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NOSSAMAN LLPTHOMAS D. LONG (SBN 10s987)DAVrD GRAELER (SBN 197836)445 S. Figueroa Street, 3 1st FloorLos Angeles, Califomia 9007ITelephone: 213.612.7 800Facsimile : 213.612.7801Email : tlong@nossamam. com

dgr aeler @no s s aman. c om

Attorneys for the Federal Deposit InsuranceCorporation, as Receiver of IndyMac Bank, F.S.B.

Fft Fn

fÛJUL *¿ PH f¡?S

BY:

LINITED STATES DISTRICT COURT

CENTRAL DISTRICT OF CALIFORIIIA

FEDERAL DEPOSIT INSI-]RANCECORPORATION, AS RECEIVER FOINDYMAC BANK, F.S.B.

Plaintiff,

V.

SCOTT VAN DELLEN, RICHARDKOON, KENNETH SFIELLEM, ANDWILLIAM ROTHMAN,

Defendants.

caseNo: cv 10 4 9 15..Ks (/JL(r crx)

COMPLAINT

JT'RY TRIAL DEMANDED.

393199.1 DOC

COMPLAINT

Case 2:10-cv-04915-DSF -SH Document 1 Filed 07/02/10 of 69

393199_1.DOC -i- COMPLAINT

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TABLE OF CONTENTS

Page

I. BACKGROUND FACTS. .................................................................................... 1

II. JURISDICTION AND VENUE........................................................................... 3

III. PARTIES. .............................................................................................................. 3

A. Plaintiff. ....................................................................................................... 3

B. Defendants. .................................................................................................. 3

IV. GENERAL ALLEGATIONS OF FACTS RELATING TO CLAIMS FOR RELIEF.................................................................................................................. 5

A. Background of IndyMac Bank, F.S.B. and Its Collapse......................... 5

B. The Organizational History of HBD......................................................... 6

C. HBD Followed A High Risk Growth Strategy......................................... 9

D. HBD Followed A High Risk Underwriting Strategy.............................14

1. HBD violated its own credit policies..............................................14

2. HBD’s consideration of loan applications was superficial and hasty. .........................................................................................17

3. HBD’s credit matrix led to poor underwriting decisions. ...........18

4. HBD’s compensation of officers encouraged risky loans. ...........19

5. IndyMac recognized HBD’s flaws. ................................................21

6. Summary. .........................................................................................22

V. DEFENDANTS’ DUTIES TO INDYMAC. .....................................................22

VI. CLAIMS FOR RELIEF. ....................................................................................24

A. Count Based on Allegations That Loan Production at HBD Should Have Been Reduced or Eliminated No Later Than Early 2006........................................................................................24


393199.1_DOC -ii- COMPLAINT

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Count 1 .............................................................................................24

B. Counts Based on Allegations Related to The Loans Made By HBD in the Fiesta Development, Inc. Borrower Relationship...............................................................................................26

Count 2 .............................................................................................26

Count 3 .............................................................................................28

Count 4 .............................................................................................36

C. Count Based on Allegations Related to the Loan Made By HBD in the Main Street Partners, Inc. Borrower Relationship...............................................................................................41

Count 5 .............................................................................................41

D. Counts Based on Allegations Related to the Loans Made By HBD in the Pinn Brothers Borrower Relationship..........................44

Count 6 .............................................................................................44

Count 7 .............................................................................................47

E. Count Based on Allegations Related to the Loan Made By HBD in the Ralph Giannella Borrower Relationship. ..........................49

Count 8 .............................................................................................49

F. Counts Based on Allegations Related to the Loans Made By HBD in the Corinthian Homes Borrower Relationship. .................55

Count 9 .............................................................................................55

Count 10 ...........................................................................................58

Count 11 ...........................................................................................62

Count 12 ...........................................................................................65

Count 13 ...........................................................................................68


393199.1_DOC -iii- COMPLAINT

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G. Count Based on Allegations Related to the Loan Made By HBD in the Christopherson Homes Borrower Relationship...............................................................................................72

Count 14 ...........................................................................................72

H. Counts Based on Allegations Related to the Loans Made By HBD in the Dr. Gansean Visvabharathy (“Dr. Vish”) Borrower Relationship. ............................................................................75

Count 15 ...........................................................................................75

Count 16 ...........................................................................................78

I. Counts Based on Allegations Related to the Loans Made By HBD in the Cambridge Homes Borrower Relationship..................82

Count 17 ...........................................................................................82

Count 18 ...........................................................................................88

Count 19 ...........................................................................................93

J. Counts Based on Allegations Related to the Loans Made By HBD in the McComic Consolidated, Inc. Borrower Relationship...............................................................................................99

Count 20 ...........................................................................................99

Count 21 .........................................................................................103

Count 22 .........................................................................................109

Count 23 .........................................................................................114

K. Counts Based on Allegations Related to the Loans Made By HBD in the Prosperity Real Estate Investors, Inc. Borrower Relationship. ..........................................................................119

Count 24 .........................................................................................119

Count 25 .........................................................................................121

L. Counts Based on Allegations Related to the Loans Made By HBD in the Reynen & Bardis Borrower Relationship. .................124


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Count 26 .........................................................................................124

Count 27 .........................................................................................128

Count 28 .........................................................................................131

Count 29 .........................................................................................135

Count 30 .........................................................................................139

Count 31 .........................................................................................143

M. Counts Based on Allegations Related to the Loans Made By HBD in the Decal Custom Homes and Construction, Inc. Borrower Relationship. ..................................................................147

Count 32 .........................................................................................147

Count 33 .........................................................................................150

N. Counts Based on Allegations Related to the Loans Made By HBD in the J.P. Eliopulos Enterprises, Inc. Borrower Relationship.............................................................................................155

Count 34 .........................................................................................155

Count 35 .........................................................................................163

O. Count Based on Allegations Related to the Loan Made By HBD in the Terrapin Group Borrower Relationship. ........................168

Count 36 .........................................................................................168

P. Count Based on Allegations Related to the Loan Made By HBD in the Neumann Homes Borrower Relationship........................172

Count 37 .........................................................................................172

Q. Counts Based on Allegations Related to the Loans Made By HBD in the WL Homes, LLC Borrower Relationship. .................177

Count 38 .........................................................................................177

Count 39 .........................................................................................179

Count 40 .........................................................................................182


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R. Counts Based on Allegations Related to the Loans Made By HBD in the Drake Development, LLC Borrower Relationship.............................................................................................185

Count 41 .........................................................................................185

Count 42 .........................................................................................190

S. Count Based on Allegations Related to the Loan Made By HBD in the Villa Development, LLC Borrower Relationship.............................................................................................194

Count 43 .........................................................................................194

T. Counts Based on Allegations Related to the Loans Made By HBD in the Lafferty Homes, Inc. Borrower Relationship.............................................................................................197

Count 44 .........................................................................................197

Count 45 .........................................................................................201

U. Count Based on Allegations Related to the Loan Made By HBD in the Pacer Communities, Inc. Borrower Relationship.............................................................................................205

Count 46 .........................................................................................205

V. Count Based on Allegations Related to the Loan Made By HBD in the Adams Homes Borrower Relationship.............................208

Count 47 .........................................................................................208

W. Count Based on Allegations Related to the Loan Made By HBD in the Maisel Presley Borrower Relationship.............................212

Count 48 .........................................................................................212

X. Count Based on Allegations Related to the Loan Made By HBD in the Integral Partners Borrower Relationship........................219

Count 49 .........................................................................................219


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Y. Count Based on Allegations Related to the Loan Made By HBD in the Private Island Homes, LLC Borrower Relationship.............................................................................................223

Count 50 .........................................................................................223

Z. Counts Based on Allegations Related to the Loans Made By HBD in the MWH Development Corp. Borrower Relationship.............................................................................................229

Count 51 .........................................................................................229

Count 52 .........................................................................................233

Count 53 .........................................................................................239

AA. Counts Based on Allegations Related to the Loans Made By HBD in the Mountain View Bravo Borrower Relationship.............................................................................................243

Count 54 .........................................................................................243

Count 55 .........................................................................................246

Count 56 .........................................................................................251

BB. Count Based on Allegations Related to the Loan Made By HBD in the Pacific Pride Communities Borrower Relationship.............................................................................................255

Count 57 .........................................................................................255

CC. Count Based on Allegations Related to the Loan Made By HBD in the Rokas International Borrower Relationship. ..................261

Count 58 .........................................................................................261

DD. Count Based on Allegations Related to the Loan Made By HBD in the Pacific Century Homes Borrower Relationship.............................................................................................267

Count 59 .........................................................................................267

EE. Counts Based on Allegations Related to the Loans Made By HBD in the Dunmore Homes Borrower Relationship...................272


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Count 60 .........................................................................................272

Count 61 .........................................................................................275

FF. Count Based on Allegations Related to the Loan Made By HBD in the AKT Development Borrower Relationship. ....................280

Count 62 .........................................................................................280

GG. Count Based on Allegations Related to the Loan Made By HBD in the Alpine Real Property Borrower Relationship.................286

Count 63 .........................................................................................286

HH. Count Based on Allegations Related to the Loan Made By HBD via PBG in the Shahvand Aryana and James Braswell Borrower Relationship. ..........................................................291

Count 64 .........................................................................................291

II. Counts Based on Allegations Related to the Loans Made By HBD via PBG in the John Gates Borrower Relationship.............................................................................................296

Count 65 .........................................................................................296

Count 66 .........................................................................................299

Count 67 .........................................................................................303

JJ. Count Based on Other Loans Resulting in Losses ..............................306

Count 68 .........................................................................................306

VII. PRAYER FOR RELIEF...................................................................................308


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COMPLAINT

Plaintiff, Federal Deposit Insurance Corporation (“Plaintiff” or “FDIC”) as

Receiver for IndyMac Bank, F.S.B. (“IndyMac” or “The Bank”) as and for its complaint

against Defendants alleges as follows:

I. BACKGROUND FACTS.

1. This action is brought by the FDIC in its capacity as Receiver for IndyMac.

Pursuant to 12 U.S.C. § 1821(d)(2), the FDIC is the successor to all claims originally

held by IndyMac, and of any stockholder, member, accountholder, depositor, officer, or

director of such institution with respect to the institution and the assets of the institution.

2. This action asserts only claims against former officers of IndyMac arising

out of the operations of the Bank’s Homebuilder Division (“HBD”).

3. IndyMac first became involved in homebuilder lending with the formation

of Construction Lending Corporation of America (“CLCA”) in 1994 when the Bank was

a real estate investment trust (“REIT”). IndyMac was chartered as a bank on or about

July 1, 2000. CLCA continued as a division of the Bank and was renamed HBD in or

about mid 2002.

4. HBD provided land, acquisition and development (“A&D”), construction

and combined acquisition, development and construction (“AD&C”) loans to

homebuilders in selected markets throughout the United States. HBD’s primary focus

was on non-public regional builders.

5. HBD’s total commitments grew from approximately $1.1 billion at year-end

2003 to $2 billion at year-end 2006. HBD’s management continued to push for growth

until new production was halted in October 2007. The Bank was seized on July 11, 2008.

At that time, the outstanding balance on HBD’s portfolio was $898,573,743. IndyMac’s

losses on HBD’s portfolio are estimated to exceed at least $500 million.

6. The Bank’s losses from the operation of HBD stem from two significant


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departures from safe and sound banking practices. First, HBD’s management repeatedly

disregarded HBD’s credit policies and approved loans to borrowers who were not credit

worthy and/or for projects that provided insufficient collateral. HBD’s compensation

plans for its management and account officers encouraged them to push for growth in

loan production volume with little regard for credit quality. Second, HBD’s management

continued to follow a strategy of growth at the tail-end of the longest appreciating real

estate market in over four decades. HBD’s management pushed to grow loan production

despite their awareness that a significant downturn in the market was imminent and

despite warnings from IndyMac’s upper management about the likelihood of a market

decline. Indeed, HBD’s management unwisely continued operations in homebuilder

lending in deteriorating markets even after becoming aware of the market decline.

7. This action seeks damages against key members of HBD’s management

team based upon negligence and breach of fiduciary duties.

8. The actions and omissions which give rise to the Defendants’ liability

include, among other things, negligently approving loans with deficient collateral;

negligently approving loans where one or more of the sources of repayment of the loan

were not likely to be sufficient to fully retire the debt; negligently approving loans that

violated applicable laws and regulations and/or the Bank’s internal policies; negligently

approving loans to borrowers who were or should have been known to be not

creditworthy and/or in financial difficulty; negligently approving loans with inadequate

or inaccurate financial information regarding the creditworthiness of the borrower and/or

guarantors; negligently approving loans with inadequate appraisals; negligently

permitting loans to be made without taking proper and reasonable steps to insure that the

loan proceeds would be used in accordance with the loan application and failing to

control the disbursement of loan proceeds; negligently permitting loans to be renewed or

extended to borrowers who were not creditworthy or were known to be in financial

difficulty and without any reduction in principal and without taking proper steps to obtain



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security or otherwise protect the Bank’s interests; negligently approving loans to be made

outside the normal and prudent trade areas of the Bank; negligently continuing and even

expanding HBD’s homebuilder lending despite knowledge of deteriorating market

conditions; negligently approving loans despite the Bank having a high geographic

concentration of loans in the same market; negligently approving loans despite the

borrower having a high geographic concentration of property in the same market; and

negligently approving loans where there was very little likelihood of the loan repaying

within the term of the loan..

II. JURISDICTION AND VENUE.

9. This is an action arising under the laws of the United States of America,

specifically including 12 U.S.C. § 1821(d)(2) and (k) and 12 U.S.C. § 1819(a). This

Court has jurisdiction over this action under 28 U.S.C. §§ 1331 and 1345. This Court

also has supplemental jurisdiction over state law claims pursuant to 28 U.S.C. § 1367.

10. The venue of this action is proper pursuant to 28 U.S.C. § 1391(b), because

the claims and causes of action asserted herein arose within the Central District of

California.

III. PARTIES.

A. Plaintiff.

11. Plaintiff is acting in its capacity as Receiver for IndyMac, and is authorized

to sue pursuant to 12 U.S.C. § 1821(d)(2) and (k).

12. In accordance with 12 U.S.C. § 1821(d)(2), FDIC as Receiver of IndyMac,

and as successor to all claims of IndyMac, and of any stockholder, member,

accountholder, depositor, officer, or director of such institution with respect to the

institution and the assets of the institution, is a real party in interest to this action and is

entitled to recover damages for any injuries sustained, including those set forth below.

B. Defendants.

13. Scott Van Dellen (“Van Dellen”) is a resident of the State of California and



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of the Central District of California. Van Dellen joined IndyMac in 2001 and served as

the President and Chief Executive Officer (“CEO”) of HBD from September 16, 2002

until the seizure of the Bank on July 11, 2008. He also served as interim Chief Credit

Officer (“CCO”) of HBD from late 2006 until the seizure of the Bank. Van Dellen was a

voting member of HBD’s Management Loan Committee (sometimes also known as the

“Junior Loan Committee”) and its Executive Loan Committee (sometimes also known as

the “Senior Loan Committee”) during his entire tenure at HBD. Van Dellen approved all

of the loans which are the subject of this Action.

14. Richard Koon (“Koon”) is a resident of the State of California and of the

Central District of California. Koon joined the Bank as HBD’s Chief Lending Officer

(“CLO”) in July 2001 and remained in that position until he left HBD on July 15, 2006.

Koon remained an employee of the Bank outside of HBD until he was laid off in January

2008. Koon was a member of the Junior Loan Committee during his entire tenure at

HBD and was involved in approvals relating to at least 40 of the residential construction

loans which are the subject of this action. Koon was replaced as CLO by William

Rothman.

15. Kenneth Shellem (“Shellem”) is a resident of the State of California and of

the Central District of California. Shellem joined IndyMac in March 2000 and performed

work in internal audit review until he was assigned the position of the Bank’s corporate

CCO in June or July of 2000. Shellem was reassigned from the corporate office to work

as CCO of HBD starting in March 2002. Shellem ceased serving as CCO of HBD on or

about November 15, 2006. He remained an employee of the Bank outside of HBD until

his termination on March 31, 2007. Shellem was a voting member of the Junior Loan

Committee throughout his tenure as CCO of HBD from March 2002 until November

2006. Shellem was involved in approvals relating to at least 57 of the residential

construction loans which are the subject of this action.

16. William Rothman (“Rothman”) is a resident of the State of California and of



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the Central District of California. Rothman joined IndyMac in October 2004 as a

regional manager of HBD. Rothman became the CLO of HBD in July 2006 and

remained in that position until the seizure of IndyMac. Throughout his time as CLO of

HBD, Rothman was a voting member of the Junior Loan Committee. Rothman was

involved in approvals relating to at least 34 of the residential construction loans at issue

in this action.

IV. GENERAL ALLEGATIONS OF FACTS RELATING TO CLAIMS FOR

RELIEF.

A. Background of IndyMac Bank, F.S.B. and Its Collapse.

17. IndyMac was formed when the First Federal Savings and Loan Association

of San Gabriel Valley became a wholly-owned subsidiary of IndyMac Bancorp., Inc.

(“Bancorp”). The thrift was renamed IndyMac Bank, F.S.B. and became a federally

chartered thrift under a charter from the Office of Thrift Supervision (“OTS”). IndyMac

was a wholly-owned subsidiary of IndyMac Intermediate Holdings, Inc., which in turn

was a wholly-owned subsidiary of Bancorp.

18. The precursor to Bancorp and IndyMac was IndyMac Mortgage Holding

Company, Inc. (ultimately assuming the name IndyMac Bancorp, Inc.), a passive real

estate investment trust (“REIT”) founded in 1985. IndyMac Mortgage Holding

Company, Inc. terminated its REIT status effective January 1, 2000 and converted to a

fully taxable entity on July 1, 2000.

19. IndyMac commenced operations with $5.1 billion in total assets and eight

retail branch offices on July 1, 2000. The Bank originated residential loans for sale,

securitization, and for investment. Residential mortgage lending and mortgage bank

activity was its primary focus.

20. The Bank grew to become the seventh largest savings association and ninth

largest servicer of mortgages in the United States. From June 2005 to March 2008,

IndyMac grew from approximately $18.3 billion to $32 billion in assets. Growth was due



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largely to an aggressive growth strategy that was pursued in many of its business units,

including HBD. IndyMac operated in 50 states. At its peak, the Bank had 33 retail

branches located in Southern California and 182 loan production offices throughout the

country.

21. Between 2000 and 2006, loan production increased from approximately $10

billion to almost $92 billion. Production decreased to approximately $77 billion in 2007

and $10 billion in 2008.

22. IndyMac qualified for and received deposit insurance from the FDIC and

was thereby obligated to conform to the rules and regulations issued by the FDIC

regarding its lending policies, management, financial policies, capitalization and loan

reserves. In addition, because IndyMac was a federally chartered thrift under a charter

from the OTS, the Bank was also obligated to follow OTS policies, rules and regulations.

Such rules and regulations were designed by the regulatory agencies to prevent loss of the

depositor’s funds due to imprudent actions by the insured institutions and to protect the

FDIC insurance fund.

23. On July 11, 2008, IndyMac was closed by the OTS with $28 billion in

assets. On July 17, 2008, the OTS appointed the FDIC as receiver of the Bank. Bancorp

filed a Chapter 7 bankruptcy petition on July 31, 2008. The estimated losses to the FDIC

stemming from IndyMac’s collapse are currently $12.75 billion. The portion of these

losses stemming from the operation of HBD exceeds $500 million.

B. The Organizational History of HBD.

24. HBD was the successor by name change of CLCA. Van Dellen assumed

responsibility for HBD in 2002 when he was appointed head of the Specialty Products

Division, of which HBD was a part. On September 16, 2002, Van Dellen assumed direct

responsibility for HBD becoming president and CEO of the division. Ken Shellem

became CCO of HBD at the same time. Koon arrived at HBD no later than July 1, 2001

and was already CLO when Van Dellen arrived.



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25. When Van Dellen arrived at HBD in 2002, his first year or so involved crisis

management. Among other things, HBD had received poor OTS and internal asset and

audit reviews. The function of credit officers was not separate from the function of

production groups, and appraisals were not being properly obtained.

26. From 2001 to 2002, new loan volume at HBD had declined from a little over

$1 billion to approximately $520 million. The decline was a part of HBD’s crisis

management strategy that ended a mezzanine lending (subordinate loans) and equity

program carried over from when HBD was part of a REIT. In addition, lending on

income property, lending for pure land acquisition, and lending in 23 “noncore” lending

markets was halted by HBD. HBD began efforts to revise its credit policies and

procedures. The strategy implemented prior to Van Dellen’s arrival to shrink HBD in the

face of losses was part of a “Castor Oil” strategy devised by Michael Perry (“Perry”),

Chairman and CEO of the Bank and Bancorp. The goal of that strategy was to lower

HBD’s risk profile in the face of anticipated market declines, to enhance its return on

equity (“ROE”), and to use construction lending to developers as a means of obtaining

more residential mortgage business. The strategy sought a temporary reduction in

construction lending that would be followed by growth in HBD.

27. The Castor Oil strategy of 2002, and HBD’s decision to decrease new

business at that time, reflected management’s awareness, as expressed by Perry, that

“Every prudent bank has to ‘pull in the reigns’ (sic) from time to time.” It was for this

reason that the Bank “deliberately reduced this business’ [HBD’s] size” after 1999.

28. Van Dellen’s leadership of HBD provided only nominal separation of the

credit department from loan production. Van Dellen did little to provide a strong and

independent credit department. Production officers remained on the Junior Loan

Committee and the credit department ultimately lost its veto authority on that committee.

During Van Dellen’s tenure, HBD’s credit officers received no formal training, had

considerably less experience and received significantly lower compensation than HBD’s



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production or “account” officers. In sum, HBD’s credit officers and credit department

appear to have had little authority other than to require that information be placed in the

credit approval memorandum (“CAM”).

29. HBD was significantly reorganized in the middle of 2006. On July 15,

2006, Koon retired from HBD. He was replaced by Rothman who had been acting as a

co-CLO with Koon starting in January 2006. In the latter part of 2006, Van Dellen

created the Major Builders Group (“MBG”) as a counterpart to the Professional Builders

Group (“PBG”), which had been in existence for at least one year. MBG targeted larger

builders that built projects of at least 25 units and which required loans in excess of $5

million. PBG typically lent to builders of projects totaling up to 25 units, with a loan of

no more than $5 million on any one project.

30. The 2006 reorganization of HBD also resulted in the removal of Shellem as

a Junior Loan Committee member. Van Dellen replaced Shellem on the Junior Loan

Committee with a credit administrator, Todd Camp (“Camp”), who reported directly to

Rothman. Van Dellen proposed that Shellem remain as CCO for HBD without voting

authority on the Junior Loan Committee and without credit officers reporting to him.

Shellem refused and ultimately left HBD.

31. Prior to the reorganization of HBD in 2006, Shellem had the power to object

to a loan being approved by the Junior Loan Committee. Shellem’s objection would then

force the Senior Loan Committee (consisting of Van Dellen and, for most of the time,

IndyMac’s President Richard Wohl (“Wohl”)) to consider a loan which did not otherwise

require Senior Loan Committee approval. After the reorganization, Shellem’s nominal

replacement on the Junior Loan Committee, Camp, was never appointed CCO and never

attained the authority that Shellem previously had. Effectively, with Shellem’s departure,

HBD ceased to have a CCO. Although Van Dellen claimed to be acting as CCO, he

lacked the experience to do so. Van Dellen also directed credit officers to report to a

single head credit administrator, Camp, who in turn was reporting to the CLO and lead



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production officer, Rothman. This reorganization of HBD created the very blurring

between credit and production functions that existed when Van Dellen first arrived at

HBD in 2002, and about which regulatory agencies had previously complained. Both

Koon and Shellem described Van Dellen’s reorganization as having created a serious

conflict of interest.

32. Late in 2007, HBD finally began to decrease loan production, and began

layoffs of personnel. At least three account officers accepted offers of voluntary buyouts

in place of layoffs. All loan production was discontinued at HBD on October 22, 2007.

At that same time, the production side of HBD, as well as the credit side, were

reorganized into workout assignments to deal with HBD’s troubled portfolio.

C. HBD Followed A High Risk Growth Strategy.

33. Shortly after assuming command of HBD, Van Dellen announced a plan to

grow HBD. Production goals increased for account officers every year under Van Dellen

until the latter part of 2007. This was true despite a broad consensus amongst HBD

production officers that production targets needed to be lowered. Account officers who

did not meet their annual production targets were often terminated or encouraged to

leave. Van Dellen continued to push for growth and took no steps to reduce or end

production. In November 2004, Van Dellen, Koon and Shellem, as HBD’s top

management, identified residential construction lending as involving “increasing

competition, current customers getting bigger and demanding lower returns.” Their

response was to “grow geographically and by moving downstream to smaller, less price

competitive builders.” At the same time, HBD’s management projected 100% growth in

HBD’s net commitments over a five-year term projected through the end of 2008. The

growth was to come from a strategy that targeted medium and small builders as opposed

to large public builders. HBD attempted to offset the risks associated with its borrowers

by demanding higher returns on its equity.

34. In the fall of 2005, Van Dellen, Shellem and Koon were being warned by



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IndyMac’s upper management of deteriorating conditions for home builder lending. In

September 2005, Perry suspended mezzanine lending and equity investments through one

of Bancorp’s subsidiaries that had been used to assist HBD’s borrowers. Responding to

complaints by an HBD account officer, Perry explained that “construction lending is

always going to be perceived by any financial institution and its regulators as risky . . .

especially in this environment . . . therefore construction lending cannot go ‘business as

usual’ in all markets . . . every prudent bank has to ‘pull in the reigns’ (sic) from time to

time.”

35. Perry frequently forwarded news articles warning of deteriorating conditions

in the home builder market and cautioning Van Dellen to “be careful.” In particular,

Perry forwarded articles to Van Dellen such as the following:

a. March 3, 2006 article in The Wall Street Journal. Perry underlined

portions of this article that discussed reduced sales in single-family homes and the

highest level of unsold new homes in nearly a decade. Perry made a handwritten

note on the article stating “Be careful, especially on our new construction

projects.”

b. July 26, 2006 article in MBA NewsLink. Perry forwarded this article

noting Weyerhauser’s plans to scale back its home builder unit. Perry cautioned

Van Dellen to “err on the side of being ‘safe’ . . . as it is not a time to stretch for

volume.”

c. September 11, 2006 article in the Los Angeles Business Journal.

Perry sent this article to highlight declining sales rates. He circled a portion of the

article that addressed a steep 32% decline in sales from the same month of the prior

year.

d. October 2, 2006 article in Outfront. The first paragraph in the article

states that the “bad news keeps on coming from the home front.” The article notes

that KB Home slashed earnings forecasts for the second time since June, and that



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shares had fallen 40% over the past year. Perry made a handwritten note on the

article stating “I am in the middle of this one… I definitely think the economy will

slow due to home prices abating.”

e. November 8, 2006 article from an unknown publication. The article

came from Bloomberg News and discussed declining sales experienced by home

builders Toll Bros, Inc. and Beazer Homes USA, Inc. Once again, Perry made a

handwritten note on the article stating “Be careful.”

f. May 4, 2007 article in US Economics Analyst. Perry circled a portion

of the article that warned that a housing downturn in Florida was likely to cause an

outright recession. Perry also wrote a note on the article stating “Sell Florida.

Your first loss is your best loss.”

36. Koon and Shellem also warned Van Dellen of the deteriorating market of

which they were well aware beginning in 2005. In early 2005, CLO Koon warned

against the creation of PBG and its lending to smaller borrowers based entirely on the

strength of the project rather than the credit worthiness of the borrower. Koon was

opposed to such “project based” lending. He also warned against HBD’s creation of a

mezzanine lending and equity program in early 2005. Koon warned that the then-current

up cycle in the market was the longest in the last four decades and it was too late in the

cycle to take risks on smaller “project based” borrowers and on mezzanine loans.

37. On September 15, 2005, an article entitled “Banks’ Capacity To Withstand

Housing Bubble Burst; So Far So Good” discussed a stress test of financial institutions

conducted by Standard & Poor’s. The article concluded that IndyMac would suffer the

largest loss because of its sizable residential construction loan portfolio. The article also

noted that construction loans financing real estate development and loans to home

builders carried the greatest exposure to credit losses should housing prices trend

downward.

38. As early as 2005, HBD’s management indicated repeatedly to the Bank’s



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board, the regulators, and outside consultants that it was taking steps to tighten

underwriting, even though, as discussed following, it was not in practice doing so.

HBD’s management even acknowledged “bubble-related concerns.” HBD’s

management’s statements at least showed its awareness of deteriorating market

conditions.

39. On April 6, 2006, CCO Shellem sent an e-mail to all HBD personnel

warning about concessions being offered by builders which he believed could mask a

softening market. Shellem encouraged HBD personnel to do a better job of looking at the

borrower’s entire financial picture as opposed to just a single project. Shellem suggested

detailed questions to borrowers designed to learn about the progress of a borrower’s

others projects, the borrower’s overall financial condition, and the condition of the

markets in which the borrowers operated. Shellem’s suggestions evidence HBD’s failure

to ask these “detailed questions” at least up to this point in time. Shellem summed up his

advice as follows: “I guess, in short, we need to think more like credit lenders than

project lenders. It may be fine if the borrower has one project and it is with us, but if the

borrower has multiple projects and other investments that require attention, cash and

capital, we need to totally understand the borrower’s situation.”

40. On June 30, 2006, CLO Koon wrote a memorandum to all HBD account

officers about changing market conditions sounding a clear alarm. Koon noted:

It’s time for us to proactively deal with the changing housing market. Many of the loans recorded over the last year will not be able to live up to their expectations for sales and closings.

I’m asking every account officer to have a face-to-face meeting with each borrower within the next 30 days, during your 2nd quarter status reviews, to discuss their revised plan for each loan.

You are about to have the toughest conversation you’ve had with the borrower in the last 11 years. This is the time where we find out whether the borrower has integrity and how good your negotiation skills are. Anyone can make a loan – relationships are in fact made or broken in difficult times. (Emphasis in original.)



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41. Koon and Shellem were not the only HBD officers sounding an alarm in

2006. Account officer Geoffrey Ramirez (“Ramirez”) had discussions with Van Dellen

and Rothman in 2006 regarding declines in real estate values. Senior account officer

Douglas Koerber (“Koerber”) noted that, toward the latter part of 2006, he approached

prospective borrowers to discuss new loans only to have the borrowers indicate that they

were not interested in any new deals because of market conditions. Koerber shared these

comments with HBD’s Junior Loan Committee members Rothman and Van Dellen.

