Mortgage Servicing Fraud
occurs post loan origination when mortgage servicers use false statements and book-keeping entries, fabricated assignments, forged signatures and utter counterfeit intangible Notes to take a homeowner's property and equity.
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AMC Hater
New lawsuit against Lehman Brothers for loaning money to scumbag Ameriquest, KNOWING that they were using the money to defraud their customers.


http://www.courthousenews.com/LehmanAmeriquest.pdf
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Yankee
Holy crap.....if this or any of the similar suits prove positive to the plaintiffs do you think the firms will admit fault? I can hear it now "We based our decisions on info from the rating agencies..."
The rating agency's response.... "DOH"
Gonna grab the popcorn on this one
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O -

I can't get the PDF to work, if some one could post it that would be great! TY
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yankee
UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
Luke Ricci and Tracy Ricci; Terry
Baumgartner, individually and on
behalf of All others similarly situated,
Court File No.:
Plaintiffs, JURY DEMANDED
v.
COMPLAINT
Lehman Commercial Paper, Inc., a
New York corporation, Lehman
Brothers, Inc., Delaware corporation,
Defendants
Plaintiffs, Luke Ricci and Tracy Ricci and Terry Baumgartner, allege for their
Complaint (the “Complaint”), on behalf of themselves and all others similarly situated, as
follows:
SUMMARY OF THE CLAIMS
1. This Complaint seeks monetary damages against defendants Lehman
Commercial Paper, Inc. (“LCPI”) and its affiliate, Lehman Brothers, Inc. (“Lehman
Bros.” and, collectively with LCPI, referred to as “Lehman”) for aiding and abetting the
fraudulent and predatory lending practices engaged in by AMERIQUEST MORTGAGE
COMPANY (“AMERIQUEST” or the “Company”).
2. Plaintiffs’claims arise from Ameriquest’s illegal and wrongful conduct in
designing and implementing fraudulent and predatory lending practices in conjunction
with Ameriquest’s business of soliciting and funding of home mortgage loans. Lehman
aided and abetted Ameriquest’s fraudulent and predatory lending activities by providing
2 Class Action Complaint
substantial financing for Ameriquest’s fraudulent and predatory lending activities
including, but not limited to, making warehousing financing available for Ameriquest in
order that Ameriquest could fund its loans to Plaintiffs and members of the class with
actual knowledge of Ameriquest’s fraudulent and predatory lending activities.
3. Ameriquest’s common scheme to defraud borrowers is well documented as
represented by the in-depth investigation by (and settlement with) the Minnesota
Attorney General’s Office; current similar litigation against Ameriquest by hundreds of
borrowers throughout the country; previous similar litigation against Ameriquest by
thousands of borrowers in a four-state certified class action, and in a certified class action
pending in the District Court of the State of Minnesota, Fourth Judicial District, Luke
Ricci and Traci [sic] Ricci, et al, v. Ameriquest Mortgage Company, Civil File No.: 05-
25469 (“Ricci”) As noted by the court in Ricci, in its order certifying the class of
borrowers “Ameriquest’s sales force targeted vulnerable prospective borrowers, and then
followed uniform training to systematically mislead these targets into taking loans that
had negative, unwanted, and undisclosed common features and charges. Among other
things, Ameriquest had, at all times relevant, common policies and practices to achieve
its scheme by: (a) targeting homeowners with mortgage and other consumer debt
through illegal solicitations generated by Ameriquest’s headquarters; (b) encouraging
account executives (Ameriquest’s loan officers or “AE’s”) to obfuscate and conceal
material loan terms; (c) inducing borrowers to refinance their existing mortgages with
promises of lower monthly payments; and (d) encouraging account executives to close
loans by whatever means necessary, including high pressure and misleading sale tactics.
3 Class Action Complaint
Ameriquest’s tactics and conduct harmed plaintiffs and members of the Class on a
common basis, including by: (1) inducing them to consolidate their debts using false
promises; (2) inducing them to enter into inappropriate loans with excessive debt-tovalue
ratios without regard for their ability to pay; and (3) engaging in bait and switch
tactics by imposing different terms at closing than those originally offered.
4. Plaintiffs are informed and believe and thereon allege that at least since in
or around 2002 and continuing through 2005, LCPI, a leading warehouse provider of
“sub prime lenders” and its affiliate, Lehman Bros., a leading underwriter of “sub-prime”
lenders, provided the financial support to Ameriquest by funding Ameriquest’s loans
through a warehouse credit facility, thus providing Ameriquest with the financial
wherewithal to continue to carry out its unlawful activities. In return, Lehman received
millions of dollars in fees and interest, and other compensation and benefits. Plaintiffs
are further informed and believe and thereon allege that at the time Lehman agreed to
finance Ameriquest, Lehman was aware of abundant evidence, including court rulings,
that Ameriquest had been engaged in and continued to engage in unfair, deceptive, and
predatory lending practices. Nonetheless, LCPI provided Ameriquest with millions of
dollars in a financing facility and Lehman Bros. underwrote Ameriquest’s loan
syndication trusts. Since at least 2002, LCPI continued to finance Ameriquest despite
continuing evidence of Ameriquest’s fraudulent activities. Absent Lehman’s support,
Ameriquest would not have been able to engage in its fraudulent and predatory lending
activities.
