Jb 44C/SDNY

REV. 7/2012

CIVIL COVER SHEET

13 CV 2

_ s information contained herein neither replace nor supplement the filing and service of pleadingsor other papers as required by law, except as provided by local rules of court. This form, approved by the

Judicial Conference of the United States inSeptember 1974,is required foruse ofthe Clerk of Courtforthe purpose of
initiating the civil docket sheet.
PLAINTIFFS
DEFENDANTS

APR 3 02013
Citigroup Global Markets Realty Corporation

Citigroup Mortgage Loan Trust 2007-AMC3, by U.S. Bank National Association, solely in its capacity as Trustee
ATTORNEYS (FIRM NAME, ADDRESS, AND TELEPHONE NUMBER
McKool Smith, P.C.

ATTORNEYS (IF KNOWN)

One Bryant Park, 47th Floor New York, NY 10036 (212) 402-9400

CAUSE OFACTION (CITE THE U.S. CIVIL STATUTE UNDER WHICH YOU ARE FILING AND WRITE ABRIEF STATEMENT OF CAUSE)
(DO NOTCITE JURISDICTIONAL STATUTESUNLESS DIVERSITY)
28 U.S.C. 1332 - Breach of Contract

Has this ora similar case been previously filed in SDNY at anytime? No

[x] Yes Q

Judge Previously Assigned

& Case No.

If yes, was this case Vol. Q Invol. Q Dismissed. No Q Yes

IS THIS AN INTERNATIONAL ARBITRATION CASE?
(PLACEAN [x] IN ONE BOX ONLY)

If yes, give date

No 3

YeS Q
NATURE OF SUIT
ACTIONS UNDER STATUTES

CONTRACT

PERSONAL INJURY INSURANCE MARINE

PERSONAL INJURY

FORFEITURE/PENALTY

BANKRUPTCY

OTHER STATUTES

i [ [ i

mo ]120 ]130 ]140

[)310 AIRPLANE []315 AIRPLANE PRODUCT

LIABILITY

[ ] 362
( ] 365

PERSONAL INJURY MED MALPRACTICE

[1610 [ I 620
[ J 625

MILLER ACT
NEGOTIABLE INSTRUMENT RECOVERY OF OVERPAYMENT &

PERSONAL INJURY
PRODUCT LIABILITY

[ ]320 ASSAULT. LIBEL &

SLANDER

AGRICULTURE OTHER FOOD & DRUG DRUG RELATED

[ ] 422 APPEAL
28 USC 158

[ I 400 STATE
REAPPORTIONMENT

[ ] 423 WITHDRAWAL
28 USC 157

( ] 368

ASBESTOS PERSONAL
INJURY PRODUCT LIABILITY

SEIZURE OF
PROPERTY 21 USC 881

[ 1150

[ ]330 FEDERAL
EMPLOYERS' LIABILITY MARINE MARINE PRODUCT LIABILITY MOTOR VEHICLE

PROPERTY RIGHTS

(1410 [ ] 430 [ ] 450 [ J 460 [ J 470

ANTITRUST BANKS & BANKING COMMERCE DEPORTATION RACKETEER INFLU

ENCED & CORRUPT ORGANIZATION ACT

ENFORCEMENT

I ] 151 [ ]152

OF JUDGMENT MEDICARE ACT RECOVERY OF DEFAULTED

[ ]340 II 345

PERSONAL PROPERTY

STUDENT LOANS

[ ] 350 [ I 355 MOTOR VEHICLE

( ] 370 OTHER FRAUD [ ] 371 TRUTH IN LENDING I 1 380 OTHER PERSONAL

PROPERTY DAMAGE

[ [ [ [

]630 ]640 )650 1660

LIQUOR LAWS
RR & TRUCK AIRLINE REGS

OCCUPATIONAL
SAFETY/HEALTH OTHER

[ J 820 COPYRIGHTS [ ] 830 PATENT [ I 840 TRADEMARK

[ ]690

(EXCL VETERANS]
[ 1153
RECOVERY OF OVERPAYMENT OF VETERAN'S BENEFITS

PRODUCT LIABILITY

SOCIAL SECURITY LABOR

[ ]360 OTHER PERSONAL

INJURY

[ ] 385

PROPERTY DAMAGE
PRODUCT LIABILITY

[ 1480 [ ]490 [1810 [ 1 850

(RICO) CONSUMER CREDIT CABLE/SATELLITE TV SELECTIVE SERVICE SECURITIES/

COMMODITIES/ EXCHANGE

[ ]861 HIA(1395rt) [ ] 862 BLACK LUNG (923)

FAIR LABOR STANDARDS ACT LABOR/MGMT

[1710
[ I 720
PRISONER PETITIONS

[ ] 875 CUSTOMER
CHALLENGE

[ I 863 DIWC/DIWW (405(g))

[ I 864 SSID TITLE XVI

( 1160 M 190 ( 1195

STOCKHOLDERS
SUITS
OTHER

12 USC 3410

[ I 865 RSI (405(g))

[ I 890 OTHER STATUTORY

ACTIONS

CONTRACT CONTRACT PRODUCT LIABILITY

[ I 730 [)510 MOTIONS TO

ACTIONS UNDER STATUTES CIVIL RIGHTS

RELATIONS LABOR/MGMT
REPORTING &

FEDERAL TAX SUITS

[1891 AGRICULTURAL ACTS [ I 892 ECONOMIC

STABILIZATION ACT [ 1893 ENVIRONMENTAL
MATTERS

VACATE SENTENCE
20 USC 2255 [ I 740 [ I 530 HABEAS CORPUS [ I 790 [ I 535 DEATH PENALTY [ 1 540 MANDAMUS & OTHER f I 791

[ 1196 FRANCHISE

DISCLOSURE ACT RAILWAY LABOR ACT OTHER LABOR

LITIGATION

[ I 870 TAXES (U.S. Plaintiffor

Defendant) [ J 871 IRS-THIRD PARTY
26 USC 7609

REAL PROPERTY

[]441 VOTING [ ]442 EMPLOYMENT [ ]443 HOUSING/

ACCOMMODATIONS

[ 1894 ENERGY
ALLOCATION ACT

EMPL RET INC

SECURITY ACT

[ 1895 FREEDOM OF
INFORMATION ACT

IMMIGRATION

[ ]210 | ]220 ( ]230 [ ] 240 [ ]245

[ ]290

LAND

CONDEMNATION FORECLOSURE RENT LEASES

EJECTMENT

[ 1444 WELFARE [ 1445 AMERICANS WITH

DISABILITIES EMPLOYMENT

[ 1 900 APPEAL OF FEE

DETERMINATION UNDER EQUAL ACCESS TO JUSTICE

PRISONER CIVIL RIGHTS

1)462
[ 1 550 CIVIL RIGHTS ( ] 555 PRISON CONDITION

[ 1463
[ 1465

NATURALIZATION APPLICATION HABEAS CORPUSALIEN DETAINEE

[ ]446 AMERICANS WITH

DISABILITIES -OTHER [ )440 OTHER CIVIL RIGHTS

[ 1950 CONSTITUTIONALITY
OF STATE STATUTES

TORTS TO LAND TORT PRODUCT

LIABILITY ALL OTHER REAL PROPERTY

OTHER IMMIGRATION
ACTIONS

(Non-Prisoner)

Check if demanded in complaint:

CHECK IF THIS IS A CLASS ACTION

UNDER F.R.C.P. 23

DO YOU CLAIM THIS CASE IS RELATED TO A CIVIL CASE NOW PENDING IN S D N Y f

IF SO, STATE:

DEMAND $'_

t sxcbsi of 50.000.000

OTHER

JUDGE

.DOCKET NUMBER

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JURY DEMAND: S YES

NO

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(PLACE AN x IN ONE BOX ONLY)

"
Appellate
Court

ORIGIN

~
(Specify District)

~
Litigation

Pr^Priinn riuoBeging

Ll 2 Removed from State Court

O a. all parties represented
I I b. At leastone
party is pro se.

