SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK: COMMERCIAL DIVISION
MBIA INSURANCE CORPORATION, Plaintiff,
-against-CREDIT SUISSE SECURITIES (USA) LLC, DU MORTGAGE CAPITAL, INC., and SELECT PORTFOLIO SERVICING, INC.,
Defendants.
Index No. 603751/2009 Hon. Jennifer G. Schecter
TRIAL AFFIDAVIT OF DANIEL GILL CITY OF WASHINGTON, DISTRICT OF COLUMBIA
Daniel Gill, being duly sworn, deposes and says:
My name is Daniel Gill. I am a Director in Navigant Consulting Inc. and a former Supervisory Special Agent for the Federal Bureau of Investigations, with over 37 years of experience in investigation and forensic accounting. I provide this affidavit as my direct testimony at trial.
SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK: COMMERCIAL DIVISION
MBIA INSURANCE CORPORATION, Plaintiff,
-against-
CREDIT SUISSE SECURITIES (USA) LLC, DLJ MORTGAGE CAPITAL, INC., and SELECT PORTFOLIO SERVICING, INC.,
Defendants.
Index No. 603751/2009 Hon. Jennifer G. Schecter
TRIAL AFFIDAVIT OF DANIEL GILL CITY OF WASHINGTON, DISTRICT OF COLUMBIA
Daniel Gill, being duly sworn, deposes and says:
My name is Daniel Gill. I am a Director in Navigant Consulting Inc. and a former Supervisory Special Agent for the Federal Bureau of Investigations, with over 37 years of experience in investigation and forensic accounting. I provide this affidavit as my direct testimony at trial.
Page
I. PROFESSIONAL BACKGROUND AND QUALIFICATIONS 1
II. MY ASSIGNMENT 2
III. SUMMARY OF CONCLUSIONS 4
W. DISCUSSION 4
A. The Difference Between an Investigative "Lead" and Reliable Proof of a
Borrower Misrepresentation 4
B. The Mr. Butler Relied on Unreliable Sources in an Attempt to Establish
Borrower Misrepresentation 5
1 Digital Risk Audit VOE's Are Not Reliable to Establish Borrower
Misrepresentation 5
2. The Work Number Report are not Reliable to Establish Borrower
Misrepresentation 6
3. Bankruptcy Reports Are Not Reliable to Establish Borrower
Misrepresentation 7
4. Lexis Nexis Reports Are Not Reliable to Establish Borrower
Misrepresentation 8
5. MERS Reports Are Not Reliable to Establish Borrower
Misrepresentation 9
6. RealQuest Reports Are Not Reliable to Establish Borrower
Misrepresentation 10
C. Mr. Butler Incorrectly Used Income Information Applicable to Years Prior or Subsequent to the Year of Loan Closing in an Attempt to Support His
Findings of Borrower Income Misrepresentation 11
V. CONCLUSION 12
Page
I. PROFESSIONAL BACKGROUND AND QUALIFICATIONS ... 1
II. MY ASSIGNMENT ... 2
III. SUMMARY OF CONCLUSIONS ... 4
IV. DISCUSSION ... 4
A. The Difference Between an Investigative “Lead” and Reliable Proof of a Borrower Misrepresentation ... 4
B. The Mr. Butler Relied on Unreliable Sources in an Attempt to Establish Borrower Misrepresentation ... 5
1 Digital Risk Audit VOE’s Are Not Reliable to Establish Borrower Misrepresentation ... 5
2. The Work Number Report are not Reliable to Establish Borrower Misrepresentation ... 6
3. Bankruptcy Reports Are Not Reliable to Establish Borrower Misrepresentation ... 7
4. Lexis Nexis Reports Are Not Reliable to Establish Borrower Misrepresentation ... 8
5. MERS Reports Are Not Reliable to Establish Borrower Misrepresentation ... 9
6. RealQuest Reports Are Not Reliable to Establish Borrower Misrepresentation ... 10
C. Mr. Butler Incorrectly Used Income Information Applicable to Years Prior or Subsequent to the Year of Loan Closing in an Attempt to Support His Findings of Borrower Income Misrepresentation ... 11
I. Professional Background and Qualifications
1. I earned a Bachelor of Science degree in Business Administration with a major in Accounting from George Mason University School of Business in 1979.
2. From 1984 to 2006, I served as a Special Agent with the Federal Bureau of Investigation where I conducted numerous financial crime related investigations and was assigned to hundreds of investigations that involved allegations of fraud and misrepresentation. 3. My first assignment was in FBI's Birmingham, AL field office in the White Collar and
Organized Crime squad with a focus on internal and external bank fraud investigations, specifically mortgage fraud investigations related to allegations of false statements made to various financial institutions. During this period, I worked with numerous financial
institutions and mortgage lenders and conducted hundreds of investigations involving mortgage fraud.
4. In 1986, I was transferred to the FBI's New York Office and in 1987 was assigned to the Forfeiture and Asset Seizure Team ("Forfeiture Squad"), which was responsible for conducting the forensic accounting and financial investigation leading to the civil and/or criminal forfeiture of assets and property involved in or traceable to various violations of federal and state laws. Our role was to conduct investigative due diligence on the subjects of an investigation, and develop a comprehensive financial profile, including a review and analysis of the subject's sources and disposition of income, real property acquisitions, bank accounts, and employment history. A significant majority of these investigations involved identifying and forfeiting property traceable to the proceeds of mortgage and other bank fraud types of offenses, with over 1000 investigations involving allegations of borrower fraud in the context of residential mortgages.
5. Throughout my FBI career, I received extensive instruction at the FBI Academy, annual DOJ sponsored training conferences, seminars in forensic accounting, money laundering and investigative techniques, and continuing education courses in connection with my CPA license. I was issued my CPA license by the Commonwealth of Virginia on October 10, 1983.
6. In 1996, I was promoted to the Supervisory Special Agent of the Forfeiture Squad where I continued my investigative duties but also supervised over twenty-five Special Agents, paralegal specialists and contract investigators assigned to the squad. During this period, I also provided administrative oversight and practical instruction regarding the conduct of financial crime investigations and formal instruction on financial crimes, asset forfeiture, money laundering, terrorist fmancing, and investigative techniques to federal and state law enforcement officers in the U.S., the U.K., Italy, Australia, South Africa, and the U.A.E. 7. In 1996, I was awarded the United States Department of Justice's Award for Public Service
from the U.S. Attorney General, as well as numerous other commendations from the Director of the FBI and United States Attorney Offices in connection with investigations I conducted or supervised throughout my career.
I. Professional Background and Qualifications
1. I earned a Bachelor of Science degree in Business Administration with a major in Accounting from George Mason University School of Business in 1979.
2. From 1984 to 2006, I served as a Special Agent with the Federal Bureau of Investigation where I conducted numerous financial crime related investigations and was assigned to hundreds of investigations that involved allegations of fraud and misrepresentation. 3. My first assignment was in FBI's Birmingham, AL field office in the White Collar and
Organized Crime squad with a focus on internal and external bank fraud investigations, specifically mortgage fraud investigations related to allegations of false statements made to various financial institutions. During this period, I worked with numerous financial
institutions and mortgage lenders and conducted hundreds of investigations involving mortgage fraud.