4 Class Action Complaint
5. Plaintiffs bring this action on behalf of themselves and all persons who
acquired mortgage loans from Ameriquest during the period from at least September
2002, through 2005.
JURISDICTION AND VENUE
6. This Court has diversity jurisdiction over the Class pursuant to 28 U.S.C. §
1332(d)(2) and (6) because one or more members of the Class defined herein are citizens
of a State different from one or more of the defendants and the aggregate amount in
controversy exceeds five million dollars ($5,000,000), exclusive of interest and costs.
7. Venue is proper in this District under 28 U.S.C. §§ 1391(b) and (c).
Plaintiffs reside within the District. Defendants conduct business within the District, and
a substantial part of the events and conduct giving rise to the violations of law
complained of herein occurred in this District.
PARTIES
A. Plaintiffs
8. Plaintiffs Luke and Tracy Ricci (the “Riccis”) are residents of Anoka,
Minnesota. They took out mortgage loans through Ameriquest in or around September
2002. Plaintiffs are informed and believe and based thereon alleged that the Riccis’ loan
was funded by the warehouse line of credit provided by Lehman to Ameriquest.
9. Plaintiff Terry Baumgartner is a resident of Duluth, Minnesota. She took
out a first mortgage loan through Ameriquest in or about September 2003 (“Bumgartner
Loan”). Plaintiffs are informed and believe and thereon allege that the Bumgartner Loan
was funded by the warehouse line of credit provided by Lehman to Ameriquest.
5 Class Action Complaint
B. Defendants:
10. Defendant Lehman Commercial Paper, Inc. (“LCPI”) is a New York
corporation with its principal place of business in New York, New York. LCPI is a
subsidiary of Lehman Brothers Holdings Inc. (“Lehman Holdings”) and an affiliate of
Lehman Bros. It is engaged primarily in the business of providing credit lines and other
forms of financing to large business enterprises, including but not limited to business
enterprises engaged in the “sub prime” home lending industry. Between 2002 and 2005,
LCPI provided a warehouse credit facility to support Ameriquest’s lending activities.
11. Defendant Lehman Brothers, Inc. is a Delaware corporation with its
principal place of business in New York, New York. It is a subsidiary of Lehman
Holdings and an affiliate of LCPI. Lehman Bros. is a major Wall Street investment
banking firm and a leading seller of bonds for sub-prime lenders such as Ameriquest .
Since at leaset August 2002, Lehman Bros. has acted as the principal syndicator of loans
originated by Ameriquest, pooling such loans into portfolios and selling interests in those
portfolios to investors. In connection with their lending and underwriting activity, LCPI
and Lehman Bros. performed due diligence and became fully aware of Ameriquest’s
operations, including the wrongful acts complained of herein.
CLASS PLAINTIFFS’ DISCOVERY RULE ALLEGATIONS
12. Plaintiffs and the Class (collectively, “Plaintiffs”) had no knowledge that
they were defrauded by Ameriquest and Lehman into entering into fraudulent mortgage
loans with unconscionable loan origination fees and increasing adjustable interest rates.
6 Class Action Complaint
Plaintiffs had no knowledge that Lehman aided and abetted and participated in this
fraudulent scheme by funding their fraudulently obtained mortgage loans.
13. Plaintiffs lacked the means of obtaining information regarding the
fraudulent scheme and could not have reasonably discovered Ameriquest’s
misrepresentations and omissions as to the material aspects of the mortgage loans at the
time that the loans were consummated. As alleged herein, Ameriquest developed a
sophisticated fraudulent loan presentation that it required its loan officers and brokers to
execute, which was specifically designed to ensure that Plaintiffs did not understand the
material terms and conditions of their mortgage loans, including the true principal
amount of the loan, the amount of loan origination fees, and the amount of interest
charged. If Plaintiffs had been aware of this information at the time of consummation,
they would not have entered into the loans in the first place. Additionally, nothing in the
loan documents and other information received by Plaintiffs from Ameriquest gave
Plaintiffs notice, constructive or actual, of Lehmans’ involvement with Ameriquest as
alleged above.