O 3 from Remanded D 4Reinstated or Reopened

D 5 (Snerifv Transferred from Q 6 iMultidistrict nistrirn iti=(i

Q 7Appeal to District ...7,__.

Judge from

Magistrate Judge
Judgment

(PLACE AN x IN ONEBOXONLY)

U 1 U.S. PLAINTIFF 2 U.S. DEFENDANT 3 FEDERAL QUESTION

(U.S. NOTA PARTY)

BASIS OF JURISDICTION

H4 DIVERSITY

IFDIVERSITY, INDICATE
CITIZENSHIP BELOW.

(28 USC 1332, 1441)

CITIZENSHIP OF PRINCIPAL PARTIES (FOR DIVERSITY CASES ONLY)

(Place an[X] in one box for Plaintiff and one box for Defendant)
PTF DEF

CITIZEN OF THIS STATE

[]1

[]1

CITIZEN OR SUBJECT OF A
FOREIGN COUNTRY

PTF DEF

pTF

DEF

[ )3 [ ]3
[ ]4 M 4

INCORPORATED andPRINCIPAL PLACE

OF BUSINESS IN ANOTHER STATE

[ ]5 [15
I ]6 []6

CITIZEN OFANOTHER STATE

p<| 2

[ ]2

INCORPORATED or PRINCIPAL PLACE

OF BUSINESS IN THIS STATE

FOREIGN NATION

PLAINTIFF(S) ADDRESS(ES) AND COUNTY(IES) U.S. Bank, N.A. U.S. Bank, N.A.
425 Walnut Street

80 Nicollet Mall

Cincinnat, Ohio 45202

Minneapolis, Minnesota 55402-7014

DEFENDANT(S) ADDRESS(ES) AND COUNTY(IES)

Citigroup Global Markets Realty

390 Greenwich St.

New York, New York 10013

DEFENDANT(S)ADDRESS UNKNOWN

BE^^Sd^^S^SS^^S^dSI^:' ^ BEEN UNABLE' W,TH REAS0NABLE DlLlGENCE, TO ASCERTAIN THE

Check one:
DAT5

THIS ACTION SHOULD BE ASSIGNED TO: WHITE PLAINS M MANHATTAN (DO NOT check either box if this aPRISONER PETITION/PRISONER CIVIL RIGHTS COMPLAINT.)
SIGN/tTJKE OF ATTQHWE? OF RECORD
ADMITTED TO PRACTICE INTHIS DISTRICT

Vfi - I ,T

\ Magistrate Judge is to be designated by the Clerk of the Court.

Dierkc

RECEIPT #

[ ] NO ^ N YES (DATE ADMITTED Mo. O^

~ Yr. *> >

Attorney Bar Code #

IV ii./"A.t~lk.k...?

%.)% i i A *v
is so Designated.

Magistrate Judge
Ruby J. Krajick, Clerk of Court by
. Deputy Clerk, DATED

UNITED STATES DISTRICT COURT (NEW YORK SOUTHERN)

t,..-/

wiM ELS
1 Q
a# I

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK

CITIGROUP MORTGAGE LOAN TRUST 2007-

AMC3, by U.S. BANK, NATIONAL ASSOCIATION, solely in its capacity as Trustee,

Plaintiff,

Civil Action No.

COMPLAINT

\***"

JURY TRIAL DEMANDED

-againstCITIGROUP GLOBAL MARKETS REALTY

-r\
-\

CORP.,
Defendant.

cP

Plaintiff, Citigroup Mortgage Loan Trust 2007-AMC3 (the "Trust"), acting by and

through U.S. Bank, National Association, not individually but solely in its capacity as Trustee
(the "Trustee") of the Trust, and its attorneys McKool Smith P.C, brings this complaint against Citigroup Global Markets Realty Corp. (the "Sponsor" or "Citigroup"). Except as otherwise
indicated as to its own actions and conduct, the Trustee alleges upon information and belief as
follows:

NATURE OF THE ACTION

1.

This action arises out of Citigroup's breaches of contract relating to a securitized

pool of 4,946 mortgage loans (the "Mortgage Loans" or "Loans") selected and sold by Citigroup and held by the Trust for the benefit of the holders of Certificates issued by the Trust (the
"Certificateholders"). The Mortgage Loans were (and remain) the sole source of income from
which the Trust makes payments to Certificateholders. Citigroup made extensive contractual

representations and warranties regarding the characteristics of these Mortgage Loans, including
their credit quality and their compliance with applicable laws. Potential investors in the

Certificates relied upon those representations and warranties and did not have access to the

information necessary to verify whether the Mortgage Loans were accurately described by Citigroup in compliance with them. Thus, Citigroup's representations and warranties were

essential to the securitization of the Mortgage Loans and investors' decision to invest in the
Certificates issued by the Trust.

2.

Highlighting the critical importance of these representations and warranties,

Citigroup further promised to cure any breach of these representations and warranties that

materially and adversely affected the value of any Mortgage Loan or the interest of
Certificateholders in the Loans or, if it failed to cure within ninety days, to repurchase the Loan.

This obligation to cure or repurchase was not contingent on any action by any other party;

Citigroup had an independent obligation both (i) to notify the Trustee, and (ii) to cure or

repurchase the affected Loan within ninety days of becoming aware of a breach of a

representation and warranty.1

In essence, the parties agreed that Certificateholders would

assume the risk that there might be defaults on Mortgage Loans which conformed to Citigroup's

representations and warranties but that Citigroup would assume the risk that Loans failed to meet
those representations and warranties in the first instance.

3.

Despite clear evidence of numerous breaches of representations and warranties

with respect to the Mortgage Loans in the Trust, Citigroup has failed, and continues to fail, to fulfill its promise to cure the breaches or repurchase those Loans. A forensic review of 1,604
Mortgage Loans (the "Loan Review") revealed that at least 1,267 Mortgage Loans79 percent

of the loans reviewedbreached one or more of Citigroup's representations and warranties in a

manner that materially and adversely affected the value of those Loans and the interests of
Certificateholders in them. The Trustee promptly notified Citigroup of these breaches, including
' If the breach was discovered within the first two years after the Trust was created, Citigroup could also replace the defective loan with one that complied with the representations and warranties.

a detailed description of the basis for each breach. The Trustee demanded that Citigroup cure the

breaches or repurchase the defective Mortgage Loans as it had promised. At least ninety days

have passed since the Trustee's demand, but Citigroup has failed to cure a single breach or
repurchase a single Mortgage Loan.

4.

The Trustee's notice was not Citigroup's first indication that material breaches

existed with respect to the Mortgage Loans. Citigroup's routine practice was to conduct due

diligence on each mortgage pool it intended to securitize by having a third party review a sample of the mortgage loans to determine whether they complied with the loan originators' underwriting guidelines. One of Citigroup's third-party due diligence firms, Clayton Holdings,
revealed to the Financial Crisis Inquiry Commission that at least 42 percent of the loans it

reviewed for Citigroup failed to comply with underwriting guidelines, a fact that would breach
one or more representations and warranties. Yet Citigroup knowingly securitized 31 percent of

those defective loans anyway. Citigroup was engaged in this conduct during the precise same time period in which Citigroup purchased and securitized the Mortgage Loans. Accordingly,

Citigroup's own due diligence would have revealed breaches with respect to a substantial
number of the Mortgage Loans. Citigroup placed these defective loans into the Trust anyway but failed to provide the Trustee with the contractually required notice of the breaches, failed to cure
the breaches and failed to repurchase the affected Mortgage Loans.

5.

Citigroup's failure to comply with its contractual obligations strikes at the heart of

the parties' bargain. The Certificates are priced, marketed, and sold based upon the expected aggregate cash flows generated from principal and interest payments on the Mortgage Loans.
Under the terms of the securitization, the Certificateholders assumed the risk that some

borrowers might default on their Mortgage Loans and that, as a result, the Trust's cash flows

could drop below the level necessary to pay scheduled distributions on the Certificates. But Certificateholders' ability to assess that risk depended on an accurate understanding of the credit
quality and other characteristics of the Mortgage Loans.