4. In 1986, I was transferred to the FBI's New York Office and in 1987 was assigned to the Forfeiture and Asset Seizure Team (“Forfeiture Squad”), which was responsible for conducting the forensic accounting and financial investigation leading to the civil and/or criminal forfeiture of assets and property involved in or traceable to various violations of federal and state laws. Our role was to conduct investigative due diligence on the subjects of an investigation, and develop a comprehensive financial profile, including a review and analysis of the subject’s sources and disposition of income, real property acquisitions, bank accounts, and employment history. A significant majority of these investigations involved identifying and forfeiting property traceable to the proceeds of mortgage and other bank fraud types of offenses, with over 1000 investigations involving allegations of borrower fraud in the context of residential mortgages.
5. Throughout my FBI career, I received extensive instruction at the FBI Academy, annual DOJ sponsored training conferences, seminars in forensic accounting, money laundering and investigative techniques, and continuing education courses in connection with my CPA license. I was issued my CPA license by the Commonwealth of Virginia on October 10, 1983.
6. In 1996, I was promoted to the Supervisory Special Agent of the Forfeiture Squad where I continued my investigative duties but also supervised over twenty-five Special Agents, paralegal specialists and contract investigators assigned to the squad. During this period, I also provided administrative oversight and practical instruction regarding the conduct of financial crime investigations and formal instruction on financial crimes, asset forfeiture, money laundering, terrorist financing, and investigative techniques to federal and state law enforcement officers in the U.S., the U.K., Italy, Australia, South Africa, and the U.A.E. 7. In 1996, I was awarded the United States Department of Justice's Award for Public Service
from the U.S. Attorney General, as well as numerous other commendations from the Director of the FBI and United States Attorney Offices in connection with investigations I conducted or supervised throughout my career.
8. In 2006, I joined Daylight Forensic & Advisory LLC ("Daylight"), an investigations and advisory firm, as a Managing Director and managed over 25 fraud investigations,
embezzlement, anti-money laundering, and investigative due diligence investigations. 9. In 2010, Navigant Consulting Inc. ("Navigant") acquired Daylight and I became a Director
in its Global Investigations and Compliance practice, where I have worked on
approximately 35 to 40 fraud related investigations. These investigations included an engagement on behalf of the State of Delaware, in which I investigated borrower misrepresentations in connection with a fraudulent "mortgage rescue" scheme. In
connection with that case, I testified as the State's summary financial witness in connection with the criminal trial of defendants charged with mortgage fraud and money laundering for their role in the fraudulent scheme.
10. I have more than 37 years of investigation and forensic accounting experience. I have personally conducted and supervised the investigation of various forms of fraud, misrepresentation and false statement allegations, including in the context of mortgage origination and loan applications. In connection with these investigations, I have
conducted hundreds of interviews and overseen the review of and/or personally reviewed tens of thousands of documents, including loan files, mortgage deeds and notes, public record filings, bank records, and fraud investigative findings. I have worked with numerous financial institutions and other commercial entities, including lending institutions, conducting fraud and investigative due diligence investigations, and developing anti-fraud, compliance and remediation programs.
11. Attached hereto as Exhibit A is a true and correct copy of my complete CV. II. My Assignment
12. I have been retained by Orrick, Herrington & Sutcliffe LLP ("Counsel") on behalf of the Credit Suisse Securities (USA) LLC, DLJ Mortgage Capital, Inc., and Select Portfolio Servicing, Inc. ("Credit Suisse") in the above-captioned litigation (the "Litigation"). 13. Plaintiff, MBIA Insurance Corporation ("MBIA" or "Plaintiff"), retained Steven I. Butler,
CFE, as a proposed underwriting expert in the Litigation. Mr. Butler prepared a report dated April 15, 2015 (the "Butler Report"). According to his report, Mr. Butler and a team of mortgage loan underwriters re-underwrote a sample of 400 loans ("Sample Loans") from a Credit Suisse residential mortgage backed securities transaction, HEMT 2007-2 that closed on April 30, 2007 ("Securitization"), and was securitized by a total of 15,664 mortgage loans.
14. In connection with his re-underwriting of the Sample Loans, Mr. Butler opines in the Butler Report that in 169 instances, affecting 140 loans, the borrowers made one or more misrepresentations, which Mr. Butler asserts breach certain representation and warranties ("R&Ws") made by Credit Suisse. Specifically, based on sources of information obtained after the time of the loan origination, Mr. Butler contends that the borrowers
misrepresented, their income, employment status, debt obligations (including undisclosed mortgages), or occupancy of the subject property.
8. In 2006, I joined Daylight Forensic & Advisory LLC (“Daylight”), an investigations and advisory firm, as a Managing Director and managed over 25 fraud investigations,
embezzlement, anti-money laundering, and investigative due diligence investigations. 9. In 2010, Navigant Consulting Inc. (“Navigant”) acquired Daylight and I became a Director
in its Global Investigations and Compliance practice, where I have worked on
approximately 35 to 40 fraud related investigations. These investigations included an engagement on behalf of the State of Delaware, in which I investigated borrower misrepresentations in connection with a fraudulent “mortgage rescue” scheme. In
connection with that case, I testified as the State’s summary financial witness in connection with the criminal trial of defendants charged with mortgage fraud and money laundering for their role in the fraudulent scheme.
10. I have more than 37 years of investigation and forensic accounting experience. I have personally conducted and supervised the investigation of various forms of fraud, misrepresentation and false statement allegations, including in the context of mortgage origination and loan applications. In connection with these investigations, I have
conducted hundreds of interviews and overseen the review of and/or personally reviewed tens of thousands of documents, including loan files, mortgage deeds and notes, public record filings, bank records, and fraud investigative findings. I have worked with numerous financial institutions and other commercial entities, including lending institutions, conducting fraud and investigative due diligence investigations, and developing anti-fraud, compliance and remediation programs.
11. Attached hereto as Exhibit A is a true and correct copy of my complete CV.
II. My Assignment
12. I have been retained by Orrick, Herrington & Sutcliffe LLP (“Counsel”) on behalf of the Credit Suisse Securities (USA) LLC, DLJ Mortgage Capital, Inc., and Select Portfolio Servicing, Inc. (“Credit Suisse”) in the above-captioned litigation (the “Litigation”). 13. Plaintiff, MBIA Insurance Corporation (“MBIA” or “Plaintiff”), retained Steven I. Butler,
CFE, as a proposed underwriting expert in the Litigation. Mr. Butler prepared a report dated April 15, 2015 (the “Butler Report”). According to his report, Mr. Butler and a team of mortgage loan underwriters re-underwrote a sample of 400 loans (“Sample Loans”) from a Credit Suisse residential mortgage backed securities transaction, HEMT 2007-2 that closed on April 30, 2007 (“Securitization”), and was securitized by a total of 15,664 mortgage loans.
14. In connection with his re-underwriting of the Sample Loans, Mr. Butler opines in the Butler Report that in 169 instances, affecting 140 loans, the borrowers made one or more misrepresentations, which Mr. Butler asserts breach certain representation and warranties (“R&Ws”) made by Credit Suisse. Specifically, based on sources of information obtained after the time of the loan origination, Mr. Butler contends that the borrowers
misrepresented, their income, employment status, debt obligations (including undisclosed mortgages), or occupancy of the subject property.
