrongful conduct alleged, and to the type and common pattern of

injury sustained as a result thereof. The questions include, but are not limited to:

(a) Whether Wachovia and/or U.S. Bank had legal standing to initiate and prosecute mortgage foreclosure actions against Proposed Class members as Trustee of the Park Place Trust; (b) Whether WFB and Phelan P.C. falsified or caused the falsification of statements in complaints, affidavits, verifications, certifications, motions and other legal documents filed in foreclosure lawsuits brought in the name of Wachovia and/or U.S. Bank as purported Trustee for the Park Place Trust; (c) Whether false statements authorized by WFB and set forth in court filings by Phelan P.C. operated as a fraud on New Jersey Chancery Courts and on members of the Proposed Class; (d) The duration, sequence, and character of the fraudulent conduct by Defendants; (e) Whether Defendants’ conduct violated RICO;

(f) Whether Defendants’ conduct caused injury to the person and property

of the Representative Plaintiffs and other members of the Proposed Class; and


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(g) The appropriate measures of damages sustained by Plaintiffs and other members of the Proposed Class.

83. The Representative Homeowners are members of the Class. Their claims are

typical of the claims of other Proposed Class members. Plaintiffs will fairly and adequately

protect the interests of the members of the Proposed Class. Plaintiffs’ interests are aligned

closely with, and are not antagonistic to, those of the other members of the Proposed Class. The

Representative Homeowners are represented by competent counsel experienced in the

prosecution of class action litigation.

84. Prosecution of separate actions by individual members of the Proposed Class

would create a risk of inconsistent or varying adjudications, establishing incompatible standards

of conduct for Defendants.

85. Questions of law and fact common to the members of the Class predominate over

questions affecting only individual members.

86. A class action is superior to other available methods for the fair and efficient

adjudication of this controversy. Prosecution as a class action will eliminate the possibility of

repetitious litigation. Treatment as a class action will permit a large number of similarly situated

persons to adjudicate their common claims in a single forum simultaneously, efficiently and

without duplication of effort and expense that numerous individual actions would engender.

Class treatment will also permit the adjudication of claims by many Proposed Class members

who otherwise could not afford to litigate substantively complex issues like those at issue in this

Complaint. This action presents no difficulties of management that would preclude its

maintenance as a class action.


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VI. CLAIM FOR RELIEF

VIOLATIONS OF 18 U.S.C. § 1962(c) (RICO)

87. Plaintiffs, each Proposed Class member, and each Defendant are “persons” within

the meaning of 18 U.S.C. § 1961(3).

88. In violation of 18 U.S.C. § 1962(c), Defendants conducted the affairs of the

association-in-fact enterprise identified below. The affairs of this enterprise affected interstate

commerce through a pattern of racketeering activity.

A. The Enterprise

89. The Phelan/Wells Fargo Foreclosure Enterprise (the “Enterprise”) is an

association-in-fact consisting of (a) WFB; (b) Phelan, P.C; (c) non-defendant Phelan LLP; (d)

Lawrence Phelan, Hallinan, Schmieg and Diamond; and (e) Full Spectrum and Land Title.

90. WFB, a national mortgage servicer headquartered in San Francisco, is a legal entity

independent of other Enterprise members. Lawrence Phelan, Hallinan, and Schmieg own and

control Phelan P.C., a New Jersey foreclosure law firm, while attorney Diamond serves as its

managing partner. Lawrence Phelan, Hallinan, and Schmieg also own and control non-defendant

Phelan LLP, a Pennsylvania foreclosure law firm whose management and day-to-day operations

are integrated tightly with Phelan P.C. Together, Lawrence Phelan, Hallinan, and Schmieg own

and control Full Spectrum and Land Title, “vendors” of ancillary “default management services”

ordered and invoiced by Phelan P.C. and Phelan LLP in foreclosure litigation.

91. The Enterprise is an ongoing, continuing group or unit of persons and entities

associated together for the common purpose of processing residential mortgage foreclosure

lawsuits. The Enterprise operated continuously throughout the Class Period.


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92. While all Defendants participate in and are part of the Enterprise, they have an

existence separate and distinct from the Enterprise.

B. Predicate Acts of Mail and Wire Fraud

1. Fraudulent Scheme and Intent to Defraud

93. WFB, Phelan P.C., non-defendant Phelan LLP, Lawrence Phelan, Hallinan,

Schmieg, Diamond, Full Spectrum, and Land Title each committed mail and wire fraud in violation

of 18 U.S.C. ¶¶ 1341 and 1343. They did so through their devise and implementation of a scheme

or artifice to defraud Homeowners and the New Jersey and Pennsylvania court systems, and by

obtaining from money or property by means of false or fraudulent pretenses and representations.