Other account officers also were recognizing that the housing market was beginning to

slow. Account officer Cressa Cruzan stated that it was “insane” for HBD to keep

growing year after year when the real estate cycle was already at its peak. Financial

analyst David Cannon also observed the real estate market beginning to soften in the

Inland Empire area of California during the summer of 2006.

42. Despite the warnings detailed above, Van Dellen continued to push for

growth, announcing his strategic initiative for 2007 in an October 20, 2006 e-mail. Van

Dellen asserted that HBD needed to “grow, expand and diversify faster to keep up with

the bank and leverage our very solid platform. Our competitors may be retreating or

exiting. Now is the time to pounce. . . .” Among other things, Van Dellen called for

“quick, informative and flexible loan structuring and servicing [and] creative solutions.”

He suggested that HBD “[p]ut as many decisions as possible in the hands of account

officers and even borrowers.”

43. Only five weeks later, on November 30, 2006 at a meeting of the Bank’s

senior managers, which included Van Dellen, corporate management warned of the

declining market, describing among other things, a decline of 9.7% in the median price of

new homes since September 2005 and mentioning that home builder volumes and

margins were “under pressure.” The presentation was entitled the “wall of worry.”

Nonetheless, Van Dellen continued, as late as the first quarter of 2007, to push for HBD

to “grow production at double digit rates over the next five years.”



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D. HBD Followed A High Risk Underwriting Strategy.

1. HBD violated its own credit policies.

44. HBD disregarded many of its own internal credit policies and regulatory

guidance in approving loans. At least in theory, HBD’s written credit policies were

designed to “maintain the integrity of the Bank’s loan origination process and . . . ensure

the quality of its loan portfolio.” HBD considered its written credit policy “critical to its

success in providing a specialized lending product.” Despite this, the vast majority of

loans at issue in this action involved at least one significant credit policy exception. On

information and belief, FDIC alleges that less than 1% of the loans approved by HBD

were approved without a credit policy exception.

45. Policies designed to reduce the Bank’s overall risk exposure were often

ignored. For example, HBD had a minimum equity policy requiring the borrower to

provide minimum cash equity of 10% of total project costs at or prior to closing. For

condominium projects, not less than 15% of total project costs was required as borrower

equity. Yet, in many cases, this “cash” equity requirement was satisfied with mezzanine

loans, third party equity investments, and deferred equity contributions (to be paid after

loan closing by the borrower). Of particular significance in a rising market, borrowers

were often allowed to rely upon “market equity.” HBD’s policy indicated that market

equity would be allowed if the borrower owned the property for more than two years or

controlled the property for more than three years. Nonetheless, market equity was

frequently allowed without the time requirement having been satisfied. With land

development or construction loans, HBD’s decision to permit a borrower to use market

equity resulted in a higher loan-to-value (“LTV”) ratio, because the borrower no longer

had to contribute cash to the project. Moreover, in a rising market, the use of short-term

market equity was particularly risky, since the equity that was a result of recent run-ups

in prices was the very equity most likely to vanish when the market turned. Third party

equity was also risky and was only to be allowed where projects were less speculative



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(meaning more pre-sales). It was, however, often allowed in other circumstances.

46. A second internal policy closely tied to borrower equity was HBD’s

requirement of a minimum profit margin. HBD required a profit margin of 10% or

greater based upon the budget set forth in the CAM. Where a lower profit margin was

accepted, a higher amount of equity was to be required. This requirement too was

frequently waived in circumstances where waiver was not warranted.

47. To limit its exposure on any given loan commitment, HBD set the maximum

number of dwelling units at 125 for any loan commitment. A cap on the maximum

number of units, particularly in the case of condominium developments, limited HBD’s

exposure if sales rates slowed. For larger projects, this requirement could compel a

borrower to seek multiple construction loans, limiting the Bank’s exposure and requiring

careful underwriting of each phase of the project. This requirement too was frequently

waived.

48. HBD’s policy recognized condominium financing as exceptionally risky. Its

policy provided that the initial loan advance for purchase could not exceed 100% of

appraised apartment “as-is” value based on a 1.0 debt coverage ratio (“DCR”). If

enforced, this policy meant that the rental stream from the apartment building would

service the debt on the condominium conversion loan if the conversion failed. The policy

further specified that condominium conversion loans must include re-margining

requirements at origination if the DCR (excluding construction or rehabilitation costs)

was less than 1.0. This policy also was frequently waived.

49. HBD’s policies placed importance on the strength of the borrower and its

guarantors as well as on market conditions and the project. In particular, full recourse

guarantees were generally required for all transactions. Full recourse included personal

guarantees from controlling parties of the borrowing entity. Exceptions were considered

on a case-by-case basis. Personal guarantees from the borrower’s principals, like

requirements of cash equity, required the borrower to have some downside risk, giving



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HBD a better assurance of repayment. The guarantees policy was frequently waived,

however, even in the face of weak market conditions and even for marginal projects.

50. HBD also ignored regulatory guidance in its underwriting as much as it

ignored its own internal credit policies. The handbook of the Office of the Comptroller

of the Currency (“OCC”) entitled “Commercial Real Estate and Construction Lending”

(March 1998) lists warning signs for problem real estate loans, many of which were

apparent at the outset of borrowers’ applications and were described in CAMs presented

to HBD loan committees. These warning signs include:

a. An excess of similar projects under construction are completed

and not leased/sold.

b. A pattern of increasing the marketing period or, increasing

concessions and declining effective rents for similar projects.

c. Construction delays or other events that could lead to cost

overruns that may require renegotiation of loan terms.

d. A feasibility study or analysis that fails to reflect current and

reasonably anticipated market conditions.

e. Slow leasing, the lack of sustained sales activity, or sale

cancellations that could reduce a project’s income potential, thereby leading

to protracted repayment or default on the loan.

f. Land values that assume future rezoning or road improvements.

51. The OCC described other warning signs for problem real estate loans as

being common in loans that “were originated on an unsound or liberal basis.” These

other warnings include:

a. Loans with no or minimal borrower equity.

b. Loans on speculative, undeveloped property where the

borrower’s only source of repayment is the sale of the property.

c. Loans based on land values that have been inflated by rapid



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turnover of ownership without any corresponding improvements to the

property or supportable income projections to justify an increase in value

(commonly referred to as “land flips”).

d. Additional advances to service an existing loan that lacks

credible support for full repayment from reliable sources.

e. Loans to borrowers with no development plans, or development

plans that are outdated or no longer viable.

f. Renewals, extensions and refinancings that lack credible

support for full repayment from reliable sources and that do not have a

reasonable repayment schedule.

52. Each of the “warning signs” detailed above summarize problems commonly

found in most of the loans at issue in this action.

2. HBD’s consideration of loan applications was superficial and

hasty.

53. Throughout Van Dellen’s management of HBD, the CAM was supposed to

contain all information relevant to the consideration of a loan application. Draft CAMs

were submitted to the credit department which prepared credit review memoranda noting

questions and concerns about the CAMs. Once a CAM was revised in response to the

credit review memorandum, the CAM would be transmitted to the Junior Loan

Committee. CAMs are lengthy documents averaging about 80 pages of single-spaced

type in small fonts. Loan committee members received the CAMs only a day or two

before committee meetings. On occasion, Van Dellen’s initial reading of a CAM

occurred during the Junior Loan Committee meeting.

54. One of IndyMac’s “core values” was that “speed rules at IndyMac.” This

was a firmly ingrained culture at IndyMac and, for example, was implemented by Perry

through his “Flamingo Rule” requiring employees seeking his guidance to “pop in my

office, quickly present the issue (in the amount of time you can ‘stand on one leg!’) and



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get my feedback.” Van Dellen implemented a similar arbitrary rule limiting discussions

of loans in the loan committee to 20 minutes. At one point, Van Dellen even attempted

to implement a policy abolishing loan approval memoranda altogether.

55. Hasty loan committee meetings left committee members little time to

properly discuss complicated multi-million dollar transactions or thoroughly question

account officers and credit officers about the details of the transactions.

3. HBD’s credit matrix led to poor underwriting decisions.

56. HBD substituted a rigid and formulaic approach toward underwriting

residential construction loans in place of careful subjective consideration of the merits of

each loan. Central to its underwriting practices, which were designed to speed

consideration of loan applications, HBD, under Van Dellen’s leadership and Shellem’s

input, developed a “credit risk matrix.” In late 2003 or early 2004, HBD implemented

this credit risk matrix scoring methodology. It replaced a previous methodology that was

qualitative in nature with one that was quantitative in nature. A single numerical score

was assigned to each credit risk which then controlled loan underwriting and loan pricing.

The credit risk matrix assumed a linear relationship between an asset classification

category and the loss potential on the loan, with “Pass 5” assets assigned five times the

loss potential of “Pass 1” and “watch” assigned five times the loss potential of Pass 5.

The assumed loss levels were arbitrary.

57. The credit risk matrix was developed to score each loan and each loan

application. The attributes of a loan or proposed loan were divided into project,

borrower, and market. Each attribute was further divided into various types of statistical

data relating to the project, the borrower, or the market. Each item of data was assigned a

numerical score and a weighting that led to an overall score for the asset or proposed

loan. The score resulted in a grade (Pass 1, 2, 3, 4 or 5) being assigned. The matrix

imposed no minimum score for loan approval. Instead, the very lowest category of loans

was classified as Pass 5 regardless of how low the score. At a score of “25” or Pass 4, the



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credit was considered a “good” credit and represented the highest risk tolerance allowed

by HBD policy. Also at various points in time, explanations of the credit risk matrix

suggest that Pass 4 or 5 credits required better market gradings (such as Pass 1 or 2) to be

approved.

58. The scores on the credit risk matrix were designed to determine the

acceptability of a credit, or so HBD management represented. HBD assured the OTS that

the credit risk matrix was “strictly” applied for approval decisions at least for some of

HBD’s loans.

59. From the time that it was first implemented in CAMs, through the end of

loan production at HBD in 2007, the credit risk matrix was used to assign credit scores

and grades to loan applications. A resulting grade of Pass 1, 2, 3, 4 or 5 dictated

benchmark ROE, which then determined the pricing of the loan. Over time, HBD

continually increased its ROE targets. Koon noted that this priced HBD out of the market

for lower risk borrowers. Nonetheless, HBD kept increasing its ROE targets throughout

its existence despite Koon’s concerns.

60. The application of the credit risk matrix was rigidly formulaic such that a

weakness in a key area would often end up being only a minor factor in grading the loan

and therefore not have much impact on how the loan was considered in underwriting.

For example, a borrower could have no liquidity but could still get a loan approved if

everything else on the credit risk matrix scored well. Thus, high scores on the credit risk

matrix became an excuse to approve loans with critical weaknesses, while low scores

were disregarded despite weaknesses by using supposed “mitigants” that excused policy

exceptions. HBD’s credit risk matrix was little more than window dressing for what in

reality were very risky and poorly managed underwriting practices.

4. HBD’s compensation of officers encouraged risky loans.

61. HBD’s compensation of its account officers rewarded risk taking and

encouraged production without regard for loan quality. Taken together with HBD’s other



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underwriting practices, HBD’s compensation of its account officers further worsened its

situation. In essence, HBD encouraged “adverse selection” through underwriting and

loan pricing practices and compensation of its account officers that rewarded account

officers who brought the riskiest loans to HBD, and made it possible for those loans to be

approved as long as customers were willing to pay a higher price. Of course, only

customers rejected by other banks were willing to pay HBD’s prices.

62. HBD’s compensation plan for its account officers was designed to advance

its strategy of increasing production of higher risk, higher return loans. Account officers

received a significant portion of their compensation based upon the projected profitability

of loans. The commission payments consisted of both a “front-end payout” and a “back-

end payout” and were set forth in annual compensation plans for the account officers.

Although some compensation plans purported to “claw back” some of the commission

payments for loans that became nonperforming, these claw back provisions were only

rarely enforced. As a result, account officers received their front-end payout, typically

50% of the anticipated commission on the loan, regardless of the performance of the loan.

If the loan performed well, account officers also had the prospect of a back-end payout.

63. Account officers’ commission plans also were administered in a way that

encouraged them to take additional risks. For example, account officers received an

additional 1% of the net income after tax for loans that produced ROEs of 24% or more.

Higher ROEs were typically available on riskier loans with lower credit scores.

64. Similarly, account officers were encouraged through increased

compensation to extend or modify loans. Loans that were extended or modified resulted

in increased interest income, which in turn increased account officers’ compensation.

Moreover, if an account officer failed to timely obtain extensions or modifications such

that a loan appeared on the 30-day-past-due-loan report, the account officer was subject

to a 10% reduction in all incentives paid in that quarter. HBD’s compensation system

thus encouraged extending non-performing loans. This proved detrimental to HBD’s



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collateral values after the real estate market was in decline.

5. IndyMac recognized HBD’s flaws.

65. IndyMac’s upper management discussed serious problems in HBD, albeit

not until early 2008 after HBD had ended new loan production. In February 2008,

IndyMac commissioned an internal asset review report of examination (“IAR Report”).

The IAR Report reviewed 10 problem loans originated by HBD, nine of which are among

the loans which are the subject of this action. An outside consultant subsequently

reviewed the report and summarized his conclusions to Perry. “Of the ten loans

[criticized in the IAR Report], I looked at four [that] were condo conversions, which are a

higher risk segment of the housing market. Two of these were in Florida, a long

recognized overheated market. Mezzanine financing was part of one of the deals.

Together the two deals represent a high dollar concentration with the single borrower.

Two deals represented an IndyMac refinance of another lender. In one instance, the

previous lender took a second back. These deals deteriorated quickly.” The consultant

also commented that the weaknesses in the loans “were present at the origination of these

deals. I don’t think I’m using hindsight here.” (Emphasis added.)

66. Perry responded with an indictment of HBD’s management: “That is good

feedback. . . . I was aware of the condo deals (and was opposed to them . . . but the

management in this unit [HBD] kept pushing and pushing) and also on the concentration

limits (again . . . pushing . . . and we cut these way back last year). To me, it shows you

can’t be in this business . . . because you are always getting screwed every down cycle

and losing all your profits for years . . . because the management and loan officers are too

‘in bed’ with the builders and always will be. I was not aware of the other issues and

they represent a disturbing lack of management, judgment and discipline in a business

that was supposed to be all about credit risk management (unlike mortgage banking) and

in a business that was not core and not supposed to be stretching for growth . . .

especially at the peak of the market. The refinances of other lenders . . . where they



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carried back paper is especially disturbing.” A few months later on May 7, 2008, Perry

wrote a note to Wohl and Van Dellen attaching a copy of Koon’s June 30, 2006

memorandum on “changing market conditions.” Perry told Wohl and Van Dellen that

Koon’s departure and his memorandum “should have been the signal we needed to batten

down the hatches and stop production.”

6. Summary.

67. HBD pursued both a negligent growth strategy and negligent underwriting

practices from the time of Van Dellen’s arrival in 2002 until production at HBD was

ultimately halted on October 22, 2007. HBD’s overall strategy reflected a conscious

effort to move “downstream” to higher risk credits to grow loan production and increase

management and account officer compensation. HBD rewarded imprudent risk taking to

fuel growth. HBD’s management felt that it could expand market share even though

HBD could not compete on price because of IndyMac’s higher cost of funds. HBD did

this by accommodating borrowers with higher loan advances as a percentage of collateral

value and looser underwriting standards reflecting its “creative” and “flexible” approach

designed to minimize restrictions imposed by HBD’s credit policies. HBD’s high risk

growth strategy and careless underwriting continued despite signals from Perry and

others that HBD should take a more cautious approach and despite HBD management’s

growing awareness of the decaying housing market from 2005 onward. These practices

resulted in losses exceeding $300 million, and only a handful of performing loans out of

roughly 220 loans in HBD’s portfolio at the time of IndyMac’s seizure.

V. DEFENDANTS’ DUTIES TO INDYMAC.

68. The individual Defendants, as officers of IndyMac, owed a duty to IndyMac

to carry out their responsibilities by exercising the degree of care, skill, and diligence that

ordinarily prudent persons in like positions would use under similar circumstances. The

individual Defendants breached their duties to the Bank. These duties encompass certain

fiduciary, statutory, and common law duties, including, but not limited to, the following:



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a. To conduct the business of IndyMac in compliance with all applicable

state and federal laws and regulations, and to abide by its own internal policies,

including but not limited to loan policies and lending limitations;

b. To establish, enforce and follow careful, reasonable, prudent, and

non-negligent lending policies and sound business judgment and candor;

c. To ensure the careful, reasonable, prudent and non-negligent

underwriting and administration of IndyMac’s loans;

d. To ensure that IndyMac did not engage in unsafe, unsound,

unreasonable and imprudent practices;

e. Upon receiving notice of an unsafe or unsound practice, to make a

reasonable investigation thereof and to exercise reasonable business judgment with

respect to all facts which a reasonable investigation would have disclosed;

f. To ensure that loans not be made to non-creditworthy borrowers

and/or borrowers in financial difficulty.

g. To ensure that loans not be made with inadequate or inaccurate

financial information regarding the creditworthiness of the borrower and/or

guarantor, and the prospective source of repayment, and the security provided for

the loans.

h. To ensure that loans not be made on the basis of inadequate or non-

existent appraisals.

i. To ensure that loans not be made without taking proper and

reasonable steps to insure that the loan proceeds would be used in accordance with

the loan application.

j. To ensure that loans not be renewed or extended without taking

proper steps to obtain security or otherwise protect the Bank’s interests.

k. To ensure that loans not be made outside the normal and prudent trade

areas of the Bank.



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l. To ensure that loans not be made where there was very little

likelihood of the loan repaying within the term of the loan.

m. To properly inform themselves and each other about the true nature

and condition of the Bank’s loan portfolio, and to adequately review and inquire

into the Bank’s loan transaction.

n. To recognize problem assets and to establish adequate loss reserves

therefore;

o. To carefully review reports of examinations conducted by, and other

directives of, regulatory agencies, to carry out the instructions and orders contained

therein, to investigate and cure problems and deficiencies noted therein, and to

prevent any repetition of such problems and deficiencies; and

p. To otherwise pursue financial policies that are reasonable, safe and

consistent with the purposes of the insurance of IndyMac’s accounts.

VI. CLAIMS FOR RELIEF.

A. Count Based on Allegations That Loan Production at HBD Should Have

Been Reduced or Eliminated No Later Than Early 2006.

Count 1

(Claim for Negligence and Breach of Duty of Care Against All Defendants)

69. Plaintiff incorporates by reference and re-alleges each of the allegations in

paragraphs 1 through 68 of this complaint, as though fully set forth herein.

70. Each of the Defendants, as officers, owed IndyMac the obligation to exercise

the degree of care, skill and diligence that ordinarily prudent persons in like positions

would use under similar circumstances in the management, supervision and conduct of

IndyMac’s business and financial affairs.

71. By their actions and inactions, as generally and specifically described above,

the Defendants failed and neglected to perform their duties properly as officers of

IndyMac and breached their fiduciary duties of care to IndyMac.



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72. Defendants knew, or in the exercise of due diligence should have known,

that their practices and the practices of IndyMac’s employees who reported to them and

over whom they exercised supervisory control, were improper, imprudent, and harmful to

IndyMac. In particular, Defendants were being warned by IndyMac’s upper management

as early as 2005 of deteriorating conditions for home builder lending. Defendants were

well aware beginning in 2005 of deteriorating market conditions for home builder

lending. Defendants were also aware of the perils of “project-based” lending as early as

2005. In 2005, there was also a growing consensus amongst HBD’s account officers

regarding declines in real estate values; these concerns were shared with the Defendants.

Loan production in HBD from 2006 onward should have been substantially limited or

eliminated altogether. Despite this knowledge, and even despite written warnings and

acknowledgements by Koon and Shellem of an impending market decline and a need to

tighten credit standards, all of the Defendants continued to underwrite and approve risky,

speculative, and “project-based” loans into mid-2007. HBD’s strategic initiative for 2007

asserted that HBD needed to “grow, expand and diversify faster to keep up with the bank

and leverage our very solid platform. Our competitors may be retreating or exiting. Now

is the time to pounce. . . .”

73. As a direct and proximate result of the negligence and breach of fiduciary

duties of Defendants, Plaintiff has suffered losses and other compensatory and

consequential damages, in amounts to be established at trial.

74. With respect to all of their actions and inactions in managing and

administering the affairs of IndyMac, the Defendants pursued a common plan or design

with each other, and therefore are jointly and severally liable for all losses.



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B. Counts Based on Allegations Related to The Loans Made By HBD in the

Fiesta Development, Inc. Borrower Relationship.

Count 2

(Claim for Negligence and Breach of Duty of Care Against All Defendants Related

to the Underwriting, Administration, Extension and Modification of a Loan to

Fiesta Development, Inc. for the Country View Estates (Model Homes) Project)



76. Van Dellen, Shellem, and Koon approved a loan to Fiesta Development, Inc.

for a project known as Country View Estates (Model Homes). This loan was entered into

on February 12, 2004, with extensions approved by Van Dellen, Shellem, and Koon in

2006, and Van Dellen, Shellem, and Rothman in 2007. The loan involved five model

homes and 21 finished lots. The loan commitment totaled $2,409,550 and had a 24-

month term. Losses on this loan are estimated to exceed $1.5 million.

77. Defendants approved and/or extended this loan despite the following:

a. There was substantial competition in the market area.

b. HBD already financed 210 lots within the same project in

contravention of HBD policy

c. There were deteriorating market conditions.

d. The borrower and guarantors had very low liquidity, low net worth,

high debt, and high contingent liabilities.




IndyMac. The negligence and breaches of duty by Defendants in regard to this loan

include, but are not limited to, the following:

a. Causing or allowing a loan to be made to a borrower and guarantors



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who were or should have been known to be not creditworthy and/or in financial

difficulty.

b. Causing or allowing a loan to be made in violation of applicable laws,

regulations, and/or HBD’s internal policies.

c. Causing or allowing a loan to be made with inadequate or inaccurate



the loans.

d. Causing or allowing a loan to be made where one or more of the

sources of repayment of the loan were not likely to be sufficient to fully retire the

debt.

e. Causing or allowing a loan to be made, renewed, and/or extended with

inadequate or problematic appraisals.

f. Causing or allowing a loan to be renewed or extended to borrowers

who were not creditworthy or were known to be in financial difficulty and without

any reduction in principal and without taking proper steps to obtain security or

otherwise protect the Bank’s interests.

g. Causing or allowing a loan to be made, renewed, and/or extended

despite poor and deteriorating market conditions.

h. Causing or allowing a loan to be made, renewed, and/or extended

despite the Bank having a high geographic concentration of loans in the same

market.

i. Causing or allowing a loan to be made, renewed or extended despite

the borrower having a high geographic concentration of property in the same

market.

j. Causing or allowing a loan to be made, renewed or extended where

there was very little likelihood of the loan repaying within the term of the loan.



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79. Defendants, as officers, owed IndyMac the obligation to exercise the degree

of care, skill and diligence that ordinarily prudent persons in like positions would use

under similar circumstances in the management, supervision and conduct of IndyMac’s

business and financial affairs.










Count 3

(Claim for Negligence and Breach of Duty of Care Against Van Dellen, Shellem, and

Koon Related to the Underwriting, Administration, Extension and Modification of a

Loan to Fiesta Development, Inc. for the Area Drainage Plan (“ADP”) Project)



84. Van Dellen, Shellem, and Koon approved a loan to Fiesta Development, Inc.

for a project known as ADP. This loan was entered into on August 31, 2006, and was

structured as a land loan, but was actually an 18-month, $40.7 million declining

development loan that was to provide $19.925 million in flood control and drainage

infrastructure improvements needed for further residential/commercial development in

the Homeland/Romoland market area in Riverside County about 25 miles southeast of

Riverside. The improvements would provide two retention basins and approximately 13

miles of flood control channels. These improvements would traverse several properties



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not owned or controlled by the borrower. Thus, HBD recorded priority liens on two

pieces of land: (1) 106 tentatively mapped lots at Country View Estates that were owned

free and clear by Fiesta Development, Inc., and (2) the “Friedman Property” which was

owned by R&D Investors, LLC (an affiliate of Fiesta Development, Inc.) and consisted of

114 acres that had 217 tentatively mapped lots with an additional 210 lots projected to be

tentatively mapped within a couple of months. HBD had a land loan on the Friedman

Property totaling $13.2 million, which was rolled into the ADP loan. In addition, the

loan budget included $4.25 million in contingency funds to account for possible cost

increases. The balance of the loan funds related to interest and costs. Fiesta

Development and R&D Investors, LLC were co-borrowers on this loan, which was

subject to a maximum loan to value of 65% based on the “as-is” value of the land

collateral purportedly totaling over $60 million.

85. The borrowers were members of Homeland Romoland, Inc., a California

corporation comprised of landowners in the area who pooled resources to construct flood

control improvements needed in the Riverside County Flood Control and Water

Conservation District Master Drainage Plans and Area Drainage Plan. The borrowers

were required by the corporation to provide a Standby Letter of Credit in an amount

equal to its share of the flood control improvements, i.e. $19.925 million (39.57%),

which was established based on the percentage of land ownership impacted by the flood

control improvements. HBD provided the Standby Letter of Credit using the land set

forth above as collateral. The cost of the flood control improvements were to be repaid

through a to-be-created Community Facilities District (“CFD”), and the residual balance

on HBD’s loan was to be paid through subsequent development financing. Proceeds

from the CFD would not be disbursed until the flood control improvements were

operational, as determined by the Riverside County Flood Control and Water

Conservation District. This loan was cross-paid with HBD loan number 52-883000,

which was a construction loan relating to Country View Estates. The cross-pay provision



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only afforded a principal curtailment payment of $3.3 million if the CFD was not formed

by April 1, 2007, and was to be rescinded upon formation of the CFD.

86. The primary source of repayment on this loan was stated to be proceeds

from the CFD, which were to repay the portion of this loan that was financing flood

control improvements. The balance of this loan was to be repaid through the sale or

development of the land collateral. HBD anticipated financing the development and

construction of the 106 lots in Country View Estates. HBD had not decided whether it

would finance the Friedman lots, but had a first right of refusal if the borrowers decided

to develop them.

87. The secondary source of repayment on this loan was stated to be guarantees

by Richard Ashby (“Ashby”) and Lawrence Redman (“Redman”). The CAM stated that

the guarantors had a combined liquidity of $19 million, an unused line of credit totaling

$1.5 million (not reflected in their liquidity), extensive car collections valued at over $2.5

million, and interest income from tax increment revenue bonds from the Fontana

Redevelopment Agency generating $1.8 million per year. Redman and Ashby had

contingent liabilities totaling $62,464,000 and $44,354,000, respectively. The combined

debt to worth of the borrowers and guarantors was 209.99%.

88. On July 13, 2007, HBD Regional Manager Bruce Beck sent an e-mail to

Rothman and Camp noting that the collateral value dropped as follows: $62,780,000 at

underwriting to $50,224,000 as of May 22, 2007, and an estimated $25,580,000 as of July

13, 2007. This reflected a loan to value of 159.36% on the land collateral, and 89.58% if

the CFD provided $19,925,000 in reimbursement proceeds. The new account officer,

Greg Shamlian (“Shamlian”), reported on July 16, 2007, that $24 million was required to

re-margin this loan back to its original loan to value of 65%.

89. On August 15, 2007, HBD workout officer John Terwilliger (“Terwilliger”)

learned that periodic payments through the CFD were improbable and that CFD

formation was going to take longer than anticipated. Terwilliger prepared a Classified



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Asset Report (“CAR”) for the related Country View Estates production loan and model

loan on January 31, 2008. The report noted that the borrowers were unwilling to

rebalance the ADP loan or pay interest out of pocket. Terwilliger also noted that the

guarantors’ liquidity and secondary support had deteriorated.

90. On March 27, 2008, the collateral value had deteriorated to $12,330,000.

On March 31, 2008, HBD collapsed this loan to the current outstanding sum of

$26,374,602, and a notice of default was filed. HBD initiated a guarantor lawsuit against

Redman and Ashby on April 1, 2008. Terwilliger subsequently discovered that there was

a significant change in the guarantors’ cash flow, as the guarantors pledged the interest

receivable on a tax increment bond issued by the Fontana Redevelopment Agency to

another lender. The cash flow had been $1.88 million per year. HBD agreed to

underwrite this loan without asking the guarantors to pledge the bonds, or at least conduct

sufficient due diligence to ensure that they had not already been pledged.

91. On April 25, 2008, HBD learned that Downey Savings had foreclosed on a

portion of the land that was attached to the borrower’s interest in the CFD, and that it

may have reduced the borrower’s interest to proceeds from the CFD from nearly 40% to

approximately 12%. On May 20, 2008, counsel for Homeland/Romoland ADP, Inc. sent

HBD a letter stating that proceeds from the CFD would be disbursed based on the shares

of stock owned by each member of the corporation. Shares of stock were distributed in

accordance with the percentage ownership of land upon which flood control

improvements were constructed. Thus, the letter implied that the ADP executive

committee would distribute funds in accordance with the goals, intent, spirit, and

language of the Shareholders Operating Agreement dated January 1, 2006. Put simply,

there was a real possibility that HBD’s share of the CFD, which was its primary source of

repayment on this loan, had decreased from just over 39% to roughly 12%, as the

borrower may have been forced to turn over a percentage of the shares of stock to

Downey Savings as the new property owner. This discovery resulted in HBD seeking a



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temporary restraining order to prevent the borrowers from transferring any portion their

shares of Homeland/Romoland ADP, Inc. to Downey Savings or anyone else. Within

hours before the hearing, the borrowers agreed to give HBD all 39.57% of the shares with

HBD’s stipulation that it would not negotiate the shares without an additional judicial

hearing. The borrowers also agreed to give HBD 24 hours notice of deciding to vacate

the project to enable HBD to get a receiver in place. Finally, HBD agreed to pay the

borrowers $5,000 in marketing costs and $3,300 in sales commissions on future home

sales in the County View Estate project. It is very questionable whether HBD will realize

all 39.57% of the proceeds from the CFD, as the future judicial hearing has uncertain

results. Moreover, the CFD has had difficulty selling bonds due to deteriorated market

conditions. Thus, it is very uncertain whether there will be any proceeds from the CFD.

92. On June 4, 2008, counsel for Redman sent Terwilliger a letter requesting a

meeting to discuss resolution of IndyMac’s claims against Redman relating to his

guarantee of the various HBD loans. Redman was noted to have over $160 million in

guarantees to IndyMac and numerous other lenders. A meeting took place on June 17,

2008, during which Redman offered roughly five cents on the dollar for the deficiency.