15. I have been asked by Counsel for Credit Suisse to review and evaluate the various sources relied upon by Mr. Butler in support of his opinions regarding alleged misrepresentations made by borrowers in connection with the origination of the mortgage loans at issue. Specifically, I was asked to offer my expert opinion based on my experience as a fraud investigator as to the reliability of the sources utilized by Mr. Butler.
16. My assignment does not extend to determining the underlying accuracy of information set forth in the specific third-party sources used in this action or an independent evaluation of a borrower's alleged misrepresentations. My opinion solely concerns the reliability of the sources used by Mr. Butler in this litigation to conclude that a borrower made a
misrepresentation in connection with their loan application.
17. I offer no opinion regarding the meaning of any R&W or whether such alleged misrepresentations constitute a breach of the R&Ws at issue in this action.
18. While I have extensive experience investigating fraud and misrepresentation in the context of mortgage origination and loan applications, I am not a mortgage loan underwriter and I offer no opinion on the underwriting of the loans at issue in this action or the sources relied upon by underwriters in reviewing loan applications.
19. In carrying out my assignment, I read the Butler Report and certain information that he relied upon for his report. In forming the opinions stated in this report, I relied upon my more than 37 years of experience as a fraud investigator, federal law enforcement office, forensic accountant and consultant.
20. In connection with my assignment, I submitted an Expert Rebuttal Report, dated September 30, 2015 (the "September 30 Report"). I also provided testimony in a deposition in the above-referenced action on March 1, 2016.
21. It is my understanding that on December 11, 2015, Mr. Butler submitted a reply and
rebuttal report that, among other things, responded to my September 30 Report (the "Butler Reply Report"). It is also my understanding that Mr. Butler testified in a deposition in the above-referenced action on February 17, 2016.
22. My opinions in this action are based on my extensive professional experience and on the documents and materials cited in this affidavit, including excerpts from certain publicly available websites, documents produced in this litigation, as cited in this affidavit and the Butler Report.
23. In addition, I have reviewed portions of the Butler Reply Report and a transcript of Mr. Butler's February 17, 2016 deposition. Nothing in the Butler Reply Report or Mr. Butler's testimony causes me to change any of my findings or opinions.
24. In connection with this assignment, I was assisted by individuals at Navigant who worked at my supervision. These individuals assisted me in compiling documents and information for my review and creating exhibits included in my September 30 Report. The conclusions set forth in my September 30 Report reflect my own opinions.
15. I have been asked by Counsel for Credit Suisse to review and evaluate the various sources relied upon by Mr. Butler in support of his opinions regarding alleged misrepresentations made by borrowers in connection with the origination of the mortgage loans at issue. Specifically, I was asked to offer my expert opinion based on my experience as a fraud investigator as to the reliability of the sources utilized by Mr. Butler.
16. My assignment does not extend to determining the underlying accuracy of information set forth in the specific third-party sources used in this action or an independent evaluation of a borrower’s alleged misrepresentations. My opinion solely concerns the reliability of the sources used by Mr. Butler in this litigation to conclude that a borrower made a
misrepresentation in connection with their loan application.
17. I offer no opinion regarding the meaning of any R&W or whether such alleged misrepresentations constitute a breach of the R&Ws at issue in this action.
18. While I have extensive experience investigating fraud and misrepresentation in the context of mortgage origination and loan applications, I am not a mortgage loan underwriter and I offer no opinion on the underwriting of the loans at issue in this action or the sources relied upon by underwriters in reviewing loan applications.
19. In carrying out my assignment, I read the Butler Report and certain information that he relied upon for his report. In forming the opinions stated in this report, I relied upon my more than 37 years of experience as a fraud investigator, federal law enforcement office, forensic accountant and consultant.
20. In connection with my assignment, I submitted an Expert Rebuttal Report, dated September 30, 2015 (the “September 30 Report”). I also provided testimony in a deposition in the above-referenced action on March 1, 2016.
21. It is my understanding that on December 11, 2015, Mr. Butler submitted a reply and
rebuttal report that, among other things, responded to my September 30 Report (the “Butler Reply Report”). It is also my understanding that Mr. Butler testified in a deposition in the above-referenced action on February 17, 2016.
22. My opinions in this action are based on my extensive professional experience and on the documents and materials cited in this affidavit, including excerpts from certain publicly available websites, documents produced in this litigation, as cited in this affidavit and the Butler Report.
23. In addition, I have reviewed portions of the Butler Reply Report and a transcript of Mr. Butler’s February 17, 2016 deposition. Nothing in the Butler Reply Report or Mr. Butler’s testimony causes me to change any of my findings or opinions.
24. In connection with this assignment, I was assisted by individuals at Navigant who worked at my supervision. These individuals assisted me in compiling documents and information for my review and creating exhibits included in my September 30 Report. The conclusions set forth in my September 30 Report reflect my own opinions.
25. I am being compensated for my work on this engagement at a rate of $675 per hour. My compensation in this matter is not contingent on the nature of my findings or the outcome of the litigation.
III. Summary of Conclusions
26. I find that Mr. Butler did not use sufficiently reliable sources to provide the basis for his opinions that borrowers made misrepresentations on their mortgage applications. While I offer no opinion as to whether any borrower in fact misrepresented certain details, it is my opinion that a determination premised on unreliable sources is itself unreliable.
27. Attached hereto as Exhibit B is a true and correct copy of a spreadsheet of the loans at issue in this action that have claims that rely on or cite the third-party sources discussed in this affidavit and my September 30 Report.
IV. Discussion
A. The Difference Between an Investigative "Lead" and Reliable Proof of a Borrower Misrepresentation.
28. Mr. Butler relied upon information obtained after the origination of the mortgage loans from third-party sources, such as Lexis Nexis and MERS, in an effort to support his conclusions of borrower misrepresentation. The information Mr. Butler obtained from such sources may provide a "lead," or point the reviewer in a certain direction, but it cannot stand on its own to demonstrate untruth. When I am conducting a preliminary investigation or in the pursuit of additional "lead material", I may consult sources such as Lexis Nexis and Public Access to Court Electronic Records ("PACER"), with the goal of identifying the ultimate first-hand source. The first-hand source is the person or entity in possession of the underlying source document or data. Only upon verifying a "lead" through a first-hand source, am I able to draw conclusions. Other sources relied upon by Mr. Butler such as MERS, The Work Number, RealQuest and Audit VOEs, I would not use due to their unreliability.
29. Throughout my career, during the course of several hundred investigations, I learned from formal and informal on-the-job training and experience that the types of sources relied upon by Mr. Butler do not produce or disclose the quality, scope or accuracy of information needed to support and to make informed investigative findings.
30. When information purchased from third-party sources is used appropriately, it can lead to other reliable information that will either confirm or conflict with an investigator's theory. However, in my experience, I learned first-hand that information derived from third party aggregators is limited because there are no assurances as to its accuracy and
comprehensiveness. As a result, third party sources can be riddled with incomplete and inaccurate data, which I often determined when provided with the actual and verifiable information from the true record custodians in possession of information related to the person or entity.