94. In concert with WFB, Phelan P.C. and non-defendant Phelan LLP filed and

prosecuted mortgage foreclosure lawsuits against members of the Proposed Class in New Jersey and

other homeowners in Pennsylvania in the name of Wachovia and/or U.S. Bank, as purported

“Trustee” for the Park Place Trust. Neither Wachovia nor U.S. Bank was Trustee of the Park Place

Trust when these lawsuits were brought. Neither financial institution was legal owner of

Homeowners’ mortgages when the foreclosure lawsuits were initiated. Neither Wachovia nor U.S.

Bank had legal standing to bring the foreclosure actions when they were filed.

95. WFB, Phelan P.C., and Phelan LLP – unable to ascertain the identity of the party

that owned the Homeowners’ mortgages – injected the name Wachovia or U.S. Bank as plaintiff in

their foreclosure complaints. They did this with intent to deceive New Jersey and Pennsylvania

state courts and the Homeowners. They also acted with willful and reckless indifference to the

identity of the bona fide owner of the Homeowners’ mortgages. Without a legitimately named

plaintiff to represent, WFB and the Phelan Foreclosure Organization were incapable of enforcing

any legal rights against the Homeowners, including members of the Proposed Class.


27

96. Defendants’ scheme to obtain money or property by means of false or fraudulent

pretenses and representations enabled them to: (a) displace Plaintiff homeowners from their

property without any legal right to do so; (b) gain financially from subsequent disposition of

foreclosed property; (c) inflate or fabricate foreclosure-related fees charged to Plaintiff homeowners

threatened with loss of their homes through (i) excessive attorney fees claimed by Phelan P.C. and

WFB and (ii) “reimbursement” of overstated bills generated by Land Title and Full Spectrum.

97. This scheme was effectuated through the filing by Phelan Foreclosure

Organization and WFB of deceptive foreclosure documents, which included complaints,

certifications, verifications, affidavits, motions containing false and misleading statements

concerning the legal status of Wachovia and/or U.S. Bank as foreclosing Plaintiff. The false and

misleading nature of some documents was compounded by forged signatures of Diamond and

other Phelan Foreclosure Organization attorneys.

2. Use of Interstate Wire Facilities and U.S. Mail

98. The U.S. Mail or interstate wire facilities were used in connection with the

fraudulent scheme identified above, among other instances, through the following

communications:

(a) Shortly before February 16, 2007, an employee of WFB sent an electronic message to an employee of Phelan P.C., via computer systems designed and maintained by technology vendors, which directed Phelan P.C. to file a foreclosure lawsuit against the Giles in the name of Wachovia as Trustee for the Park Place Trust;

(b) A letter to the Giles dated July 27, 2007, sent by Ms. Debbie Williams, a Phelan P.C. legal assistant (transmitted via U.S. Postal Service, certified mail, return receipt requested), enclosing a Notice of Sheriff’s Sale. The letter and Notice were received by the Giles at 10:35 a.m. on August 1, 2007. Like Phelan P.C.’s foreclosure Complaint and Certifications dated February 16, 2007, and its Certification of Default dated April 5, 2007, the Notice falsely identified Wachovia as Plaintiff in the mortgage foreclosure action improperly prosecuted against them;


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(c) On or about October 24, 2007, Phelan P.C. attorney Palma communicated with one or more representatives of WFB, either by telephone or via computer systems designed and maintained by technology vendors, concerning Wachovia’s objection regarding their unauthorized use of Wachovia’s name in foreclosure proceedings against the Giles. In this communication, WFB’s representative(s) confirmed to Palma that “Wachovia Bank, N.A. is not the proper Plaintiff” and that WFB would attempt to find “the name of the proper Plaintiff” before November 19, 2007, the date upon which WFB “voluntarily agreed to postpone” its sheriff’s sale of the Giles’ home;

(d) In the days before November 14, 2007, Palma communicated with one or more representatives of WFB, either by telephone or via computer systems designed and maintained by technology vendors, during which time WFB directed Palma to file a court motion asking to substitute U.S. Bank as plaintiff in the Giles’ foreclosure lawsuit;

(e) On November 14, 2007, Mr. Oliver Ayon, a Phelan P.C. legal assistant, served by regular and certified U.S. Mail copies of Palma’s Motion to Rescind, supporting brief and attorney certification to the Giles and their attorney. The motion papers misrepresent that the Giles’ “mortgage was … sold by Ameriquest Mortgage Company to Plaintiff, U.S. Bank as Trustee” and that the Giles were “in no way prejudiced” by his law firm and client’s wrongful prosecution of a foreclosure action in the name of Wachovia; and

(f) On December 10, 2007, Ms. Jessica Hansbury, a Phelan P.C. employee, faxed a letter to counsel to the Giles, falsely representing that the Giles owed WFB $7,817 in “Legal Fees and Costs through December 10, 2007” and “Property Inspections/BPO” fees in an amount of $340.