6.

Citigroup was the "Sponsor" of the transaction. In its role as Sponsor, Citigroup

selected the mortgage companies from which to obtain mortgage loans, selected the loans to
include in the Trust, and chose the servicer of the loans and the parties to administer the Trust. It

had far more information about the Mortgage Loans than any other transaction party. Citigroup

had regular contact, and a direct contractual relationship, with the companies that originated the Mortgage Loans. Moreover, as part of its purchase, Citigroup also received the documentation supporting each Mortgage Loan (the "Loan File"), which typically included the borrower's loan

application, credit report, income, asset and employment verifications, disclosures and an appraisal of the subject property. Citigroup therefore selected the Mortgage Loans to place inthe
Trust with full access to detailed information on each and thus the ability to ensure its

representations and warranties were accurate.

7.

By contrast, potential Certificateholders had only one source of information about

the Mortgage LoansCitigroup. They had no means to verify the accuracy of information they
received from Citigroup. They were forced to rely exclusively on Citigroup's representations
and warranties. Indeed, the closing of the transaction was expressly conditioned on Citigroup's

representations and warranties being true and correct. The risk that these representations and
warranties were inaccurate or incomplete was allocated in its entirety to Citigroup through its
cure or repurchase obligation.

8.

Without Citigroup's representations and warrantiesand its accompanying

promise to cure or repurchase when such representations and warranties are violatedinvestors

would not have invested in the Certificates backed by the Mortgage Loans, and Citigroup would not have received the substantial fees and other compensation flowing to it from this transaction.

9.

Citigroup's decision to include no fewer than 1,267 defective Mortgage Loans in

the Trust materially breached Citigroup's representations and warranties and, coupled with its subsequent and further breaches in refusing to cure or repurchase those Loans, fundamentally alters the transaction contemplated by the parties in the PSA and MLPA. To begin with, the
sheer number of defective loans sold to the Trust far exceeds the reasonable expectations of the

parties. While the cure/repurchase mechanism provided a safety valve for a handful of mistakes, it was not a license for Citigroup to securitize thousands of defective Mortgage Loans. The
nature and extent of these breaches further destroyed the economic rationale for the transaction, which was intended to create Certificates backed by a pool of mortgage loans with understandable and disclosed risks. The inclusion of at least 1,267 defective Mortgage Loans in

the Trust created a significantly different and riskier investment than the Trust and
Certificateholders bargained for.

10.

Citigroup's failure to provide notice of breaches it discovered, and its refusal to

cure or repurchase the identified Mortgage Loans (identified either through notice from the Trustee or Citigroup's own knowledge), entitle the Trust to compensatory damages and/or specific performance to compel Citigroup to repurchase the Mortgage Loans for which it has been given notice, as well as for any other Mortgage Loans that Citigroup knows or has reason to
know contain similar breaches.
PARTIES

11.

Plaintiff CMLTI 2007-AMC3 Trust is a New York common law trust established

pursuant to a Pooling and Servicing Agreement dated April 1, 2007, among Citigroup Mortgage
Loan Trust, Inc., as Depositor, Litton Loan Servicing LP, as Servicer, Citibank, N.A., as Trust
5

Administrator, and U.S. Bank National Association, as Trustee ("PSA").2 U.S. Bank, National
Association is a national banking association organized and existing under the laws of the United States with its registered main office in Ohio, and serving as Trustee of the Trust under the terms
of the PSA.

12.

Defendant, Citigroup Global Markets Realty Corp. is a Delaware corporation with Citigroup Global Markets Realty Corp. (the

a principal place of business in New York.

"Sponsor" or "Citigroup") was the Seller of the Mortgage Loans under a Mortgage Loan

Purchase Agreement, dated April 2, 2007 ("MLPA")3 and was the Sponsor under the PSA.
JURISDICTION AND VENUE

13.

This Court has jurisdiction and venue over this proceeding pursuant to 28 U.S.C.

1332 because there is complete diversity of citizenship between the parties and the amount in

controversy, exclusive of costs, exceeds $75,000. For diversity purposes, a national banking
association's citizenship is determined solely by the location of its main office.

14.

Venue is proper in this district pursuant to 28 U.S.C. 1391(1) because Citigroup

has its principal place of business within this judicial district. Additionally, venue is proper in

this district pursuant to 28 U.S.C. 1391(2) because a substantial part of the events and
omissions that give rise to the claims herein occurred in New York. The Trust was formed under

New York law; and Citigroup made the relevant representations and warranties, and undertook

the relevant obligations, in New York in agreements expressly governed by New York law.

2A true and correct copy of thePSA is attached hereto as Exhibit 1.

3A true and correct copy of the MLPA is attached hereto as Exhibit 2.

FACTUAL BACKGROUND I. THE CMLTI 2007-AMC3 SECURITIZATION.

15.

This case concerns mortgage-backed pass-through certificates, more commonly

known as residential mortgage-backed securities. Asset-backed securitizations distribute risk by pooling cash-producing assets, such as mortgage loans, and issuing securities backed by that

pool of assets. The most common form of securitization of mortgage loans involves the creation
of a trust to which a sponsor entity sells a portfolio of mortgage loans. The transfer of assets to a

trust is typically a two-step process: "the financial assets are transferred by the sponsor first to
an intermediate entity, often a limited purpose entity created by the sponsor . . . and commonly

called a depositor, and then depositor will transfer the assets to the [trust] for the particular assetbacked transaction." Asset-Backed Securities, Securities Act Release No. 33-8518, Exchange
Act Release No. 34-50905, 84 SEC Docket 1624 (Dec. 22, 2004).

16.

After receiving a pool of mortgage loans, the trust issues securities, known as

certificates, using the pool of loans as collateral. Investors in the certificates acquire rights to the
income flowing from the mortgages (borrowers' payments of principal and interest on their
mortgages).

17.

Citigroup was the Sponsor of the CMLTI 2007-AMC3 securitization, which

closed on April 30, 2007. As the Sponsor, Citigroup selected a mortgage pool of 4,946 loans

(the "Mortgage Loans") with an aggregate principal balance of approximately $1.08 billion. Citigroup purchased the Mortgage Loans from Argent Mortgage Company and Ameriquest
Mortgage Company and sold them to its affiliate Citigroup Mortgage Loan Trust, Inc. (the

"Depositor") on the Closing Date pursuant to the MLPA. Pursuant to the PSA, the Depositor simultaneously conveyed the Mortgage Loans to the Trust, which issued approximately $1
billion in Certificates and delivered those Certificates to the Depositor. Another Citigroup

affiliate, Citigroup Global Markets, Inc., underwrote the Certificates. Each of these Citigroup
affiliates received compensation for their roles in the formation of the Trust.

18.

Concurrently with its transfer of the Mortgage Loans, the Depositor also

transferred, assigned, set over and otherwise conveyed to the Trustee "the rights of the Depositor
under the Mortgage Loan Purchase Agreement." PSA 2.01.

19.

The Mortgage Loans were divided into two groups, Group I and Group II. Group

I consisted of approximately 2,776 Mortgage Loans, all of which were supposed to have original principal amounts that conformed to the loan limits set by Freddie Mac. Group II consisted of approximately 2,170 Mortgage Loans that were not required to conform to Freddie Mac loan limits. Cash flows from Group II Mortgage Loans are distributed primarily to particular

Certificates, the Group II Certificates. The Group I Certificates receive distributions from the
cash flows on the Group I Mortgage Loans. The Group II Certificates were offered to the public;

the remaining Certificates were privately placed. 20. The Trust is administered by several entities, including the Trustee, Citibank,

N.A., as Trust Administrator, and Ocwen Financial Corp. (successor to Litton Loan Servicing

LP) as Servicer.