25. I am being compensated for my work on this engagement at a rate of $675 per hour. My compensation in this matter is not contingent on the nature of my findings or the outcome of the litigation.
III. Summary of Conclusions
26. I find that Mr. Butler did not use sufficiently reliable sources to provide the basis for his opinions that borrowers made misrepresentations on their mortgage applications. While I offer no opinion as to whether any borrower in fact misrepresented certain details, it is my opinion that a determination premised on unreliable sources is itself unreliable.
27. Attached hereto as Exhibit B is a true and correct copy of a spreadsheet of the loans at issue in this action that have claims that rely on or cite the third-party sources discussed in this affidavit and my September 30 Report.
IV. Discussion
A. The Difference Between an Investigative “Lead” and Reliable Proof of a Borrower Misrepresentation.
28. Mr. Butler relied upon information obtained after the origination of the mortgage loans from third-party sources, such as Lexis Nexis and MERS, in an effort to support his conclusions of borrower misrepresentation. The information Mr. Butler obtained from such sources may provide a “lead,” or point the reviewer in a certain direction, but it cannot stand on its own to demonstrate untruth. When I am conducting a preliminary investigation or in the pursuit of additional “lead material”, I may consult sources such as Lexis Nexis and Public Access to Court Electronic Records (“PACER”), with the goal of identifying the ultimate first-hand source. The first-hand source is the person or entity in possession of the underlying source document or data. Only upon verifying a “lead” through a first-hand source, am I able to draw conclusions. Other sources relied upon by Mr. Butler such as MERS, The Work Number, RealQuest and Audit VOEs, I would not use due to their unreliability.
29. Throughout my career, during the course of several hundred investigations, I learned from formal and informal on-the-job training and experience that the types of sources relied upon by Mr. Butler do not produce or disclose the quality, scope or accuracy of information needed to support and to make informed investigative findings.
30. When information purchased from third-party sources is used appropriately, it can lead to other reliable information that will either confirm or conflict with an investigator’s theory. However, in my experience, I learned first-hand that information derived from third party aggregators is limited because there are no assurances as to its accuracy and
comprehensiveness. As a result, third party sources can be riddled with incomplete and inaccurate data, which I often determined when provided with the actual and verifiable information from the true record custodians in possession of information related to the person or entity.
31. Many third-party sources, including several of the sources relied upon by Mr. Butler, corroborate and recognize the limitations of their own data and provide users with cautionary disclaimers concerning the accuracy and completeness of their data. Absent verification, the information from these sources is not, independently sufficient to demonstrate that it is more likely than not that a borrower made a misrepresentation. 32. A reliable lead of misrepresentation requires some "first-hand" evidence e.g., source
documents obtained directly from a landlord, utility company, or a telephone company; testimony under oath; payroll data produced by the appropriate custodian of employment data from an employer; official statements to government officials such as tax returns; and real property filings recorded and maintained by a local government agency or
municipality. Even then, first-hand evidence must be evaluated in the context of how it is obtained and provided and evaluated against other information prior to making any determination. For example, a tax return is generally considered a reliable source of
information, but does not necessarily demonstrate that a borrower misrepresented his or her income on a loan application at some point in the year if the annual income reported on the tax return is less than what is stated on the application because the borrower may have experienced an unforeseen decrease in income during the year due to, among other things, an interruption in employment, or not receiving the level or tips or commissions that were anticipated.
B. The Mr. Butler Relied on Unreliable Sources in an Attempt to Establish Borrower Misrepresentation.
1. Digital Risk Audit VOE's Are Not Reliable to Establish Borrower Misrepresentation.
33. Mr. Butler relied upon Digital Risk Audit VOE's as a source to establish 35 of his 169 claim allegations, in particular, 30 income misrepresentation claims and 5 employment misrepresentation claims (see Exhibit B).
34. According to his report, Mr. Butler relied upon work performed by Digital Risk in 2009 and 2011, a company engaged by MBIA "to review the Transaction Loans for violations of Representations and Warranties." Mr. Butler further explained that the methodology
followed by Digital Risk for their review simply involved a request to a borrower's employer to "provide written verification of the employment and income for the borrower (an 'Audit VOE')". My review of a limited subset of the Audit VOEs disclosed that Digital Risk's review was conducted pursuant to written requests submitted by facsimile to the employer and at least one telephonic request. The Audit VOE's I reviewed reflect that the written requests were made on Digital Risk letterhead or on a Fannie Mae "Request For Verification of Employment" form wherein Digital Risk was identified as the lender making the request.1
1 See PX-3213 (Butler Breach Report for loan 500888811atA-0010453, PX-3180 (Butler Breach Report for loan 410911025at A-0009000, and PX-3293 (Butler Breach Report for loan 700490189) at A-0015016.
31. Many third-party sources, including several of the sources relied upon by Mr. Butler, corroborate and recognize the limitations of their own data and provide users with cautionary disclaimers concerning the accuracy and completeness of their data. Absent verification, the information from these sources is not, independently sufficient to demonstrate that it is more likely than not that a borrower made a misrepresentation. 32. A reliable lead of misrepresentation requires some “first-hand” evidence—e.g., source
documents obtained directly from a landlord, utility company, or a telephone company; testimony under oath; payroll data produced by the appropriate custodian of employment data from an employer; official statements to government officials such as tax returns; and real property filings recorded and maintained by a local government agency or
municipality. Even then, first-hand evidence must be evaluated in the context of how it is obtained and provided and evaluated against other information prior to making any determination. For example, a tax return is generally considered a reliable source of
information, but does not necessarily demonstrate that a borrower misrepresented his or her income on a loan application at some point in the year if the annual income reported on the tax return is less than what is stated on the application because the borrower may have experienced an unforeseen decrease in income during the year due to, among other things, an interruption in employment, or not receiving the level or tips or commissions that were anticipated.
B. The Mr. Butler Relied on Unreliable Sources in an Attempt to Establish Borrower Misrepresentation.
1. Digital Risk Audit VOE’s Are Not Reliable to Establish Borrower Misrepresentation.
33. Mr. Butler relied upon Digital Risk Audit VOE’s as a source to establish 35 of his 169 claim allegations, in particular, 30 income misrepresentation claims and 5 employment misrepresentation claims (see Exhibit B).
34. According to his report, Mr. Butler relied upon work performed by Digital Risk in 2009 and 2011, a company engaged by MBIA “to review the Transaction Loans for violations of Representations and Warranties.” Mr. Butler further explained that the methodology followed by Digital Risk for their review simply involved a request to a borrower’s employer to “provide written verification of the employment and income for the borrower (an ‘Audit VOE’)”. My review of a limited subset of the Audit VOEs disclosed that Digital Risk’s review was conducted pursuant to written requests submitted by facsimile to the employer and at least one telephonic request. The Audit VOE’s I reviewed reflect that the written requests were made on Digital Risk letterhead or on a Fannie Mae “Request For Verification of Employment” form wherein Digital Risk was identified as the lender
making the request.1
1 See PX-3213 (Butler Breach Report for loan 500888811atA-0010453, PX-3180 (Butler Breach Report for loan
35. In my experience, the methodology followed by Digital Risk is flawed and the integrity of the information they acquired through their Audit VOE's is not reliable to establish
borrower misrepresentation. The methodology does not include any form of confirmation to (1) determine if the person completing the form is authorized to provide the information, (2) determine if the person has access to actual employment and payroll data which served as the basis for completing the verification form, and (3) determine any quality control to assure that the information provided is derived from the employer's historical employment and payroll records.