93. Van Dellen, Koon, and Shellem approved and/or extended this loan despite

substantial known risks and or risks that should have been known in the exercise of due

diligence. These risks include, but are not limited, to the following:

a. Van Dellen, Koon and Shellem failed to discover that the appraisal

report for the Friedman property did not consider the impact of a CFD assessment.

Van Dellen, Koon and Shellem were in possession of the appraisal report, and the

CFD was not a mystery as it was an integral component to this loan’s primary

source of repayment. HBD simply did not communicate the existence of the CFD

to its appraiser, who indicated plainly in his report that his opinion of value

assumed there was no CFD-related assessments. HBD’s failure to identify this

incorrect appraisal assumption resulted in a collateral value that, according to the



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appraiser for this loan, was overstated by $10 million to $15 million. In addition,

the sale of the Friedman property for $4 million less than two years prior to its

underwriting value of over $50 million was not properly considered -- particularly

where the property was still not entitled for development. HBD was unable to

offer any cogent explanation for the prior sale price. This further reduced HBD’s

collateral value. This loan would not have been approved by Van Dellen, Koon,

and Shellem if they had discovered these appraisal errors, as the LTV ratio for this

loan was at the 65% regulatory and policy limit for a land loan. In fact, it appears

HBD originated this loan at an actual LTV of at least 90%. The losses incurred on

this loan would not have been suffered had Van Dellen, Koon, and Shellem

properly evaluated the appraisal and decided against approving the loan.

b. Van Dellen, Koon and Shellem failed to acknowledge HBD’s

limitations and the limitations of its underwriting staff. In fact, the financial

analyst on this loan conceded that he and the account officer were both

inexperienced. There is widespread consensus amongst HBD officers and analysts

that this loan was simply too complicated, and that HBD lacked the qualifications

to make it. Indeed, HBD failed to understand the complexities with the primary

source of repayment for this loan, and did not consider the possibility that the

borrowers’ interest in the CFD proceeds could diminish by virtue of actions taken

by other lenders.

c. Van Dellen, Koon and Shellem had unrealistic expectations as to the

borrowers’ ability to overcome the numerous entitlement/development hurdles

within the 18-month-loan term. HBD already had widespread warning that the

project was located in a market that was at its peak, and potentially in decline.

HBD took an undue gamble that the market would remain viable into 2009 and

2010.

d. The borrowers were heavily concentrated in the Inland Empire, and



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owned or controlled nearly 20,000 lots in at least 12 projects. HBD failed to

adequately consider the substantial risks associated with making a $40 million loan

to borrowers who had a large volume of land holdings in a largely commuter

market. This was particularly true given that the borrowers and guarantors were

highly leveraged and had combined adjusted and contingent liabilities that

exceeded their combined adjusted equity by over $125 million. Thus, Van Dellen,

Koon and Shellem were negligent and breached their duty of care by approving a

loan that had no viable secondary source of repayment, particularly when the

primary source of repayment was inundated with uncertainty. This issue was

compounded when they approved this loan without reasonable safeguards such as

requiring a minimum-net-worth covenant or a maximum-debt-to-worth covenant.

e. Van Dellen, Koon and Shellem failed to engage in sufficient due

diligence to ensure that the income generated from the guarantors’ interest in the

Fontana tax increment bonds would be available as a secondary source of

repayment. While this is simply another example of HBD’s failure to secure a

viable secondary source or repayment, the failure to ask the guarantors to pledge

the bonds or otherwise safeguard HBD’s entitlement to the assets was negligent.

94. Van Dellen, Koon and Shellem knew, or in the exercise of due diligence

should have known, that their practices and the practices of IndyMac’s employees who

reported to them and over whom they exercised supervisory control, were improper,

imprudent, and harmful to IndyMac. The negligence and breaches of duty by Van

Dellen, Koon and Shellem in regard to this loan include, but are not limited to, the

following:

a. Causing or allowing a loan to be made to borrowers and guarantors


difficulty.




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financial information regarding the creditworthiness of the borrowers and/or

guarantors, and the prospective source of repayment, and the security provided for

the loans.

d. Causing or allowing a loan to be made with deficient collateral;

e. Causing or allowing a loan to be made where one or more of the


debt.

f. Causing or allowing a loan to be made, renewed, and/or extended with


g. Causing or allowing a loan to be made without taking proper and


the loan application and failing to control the disbursement of loan proceeds.

h. Causing or allowing a loan to be renewed or extended to borrowers




i. Causing or allowing a loan to be made, renewed, and/or extended


j. Causing or allowing a loan to be made, extended, and/or renewed


market.

k. Causing or allowing a loan to be made, renewed or extended despite


market.

l. Causing or allowing a loan to be made, renewed or extended where



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95. Van Dellen, Koon, and Shellem, as officers, owed IndyMac the obligation to

exercise the degree of care, skill and diligence that ordinarily prudent persons in like

positions would use under similar circumstances in the management, supervision and

conduct of IndyMac’s business and financial affairs.


Van Dellen, Koon, and Shellem failed and neglected to perform their duties properly as

officers of IndyMac and breached their fiduciary duties of care to IndyMac.


duties of Van Dellen, Koon, and Shellem, Plaintiff has suffered losses and other

compensatory and consequential damages, in amounts to be established at trial.


administering the affairs of IndyMac, Van Dellen, Koon, and Shellem pursued a common

plan or design with each other, and therefore are jointly and severally liable for all losses.

Count 4


Rothman Related to the Underwriting, Administration, Extension and Modification

of a Loan to Fiesta Development, Inc. for Country View Estates – Phases 6&7)



100. Van Dellen, Shellem, and Rothman approved a loan to Fiesta Development,

Inc. for a project known as Country View Estates – Phases 6&7. This loan was entered

into on September 18, 2006, and was an AD&C loan for the development of 59 single-

family-residential units. The loan commitment totaled $16,832,500 and had a 12-month

term. Losses on this loan are estimated to exceed $1.5 million.

101. This loan replaced an existing HBD loan and had additional costs related to

site development, permits/fees, and developer overhead. Country View Estates was a



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318-unit single-family-detached-residential-housing tract that was divided into seven

phases.

102. The primary source of repayment of this loan was stated to be unit closings

in the project. The secondary source of repayment was the personal guarantees of

Redman and Ashby.

103. This loan matured on September 17, 2007, and was in violation of covenants

limiting the number of finished spec units allowed in the project. A default letter was

sent to the borrower and guarantors on November 29, 2007. On March 31, 2008, HBD

collapsed this loan to its then-current-outstanding balance of $5,910,543.54. A notice of

default was filed the same day, and guarantor suits were initiated on April 1, 2008. HBD

subsequently agreed to pay the borrowers $5,000 in marketing costs and $3,300 in sales

commissions on future home sales in the County View Estate project in exchange for the

borrowers agreeing to give HBD 24 hours notice of deciding to vacate the project.

104. On June 4, 2008, counsel for Redman sent Terwilliger a letter requesting a

meeting to discuss resolution of IndyMac’s claims against Redman relating to his

guarantee of the various HBD loans. Redman was noted to have over $160 million in

guarantees to IndyMac and numerous other lenders. These settlement discussions

resulted in a preliminary settlement under which HBD would have received $500,000 at

settlement closing, and $500,000 four months later. The second payment was to be

secured by a lien on Redman’s ranch and by a life insurance policy. Redman, however,

was forced into involuntary bankruptcy by his other creditors. As a result, HBD

discontinued its negotiations with Redman. An effort to sell the units was undertaken

with the borrower until it abandoned the project in September 2008.

105. Van Dellen, Rothman, and Shellem approved and/or extended this loan

despite substantial known risks and or risks that should have been known in the exercise

of due diligence. These risks include, but are not limited, to the following:



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a. There were deteriorating market conditions where the total months of

supply in the greater market area and submarket increased by roughly three months

since the CAM for Fiesta ADP had been submitted roughly three months earlier.

The CAM notes that overall inventory levels in West Riverside County increased

in the first quarter of 2006 by 6% to 17,818 units, and that 2,642 of those units

were offered and unsold reflecting a 12% increase from the prior quarter. In

addition, net sales were down 16% from the fourth quarter of 2004 and down 10%

from 2005.

b. The borrower owned or controlled nearly 20,000 lots in at least 12

projects throughout Riverside and San Bernardino Counties, which reflected added

risk due to the concentration of assets within the same market area. The CAM also

notes that the borrower and guarantors were heavily weighted in land inventory at

a time when the market was slowing and land values were dropping.

c. The CAM reflects a drop of nearly $100 million in adjusted assets for

Ashby as compared to the CAM for Fiesta ADP, which was drafted approximately

three months earlier. Liabilities appear to have dropped a similar amount, which

resulted in a similar adjusted equity value. But there was no explanation provided

in the CAM for what appears to be a conspicuous accounting change. Notably,

both Redman’s and Ashby’s cash positions declined substantially. There was no

mention of this in the CAM. These changes were reflective of a weakening

borrower and guarantors.

d. The borrower and guarantors had in excess of $275 million in other

loan commitments with over $200 million outstanding. In addition, Ashby had

contingent liabilities totaling over $44 million, and Redman had contingent

liabilities totaling over $62 million.



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e. HBD did not require a minimum-tangible-net-worth covenant or a

maximum-debt-to-worth covenant, which created greater risk given the leverage of

the borrower and guarantors.

f. Ashby had a FICO score of 692 which was below the policy limit of

700. There was no explanation for this provided in the CAM.

106. Van Dellen, Shellem, and Rothman knew, or in the exercise of due diligence




Dellen, Shellem, and Rothman in regard to this loan include, but are not limited to, the

following:



difficulty.






the loans.

d. Causing or allowing a loan to be made with deficient collateral.



debt.

f. Causing or allowing a loan to be made with inadequate or problematic

appraisals.

g. Causing or allowing a loan to be renewed or extended with inadequate



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or problematic appraisals.





i. Causing or allowing a loan to be made, renewed, or extended despite

poor and deteriorating market conditions.

j. Causing or allowing a loan to be made, renewed, or extended despite

the Bank having a high geographic concentration of loans in the same market.



market.



107. Van Dellen, Rothman, and Shellem, as officers, owed IndyMac the

obligation to exercise the degree of care, skill and diligence that ordinarily prudent

persons in like positions would use under similar circumstances in the management,

supervision and conduct of IndyMac’s business and financial affairs.


Van Dellen, Rothman, and Shellem failed and neglected to perform their duties properly

as officers of IndyMac and breached their fiduciary duties of care to IndyMac.


duties of Van Dellen, Rothman, and Shellem, Plaintiff has suffered losses and other



administering the affairs of IndyMac, Van Dellen, Rothman, and Shellem pursued a

common plan or design with each other, and therefore are jointly and severally liable for



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all losses.

C. Count Based on Allegations Related to the Loan Made By HBD in the

Main Street Partners, Inc. Borrower Relationship.

Count 5


to the Underwriting, Administration, Extension and Modification of a Loan to Lake

Mathews Venture, LLC for the Lake Mathews Golf and Country Club Project)



112. Van Dellen, Shellem, and Koon approved a loan to Lake Mathews Venture,

LLC for a project known as the Lake Mathews Golf and Country Club Project. This loan

was entered into on September 8, 2004, with extensions approved by Van Dellen,

Shellem, and Koon in March 2006, Van Dellen, Shellem, and Rothman in October 2006,

and Van Dellen and Rothman in December 2007. The loan involved the acquisition and

final entitlement of 362 acres in Riverside, California for eventual development of 295

lots and a proposed 18-hole-public golf course. The initial loan commitment totaled

$8,550,000 and had an 18-month term. Subsequent extensions and a modification of the

loan increased the loan commitment to $11,100,000 and extended the term a total of 30

months. Losses on this loan approximate $7.3 million.

113. Defendants approved, extended and/or modified this loan despite substantial

known risks and/or risks that should have been known in the exercise of due diligence,

including, but not limited to, the following:

a. Numerous entitlements and governmental approvals remained to be

obtained before the borrower could effectively market the land for sale because the

borrower had no intention of building on the property.

b. The borrower (and its principal investor) had no prior experience in

land development or construction.



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c. Deteriorating market conditions.

d. Deteriorating creditworthiness and financial strength of the borrower

and guarantors.

e. One guarantor that lacked the liquidity to completely repay the loan.

f. There was a significant decrease in the appraised value of the land.








difficulty.






the loans.

d. Causing or allowing a loan to be made with deficient collateral;



debt.

f. Causing or allowing a loan to be made without taking proper and



g. Causing or allowing a loan to be renewed or extended to borrowers



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h. Causing or allowing a loan to be made outside the normal and prudent

trade areas of the Bank.













duties of the Defendants, Plaintiff has suffered losses and other compensatory and







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D. Counts Based on Allegations Related to the Loans Made By HBD in the

Pinn Brothers Borrower Relationship.

Count 6


to the Underwriting, Administration, Extension and Modification of a Loan to PBP

Limited Partnership for the Brentwood/Palmilla Project)



120. Van Dellen, Shellem, and Koon approved a loan to PBP Limited Partnership

for a project known as the Brentwood/Palmilla Project. This loan was entered into on

February 17, 2005, with an extension and modification approved by Van Dellen and

Rothman in May 2008. The loan involved the construction of 114 homes and acquisition

of an additional 460 lots in the master planned community of Marseilles in Brentwood,

California (Contra Costa County). This loan was subsequently restructured and renewed

to provide financing for the construction of 105 homes and acquisition and development

of 108 apartment lots and 343 single family residence paper lots in May 2008. The initial

loan commitment totaled $45,000,000 and had a 24-month term. The May 2008 loan

modification reduced the commitment to approximately $19.6 million with a new, 24-

month term.

121. Defendants approved, extended and/or modified this loan despite substantial



a. The planned number of units for the project represented nearly five

times the HBD policy maximum.

b. HBD had already loaned to the borrower’s principals funds nearly

three times the maximum amount permitted to one borrower under HBD policy.

c. Very low cash equity from the borrower and cash support from the



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guarantors.

d. Delays in obtaining final entitlements and other governmental

approvals.

e. Deteriorating market conditions, particularly at the time of the May

2008 loan extension and modification.

f. A high concentration of HBD’s portfolio in Northern California that

had exceeded the HBD policy maximum as of May 2008.

g. Relaxing of borrower and guarantor financial reporting requirements

in violation of HBD policy.

h. Failure to obtain additional guarantees to compensate for the reduced

liquidity of the existing guarantors.








difficulty.






the loans.





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debt.

e. Causing or allowing a loan to be made without taking proper and









h. Causing or allowing a loan to be renewed or extended despite the

Bank having a high geographic concentration of loans in the same market.

i. Causing or allowing a loan to be made, renewed or extended where










duties of the Defendants, Plaintiff has suffered losses and other compensatory and







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Count 7


Koon Related to the Underwriting and Administration of a Loan to Bay Colony

Investors II, Inc. for the Portola Road Project)



128. Van Dellen, Shellem, and Koon approved a loan to Bay Colony Investors II,

Inc. for a project known as the Portola Road Project. This loan was entered into on

September 4, 2006. The loan was issued to provide the borrower with funds for the

acquisition, development and construction of 70 townhomes in the Portola subdivision in

Livermore, California (Alameda County). The loan commitment totaled approximately

$30.4 million and had a 24-month term. Losses on this loan total approximately

$250,000.

129. Van Dellen, Shellem, and Koon approved this loan despite substantial



a. A loan term that was seven months shorter than needed to pay off this

loan based on cash flow projections at the time of approval.

b. Cash equity and expected profit margin below HBD policy limits,

creating a higher risk that a project already facing market challenges would not be

able to effectively react to those challenges and reduce sales prices.

c. Inadequate verification of the liquidity of the two guarantors, together

with evidence at the time of loan approval that their liquidity was declining

rapidly.

d. Many of the guarantors’ assets were held in trusts, and access to these

assets was limited by the trust agreements.

e. Deteriorating market conditions.



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130. Van Dellen, Shellem, and Koon knew, or in the exercise of due diligence




Dellen, Shellem, and Koon in regard to this loan include, but are not limited to, the

following:



difficulty.






the loans.



debt.




f. Causing or allowing a loan to be made, renewed, and/or extended


g. Causing or allowing a loan to be made, renewed or extended where


131. Van Dellen, Shellem, and Koon, as officers, owed IndyMac the obligation to




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Van Dellen, Shellem, and Koon failed and neglected to perform their duties properly as



duties of Van Dellen, Shellem, and Koon, Plaintiff has suffered losses and other



administering the affairs of IndyMac, Van Dellen, Shellem, and Koon pursued a common


E. Count Based on Allegations Related to the Loan Made By HBD in the

Ralph Giannella Borrower Relationship.

Count 8


to the Underwriting, Administration, Renewal, Extension and Modification of a

Loan to North Coastal, LLC for the Woodland Townhomes (Phase 2) Project)



136. Van Dellen and Koon approved a loan to North Coastal, LLC for a project

known as Woodland Townhomes (Phase 2). This loan was entered into on April 26,

2005, and was a condominium conversion loan for the development of 65 condominium

units. Shellem withheld approval of the original loan. The loan commitment totaled

$14,705,000 and had a 13-month term along with two three-month extensions. It was

renewed by approval of Van Dellen, Shellem, and Koon on June 8, 2006. The LTV ratio

at original underwriting was nearly 80% and the loan to cost ratio was 85%. Losses on

this loan are estimated at $600,000.



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137. This loan provided financing for the second phase of a 112-unit

condominium conversion project located in Escondido, California in northern San Diego

County, 30 miles north of San Diego. Phase 1’s borrower was Broadway Coastal, LLC,

and the project consisted of 47 units. Phase 2’s borrower was North Coastal, and the

project consisted of 65 units. The 47 units in Phase 1 were made up of 10 two-story

buildings situated on approximately 3.7 acres of land. The 65 units in Phase 2 were made

up of 13 two-story buildings situated on approximately 4.4 acres of land.

138. Phase 1 was scheduled to commence conversion approximately 60 days after

closing, while Phase 2 would commence in October 2005 depending on how well the

units in Phase 1 had sold. Phase 2 was to be converted in two phases -- 40 units in the

first, and 25 units in the second.

139. The borrower requested two separate loans. The first loan provided

financing for Phase 1, and involved a $10,750,000 commitment. The second loan was

the subject loan, and involved a $14,705,000 commitment. The two loans, which were

approved concurrently, were cross-defaulted, but were not cross-paid or cross-

collateralized. Both loans were originally financed by a second trust deed loan provided

by Bancorp totaling $1,897,287 and $2,664,357 for Phases 1 and 2, respectively.


in the project. There was no identified secondary source of repayment.

141. On May 31, 2006, a CAM requesting a 12-month extension for Phase 2 was

submitted. The CAM indicates that the loan for Phase 1 was paid off in mid-May of

2006. The extension for Phase 2 was requested due to slower than expected sales. Phase

1 averaged 5.5 units per month versus the appraiser’s original estimate of 10 units per

month. The borrower requested an increased commitment amount to $16,079,000 to

cover additional finance costs and some hard cost increases. The increased commitment

was also funding the interest reserve on the second trust deed loan issued by Bancorp.

142. On June 6, 2007, the maturity date on the renewal loan was extended from



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June 7, 2007 to August 1, 2007, to coincide with the maturity of the second trust deed

loan. The extension was requested to allow the borrower time to sell the remaining units

to retail buyers. At this time, HBD noted that Ralph Giannella (“Giannella”) was still a

strong guarantor with $44 million in net worth and $6.8 million in liquidity. But it

appears to have virtually ignored the fact that his contingent liabilities had swelled to

over $84 million. In addition, the Escondido market continued to be impacted by the

level of supply and slowing sales. On July 30, 2007, the borrower informed HBD that he

did not have any available cash to support the subject project or his other three projects.

143. On August 3, 2007, HBD’s regional manager, account officer, and financial

analyst met with the borrower and discovered that he had spent the majority of his $7

million in cash on his four remaining projects. Giannella’s liquidity had dropped to

essentially zero. HBD concluded that Giannella’s only way out of his remaining four

condo projects was to determine a price that would sell at a pace of more than three units

per month.

144. On September 13, 2007, Van Dellen and Rothman approved another 90-day

extension of the first and second trust deed loans. The first trust deed loan involved

$487,281 of additional funds for interest reserve, a loan fee, and to pay off outstanding

accounts payable. It also included an additional $507,948 for costs going forward

(property taxes, sales and marketing, overhead, HOA dues).

145. Defendants approved, renewed and/or extended this loan despite substantial

known risks and or risks that should have been known in the exercise of due diligence.

These risks include, but are not limited, to the following:

a. The borrower was permitted to keep all profits associated with the

nine additional sales closed in Phase 1 after repayment of the first loan. This

would net the borrower $1.8 million after repayment of the second trust deed loan.

HBD’s decision to underwrite two separate loans for the same project without a

cross-payment agreement permitted the borrower to net all profits associated with



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the sale of Phase 1, which transferred risk to HBD. HBD’s decision to do so

effectively prolonged its exposure on this transaction, and increased the number of

units the borrower needed to sell in Phase 2 to retire the debt. Shellem was in

favor of requiring the borrower to use Phase 1 proceeds to devote against the Phase

2 loan. In fact, Shellem withheld his approval on this transaction. Van Dellen and

Koon decided to approve this loan over Shellem’s objections. It is likely that no

loss would have occurred had the two loans contained a cross-pay provision.

b. The CAM for the renewal loan indicates that there were 16 months of

supply of condo conversion units in the subject submarket. It also notes that there

were 13 months of supply for the subject project. This was an increase of 7

months from the original loan, and exceeded the 12-month term of the renewal.

While this loan was projected to payoff prior to the sale of the last unit, there was

substantial risk that this loan would not pay off by the end of the term if there were

further declines in absorption.

c. The 112-unit project had an “as-is” market value as condominiums of

$21,840,000 versus a purchase price of $21,800,000. In addition, the market value

in use as post-renovation apartments was $19,100,000. Under an income

approach, the project had a value of $15,626,180. These figures indicated that any

softening in the real estate market would render the purchase price higher than the

property’s value under any analysis. In addition, the DCR as an apartment was

well below 1.0. These factors naturally presented substantial risk to HBD if the

builder was unable to complete the conversion.

d. At the time of the renewal of this loan for Phase 2, the absorption rate

had dropped from 10 units per month to 5 units per month. HBD’s decision to

renew this loan at an increased commitment level in the face of obvious market

softening was irresponsible. HBD placed emphasis on the fact that the appraiser

concluded that there was a price increase in the units at the time of renewal. HBD



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also took comfort in the borrower’s decision to price the units over the appraised

value. But the slowing absorption and other market indicators in the summer of

2006 should have caused HBD to view the price increases with caution.

e. The borrower had to rely on a second trust deed loan from Bancorp

for both loans. The borrower only put up 10% of the required cash equity for both

loans, and relied on Bancorp to come up of with the balance. Thus, the borrower

was engaged in virtually 100% financing, and the loan to cost for both loans

exceeded 97%. The loan to cost without considering the second trust deed loan

was still 85%, which was at the policy limit.

f. The CAM for the original loan notes that there were potentially 438

units under conversion and starting sales at the same time in the subject market. In

addition, this project exceeded HBD’s policy limit for speculative units. These

factors evidenced a risk that absorption would be negatively impacted. In fact, the

CAM for the renewal loan notes that sales were impacted by the supply of

condominium/townhome conversion units available for sale in the market area.

g. The borrower and guarantor had five other condominium conversion

projects ongoing in the San Diego area. This evidenced a lack of diversification by

the borrower in terms of geography and product type, which resulted in greater risk

that the borrower would encounter difficulties if the condominium market in San

Diego softened.










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difficulty.






the loans.



debt.












market.



market.





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147. Defendants as officers, owed IndyMac the obligation to exercise the degree





Defendants failed and neglected to perform their duties properly as officers of IndyMac

and breached their fiduciary duties of care to IndyMac.





administering the affairs of IndyMac, Defendants pursued a common plan or design with

each other, and therefore are jointly and severally liable for all losses.

F. Counts Based on Allegations Related to the Loans Made By HBD in the

Corinthian Homes Borrower Relationship.

Count 9

(Claim for Negligence and Breach of Duty of Care Against Van Dellen, Shellem and

Koon Related to the Underwriting and Administration of a Loan to RKB

Communities (The Greens), L.P. for the Crest & Greens Project)



152. Van Dellen, Shellem, and Koon approved a loan to RKB Communities (The

Greens), L.P. for a project known as the Crest & Greens Project. This loan was entered

into on June 22, 2005. The loan involved the construction of 87 single-family homes in

Rancho Murieta, California, located in Sacramento County about 25 miles east of

Sacramento. The loan commitment totaled $9,500,000 and had a 12-month term. Losses

on this loan exceed $76,000.



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a. The Sacramento, California market was extremely overheated, with

prices having increased nearly 70% over a four-year period, and there were clear

signs at the time of the loan approval that sales were slowing.

b. Rancho Murieta was a rural community located more than 25 miles

outside of downtown Sacramento and thus more susceptible to a slowing market.

c. The land appraisal relied on only one comparable sale from Rancho

Murieta because it was such a small community, with the remainder of comparable

sales coming from the City of Elk Grove, located over thirty minutes away.

d. The total amount of IndyMac loans to the principals and guarantors of

the borrower had grown to approximately $160 million, nearly double the HBD

policy limit.

e. Financial information for the two guarantors was not consolidated and

was comprised of many interrelated partnerships and limited liability companies,

making it difficult to accurately evaluate the guarantors’ true financial strength and

liquidity. The contingent liabilities of the guarantors’ various companies were

not carefully considered in evaluating the guarantors’ financial strength, meaning

their reported debt-to-worth ratios were understated. One of the guarantor’s

already had a debt-to-worth ratio of 1.74 to 1 as of June 2004, while the other had a

ratio of 1.32 to 1.

f. The principal guarantor had extremely low liquidity and was heavily

invested in land throughout Sacramento and its surrounding areas, including riskier

raw and unentitled land assets, leaving him particularly susceptible to a market

slow down. The guarantors combined liquidity was only two percent of their total

debt, much less than an ideal number of 10% of total debt as conceded by the



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account officer for this loan.






following:



difficulty.






the loans.



debt.

e. Causing or allowing a loan to be made, extended, and/or renewed with





g. Causing or allowing a loan to be made outside the normal and prudent





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market.
















Count 10


Koon Related to the Underwriting and Administration of a Loan to Corinthian

Homes (Anatolia), L.P. for the Anatolia Project)



160. Van Dellen, Shellem, and Koon approved a loan to Corinthian Homes

(Anatolia), L.P. for a project known as the Anatolia Project. This loan was entered into



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on November 16, 2005. The loan involved the acquisition and development of 75 single-

family-residence lots in Rancho Cordova, California, about nine miles east of

Sacramento. The lots were to be used to construct 75 single-family residences for

eventual sale. The loan commitment totaled $10,350,000 and had a 24-month term.

Losses on this loan exceed $5.8 million.






signs at the time of the loan approval that sales were slowing.

b. Profit margin on the loan was less than the 10% HBD policy

minimum.

c. Significant competition existed from six other builders in the Anatolia

master planned community, and the appraiser believed that the borrower’s pricing

was higher than the competition.

d. Groundwater contamination near the project site had caused a plume

under most of the project site, and a rendering plant was located close to the site

causing bad odors, each of which created a substantial hurdle for development, and

constituted potential sources of cost increases and absorption problems.

e. The total amount of IndyMac loans to the principals and guarantors of


policy limit.

f. Financial information for the two guarantors was not consolidated and

was comprised of many inter-related partnerships and limited liability companies,





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ratio of 1.32 to 1.

g. The principal guarantor had extremely low liquidity and was heavily


raw, unentitled land assets, leaving him particularly susceptible to a demonstrated

market slow down. The guarantors combined liquidity was only two percent of

their total debt, much less than an ideal number of 10% of total debt as conceded

by the account officer for this loan.






following:



difficulty.






the loans.





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debt.






g. Causing or allowing a loan to be made, renewed or extended despite


market.

h. Causing or allowing a loan to be made, renewed or extended where

















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Count 11


Koon Related to the Underwriting and Administration of an Acquisition &

Development Loan to Corinthian Homes (Williams), L.P. for the Valley Ranch

Project)



168. Van Dellen, Shellem, and Koon approved a loan to Corinthian Homes

(Williams), L.P. for a project known as the Valley Ranch Project. This loan was entered

into on December 27, 2005. The loan involved the acquisition and development of 152

single-family-residence lots in Williams, California, located in Colusa County about 54

miles north of Sacramento. The lots were to be used to construct 152 single-family

residences for eventual sale. The loan commitment totaled over $14.2 million and had a

24-month term. Losses on this loan exceed $6.6 million.





prices having increased nearly 70% over a four-year period, and there was recent

data at the time of the loan approval that sales had slowed by nearly 50%.

b. Profit margin on the loan was less than the 10% HBD policy

minimum.

c. Williams was an outlying, commuter-based community located

approximately 54 miles outside of downtown Sacramento and thus extremely

susceptible to a slowing market.



Case 2:10-cv-04915-DSF -SH Document 1-1 Filed 07/02/10 Page 1 of 47


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policy limit.








ratio of 1.32 to 1.







g. The combined liquidity covenant of $2 million was extremely low

given the size of this loan, and the significant obligations of the guarantors, which

only six months after loan approval included contingent liabilities of over $250

million for one guarantor and combined liabilities of over $500 million. Further,

the principal guarantor’s liquidity had dropped to nearly 0% of his total assets.






following:




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difficulty.






the loans.



debt.




f. Causing or allowing a loan to be made outside the normal and prudent




h. Causing or allowing a loan to be made, renewed or extended despite


market.









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Count 12


Koon Related to the Underwriting and Administration of Two Construction Loans

to Corinthian Homes (Edgewater), L.P. for the Edgewater Project)



176. Van Dellen, Shellem, and Koon approved two loans to Corinthian Homes

(Edgewater), L.P. for a project known as the Edgewater Project. These loans were

entered into on May 31, 2006 and December 7, 2006. The loans involved the

construction of 55 single-family residences in Linda, California, located in Yuba County

nearly an hour away from Sacramento. The loan commitment for both loans totaled over

$14.3 million, and each loan had a 24-month term. Total losses on these loans exceed

$1.9 million.

177. Van Dellen, Shellem, and Koon approved these loans despite substantial




prices having increased nearly 70% over a four-year period, and there was recent



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data at the time of each loan approval that sales had slowed by nearly 50%.

b. Linda was an outlying community located nearly one hour outside of

downtown Sacramento and thus extremely susceptible to a slowing market.

c. Another substantial client of IndyMac, namely Reynen & Bardis

(whose principal, Christo Bardis, was also a principal of many Corinthian

borrowers and a major guarantor of Corinthian loans), was also building single-

family residences in the Edgewater community, creating a scenario where two

HBD clients were competing against each other.



policy limit.








ratio of 1.32 to 1.