14. Plaintiffs had no means of discovering that they were defrauded by
Ameriquest once they started making monthly payments on their fraudulently obtained
mortgage loans. The majority of Ameriquest’s borrowers were sold an adjustable rate
mortgage (“ARM”) at a fixed, substantial margin above the six-month U.S. dollar
“LIBOR” index (the London InterBank Offering Rate). Borrowers were not told that the
initial rate was an artificially low introductory rate that would automatically increase
every six months until it reached the specified LIBOR index plus margin. During the
7 Class Action Complaint
Class Period, the six-month LIBOR rate used by Ameriquest was typically higher than
the rate more commonly employed in ARM loans, which was the one year Treasury note
rate. In fact, the LIBOR rate has been consistently higher than almost any comparable
rate for the cost of funds during this period. The interest rate for Ameriquest’s ARM
loans was adjusted every six months based on the LIBOR rate plus a margin amount,
which Ameriquest set at approximately 6% to 8%. These facts were not explained or
adequately disclosed to Ameriquest’s borrowers, who were instead led to believe that
their mortgage interest rates would only rise if prevailing interest rates increased.
Plaintiffs lacked the means of ascertaining that these representations were false until after
incurring several rate increases on their loans, which did not happen until two or three
years after the origination of the loans.
15. Plaintiffs also had no means of discovering, at the time the y started making
monthly payments on their loans, that they were paying thousands of dollars in loan
origination fees. These loan origination fees were concealed or misrepresented to
Plaintiffs by Ameriquest salespersons as the “minimum” or “prepaid” finance charge that
was already included in the total finance charge, and would be the least amount of
interest they would have to pay on their loans. Plaintiffs also were told by Ameriquest
salespersons that this amount would “drop off” after a year or two. As intended by the
presentation, Plaintiffs had no way of understanding from their monthly payments that
these fees had nothing to do with interest, but rather were included in their monthly
payments as a separate amount to be paid over the life of their loans and would never
“drop off.”
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16. Plaintiffs likewise had no reasonable means of discovering the true
principal amount of their loan at the time they began to make their monthly payments.
Ameriquest salespersons represented to Plaintiffs that the “amount financed,” which
omitted the loan origination fees, was the principal amount of their loan. Plaintiffs did
not have the benefit of amortization tables, and were unable to ascertain the true principal
amount of their loan, which was more than had been origi nally represented to them and
included thousands of dollars in loan origination fees that were in addition to the amount
financed.
17. Plaintiffs and the Class also had no way of knowing that Lehman had full
knowledge of Ameriquest’s fraud and provided substantial assistance to Ameriquest
through extending warehouse lines of credit to Ameriquest and by underwriting
Ameriquest’s securitizations. Information relating to Lehman’s involvement in the
funding, securitizing, and sale of Plaintiffs’ loans was not disclosed or otherwise
communicated to Plaintiffs in their loan documents. Plaintiffs’ lack of knowledge of
Lehman’s involvement in Ameriquest’s fraud precluded Plaintiffs from discovering their
aiding and abetting claims against Lehman.
18. No amount of due diligence on the part of Plaintiffs would have enabled
them to discover Ameriquest’s fraud and Lehman’s aiding and abetting. As alleged,
Ameriquest’s presentation was specifically designed to prevent Plaintiffs from knowing
that there was a problem with their mortgage loans or from discovering the true material
terms and conditions of their mortgage loans. Because Lehman’s involvement in
Ameriquest’s loans was not disclosed to Plaintiffs in their loan documents, no reasonable
9 Class Action Complaint
amount of due diligence would have enabled them to discover that Lehman aided and
abetted Ameriquest’s fraud by knowingly funding, securitizing, and selling Ameriquest’s
fraudulently obtained mortgage loans.
19. Plaintiffs and the Class members who did inquire into the true terms and
conditions of their mortgage loans were lied to repeatedly and continually given
misleading information by Ameriquest’s representatives.
20. The Ricci’s first discovered that their Ameriquest loan was not what was
previously represented to them by Ameriquest in or around 2003. The Ricci’s first
discovered Lehman’s involvement with Ameriquest in or around 2007.
21. Terry Baumgartner first discovered that their Ameriquest loan was not what
was previously represented to them by Ameriquest in or around 2004. Ms. Baumgartner
first discovered Lehman’s involvement with Ameriquest in or around 2007.
22. When Plaintiffs and the Class reasonably discovered that Lehman aided and
abetted Ameriquest’s fraudulent business practices and acts, they acted with due
diligence to protect their rights and timely filed this class action suit.
FACTUAL ALLEGATIONS COMMON TO ALL COUNTS
A. Ameriquest ’s Unlawful Business Practices
23. Ameriquest engaged in a uniform common plan and scheme to prey upon
unsuspecting Minnesota residents by routinely causing borrowers to enter into
inappropriate residential loans with high and adjustable interest rates; unfavorable terms,
including a three-year prepayment penalty provision and misleading and inappropriate
“discount” fees; and excessive loan principal compared to equity and ability to pay.