The Servicer is, among other things, responsible for collecting monthly

mortgage payments from borrowers and seeking to recover from borrowers who default on their Mortgage Loans, consistent with the PSA and generally accepted servicing standards. The Trust
Administrator is, among other things, responsible for distributions to Certificateholders. Both

the Trust Administrator and the Servicer act independently of the Trustee pursuant to the terms
of the PSA.

21.

The Trust therefore holds the Mortgage Loans for the benefit of the

Certificateholders and the Trustee, as assignee of the Depositor, has the right to enforce

Citigroup's representations and warranties under the MLPA and its obligation to cure or
repurchase Mortgage Loans that fail to comply with such representations and warranties in a manner that materially adversely affects the value of the Mortgage Loans or the interests of
Certificateholders therein. II. CITIGROUP'S REPRESENTATIONS AND WARRANTIES

22.

Citigroup's representations and warranties regarding the Mortgage Loans are

specified in Section 5 and Exhibit A of the MLPA and include, without limitation, the following: "The Mortgage Loans conform in all material respects to the Underwriting Guidelines;" MLPA, Exh. A(53).

"Any and all requirements of any federal, state or local law including, without limitation, usury, truth in lending, real estate settlement procedures, consumer credit protection, equal credit opportunity, disclosure laws and/or all predatory and abusive lending laws applicable to the origination and servicing of the Mortgage Loan have been complied with. Any and all disclosure statements required to be made by the Mortgagor relating to such requirements are and will remain in the Mortgage File;" MLPA, Exh. A(8).
"No fraud was committed in connection with the origination of any Mortgage Loan; provided, however, the Seller does not represent or warrant the accuracy of the qualifying income stated (provided that such stated income is not grossly unreasonable when considering all relevant factors relating to such Mortgagor, including without limitation, geographic area, unique expertise, years in the field of employment, etc.) by the related Mortgagor(s) in connection with a Mortgage Loan that does not require income verification as defined in the Underwriting Guidelines;" MLPA Exh. A(59).

"As of the Closing Date, the Mortgage has not been satisfied, canceled, subordinated or rescinded, in whole or in part, and the Mortgaged Property has not been released from the lien of the Mortgage, in whole or in part, nor has any instrument been executed that would effect any such satisfaction, cancellation, subordination, rescission or release;" MLPA, Exh. A(9).
"The related Mortgage is a valid, existing and enforceable first or second lien, as applicable, on the related Mortgaged Property, including all improvements on the related Mortgaged Property . . .;" MLPA, Exh. A(l 1). "As of the Closing Date, no Mortgage Loan has an LTV [loan-to-value ratio] of more than 100%;" MLPA, Exh. A(41).

"As of the Closing Date, there is no default, breach, violation or event of acceleration existing under the Mortgage or the Mortgage Note and no event which, with the passage of time or with notice and the expiration of any grace or cure period, would constitute a default, breach, violation or event of acceleration; ...,"MLPA,Exh.A(19).

23.

"The information set forth in the Mortgage Loan Schedule is complete, true and

correct as of the Cut-off Date;" MLPA, Exh. A (l).4

Citigroup's representations and warranties were, and remain, material to the Trust

and the Certificateholders. Indeed, Section 7 of the MLPA expressly makes the accuracy of
Citigroup's representations and warranties a condition to the closing of the transaction: "The closing shall be subject to each of the following conditions: (a) All of the representations and
warranties of [Citigroup] under this Agreement shall be true and correct in all material respects
as of the date as of which they are made and no event shall have occurred which, with notice or

the passage of time, would constitute a default under this [MLPA]." 24. Through the representations and warranties, Citigroup promised that, as of the

Closing Date, the Mortgage Loans met certain credit quality thresholds regarding the borrowers' ability to repay their loans on time and in full, that the Mortgage Loans were originated in compliance with legal requirements, and that the documentation required to issue (and enforce)
the Mortgage Loans was complete. Without these assurances, the Certificates would not have been purchased by investors, or at the very least, would not have been purchased on the same
economic terms.

25.

The MLPA provides that within ninety days of "the earlier of either discovery by

or notice to [Citigroup] of any breach of a representation and warranty made by [Citigroup] that 4The Mortgage Loan Schedule ("MLS") includes important information to Certificateholders, such as the balance
remaining on a property's senior lien, the original appraisal value of the property, whether the loan is a balloon loan, the loan's current interest rate, the borrower's debt-to-income ratio, the borrower's monthly income and FICO score, whether the property is a primary residence, second home or investment property, the original balance of the loan, the original LTV ratio, property type descriptions, and purchase price. The MLS is typically the Certificateholders' primary means of obtaining this information on a loan-by-loan basis.

10

materially and adversely affects the value of a Mortgage Loan or the Mortgage Loans or the interest therein of [the Depositor], [Citigroup] shall use its best efforts promptly to cure such breach in all material respects." MLPA 6. If the breach cannot be cured, then Citigroup "shall,

at [the Depositor's] option, repurchase such Mortgage Loan at the Purchase Price."
(emphasis added).

Id.

Section 6 also gives the Depositor the option to request that Citigroup

substitute a compliant mortgage loan for the breaching Mortgage Loan. Both repurchase and
substitution must be made in a manner "consistent with Section 2.03 of the [PSA]." Id. Pursuant

to Section 2.03 of the PSA, substitution of a breaching Mortgage Loan may only occur within

two years of the Closing Date. This option is thus no longer available to the Trust, as the
Closing Date was in 2007.
26. Consistent with the clear allocation of risk between the Trust and Citigroup, the

MLPA requires Citigroup to repurchase defective Mortgage Loans regardless of whether

Citigroup was aware of the breach at the time the representations and warranties were made
even with respect to representations and warranties made to the best of Citigroup's knowledge.
With respect to the representations and warranties contained herein that are made to the knowledge or the best knowledge of [Citigroup], or as to which [Citigroup] has no knowledge, if it is discovered that the substance of any such representation and warranty is inaccurate and the inaccuracy materially and adversely affects the value of the related Mortgage Loan, or the interest therein of the [Depositor] or the [Depositor's] assignee, designee or transferee, then notwithstanding [Citigroup's] lack of knowledge with respect to the substance of such representation and warranty being inaccurate at the time the representation and warranty was made, such inaccuracy shall be deemed a breach of the applicable representation and warranty and [Citigroup] shall take such action [as the MLPA requires].
MLPA 6.

11

27.

The PSA provides that upon any party's discovery of a breach, that party must

notify the other parties. The Trustee is then charged with requesting that Citigroup, as Sponsor,
j cure the breaches or repurchase the Mortgage Loans:

1
I

Upon discovery or receipt ofnotice by the Depositor, the Servicer,

the Trust Administrator or the Trustee of . . . the breach by the

Sponsor of any representation, warranty or covenant under the

1 1

Mortgage Loan Purchase Agreement in respect of any Mortgage Loan which materially adversely affects the value of such

I j
j I |

Mortgage Loan or the interest therein ofthe Certificateholders, the party so discovering or receiving notice shall promptly notify the
other parties to this Agreement, and the Trustee thereupon shall promptly notify the Sponsor of such defect, missing document or breach and request thatthe Sponsor deliver such missing document or cure such defect or that the Sponsor cure such breach within 90

j
I
I

days from the date the Sponsor was notified of such missing
document, defect or breach.

1
j I |

PSA 2.03(a). If, after such notification, Citigroup fails to cure or repurchase within the
provided ninety-day period, the Trustee shall enforce the obligations of the Sponsor under the

!
j
;

Mortgage Loan Purchase Agreement (i) to repurchase such

Mortgage Loan from REMIC I at the Purchase Price within 90 days after the date on which the Sponsor was notified (subject to Section 2.03(e)) of such missing document, defect or breach, and

j
I
I I

(ii) to indemnify the Trust Fund in respect of such missing

document, defect or breach.