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following:



difficulty.






the loans.



debt.










market.

i. Causing or allowing a loan to be made, renewed or extended where there



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was very little likelihood of the loan repaying within the term of the loan.














Count 13


Rothman Related to the Underwriting and Administration of Three Construction

Loans to Corinthian Homes (Williams), L.P. for the Valley Ranch Project)



184. Van Dellen, Shellem, and Rothman approved three construction revolver

loans to Corinthian Homes (Williams), L.P. for a project known as the Valley Ranch

Project. These loans were entered into on August 23, 2006, December 7, 2006, and

January 30, 2007. The loans involved the construction of 152 single-family residences in

Williams, California, located in Colusa County about 54 miles north of Sacramento. The

loan commitment for the three loans totaled $6.7 million and had a 24-month term.

Losses on these three loans total approximately $2.1 million.



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185. Van Dellen, Shellem, and Rothman approved these loans despite substantial





signs at the time of each loan approval that sales had slowed by nearly 50%.

b. Profit margin on the loans was less than the 10% HBD policy

minimum.

c. Williams was an outlying, commuter-based community located

approximately 54 miles outside of downtown Sacramento, and thus extremely

susceptible to a slowing market.



policy limit.








ratio of 1.32 to 1.



raw and unentitled land assets, leaving him particularly susceptible to a

demonstrated market slow down. The guarantors combined liquidity was only

two percent of their total debt, much less than an ideal number of 10% of total debt



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as conceded by the account officer for this loan.

g. The combined liquidity covenant of $2 million was extremely low

given the size of the loans, and the significant obligations of the guarantors, which

only six months after loan approval included contingent liabilities of over $250

million for one guarantor and combined liabilities of over $500 million. Further,

the principal guarantor’s liquidity had dropped to nearly 0% of his total assets.





Dellen, Shellem, and Rothman in regard to these loans include, but are not limited to, the

following:



difficulty.






the loans.



debt.






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market.

i. Causing or allowing a loan to be made, renewed or extended where there

was very little likelihood of the loan repaying within the term of the loan.

187. Van Dellen, Shellem, and Rothman, as officers, owed IndyMac the





Van Dellen, Shellem, and Rothman failed and neglected to perform their duties properly



duties of Van Dellen, Shellem, and Rothman, Plaintiff has suffered losses and other



administering the affairs of IndyMac, Van Dellen, Shellem, and Rothman pursued a


all losses.



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G. Count Based on Allegations Related to the Loan Made By HBD in the

Christopherson Homes Borrower Relationship.

Count 14


Koon Related to the Underwriting and Administration of a Loan to West Roseville

Investors, L.P. for the Fiddyment Ranch Project)



192. Van Dellen, Shellem, and Koon approved a loan to West Roseville

Investors, L.P. for a project known as Fiddyment Ranch. This loan was entered into on

July 11, 2005. The loan involved the acquisition and development of 127 lots in

Roseville, California located in Placer County, California about 15 miles northeast of

Sacramento. Once the lots were completed, the borrower planned to start construction of

127 single-family homes to be financed by an IndyMac construction revolver. The loan

commitment totaled approximately $24,000,000 and had a 24-month term. Losses on

this loan are nearly $16 million.




a. The borrower’s total cost for the acquisition and development of the

subject 127 lots equaled the appraised projected market value upon completed

construction, so there was no profit for the borrower in developing only the lots.

The borrower was relying on prospective sales of 127 single-family homes into a

market rife with competition to turn a profit (and repay the subject A&D loan).

b. There was significant competition in the Roseville area, including

nearly 8,400 residential dwellings in the West Roseville Specific Plan and nearly

4,200 within the Fiddyment Ranch master plan.



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c. Loan term of 24 months was double the HBD policy maximum for

acquisition and development loans, creating a greater risk that the extended term

would expose the Bank to a downturn in the real estate market

d. Loan guarantors had a low liquidity to debt ratio of 0.04:1, creating a

substantial risk that this secondary source of repayment would not be sufficient to

pay off this loan.

e. Two previous loans to another borrower within the Christopherson

Homes borrower relationship, namely Villa La Michele, L.P., had also been made

for a project in an extremely remote area of Northern California. This project

involved the acquisition, development and construction of 151 single family

residence lots in Orland, California, which is located 107 miles north of

Sacramento. Orland was a very small, rural community with a population barely

over 6,000 and a high unemployment rate, and was located in one of the smallest

counties in all of California. The A&D loan was entered into on January 31, 2005

with a 24-month loan term that was double the HBD policy maximum, and had a

total commitment of over $7.9 million. The loan relied on the same guarantors as a

second source of repayment, and inappropriately valued the guarantors’ assets by

including the projected market value upon completion of the very projects that

were being financed by the Bank instead of the as-is value. The loan had fallen

behind schedule by up to 60 days. The construction revolver loan was entered into

on November 21, 2005 with an approximately 12-month loan term and a total

commitment of $9 million. The absorption rate for the project had dropped by

25% since the A&D loan had been booked, resulting in a delayed payoff of the

loan.






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following:



difficulty.



c. Causing or allowing a loan to be made where one or more of the


debt.

d. Causing or allowing a loan to be made without taking proper and



e. Causing or allowing a loan to be made, renewed, and/or extended


f. Causing or allowing a loan to be made, renewed or extended where













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H. Counts Based on Allegations Related to the Loans Made By HBD in the

Dr. Gansean Visvabharathy (“Dr. Vish”) Borrower Relationship.

Count 15


Koon Related to the Underwriting and Administration of a Loan to Villas

Development Corp. and TBD LLC for the Bluff House/Anastasia Shores Project)



200. Van Dellen, Shellem, and Koon approved a loan to Villas Development

Corp. and TBD LLC for a project known as the Bluff House/Anastasia Shores Project.

This loan was entered into on July 28, 2005. The loan involved a condominium

conversion of two existing apartment developments: (a) the Bluff House apartment

project consisting of 292 units in 30 buildings, 20 miles inland on a bluff just off the St.

Johns River in Orange Park, Florida; and (b) the Anastasia Shores project consisting of

164 two-bedroom-apartment units in 41 buildings with 4 units per building located on

13.5 acres of land one block west of the Atlantic Ocean in St. Augustine Beach, Florida.

The loan commitment was $46,850,000 and had a 21-month term. Losses on this loan

exceed $13 million.




a. The South Florida real estate market was extremely overheated and

very susceptible to a significant downturn.



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b. The principal of the borrower was new to the South Florida

condominium conversion market and new to IndyMac. HBD also lacked recent

experience in the South Florida market.

c. Very marginal cash investment by the borrower and marginal

profitability, leaving little capability to absorb any downward movement in the

market.

d. The loan anticipated an absorption period of nearly three years, and

the profitability projections required annual price appreciation of 3.8% for the

years 2005-2008.

e. Investor sales were anticipated to be as high as 20-30% of the sales, a

very risky proposition given that investors could pull out and drive the sale prices

down.

f. The Bluff House and Anastasia Shores projects were combined to

evade the loan-to-value limits set forth in HBD policies governing condominium

conversions.

g. Together with another South Florida condominium conversion project

(discussed below), the two deals represented a high dollar concentration with a

single borrower.

h. Perry was opposed to the loan but was pushed by HBD management

to proceed forward with it. Perry expressed that there was a disturbing lack of

management judgment and discipline regarding the loan.

i. The initial loan advance for the acquisition of Bluff House and

Anastasia Shores was 115% of their appraised “as-is” values as apartments, in

contravention of HBD’s credit policy limit of 100% of appraised apartment “as-is”

value.

j. No reasonable steps were taken to assure the strength of the personal

guarantee, including a failure to analyze the guarantor’s contingent liabilities and



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the financial strength of the guarantor’s wife, who turned out to actually be the sole

titleholder of many of the assets shown on the guarantor’s financial statement. The

guarantor’s wife was never asked to co-sign the guarantee.






following:



difficulty.






the loans.



debt.









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market.
















Count 16


Koon Related to the Underwriting and Administration of a Loan to Villas

Development Corp. and TBD LLC for the Hawthorne Grande Project)



208. Van Dellen, Shellem, and Koon approved a loan to Villas Development

Corp. and TBD LLC for a project known as Hawthorne Grande. This loan was entered



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into on May 6, 2006. The loan involved a condominium conversion of an apartment

project previously known as the Alta Grande apartments, consisting of 306 one, two and

three bedroom units located in Orlando, Florida. The loan commitment was $46,295,000

and had a 24-month term. Losses on this loan are nearly $9 million.




a. The Florida real estate market was extremely overheated and very

susceptible to a significant downturn.

b. The principal of the borrower was new to the Florida condominium

conversion market and new to IndyMac. HBD also lacked recent experience in the

South Florida market.

c. Very marginal cash investment by the borrower and marginal

profitability, leaving little capability to absorb any downward movement in the

market.

d. The existing poor performance of the Bluff House/Anastasia project

(discussed above), which was selling at only about 50% of the expected rate, was

ignored at the time this loan was approved. There is an indication that the loan for

the Bluff House/Anastasia project was in technical default at the time the loan for

Hawthorne Grande was approved.

e. Lenders on central Florida condominium conversions were tightening

some requirements while being more selective about borrowers and projects,

contrary to HBD’s decision-making in approving this loan.

f. The equity for the project relied primarily upon third party equity

from Dutch Capital Partners, LLC, which would have significant control over the

project but at the same time provided no guarantee on this loan. Much of the

remaining equity was to be provided by a mezzanine loan.



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g. The 306-unit project violated HBD’s policy governing the maximum

number of units to be developed, resulting in an increased risk that it would take

longer to sell out the entire project and thus pay off the loan.

h. Investor sales were anticipated to be as high as 20-30% of the sales, a

very risky proposition given that investors could pull out and drive the sale prices

down.

i. Together with the Bluff House/Anastasia Shores project (discussed

above), the two deals represented a high dollar concentration with a single

borrower.

j. Perry was opposed to the loan but was pushed by HBD management

to proceed forward with the loan. Perry expressed that there was a disturbing lack

of management judgment and discipline regarding the loan.

k. The loan had extensive variations from the original term sheet

disclosed as part of the loan approval process, some of which appeared to be

adjustments made to make an otherwise marginal loan meet underwriting

requirements. For example, cash flows assumed an increase in net operating

income from the rental of unsold units from the $802 assumption in the term sheet

to $1,011. Indirect costs were assumed to have decreased from $813,200 to

$323,500. Taxes, insurance, bonds and miscellaneous were assumed to have

decreased from $1,086,075 to $660,391. The changes from the term sheet

reflected changes that were less conservative and increased risk to the Bank.

l. No reasonable steps were taken to assure the strength of the personal

guarantee, including a failure to analyze the guarantor’s contingent liabilities and

the financial strength of the guarantor’s wife, who turned out to actually be the sole

titleholder of many of the assets shown on the guarantor’s financial statement. The

guarantor’s wife was never asked to co-sign the guarantee.




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following:



difficulty.






the loans.



debt.










market.



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I. Counts Based on Allegations Related to the Loans Made By HBD in the

Cambridge Homes Borrower Relationship.

Count 17



Loan to Cambridge Homes, Inc. for the Vineyards Project)



216. Van Dellen, Shellem, and Koon approved a loan to Cambridge Homes, Inc.

for a project known as The Vineyards. This loan was entered into on September 16,

2005, and provided financing for site development and construction of 63 single-family

homes in Apple Valley, California. Phases 1 through 7 were financed by Union Bank.



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HBD provided financing for phases 8 through 10. This loan was to finance phases 11

through 13. The project had tentative map approval, and a covenant for final map

approval was set for 90 days after funding. The loan commitment totaled $13,350,000

and had a 12-month term. Losses on this loan are estimated at $400,000.


in the project. While the CAM identifies the financial capacity of the borrower and

guarantors as a secondary source of repayment, it also states that this loan was based on

the quality of the transaction and not the financial strength of the borrower and

guarantors.

218. On January 31, 2006, HBD authorized a hard cost disbursement totaling

nearly $85,000 through waiver of a covenant requiring an approved final tract map. On

February 15, 2006, HBD authorized another hard cost disbursement totaling nearly

$116,000 despite not having a recorded final tract map. HBD subsequently approved a

number of draw requests despite the borrower not being in compliance with a minimum

insurance requirement. The insurance was inadequate because the borrower continued to

build homes despite slow absorption, which resulted in too many completed and unsold

homes. In May 2006, there was standing inventory of 18 units despite a 10-unit

maximum under a loan covenant. On August 15, 2006 and August 29, 2006, HBD

authorized draw requests despite the borrower not providing verification of compliance

with the sales covenant.

219. On September 18, 2006, HBD approved a six-month extension and reduced

the sales covenant from five units per month to two units. The loan modification

memorandum noted slowing market conditions.

220. On October 13, 2006 and October 31, 2006, HBD funded draw requests

totaling approximately $685,000 despite the borrower being in noncompliance with the

new sales covenant.

221. On March 15, 2007, HBD approved a three-month extension to allow time



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for a new appraisal, and new price reductions and incentives to produce more sales. The

loan modification noted that the project was completed, but was not selling as projected.

The borrower was to pay interest out of pocket. At that time, 22 closings were still

required to repay this loan.

222. As of March 27, 2007, the “as-is” value of the property was $10,560,000.

On September 28, 2007, HBD waived the borrower’s inability to comply with the $2

million minimum liquidity requirement; the borrower’s liquidity had dropped to

$914,000.

223. On June 28, 2007, Van Dellen approved a 12-month extension at a reduced

commitment of $5,754,000. There were 30 units remaining to be closed. The extension

increased the size of this loan by $317,815 to fund the loan fee and interest reserve. HBD

reduced the minimum liquidity covenant from $2 million to $1 million. There were

nearly 30 months of supply in the submarket at the subject price point. As of November

30, 2007, the “as-is” value was $6.88 million. On July 11, 2008, HBD foreclosed on the

property.

224. Van Dellen, Koon, and Shellem approved, renewed and/or extended this

loan despite substantial known risks and or risks that should have been known in the

exercise of due diligence. These risks include, but are not limited, to the following:

a. The CAM notes that the Apple Valley was a commuter market. In

addition, the CAM notes that the area was hit hard during the last recession, and

that “history sometimes repeats itself.” The CAM specifically notes that land and

homes were not easy to sell during the last downturn.

b. The borrower had very little cash in this transaction (2.23%), and was

permitted to use appraised/appreciated equity despite having controlled the land for

only two years. HBD’s credit policy required three years of control. Despite using

appraised equity, the borrower and guarantors were still unable to provide the

minimum 10% equity required under policy. Van Dellen’s, Koon’s, and Shellem’s



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decision to approve a loan with very little cash equity, insufficient overall equity,

and a weak sponsorship resulted in a gamble that the project would be successful.

c. The CAM notes that the borrower had built its phases ahead of

closings. In addition, this project was priced higher than comparable sales in the

market. Thus, there was a potential for absorption to be adversely impacted.

d. Van Dellen’s, Koon’s, and Shellem’s approval of this loan exceeded

HBD’s geographic concentration limit by nearly $85 million, and thus, exposed

HBD to greater risk through lack of diversification.

e. The net worth covenant required the guarantors to maintain a

combined minimum net worth of $10 million. This covenant was too low given

the fact that the combined net worth of the borrower and guarantors was $28.7

million. In other words, the borrower and guarantors could not only lose two-

thirds of their net worth, but they could permit their net worth to decline below the

loan commitment amount. HBD’s decision to approve a loan with an insufficient

net worth covenant significantly impaired the beneficial impact of having the

covenant.

f. The combined liquidity of the borrower and guarantors was $2.76

million. However, $2,385,289 of that amount was established through lines of

credit. The CAM stated bluntly that “support for this deal is based on the success

of the previous phases and the current sales rate of the subject’s phases, not the

financial support of the borrower/guarantors.” HBD’s approval of this loan to a

borrower and guarantors who possessed virtually no cash liquidity was incredibly

risky. Van Dellen, Koon, and Shellem appear to have placed sole reliance on past

project performance, and showed no concern for a change in market conditions.

g. HBD approved this transaction despite missing K-1s from the

guarantors. Thus, HBD performed inadequate due diligence in assessing the

financial capacity of the sponsorship. As a mitigant, the CAM stated that the



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commitment was “based on the quality of the transaction not the financial strength

of the borrower/guarantors.” This was evident as both guarantors had FICO scores

below 700, and had a history of numerous tax liens and delinquencies. In addition,

there was no real analysis performed of the borrower’s or guarantors’ contingent

liabilities.

225. Van Dellen, Koon, and Shellem knew, or in the exercise of due diligence




Dellen, Koon, and Shellem in regard to this loan include, but are not limited to, the

following:



difficulty.






the loans.



debt.

e. Causing or allowing a loan to be renewed or extended to borrowers






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market.



market.



226. Van Dellen, Koon, and Shellem as officers, owed IndyMac the obligation to











administering the affairs of IndyMac, Van Dellen, Shellem, and Koon pursued a


all losses.



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Count 18



Loan to Cambridge Homes, Inc. for the Mira Monte Project)



231. Van Dellen, Shellem, and Koon approved a loan to Cambridge Homes, Inc.

for a project known as Mira Monte. This AD&C loan was entered into on June 15, 2006,

and provided financing for site development and construction of 84 single-family homes

in Apple Valley, California. The loan commitment totaled $23,700,000 and had an 18-

month term. The loan was projected to be fully repaid by December 2007. Losses on

this loan are estimated to exceed $5.5 million.


in the project. While the CAM identifies the financial capacity of the borrower and

guarantors as a secondary source of repayment, it also states that this loan was based on

the quality of the transaction and not the financial strength of the borrower and

guarantors. Thus, this was essentially a project-only loan.

233. At the time this loan was approved, the borrower had already required

waivers of its covenant for a final tract map in the Cambridge Vineyards loan with HBD.

The borrower also had more standing inventory than permitted, which rendered insurance

on that project insufficient. In May 2006, there was standing inventory of 18 units

despite a 10 unit maximum under a loan covenant. Thus, this borrower was already not

performing to expectations.

234. On February 2, 2007, HBD authorized Cambridge to start ten production

homes and move the requirement related to funding a CFD to July 15, 2007. A condition

of this loan was to fund the Apple Valley CFD.

235. In April 2007, the project was experiencing cost overruns requiring



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adjustments to the construction budget. This loan was ultimately over disbursed in

several areas.

236. As of June 15, 2007, the borrower and guarantors were past due in

producing their tax returns, minimum liquidity reports, and unit closings.

237. On June 26, 2007, HBD waived the closing requirement of 110 homes on

the Vineyards project, as 99 of those homes had closed. The borrower was allowed to

start construction on 10 additional production homes for a total of 20 production homes,

and four models in the Mira Monte project.

238. On June 29, 2007, HBD approved a draw of $113,000 despite this loan not

being in compliance with a sales covenant. There were numerous waivers of loan

covenants that occurred subsequent to this date where additional draws were authorized.

HBD also did not obtain updated appraisals expeditiously.

239. In August 2007, HBD decided to reduce the number of homes in the project

from 84 to 24. This decision occurred too late, as loan maturity was only 60 days away.

240. On September 6, 2007, HBD discussed the borrower’s delinquent taxes,

which appeared related to payroll. This evidences HBD’s failure to engage in adequate

due diligence over the borrower’s and guarantors’ financials, including K-1 statements.

241. On October 30, 2007, HBD account officer Shamlian finally concluded that

“to continue with the vertical construction may not be a smart move at this time.”

242. Van Dellen, Koon, and Shellem approved, renewed and/or extended this



a. The CAM notes that it would take 73 closings to repay the loan. As

the 73rd closing was to occur in the last month of the loan, any delay in closings

would prevent this loan from paying off timely. Accordingly, Van Dellen, Koon,

and Shellem gave HBD a six-month option to extend. The decision to approve a



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loan that could commit HBD to two years of market exposure was unduly risky

given the borrower’s performance on existing loans with HBD.

b. The CAM notes that absorption in San Bernardino County was

showing signs of slowing. In addition, the borrower was selling an inventory of

competing homes only two miles away. This competition could adversely impact

absorption. In addition, the property was located in an outlying market, which

rendered it more susceptible to a softening market.

c. The borrower had very little cash in this transaction. Van Dellen’s,

Koon’s, and Shellem’s decision to approve a loan with very little cash equity,

insufficient overall equity, and a weak sponsorship resulted in a gamble that the

project would be successful.

d. The advance rates for this loan were fairly high given the illiquid

borrower and guarantors. As Van Dellen, Koon, and Shellem were essentially

wagering that the market would remain strong, they should have taken steps to

create a bigger cushion for market declines.

e. Van Dellen, Koon, and Shellem knew the borrower’s Vineyards

project (financed by HBD) was having difficulties, and yet agreed to fund this

loan.

f. Van Dellen, Koon, and Shellem approved this loan despite the

borrower’s and guarantors’ weak financial condition. In addition, Van Dellen,

Koon, and Shellem did not require a guarantee from Dave Faylor, who was a one-

third owner of the borrower entity.

g. The net worth covenant required the guarantors to maintain a



million. In other words, the borrower and guarantors could not only lose 80% of

their net worth, but they could permit their net worth to decline below the loan



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commitment amount. Van Dellen’s, Koon’s, and Shellem’s decision to approve a

loan with an insufficient net worth covenant significantly impaired the beneficial

impact of having the covenant.

h. The combined liquidity of the borrower and guarantors was weak.

The CAM stated bluntly that “support for this deal is based on the success of the

previous phases and the current sales rate of the subject’s phases, not the financial

support of the borrower/guarantor.” HBD’s approval of this loan to a borrower

and guarantors who possessed virtually no cash liquidity was incredibly risky. Van

Dellen, Koon, and Shellem appear to have placed sole reliance on past project

performance, and showed no concern for a change in market conditions.

i. Van Dellen, Koon, and Shellem approved this transaction despite

missing K-1s from the guarantors. This is particularly shocking as they also did so

with the prior Vineyard loan that was approved months earlier. Van Dellen’s,

Koon’s, and Shellem’s failure to insist on obtaining these financials before

approving this loan is inexplicable. The due diligence was woefully inadequate in

assessing the financial capacity of the sponsorship. As a mitigant, the CAM stated

that the commitment was “based on the quality of the transaction not the financial

strength of the borrower/guarantors.” This was evident as both guarantors had

FICO scores below 700, and had a history of numerous tax liens and delinquencies.

In addition, there was no real analysis performed of the borrower’s or guarantors’

contingent liabilities.

243. Van Dellen, Koon, and Shellem knew, or in the exercise of due diligence




Dellen, Koon, and Shellem in regard to this loan include, but are not limited to, the

following:



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difficulty.






the loans.



debt.












market.



market.



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Count 19



of a Loan to Lancaster-33rd Street L.P. for the Jamestown Project)



249. Van Dellen, Shellem, and Rothman approved a loan to Lancaster-33rd

Street, L.P. for a project known as Jamestown. This AD&C loan was entered into on

September 15, 2006, and provided financing for 18 single-family homes in Lancaster,

California. A tentative map was in place, which was projected to be final within two

months of loan recordation. The loan commitment totaled $4,640,000 and had an 18-

month term. Losses on this loan are estimated to exceed $750,000.



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in the project. The secondary source of repayment of this loan was stated to be the

financial capacity of the borrower and guarantors.

251. At the time this loan was approved, the borrower had already required

waivers of its covenant for a final tract map in the Cambridge Vineyards loan with HBD.

The borrower also had more standing inventory than permitted, which rendered insurance

on that project insufficient. In May 2006, there was standing inventory of 18 units

despite a 10-unit maximum under a loan covenant.

252. As of February 27, 2007, the borrower and guarantors were 58 days past due

on their minimum net worth requirement; vertical construction was two months past due;

and sales start date was already past due.

253. As of July 16, 2007, HBD noted that the final map was recorded and sales

had started. Vertical construction was to finally commence. On August 14, 2007, HBD

approved a reduction of the minimum liquidity covenant from $2 million to $1 million.

On August 14, 2007, the “as-is” value for the property was $1,557,121.

254. This loan had numerous instances of default. Specifically, it defaulted on

liquidity on September 10, 2007; net worth on December 31, 2007; past due interest on

November 30, 2007; tax returns on November 15, 2007; and unit closings on February

2008.

255. As of April 3, 2008, the project was 65% complete. The timeline on the

project was pushed out due to a 9-month delay in recording the final map. A receiver

was in place. The “as-is” value was $1,843,000, and the outstanding amount was

$1,570,702.

256. Van Dellen, Shellem, and Rothman approved, renewed and/or extended this





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a. The CAM quotes from an appraisal report dated August 11, 2006.

Specifically, it notes that absorption levels had slowed, and that there was

downward pressure on pricing in the Antelope Valley. The report states an opinion

that absorption would remain at or below an average of 4.0 units per month, and

that there would continue to be pressure on pricing with price decreases likely in

many of the projects.

b. The CAM notes that the project was located in an outlying market,

which could impact absorption and pricing if market conditions continued to

soften.

c. At the time this loan was approved, Van Dellen, Shellem, and

Rothman knew that the borrower had three other projects that were performing

more slowly than expected. Van Dellen, Shellem, and Rothman did not appreciate

the risks associated with these underperforming projects. This was true despite the

CAM noting that one of the earlier projects had 19 unsold units and an absorption

rate that was only 50% of projections. This was particularly risky because HBD

acknowledged that these loan approvals were based on the strength of the projects

and not on the strength of the guarantors.

d. The credit officer for this transaction observed that two other HBD

projects with the borrower were not meeting absorption projections. In addition,

the credit officer noted that two other unrelated projects to other borrowers that

were funded by HBD in the same market were not meeting absorption projections.

Despite all of these warnings through first-hand experience, and the warning

presented in the appraisal, Van Dellen, Shellem, and Rothman chose to issue a loan

where there was little financial backing to constitute a meaningful secondary

source of repayment.

e. The credit officer’s review memo states “Based on the borrower’s

existing two projects with IndyMac not meeting the absorption projections,



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absorption and pricing pressures in the subject’s market, and low liquidity of the

guarantors, approval is not recommended based on the way the transaction is

currently structured. Account officer to consider tying the start date of vertical

construction of the subject project to some minimum number of closings in the

existing two projects.” Van Dellen, Shellem, and Rothman disregarded the credit

officer’s suggestion and approved the loan.

f. The borrower had very little cash in this transaction. Van Dellen’s,

Shellem’s, and Rothman’s decision to approve a loan with very little cash equity,

insufficient overall equity, and a weak sponsorship resulted in a gamble that the

project would be successful.

g. Van Dellen, Shellem, and Rothman approved this loan despite the

borrower’s and guarantors’ weak financial condition. In addition, Van Dellen,

Shellem, and Rothman did not require a guarantee from Dave Faylor, who was a

one-third owner of the borrower entity.

h. The net worth covenant required the guarantors to maintain a



million. In other words, the borrower and guarantors could lose one third of their

net worth. Van Dellen’s, Shellem’s, and Rothman’s decision to approve a loan

with an insufficient net worth covenant greatly limited any beneficial impact of

having the covenant.

i. The borrower’s and guarantors’ combined net worth had declined

approximately $15 million since HBD approved the Cambridge Mira Monte loan

in June of 2006. Van Dellen, Shellem, and Rothman did not demonstrate the

requisite concern for this financial condition given the deteriorating market

conditions, and the poor performance on the existing loans.



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j. The combined liquidity of the borrower and guarantors was weak.

Van Dellen’s, Shellem’s, and Rothman’s approval of this loan to a borrower and

guarantors who possessed low liquidity was incredibly risky. Van Dellen,

Shellem, and Rothman appear to have placed sole reliance on past project

performance, and showed no concern for a declining market conditions.

k. Van Dellen, Shellem, and Rothman did not engage in sufficient due

diligence to assess the borrower’s and guarantors’ contingent liabilities, which

greatly increased risks in a down market.






following:



difficulty.






the loans.



debt.




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market.



market.



258. Van Dellen, Shellem, and Rothman as officers, owed IndyMac

the obligation to exercise the degree of care, skill and diligence that ordinarily prudent







duties of Van Dellen, Rothman, and Shellem, Plaintiff has suffered losses and other





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administering the affairs of IndyMac, Van Dellen, Rothman, and Shellem pursued a


all losses.

J. Counts Based on Allegations Related to the Loans Made By HBD in the

McComic Consolidated, Inc. Borrower Relationship.

Count 20



Loan to Darby Road 19, LLC for the Darby Road Project)



263. Van Dellen, Shellem, and Koon approved a loan to Darby Road 19, LLC for

a project known as Darby Road. This loan was entered into on November 3, 2005, and

provided financing for the acquisition, development, and construction of 19 homes (16

production and 3 models) situated on 4.77 acres in the unincorporated community of

Bermuda Dunes, which was in the sphere of influence of the City of La Quinta. The loan

commitment totaled $9,155,000 and had a 19-month term. Losses on this loan are

estimated at $300,000.


in the project. The secondary source of repayment of this loan was stated to be a full

recourse guarantee from R. Barry McComic (“McComic”).

265. On May 23, 2007, this loan was extended 90 days to September 1, 2007. A

final tract map had not yet been approved.

266. On September 24, 2007, a new CAM was submitted by account officer

Terwilliger to extend this loan an additional three months. On October 11, 2007, the 90-

day extension was approved, but all future disbursements apart from interest payments

were suspended. In addition, this loan’s debt-to-equity covenant and reporting



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requirements became more stringent. On December 27, 2007, this loan was collapsed to

the unpaid balance. On February 1, 2008, a notice of default was filed.

267. Van Dellen, Shellem, and Koon approved, renewed and/or extended this



a. The project had a number of hurdles to development that created

uncertainty and risk. For example, a final tract map could not be approved until

annexation into the City of La Quinta, and the borrower intended to seek a zone

change from R1-12,000 to R-L in order to reduce the minimum lot size.

b. At the time of underwriting, the borrower’s improvement plans and

final budget for the project were a few months away from completion. In fact, the

improvement infrastructure and home plans were not completed at the time this

loan closed, and everything was based on estimates. The appraisal of the homes

would not be completed until after annexation and after the improvement plans

were completed. There was a possibility that the budget would have to be revised.

Thus, the CAM notes that this loan may need to be rebalanced to maintain a loan

amount of the lesser of 85% loan-to-cost or 85% loan-to-value. This uncertainty

carried additional risk. Nonetheless, Van Dellen, Koon, and Shellem committed to

a construction loan well in advance of home construction, and prior to receiving

final plans and a final budget.

c. The profit margin for the project was 7% versus a 10% policy

requirement. This left little room for the borrower to cut prices in order to respond

to potential market declines.

d. This loan contemplated a single phase consisting of all 19 homes,

which resulted in greater risk to HBD due to potential absorption difficulties and

greater exposure of loan funds.