10 Class Action Complaint
24. Ameriquest trained and encouraged their AEs to engage in any conduct
necessary to close the greatest number of loans as quickly as possible and to maximize
the total loan principal.
25. Ameriquest AEs across the country, including those in Minnesota, received
daily leads on new customers that were generated by software at Ameriquest’s Orange,
California, headquarters. These leads target homeowners who are carrying both a
mortgage and significant credit card and/or other consumer debt; persons who have
mobile home mortgages; persons with less than perfect credit; and other financially
vulnerable persons. These Minnesota homeowners were solicited through repeated
mailers, telephone calls, and/or personal visits by Ameriquest sales personnel, all inviting
these homeowners to consolidate their debts or to obtain money for expenses, with false
and misleading promises of more favorable loan terms and/or reduced monthly payments.
Ameriquest profited by obtaining high fees upfront and high interest rates in the interim,
and then by selling its loan portfolios to other companies.
26. Ameriquest AEs systematically induced Minnesota residents into entering
into unfair and deceptive mortgages by false promises that they can save several
hundreds of dollars per month by consolidating their debts with Ameriquest.
27. Ameriquest also targeted current customers, thereby “flipping” the existing
loan by adding to the principal amount due, and, more importantly, tacking on additional
high loan generation fees (for instant profit), and even collecting prepayment penalties
for a refinance of its own loan, and adding that penalty to the principal of the borrowers’
loan, stripping additional equity from the property.
11 Class Action Complaint
B. Ameriquest’s Bait and Switch Practices
28. Ameriquest engaged in “bait and switch” tactics in regard to its residential
loan transactions. Ameriquest systematically baited customers into residential mortgage
loan transactions with promises of fixed interest rates, low or no fees, low interest rates,
lower monthly payments compared to then current payments, lower monthly obligations
after consolidating other debt, no or short-term prepayment penalties, and/or the
existence or absence of particular terms. When the paperwork was presented to
customers at the closing, the terms were contrary to the terms promised.
29. The “bait and switch” practices set forth above, went hand to hand with
Ameriquest’s uniform practice of failing to make disclosures and misrepresenting or
concealing loan terms, as well as its aggressive and unfair sales tactics. While each
separately is unlawful and unfair, in tandem these practices allowed Ameriquest to
systematically close loans that benefit Ameriquest to the detriment and misfortune of
Plaintiffs and members of the Class.
30. After presenting new or different loan terms, Ameriquest engaged in scare
and pressure tactics to cause customers to proceed with the transaction, at an adjustable
rate instead of a fixed rate, and/or with higher fees and higher interest rates or with terms
other than those previously represented.
31. Ameriquest also had a regular uniform practice of removing certain
documents, such as those relating to the prepayment penalty, before presenting the
documents to the customer for signing. For this reason and others, customers are
systematically denied any meaningful opportunity to discover that the terms on the final
12 Class Action Complaint
documents do not match the prior representations. Accordingly, only after closing the
loan and subsequently receiving bills and statements for payment, or when attempting to
refinance or sell the property, do these customers ultimately discover that the terms are
contrary to the representations.
C. Ameriquest’s Sales and Marketing Scheme
32. Ameriquest had a business practice of using oppressive and harassing
marketing techniques to prey upon low income Minnesota homeowners. Ameriquest
employed unfair, unconscionable, deceptive, and high-pressure tactics on a uniform basis
to cause borrowers to enter into unfavorable residential loan transactions with it,
deliberately upselling the loans to amounts so high in relation to the value of the
borrowers’s home that the borrower would be unable to sell or refinance with
Ameriquest’s competitors. At all times relevant to this action, Ameriquest’s uniform and
fundamental business strategy with respect to the sale of home-secured loans had been to:
a. Target homeowners who are carrying both a mortgage and
significant credit card and/or other consumer debt;
b. Uniformly hold out to all prospective customers, through the use of
misleading promotions and material omissions regarding loan terms, that refinancing
and/or consolidating their debts with Ameriquest will be beneficial and will save them
money, when it fact it would not;
c. Employ aggressive, misleading, and unfair high-pressure sales
tactics to obfuscate loan terms, both prior to closing and at closing, if and when
customers question loan terms, in order to force the customers to close the loan;
13 Class Action Complaint
d. Forced borrowers into its standard “228” mortgage loan that
included the following terms: (1) a high initial interest rate; (2) an adjustable interest rate
that is fixed for two years and then adjusts upward based on the LIBOR (the London
Inter-Bank Offer Rate, i.e., the interest rate that banks charge each other for loans, and
which is officially fixed once a day by a small group of large London banks); a
“discount” fee of 4% - 5% or more that does not lower the interest rate; (4) additional
excessive closing fees; and (5) a three-year prepayment penalty provision;
e. Sold loans to these homeowners in amounts so high in relation to the
value of their homes that the resulting debt-to-value ratio (coupled with prepayment
penalties and other restrictions) effectively strips their homes of equity and prevents the
borrowers from refinancing their loans with Ameriquest’s competitors; and
f. Engaged in “flipping” or aggressive solicitation of targeted
borrowers, including existing Ameriquest customers, to refinance existing loans without
benefit to the homeowner and where Ameriquest’s sole purpose is to include additional
debt and incorporate new costs and fees into the principal of the loan.