2. The Work Number Reports are not Reliable to Establish Borrower Misrepresentation.
36. Mr. Butler relied upon The Work Number as a source to establish 17 of his 169 claim allegations, in particular, 17 income misrepresentation claims.
37. The Work Number is an entity owned by Equifax Workforce Solutions, a/k/a TALX Corporation, a wholly owned subsidiary of Equifax Inc. The company maintains a database which "houses employment and income records contributed by more than 4,800 employers nationwide — from Fortune 500 companies to small local and regional employers all over the U.S".2
38. In my experience, The Work Number reports, and reports from similar third-party aggregators of salary and employment data, are not reliable to establish borrower
misrepresentations. Like other third-party aggregators of salary and employment data, the Work Number system database is derived from non- verifiable employer input, and the records purchased from The Work Number often exclude critical income information such as bonus and overtime compensation. As a result, the completeness and integrity of the data provided by The Work Number is questionable.
39. Based on my experience, it is not uncommon to find, after obtaining a certifiable set of employment and payroll records from a designated record custodian from a company's payroll system, that information reflected in the Work Number Report and similar third-party data aggregators was either out dated, failed to reflect an accurate or complete period of employment, or did not accurately or completely reflect the compensation paid for a period such as commissions, overtime, shift differential premium pay, bonuses, or compensation for additional services. By way of example, a company may hire an
individual as a W-2 employee, and retain that same individual to provide other services as an independent contractor. While the individual's earnings as an independent contractor would clearly form part of his or her total compensation, the employer may not necessarily upload these earnings to The Work Number.
40. Here, The Work Number website itself provides a disclaimer to its users as follows: "Equifax does not warrant the completeness, timeliness or accuracy of any of the data and/or programs (`information') available at this web site to (sic) the fullest extent
permitted by law, the information is provided 'as is' without warranty of any kind, express
2 http://www.theworknumber.com/database/index.asp (last visited September 17, 2015).
35. In my experience, the methodology followed by Digital Risk is flawed and the integrity of the information they acquired through their Audit VOE’s is not reliable to establish borrower misrepresentation. The methodology does not include any form of confirmation to (1) determine if the person completing the form is authorized to provide the information, (2) determine if the person has access to actual employment and payroll data which served as the basis for completing the verification form, and (3) determine any quality control to assure that the information provided is derived from the employer’s historical employment and payroll records.
2. The Work Number Reports are not Reliable to Establish Borrower Misrepresentation.
36. Mr. Butler relied upon The Work Number as a source to establish 17 of his 169 claim allegations, in particular, 17 income misrepresentation claims.
37. The Work Number is an entity owned by Equifax Workforce Solutions, a/k/a TALX Corporation, a wholly owned subsidiary of Equifax Inc. The company maintains a database which “houses employment and income records contributed by more than 4,800 employers nationwide – from Fortune 500 companies to small local and regional employers all over the U.S”.2
38. In my experience, The Work Number reports, and reports from similar third-party aggregators of salary and employment data, are not reliable to establish borrower
misrepresentations. Like other third-party aggregators of salary and employment data, the Work Number system database is derived from non- verifiable employer input, and the records purchased from The Work Number often exclude critical income information such as bonus and overtime compensation. As a result, the completeness and integrity of the data provided by The Work Number is questionable.
39. Based on my experience, it is not uncommon to find, after obtaining a certifiable set of employment and payroll records from a designated record custodian from a company’s payroll system, that information reflected in the Work Number Report and similar third-party data aggregators was either out dated, failed to reflect an accurate or complete period of employment, or did not accurately or completely reflect the compensation paid for a period such as commissions, overtime, shift differential premium pay, bonuses, or compensation for additional services. By way of example, a company may hire an
individual as a W-2 employee, and retain that same individual to provide other services as an independent contractor. While the individual’s earnings as an independent contractor would clearly form part of his or her total compensation, the employer may not necessarily upload these earnings to The Work Number.
40. Here, The Work Number website itself provides a disclaimer to its users as follows: “Equifax does not warrant the completeness, timeliness or accuracy of any of the data and/or programs (‘information’) available at this web site to (sic) the fullest extent
permitted by law, the information is provided ‘as is’ without warranty of any kind, express
or implied, including, but not limited to, implied warranties of merchantability, fitness for a particular purpose, title or non-infringement."3
41. The Work Number's reports also provide an additional disclaimer which states, in relevant part: "If any information is missing, it is because the employer did not provide this
information for inclusion in The Work Number verification."4
3. Bankruptcy Reports Are Not Reliable to Establish Borrower Misrepresentation.
42. Mr. Butler relied upon Bankruptcy Reports from PACER as a source to establish 29 of his 169 claim allegations, in particular, 19 income misrepresentation claims, 6 occupancy misrepresentation claims, 3 debt misrepresentation claims, and 1 employment
misrepresentation claim (see Exhibit B).
43. PACER is a subscription based electronic portal maintained by the U.S. Courts. The portal permits users public access to case and docket information from the federal appellate courts, district courts, and bankruptcy courts.
44. In my experience, bankruptcy filings from PACER is a synopsis of the petition, and therefore a synopsis of the assets, liabilities, and income. By contrast, obtaining a bankruptcy petition through a first-hand source—here, the courthouse—provides an opportunity to review the entire bankruptcy filing and the underlying documents and sometimes an opportunity to discuss the filing with the bankruptcy trustee.
45. Information related to a debtor in bankruptcy court filings are primarily comprised of the debtor's petition to commence a bankruptcy proceeding and the exhibits which are part of the petition. The exhibits are schedules completed by the debtor and disclose information related to income, assets and debts. In my experience, how a debtor defines his or her income varies greatly, as do the sources relied upon. These schedules do not provide a sufficient level of transparency to the underlying income, assets or debts listed.