1*
28. The PSA defines Purchase Price as:

I
I
1
j j ] 1 ;

With respect to any Mortgage Loan or REO Property to be

purchased pursuant to or as contemplated by Section 2.03 or
Section 9.01, and as confirmed by an Officers' Certificate from the party purchasing the Mortgage Loan to the Trustee and the Trust Administrator, an amount equal to the sum of: (i) 100% of the Stated Principal Balance thereof as of the date of purchase (or such other price as provided in Section 9.01), (ii) in the case of (x) a Mortgage Loan, accrued interest on such Stated Principal Balance at the applicable Mortgage Loan Remittance Rate in effect from time to time from the Due Date as to which interest was last

I
I

covered by a payment by the Mortgagor or an advance by the

12

Servicer, which payment or advance had as of the date of purchase been distributed pursuant to Section 4.01, through the end of the calendar month in which the purchase is to be effected, and (y) an REO Property, the sum of (1) accrued interest on such Stated Principal Balance at the applicable Mortgage Loan Remittance
Rate in effect from time to time from the Due Date as to which

interest was last covered by a payment by the Mortgagor or an advance by the Servicer through the end of the calendar month immediately preceding the calendar month in which such REO Property was acquired, plus (2) REO Imputed Interest for such REO Property for each calendar month commencing with the calendar month in which such REO Property was acquired and ending with the calendar month in which such purchase is to be
effected, minus the total of all net rental income, Insurance

Proceeds, Liquidation Proceeds and P&I Advances that as of the date of purchase had been distributed as or to cover REO Imputed Interest pursuant to Section 4.01; (iii) any unreimbursed Servicing Advances and P&I Advances and any unpaid Servicing Fees allocable to such Mortgage Loan or REO Property; (iv) any amounts previously withdrawn from the Collection Account in respect of such Mortgage Loan or REO Property pursuant to Sections 3.11(a)(ix) and Section 3.16(b); and (v) in the case of a Mortgage Loan required to be purchased pursuant to Section 2.03, expenses incurred or to be incurred by the Trust Fund in respect of the breach or defect giving rise to the purchase obligation including any costs and damages incurred by the Trust Fund in connection with any violation of any predatory or abusive lending law with respect to the related Mortgage Loan.
PSA 1.01.

29.

Citigroup additionally agreed to pay the Trust Fund for any costs and expenses,

including attorney's fees, resulting from a breach of a representation and warranty. First, the
definition of Purchase Price includes "expenses incurred or to be incurred by the Trust Fund in

respect of the breach or defect giving rise to the purchase obligation." PSA 1.01. Second,
Section 6 of the MLPA requires Citigroup, in addition to repurchasing a defective Mortgage
Loan at the Purchase Price, to "indemnify the [Depositor] and hold it harmless against any

losses, damages, penalties, fines, forfeitures, reasonable and necessary legal fees and related costs, judgment, and other costs and expenses resulting from any claim, demand, defense or

13

assertion based on grounded upon, or resulting from, a breach of the representations and
warranties contained in Section 5 of [the MLPA]."

30.

Citigroup's cure or repurchase obligation was central to the securitization of the

Mortgage Loans because it (1) incentivized Citigroup to ensure the Mortgage Loans were issued using prudent lending practices and (2) allocated the risk of poor lending practices to the party
best able to detect and prevent themCitigroup. Traditionally, loan originators financed their

mortgage business through customer deposits, retained ownership of the loans they originated,
and directly received mortgage payments from borrowers. They earned a profit based on the

spread between the interest they received on the loans and the interest they paid on the depository accounts. When an originator held a mortgage through the term of the loan, it alone
bore the risk of loss if the borrower defaulted and the value of the collateral was insufficient to

repay the loan. As a result, originators had a strong economic incentive to apply prudent
underwriting standards to verify the borrower's creditworthiness.

31.

Mortgage securitization can remove these incentives toward prudent lending. In

the securitization context, originators earn a profit from the sale of the loan rather than the

interest spread. Once the loans are sold, the credit risk on those loans shifts to investors. Thus,
the more loans an originator issues, the more product it has available for sale and the more profit

it can generate. Rather than being a key component of profitability, underwriting guidelines and
other credit criteria act as a constraint on profitability, because they restrict a lender from issuing more loans to less creditworthy borrowers. By undercutting or ignoring those credit criteria, the lender can issue more loans. As long as the lender sells the loan, it does not take on additional
risk by issuing riskier loansit just makes more money.

14

32.

Likewise, if a sponsor originates or purchases loans to hold on its books as

investments, the risk of default will loom large in its decision to issue or purchase the loans. But because securitization sponsors intend to sell and securitize most of the loans, their primary
focus is increasing volume, even at the expense of credit quality. If they are allowed to escape

their obligation to cure or repurchase defective loans, they can pass the risk of default onto investors, and thereby will have little incentive to carefully scrutinize the loans they acquire. 33. The cure/repurchase mechanism provides an essential deterrent to such

misconduct. If a sponsor is faced with the risk that it will be forced to repurchase a materially deficient loan, the sponsor will have the necessary incentive to ensure that its representations and warranties are accurate. And because the sponsor is in the best position to verify the quality of the loans it intends to securitize, allocating the risk of deficiencies in the loans to the sponsor is appropriate and reasonable.

34.

The cure/repurchase mechanism was not a cure-all by which investors or trusts

accepted the possibility of pervasive breachesbreaches that would leave the trust and investors with either a significantly riskier pool of assets that were far less likely to perform or a far smaller pool of assets (with more limited cash flows) from which to pay investors after the sponsor repurchased the defective loans. Indeed, a sponsor that intended in good faith to abide by its repurchase obligation would never securitizeand would take steps to insure it did not securitizea pool of mortgage loans rife with violations of representations and warranties.
III. CITIGROUP'S BREACHES OF ITS REPRESENTATIONS AND WARRANTIES.

35.

The Mortgage Loans in the Trust have experienced high rates of defaults and

delinquencies. Consequently, the Trust has suffered over $354 million in realized losses as of
April 2013, including over $196 million in realized losses with respect to Group II. In light of

15

these losses, certain Certificateholders instructed the Trustee to obtain the Loan Files for certain

Group II Mortgage Loans from the Servicer. 36. A full forensic review of the credit, collateral and compliance components of

1,604 Group II Mortgage Loans (the "Loan Review") was conducted.

This review, which

compared the underwriting parameters and standards in place at the time of origination against the representations and warranties contained in the MLPA, is also known as a "re-underwriting"

because it repeats the loan underwriting exercise the loan originator was supposed to conduct prior to issuing the loan.
37. The Loan Review did not reveal merely that some Mortgage Loans breached

Citigroup's representations and warranties; it revealed rather that the Group II Mortgage Loans
were riddled with thousands of breaches. Of the 1,604 Group II Mortgage Loans reviewed,

1,267 Loans (79 percent) contained at least one breach that had a material and adverse impact on

the Mortgage Loan or the Certificateholders' interests therein; many had multiple such breaches.
These breaches included such fundamental issues as misrepresentations of borrower income, the

occupancy status of the property and the borrower's debt obligations; reliance on grossly
unreasonable stated incomes where verification was not required; violations of underwriting

guidelines without any compensating factors; incorrect calculations of debt and debt-to-income
ratios; excessive loan-to-value ratios; violation of high cost loan statutes and other applicable laws; and significant inaccuracies in the Mortgage Loan Schedule. The specific representations and warranties breached with respect to each of the 1,267 Group II Mortgage Loans are listed in
Exhibit 3 hereto.

38.

These breaches substantially undermine the value of these Mortgage Loans and

the interests of Certificateholders by, among other things, concealing the heightened risks

16

inherent in the loans. Among other things, a borrower's income and other debt obligations are

primary factors used to assess whether the borrower is able to repay a loan. Indeed, the ratio of
monthly debt payments to monthly income (also known as the debt-to-income or "DTI" ratio) is

a primary criterion in the underwriting process. Loan-to-value ("LTV") and combined loan-tovalue ("CLTV") ratios are also key criteria for assessing the likelihood that a borrower will repay
a loan, and are also used to determine the ability of the owner of the loan to recover against the

subject property in event foreclosure is necessary. The LTV ratio reflects the percentage of the

property value covering the Mortgage Loan. The CLTV ratio reflects the percentage of the

property value covered by all loans secured by that property. For example, a 75% LTV ratio
means that the mortgage equals 75% of the property's value, and the borrower owns the

remaining 25% in value as equity. That 25% equity provides the borrower with an important
incentive not to default (and potentially lose his/her equity in the property) and also acts as a cushion in the event a borrower is unable to pay. The higher the LTV ratio, the higher the risk
that the Trust will be unable to recover the full value of the loan through foreclosure.