33. Ameriquest systematically trained its sales personnel through standardized
sales presentations (videos), developed under the control of Ameriquest’s corporate
headquarters in Orange, California, as well as the use of the movie “Boiler Room” about
unethical and illegal high pressure sales practices by a securities brokerage firm. These
videos describe how to engage in high-pressure mortgage sales, while failing to train
employees on the legal requirements and regulations for mortgage lending. Ameriquest
trained its sales personnel to routinely rush borrowers through the lengthy, complex
14 Class Action Complaint
documentation of the regulated closing process so as to divert the borrowers’ attention
from the documented terms of the loans. Moreover, Ameriquest trained its AEs to
overcome objections raised by borrowers at closing by such tactics as threatening delay
or cancellation of the closing, by offering immediate cash pending the closing of the loan,
and by assuring borrowers that they can refinance with better terms after improving their
credit score, without disclosing that they would be subject to the prepayment penalty and
other fees if they did so.
34. Ameriquest unfairly and deceptively held out its mortgage loans as sound
financial transactions that would save the borrowers money. Ameriquest failed to
disclose prior to closing and/or intentionally obfuscates and/or conceals before and at
closing the following:
a. The high and adjustable interest rates charged on its loans, as well as
the risks associated with adjustable rate mortgage (“ARM”) loans; The high and
deceptive “discount” fees and closing fees routinely added to the loan principal;
b. The existence of a three-year prepayment penalty, and that such
prepayment penalty would make refinancing impossible and/or highly unfavorable for the
borrower;
c. The fact that the borrowers would have to pay, out of pocket, the
cost of homeowners’ insurance and property taxes that legitimate lenders include in
monthly escrow payments, instead implying or allowing borrowers to believe that the
monthly payment includes these costs; and
15 Class Action Complaint
d. The fact that, far from saving borrowers money (as Ameriquest
systematically claims), the Ameriquest loans would cost borrowers more money overall.
D. Ameriquest Compensation System
35. Ameriquest designed its compensation system to reward its AEs for
“upselling” customers’ loans, providing incentives for AEs to aggressively sell products
in order to increase the amounts loaned to the maximum permitted by Ameriquest’s
underwriting goals, irrespective of the amounts requested by borrowers or supported by
the actual value of the home. The effect of these “upsells’ had been to “close the back
door” on Ameriquest’s customers by making loans that cannot be refinanced by
Ameriquest’s competitors.
36. Ameriquest’s compensation scheme also rewarded AEs based on quantity
of loans closed per month. The minimum monthly quotas have risen consistently over
time, reaching levels that are significantly higher than the number of loans closed by
sales personnel at other companies. Given that Ameriquest’s AEs must reach the
minimum quotas in order to be paid at any reasonable rate, and that the quotas are very
high, Ameriquest’s policy all but ensured that its AEs systematically engaged in unfair
and deceptive tactics to meet company quotas, with company knowledge of this
widespread practice.
37. In addition to excessive loan origination fees, Ameriquest charged its
borrowers a variety of other fees and charges. Ameriquest frequently charged a “loan
processing fee” of approximately $600.00. Ameriquest has charged hundreds of dollars
for a “credit/title exam” fee, while also charging hundreds of dollars for multiple search
16 Class Action Complaint
and exam fees allegedly paid to a title company. Ameriquest also has charged a
“document handling” fee, “adjustable rate endorsement” fee, and an “address location
endorsement” fee. Together, these fees added about $1,700 to $2,700 to the loan closing
costs in addition to Ameriquest’s high origination fees.
E. Luke and Tracy Ricci
38. In or about September 2002, applied to refinance their mortgage loan with
Ameriquest. Ameriquest represented that it could offer the Riccis an interest rate of 6.5%
for a cash out refinance, the same interest rate that they were paying on their then current
mortgage.
39. After the Riccis discussed with the AE that their consolidated debt totaled
$165,000, their house (which they purchased 11 months prior for $145,000) was
appraised at exactly $165,000.