46. As explained in Section IV.A above, all documents and statements must be examined in the context in which they were made. Based on my experience, I have learned that the data and statements provided by a petitioner in bankruptcy are frequently questionable or incorrect and therefore unreliable to establish borrower misrepresentation. A petitioner in
bankruptcy is seeking relief from paying the debts it owes to creditors. Consequently, there
3 http://www.talx.com/newwindow/terms.asp (last visited September 18, 2015)
4 The disclaimer reads, in full: "The statement above is an official verification generated from The Work Number.
Because this verification is system-generated with data that originated directly from the employer's payroll system, it is tamper-resistant and represents a higher level of authenticity than employee-furnished copies of paystubs or W2s. If any information is missing, it is because the employer did not provide this information for inclusion in The Work Number verification." While The Work Number disclaimer declares that its data is tamper- resistant, the disclaimer merely states that The Work Number has correctly recorded potentially unreliable information and maintained it in a secure fashion. See e.g., 3078 (Butler Breach Report for loan 410033454) at A-0003695, PX-3019 (Butler Breach Report for loan 409308220) at A-0000935, PX-3010 (Butler Breach Report for loan
409277113) at A-0000545, and PX-3005 at A-0000228, which are copies of reports generated from The Work Number which includes the disclaimer.
or implied, including, but not limited to, implied warranties of merchantability, fitness for a particular purpose, title or non-infringement.”3
41. The Work Number’s reports also provide an additional disclaimer which states, in relevant part: “If any information is missing, it is because the employer did not provide this
information for inclusion in The Work Number verification.”4
3. Bankruptcy Reports Are Not Reliable to Establish Borrower Misrepresentation.
42. Mr. Butler relied upon Bankruptcy Reports from PACER as a source to establish 29 of his 169 claim allegations, in particular, 19 income misrepresentation claims, 6 occupancy misrepresentation claims, 3 debt misrepresentation claims, and 1 employment
misrepresentation claim (see Exhibit B).
43. PACER is a subscription based electronic portal maintained by the U.S. Courts. The portal permits users public access to case and docket information from the federal appellate courts, district courts, and bankruptcy courts.
44. In my experience, bankruptcy filings from PACER is a synopsis of the petition, and therefore a synopsis of the assets, liabilities, and income. By contrast, obtaining a bankruptcy petition through a first-hand source—here, the courthouse—provides an opportunity to review the entire bankruptcy filing and the underlying documents and sometimes an opportunity to discuss the filing with the bankruptcy trustee.
45. Information related to a debtor in bankruptcy court filings are primarily comprised of the debtor’s petition to commence a bankruptcy proceeding and the exhibits which are part of the petition. The exhibits are schedules completed by the debtor and disclose information related to income, assets and debts. In my experience, how a debtor defines his or her income varies greatly, as do the sources relied upon. These schedules do not provide a sufficient level of transparency to the underlying income, assets or debts listed.
46. As explained in Section IV.A above, all documents and statements must be examined in the context in which they were made. Based on my experience, I have learned that the data and statements provided by a petitioner in bankruptcy are frequently questionable or incorrect and therefore unreliable to establish borrower misrepresentation. A petitioner in
bankruptcy is seeking relief from paying the debts it owes to creditors. Consequently, there
3 http://www.talx.com/newwindow/terms.asp (last visited September 18, 2015)
4 The disclaimer reads, in full: “The statement above is an official verification generated from The Work Number.
Because this verification is system-generated with data that originated directly from the employer’s payroll system, it is tamper-resistant and represents a higher level of authenticity than employee-furnished copies of paystubs or W2s. If any information is missing, it is because the employer did not provide this information for inclusion in The Work Number verification.” While The Work Number disclaimer declares that its data is tamper- resistant, the disclaimer merely states that The Work Number has correctly recorded potentially unreliable information and maintained it in a secure fashion. See e.g., 3078 (Butler Breach Report for loan 410033454) at A-0003695, PX-3019 (Butler Breach Report for loan 409308220) at A-0000935, PX-3010 (Butler Breach Report for loan
409277113) at A-0000545, and PX-3005 at A-0000228, which are copies of reports generated from The Work Number which includes the disclaimer.
is an incentive for a petitioner to understate their assets, understate their income and overstate their liabilities, as means to minimize the amount of debt that the petitioner will ordered to pay by the Court, if any, upon the conclusion of their bankruptcy proceedings. It is therefore necessary to thoroughly examine the entirety of a bankruptcy petition and underlying documents, and where necessary perform further verification.
4. Lexis Nexis Reports Are Not Reliable to Establish Borrower Misrepresentation.
47. Mr. Butler relied upon Lexis Nexis Reports as a source to establish 73 of his 169 claim allegations, in particular, 47 debt misrepresentation (undisclosed debt) claims, 22
occupancy misrepresentation claims, 2 income misrepresentation claims and 1 employment misrepresentation claim (see Exhibit B).
48. Lexis Nexis is a subscription-based service that allows subscriber customers to search documents and records derived from various sources of public records. These records comprise an aggregation of data derived from numerous other third-party sources by Lexis Nexis and depending on the type of query made from their database Lexis Nexis will provide a variety of different types of reports comprised of data obtained from the third-party sources.
49. In my experience, Lexis Nexis reports, and reports from other third-party aggregators of public record data, are not reliable to establish borrower misrepresentations. Specifically, after obtaining information about a person or an entity from a first-hand source, it was often determined that information was not accurately reported in the Lexis Nexis report, including: the true period of occupancy or residency; identification of occupants or residents for a certain address; telephone numbers (both hardline and wireless) and subscribers at a certain address; real and personal property ownership; status of mortgage loans, other debts, judgments and liens; and employment.
50. Additionally, it is not uncommon to find, after obtaining documents and data from financial institutions, government records and other record custodians, that information in the Lexis Nexis report such as occupancy, residency and employment data was out dated; property ownership and real property mortgage data did not reflect deeds and mortgage satisfaction recorded in county and other municipal court records; loan repayments for personal property liens and creditor releases of judgments were not reflected, and automobile, watercraft and aircraft registrations did not reflect title transfers and sales registered with state departments of motor vehicles and the Federal Aviation Administration. It is therefore my opinion that Lexis Nexis reports, and reports from other third-party aggregators of public record data, should at best be used as a "lead" to be verified and confirmed.
51. I have also dete1111ined during the course of my investigative experience that the
availability, transparency, and comprehensiveness of certain types of public record data disclosed to aggregators of public records such as Lexis Nexis and RealQuest is
significantly restricted. These restrictions may be due to individual state privacy laws governing the dissemination of certain types of information, or varied levels of data points is an incentive for a petitioner to understate their assets, understate their income and overstate their liabilities, as means to minimize the amount of debt that the petitioner will ordered to pay by the Court, if any, upon the conclusion of their bankruptcy proceedings. It is therefore necessary to thoroughly examine the entirety of a bankruptcy petition and underlying documents, and where necessary perform further verification.
4. Lexis Nexis Reports Are Not Reliable to Establish Borrower Misrepresentation.
47. Mr. Butler relied upon Lexis Nexis Reports as a source to establish 73 of his 169 claim allegations, in particular, 47 debt misrepresentation (undisclosed debt) claims, 22
occupancy misrepresentation claims, 2 income misrepresentation claims and 1 employment misrepresentation claim (see Exhibit B).
48. Lexis Nexis is a subscription-based service that allows subscriber customers to search documents and records derived from various sources of public records. These records comprise an aggregation of data derived from numerous other third-party sources by Lexis Nexis and depending on the type of query made from their database Lexis Nexis will provide a variety of different types of reports comprised of data obtained from the third-party sources.
49. In my experience, Lexis Nexis reports, and reports from other third-party aggregators of public record data, are not reliable to establish borrower misrepresentations. Specifically, after obtaining information about a person or an entity from a first-hand source, it was often determined that information was not accurately reported in the Lexis Nexis report, including: the true period of occupancy or residency; identification of occupants or residents for a certain address; telephone numbers (both hardline and wireless) and subscribers at a certain address; real and personal property ownership; status of mortgage loans, other debts, judgments and liens; and employment.