39.

Inaccurate LTV, CLTV and DTI ratios further create material inaccuracies in the

Mortgage Loan Schedule ("MLS"). The MLS is often a critical source of information regarding key characteristics of the Mortgage Loans that both the credit rating agencies' and potential
investors use to assess the risks in the mortgage pool (and thus in the Certificates). Because

neither rating agencies' nor potential investors have access to the underlying Loan Files prior to

purchasing Certificates, they have no way to verify that the information on the MLS is correct.
They must rely instead upon the Sponsor's representation and warranty that the MLS is correct
in all material respects.

17

40.

Occupancy status also directly impacts the risk profile of the loan because the

borrower is much less likely to default on a mortgage secured by her primary residence than she

is on a loan secured by a second home or investment property. Likewise, accurate information concerning a borrower's cash and other assets is important in assessing risk because these assets provide an alternative source of loan repayment in the event a borrower losses his/her job.
41. Finally, mortgage loans with missing documentation or that fail to comply with

applicable law can, among other things, be more difficult to enforce against the borrower or

subject property, may increase the difficulty and expense of servicing the loans, and make it
virtually impossible to fully and completely verify that the Mortgage Loan was as represented.
42. The defective Mortgage Loans in the Trust at issue here often contain breaches of

more than one representation and warranty, further increasing the risk to Certificateholders and decreasing the value of the loans. The following examples are illustrative:
Loan xxxxl048: This loan was originated in 2006 under an Alternative Loan

Program with an original principal balance of $320,000. The borrower stated on his loan application that he was employed as a "supervisor driver" earning $15,366 per month. The borrower's stated income was grossly unreasonable.
The borrower filed for bankruptcy in 2008. In his bankruptcy court filings, the borrower listed his actual annual income for 2006 as $11,405, or only $950 per month. The underwriting guidelines further required the borrower to disclose all debt obligations, including all pending transactions that would result in a change in the borrower's monthly debt obligations. A property and credit records search determined that the borrower also had three other mortgages of $482,400, $120,600, and $810,000 respectively, none of which were disclosed. These additional mortgages increased the borrower's monthly debt obligation by $9,660, which severely decreased the borrower's ability to repay the subject loan. Moreover, based on the borrower's actual monthly income and debt obligations, the borrower's DTI ratio was 1,434.54%, which far exceeded the underwriting guideline cap of 50%. The borrower (and the Mortgage Loan Schedule) further represented that he occupied the subject property as his primary residence, yet the Loan File revealed that the property was in fact an investment property. The borrower's bankruptcy filings confirmed that the borrower's "former" residence remained his primary residence. The underwriting guidelines further required at least one borrower on the mortgage note to occupy the subject property for the loan to be approved. Finally, the warranties (and the underwriting guidelines)

18

required loans to comply with all federal, state and local regulatory requirements and to maintain the final HUD-1 in the Loan File. Despite this requirement, the final HUD-1 was missing from the Loan File.
Loan xxxx4315: This is a second lien loan originated in 2006 under a Full Documentation Loan Program with an original principal balance of $97,843. The borrower stated on his loan application that he was employed as a "marketing representative" earning $9,500 per month. The borrower's stated income was grossly unreasonable. The borrower filed for bankruptcy in 2008 and listed his actual annual income for 2006 as $21,609, or only $1,801 per month. This severely decreased the borrower's ability to repay the subject loan. Moreover, based on the borrower's actual monthly income, the borrower's DTI ratio was in fact 78.34%, which exceeded the underwriting guideline maximum of 50% for a second lien such as this one. Further, a complete verification of employment was required under the loan program, which should have included a written verification of employment, as well as a verbal verification of employment to confirm the borrower's information. No employment verification of any kind was in the loan file. The underwriting guidelines required a fully executed first lien note when the first lien was originated simultaneously with the second lien. Here, the first lien and second lien were originated at the same time, yet the loan file did not contain a copy of the first lien note as required. Finally, the warranties (and the underwriting guidelines) required loans to comply with all federal, state and local regulatory requirements and to maintain the final HUD-1 in the Loan File. Despite this requirement, there was no final HUD-1 in the Loan File. Loan xxxx4299: This second lien loan was originated in 2006 under a Stated Income Loan Program with an original principal balance of $92,000. The borrower stated on his loan application that he was employed as a "senior career advisor" earning $10,542 per month. This stated income was grossly unreasonable and, together with other red flags in the Loan File, should have put a Indeed, this reasonably prudent underwriter on notice of borrower fraud. borrower filed for bankruptcy in 2008, and listed his actual annual income for 2006 as $26,814, or $2,235 per month. Further, the borrower underreported his debt obligations. A property and credit records search identified two additional mortgages for $473,600 and $118,400, neither of which were disclosed by the borrower. These additional mortgages increased the borrower's monthly debt obligation by $6,249, severely decreasing the borrower's ability to repay the subject loan. Moreover, based on the borrower's actual monthly income and debt obligations, the borrower's DTI ratio was in fact 475.99%, which far exceeded the underwriting guideline cap of 50%. The underwriting guidelines required a fully executed first lien note when the first lien was originated simultaneously with the second lien. Here, the first lien and second lien were originated at the same time, yet the loan file did not contain a copy of the first lien note as required. Loan xxxx8308: This loan was originated in 2006 under a Stated Income Loan Program with an original principal balance of $119,162. The borrower stated on his loan application that he was employed as a "truck driver" for 1.6 years earning
19

$66,000 a year, or $5,500 per month. The borrower filed for bankruptcy in 2008. In his bankruptcy court filings, the borrower listed his actual annual income as $27,468, or only $2,288 per month. In addition, based on the borrower's actual monthly income, the borrower's DTI was 109.97%, which exceeded the lender's guideline maximum of 50%. Further, the lender's guidelines required the borrower to submit a signed and dated letter of explanation if the borrower had any derogatory credit on his credit report. The borrower's credit history demonstrated a history of multiple revolving and installment accounts with payments more than 30, 60 and 90 days late. Yet, the underwriter failed to obtain a letter of explanation for the derogatory credit. No compensating factors were listed in the file to explain why the loan was originated outside of the guideline
requirements.
IV. CITIGROUP KNEW OF MATERIAL BREACHES PRIOR TO MAKING THE
REPRESENTATIONS AND WARRANTIES.

43.

Citigroup discovered the vast extent of breaches in the Group II Mortgage Loans

at the time it made its representations and warranties in the MLPA. First, Citigroup purchased

the Mortgage Loans and selected them for securitization and thus had the Loan Files for each
Mortgage Loan in its possession.

44.

Prior to making its representations and warranties, Citigroup performed its own

comprehensive re-underwriting of a sample of the Mortgage Loans. According the United States Congress' Congressional Oversight Panel on the mortgage crisis, Citigroup was one of several
securitization sponsors that hired third-party due diligence firm Clayton Holdings, Inc.

("Clayton") to conduct due diligence on loans before securitizing them.5

45. The Congressional Oversight Panel explained this due diligence as follows: [B]efore purchasing a pool of loans to securitize, the securitization sponsors, usually banks or investment firms, hired a third-party due diligence firm to check if the loans in the pool adhered to the seller's underwriting guidelines and complied with federal, state, and local regulatory laws. The sponsor would select a sample of the total loan pool, typically around 10 percent, for the due
5 See Congressional Oversight Panel November Oversight Report Examining the Consequences of Mortgage Irregularities for Financial Stability and Foreclosure Mitigation, Nov. 16, 2010, Exhibit XX, ("Congressional
Oversight Report"), at 31.