40. Ameriquest failed to provide the Riccis with any documents or disclosures
prior to the time of closing, including but not limited a good faith estimate or an ARM
disclosure. After the closing, the Riccis were only given blank documents.
41. The AE rushed t he Riccis through the closing process without explaining or
allowing the Riccis to read the documents. The AE misrepresented the content and
importance of the documents and assured the Riccis that the documents reflected the
terms they had discussed.
42. Instead of the 6.5% interest rate that the Riccis were promised, the closing
documents reflected an ARM with an initial interest rate of 9.5%.
17 Class Action Complaint
43. The loan also included a three-year prepayment penalty that was not
disclosed by the AE prior to closing.
44. The Riccis mortgage included excessive fees for a “discount” which did not
affect the interest rate charged and excessive loan processing and administrative fees
payable to Ameriquest.
Fee/Charge Amount
Loan Discount Fee 3.23% ($4,769.55)
Flood Search Fee $16.00
Lenders Processing Fee $626.00
Admin $239.00
Application Fee $360.00
Courier Fee $75.00
TOTAL $6,112.55
F. Terri Baumgartner
45. In or about September 2003, Terri Baumgartner was contacted by
Ameriquest about refinancing her existing mortgage. Ms. Baumgartner is on social
security and receives monthly payments of $564. On the loan documents, Ameriquest
fabricated income information, stating that Ms. Baumgartner worked and earned $2,000
per month, to qualify her for a loan she could not afford.
46. Ameriquest failed to provide Ms. Baumgartner with any documents or
disclosures prior to the time of closing. Ameriquest did not provide Ms. Baumgartner
with a good faith estimate or any ARM disclosures.
18 Class Action Complaint
47. Although offered a lower interest rate, the closing documents reflected an
ARM with an initial interest rate of 9.5%. Ms. Baumgartner was also told she would
receive more cash from the refinance than she actually received.
48. The mortgage loan included a three-year prepayment penalty that was not
disclosed by the AE prior to Plaintiff Baumgartner at or before the time she signed the
documents.
49. Ms. Baumgartner’s mortgage included excessive fees for a “discount”
which did not affect the interest rate charged and excessive loan processing and
administrative fees payable to Ameriquest:
Fee/Charge Amount
Loan Discount Fee ($1,974.38)
Flood Search Fee $16.00
Lenders Processing Fee $626.00
Admin $239.00
Application Fee $360.00
TOTAL $3,215.38
50. Ameriquest flipped Ms. Baumgartner’s loan through its affiliate, Town &
Country, in April 2004. Through this refinance, Town & Country engaged in the same
improper conduct as Ameriquest, including inflating the appraisal of Ms. Baumgartner’s
home and charging excessive closing costs.
G. Lehman’s Financing of Ameriquest ’s Activities.
19 Class Action Complaint
51. During the 1990’s and early 2000’s, as Ameriquest expanded, it became
increasingly important for the firm to have outside financing. To generate higher income,
it was necessary for the Company to originate increasing numbers of mortgages every
year, which required substantial additional funding. Ameriquest solved this problem by
getting financial support from powerful Wall Street investment bankers, which provided
warehouse lines of credit to Ameriquest and then, periodically, pooled the Company’s
loans into trusts and underwrote interests in those trusts, selling those interests to
investors.
52. Plaintiffs are informed and believe and thereon allege that commencing in
or around 2002, LCPI and Lehman Bros. were on notice of substantial evidence
demonstrating the illegality of Ameriquest ’s lending practices. Despite that fact,
Lehman Bros. through LCPI entered into a multi-million dollar warehouse financing
agreement with Ameriquest that was designed to and did fund Ameriquest ’s loans. The
financing was structured as a Master Repurchase Agreement Governing Purchases and
Sales of Mortgage Loans (the “Repurchase Agreement”). Pursuant to the Repurchase
Agreement, Ameriquest sold loans to LCPI with the understanding that it would
repurchase those loans at a future date. In return for entering into the Repurchase
Agreement, Ameriquest paid LCPI millions of dollars in fees to LCPI. In addition,
Ameriquest agreed to pay interest on any amounts outstanding under the financing as
20 Class Action Complaint
well as a fee for any portion of the credit facility that it was not using at any point in
time.1
G. Lehman’s Knowledge of Ameriquest ’s Wrongdoing
53. Lehman and its affiliates were very substantially involved during the midand
late 1990’s in financing sub-prime mortgage lenders, by means such as the
warehouse loan agreement (sometimes referred to as “repurchase agreements”) and loan
syndications that they underwrote for Ameriquest . They had substantial knowledge and
expertise with respect to the workings of the industry in general and specifically touted
itself as one of the major financers of sub prime lending institutions.2
54. By virtue of that background and expertise and the due diligence it
conducted in connection with both the Repurchase Agreement and the loan trust
syndications, Lehman was well aware of Ameriquest’s deceptive and fraudulent lending
activities, as well as its grossly excessive and unconscionable fees.