C. Conduct of the Enterprise’s Affairs

99. Throughout the Class Period, WFB, Phelan P.C., Lawrence Phelan, Hallinan,

Schmieg, Diamond, Land Title and Full Spectrum exerted control over and participated in the

activities of the Enterprise.

WFB

100. Using automated systems provided by its technology vendors, WFB conducted and

participated in the conduct of the affairs of the Enterprise by:

(a) directing, encouraging or permitting Phelan P.C., on its behalf, to file complaints, affidavits, certifications, verifications, motions and other legal documents that contain false and misleading statements intended to mislead New Jersey Chancery


29

Courts and Plaintiff homeowners concerning (i) purported legal ownership of Plaintiffs’ mortgages by Wachovia and/or U.S. Bank as Trustee of the Park Place Trust and (ii) legal standing of Wachovia and/or U.S. Bank to prosecute foreclosure lawsuits against members of the Proposed Class; and

(b) sharing the proceeds of unlawfully inflated fees charged to Plaintiff homeowners for “default management services” ordered by Phelan P.C. through affiliated companies, Full Spectrum and Land Title Services, which are wholly owned and controlled by Lawrence Phelan, Hallinan, and Schmieg.

PHELAN P.C. AND ROSEMARIE DIAMOND

101. Motivated by immediate financial gain and future opportunities for further profit

that result from meeting or exceeding strict timelines required by WFB and GSEs, defendants

Phelan P.C. and Diamond (and non-defendant Phelan LLP) conducted or participated in the

conduct of the affairs of the Enterprise by:

(a) willfully failing to perform investigations necessary to determine the factual basis of allegations made in foreclosure lawsuits brought against members of the Proposed Class, at the direction of and in concert with WFB, in the name of Wachovia and/or U.S. Bank as Trustee of the Park Place Trust; (b) filing complaints, affidavits, certifications, verifications, motions and other legal documents that contain false and misleading statements intended to mislead New Jersey Chancery Courts and Plaintiff homeowners concerning (i) purported legal ownership of Plaintiffs’ mortgages by Wachovia and/or U.S. Bank as Trustee of the Park Place Trust and (ii) legal standing of Wachovia and/or U.S. Bank to prosecute foreclosure lawsuits against members of the Proposed Class; (c) inflating legal fees they charged for prosecution of foreclosure lawsuits filed on behalf of WFB against members of the Proposed Class, which exceeded maximum amounts specified in mandatory standards published by GSEs; (d) through Phelan P.C.’s equity partners’ wholly owned and controlled companies, Full Spectrum and Land Title Services, charging unlawfully inflated fees to Plaintiff homeowners for “default management services” ordered by Phelan P.C., a portion of which was kicked back as profit to WFB; and (e) while not a defendant in this action, Phelan LLP acted in the identical fashion identified above in connection with its wrongful foreclosure prosecutions against Pennsylvania homeowners, at the direction of and in concert with WFB, in the name of Wachovia and/or U.S. Bank as Trustee of the Park Place Trust.


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LAWRENCE PHELAN, HALLINAN, AND SCHMIEG

102. Having complete ownership and control over Phelan P.C., Land Title and Full

Spectrum, Defendants Lawrence Phelan, Hallinan, and Schmieg bear full responsibility for the

wrongful activities of those Defendants, as well as the wrongful activities of Diamond as

“managing partner” of Phelan P.C. Defendants Lawrence Phelan, Hallinan, and Schmieg: (a)

established the corrupt business model through which the Phelan Foreclosure Organization

operated; (b) supervised and monitored the Phelan Foreclosure Organization to ensure that their

business model was implemented to their satisfaction; and (c) gained financially through the

Phelan Foreclosure Organization's institutionalized wrongful conduct, which was integral to

profitability of their business model.

LAND TITLE AND FULL SPECTRUM

103. Land Title and Full Spectrum conducted or participated in the conduct of the affairs

by implementing the “law firm-title business model” devised by Lawrence Phelan, Hallinan, and

Schmieg as a means of overcoming the diminishing profit margins of Phelan P.C. and Phelan LLP

caused by increasing costs of doing business in the residential mortgage foreclosure industry. The

predominant features of this business model are barebones cost, extremely high speed, and

improperly marked-up billings. The Phelan Foreclosure Organization also depends upon Full

Spectrum and Land Title’s disregard for the quality and effectiveness of its “services,” which

enables the profitable filing of wrongful foreclosure lawsuits in the name of uninterested entities

without legal standing to sue.