50. Additionally, it is not uncommon to find, after obtaining documents and data from financial institutions, government records and other record custodians, that information in the Lexis Nexis report such as occupancy, residency and employment data was out dated; property ownership and real property mortgage data did not reflect deeds and mortgage satisfaction recorded in county and other municipal court records; loan repayments for personal property liens and creditor releases of judgments were not reflected, and automobile, watercraft and aircraft registrations did not reflect title transfers and sales registered with state departments of motor vehicles and the Federal Aviation Administration. It is therefore my opinion that Lexis Nexis reports, and reports from other third-party aggregators of public record data, should at best be used as a “lead” to be verified and confirmed.
51. I have also determined during the course of my investigative experience that the
availability, transparency, and comprehensiveness of certain types of public record data disclosed to aggregators of public records such as Lexis Nexis and RealQuest is
significantly restricted. These restrictions may be due to individual state privacy laws governing the dissemination of certain types of information, or varied levels of data points
provided to third party aggregators from the document fields captured from different types of real property recordings.
52. Lexis Nexis itself, provides a disclaimer on their Comprehensive Report that cautions users to independently verify information obtained from its database, which states "The Public Records and commercially available data sources used on reports have errors. Data is sometimes entered poorly, processed incorrectly and is generally not free from defect. The system should not be relied upon as definitively accurate. Before relying on any data this system supplies, it should be independently verified."
53. Lexis Nexis provides an additional disclaimer for their Business Assurance reports that cautions, "Due to the nature of the origin of public record information, the public records and commercially available data sources used in reports may contain errors. Source data is sometimes reported or entered inaccurately, processed poorly or incorrectly, and is
generally not free from defect. This product or service aggregates and reports data, as provided by the public records and commercially available data sources, and is not the source of the data, nor is it a comprehensive compilation of the data. Before relying on any data, it should be independently verified."
5. MERS Reports Are Not Reliable to Establish Borrower Misrepresentation.
54. Mr. Butler relied upon MERS Reports as a source to establish 42 of his 169 claim allegations, in particular, 42 debt misrepresentation claims (see Exhibit B).
55. MERS is a subscription-based service that allows subscriber customers to search for the ownership of mortgages from a database derived and constructed from data contributed from its members.
56. In my experience, MERS reports are not reliable to establish borrower misrepresentations. Like other third-party aggregators, MERS' database is derived from mortgage data
contributed by members instead of first hand custodians of mortgage related recordings maintained in county land records. Consequently, the depth, completeness, quality and accuracy of the data contributed by the members for the MERS is questionable.
57. MERS provides the following disclaimers to their subscribers regarding the accuracy of the information it provides as follows: "The Subscriber understands and accepts that MERS® Link is only a tracking system, and any information retrieved from MERS® Link should be independently verified. The Companies do not verify the accuracy of information on MERS® Link or the MERS® System, nor do the Companies warrant the reliability of any information retrieved from MERS® Link since the accuracy of all information is the responsibility of MERS® System Members who enter and update the information in the MERS® System.5
5 MERS Link Terms and Conditions, MERSINC.ORG, https://www.mersinc.org/join-mersimers-link/11-join-mers/37-mers-link-terms-and-conditions (last visited September 16, 2015).
provided to third party aggregators from the document fields captured from different types of real property recordings.
52. Lexis Nexis itself, provides a disclaimer on their Comprehensive Report that cautions users to independently verify information obtained from its database, which states “The Public Records and commercially available data sources used on reports have errors. Data is sometimes entered poorly, processed incorrectly and is generally not free from defect. The system should not be relied upon as definitively accurate. Before relying on any data this system supplies, it should be independently verified.”
53. Lexis Nexis provides an additional disclaimer for their Business Assurance reports that cautions, “Due to the nature of the origin of public record information, the public records and commercially available data sources used in reports may contain errors. Source data is sometimes reported or entered inaccurately, processed poorly or incorrectly, and is
generally not free from defect. This product or service aggregates and reports data, as provided by the public records and commercially available data sources, and is not the source of the data, nor is it a comprehensive compilation of the data. Before relying on any data, it should be independently verified.”
5. MERS Reports Are Not Reliable to Establish Borrower Misrepresentation.
54. Mr. Butler relied upon MERS Reports as a source to establish 42 of his 169 claim allegations, in particular, 42 debt misrepresentation claims (see Exhibit B).
55. MERS is a subscription-based service that allows subscriber customers to search for the ownership of mortgages from a database derived and constructed from data contributed from its members.
56. In my experience, MERS reports are not reliable to establish borrower misrepresentations. Like other third-party aggregators, MERS’ database is derived from mortgage data
contributed by members instead of first hand custodians of mortgage related recordings maintained in county land records. Consequently, the depth, completeness, quality and accuracy of the data contributed by the members for the MERS is questionable.
57. MERS provides the following disclaimers to their subscribers regarding the accuracy of the information it provides as follows: “The Subscriber understands and accepts that MERS® Link is only a tracking system, and any information retrieved from MERS® Link should be independently verified. The Companies do not verify the accuracy of information on MERS® Link or the MERS® System, nor do the Companies warrant the reliability of any information retrieved from MERS® Link since the accuracy of all information is the responsibility of MERS® System Members who enter and update the information in the MERS® System.5
5 MERS Link Terms and Conditions, MERSINC.ORG, https://www.mersinc.org/join-mers/mers-link/11-join-
6. RealQuest Reports Are Not Reliable to Establish Borrower Misrepresentation.
58. Mr. Butler relied upon RealQuest Reports as a source to establish 51 of his 169 claim allegations, in particular, 50 debt misrepresentation claims and 1 occupancy
misrepresentation claim (see Exhibit B).
59. RealQuest is a subscription-based property and ownership search engine that allows subscribers to search property and ownership data populated from public and proprietary sources.6
60. In my experience, RealQuest reports and reports from other third-party aggregators of real property record data are not reliable to establish borrower misrepresentations. Specifically, after obtaining information about a person or an entity from a first-hand source, it was frequently determined that the true real property ownership and status of mortgage loans was not accurately reported in reports from third-party aggregators of data.
61. As I indicated with respect to Lexis Nexis, I have also determined during the course of my investigative experience that the availability, transparency, and comprehensiveness of certain types of public record data disclosed to aggregators of public records is significantly restricted. This is also true for RealQuest. These restrictions may be due to individual state privacy laws governing the dissemination of certain types of information, or varied levels of data points provided to third party aggregators from the document fields captured from different types of real property recordings.
62. It is not uncommon to determine, after obtaining documents and data from record custodians, financial institutions and government records, that information provided by third party aggregators such as RealQuest did not reflect deeds and mortgage satisfaction recorded in county and other municipal court records.
63. RealQuest itself provides a disclaimer on its website that cautions users about the reliability of their data, which states "[f] or a variety of reasons, the data [RealQuest] receive[s] from a county about a property may be incorrect or incomplete."7
64. An additional disclaimer from RealQuest states the following: "We will take reasonable steps to help assure the accuracy of the data we collect, use and disseminate. Where possible, we will take reasonable steps to correct inaccurate information. When, as with the public record, we cannot correct inaccurate information, we will take all reasonable steps to assist consumers in identifying the source of the erroneous data so that the consumer can secure the required corrections."8
6 RealQuest Professional — The Data You Can Trust. RealQuest.com. http://pro.realquest.com/products/data.aspx
(last visited September 16, 2015).