55. Lehman’s procedure for evaluating business opportunities is for a team of
Lehman personnel, with expertise in various disciplines, to undertake due diligence of the
potential client, and to jointly decide whether to go forward with the business transaction.
This team would undertake an extensive “due diligence” of the background of
1 In addition, Lehman Bros. agreed to act as the syndicator and underwriter of Ameriquest ’s loan trusts, the
proceeds of which were used to pay down the LCPI credit line.
2 Lehman Brothers is a major player in the mortgage market and a top player in underwriting securities backed by
mortgages made to home buyers with weak, or subprime, credit histories. In 2006, the investment bank was the top
underwriter for subprime mortgage-backed securities, with a roughly 11 percent market share, according to Inside
Mortgage Finance, a trade publication. Moreover, Lehman owned BNC Mortgage, a subprime lender. Lehman took
an ownership stake in BNC Mortgage in 2000 after helping to take the firm private. It fully acquired the business in
2004.
21 Class Action Complaint
Ameriquest, its financial strength, lending practices, history and loan procedures.
Lehman would conduct extensive “computer” searches (e.g. Lexis/Nexus) searches on
past stories about Ameriquest. They would undertake to obtain copies of legal actions
against Ameriquest and would put together a team to go to Ameriquest headquarters to
visit with Ameriquest officers and observe the business operations of Ameriquest.
Lehman would conduct a review of Ameriquest’s loan files and records and would
evaluate the credit worthiness of Ameriquest’s borrowers.
56. Lehman officers would prepare a report with their recommendations and
submit the same to Lehman’s “Commitment Committee.” The report would present
discussions on the various aspects of Ameriquest’s business operations including its
history, ownership and financial condition. This Commitment Committee is composed
of Lehman’s most senior officers.
57. At the time LCPI entered into the credit line with Ameriquest and
thereafter, Lehman was aware of substantial evidence demonstrating that its financing
activities were supporting unlawful lending activities. That evidence included the
following:
a. Numerous existing class action lawsuits pending against Ameriquest
for unfair and deceptive business practices;
b. Known investigations by state Attorneys General from the states of
Minnesota, Connecticut, Texas, Colorado, Illinois, Iowa, New Mexico, among others;
c. The review of Ameriquest’s business practices and procedures by
Lehman officers who are experts in the industry;
22 Class Action Complaint
d. A review of the individual loan files of Ameriquest’s borrowers
which would disclose among other things that the loans were not appropriate given the
financial condition of the borrower, and or would disclose evidence of “loan flipping. ”
58. Notwithstanding its knowledge of Ameriquest’s long history of engaging in
fraudulent lending practices, and the fact that Ameriquest continued to engage in such
practices, and that Lehman knew of Ameriquest’s practices and procedures, loan files and
practices, Lehman provided the financial support that Ameriquest needed to continue its
unlawful operations.
CLASS ACTION ALLEGATIONS
59. Pursuant to Rule 23(b)(3) of the Federal Rules of Civil Procedure, Plaintiffs
bring this action as a class action on behalf of all persons who obtained mortgage loans
from Ameriquest from 2002 through 2005 (the “Class Period”). As to their aiding and
abetting claim, Plaintiffs seek certification of a class consisting of all persons who
acquired mortgage loans from Ameriquest during the period from 2002 through 2005,
whose loans were funded by Ameriquest using its warehouse credit facility with Lehman
and which were used as collateral for Ameriquest’s warehouse credit line with LCPI.
Excluded from the Class are the Defendants, as well as Ameriquest, any persons or
entities affiliated with Ameriquest or Lehman, and the employees, legal representatives,
heirs, successors or assigns of any such excluded party.
60. Although the exact number and location of Class members can only be
determined by appropriate discovery, plaintiffs believe the Class members number in the
thousands. The class is limited to residents of the State of Minnesota.
23 Class Action Complaint
61. Plaintiffs’ claims are typical of the claims of the members of the Class.
Plaintiffs and all members of the Class sustained damages as a result of Defendants’
wrongful conduct complained of herein.
62. Plaintiffs will fairly and adequately protect the interests of the members of
the Class and have retained counsel competent and experienced in class action and
consumer fraud litigation.
63. A class action is superior to other available methods for the fair and
efficient adjudication of this controversy. Since the damages suffered by individual Class
members are relatively small, the expense and burden of individual litigation make it
financially unfeasible for the Class members individually to seek redress for the wrongful
conduct alleged.