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e. Terwilliger acknowledged that the loan per unit of $481,842 was high

and may not have been that high anywhere else in Riverside County.

f. McComic and McComic Consolidated had total adjusted assets of

$200.5 million, and net worth of $60.2 million. But they had total contingent

liabilities of approximately $253.3 million, and current outstanding balances of

$87.4 million. In addition, the majority of their debt was for projects that were in

the early phases of development. Thus, the guarantors were heavily leveraged, and

may not have offered a meaningful secondary source of repayment. In fact

Terwilliger acknowledged that the contingent liabilities of $234 million and the

level of liquidity rendered the guarantors unable to repay this loan given a market

decline.

g. Van Dellen, Koon, and Shellem established a minimum net worth

covenant of $7.5 million, which was low given the stated net worth of the

borrower/guarantor at underwriting totaling $60.2 million. In fact, the assigned

credit officer noted this concern, but Van Dellen, Koon, and Shellem approved this

loan nonetheless.

h. The borrower had to rely on The Price Group to provide 90% of the

cash equity required for the project. The Price Group secured its investment with a

second trust deed. Thus, the borrower had very little of its own cash in the

transaction, which increased risk.

i. The borrower was heavily concentrated in the Riverside Desert

submarket, which increased risk to the Bank. The financial analyst on this loan

noted that HBD was aware of McComic’s high concentration in the submarket at

the time this loan was originated. That market area would later experience

substantial market declines.





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following:



difficulty.






the loans.



debt.














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market.



market.
















Count 21

(Claim for Negligence and Breach of Duty of Care Against Van Dellen, Koon, and

Shellem Related to the Underwriting, Administration, Extension and Modification

of a Loan to Apple Valley Homes 26, LLC for the Apple Valley 26 Project)



274. Van Dellen, Shellem, and Koon approved a loan to Apple Valley Homes 26,

LLC for a project known as Apple Valley 26. This loan was entered into on March 7,



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2006, and provided financing for the acquisition, development, and construction of 26

homes on approximately 15 acres in Apple Valley, California. This project was located

adjacent to the borrower’s 130-lot project known as Apple Valley 130. The loan

commitment totaled $8,762,000 and had an 18-month term with one six-month extension

at HBD’s option. Losses on this loan are estimated to exceed $310,000.


in the project. The secondary source of repayment of this loan was stated to be financial

support by the guarantors.

276. The project had two separate parcel maps that were expected to be

consolidated into one final map. The borrower planned to build all 26 production homes

in one phase that would range in size from 2,412 square feet to 3,422 square feet, and

would be priced between $435,000 and $535,000. The property had an approved

tentative map, and the borrower anticipated receiving a final map and complete

improvement plans by September 31, 2006, at which time it would start site and lot

improvements. Vertical construction was planned to commence around January 2007,

and sales would open in February 2007.

277. As of September 17, 2007, the borrower had not yet received a final map.

HBD noted that it would likely convert Apple Valley 26 to an A&D loan because the

borrower was no longer likely to build out the homes. Thus, HBD approved removing

the sales and closing covenants and agreed to extend the covenant to receive a final map

from July 31, 2007 to January 31, 2009.

278. On October 11, 2007, a first letter agreement extended the maturity date

from September 6, 2007 to December 6, 2007. In addition, no further disbursements

would be made except for interest payments that would be paid from the interest reserve.

The CAM requesting this extension noted that the Riverside Desert submarket and San

Bernardino High Desert submarket were both experiencing a significant correction in

home prices, demand, and absorption. This caused supply to rise, high levels of builder



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incentives, and weak absorption. The San Bernardino Desert had over 46 months of

supply. The CAM further noted that the borrower and guarantors had only about $4.5

million of cash and approximately $218 million in liabilities.

279. HBD filed a Notice of Default on February 1, 2008. At that time, the

property had not yet received final tract maps, and was still raw land.




a. The borrower’s final map, improvement plans, and final budget for

the project were a few months away from completion when this loan was

approved. There was a possibility that the budget would have to be revised

following a cost review. Thus, the CAM noted that this loan may need to be

rebalanced to maintain a loan amount of the lesser of 85% loan to cost or 80% loan

to value. This uncertainty carried additional risk.

b. The CAM noted that there were a total of 543 lots/units that were

unsold, unreleased, or would be developed and sold over the next two to three

years in Apple Valley and Hesperia. That sum included the 130-unit project being

developed by McComic. These units would have constituted competition for the

Apple Valley 26 project, which would have had an adverse effect on absorption

and pricing. Account officer Terwilliger acknowledged that this project being

located adjacent to Apple Valley 130 was a weakness because there were two

competing projects in the same area.

c. The property had an approved tentative map, and the borrower

anticipated receiving a final map and completed improvement plans by September

31, 2006, at which time it would start site and lot improvements. Vertical

construction was planned to commence around January 2007, and sales would



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open in February 2007. Thus, vertical construction was not scheduled to

commence until nine months after this loan was approved.

d. This loan contemplated a single phase consisting of all 26 homes,

which resulted in greater risk to HBD due to potential absorption difficulties and a

greater exposure of loan funds.

e. The project was located in a commuter market, and thus, would have

been one of the first markets to be adversely impacted in a down market.

f. McComic and McComic Consolidated had 1,091 units in their

portfolio, including 655 lots. Including this loan, and the 15 existing projects in

McComic’s portfolio, McComic had remaining commitments of approximately

$260.7 million, with approximately $122.3 million outstanding. Of the $260.7

million, $226.9 million had recourse to McComic. The borrower’s and guarantor’s

total assets were $231.7 million, total liabilities were $142.1 million, and net worth

was $89.6 million. Thus, the sponsorship was heavily leveraged, and did not offer

a meaningful secondary source of repayment.

g. The borrower had to rely on The Price Group to provide 90% of the

cash equity required for the project. The Price Group secured its investment with a

second trust deed. Thus, the borrower had very little of its own cash in the

transaction, which increased risk.

h. The CAM noted that of the combined net worth of $82.7 million for

the borrower and guarantors, the investors’ share was $37.6 million, which

understated leverage if the investors’ share was treated as liabilities.

i. Van Dellen, Shellem, and Koon established a minimum-net-worth

covenant of $7.5 million, which was low given the stated net worth of the

borrower/guarantor at underwriting totaling $82.7 million.

j. The borrower was heavily concentrated in the Riverside Desert

submarket, which increased risk to the Bank. The financial analyst for this loan



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acknowledged that HBD was aware of McComic’s high concentration in the

submarket at the time this loan was approved.






following:



difficulty.






the loans.



debt.










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market.



market.


















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Count 22



Loan to Apple Valley Homes 130, LLC for the Apple Valley 130 Project)



287. Van Dellen, Shellem, and Koon approved a loan to Apple Valley Homes

130, LLC for a project known as Apple Valley 130. This A&D loan was entered into on

July 6, 2006, and provided financing for a 129-lot-subdivision project located in Apple

Valley, California. The property was vacant land that had an approved tentative map.

The borrower intended to complete site development by December of 2006, at which

time the borrower would secure a construction loan to finance the construction of 129

homes. The 12-month loan term was requested as a buffer for potential development

delays. The loan commitment totaled $13,445,000. Losses on this loan are estimated to

exceed $6.5 million.

288. The CAM stated that the borrower only wanted an A&D loan because the

cash equity requirement was $4 million less than an AD&C loan. This project was

located adjacent to the borrower’s 26-unit project known as Apple Valley 26. While the

floor plans for the two projects were identical, the homes in Apple Valley 130 appraised

higher because they were part of a gated community, and because of market appreciation.

Apple Valley 130, LLC was a project-specific-California-limited-liability company

formed on April 25, 2005. The members of Apple Valley 130 LLC consisted of: (1) The

Price Group – Member with 51% interest; (2) McComic Consolidated, Inc. – Member

and Manager with 30.6% interest; (3) Allen Weingarten, member with 17.8% interest; (4)

Weitzen Trust, member with 2.0% interest.

289. The primary source of repayment of this loan was to be a construction loan

from IndyMac or another financial institution. The secondary source of repayment of this



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loan was stated to be the financial support of McComic Consolidated, Inc. and McComic.

290. Approval of a final map was delayed and lot development did not begin until

March 2007. On July 27, 2007, a first letter agreement was executed that extended this

loan’s maturity to October 5, 2007. It also required that monthly interest be paid from the

interest reserve until depleted, at which time the interest reserve would be replenished

from contingency loan funds.

291. On September 27, 2007, an updated appraisal revealed an impairment based

on the “as-is” value totaling $5,610,000. This loan matured on October 5, 2007.

On December 7, 2007, the borrower executed a forbearance agreement that expired on

February 5, 2008. The loan maturity was not extended and the loan commitment was

collapsed and reduced to $12,269,346. On January 9, 2008, a notice of default was filed,

and HBD subsequently foreclosed on the property. The unpaid balance at the time of

foreclosure was $10,762,968, and the foreclosure bid was $2,491,360. Thus, the initial

charge off was $8,271,608. HBD subsequently sold the Bank owned property (“REO”)

for $4,242,774, which resulted in a net gain on sale of $1,751,414. Thus, the net loss was

$6,520,194.

292. Van Dellen, Shellem and Koon approved, renewed and/or extended this loan



a. This loan contemplated repayment by a construction loan up to one

year after approval. The substantial competition in the market area and the added

risk attributable to deteriorating market conditions resulting from a prolonged loan

commitment were significant. It was unrealistic for Van Dellen, Shellem, and

Koon to expect repayment by a subsequent construction loan. In fact, the

appraisal projected 18.43 months of supply for this 129-unit project, which

translated to at least two years to build and sell the project. The size of the project

was itself a policy exception for which no mitigant was provided.



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b. The CAM notes that there were a total of 666 lots/units that were

unsold, unreleased, or would be developed and sold over the ensuing two to three

years in Apple Valley and Hesperia. That sum included the 156 units being

developed by McComic in the two Apple Valley projects. These units would

constitute competition, which would have an adverse effect on absorption and

pricing.

c. The project’s average appraised price placed it at the higher price

point for the market area. This would also have adversely impacted absorption.

d. The project violated HBD’s credit policy as it had a low 2.58% profit

margin, which provided little flexibility for the borrower to reduce prices if the

market declined and the borrower was unable to repay this loan with a subsequent

construction loan.

e. The assigned credit officer noted that this loan had high advance rates

for lots that were designated for move-up housing.

f. Terwilliger noted that the CAM stated that the project was located in a

commuter market in order to inform the Junior Loan Committee of this weakness.

Terwilliger stated that if the market changed, one of the first markets to get hit

would have been a commuter market.

g. McComic and McComic Consolidated had 1,122 units in their

portfolio. Including the subject loan, and the 14 existing projects in McComic’s

portfolio, McComic had remaining commitments of approximately $265.9 million,

with approximately $135.9 million outstanding. Of the $265.9 million, $234.9

million had recourse to McComic. The borrower’s and guarantors’ total assets

were $250.1 million, total liabilities were $155.6 million, and net worth totaled

$94.5 million. Thus, the sponsorship was heavily leveraged, and did not offer a

meaningful secondary source of repayment. While the CAM attempts to mitigate

McComic’s contingent liabilities by pointing to $13.9 million in cash and



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marketable securities, those liquid assets had actually declined nearly $7 million

over the past four months. Van Dellen, Shellem, and Koon did not appear to

recognize the borrower’s and guarantors’ deteriorating financial condition at the

time they approved this A&D loan.

h. The borrower had to rely on The Price Group to provide a substantial

portion of the cash equity required for the project. The Price Group was the 51%

owner of the borrower entity and controlled the borrower LLC such that it had the

power to remove the manager, McComic Consolidated, at any time with or without

cause. Despite the substantial control maintained by The Price Group, no financial

analysis or relationship analysis of The Price Group was conducted by HBD. In

addition, Van Dellen, Shellem, and Koon violated HBD credit policy by not

requiring a personal guarantee from The Price Group; The Price Group was not a

signatory on the promissory note, the building loan agreement, or the deed of trust.

In fact, Terwilliger commented that The Price Group was not even asked to

guarantee this loan. The financial analyst on this transaction, James Pham, noted

that HBD would ordinarily not make a loan if the controlling interest of the LLC

was not guaranteeing the loan because it was a matter of “prudent underwriting.”

i. Van Dellen, Koon, and Shellem established a minimum-net-worth

covenant of $7.5 million, which was low given the stated net worth of the borrower

and guarantor at underwriting totaling $94.5 million.

j. The CAM noted that of the combined net worth of $94.5 million for

the borrower and guarantors, the investors’ share was $37.6 million, which

understated leverage if the investors’ share was treated as liabilities.

k. The borrower was heavily concentrated in the Riverside Desert

submarket, which increased risk to the Bank. The financial analyst for this loan

noted that HBD was aware of McComic’s high concentration in the submarket at

the time this loan was originated.



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following:



difficulty.






the loans.



debt.












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market.



market.



294. Van Dellen, Shellem, and Koon as officers, owed IndyMac the obligation to













Count 23

(Claim for Negligence and Breach of Duty of Care Against Van Dellen and


of a Loan to Lancaster Fields 35, LLC for the Lancaster 35 Project)





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299. Van Dellen and Rothman approved a loan to Lancaster Fields 35 for a

project known as Lancaster 35. This loan was entered into on February 5, 2007, and

provided financing for a 35-lot-subdivision project located in Lancaster, California. This

loan funded the land purchase, soft costs including architecture and engineering

($100,000), property taxes and insurance ($20,059), and other miscellaneous costs

($43,750). Thus, while there were a few development aspects to this loan, it was

underwritten as a land acquisition loan. Approval of the final map was expected in April

of 2008. The loan had a 12-month term. The loan commitment totaled $2 million and

losses on this loan are estimated to exceed $1 million.

300. The primary source of repayment of this loan was to be a highly speculative

development and construction loan from IndyMac. The secondary source of repayment

of this loan was stated to be the financial support of the guarantors.

301. An appraisal reported dated December 5, 2007 provided an “as-is” value of

$450,000. A notice of default was recorded on March 11, 2008. HBD subsequently sold

the note for this loan. The outstanding loan balance on the date of sale was

$1,685,222.31, and the sale price was $615,849. Thus, the net loss on sale was

$1,079,373.31.

302. Van Dellen and Rothman approved, renewed and/or extended this loan



a. The CAM stated that new home sales in the Antelope Valley plunged

in the third quarter of 2006, falling to just one third of its level from the prior year.

At the same time, the number of active projects rose from 58 to 79. The absorption

rate dropped from 7.3 units per month to 1.8 units per month, and there were 17.5

months of supply in the project’s submarket. The CAM noted that the market had

slowed significantly in recent months, which resulted in reduced demand for lots

and lower land values. The account officer observed that the market area was very



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slow in sales and highly competitive. These deteriorating market conditions

rendered Van Dellen’s and Rothman’s decision to approve a loan that was to be

repaid by a subsequent development and construction loan highly suspect.

b. The “as-is” value for this loan was 76.2%, which violated the 65%

policy limit applicable to land loans. The stated mitigant was a limitation of the

acquisition and soft costs (excluding financing costs) to $1.7 million prior to

receipt of the tentative map. While this effectively reduced the advance rate to

65%, Van Dellen’s and Rothman’s decision to approve a land loan at the

maximum advance rate allowable by HBD credit policy given the deteriorating

market conditions was irresponsible.

c. This loan contemplated repayment by a development and construction

loan up to one year after its approval. The deteriorating market conditions and

weakening sponsorship rendered it unreasonable for Van Dellen and Rothman to

believe that such a loan would be approved in 2008.

d. The project violated HBD’s credit policy by having a low 0.41%

profit margin, which provided little incentive for the borrower to build the project.

This was especially true because most of the cash equity came from other sources.

e. The project’s average price points were in the upper ranges for

Antelope Valley, which would likely adversely impact absorption.

f. McComic and McComic Consolidated had 1,437 lots in their

portfolio. In addition, McComic was in the process of purchasing 468 lots in Cool

Springs, Texas, and 175 lots in King City, Oregon. McComic had remaining

commitments of approximately $305.4 million, with approximately $173.1 million

outstanding. In addition, his contingent liabilities totaled nearly $240 million. Van

Dellen and Rothman approved this loan despite a heavily leveraged sponsorship

that did not offer a meaningful secondary source of repayment.



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g. The CAM noted that none of the three other IndyMac financed

projects with McComic had started development. Van Dellen and Rothman failed

to take sufficient warning from McComic’s failure to perform as expected on these

other projects.

h. The borrower had to rely on an investor and second trust deed lender

to provide the bulk of the cash equity required for this loan. The borrower was

heavily concentrated in the Riverside Desert submarket which, according to the

CAM, had 39.1 months of supply during the third quarter of 2006.

i. Van Dellen and Rothman approved this loan without any covenants

related to net worth, liquidity, or financial reporting.

303. Van Dellen and Rothman knew, or in the exercise of due diligence should

have known, that their practices and the practices of IndyMac’s employees who reported

to them and over whom they exercised supervisory control, were improper, imprudent,

and harmful to IndyMac. The negligence and breaches of duty by Van Dellen and

Rothman in regard to this loan include, but are not limited to, the following:



difficulty.






the loans.



debt.



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market.

j. Causing or allowing a loan to be made, renewed or extended despite


market.

k. Causing or allowing a loan to be made, renewed or extended where


304. Van Dellen and Rothman as officers, owed IndyMac the obligation to





Van Dellen and Rothman failed and neglected to perform their duties properly as officers

of IndyMac and breached their fiduciary duties of care to IndyMac.


duties of Van Dellen and Rothman, Plaintiff has suffered losses and other compensatory

and consequential damages, in amounts to be established at trial.



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administering the affairs of IndyMac, Van Dellen and Rothman pursued a common plan

or design with each other, and therefore are jointly and severally liable for all losses.

K. Counts Based on Allegations Related to the Loans Made By HBD in the

Prosperity Real Estate Investors, Inc. Borrower Relationship.

Count 24


Koon Related to the Underwriting and Administration of a Loan to Bordeaux SB,

LLC for the Bordeaux Project)



309. Van Dellen, Shellem, and Koon approved a loan to Bordeaux SB, LLC for a

project known as Bordeaux. This loan was entered into on November 8, 2005. The loan

involved the construction and renovation of 104 apartment units into for-sale

condominiums in San Bernardino, California. The loan commitment was $15,385,000

and had an 18-month term. Losses on this loan exceed $2.2 million.




a. The profit margin on the project was 8.83%, less than the 10%

minimum required by HBD policy.

b. The value of the collateral as an apartment was less than the

acquisition price paid by the borrower.

c. The borrower’s principals had limited condominium conversion

experience and less than the minimum experience of five years required by HBD

policy.

d. The borrower was a single-purpose entity, so guarantor financial



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support was critical. Yet the guarantors had lower liquidity and lower assets, and

their contingent liabilities do not appear to have been analyzed.






following:



difficulty.






the loans.




debt.









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Count 25


Koon Related to the Underwriting and Administration of a Loan to Spring Lake

Anaheim, LLC for the Spring Lake Project)



317. Van Dellen, Shellem, and Koon approved a loan to Spring Lake Anaheim,

LLC for a project known as Spring Lake. This loan was entered into on June 27, 2006.

The loan involved the conversion of 54 apartment units into for-sale condominiums in

Anaheim, California. The loan commitment was $14,960,000 and had a 15-month term.

Losses on this loan exceed $3.1 million.




a. The Southern California real estate market was known by Van Dellen,



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Shellem, and Koon to be in decline at the time of loan approval.

b. The profit margin on the project was 8.18%, less than the 10%

minimum required by HBD policy.

c. The initial loan advance for the acquisition of the apartments

exceeded that which was allowed under HBD’s credit policies such that the “as-is”

apartment value of the project would not provide adequate debt coverage.

d. The borrower’s principals had limited condominium conversion

experience and less than the minimum experience of five years required by HBD

policy.

e. The final tract map for the project was not expected until early 2007,

well over six months after loan origination.

f. The borrower was a single-purpose entity, so guarantor financial

support was critical. Yet the guarantors had lower liquidity and lower assets, and

their contingent liabilities do not appear to have been analyzed.






following:



difficulty.







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the loans.




debt.























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L. Counts Based on Allegations Related to the Loans Made By HBD in the

Reynen & Bardis Borrower Relationship.

Count 26


Koon Related to the Underwriting and Administration of a Loan to Reynen &

Bardis (Quail Hollow), L.P. for the Quail Hollow Project)



325. Van Dellen, Shellem, and Koon approved a loan to Reynen & Bardis (Quail

Hollow), L.P. for a project known as Quail Hollow. This loan was entered into on

November 28, 2005. The loan involved the acquisition and development of 181 single-

family-residence lots in Linda, California, which is located approximately a one-hour

drive from Sacramento. The lots were to be used to construct 181 single-family

residences for eventual sale. The loan commitment totaled $21,000,000 and had a 20-

month term. Losses on this loan exceed $7.5 million.




a. The Sacramento market was extremely overheated, with prices having

increased nearly 70% over a four-year period, and there were clear signs at the

time of the loan approval that sales were slowing.



c. Although the project site was located over an hour’s drive from

Sacramento, the market conditions analyzed were for the Sacramento region, not

the more relevant immediate area around Linda. Further, the appraiser relied on

comparable land sales that were between one and one and a half years old.



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d. A directly competing project less than half a mile away was an

IndyMac-financed project under development by Corinthian Homes, whose

principal, Christo Bardis, was also the principal and guarantor of the borrower,

creating a scenario where two HBD clients were competing against each other and

resulting in an unreasonably high concentration of future home supply to a

relatively sparse local population.

e. The loan term was nearly double the HBD policy maximum of 12

months for A&D loans, creating a risk that the extended term would lead to

delayed construction and sale of the planned single-family residences.

f. The total amount of IndyMac loans to the two key principals of the

borrower (who were also the loan guarantors) equaled approximately $145 million,

far exceeding the standard HBD policy maximum of loans to one borrower of $30

million.

g. Financial information for the two guarantors was not consolidated and



liquidity. Further, financial statements for the guarantors were at least one-year

old.

h. The liquidity of the two guarantors was extremely low, with one

guarantor having a liquidity-to-debt ratio of .01:1 and the other at .00:1. One

guarantor had a very low credit score that fell well below HBD policy. The

principal guarantor was heavily invested in land throughout Sacramento and its

surrounding areas, including riskier raw and unentitled land assets, leaving him

particularly susceptible to a market slow down.

i. The combined liquidity covenant of $1 million for each of the loan

guarantors was very low, especially given the significant financial obligations they

had undertaken, which as of June 20, 2005 included over $330 million in



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contingent liabilities. The account officer conceded that a $5 million liquidity

covenant for each guarantor would have been better.

j. The loan guarantee included language that arguably could be

interpreted to actually extinguish the guarantee and render it totally ineffective as a

means of enforcing a second source of repayment.

k. The account officer conceded that if there was a downturn in the real

estate market, the guarantors would be unable to repay the loan.






following:



difficulty.






the loans.



debt.





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market.



market.
















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Count 27



Bardis (Oak Valley) L.P. for the Oak Valley Project)



333. Van Dellen, Shellem, and Koon approved a loan to Reynen & Bardis (Oak

Valley) L.P. for a project known as Oak Valley. This loan was entered into on March 29,

2006. The loan involved the acquisition and development of 161 single-family-residence

lots and a 132-unit-multi-family site located in Chico, California. The lots were to be

used to construct 161 single family residences for eventual sale. The loan commitment

totaled nearly $16.7 million and had an initial 16-month term. Losses on this loan are

nearly $3.5 million.




a. Home prices had more than doubled in Chico since 2001, and the

average sales price at the time of loan origination of $339,242 had led many

potential home buyers to decide to rent instead, creating a risk that the lots and

homes to be developed would not sell well enough to repay the loan.

b. New home sales in Chico had slowed by nearly 50% at the time of

loan approval.

c. The total number of units to be developed was 293 units, more than

double HBD’s policy maximum of 125 units, resulting in a project that was more

susceptible to a lengthy absorption process.

d. The project only had a proposed tentative tract map, and the borrower

planned to seek an amendment to the tentative map with uncertain approval of such



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a request or the final map.

e. The loan term exceeded the HBD policy maximum of 12 months for

A&D loans, creating a risk that the extended term would lead to delayed

construction and sale of the planned single family residences.

f. There was a significant risk that the loan term would expire long

before the planned home sales would be completed and the loan could be paid off.

g. The total amount of IndyMac loans to the two key principals of the



million.

h. Financial information for the two guarantors was not consolidated and



liquidity.

i. The liquidity of the two guarantors was extremely low, with one

guarantor having a liquidity to debt ratio of .01:1 and the other at .00:1. One

guarantor had a very low credit score that fell well below the HBD policy

minimum score.

j. The combined liquidity covenant of $1 million for each of the loan





k. The loan guarantee included language that arguably could be



l. The account officer conceded that if there was a downturn in the real



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following:



difficulty.






the loans.



debt.








h. Causing or allowing a loan to be made, renewed or extended where



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Count 28


Koon Related to the Underwriting and Administration of Three Loans to Reynen &

Bardis Communities, Inc. for the Edgewater Unit 13, 14 & 15 Project)



341. Van Dellen, Shellem, and Koon approved three loans to Reynen & Bardis

Communities, Inc. for a project known as Edgewater Unit 13, 14 & 15. These loans were

entered into on April 18, 2006 and March 29, 2007. The loans involved the acquisition

and development of 165 single-family-residence lots in Linda, California, which is

located approximately a one-hour drive from Sacramento, and the construction of 165

single-family residences on those lots for eventual sale. The total loan commitment for

the three loans was just under $48 million, and the first two loans had an initial 15-month



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term while the third loan had a term of 14 months. Losses on these three loans exceed

$5.3 million.

342. Van Dellen, Shellem, and Koon approved these loans despite substantial










the more relevant immediate area around Linda.







e. In violation of HBD policy, the borrower was to receive cash in

excess of project costs upon closing and funding of the loan.

f. The loan term for the loan originated in March 2007 was to expire

approximately 15 months before the loan was projected to be paid off.

g. The total amount of IndyMac loans to the two key principals of the



million.



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h. Financial information for the two guarantors was not consolidated and



liquidity.




minimum score. The principal guarantor was heavily invested in land throughout

Sacramento and its surrounding areas, including riskier raw and unentitled land

assets, leaving him particularly susceptible to a market slow down.



had undertaken, which as of loan approval included over $500 million in












Dellen, Shellem, and Koon in regard to these loans include, but are not limited to, the

following:




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difficulty.






the loans.



debt.












market.



market.




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Count 29


Rothman Related to the Underwriting and Administration of Two Loans to Reynen

& Bardis Communities, Inc. for the Arbors at Edgewater Project)



349. Van Dellen, Shellem and Rothman approved two loans to Reynen & Bardis

Communities, Inc. for a project known as Arbors at Edgewater. These loans were

entered into on November 30, 2006 and July 26, 2007. The loans involved the

acquisition and development of 77 single-family-residence lots in Linda, California,

which is located approximately a one-hour drive from Sacramento, and the construction

of 77 single-family residences on those lots for eventual sale. The total loan commitment

for the two loans was $15,775,000, and the first loan had an initial 19-month term while



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the second loan had a term of 11 months. Losses on these two loans are nearly $2.8

million.

350. Van Dellen, Shellem and Rothman approved these loans despite substantial





time of the loan approval that sales were slowing, including evidence that many

new home builders were offering buyer incentives to sell the built-up inventory of

homes in the area.





the more relevant immediate area around Linda.







e. The loan term for the loan originated in July 2007 was to expire

approximately 13 months before the loan was projected to be paid off.




million.



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liquidity.

h. The financial information reported for the two guarantors at the time

of loan approval in November 2006 was stale because it only went back to June 30,

2005, which violated HBD policy requiring personal financial statements to be

dated within 12 months of a credit request. This was particularly troublesome

given the already very low liquidity of the guarantors.



guarantor had a very low credit score that fell well below HBD policy. The

principal guarantor was heavily invested in land throughout Sacramento and its

surrounding areas, including riskier raw and unentitled land assets, leaving him

particularly susceptible to a market slow down.



had undertaken, which as of loan approval included over $565 million in








351. Van Dellen, Shellem and Rothman knew, or in the exercise of due diligence




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Dellen, Shellem and Rothman in regard to these loans include, but are not limited to, the

following:



difficulty.






the loans.



debt.














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market.



market.



352. Van Dellen, Shellem and Rothman, as officers, owed IndyMac the





Van Dellen, Shellem and Rothman failed and neglected to perform their duties properly



duties of Van Dellen, Shellem and Rothman, Plaintiff has suffered losses and other



administering the affairs of IndyMac, Van Dellen, Shellem and Rothman pursued a


all losses.

Count 30


Rothman Related to the Underwriting and Administration of a Loan to Riverpark

Properties, LLC for the River Park at Dayton Project)



357. Van Dellen, Shellem and Rothman approved a loan to Riverpark Properties,



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LLC for a project known as River Park at Dayton. This loan was entered into on August

31, 2006. The loan involved the acquisition and development of 102 single-family-

residence-finished lots and 125 single-family-residence-paper lots in Dayton, Nevada,

which is located approximately 20 miles east of Carson City and an hour’s drive from

Reno. The lots were to be used to construct 227 single-family residences for eventual

sale. The total loan commitment was $13,959,000 and had a 22-month term. Losses on

this loan exceed $6.5 million.

358. Van Dellen, Shellem and Rothman approved this loan despite substantial



a. Home prices had risen 116% in the Reno area since 2001, with an

average sales price in early 2006 of $357,000, causing home sales to slow in the

area from 5-15 units per month to 2-8 units per month. In addition, sales rates had

declined due to a lack of supply of water.

b. Dayton was an outlying community located about an hour outside of

downtown Reno and thus extremely susceptible to a slowing market.

c. The market conditions analyzed were for the Reno region, not the

more relevant immediate area around Dayton including Carson City.

d. The total number of units to be developed was 227 units, nearly

double the typical HBD policy maximum of 125 units.

e. The profit margin on the project was expected to be only 7.6%, below

the HBD policy minimum of 10%, and potentially leaving the borrower little room

to lower prices in a slowing market.




million.



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liquidity.

h. The financial information reported for the two guarantors at the time

of loan approval in August 2006 was stale because it only went back to June 30,

2005, which violated HBD policy requiring personal financial statements to be

dated within 12 months of a credit request. This was particularly troublesome

given the already very low liquidity of the guarantors.




minimum score.











359. Van Dellen, Shellem and Rothman knew, or in the exercise of due diligence






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Dellen, Shellem and Rothman in regard to this loan include, but are not limited to, the

following:



difficulty.






the loans.



debt.