RealQuest — Frequently Asked Questions. RealQuest.com http://pro.realquest.com/home/faqs/ (last visited September 16, 2015).
8 RealQuest Professional — Policies. RealQuest.com http://pro.realquest.com/home/policies/ (last visited September 16, 2015).
6. RealQuest Reports Are Not Reliable to Establish Borrower Misrepresentation.
58. Mr. Butler relied upon RealQuest Reports as a source to establish 51 of his 169 claim allegations, in particular, 50 debt misrepresentation claims and 1 occupancy
misrepresentation claim (see Exhibit B).
59. RealQuest is a subscription-based property and ownership search engine that allows subscribers to search property and ownership data populated from public and proprietary sources.6
60. In my experience, RealQuest reports and reports from other third-party aggregators of real property record data are not reliable to establish borrower misrepresentations. Specifically, after obtaining information about a person or an entity from a first-hand source, it was frequently determined that the true real property ownership and status of mortgage loans was not accurately reported in reports from third-party aggregators of data.
61. As I indicated with respect to Lexis Nexis, I have also determined during the course of my investigative experience that the availability, transparency, and comprehensiveness of certain types of public record data disclosed to aggregators of public records is significantly restricted. This is also true for RealQuest. These restrictions may be due to individual state privacy laws governing the dissemination of certain types of information, or varied levels of data points provided to third party aggregators from the document fields captured from different types of real property recordings.
62. It is not uncommon to determine, after obtaining documents and data from record custodians, financial institutions and government records, that information provided by third party aggregators such as RealQuest did not reflect deeds and mortgage satisfaction recorded in county and other municipal court records.
63. RealQuest itself provides a disclaimer on its website that cautions users about the reliability of their data, which states “[f]or a variety of reasons, the data [RealQuest] receive[s] from a county about a property may be incorrect or incomplete.”7
64. An additional disclaimer from RealQuest states the following: “We will take reasonable steps to help assure the accuracy of the data we collect, use and disseminate. Where possible, we will take reasonable steps to correct inaccurate information. When, as with the public record, we cannot correct inaccurate information, we will take all reasonable steps to assist consumers in identifying the source of the erroneous data so that the consumer can secure the required corrections.”8
6 RealQuest Professional – The Data You Can Trust. RealQuest.com. http://pro.realquest.com/products/data.aspx
(last visited September 16, 2015).
7 RealQuest – Frequently Asked Questions. RealQuest.com http://pro.realquest.com/home/faqs/ (last visited
September 16, 2015).
8 RealQuest Professional – Policies. RealQuest.com http://pro.realquest.com/home/policies/ (last visited September
C. Mr. Butler Incorrectly Used Income Information Applicable to Years Prior or Subsequent to the Year of Loan Closing in an Attempt to Support His Findings of Borrower Income Misrepresentation.
65. In several instances, Mr. Butler relies on income information from a different year than the year that the subject loan closed in connection with his income misrepresentation findings.9 This approach and the conclusions made from this approach are deeply flawed. Mr. Butler opines that a borrower income misrepresentation occurred if he identified a third-party source that stated that the borrower's income was less in a year subsequent to loan origination, so long as the borrower maintained the same employment.
66. In my investigative and forensic accounting experience, I would not rely upon documents containing later year income information in an effort to extrapolate income from previous years when recalculating a proforma estimate of income. There are many reasons why a borrower's income might decrease from one year to the next even though the borrower maintained the same employment including: (1) change in job title or responsibilities; (2) fluctuations in self-employment; (3) commission-based income from year to year; (4) incentive and discretionary bonus income from year to year; (5) summer school pay for a teacher; (6) other types of stipend earnings such as coaches pay, etc.; and (7) changes in personal circumstance, such as illness, an extended leave of absence, or maternity or paternity leave. Despite these common explanations for changes in income from one year to the next, Mr. Butler routinely based his findings of income misrepresentation exclusively on information from different time periods.
9 PX-1219 (Expert Report of Steven I. Butler, CFE, dated Aril 15, 2015 ("Butler Report")), supra note 94.
C. Mr. Butler Incorrectly Used Income Information Applicable to Years Prior or Subsequent to the Year of Loan Closing in an Attempt to Support His Findings of Borrower Income Misrepresentation.
65. In several instances, Mr. Butler relies on income information from a different year than the year that the subject loan closed in connection with his income misrepresentation findings.9 This approach and the conclusions made from this approach are deeply flawed. Mr. Butler opines that a borrower income misrepresentation occurred if he identified a third-party source that stated that the borrower’s income was less in a year subsequent to loan origination, so long as the borrower maintained the same employment.
66. In my investigative and forensic accounting experience, I would not rely upon documents containing later year income information in an effort to extrapolate income from previous years when recalculating a proforma estimate of income. There are many reasons why a borrower’s income might decrease from one year to the next even though the borrower maintained the same employment including: (1) change in job title or responsibilities; (2) fluctuations in self-employment; (3) commission-based income from year to year; (4) incentive and discretionary bonus income from year to year; (5) summer school pay for a teacher; (6) other types of stipend earnings such as coaches pay, etc.; and (7) changes in personal circumstance, such as illness, an extended leave of absence, or maternity or paternity leave. Despite these common explanations for changes in income from one year to the next, Mr. Butler routinely based his findings of income misrepresentation exclusively on information from different time periods.
V. Conclusion
67. I therefore find that with respect to the sources listed above Mr. Butler did not rely upon
sufficiently reliable information to prove borrower misrepresentation.
Daniel Gill
SWORN to before me
This day of July 9, 2019
Notary Public
SUPREME COURT OF THE STATE OF NEW
COUNTY OF NEW YORK
- - --- - - - --- - - x
:
MBIA INSURANCE CORPORATION, :
Plaintiff,
Hon. Jennifer G. Schecter
- against
-Index No. 603751/2009
CREDIT SUISSE SECURITIES (USA) LLC, :
DLJ MORTGAGE CAPITAL, INC., and :
SELECT PORTFOLIO SERVICING, INC. : :
Defendants. :
- - - --- - - - X
CERTIFICATE OF CONFORMITY
FOR THE TRIAL AFFIDAVIT OF DANIEL GILL
1. This Certificate of Conformity is submitted pursuant to CPLR 2309(c).
2. I am an attorney duly licensed to practice law in the State of New Ýork.
3. I certify that the Trial Affidavit of Daniel Gill, sworn to on July 9, 2019, was
taken in the manner prescribed by the laws of the State of New York, and based
upon my review, conforms to the laws hereof.
Dated: New York, New York
July 09, 2019
Jo Ansbro
O ICK HERRINGTON &
TCLIFFE LLP
51 West 52nd Street
New York, New York 10019
Tel: (212) 506-5000
Sworn to before me this 9th
day of July, 2019
MICHAEL J. PETERS Notary Public, State of New York
No. 01PE6139706
k Qualified in New York County ~)