64. Common questions of law and fact exist as to all members of the Class and
predominate over any questions affecting solely individual members of the Class. Among
the questions of law or fact common to the Class are:
a. Whether Ameriquest ’s acts and practices in connection with its sale
of mortgage loans were unconscionable and/or fraudulent;
b. Whether Ameriquest engaged in a uniform common plan and
scheme to prey upon unsuspecting Minnesota residents by routinely causing borrowers to
enter into inappropriate residential loans with high and adjustable interest rates;
c. Whether Ameriquest trained and encouraged their AEs to engage in
any conduct necessary to close the greatest number of loans as quickly as possible and to
maximize the total loan principal;
24 Class Action Complaint
d. Whether Ameriquest Account Executives systematically induced
Minnesota residents into entering into unfair and deceptive mortgages by false promises
that they can save several hundreds of dollars per month by consolidating their debts with
Ameriquest;
e. Whether Ameriquest also targeted current customers, thereby
“flipping” the existing loan by adding to the principal amount due, and, more
importantly, tacking on additional high loan generation fees (for instant profit), and even
collecting prepayment penalties for a refinance of its own loan, and adding that penalty to
the principal of the borrowers’ loan, stripping additional equity from the property;
f. Whether Ameriquest systematically baited customers into residential
mortgage loan transactions with promises of fixed interest rates, low or no fees, low
interest rates, lower monthly payments compared to then current payments, lower
monthly obligations after consolidating other debt, no or short-term prepayment
penalties, and/or the existence or absence of particular terms. When the paperwork was
presented to customers at the closing, the terms were contrary to the terms promised.
g. Whether Ameriquest designed its compensation system to reward its
AEs for “upselling” customers’ loans, providing incentives for AEs to aggressively sell
products in order to increase the amounts loaned to the maximum permitted by
Ameriquest’s underwriting goals, irrespective of the amounts requested by borrowers or
supported by the actual value of the home.
h. Whether the Lehman Defendants aided and abetted Ameriquest ’s
unlawful;
25 Class Action Complaint
i. Whether the Lehman Defendants provided financing to Ameriquest
knowing that the Ameriquest Loans were originated through deceptive sales practices;
j. Whether the Lehman Defendants internal due diligence reports
contained unfavaorable descriptions of Ameriquest’s business practices; and
k. Whether Ameriquest would have been able to continue to fund its
fraudulently onbtained loans but for the Lehman’s defendant’s continued financing.
65. Plaintiffs know of no difficulty likely to be encountered in the management
of this litigation that would preclude its maintenance as a class action.
COUNT I
(Aiding and Abetting Ameriquest ’s Fraudulent Scheme)
66. Plaintiffs reallege and incorporate by reference each and every allegation
set forth above.
67. Ameriquest’s acts and conduct as hereinabove alleged constitutes a fraud
against the Plaintiffs and members of the Class, and constitutes a violation of Minn. Stats.
§§ 325F.69, 325F.68 (Prevention of Consumer Fraud Act), violations of Minn. Stat. §
325D.44 (Deceptive Trade Practices).
68. The Lehman Defendants had actual knowledge of Ameriquest’s business
practices and fraud as more specifically set forth above, and knew that such conduct
constituted a breach of duty by Ameriquest owed to Plaintiffs and members of the class.
69. The Lehman Defendants substantially assisted or encouraged Ameriquest in
the achievement of its fraud by financing Ameriquest’s business operations with
26 Class Action Complaint
knowledge of the Ameriquest fraud as heretofore described. Lehman aided Ameriquest’s
fraud for its own financial benefit.
70. As a direct and proximate result of the Lehman Defendants’ financing and
aiding and abetting the fraud and misrepresentations of Ameriquest, Plaintiffs and the
Class have suffered substantial damages, including being charged excessive fees and
interest that they never agreed to, loss of income, loss of use of money, mental and
physical anguish and other damages.
71. Plaintiffs and the Class are entitled to the full amount of all such damages
sustained by them as a result of the Lehman Defendants’ wrongful acts.
DEMAND FOR JURY TRIAL
A jury trial is demanded with respect to all counts so triable.
PRAYER FOR RELIEF
WHEREFORE, Plaintiffs demand judgment as to all Counts on behalf of
themselves, the Class, as follows:
A. Determining that this action is a proper class action under Rule 23(a) and
(b)(3) of the Federal Rules of Civil Procedure and that plaintiffs be designated as
representatives of the Class;
B. Awarding Plaintiffs their actual damages, according to proof;
C. Awarding Plaintiffs their costs, as well as attorneys’ and experts’ fees;
D. Awarding Plaintiffs their damages, costs and attorney’s fees in accordance
with Minn. Stat. §8.31 subd. 3a; and
D. Granting such other and further relief as may be just and proper.
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WOW! Thanks so much!

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