360. Van Dellen, Shellem and Rothman, as officers, owed IndyMac the






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Van Dellen, Shellem and Rothman failed and neglected to perform their duties properly



duties of Van Dellen, Shellem and Rothman, Plaintiff has suffered losses and other



administering the affairs of IndyMac, Van Dellen, Shellem and Rothman pursued a


all losses.

Count 31



Bardis (Spring Lake), L.P. for the Spring Lake Project)



365. Van Dellen, Shellem, and Koon approved a loan to Reynen & Bardis

(Spring Lake), L.P. for a project known as Spring Lake. This loan was entered into on

July 18, 2005. The loan involved the acquisition of 113 acres of vacant, agricultural land

in Woodland, California, which is approximately 20 minutes from downtown

Sacramento. The land was to be entitled to accommodate 661 single-family-residence

lots, with half of the lots expected to be sold to Lennar and the other half to be further

developed with another IndyMac site-development loan. The total loan commitment was

$12,500,000 and had an 18-month term. Losses on this loan exceed $2 million.






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b. The land was unentitled, and a tentative tract map still needed

approval, creating a significant risk of delay in project development.

c. The number of lots to be developed was more than triple the HBD

policy maximum of 200 units, an extremely large and risky undertaking in a

competitive real estate market that had grown at a feverish pace in the last four

years.

d. The appraiser relied on comparable sales data from a market 20 miles

away from the project site.

e. There was significant competition from other lot developers and

builders within the Spring Lake Specific Plan.




million.




liquidity.

h. The liquidity of the two guarantors was extremely low, with one



minimum score. The principal guarantor was heavily invested in land throughout

Sacramento and its surrounding areas, including riskier raw, unentitled land assets,

leaving him particularly susceptible to a demonstrated market slow down.



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i. The combined liquidity covenant of $1 million for each of the loan





j. The loan guarantee included language that arguably could be



k. The account officer conceded that if there was a downturn in the real







following:



difficulty.






the loans.





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debt.












market.



market.














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M. Counts Based on Allegations Related to the Loans Made By HBD in the

Decal Custom Homes and Construction, Inc. Borrower Relationship.

Count 32


to the Underwriting, Administration, Extension and Modification of a Loan to Decal

Custom Homes and Construction, Inc. for the Murray & Jenkins Project)



373. Van Dellen, Shellem, and Koon approved a loan to Decal Custom Homes

and Construction, Inc. for a project known as Murray & Jenkins. This land loan was

entered into on December 12, 2005, and refinanced the borrower’s costs of acquisition of

a 9.65 acre site located in Beaverton, Oregon. The planned use called for 468 units in a

mixture of six eight-story towers and 27 two-story townhomes. The loan had a 12-month

term. The original loan commitment totaled $5,890,519. The losses on this loan are

estimated to exceed $2.3 million.

374. The CAM did not specifically discuss the anticipated source of repayment.

However, it appears the primary source of repayment of this loan was the sale of

condominium units from the anticipated development of the property and/or the

refinancing of the property as part of a construction loan offered by IndyMac or another

bank. In addition, Calvin Baty and John Schleining provided full-recourse guarantees.

375. On December 22, 2006, this loan was extended by Van Dellen and Rothman.

HBD workout officer Anthony Ramsier indicated that banks were not contacted to verify

a supposed $3.7 million in unused capacity in lines of credit used to establish the liquidity

of guarantor John Schleining as part of the extension. The purported reasons for allowing

the extension were to allow the borrower to sell the subject property pursuant to a signed



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sale agreement with Pacific Commercial Capital with the knowledge that a due diligence

period could extend the purchase out to as late as April or May 2007. The modification

memorandum noted that the sale agreement was in the early stages and that “the earnest

money has not gone [hard] yet”. The memorandum also noted that the borrower’s

Eagle’s Loft condominium project (also financed by HBD) “experienced slow sales in

closings and will need a new appraisal and loan modification.”

376. Subsequently, the borrower failed to close on the sale or a sale to other

interested buyers. The borrower also failed to complete entitlements necessary to obtain

tentative mapping on the property. This loan was downgraded on July 31, 2007 to

Substandard Two. The corporate borrower deteriorated and ceased to exist as a going

concern due to contingent liabilities at other projects and the pending loss of its general

contractors license as reported in the April 30, 2008 classified asset report.

377. The note was sold to PNL High Country, LP in the Eastdil note sale which

closed June 30, 2008 (prior to the seizure of the Bank). The unpaid principal balance on

the note at the date of sale was $5,644,600 and the net proceeds of the sale were

$3,300,000, yielding a net loss of $2,344,600.




a. The CAM indicated that the profit margin was negative on the work

book. This was not mitigated. The CAM simply indicated that “once the

borrower’s proposed condominium project is approved, the value of the land and

potential profit of a completed project will increase the profit.”

b. The borrower had less than 10% cash equity, which violated HBD’s

credit policy.

c. The project did not have full entitlements.



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d. The future construction project to pay off the land loan would have

over 40 months of absorption, which would render it difficult to secure financing,

and added to the length of exposure to the loan.

e. Guarantor John Shleining’s liquidity was mostly in the form of unused

lines of credit. Guarantor Calvin Baty’s FICO score averaged 619, below the

policy requirement of 660. The guarantors’ contingent liabilities were not

evaluated.








difficulty.






the loans.




debt.





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Count 33



Eagles Loft Condominium LLC for the Eagles Loft Condominiums Project)




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385. Van Dellen, Shellem, and Koon approved a loan to Eagles Loft

Condominium LLC for a project known as Eagles Loft Condominiums. This loan was

entered into on February 7, 2006, and was an AD&C loan that took out two Community

Financial loans that were in place to finance the land acquisition and phase 1 of the

Eagles Loft condominium project. The property consisted of 7.91 acres of land for a

high-end-condominium project with approvals for 128 units in 17-four-story buildings.

The loan had a 24-month term. The original loan commitment totaled $35,751,304. The

losses on this loan are estimated to exceed $14.7 million.

386. The CAM did not specifically discuss the anticipated source of repayment.

However, the anticipated source of repayment of this loan was the sale of condominium

units from the proposed development of the property. In addition, Calvin Baty and John

Schleining provided full-recourse guarantees.

387. A loan modification was approved in early September 2006 by Van Dellen,

Shellem and Rothman. The requested modification noted slower than expected sales and

closings, and constituted in part a request by the borrower to resize the loan commitment

to build out the seven buildings and two foundation slabs currently under construction to

result in a total of 53 units and two foundation slabs. The modification included cross-

collateralization, cross-default and cross-pay with the Murray & Jenkins loan. The

extension noted the then-outstanding balance of $18,953,087.

388. Subsequently, the loan cap was proposed to be increased from the existing

$19,759,131 to $22,759,131 with $2 million of the cap increase to be reserved for future

direct construction invoices incurred after January 1, 2007, and with the remainder

available to fund current outstanding direct construction draw requests. The classified

asset report dated December 31, 2007 noted a considerable decline in market values.

389. This loan was downgraded to Substandard effective March 2007 “given

continued lagging construction progress and an inability to formalize an updated budget.”



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This loan was further downgraded on July 31, 2007, to Substandard Two as a result of

interest payments going past due and the deteriorating financial condition of the borrower

and guarantors. The CAR also noted the inability of the borrower and guarantors “to

exist as a viable entity due to contingent liabilities at other projects and the pending loss

of general contractors license.” The report also indicated a “decrease in sales

performance and unit values versus the original underwriting.”

390. The note for this loan was sold to PNL High Country, LP in the Eastdil note

sale which closed on June 30, 2008 (prior to the seizure of the Bank). The unpaid

principal balance on the note at the date of sale was $22,358,245 and the net proceeds of

the sale were $7,576,303, yielding a net loss of $14,781,942.




a. The appraisal report set forth an estimated absorption of three units

per month, which resulted in an inadequate loan term and interest reserve. The

project cash flow used a higher absorption rate.

b. The appraisal reported noted that the subject units were high-end units

for the area and were untested for marketability. The proposed units were

“considered above the norm in the area and thus represent a high risk project.”

c. The value of the land was uncertain because it was determined using

the “abstraction method” which “exceeds the highest value by a comparable sale.”

The reason for this was the absence of relevant recent sales in the market.

d. Although the CAM recognized that the sale of units was likely to

exceed the term of this loan, the support for the project provided by the guarantors

was not thoroughly considered. The guarantors’ contingent liabilities were not

considered and their net worth was simply stated on an equity basis. These failures

resulted in understating the leverage of the borrower and guarantors.



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e. The project involved a condominium product that was untested in the

market.

f. Defendants violated a number of its own policies in making and

modifying this loan – policies that were designed to protect HBD from the very

risk that ultimately occurred, a loss on a speculative loan. When this loan was

extended, such that the Bank increased its exposure, the Defendants failed to

follow HBD’s policy of verifying available liquidity of the borrower.

Significantly, as well, Defendants accepted a borrower whose FICO scores were

low and did not investigate the borrower’s other contingent liabilities. Most

notably, this project was for an untested type of product for the market –

condominiums – and therefore was “high risk.” In underwriting this loan,

Defendants took insufficient steps to mitigate that risk by ensuring that it had

conservative advance rates and/or a very strong secondary source of repayment.








difficulty.






the loans.



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debt.












market.














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N. Counts Based on Allegations Related to the Loans Made By HBD in the

J.P. Eliopulos Enterprises, Inc. Borrower Relationship.

Count 34


to the Underwriting, Administration, Extension and Modification of an A&D Loan

to Joshua Ranch Development, Inc. for the Joshua Ranch Project)



398. Van Dellen, Shellem, and Koon approved a loan to Joshua Ranch

Development, Inc. for a project known as Joshua Ranch. This loan was entered into on

December 27, 2005, and provided financing for a 535-lot-subdivision project on 794

acres located in Palmdale, California. This loan was a rewrite on an existing $17,160,706

A&D loan that was funded by HBD in May 2004 to finance the construction of 108

finished lots, four models, and the extension of Joshua Ranch Road, plus sewer and water

infrastructure throughout the project. The new loan was to be split into two notes: (1)

A&D note totaling $36,571,000; and (2) additional advance note totaling $6,000,000 to

facilitate the sale and transfer of the Joshua Ranch property to a newly formed S

Corporation. The scope of the A&D loan was expanded and changed to include a total of

183 finished lots. The remaining 352 lots would remain raw land. This loan included a

new budget that reflected a cost increase of $3,587,443 for delays in construction and

increased costs. The loan had an 18-month term. The original loan commitment totaled

$42,571,000, but it was reduced to $36,571,000 prior to loan closing. The losses on this

loan are estimated to exceed $13 million.



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399. The primary source of repayment of this loan was to be the construction

and/or the sale of lots as follows: 98 lots to merchant builders and 85 lots sold in bulk to

public builders. The lot sales were projected to generate revenues totaling $30,154,320.

The CAM indicated that the borrower intended to sell additional lots to merchant builders

in subsequent phases of development. However, the CAM noted that the current cash

flow would leave a residual balance of approximately $4.4 million due to front loading of

costs to complete the sewer and water infrastructure and Joshua Ranch loop road. The

cash flow indicated that it would take 306 lot sales and closings to retire the A&D loan

and residual. Thus, Van Dellen, Koon, and Shellem approved a loan with a structure that

would not completely repay the loan through the sale of lots. The secondary source of

repayment of this loan was stated to be the financial support of the guarantors. The CAM

noted that the borrower offered only limited financial support by having only $3,549,000

in liquid assets.

400. On June 21, 2007, Rothman approved a reduction in the borrower’s

liquidity covenant from $5 million to $2 million due to the borrower’s cash flow

difficulties. The reduction was to remain in effect for one quarter.

401. On June 27, 2007, HBD approved a 60-day extension that would mature on

September 1, 2007. In addition, funds were transferred from soft cost contingency to

cover interest reserve and the extension fee. The extension was approved in order to

allow sufficient time to negotiate and restructure this loan. The transfer was approved so

the borrower would not have to pay interest out of pocket.

402. On September 4, 2007, Van Dellen and Rothman approved another 60-day

extension that included the transfer of remaining funds to pay interest and extension fees.

In addition, there was a principal curtailment payment requirement of $1.28 million. The

extension was needed to finalize budget numbers and provide sufficient time for another

review of the appraisal and a cost review. It was noted at that time that the borrower’s

liquidity was not expected to improve until late 2008 or early 2009.



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403. On March 31, 2008, a Notice of Default was recorded. A guarantor suit was

filed on April 1, 2008. On April 22, 2008, an attorney for the guarantors sent a letter to

HBD stating that HBD had published extremely private and personal information about

the guarantors (including tax returns, social security numbers, bank account numbers, and

home addresses) in connection with HBD’s attempt to sell the note in the Eastdil note

sale. It was reported that someone tried to steal approximately $2 million from the

Eliopulos family.

404. On September 16, 2008, a workout plan memorandum submitted by Bank

account officer Geoffrey Ramirez (“Ramirez”) recommended the following actions: (1)

borrower to pay $300,000 in cash; (2) IndyMac, the borrower, and guarantors would

execute mutual releases, including dismissals with prejudice of the guarantor

enforcement action and the cross-complaint in the action that alleged HBD’s publication

of personal information in connection with an attempt to sell the note in the Eastdil note

sale; (3) the release would occur not less than 91 days (or as proposed by counsel) from

execution of the transaction due to a possible bankruptcy; (4) HBD was to facilitate a

deed-in-lieu of foreclosure and/or consensual foreclosure at its sole discretion; (5) the

guarantors were to certify that financial statements dated June 30, 2008 were true and

correct; (6) foreclosure subject to receipt and review of Phase I; and (7) the set-aside

letter would remain in place and would be replaced as a consequence of a REO sale. The

FDIC would repudiate the set-aside letter if the City, borrower, guarantor, or other

governing authority requested that HBD fund the remaining $1,836,951.

405. On December 10, 2008, this loan was foreclosed with an outstanding loan

balance at the time of foreclosure of $24,551,353. A memo dated December 29, 2008

from Daris Buckler of HBD notes that the principal should be paid down $3,151,046 (the

credit bid price) as of December 10, 2008. Thus, the balance of $21,400,307 minus

$150,000 (half of $300,000 paid by guarantors split between two loans) was charged off.

IndyMac’s share of the charge off amount net of the participation was $13,068,938.81.



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a. The CAM noted that the cash flow would leave a residual balance of

approximately $4.4 million due to front loading of costs to complete the sewer and

water infrastructure and Joshua Ranch loop road. The cash flow indicated that it

would take 306 lot sales and closings to retire the A&D loan and residual.

Accordingly, Van Dellen, Shellem, and Koon approved this loan with a structure

that would not completely retire the loan through the sale of lots.

b. The projected profit margin was only 6.68% versus a 10% policy


to market declines.

c. The project consisted of 535 units versus a policy maximum of 125

units. The size of this project increased the likelihood of delays and absorption

problems, and exposed HBD to greater risk. An HBD account officer commented

that a policy limit existed for the maximum number of units on a project because

the subdivision process is slow and based on many market factors (e.g. absorption,

availability of financing, interest rate risk for permanent mortgages, etc.). Thus,

there are a number of variables that prevent being able to figure out how the

variables would affect a project too far into the future. The account officer further

noted that if a project had 400 or 500 homes, it was very difficult to know what the

future would hold, as it would take longer to build the homes, which increased risk

to the Bank.

d. The loan to cost for the finished lots was 84.45% versus a policy

maximum of 75%.

e. The loan term was 18 months versus a policy maximum of 12 months

for an A&D loan. This created a longer period of exposure to market declines,



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which added risk. This risk was compounded by the fact that (1) the lots/homes

were noted to be at the upper end of the market; (2) there was an abundance of

competition in the market; and (3) it was a commuter market.

f. The high loan commitment amount of $36,571,000 was over the

suggested loan to one borrower limit, which created additional exposure and risk to

HBD. Despite an unproven developer in Andrew Eliopulos, Van Dellen, Koon,

and Shellem approved this loan notwithstanding a weakness set forth in the CAM

that this was the largest development undertaken by the borrower and was a large

development for the size and financial strength of the borrower and guarantors.

g. J.P. Eliopulos Enterprises, Inc. was founded by John P. Eliopulos, a

real estate broker and developer since 1957. John Eliopulos passed away before

this project was undertaken by his son, Andrew Eliopulos. Van Dellen, Shellem,

and Koon approved this loan without sufficient due diligence to assess the

capability of Andrew Eliopulos to handle a project of this magnitude. Had HBD

engaged in proper due diligence, it would have discovered prior to loan approval

that Andrew Eliopulos simply lacked the capacity to build this project. In fact,

Rothman acknowledged that one issue with the Joshua Ranch loan was the

borrower was unable to properly budget, and that the borrower did not have “the

real horsepower” to get a budget done. He also noted that major items were left

out of the budget. Terwilliger also stated that the borrower did not provide a

proper budget because it simply did not know how to put one together. Similarly,

Ramirez commented that he did not believe the borrower really knew what it

would cost to build out the property, and that the borrower attempted

unsuccessfully to prepare a budget at least 10 times. Ramirez also stated that the

borrower simply did not know how to prepare a proper budget for this project

because the borrower was “outclassed” and did not have the capacity to put it

together. The borrower simply did not have his hands on what the infrastructure



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on-site and off-site costs were. Ramirez noted that the borrower did not know how

much money it had put into the project out-of-pocket which demonstrated a lack of

competence on the part of the borrower. Ramirez also believed Andrew Eliopulos

was an “airhead.” Van Dellen’s, Shellem’s, and Koon’s failure to recognize these

deficiencies in the borrower prior to loan approval evidences poor due diligence.

h. Ramirez advised that while he was trying to restructure the Joshua

Ranch loan, he discovered that the budgeting deficiencies were present in the

original underwriting of this loan. Van Dellen, Shellem, and Koon failed to catch

these deficiencies before approving this loan.

i. HBD permitted the borrower to utilize $9.67 million in appreciated

equity despite the fact that the borrower only owned the property for 18 months

and controlled it for 30 months. This was a policy exception. The use of market

equity over cash equity rendered the transaction riskier. Rothman acknowledged

that there was a fair amount of concern expressed during the Junior Loan

Committee relating to the appraised equity being considered in this loan.

Nonetheless, Van Dellen, Shellem, and Koon still approved this loan.

j. All of the borrower’s projects were located in Palmdale, which was a

commuter market and particularly susceptible to a market downturn. The

concentration in one market area added significant risk. Ramirez noted that this

would have caused him concern because the borrower’s developments were

concentrated in one market, and they were not diversified in market or product

type.

k. The CAM noted that the borrower offered limited financial support by

having only $3,549,000 in liquid assets. In addition, the borrower had nearly $12

million outstanding on unrelated projects, which presumably created an equal

amount of contingent liabilities. Van Dellen could not point to anything

specifically in the CAM that caused him to have the belief that the borrower had



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the financial capacity to build out the project. This weak financial support did not

offer meaningful secondary support. Van Dellen even agreed with the

characterization in the CAM that the borrower’s liquidity meant that it only

provided limited support to the project. Despite the borrower and guarantors’

weak financial condition, Van Dellen, Shellem, and Koon approved this loan with

only an annual financial reporting covenant.

l. The credit review memo authored by credit officer David Boggs

recommended increasing the loan pricing to a return on equity of 35% to 40%.

The original account officer on this loan commented that the recommendation was

made due to the fact that the Joshua Ranch loan was a very high risk loan.

l. Ramirez commented that had he been the originating account officer

for Joshua Ranch, he would not have proposed this loan because the project was in

Palmdale and involved a very big piece of land, and a lot of money to the builder.

Ramirez did not feel the builder had the financial capacity to build the project

irrespective of its lack of competency. Ramirez further stated that he would not

have proposed the Joshua Ranch loan based both on hindsight and based on what

was knowable at the time this loan was approved.








difficulty.





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the loans.



debt.












market.



market.








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Count 35



of a Construction Loan to Joshua Ranch Development, Inc. for the Joshua Ranch

Project)



413. Van Dellen and Rothman approved a loan to Joshua Ranch Development,

Inc. for a project known as Joshua Ranch. This loan was entered into on January 2, 2007,

and provided financing for the construction of 23-single-family units located in Palmdale,

California. The loan had a 24-month term. The loan commitment totaled $14,533,000.

The losses on this loan are estimated to exceed $2.1 million.

414. The primary source of repayment of this loan was to be the sale of the

constructed units. The secondary source of repayment of this loan was stated to be the

financial support of the guarantors and cross-collateralization with the A&D loan

described above.

415. On September 11, 2007, HBD approved a second extension on the



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construction start date, the sales start date, and closing start date due to construction

delays. Construction did not begin until November 2007 due to delays, and was stopped

by HBD on December 31, 2007. The outstanding loan balance as of that date was

$3,909,292; the bulk of that amount ($3,179,980) was used to pay down the related A&D

loan as release prices for the 23 lots.

416. On March 31, 2008, a notice of default was recorded. A guarantor suit was

filed on April 1, 2008. On April 22, 2008, an attorney for the guarantors sent a letter to

HBD stating that HBD had published extremely private and personal information about

the guarantors (including tax returns, social security numbers, bank account numbers, and

home addresses) in connection with HBD’s attempt to sell the note in the Eastdil note

sale. It was reported that someone tried to steal approximately $2 million from the

Eliopulos family.

417. On December 10, 2008, this loan was foreclosed with an outstanding loan

balance believed to be $3,909,292. A memorandum dated December 29, 2008 from

Daris Buckler of HBD notes that the principal should be paid down $248,102 (the credit

bid price) as of December 10, 2008. Thus, the balance of $3,661,190 minus $150,000

(half of $300,000 paid by the guarantors split between two loans) was charged off.

IndyMac’s share of the charge off amount net of the participation was $2,159,381.85.



of due diligence. In addition to the risks set forth in the A&D loan described above, these

risks include, but are not limited, to the following:

a. Van Dellen and Rothman knew at loan origination that the borrower’s

other projects in the same market area, including the A&D loan, were not

performing as expected. Specifically, the A&D loan was scheduled to be

restructured in September 2007 to repack interest resulting from lot sales not

occurring as planned, and because initial delays and cost increases put the project



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behind schedule. In addition, 85 lots in the A&D loan were expected to be sold to

a public builder in June/July 2006, but did not sell. Finally, Beazer walked away

from a 15% deposit for 130 lots in September 2006, which was noted as being

similar to most public builders dumping land stock. Van Dellen and Rothman

appear to have ignored clear warnings relating to this borrower.

b. The October 2005 CAM for the A&D loan noted 7.48 months of

supply in the project’s submarket. The December 2006 CAM for the subject

construction loan noted 23.49 months of supply in the project’s submarket. Van

Dellen and Rothman appear to have disregarded the significance of a three-fold

increase in supply.

c. The projected profit margin was only 8.74% versus a 10% policy

requirement. The account officer attempted to mitigate this policy exception by

suggesting that the land cost included appreciated equity which should be added

back into the profit calculation to arrive at actual profit of 20.46%. This appears

improper, as substantial market equity was utilized for the borrower’s equity

contribution to the project. Thus, it should no longer have been considered for

profit. The low profit margin left little room for the borrower to cut prices in order

to respond to already existing market declines.

d. The CAM noted that the units were an untested high price point for

the area. In fact, the account officer observed that average prices were $450,000,

and the Joshua Ranch homes would average $850,000. A price point that was

nearly double the average prices would impact absorption and/or the economic

viability of the project given the low profit margin. This problem was exacerbated

by the lack of comparable information.

e. The borrower advised HBD of a possible liquidity crunch from the

end of the 4th quarter 2006 to the end of the 1st quarter 2007 where it projected



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liquidity between $2 million and $3 million. Van Dellen and Rothman still

approved the loan.

f. The CAM noted that the borrower’s cash flow was highly dependent

on lot sales to merchant and public builders. Thus, there was added risk in

approving this transaction because market conditions evidenced that public and

merchant builders were not adding to their land stock.

g. Van Dellen and Rothman did not impose a minimum tangible net

worth covenant. In addition, HBD agreed to reduce a $5 million minimum

liquidity covenant to $2 million for the 4th quarter of 2006 and waive it for the 1st

quarter of 2007. The borrower’s need for this accommodation should have been

viewed as evidence of a weak sponsorship. Van Dellen’s and Rothman’s decision

to accommodate this weakness in the face of deteriorating market conditions

greatly increased risk.

h. The borrower was not required to use any upfront cash equity.

Instead, the equity requirement was satisfied by market and deferred equity.








difficulty.







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the loans.



debt.












market.



market.










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O. Count Based on Allegations Related to the Loan Made By HBD in the

Terrapin Group Borrower Relationship.

Count 36



Loan to Terrapin Group for The Regal (Regal Pointe) Project)



425. Van Dellen, Shellem, and Koon approved a loan to Terrapin Group for a

project known as Regal Pointe. This loan was entered into on February 16, 2006, and

provided financing for the acquisition and conversion to condominiums of a newly

completed 162-unit-apartment complex consisting of 18 separate two-story buildings

located in Kanosia, Wisconsin approximately 50 minutes north of downtown Chicago

just across from the Illinois border. Units ranged in size from 1360 to 1520 square feet.

Each unit had either one or two garage units. The loan had a 24-month term. The loan

commitment totaled $17,760,939. The losses on this loan are estimated to exceed $3.8

million.


constructed condominium units. The secondary source of repayment of this loan was



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stated to be the support of the borrower and guarantors, and the sale or refinance of

collateral.

427. The project experienced slower sales than anticipated. This loan was

classified Substandard One on October 31, 2007, when the borrower indicated it would

be unable to meet the second quarter curtailment payment due on November 1, 2007.

One month later, this loan was downgraded to Substandard Two as a result of the

borrower missing the November 1, 2007 interest payment and the borrower indicating it

could no longer cover operating expenses. Subsequent interest payments were also

missed. A complaint for foreclosure and breach of guaranty was filed on January 18,

2008.

428. On May 29, 2008, this loan was sold through a note sale with proceeds of

$9,108,016 and an unpaid balance as of that date of $12,929,672 for a loss on sale of

$3,821,656.




a. The guarantors had limited liquidity. The combined cash assets of all

four of the guarantors were only slightly above their minimum liquidity covenant

of $1.6 million. The purported mitigant that “guarantors will have additional

sources of cash flow from ongoing unit closing and fees on a portfolio of other

projects and numerous phases of development” was insufficient. If anything, it

shows that the borrowers were heavily leveraged and that their cash flow to repay

this project would be endangered by the same market decline that could endanger

this project. Moreover, there was no meaningful analysis of the guarantors’


b. This loan had a very high 90% loan to value based on the stabilized

apartment value of $19.8 million.



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c. Only $100,000 of the $4.61 million of borrower equity was actual

cash paid by the borrower at closing. While $3.1 million was provided by a loan

from Mercury Credit Corporation, the CAM noted that this debt to Mercury would

be paid from “corporate cash flow,” meaning cash flow from the Terrapin Group’s

various projects other than Regal Pointe. The remaining $1.5 million in borrow

equity was to be contributed post loan closing via project cash flow from rental

income and from escrowing $15,000 from each condo unit closing.

d. The guarantors had combined guarantees of $34.2 million on other

construction loans. The CAM did not analyze how this could affect the

guarantors’ liquidity. If merely 0.2% of the contingent liabilities became due at or

close to loan origination, the guarantors would have been in violation of this loan’s

liquidity covenant.

e. The submarket where the property was located in Lake County had

22.23 months of supply.






following:



difficulty.







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the loans.




debt.












market.












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P. Count Based on Allegations Related to the Loan Made By HBD in the

Neumann Homes Borrower Relationship.

Count 37



Loan to Neumann Homes for the Borrowing Base)



436. Van Dellen, Shellem, and Koon approved a borrowing base loan to

Neumann Homes on March 17, 2006. The loan was extended and modified on May 18,

2006. This loan involved an additional advance of approximately $12.6 million on a

borrowing base secured by existing collateral to help Neumann Homes meet a reported

cash flow deficit triggered by, among other things, declining sales rates and Neumann

Homes’ then-recent acquisition of Tadian Homes (a Detroit home builder). This loan

was an advance of an additional $12,603,540 under an existing $100 million borrowing

base facility. The loan had a 150-day term. The losses on this loan are estimated to


437. The primary source of repayment of this loan was to be the sale of Neumann

Homes’ assets at two auctions. The secondary source of repayment of this loan was

stated to be support from collateral and guarantors. However, there was no personal

guarantee.



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438. In 2004, Neumann Homes acquired Tadian Homes in Detroit shortly after

which sales in the Detroit market deteriorated and Neumann Homes ran into liquidity

problems. This liquidity problem triggered a request in early 2006 for a $20 million

liquidity advance, which became the subject of this loan advance. This advance was

approved on March 17, 2006 in a rushed process that did not include a normal CAM

analysis. Although they were not members of the Junior Loan Committee at the time,

Camp and Rothman were familiar with the consideration of this loan and objected to it.

After discussions, only approximately $12.6 million was approved by Van Dellen,

Shellem, and Koon for the advance instead of the $20 million requested by the borrower.

439. After the original modification of March 17, 2006, the borrower conducted

auction sales. The borrower agreed to use those sales to repay the $12.6 million advance.

However, on May 12, 2006, the borrower applied to further extend the $12.6 million

advance and to release payments and collateral from various land sales at the auction.

The justification for this was that “due to the projected timing of various land sales and

the company’s projected cash flow requirements for May-July, Neumann is requesting

that the Bank allow Neumann to keep the proceeds from Huntley, Antioch, Mason and

Hanover Park sales and receive its repayment from the sale of the largest property,

Gilberts.” Neumann’s request was approved on May 18, 2006. HBD received nothing in

return for this concession.

440. On August 1, 2006, this loan was downgraded to Special Mention because

of the borrower’s continually deteriorating financial condition and its negative cash flow.

In addition, Neumann had failed to sell the assets it had hoped to sell to fund repayment

of the advance. Neumann Homes filed for bankruptcy on October 31, 2007.