20

diligence firm to review. The due diligence firm reviewed the sample on a loan-by-loan basis and categorized each as not

meeting the guidelines, not meeting the guidelines but having

compensating factors, or meeting the guidelines.6

46. The Financial Crisis Inquiry Commission ("FCIC") described Clayton's review

process in particular:

The review fell into three general areas: credit, compliance, and valuation. Did the loans meet the underwriting guidelines (generally the originator's standards, sometimes with overlays or additional guidelines provided by the financial institutions purchasing the loans)? Did the loans comply with federal and state laws, notably predatory-lending laws and truth-in-lending requirements? Were the reported property values accurate? And, critically: to the degree that a loan was deficient, did it have any
"compensating factors" that offset these deficiencies? For

example, if a loan had a higher loan-to-value ratio than guidelines called for, did another characteristic such as the borrower's higher income mitigate that weakness? The due diligence firm would then grade the loan sample and forward the data to its client. Report in hand, the securitizer would negotiate a price for the pool

and could "kick out" loans that did not meet the stated guidelines.7
47. According to Clayton, 42% of the mortgage loans it reviewed for Citigroup

between January 2006 and June 2007the period during which the Mortgage Loans were

originated, purchased and securitized in the Trustfailed to meet guidelines, possessed no

compensating factors and thus should have been rejected.8 Yet Citigroup generally securitized
nearly one third of these loans anyway. According to Clayton, Citigroup "waived in" 31

percent of the mortgage loans that Clayton determined failed to comply with underwriting

guidelines and had no compensating factors.9 Thus, given that each of Citigroup's samples were
6 Congressional Oversight Report at 31-32.
Financial Crisis Inquiry Commission, Final Report of the National Commission on the Causes of the Financial and Economic Crisis in the United States, January 2011 ("FCIC Report") at 166.
8 Id. at 166-67.
9

FCIC Report at 167, Figure 9.1.

21

supposed to be representative of the entire sampled pool, Citigroup knew at the time that it was

highly likely that more than one out of every eight loans it securitized between January 2006
and June 2007 did not comply with the applicable underwriting guidelines.

48.

It is, at the very least, reasonably plausible that Citigroup conducted due diligence

on the Mortgage Loans in a manner consistent with the due diligence it conducted on other

mortgage pools examined during the same time period in which Citigroup purchased and

securitized the Mortgage Loans. Based on the due diligence practices described by Clayton, in
connection with its pre-securitization due diligence, Citigroup discovered material violations of underwriting guidelines that breach its representations and warranties regarding the Group II

Mortgage Loans. But Citigroup failed to notify the Trustee of any breaches of representations
and warranties regarding the Group II Mortgage Loans that it discovered, as the MLPA required, and also failed to cure or repurchase such defective Mortgage Loans, as both the MLPA and PSA required. 49. Citigroup's failure to notify the Trustee of the breaches it discovered and its

failure to cure or repurchase the affected Mortgage Loans, constitute separate and independent
breaches of multiple provisions of the MLPA.
V. CITIGROUP'S BREACH OF ITS CURE OR REPURCHASE OBLIGATION.

50.

In January 2013, certain Certificateholders notified the Trustee of breaches of

representations and warranties with respect to 1,267 Mortgage Loans. On January 28, 2013, the

Trustee promptly sent notice of these breaches to Citigroup (the "Breach Notice"). The Breach
Notice included two voluminous reports detailing breaches found with regard to each of the

1,267 defective Mortgage Loans, including both (i) the specific representation and warranties
breached for each Mortgage Loan and (ii) a detailed narrative description of the facts

22

establishing the breach. The Breach Notice demanded that Citigroup repurchase the defective Mortgage Loans in the event Citigroup was unable to cure them. 51. Citigroup responded to the Trustee's Breach Notice three days later, on January

31, 2013, with a blanket assertion that it could not repurchase even a single loan because the

Breach Notice did not provide "sufficient detail concerning the alleged breaches of

representations and warranties to permit [Citigroup] to evaluate [the Trustee's] demands."

Citigroup requested reams of additional information that the Trustee was not required to provide
and that, without exception, was either wholly irrelevant to Citigroup's cure or repurchase

obligation ("the identity(ies) of the employees of such vendor who performed the Review," "a description of how the Loan Files were obtained in connection with the review"), or was
information that Citigroup, as Sponsor, should have had in its possession already, including the
Loan Files themselves.10

52.

In addition, Citigroup wrongly suggested that Loans that "have been liquidated"

were "outside the scope of the relief requested"repurchase of the defective Loans. Not only is
this assertion contrary to the terms of the parties' agreements, it is flatly contradicted by Citigroup's practice under contracts with substantially similar terms. The Depositor

Citigroup's affiliateis required to file quarterly ABS-15G reports with the Securities & Exchange Commission disclosing, among other things, the number and dollar value of loans that
were the subject of a repurchase demand and the number and dollar value of loans repurchased by the responsible party. The ABS-15G reports explain that the dollar value of the loans
submitted for repurchase is based on the outstanding principal balance of each loan as of "the

end of the reporting period or the most recent balance available for assets that remain in the pool

As discussed above, Citigroup gained possession of the Loan Files when it purchased the Mortgage Loans.

23

at that time or the latest balance reported if the asset was liquidated or removed from the pool

prior to the end of the reporting period."11 The reports also state that the number of loans that
Citigroup actually repurchased, or had actually agreed to repurchase, "may include [loans] that were previously liquidated, and for which a make-whole payment was made in lieu of repurchased Citigroup is the responsible party for eighteen of the twenty-eight trusts included

in the Depositor's filings in which loans were actually repurchased or make-whole payments
were made.

53.

Citigroup's practice is consistent with industry practice. The term "repurchase" is

a recognized industry term that is understood to refer to a mechanism to make a mortgage loan purchaser whole for a seller's breach of its representations and warranties with respect to the
securitized loans. The mechanism ensures that the sponsor is responsible for and retains the

entirety of the risk of loss associated with any breach of the representations and warranties.
Make-whole payments also ensure that disputes between the Trustee and Citigroup relating to representation and warranty breaches do not hinder loss mitigation efforts with respect to Loans in default. Under the PSA, the Servicer is required to service the Mortgage Loans in the best interests of the Certificateholders, consistent with industry standards and in the same way it

would service loans in its own portfolio.

When a borrower has ceased making mortgage

payments, industry standards require the Servicer to diligently pursue repayment from the borrower on whatever timeline was deemed the most economically sensible to maximize recovery on that loan. Once a decision is made that foreclosure is the best way to mitigate loss to the Trusta decision that would also minimize Citigroup's potential repurchase liability (by " See, e.g., Citigroup Mortgage Loan Trust Inc. Form ABS-15G filed Feb. 14, 2013, available at
http://www.sec.gov/Archives/edgar/data/1257102/000089109213001355/0000891092-13-001355-index.htm (emphasis added).

12 Id. (emphasis added).

24

offsetting foreclosure proceeds against the Purchase Price)that process should be allowed to proceed unimpeded in order to protect the best interests of the Certificateholders.
54. The MLPA required Citigroup to attempt to cure the identified breaches within

ninety days of receiving notice from the Trustee and, if it could not cure the breaches, to repurchase the affected Group II Mortgage Loans. Citigroup has failed either to cure or to
repurchase a single such Loan.

55.

Citigroup's opportunity to cure has long since expired with respect to the breaches

of representations and warranties Citigroup itself discovered, or should have discovered, during
or after its due diligence.
FIRST CAUSE OF ACTION

Breach of Contract: Specific Performance

56.

Plaintiff incorporates by reference the allegations in the preceding paragraphs 1-

56 as if they were set forth fully herein.

57. The MLPA is a valid, enforceable agreement to which Citigroup is a party. The

PSA is a valid and enforceable agreement related to, and executed contemporaneously with, the
MLPA.