104. Individually and collectively, all Defendants derived financial benefits from their

unlawful conduct and participation in the affairs of the Enterprise.


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D. Defendants’ Pattern of Racketeering Activity

105. Each Defendant conducted and participated in the affairs of the Enterprise

through a pattern of racketeering activity, including acts indictable under 18 U.S.C. § 1341,

relating to mail fraud, and 18 U.S.C. § 1343, relating to wire fraud.

106. Defendants’ pattern of racketeering is evidenced by their fraudulent conduct

directed to the Giles and to other members of the Proposed Class who have been prosecuted in

wrongful foreclosure suits filed in New Jersey by WFB and Phelan P.C. in the name of

Wachovia or U.S. Bank as purported Trustee of the Park Place Trust.

107. Defendants’ pattern of racketeering is also evidenced by their fraudulent conduct

directed to other homeowners who have been prosecuted in wrongful foreclosure suits filed in

Pennsylvania by WFB and Phelan LLP in the name of Wachovia or U.S. Bank as purported

Trustee of the Park Place Trust.

108. On numerous separate occasions, Defendants used the U.S. mails and interstate

wire facilities in furtherance of their fraudulent schemes. Each fraudulent mailing and interstate

wire transmission constitutes a “racketeering activity” within the meaning of 18 U.S.C. §

1961(1)(B). Collectively, these violations also constitute a “pattern of racketeering activity”

within the meaning of 18 U.S.C. § 1961(5), in which Defendants intended to defraud New Jersey

Chancery Court judges, the Representative Homeowners, and members of the Proposed Class.

109. Defendants’ racketeering activities constitute a common course of conduct, with

similar pattern and purpose. Each separate use of the U.S. mails and/or interstate wire facilities

employed by Defendants was related, had similar intended purposes, involved similar

participants and methods of execution, and had the same results affecting the same victims –

state courts, the Representative Homeowners, and all members of the Proposed Class. Each


32

Defendant engaged in the pattern of racketeering activity for the purpose of conducting the

ongoing business affairs of the Enterprise.

E. Damages Caused by Defendants’ Scheme

110. Defendants’ violations of federal law and their pattern of racketeering activity

have directly and proximately caused the Representative Homeowners and members of the Class

to be injured in their property. These damages include:

(a) diminution or complete loss of value of property taken or sold as a result of wrongful foreclosure lawsuits filed by Phelan P.C. and WFB in the name of entities other than the still-undetermined bona fide legal owner of Plaintiffs’ mortgages;

(b) attorneys’ fees incurred by Proposed Class members who (like the Giles) retained counsel to represent their interests in connection with wrongful default judgments procured by Phelan P.C. and WFB; and

(c) payment of manufactured and inflated foreclosure-related “costs,” including (i) padded legal fees charged by Phelan P.C. in amounts that exceeded uniform fee schedules established by Fannie Mae and Freddie Mac; and (ii) payment of manufactured and inflated foreclosure-related “costs” that exceeded amounts established in uniform fee schedules published by Fannie Mae and Freddie Mac.

111. Under 18 U.S.C. § 1964(c), Defendants are jointly and severally liable to Plaintiffs

and members of the Class for three times the damages sustained by Plaintiffs and Class members,

plus the costs of bringing this suit, including reasonable attorneys’ fees.

VII. PRAYER FOR RELIEF

WHEREFORE, Plaintiffs pray that:

A. The Court determine that this action may be maintained as a class action under

Rule 23 of the Federal Rules of Civil Procedure.

B. Defendants’ conduct be determined to have violated the Racketeer Influenced and

Corruption Act, 18 U.S.C. § 1962(c).


33

C. Judgment be entered against Defendants for damages sustained by the

Representative Plaintiffs and other Class members to the maximum extent allowed by law,

together with the costs of this action, including reasonable attorneys’ fees.

D. Plaintiffs and members of the Class have such other relief that the Court may

deem just and proper.

VIII. JURY TRIAL DEMANDED

Plaintiffs demand a trial by jury.

Dated: December 20, 2012 Respectfully submitted,

TRUJILLO RODRIGUEZ & RICHARDS LLC

s/ Lisa J. Rodriguez Lisa J.Rodriguez 258 Kings Highway East Haddonfield, New Jersey 08033 Tel: (856) 795-9002 NARKIN LLC John G. Narkin 1662 South Loggers Pond Place, #31 Boise, Idaho 83706 Tel: (208) 995-6119 HARWOOD FEFFER LLP Robert I. Harwood James G. Flynn 488 Madison Avenue, 8th Floor New York, New York 10022 Tel: (212) 935-7400

Attorneys for Plaintiffs and the Proposed Class