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a. Neumann Homes provided superficial financial reporting which was

not closely examined by Van Dellen, Shellem or Koon to justify the request for

this liquidity advance. According to Rothman, then an HBD regional manager,

Neumann Homes’ financial statements were “so delayed and so thick with

nonsense that it was hard to really derive a good picture of what was going on in

the company until they ran into problems.”

b. The request for the funding to address liquidity problems was, in

credit officer Camp’s view, a “red flag.” He expressed this concern to Shellem and

Koon during the Junior Loan Committee meeting. According to Rothman,

Shellem shared the concern that Neumann Homes’ financial reporting was

inadequate. Camp also stated that Shellem thought this loan was a bad idea, but

that Koon pressed for this loan because of Neumann’s status as “one of HBD’s

best clients.”

c. Camp opposed the $12.6 million advance to Neumann Homes

indicating that IndyMac should not have been a source of liquidity for Neumann

Homes when Neumann Homes was clearly having problems with home sales in

Michigan, which was experiencing a significant downturn.

d. The Neumann Homes application was considered hastily without a

normal CAM analysis. The consideration process was characterized by Rothman

as a rush in a very short period of time – a “fire drill.”

e. Van Dellen, Shellem, and Koon approved the borrower's requested

liquidity line without obtaining a personal guarantee from Mr. Neumann. Van

Dellen, Shellem, and Koon knew Neumann Homes, Inc. was suffering from a

liquidity crunch, and if Mr. Neumann truly believed in his company's ability to

survive its decline, he should have executed a personal guarantee. If Mr. Neumann

refused to provide a personal guarantee, it would have signaled a substantial red

flag to Van Dellen, Shellem, and Koon regarding Neumann Homes, Inc.'s viability.



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f. The participant on the borrowing base loan, LaSalle Bank, refused to

fund its pro rata share of the additional advance. Van Dellen, Shellem, and Koon

disregarded this substantial warning relating to the wisdom of their decision to

approve the borrower's request.






following:



difficulty.

b. Causing or allowing a loan to be made in violation of applicable

laws, regulations, and/or HBD’s internal policies.




the loans.




debt.

f. Causing or allowing a loan to be made, extended, and/or renewed

with inadequate or problematic appraisals.





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Q. Counts Based on Allegations Related to the Loans Made By HBD in the

WL Homes, LLC Borrower Relationship.

Count 38


Koon Related to the Underwriting and Administration of a Loan to WL Homes,

LLC for the Country Club Highlands Project)



448. Van Dellen, Shellem, and Koon approved a loan to WL Homes, LLC for a

project known as Country Club Highlands. This loan was entered into on March 21,

2006. The loan involved the acquisition and development of 118 single-family-residence

lots in Westminster, Colorado, which is located in the northwestern part of the Denver

metropolitan area. Once the lots were completed, the borrower planned to start

construction of the 118 single-family residences to be financed by an IndyMac

construction revolver. The loan commitment totaled $13,200,000 and had a 24-month

term. Losses on this loan are estimated at nearly $2.1 million.




a. The appraiser noted that the residential market in the Denver/Boulder

area was soft due to overbuilding and poor job growth and that rising inventories

(31-month supply vs. healthy supply of 18 months) and interest rates raised serious

questions about future pricing.

b. The expected profit margin of 4.52% was well below the HBD policy

minimum of 10%, leaving the borrower little room to lower prices in a slowing

market.

c. No project cost review was performed, casting into serious doubt the



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accuracy of the reported loan-to-cost ratio.

d. The loan could not be paid off within the 24-month-loan term, which

itself was double the HBD policy maximum of 12 months, but instead was

projected to be paid off in month 56, a loan term nearly five times greater than the

policy maximum. It was virtually certain, then, that the extended term would lead

to eventual sales of the planned single-family residences at a time when home

prices were even more in decline than at the time of a loan maturity consistent with

HBD policy.

e. The appraised absorption rate was nearly triple the actual absorption

rate for similar projects in the area, meaning that the 56-month estimate for loan

payoff discussed above was substantially understated.

f. The borrower expected to set sales prices of the single family

residences in a range among the highest in the Denver area (and approximately

double the median home sales price), and a potential buyer would need to make a

30% down payment in order to meet debt service on a loan, creating a serious risk

that home sales would not be brisk enough to repay this loan even over an

extended loan term.






following:

a. Causing or allowing a loan to be made in violation of applicable laws,


b. Causing or allowing a loan to be made, extended, and/or renewed with




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c. Causing or allowing a loan to be made without taking proper and



d. Causing or allowing a loan to be made outside the normal and prudent




f. Causing or allowing a loan to be made, renewed or extended where















Count 39


Koon Related to the Underwriting and Administration of a Loan to WL Willow

Springs 346 Associates, LLC for the Oaks at Willow Springs Project)




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456. Van Dellen, Shellem, and Koon approved a loan to WL Willow Springs 346

Associates, LLC for a project known as Oaks at Willow Springs. This loan was entered

into on June 26, 2006. The loan involved the construction of 70 single-family residences

and 16 Duet units in the first phase of The Oaks at Willow Springs development in

Folsom, California, which is 23 miles northeast of Sacramento. The loan commitment

totaled $17,000,000 and had a 24-month term. Losses on this loan are approximately

$2.2 million.




a. The Sacramento real estate market had seen significant price

depreciation (21% according to one published report), and builders were offering

buyer incentives, indicating a rapidly slowing real estate market which would put

pressure on an already reduced profit margin.

b. The expected profit margin was below the HBD policy minimum of

10% due to a loss of revenue resulting from the sale of eight below-market units,

leaving the borrower little room to lower prices in a slowing market.

c. The reported loan-to-value ratio of 83%, only two percentage points

below the HBD policy maximum, was highly suspect because there was not a

defined product mix which the appraiser could rely upon to calculate an accurate

value.

d. No project cost review was performed as required by HBD policy,

casting into serious doubt the accuracy of the reported loan-to-cost ratio.

e. The borrower was a single-purpose entity, so guarantor financial

support was critical, yet full recourse payment guarantees were not obtained.




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following:



b. Causing or allowing a loan to be made where one or more of the


debt.

c. Causing or allowing a loan to be made, extended, and/or renewed with









market.










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Count 40


Rothman Related to the Underwriting and Administration of a Loan to WL Willow

Springs 346 Associates, LLC for the Oaks at Willow Springs Project)



464. Van Dellen, Shellem, and Rothman approved a loan to WL Willow Springs

346 Associates, LLC for a project known as Oaks at Willow Springs. This loan was

entered into on August 15, 2006. The loan involved the acquisition and development of

258 additional lots contained in the second phase of The Oaks at Willow Springs

development in Folsom, California, which is 23 miles northeast of Sacramento. A

portion of this loan was also used to refinance an existing A&D loan for the initial 86 lots

within Phase I of the development. Once the lots were completed, the borrower planned

to start construction of single-family residences. The loan commitment totaled just under

$34.8 million and had a 24-month term. Losses on this loan exceed $7.5 million.

465. Van Dellen, Shellem, and Rothman approved this loan despite substantial



a. The Sacramento real estate market had seen significant price

depreciation (21% according to one published report), and builders were offering

buyer incentives, indicating a rapidly slowing real estate market which would put



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pressure on an already reduced profit margin. Further, the borrower was already

pricing some of the single-family residences to be sold at below the appraised

value to respond to these market pressures.

b. The expected profit margin was below the HBD policy minimum of

10% due to high land costs, leaving the borrower little room to lower prices in a

slowing market.

c. The loan was approved based on a market analysis that admittedly did

not focus on the area immediately surrounding the project site.

d. No project cost review was performed as required by HBD policy,

casting into serious doubt the accuracy of the reported loan-to-cost ratio.

e. The project size of 344 lots was approximately triple the HBD policy

maximum of 125 lots, and development of such a large project in a slowing market

created a high risk of loan default due to a prolonged exposure resulting from a

lengthier absorption period.

f. The borrower was a single-purpose entity, so guarantor financial

support was critical, yet full recourse payment guarantees were not obtained.






following:



b. Causing or allowing a loan to be made where one or more of the


debt.



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c. Causing or allowing a loan to be made, extended, and/or renewed with









market.














all losses.



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R. Counts Based on Allegations Related to the Loans Made By HBD in the

Drake Development, LLC Borrower Relationship.

Count 41



Northpark 19, LLC for the Northpark Project)



472. Van Dellen, Shellem, and Koon approved a loan to Northpark 19, LLC for a

project known as Northpark. This loan was entered into on March 27, 2006, and

refinanced an existing HBD loan that provided financing for the acquisition,

development, and construction of 19-single-family units on approximately 5.3 acres in

the Inland Empire region of California. At the time of underwriting, the project was

roughly 19% complete. The loan had a 12-month term, and the commitment totaled

$7,190,000. The losses on this loan are estimated at $300,000.

473. The primary source of repayment of this loan was to be the sale of the units


financial support from Drake Development and the guarantor, Victor Zaccaglin

(“Zaccaglin”).

474. HBD’s original loan to this borrower was originated on February 25, 2005

and matured on February 16, 2006. That loan consisted of a $6.5 million commitment,

and had $2,296,143 outstanding at the time of renewal. The project incurred initial

delays associated with the processing and recordation of a final map, which took ten

months to obtain. The borrower also encountered some minor delays with the local

utility providers.

475. As of November 28, 2006, the borrower had defaulted on a number of loan

covenants including the sales start date, an absorption covenant, and a closing



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requirement. The account officer noted that there were project delays in getting the

homes started, the market had slowed, and a public builder, Richmond American, had

reduced prices and offered incentives on a nearby tract.

476. On March 30, 2007, a first letter agreement was executed that extended this

loan 30 days to allow for underwriting and closing of a 12-month extension.

477. On May 10, 2007, Van Dellen and Rothman approved a 12-month

extension. The modification also included a new re-margining provision. The total

months of supply in the project’s market area ballooned to 30 months. In addition, the

profit margin decreased to 5.15%. Zaccaglin’s FICO score also dropped substantially to

669. In addition, HBD agreed to release one of the guarantors, Curci Investments.

478. Due to continued slow sales performance, the borrower was unable to meet

the $3.6 million curtailments by September 30, 2007, but HBD issued waivers and

funded draws under a reservation of rights.

479. In October of 2007, HBD learned that Zaccaglin’s liquidity level was based

on stock shares that could not be easily liquidated. Thus, the borrower could not meet the

liquidity covenant.

480. In April of 2008, HBD rejected the borrower’s request for another budget

transfer to interest reserve, and the borrower quickly fell into interest default. On June 2,

2008, a notice of default was filed. On June 10, 2008, a guarantor suit was filed.

Account officer Koerber indicated that there was a FAS 114 impairment on this loan

totaling $3 million to $4 million as of spring 2008.




a. The CAM indicated a softening market. In particular, total new home

sales in the Inland Empire decreased 7.9% during the fourth quarter of 2005 from

the same period the prior year.



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b. The loan-to-value ratio was set at the policy maximum of 85%, and

the loan-to-cost ratio was set very close to the policy maximum of 90%. These

high advance rates provided far less insulation to the Bank in the event of a

downturn in real estate values. This was particularly risky given the weak

financial condition of the sponsorship.

c. Van Dellen, Shellem, and Koon structured this loan with a sales

covenant of three units per month starting April 1, 2006. Accordingly, the loan

went into technical default almost immediately after it was approved. Yet, HBD

failed to take heed of this warning, and did not move swiftly to protect its interests.

d. Van Dellen’s, Shellem’s and Koon’s decision to approve this loan

caused HBD to be in violation of its geographic concentration limit for San

Bernardino County. This evidenced overexposure to a single market area.

e. This loan had an overall credit risk rating of Pass 4, and was in a Pass

4 market. Van Dellen, Shellem, and Koon appear to have not given HBD’s risk

rating system any credence.

f. Zaccaglin had a large interest in Cal Prop Homebuilding, which had a

very poor financial condition. Cal Prop had been a publicly traded corporation that

went private because of its financial problems. In order to mitigate the risk

associated with Zaccaglin’s interest in Cal Prop, HBD simply eliminated Cal

Prop’s poor financials from consideration. But a Dun & Bradstreet report from

2005 for Cal Prop noted a moderate to high risk of severe delinquency over the

next six months. Van Dellen’s, Shellem’s and Koon’s decision to approve this

loan while having HBD “stick its head in the ground” and pretend that Zaccaglin’s

financial condition may not be impacted by Cal Prop was contrary to prudent

underwriting practices.

g. Van Dellen, Shellem, and Koon approved this loan without obtaining

a detailed analysis of the borrower’s and guarantor’s financial statements. There is



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no indication in the CAM as to contingent liabilities. Van Dellen’s, Shellem’s and

Koon’s decision to approve this loan “in the dark” was irresponsible.

h. The borrower and guarantor were permitted to provide only annual

financial statements. In addition, Van Dellen, Shellem, and Koon did not require a

minimum-tangible-net-worth covenant. This was unduly risky given the weak

financial support the sponsorship provided.








difficulty






the loans.



debt.







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market.


















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Count 42

(Claim for Negligence and Breach of Duty of Care Against Van Dellen, Koon, and

Shellem Related to the Underwriting, Administration, Extension and Modification

of a Loan to Drake Development, LLC for the Moreno Valley Ranchos Project)



488. Van Dellen, Shellem, and Koon approved a loan to Drake Development,

LLC for a project known as Moreno Valley Ranchos. This loan was entered into on June

9, 2006, and refinanced a construction loan provided by Comerica Bank. The Comerica

loan was expiring on June 22, 2006, and had a loan balance totaling $1,808,727. The

Comerica loan paid for site acquisition, engineering, architectural, and various fees. The

project consisted of 56 lots in Moreno Valley, California. The property’s gross land area

totaled just over 20 acres. The property had a tentative map approved, and a final map

was expected by September 1, 2006. HBD cross-collateralized the loan with the

Northpark 19 loan. This loan had an 18-month term, and the loan commitment totaled

$21,625,000. The losses on this loan are estimated at approximately $4,000,000.



financial support from Drake Development and the guarantor, Zaccaglin.

490. On May 4, 2007, HBD approved a 60-day waiver of the (1) final map date;

(2) sales starting date; and (3) closing date. The project was impacted by construction

delays. In addition, the builder lost one unit because it was needed for a permanent

retention.

491. On July 2, 2007, a loan modification memorandum was submitted. At that

time, the overall asset score dropped to Pass 4, and the market had degraded to Pass 5.

As of August 15, 2008, the unpaid loan balance was $4,824,456, and the property had an

“as-is” appraised value of $890,000.



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a. The loan-to-value ratio was set at the policy maximum of 85%, and

the loan-to-cost ratio was set very close to the policy maximum of 90%. These

high advance rates provided far less insulation to the Bank in the event of a

downturn in real estate values. This was particularly risky given the weak

financial condition of the sponsorship.

b. The CAM noted that a $4,000,000 participation was to be arranged

after the loan closed. Van Dellen’s, Shellem’s, and Koon’s decision to approve

this loan without making the participation a condition of closing was an

unnecessary risk. HBD was ultimately unable to sell a participation, which reflects

on the soundness of the credit.

c. Van Dellen, Koon, and Shellem agreed to refinance a loan provided

by Comerica. The borrower was experiencing project delays while Comerica was

the lender. Van Dellen, Koon, and Shellem also approved this loan despite the

borrower not yet having any project performance on the Northpark 19 project. It

was inherently risky for Van Dellen, Koon, and Shellem, particularly in June of

2006, to issue a second loan to a borrower in such short proximity in time. HBD’s

decision to rush into a second loan with the borrower substantially increased its

risk.

d. The credit review memorandum for this loan notes that the units were

a high price point for Riverside, which further increased risk.

e. Zaccaglin had a large interest in Cal Prop Homebuilding, which had a

very poor financial condition. Cal Prop had been a publicly traded corporation that

went private because of its financial problems. In order to mitigate the risk

associated with Zaccaglin’s interest in Cal Prop, HBD simply eliminated Cal



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Prop’s poor financials from consideration. But a Dun & Bradstreet report from

2005 for Cal Prop noted a moderate to high risk of severe delinquency over the

next six months. Van Dellen’s, Shellem’s, and Koon’s decision to approve this

loan while having HBD “stick its head in the ground” and pretend that Zaccaglin’s

financial condition may not be impacted by Cal Prop was contrary to prudent

underwriting practices.

f. Van Dellen, Shellem, and Koon approved this loan without

performing a detailed analysis of the borrower’s and guarantor’s financial

statements. There is no indication in the CAM as to contingent liabilities. HBD’s

decision to approve this loan “in the dark” was irresponsible.

g. The borrower and guarantor were permitted to provide only annual

financial statements. In addition, Van Dellen, Shellem, and Koon did not require a

minimum-tangible-net-worth covenant. This was risky given the weak financial

support they provided.






following:



difficulty.







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the loans.



debt.


reasonable steps to insure that the loan proceeds would be used in accordance

with the loan application and failing to control the disbursement of loan proceeds.


who were not creditworthy or were known to be in financial difficulty and

without any reduction in principal and without taking proper steps to obtain

security or otherwise protect the Bank’s interests.





market.













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S. Count Based on Allegations Related to the Loan Made By HBD in the

Villa Development, LLC Borrower Relationship.

Count 43


Koon Related to the Underwriting and Administration of a Loan to LB/L Villa

Racquet Club, LLC for the Racquet Club Villas Project)



499. Van Dellen, Shellem, and Koon approved a loan to LB/L Villa Racquet

Club, LLC for a project known as Racquet Club Villas. This loan was entered into on

June 8, 2006. The loan involved the acquisition, development and new construction of

38 luxury townhomes in Thousand Oaks, California by LB/L Villa Racquet Club, LLC.

The borrower was indirectly managed and controlled by Villa Development, LLC and its

principal, Mark Ross. The loan commitment exceeded $19 million and had an 18-month

term. Losses on this loan exceed $2.3 million.




a. Significantly slowing sales of homes in California (e.g. nearly 25%

drop in sales activity year over year).

b. Cash equity from the borrower was only 3.48%, well below the HBD

policy minimum of 10%, and this risk was compounded by a lack of evidence of



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any exceptionally strong market demand for the project.

c. The loan-to-cost ratio of 97% exceeded the HBD policy maximum of

90%, resulting in greater risk that increased costs and slower sales could lead to

borrower default.

d. The borrower’s creditworthiness, financial strength and liquidity were

very weak as measured by HBD’s credit scoring system, so guarantor financial

support was especially critical. Yet, the guarantors’ liquidity and financial strength

were also minimal and weak.

e. The principal guarantor’s debt-to-worth ratio as initially computed by

HBD was nearly five times lower than the correct ratio because it relied on

incomplete (and arguably false) personal financial statements which excluded $2.9

million of real estate debt appearing on the guarantor’s credit report. Further, HBD

appears to have disregarded the guarantor’s potential contingent liabilities of $100

million relating to projects in New Mexico.

f. Although IndyMac had a right to draw on a $1,250,000 re-margining

agreement due to events of default under the loan agreement, IndyMac never

exercised those rights. With the project stalled and no viable guarantor, it was

critical that this source of repayment be accessed.






following:



difficulty.



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the loans.



debt.





















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T. Counts Based on Allegations Related to the Loans Made By HBD in the

Lafferty Homes, Inc. Borrower Relationship.

Count 44



Loan to Lafferty Visalia I, LLC for the Ashley Grove Unit 13 Project)



507. Van Dellen, Shellem, and Koon approved a loan to Lafferty Visalia I, LLC

for a project known as Ashley Grove Unit 13. This loan was entered into on June 26,

2006, and financed the acquisition of land anticipated to lead to the development of 118

single-family residences. While this loan was characterized in the CAM as an A&D loan

that “will be paid off from a construction loan for production units provided by IndyMac

Bank,” the CAM contained none of the detailed construction budget information that

would be necessary for a construction loan. This loan had a 24-month term, and the loan

commitment totaled $10,613,000. The losses on this loan are estimated to exceed $3.8

million.


from IndyMac. The secondary source of repayment of this loan was stated to be the

financial capacity of the guarantors and borrower. Richard S. Lafferty (“Lafferty”), the

principal of Lafferty Homes, Inc. provided a full recourse guarantee as did Lafferty

Homes, Inc.

509. The borrower ultimately never obtained construction financing and the loan

lapsed into foreclosure.






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a. This loan involved a Pass 5 market and an overall credit score of Pass

4. Thus, this loan should not have been approved under HBD’s underwriting

policies.

b. The project had a profit margin of only 3.06%, which left the

borrower little room to lower prices in an already deteriorating market.

c. This loan’s term was 24 months versus a 12-month-policy limit for

A&D loans. This lengthy term was particularly risky in a declining market.

d. The CAM indicated that it would require 27.15 months to sell the

units for the project. This, combined with the term of the A&D loan, made this

loan very speculative. Nonetheless, the primary source of repayment on this loan

was an anticipated construction loan from IndyMac. But this loan was not

underwritten as a construction loan, and information on the viability of

construction and subsequent sellout was simply not considered during the

underwriting of this loan.

e. No senior manager site visit was performed as required by policy for

loans that exceeded $10 million. This was especially risky because both the

borrower and the market were new for IndyMac.

f. HBD approved this loan despite knowing that the market was an

inferior market with absorption slowing and total months of supply in the project’s

submarket at 31.69 months.

g. Lafferty Homes was overextended as it had 15 active projects at the

time of the Lafferty Visalia and Lafferty Sanger applications.

h. Credit officer Krcmarik suggested adding a net worth covenant of $5

million for the borrower and guarantors on the Lafferty Visalia loan and also

suggested obtaining more complete financial information. Krcmarik noted on his

credit review memo that neither of these items were done. Krcmarik did not know

why there was no minimum-tangible-net-worth covenant and he would have



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expected one. Similarly, Rothman was surprised that there was no net-worth

covenant.

i. HBD exacerbated the risk of the borrower’s condition by requiring

only annual financial statements instead of quarterly statements.

j. The CAM presented significant data related to slowing market

absorption; this weakness was supposedly mitigated by the statement that the

Fresno/Visalia regional housing market had enjoyed a strong price appreciation

and record breaking home starts over the last several years. Krcmarik stated that

no reasonable person would conclude that prior market performance mitigated the

market decline.

k. The finished average housing prices for the project was estimated to

be to be $458,686. Homes in Visalia were selling at only $189,400 in 2005.

Visalia is a 41-mile drive from Fresno.

l. Lafferty’s personal financial statement did not provide information

about his contingent liabilities. Krcmarik stated that he would have expected to

see that information. Van Dellen, Koon, and Shellem did not appear to have

considered the guarantor’s contingent liabilities before approving this loan.

m. Van Dellen, Koon, and Shellem approved this loan with high loan-to-

value and loan-to-cost ratios, which further increased risk.






following:





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difficulty.






the loans.



debt.














market.






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Count 45



of a Loan to Lafferty Sanger I, LLC for the Olive Glen Project)



517. Van Dellen, Shellem, and Rothman approved a loan to Lafferty Sanger I,

LLC for a project known as Olive Glen. This loan was entered into on October 10, 2006,

and was described as a “land loan” that would “be paid off from a construction loan for

production units provided by IndyMac Bank.” However, the Lafferty Sanger CAM does

not contain the detailed construction information necessary for an AD&C loan. The

project was generally located in the Fresno market, but Lafferty Sanger was described as

“a small rural community that is located on the outskirts of the city of Fresno” and where

the majority of the residents are involved in agriculture. This loan had a 6-month term,

and the loan commitment totaled $5,953,000. The losses on this loan are estimated to



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from IndyMac. The secondary source of repayment of this loan was stated to be the

financial capacity of the guarantors and borrower. Lafferty provided a full recourse

guarantee as did Lafferty Homes, Inc.

519. A neighboring project financed by Central Pacific Bank resulted in Lafferty

Sanger getting a construction loan on that project for four models and 11 production

units. However, IndyMac’s portion of the project did not obtain construction financing

and was ultimately foreclosed.




a. This loan involved a Pass 5 market and an overall credit score of Pass

5. Thus, this loan should not have been made under HBD’s underwriting policies.

b. This project was a new market for IndyMac and was only the second

HBD loan for Lafferty.

c. This loan brought more competition and more units into the same

overall market as the earlier Lafferty Visalia loan. Moreover, Lafferty had other

projects with other lenders in the same market. Lafferty was highly exposed to a

single market.

d. The CAM for this loan described the market as having price declines

and slowing market absorption, with the relevant submarket having two years

worth of supply.

e. Rothman noted that one of the weaknesses of this loan was that

IndyMac was refinancing a Pomona First Federal loan.

f. Rothman did not visit the property until after this loan was approved.

After his visit, he described the property as not being in an infill market but rather



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as being on the outskirts of Visalia. The CAM described the market as a small

community three miles south of Fresno, but it is actually 14 miles away. The

average finished housing prices for the project was to be $327,500. Notably,

Homes in Sanger were selling for only $170,500 in 2006.

g. The CAM did not show a senior management visit to the site of the

project before this loan was made as required by HBD policy. Rothman admitted

that after he visited the project subsequent to loan approval, he learned that there

was a lot more work to be done on the lots than they had been led to believe in the

loan committee. He called it “rural and remote.”

h. Lafferty’s personal financial statement did not provide information

about his contingent liabilities.

i. The project had a profit margin of only 9.17%, which potentially left

little room to lower prices in an already deteriorating market.

j. This loan was made as a land loan but the source of repayment was

anticipated to be a construction loan by IndyMac.

k. As a member of the Junior Loan Committee on this loan, Rothman

acknowledged that information was available to the committee showing that the

cash and cash equivalents position of the borrower had dropped from $11.1 million

when Lafferty Visalia was approved, to $7.7 million when Lafferty Sanger was

approved eight months later. Van Dellen, Shellem, and Rothman apparently did

not consider or question this decline.

l. There was no minimum-tangible-net-worth covenant and no quarterly

financial reporting requirement for this loan. This was true despite the fact that the

credit officer recommended a net-worth and leverage covenant to Van Dellen,

Shellem, and Rothman.





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following:



difficulty.






the loans.



debt.














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market.



522. Van Dellen, Shellem, and Rothman as officers, owed IndyMac the













all losses.

U. Count Based on Allegations Related to the Loan Made By HBD in the

Pacer Communities, Inc. Borrower Relationship.

Count 46


Koon Related to the Underwriting and Administration of a Loan to LB/L Pacer

College Park PA 2, LLC for the College Park Project)





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527. Van Dellen, Shellem, and Koon approved a loan to LB/L Pacer College Park

PA 2, LLC for a project known as College Park. This loan was entered into on June 27,

2006. The loan involved the acquisition, development, and construction of 70 detached

condominium units and 68 finished lots in the College Park master plan community in

Chino, California. The borrower was indirectly managed and controlled by Pacer

Communities, Inc. and its principal, Randy Poag, each of whom were also guarantors of

this loan. The loan commitment was $31,685,000 and had a 24-month term. Losses on

this loan are nearly $3.6 million.




a. The profit margin was only 3.96%, well below the HBD policy

minimum of 10%, potentially leaving the borrower with little room to lower prices

in a slowing market.

b. Significant and intense competition existed from public builders in the

subject master plan, potentially further eroding the already low profit margin.

c. The borrower was a single-purpose entity, so guarantor financial

support was critical. Yet one of the two principal guarantors had minimal liquidity

to provide secondary financial support for repayment of the loan.

d. The guarantors’ assets could only partly satisfy repayment of this

loan.






following:



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difficulty.



c. Causing or allowing a loan to be made where one or more of the


debt.





















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V. Count Based on Allegations Related to the Loan Made By HBD in the

Adams Homes Borrower Relationship.

Count 47



Adams Homes of Northwest Florida and Adams Homes LLC for a Borrowing Base)



535. Van Dellen, Shellem, and Koon approved a loan to Adams Homes of

Northwest Florida and Adams Homes LLC on July 17, 2006. This loan was a renewal of

a $60,000,000 borrowing base facility to Adams Homes for the construction of entry-

level homes in Florida, Alabama, and the southern portion of Mississippi. The majority

of the lot takedowns would be speculative, but the acquisition of finished lots was capped

at $20 million. Speculative homes were limited to 15 per subdivision and 75 in total.

This loan had a 12-month term. The losses on this loan are estimated to exceed $12.8

million, or $9.6 million net of the participation.

536. The primary source of repayment of this loan was to be the sales of

completed homes to end buyers. The secondary source of repayment of this loan was

stated to be the cash flow and liquidity of the borrower.

537. IndyMac had a prior relationship with Adams Homes consisting of a $30

million borrowing base that was repaid in full when HBD curtailed its lending operations

in the Florida region in 2000-2001. HBD reestablished a relationship with Adams Homes

when it approved a $60,000,000 borrowing base on June 3, 2005. On July 17, 2006, Van

Dellen, Shellem, and Koon approved a renewal of the $60,000,000 borrowing base loan.

Dan Rutherford (“Rutherford) was the account officer for the relationship as of this

renewal.

538. On September 5, 2007, Rutherford submitted a new CAM to renew and



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modify the $60,000,000 borrowing base. The borrower was seeking a 12-month renewal.

A $15,000,000 participation was contemplated by the proposed renewal. The CAM

noted that recent disruptions in the credit markets could have an effect on Adams Homes’

ability to operate in the future because Adams Homes emphasized entry-level housing

where borrowers may have difficulty obtaining or qualifying for mortgage financing. At

this time, the borrower’s outstanding debt with other lenders increased from $226 million

in 2006 to $348 million. The CAM noted that Adams Homes was not immune to the

market slowdowns, as they had 2,000 sales fall out in 2006. Despite market slowdowns,

Adams Homes continued to acquire lots and held in excess of a two-year supply. The

combined credit rating dropped to a Pass 4, and the market scored only 5.00 points,

which translated to a Pass 5 classification.

539. On September 13, 2007, Van Dellen and Shellem approved the renewal.

The loan proceeded to the Senior Loan Committee on September 21, 2007, where it was

not approved.

540. On December 26, 2007, a 45-day extension was approved in order to

develop a plan to liquidate the credit line in an orderly fashion. At that time, $39,771,989

was outstanding. HBD noted that the borrower’s cash on its balance sheet dated

September 30, 2007, was insufficient to repay the outstanding balance. The workout plan

was to extend the line of credit by nine months with a $5 million principal repayment by

March 1, 2008; $25 million was due June 30, 2008, and monthly payments of $5 million

were due thereafter. On January 22, 2008, a nine-month extension was approved by Van

Dellen and Rothman in accordance with the workout plan.

541. On June 23, 2008, HBD reported an unpaid balance totaling $18,301,491.

On July 11, 2008, the unpaid balance was reduced to $17,952,875.

542. On March 31, 2009, the FDIC sold the note to LNV Corporation for

$2,085,006.59. The FDIC loan balance was reported to be $14,892,904.19.




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a. The 2006 CAM noted that several of the markets where Adams

Homes was active had experienced slowdowns in sales as interest rates had risen

and investors had dropped out of the market. 75% of Adams Homes’ business was

in Florida markets, which collectively averaged 17.5 months of supply. HBD rated

the market as a Pass 4. The CAM noted that 2006 was expected to show a decline

in the level of sales and backlog. Up to $20 million or one third of the facility

could be used for lot acquisition in markets that had experienced tremendous

growth.

b. Adams Homes had to maintain a large supply of lots in order to

maintain its pace of operations. Thus, there was a danger that cash flow could be

negatively impacted by the holding costs if the pace of sales slowed. There was no

cash equity contributed by the borrower.

c. The size of this loan exposed HBD to far greater risk, and would

render it difficult for the borrower to close out the loan in the event HBD decided

to not renew the loan. This exposed HBD to substantial risk in the event the non-

renewal was due to deteriorating market conditions.








difficulty.