58.

Under the terms of the MLPA, and through the assignment in the PSA of the

Depositor's rights under the MLPA, the Trustee is given the right to enforce the obligations of
Citigroup to the Trust and Certificateholders. 59. The Trustee has performed all of its obligations and prerequisites with regard to

and in advance of filing this action described herein. In particular, the Trustee delivered the Breach Notice to Citigroup on January 28, 2013. More than ninety days have passed since the

Trust notified Citigroup of its breaches of representations and warranties.

25

60.

Section 2.03(a) of the PSA and Section 6 of the MLPA require Citigroup to

repurchase any Mortgage Loan within 90 days of discovery or notice of a breach of its representations and warranties if that breach has not been cured by Citigroup and materially
adversely affects the value of such Mortgage Loan or the
Certificateholders.

interest therein of the

61.

Citigroup breached its obligations under the MLPA and PSA by discovering

breaches of representations and warranties and not curing the breaches or repurchasing the
affected Mortgage Loans.

62.

Citigroup's response to the Breach Notice has unequivocally indicated that it will

not repurchase Mortgage Loans in the Trust.

obligation to do so. 63.

Citigroup has thus repudiated its contractual

Based on its behavior to date, it is reasonable to expect that Citigroup will

continue to refuse to repurchase most or all of the defective Mortgage Loans that are identified in
the future.

64.

The Trust has been damaged by Citigroup's breaches.

Citigroup's breaches

materially and adversely affect the value of the Mortgage Loans and the interests of the
Certificateholders.

65.

The Trust is therefore entitled to an order that Citigroup must specifically perform

its obligations under the PSAsspecifically, that it must repurchase all Mortgage Loans

breaching Citigroup's representation and warranties, both those listed in the Breach Notice and
those identified in the future.

26

SECOND CAUSE OF ACTION Breach of Contract

66.

Plaintiff incorporates by reference the allegations in the preceding paragraphs 1-

56 as if they were set forth fully herein.

67. The MLPA is a valid, enforceable agreement to which Citigroup is a party. The

PSA is a valid and enforceable agreement related to, and executed contemporaneously with, the
MLPA.

68.

Under the terms of the MLPA and PSA, the Trustee is given the right and duty to

enforce the obligations of Citigroup to the Trust and Certificateholders.

69. The Trustee has performed all of its obligations and prerequisites with regard to

and in advance of filing this action described herein. In particular, the Trustee delivered the
Breach Notice to Citigroup on January 28, 2013 identifying 1,267 Group II Mortgage Loans in breach of one or more representations and warranties. More than ninety days have passed since

the Trust notified Citigroup of its breaches of representations and warranties. 70. Citigroup has failed to cure or repurchase any Mortgage Loans identified in the

Breach Notice in violation of Section 2.03(a) of the PSA and Section 6 of the MLPA.

71.

Citigroup should be required to pay damages for the losses caused to the Trust by

Citigroup's breaches of its contractual duties. As Citigroup has refused to comply with its repurchase obligations, the Trust is not limited to its contractual repurchase remedy. This is especially true where, as here, Citigroup, the responsible party, has frustrated the implementation
of that remedy.

72.

The Trust is therefore entitled to damages, in an amount to be determined at trial,

for Citigroup's breaches of contract.

27

THIRD CAUSE OF ACTION

Breach of Contract

73.

Plaintiff incorporates by reference the allegations in the preceding paragraphs 1-

56 as if they were set forth fully herein.

74.

The MLPA is a valid, enforceable agreement to which Citigroup is a party. The

PSA is a valid and enforceable agreement related to, and executed contemporaneously with, the
MLPA.

75.

Under the terms of the MLPA, and through the assignment in the PSA of the

Depositor's rights under the MLPA, the Trustee is given the right to enforce the obligations of
Citigroup to the Trust and Certificateholders.

76.

The Trustee has performed all of its obligations and prerequisites with regard to

and in advance of filing this action described herein.

77.

Section 6 of the MLPA requires Citigroup to notify the Trustee of a breach of any

of its representations and warranties in Section 5 of the MLPA that materially and adversely
affects the value of the Mortgage Loan or the interests of the Trustee or Certificateholders
therein promptly upon its discover of such breach. 78. Section 6 further requires Citigroup to repurchase any Group II Mortgage Loan

within 90 days of its discovery of such a breach if that breach has not been cured by Citigroup.
79. Based on the due diligence it conducted on a sample of the Mortgage Loans,

Citigroup discovered that certain of the Group II Mortgage Loans breached its representations
and warranties.

80.

Citigroup breached its obligations under the MLPA by (a) failing to provide

notice to the Trustee of breaches identified during its due diligence and otherwise with respect to

28

Group II Mortgage Loans; (b) failing to cure the discovered breaches or repurchase the defective
Group II Mortgage Loans.

81.

Citigroup's breaches of the MLPA have fundamentally defeated the protection the

cure/repurchase mechanism was intended to provide.

82. The Trust is entitled to an order that Citigroup must specifically perform its

obligation to repurchase Group II Mortgage Loans with respect to which Citigroup discovered
breaches of representations and warranties, which materially and adversely affectthe value of the
Loans and/or the interests of the Trust and Certificateholders therein.

83.

The Trust is further entitled to an award of damages for Citigroup's failure to

notify the Trustee of breaches of representations and warranties that Citigroup discovered and its
subsequent failure to cure such breaches or repurchase such Group II Mortgage Loans, in an
amount to be determined at trial.
PRAYER FOR RELIEF

WHEREFORE, Plaintiff prays for the following relief:

(a)

Onthe first cause of action, for an order of specific performance that Citigroup be

required to repurchase all Mortgage Loans identified in the Breach Notice; (b) On the second cause of action, for an award of damages against Citigroup

compensating the Trust for Citigroup's breaches of the PSA and MLPA, in an amount to be
proven at trial;

(c)

On the third cause of action, for an order of specific performance that Citigroup

be required to repurchase all Group II Mortgage Loans with respect to which Citigroup
discovered breaches of representations and warranties, and an award of damages for Citigroup's failure to comply with its obligationto notify the Trustee of such breaches.

29

(d)

All costs of the Trusts associated with this action (including the Trustee's

attorneys' fees), in an amount to be proven at trial; (e)

(f)

Prejudgment interest as approved by the Court; and

For all such other relief to which the Plaintiff is entitled under law or in equity.

DEMAND FOR TRIAL BY JURY

Plaintiff demands a trial by jury for all issues so triable as a matter of right.

MCKOOXSMITH, P.Qr
By:

^
tyle R. Klein
ibert W. Scheef

One Bryant Park, 47th Floor

New York, NY 10036

gklein@mckoolsmith.com rscheef@mckoolsmith.com
(t) (212) 402-9400 (f) (212) 402-9444

Kirk D. Dillman (Motion for Admission Pro Hac Vice to be Filed)

865 South Figueroa St.

j
I

Los Angeles, CA 90017

kdillman@mckoolsmith.com

Suite 2900

j j

(t) (213) 694-1200 (f) (213) 694-1234

Attorneysfor Plaintiff

30

Citigroup Mortgage Loan Trust 2007-AMC3, by U.S. Bank National Association v. Citigroup Global Markets Realty Corporation, Docket No. 1:13-cv-02843 (S.D.N.Y. Apr 30, 2013), Court Docket

General Information

Case Name

Citigroup Mortgage Loan Trust 2007-AMC3, by U.S. Bank National Association v. Citigroup Global Markets Realty Corporation 1:13-cv-02843 Open United States District Court for the Southern District of New York 2013-04-30 00:00:00 Contract: Other

Docket Number Status Court Primary Date Nature of Suit

Bloomberg Finance L.P. All rights reserved. For terms of service see bloomberglaw.com // PAGE 1 Document Link: http://www.bloomberglaw.com/ms/document/X1Q6MMFD3M82? documentName=9000003.pdf&amp;fmt=pdf