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the loans.



debt.














market.



market.





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W. Count Based on Allegations Related to the Loan Made By HBD in the

Maisel Presley Borrower Relationship.

Count 48



of a Loan to 26th 305 & D 2420, LLC for the National City Condos Project)



550. Van Dellen, Shellem, and Rothman approved a loan to 26th 305 & D 2420,

LLC for a project known as National City Condos (also known as City Grove). This loan

was entered into on August 16, 2006, and refinanced an existing HBD loan for the

acquisition and conversion of a 72-unit-apartment project into for-sale condominiums

located in National City, California. The project was 15% complete at the time of

renewal. The project itself was made up of two buildings, with one building containing

48 one-bedroom units, and the other building containing 24 two-bedroom units. This

loan had an 18-month term, and the loan commitment totaled $13,145,000. The losses on



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this loan are estimated to exceed $5.6 million.


in the project. The CAM noted that the borrower and guarantors were unlikely sources to

repay the loan due to the sluggish market and their high leverage and low liquidity. Thus,

foreclosure and sale of the collateral and collection of any shortfall from the guarantors

were identified as “possible” sources of repayment.

552. In August 2005, HBD approved the original loan to the borrowers with a

loan commitment totaling $12,477,000. Account officer Terwilliger believed this was a

“semi-good” loan at the time it was made.

553. On March 24, 2006, vandals apparently entered the 24-unit building with the

intent to steal copper wire. This apparently caused a short in the electrical system that

resulted in a fire. An insurance company paid nearly $480,000 for the resulting damages,

which the borrower believed was more than the actual cost to restore the building to its

pre-fire state.

554. On August 18, 2006, HBD approved the subject 18-month renewal loan. On

October 13, 2006, Terwilliger met with the borrower and learned that the borrower had

severe cash flow problems over the past year due to the lack of available loan funds to

cover overhead on their condominium projects. It was subsequently discovered that the

borrower’s last draw from HBD totaling $276,017 was not used to pay for work on the

project, but instead was used for the borrower’s overhead.

555. On October 25, 2006, HBD sent a notice of default and reservation of rights

letter to the borrower. On November 14, 2006, Van Dellen, Shellem, and Rothman

approved the continuation of funding for 60 days via the reservation of rights letter sent

on October 25, 2006.

556. On January 12, 2007, a notice of default was filed. On February 17, 2007,

sales opened on the first building. As of March 15, 2007, the outstanding balance was

$11,348,163 with $1,796,836.55 not yet disbursed, the interest reserve was depleted, and



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$32,204.32 in interest was due on March 20, 2007. The first building was approximately

88% completed and the second building was approximately 20% completed. As of May

31, 2008, there were only eight closings, and one sale in escrow.

557. On June 19, 2008, HBD executed an agreement to sell its note to Floit

Properties, Inc. for $5,750,000. At that time, the unpaid balance was $11,376,818, which

resulted in a loss of $5,626,818. Terwilliger stated that the note sale under the

circumstances was the best possible result for the Bank.




a. Van Dellen, Shellem, and Rothman approved this loan despite the

CAM describing a dramatic slowdown in the San Diego condominium market

since late summer 2005. The absorption rate dropped from a high of 10 to 20 units

per month to 1 to 5 units. This was attributed to rising supply of condominium

units, slowing sales, rising interest rates, rising prices affecting affordability, and

other events. Van Dellen’s, Shellem’s, and Rothman’s decision to renew this loan

at an increased commitment level in the face of obvious market softening was

irresponsible.

b. The original appraisal report for this project estimated an absorption

rate of six sales per month. An updated appraisal projected only two sales per

month. The CAM noted that the San Diego market had 19.3 months of supply as

of the first quarter of 2006 due to slowing sales and rising inventory. In addition,

the San Diego resale market had approximately 21,000 units listed versus

approximately 6,600 units two years earlier. This was further evidence of a

declining market that Van Dellen, Shellem, and Rothman should not have ignored.

The market value of the collateral property “as-is” declined $430,000 from June



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30, 2005 to August 3, 2005. Thus, HBD’s collateral value was deteriorating at the

time it approved the renewal.

c. The 112-unit project had a market value “as-is” condominiums of

$21,840,000 versus a purchase price of $21,800,000. In addition, the market value

as a post-renovation apartment building was $19,100,000. Under an income

approach, the project had a value of $15,626,180. These figures indicated that any

softening in the real estate market would render the purchase price higher than the

property’s value under any analysis. In addition, the DCR as an apartment was

well below 1.0. In fact, the project had a DCR of only 0.57:1.00 versus a policy

requirement of 1 to 1. There was no mitigant provided for this policy exception.

These factors naturally presented substantial risks to HBD if the builder was

unable to complete the conversion.

d. Despite an appraisal setting forth an absorption rate of two units per

month, the borrower believed it could average four to five units per month based

on the nearby comparables and their sales prices. Thus, the borrower believed it

could sell the units and repay this loan within 18 months. Van Dellen’s, Shellem’s,

and Rothman’s decision to follow the borrower’s projections and utilize a 4-unit-

per-month-absorption rate was particularly risky given the market trends, and it

created a situation where this loan was not likely to be repaid during the 18-month

term. Van Dellen, Shellem, and Rothman attempted to protect against slowing

absorption by imposing a release rate of net proceeds or 133% of par, whichever

was higher. If the net proceeds were less than 133%, the borrower would need to

make up the difference out of pocket. This strategy appeared risky given the

borrower’s rapidly deteriorating financial condition. In addition, the borrower’s

liquidity crisis would be exacerbated by its inability to derive cash flow from the

sale of units from this project.



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e. The initial loan advance at closing of the renewal (outstanding

$8,862,542) was higher than the market value “as-is” apartments of $8,600,000,

and the projected market value post conversion stabilized for rental property of

$7,200,000. This was a policy exception for which no meaningful mitigant was

provided.

f. The project had a profit margin of 8.97% versus a 10% policy

requirement.

g. The interest reserve was not fully packed. HBD’s policy required

fully packed interest with a 2% rate shock. The mitigant states that this loan had

enough interest up to January of 2007, at which time interest reserve would be

funded out of unit closings. This, of course, presumed there would be unit closings

in January. In fact, the CAM noted that it may take up to nine months to get

approval permits for the 24-unit building. Thus, Van Dellen, Shellem, and

Rothman appear to have taken a gamble given the borrower’s poor past

performance on this project.

h. The CAM noted that the financial strength of the borrower and

guarantors declined significantly over the prior six months. This was attributed to

a number of factors, including a slow down in the San Diego condominium market

resulting in decreased profits. This trend was troubling, as the borrower

maintained a portfolio of 25 condominium projects totaling 1,550 units, of which

1,042 were unsold or unreleased. Due to a slow down in sales leading to a high

level of standing inventory, construction delays, and other issues, the aggregate

interest reserve for the 25 projects was just over $1 million. Thus, the borrower

was paying interest for some of its projects out of pocket, or repacking interest

reserve. Thus, it was questionable whether the borrower had the financial capacity

to complete the project being financed by HBD.



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i. The borrower was only able to contribute approximately $200,000 in

cash equity to the renewal due to its high leverage, limited liquidity, and the need

to “repack” the depleting interest reserves and/or pay interest out of pocket for its

other projects.

j. The CAM noted that the sponsors had total contingent liabilities of

$275.8 million, debt to worth of 8.0 to 1.0, and liquidity to debt of 0.01 to 1.00.

Thus, Van Dellen, Shellem, and Rothman approved this loan without a secondary

source of repayment. The CAM stated that the borrowers and guarantors were

unlikely sources to repay this loan due to the sluggish market and their high

leverage and low liquidity. The best that HBD could hope for was that foreclosure

and sale of the collateral and collection of any shortfall from the guarantors were

“possible” sources of repayment. Van Dellen, Shellem, and Rothman irresponsibly

placed all of HBD’s prospects for repayment in the sale of units in a sluggish

market.

k. Maisel had an average FICO score of 650, and Presley had an average

FICO score of 645, below the minimum score set by HBD policy.

l. The project scored a Pass 5 on the combined credit risk rating, and yet

was approved by Van Dellen, Shellem, and Rothman.






following:



difficulty.



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the loans.




debt.












market.



market.





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all losses.

X. Count Based on Allegations Related to the Loan Made By HBD in the

Integral Partners Borrower Relationship.

Count 49


Rothman Related to the Underwriting, Administration and Renewal of a Loan to

Integral Communities I for the MacArthur Place Project)



565. Van Dellen, Shellem, and Rothman approved a loan to Integral

Communities I for a project known as MacArthur Place. This loan was entered into on

August 29, 2006 and later renewed by Van Dellen and Rothman on March 7, 2008. The

loan involved the extension of financing initially provided to the borrower in August

2005 to acquire and develop a four-acre site in Santa Ana, California, to be cleared and



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entitled for 276 condominium units located throughout a series of five-story buildings.

The original loan commitment was $17,930,000 and had an 18-month term, and the

renewal slightly reduced the loan commitment to $17,200,000 with a new, 12-month

term. Losses on this loan total nearly $4 million.

566. Van Dellen, Shellem, and Rothman approved and/or renewed this loan

despite substantial known risks and/or risks that should have been known in the exercise

of due diligence, including, but not limited to, the following:

a. Development of 276 units exceeded the HBD policy maximum of 125

units.

b. The borrower had no intention of building the 276 condominium units

and instead intended to repay the loan by selling the entitled four-acre site to a

builder, in contravention of HBD policy requiring a construction loan subsequent

to the subject acquisition and development loan.

c. Even during a time when the overall real estate market was thriving,

two previous borrower attempts to sell the project site had already failed.

d. The loan-to-cost ratio of 86% exceeded the HBD policy maximum of

75%.

e. The loan term of 18 months was longer than the first 12-month term

covering the initial financing, evidencing a slower-developing project with a

greater risk of additional delay.

f. At the time of loan renewal in March 2008, the profit margin was

projected to be negative 13.91%, in contravention of HBD policy requiring a

minimum of a 10% profit margin. This was particularly troubling given that by

Spring 2008, the real estate market was significantly weak.

g. The borrower was a single-purpose entity, so guarantor financial

support was critical. Yet the guarantees were only full payment guarantees upon

the occurrence of certain conditions subsequent. Further, some of the reported



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financial information for one of the two guarantors was not clearly documented,

and this guarantor’s exact cash position was unknown. Finally, although HBD

policy required a liquidity analysis less than 90 days before loan approval, such an

analysis was not performed within this timeframe for the guarantor.






following:



difficulty.






the loans.



debt.








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all losses.



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Y. Count Based on Allegations Related to the Loan Made By HBD in the

Private Island Homes, LLC Borrower Relationship.

Count 50



Loan to Private Island Homes Cottonwood Creek, LLC for the Cotton Wood Creek

Estates Project)



573. Van Dellen, Shellem, and Koon approved a loan to Private Island Homes

Cottonwood Creek, LLC for a project known as Cottonwood Creek Estates. This loan

was entered into on September 5, 2006, and provided financing for the acquisition,

development, and construction of 77 single-family-detached homes and one custom lot in

the City of Vacaville, California. This loan had an 24-month term, and the loan

commitment totaled $53,912,691. The losses on this loan are estimated at $9 million.


in the project. The secondary source of repayment was identified as the borrower and

guarantor, Vincent Rover (“Rover”), who provided full recourse guarantees .

575. The project consisted of two parcels that were less than a quarter mile apart.

The two parcels were named Knoll Creek and Rancho Rogelio. The borrower planned to

construct 38-single-family lots on Knoll Creek, which consisted of 22.66 acres. An

additional 40 lots would be developed on Rancho Rogelio, which consisted of 20.93

acres. Knoll Creek was subject to a Williams Act contract, which greatly minimized

property taxes in exchange for prohibition against any use apart from an agricultural use.

A notice of non-renewal typically required nine years to cancel the contract, but the

borrower was seeking an early cancellation, which would have resulted in increased tax

liability to be paid at the time a final map was approved by the City Council. Rancho



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Rogelio was also agriculturally zoned.

576. In April of 2005, the borrower submitted an application for (1) rezoning the

property to RE-10 to accommodate 40 lots; (2) planned development; (3) early

cancellation of the Williams Act contract; and (4) a tentative tract map. On June 6, 2006,

the planning commission recommended approval of the applications relating to

environmental, zoning, and development. The City Council was to hear and act upon the

applications on June 27, 2006. The CAM identified a number of additional pending

project approvals, including Regional Water Quality Control Board certification,

improvement plans, grading plans, final map, request for planned growth allocations, and

development of architectural plans. HBD projected that the build out of the project

would occur within the two-year-loan term.

577. On January 26, 2007, HBD approved a request to move (1) the construction

start date from January 14, 2007 to May 14, 2007; (2) the sales start date from March 14,

2007 to July 14, 2007; (3) the final map date from March 14, 2007 to July 14, 2007; and

(4) the closing start date from September 14, 2007 to January 14, 2008. This was

necessitated by delays in the approval of improvement plans and the final tract map. The

account officer noted a cumbersome approval process with the City of Vacaville, which

would not issue any more than 300 building permits per year.

578. On August 13, 2007, credit officer Krcmarik approved a 90-day waiver of

the sales start date of July 14, 2007. The account officer again noted that the project had

been delayed due to difficulties obtaining development approval from the City of

Vacaville.

579. On October 8, 2007, the account officer requested that all disbursements on

this loan be stopped until further notice. He again pointed to the delay in the start of

construction. On October 17, 2007, HBD discovered that the borrower and guarantors

failed to satisfy the $1 million liquidity covenant. As of October 1, 2007, the projected

market value upon completed construction had dropped to under $53 million. Thus, the



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collateral value was roughly equal to the commitment amount. The “as-is” value was just

over $8 million. The unpaid balance at that point exceeded $10.1 million.

580. A notice of default was filed during the week of April 7, 2008, and a

guarantor suit was initiated the same week. As of March 25, 2008, the “as-is” value of

the property had dropped to $2.92 million.


loan despite substantial known risks and/or risks that should have been known in the


a. Van Dellen, Shellem, and Koon approved this loan without having

sufficient due diligence to understand the City of Vacaville’s entitlement process.

Six months after the CAM was submitted, the account officer discovered that the

City of Vacaville only issued 300 building permits per year. This information

would have shed substantial light on whether it was realistic to expect this loan to

payoff within its two-year term.

b. HBD projected that the build out of the project would occur within the

two-year-loan term. While the CAM suggested that this loan would be repaid with

the sale of the 67th home, and that the 67th home was projected to sell in the 24th

month, that conclusion was overly ambitious. The appraiser noted that the units

would sell at a rate of 4 per month. Thus, it would take 17 months to sell 67

homes. This left only seven months to clear substantial development hurdles,

including obtaining a final map on Knoll Creek and a tentative map and final map

on Rancho Rogelio. Thus, Van Dellen, Koon, and Shellem appear to have

contemplated extending this loan irrespective of any potential development delays.

The added time associated with completing this project would likely have extended

it to at least 2009, which increased the risks associated with a downturn in the

market. Moreover, Van Dellen, Shellem, and Koon approved this loan as an

AD&C loan despite the fact that Rancho Rogelio was not yet tentatively mapped,



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which was a violation of HBD policy. HBD believed a tentative map would be

approved within three weeks. It appears Van Dellen, Shellem, and Koon took an

unnecessary risk to approve this loan instead of waiting the three weeks for

tentative map approval.

c. The CAM noted that sales had slowed in most projects from 7-15

units per month to 3-11 units per month. In addition, the CAM noted 23.50

months of supply in the project’s submarket, and 36.17 months of supply at the

project’s price point and submarket. Thus, the market was clearly trending

downward, and should have caused Van Dellen, Koon, and Shellem to be very

cautious before approving a loan that would likely require more than two years to

repay.

d. The CAM noted that a Phase I Environmental Site Assessment

revealed a copper arsenate spill on Rancho Rogelio. This spill was noted to have

resulted in surface staining only, but there was no indication as to what the

remediation would involve. The environmental clean up ultimately cost at least

$300,000. Van Dellen, Koon, and Shellem appear to have approved this loan

without requiring sufficient due diligence relative to the magnitude of the

contamination.

e. The loan-to-cost ratio for this loan was 90%. HBD’s policy required a

maximum loan-to-cost ratio of 85% when the average price exceeded 125% of the

comparable market average (“CMA”). There was no mitigant for this policy

exception, and thus nothing to adequately address the increased risk.

f. Van Dellen, Koon, and Shellem permitted the borrower to utilize

$4,843,000 in appraised equity despite having controlled (not owned) Knoll Creek

for only 13 1/2 months, and despite having owned Rancho Rogelio for 20 months.

HBD credit policy required two years control and three years ownership. The

remaining equity consisted of cash totaling $1,147,000, of which a substantial



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portion was financed by a subordinated equity partner who would record a second

trust deed. Thus, Van Dellen, Koon, and Shellem approved a loan to a borrower

that was highly leveraged, and engaging in virtually 100% financing. This created

a more speculative development, and was particularly risky where the development

hurdles were substantial.

g. The borrower was not required to provide quarterly or annual

financial statements. The guarantor was permitted to provide only annual financial

statements.




imprudent, and harmful to IndyMac. The negligence and breaches of duty by Defendants

in regard to this loan include, but are not limited to, the following:



difficulty.






the loans.



debt.





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market.



market.

















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Z. Counts Based on Allegations Related to the Loans Made By HBD in the

MWH Development Corp. Borrower Relationship.

Count 51



of a Loan to Dickerson Manor, LLC for the Dickerson Manor Project)



588. Van Dellen, Shellem, and Rothman approved a loan to Dickerson Manor,

LLC for a project known as Dickerson Manor. This loan was entered into on September

22, 2006, and provided financing for the construction of a 20-unit-condominium project

in Toluca Lake, California. The site consisted of four parcels that were construction

ready. The project involved a single phase of construction. The borrower anticipated

beginning construction by mid-August 2006 with a final map recordation date of

September 15, 2006. Construction was projected to be completed by December 30, 2007.

This loan had an 18-month term, and the loan commitment totaled $8,700,000. The

losses on this loan are estimated to exceed $1 million.


in the project. The secondary source of repayment was identified as the borrower and

guarantors Mark Handel (“Handel”), Scott Adler (“Adler”), and the Handel Family Trust.

590. In February 2008, the borrower advised HBD that the company’s financial

condition had deteriorated significantly, and that several of its projects were in various

stages of foreclosure with other lenders. The borrower did not have the ability to re-

margin any of its three existing HBD loans.

591. On May 15, 2008, a loan modification was approved that authorized HBD to

execute a forbearance agreement that would expire on June 30, 2009. In addition, a



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quarterly curtailment schedule of $2,175,000 per quarter was established, and HBD was

to collect net sales proceeds from unit closings with a minimum release price of 115% of

par. The loan modification application noted that this loan had matured and HBD had not

been able to observe project performance. In addition, this loan was on non-accrual and

the borrower was unable to financially support this loan. Finally, the market was noted to

have slowed. The outstanding principal at that time totaled $7,639,704.

592. On October 31, 2008, a Notice of Default was recorded. On December 16,

2008, HBD noted that past due interest totaled $560,378.93. At that time, seven units had

closed, and 13 unit remained. The unpaid principal balance totaled $5,230,091 versus a

value of $5,837,000, and a disposition value of $4,669,600. On December 30, 2008,

HBD noted an as-is value of $4,900,000 versus an unpaid balance of $5,230,091. On

February 23, 2009, HBD noted that three more units were about to close, which would

leave eight units. At that time, the “as-is” value was $4,164,154, the disposition value

was $3,706,154, and the unpaid balance was $4,380,197.23. The unpaid interest totaled

$869,228.92.




a. Van Dellen, Shellem and Rothman approved this loan despite the fact

that the borrower provided no cash equity for the project, and instead relied upon a

mezzanine lender to provide 100% of the equity. Thus, the borrower was

permitted to engage in a speculative 100% financed transaction, which increased

risk to HBD.

b. This loan contained a combined minimum liquidity covenant of only

$850,000. This covenant amount was inadequate for a single-phase, condominium

loan with an $8.7 million commitment. The amount of the minimum liquidity

covenant likely represented the available combined liquidity of the borrower and



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guarantors and should have signaled a warning to Van Dellen, Shellem, and

Rothman regarding the financial capacity of the borrower and guarantors.

c. The CAM noted that Handel had only $768,878 in liquidity and

$155,000 in income for 2004. Similarly, the CAM noted that Adler had only

$1,293,874 in liquidity, and $221,000 in income for 2004. The guarantors’

liquidity and income was insignificant in relation to the $8.7 million loan

commitment. The CAM characterized both guarantors as offering limited

secondary support to this loan. While the CAM did not specifically address

contingent liabilities, based on the borrower’s and guarantors’ other projects, it

appears they had combined contingent liabilities of nearly $130 million, and actual

outstanding debt of over $100 million. Van Dellen, Shellem, and Rothman did not

appreciate the potential impact this degree of leverage would have on the

borrower’s and guarantors’ ability to repay this loan. In fact, it appears Van

Dellen, Shellem, and Rothman approved this loan despite the fact that HBD did not

even obtain financial statements from three of the four owners of the borrower

entity. Thus, Van Dellen, Shellem, and Rothman approved this loan with no viable

secondary source of repayment, and essentially gambled that the market would

remain strong and the project economically viable.






following:



difficulty.



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the loans.



debt.












market.



market.






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all losses.

Count 52



of a Loan to MS Foothill LP for the Foothill 200 Project)



600. Van Dellen and Rothman approved a loan to MS Foothill LP for a project

known as Foothill 200. This loan was entered into on April 12, 2007, and provided

financing for the acquisition, development, and construction of 200 lots in Sylmar,

California. The project would consist of 74 townhomes and 126 raw lots. The property

was situated on just over nine acres and consisted of nine parcels. The project called for

three phases of construction. This loan refinanced an existing loan with Comerica Bank.

The property had an approved tentative map, and final map approval was expected by the

end of May 2007. This loan had an 18-month term, and the loan commitment totaled



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$25,825,000. The losses on this loan are estimated to exceed $4.8 million.


in the project. A residual balance of $1,906,580 in month 18 was secured by the 126 raw

lots aggregately valued at $11.34 million, which was intended to be paid off with future

phased HBD construction loans based on demand and satisfactory performance. The

CAM indicated that the borrower and guarantors offered limited financial sponsorship to

provide secondary support to this loan. The account officer conceded that there was

really no secondary source of repayment for this loan.

602. On September 27, 2007, HBD agreed to waive the construction date and

final map approval covenant due to ongoing delays. On December 17, 2007, an updated

appraisal indicated nearly a 34% decline in value, which revealed a principal impairment.

The interest reserve was frozen and this loan was placed on non-accrual. As of

December 31, 2007, there was still no site work commenced, as the grading permit had

not yet been pulled, and the final map was still not recorded.

603. In February 2008, the borrower and guarantors advised HBD that the

company’s financial condition had deteriorated significantly, and that several of their

projects were in various stages of foreclosure with other lenders. The borrower did not

have the ability to re-margin any of their three HBD loans.

604. HBD stopped disbursements on this loan effective April 1, 2008. On May

14, 2008, a Notice of Default was recorded. According to the account officer, the

borrower never started work on the project. HBD subsequently foreclosed on the

property. The unpaid balance at the time of foreclosure was $13,353,436, and the

foreclosure bid was $3,639,693. Thus, the charge off was $9,713,743. HBD’s share net

of the participation was $4,856,872.






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a. HBD utilized an absorption rate of 4 units per month. Thus, it would

take nearly 15 months to sell all 74 units. The CAM identified over 20 months of

supply in the applicable submarket. The real estate market was clearly softening

by March of 2007. In fact, the CAM noted that there had been a recent decline in

overall pricing within the marketplace, and inventory was staying on the market

longer. Given these market conditions, Van Dellen’s and Rothman’s decision to

approve an 18-month construction loan without substantial financial sponsorship

was imprudent.

b. This project would result in a residual balance of $1,906,580 in month

18. The CAM stated that the residual balance would be secured by the 126 raw

lots aggregately valued at $11,340,000, which was intended to be paid off in the

future with phased HBD construction loans based on demand and satisfactory

performance. This structure added risk to the Bank because raw land values tend

to drop sharply in down markets. It was imprudent for Van Dellen and Rothman to

approve a loan whose structure did not have a more certain repayment plan.

c. The borrower was already experiencing delays on another project that

was being financed by HBD through PBG. That loan was known as MS San Jose

6, and was in negotiation for a 12-month extension due to construction delays.

Van Dellen’s and Rothman’s decision to approve a 200-unit, $25 million loan to a

borrower that was having performance problems on another project was careless

and unduly risky.

d. The borrower provided no cash equity for the project, and instead

relied upon a mezzanine lender to provide 100% of the equity. Thus, the borrower

was engaged in a speculative 100% financed transaction, which increased risk to

HBD. This was particularly true given the guarantors’ contingent liability profile

and limited liquidity due to the numerous MWH Development projects in process

at the time of loan origination.



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e. The CAM noted that MWH Development had only $44,300 in cash as

of December 31, 2006. The company had seen a steady decline in accounts

receivable over the three years prior. It had total assets of $2,449,600 versus

liabilities of $4,364,000. While the company’s net worth was $13.3 million, its

year-end 2006 working capital was negative $1,915,000. The company was

essentially illiquid. The CAM showed Mark Handel as having $1,172,000 in

assets and $2,922,000 in liabilities, including $2,094,000 in estimated taxes. Mr.

Handel was illiquid, and a bank-prepared pro forma cash flow after tax was

negative $21,000. The CAM showed Scott Adler as having $2,644,000 in assets

and $81,000 in liabilities. A bank-prepared pro forma cash flow was negative

$155,000. Combined, the borrower and guarantors had total liquid assets of

$3,511,000, but were essentially illiquid. In addition, they had approximately $100

million in contingent liabilities, though the CAM did not identify their specific

contingent liabilities. The account officer stated that he called out to the Junior

Loan Committee the fact that the guarantors personally guaranteed all of MWH

Development’s loans.

f. Notably, the account officer indicated that the guarantors Mark

Handel, Scott Adler and MWH Development Corp. were weak financially, and that

if the primary source of repayment failed to repay this loan, the guarantors would

not be able to either. The account officer included the weakness of the guarantors

in the CAM because he wanted to make sure Van Dellen and Rothman knew that

the primary source of repayment was probably the only source of repayment on the

deal. Irrespective of this fact, Van Dellen and Rothman approved the loan.

g. The account officer noted that since the Dickerson Manor CAM was

prepared in June of 2006, the borrower took on an additional $77 million in debt.

The account officer characterized this as a significant increase in debt being carried

by the borrower.



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h. The account officer stated that the CAM noted that MWH had a large

number of projects under development, and that if Van Dellen and Rothman had

questions about them, he could identify the changes, including the increase in

leverage from debt totaling $20 million to $70 million.

i. Given the increased debt carried by the borrower, the account officer

believed the credit risk rating should change. The account officer further explained

that it remained a Pass 3 because IndyMac insisted on more equity to offset the

risk. But he conceded that the equity contribution of 16.83% was not put in by the

developer because it was a 100% financed project.

j. The account officer stated that Van Dellen and Rothman based their

decision to approve this loan on the borrower being able to build the project, finish

it, sell the units, and pay this loan off. They did not necessarily consider the

borrower not being able to overcome some obstacles. The account officer also

indicated that the borrower’s assets were heavily tied to real estate, and thus,

particularly susceptible to fluctuations in real estate values.

k. The Handel Family Trust owned 49.5% of the borrower entity, and

yet Van Dellen and Rothman approved this loan despite HBD not reviewing any

financial statements for the Trust. In addition, Van Dellen and Rothman did not

require a guarantee from the Handel Family Trust, which violated credit policy.

This was especially risky given the weak sponsorship and the declining state of the

market.









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difficulty.






the loans.



debt.












market.



market.




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Count 53

(Claim for Negligence and Breach of Duty of Care Against Van Dellen and Shellem

Related to the Underwriting, Administration, Extension and Modification of a Loan

to MS San Jose 6, LP for the San Jose 6 Project)



612. Van Dellen and Shellem approved a loan to MS San Jose 6, LP for a project

known as San Jose 6. This loan was a PBG loan that was entered into on April 27, 2006,

and provided financing for the acquisition, development, and construction of six two-

level-townhouse-style condominiums and 13 on-site-parking spaces in San Jose,

California. This loan had a 12-month term, and the loan commitment totaled $2,750,000.

The losses on this loan are in an amount to be established at trial.




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in the project. The secondary source of repayment was stated in the CAM to be

guarantees from Mark Handel, Scott Adler, Calabasas 2000, LLC, MWH Development

Corporation, and the Handel Family Trust.

614. In April 2007, the maturity was extended 12 months to facilitate completion

of the project. Default letters were sent out on April 9, 2008.

615. A June 30, 2008 CAR and a July 30, 2008 workout memorandum noted that

the project experienced various construction-related delays and the loan matured on April

25, 2008 without full repayment or full completion, and with no unit sales having been

consummated. The borrower had a large portfolio of other projects with few revenue-

producing projects and very limited liquidity. The borrower reported that several of these

ongoing projects were in various states of foreclosure with other lenders. The interest

reserve for this loan was depleted, and the borrower and guarantors were unable to make

interest and/or principal payments out of pocket. MWH Development Corporation was

insolvent and Mark Handel and Scott Adler were likely to declare personal bankruptcy.

The borrower incurred $361,000 in cost overruns that were not included within the loan

budget, and the borrower could not pay that cost out of pocket. The outstanding balance

on the loan was $2,668,321.

616. Van Dellen and Shellem approved, renewed and/or extended this loan



a. The CAM clearly identified red flags as to the large number of

ongoing residential development projects owned and managed by MWH

Development Corporation, the MWH Group of Companies, and guaranteed by

Mark Handel and Scott Adler. Van Dellen and Shellem failed to comprehend the

magnitude of the risk, instead emphasizing past performance over the future

ramifications of a large volume of contingent liabilities. The total debt

commitment for the MWH entities was nearly $130 million while the outstanding



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debt was over $100 million. The CAM contained very little analysis of the

borrower’s and guarantors’ contingent liabilities. As such, Van Dellen and

Shellem approved this loan without knowing the exact volume and timing of the

contingent liabilities, and the degree of overall relationship risk was never fully

identified or analyzed.

b. The borrower and guarantors provided outdated financial statements,

and no financial statements were obtained for the Handel Family Trust. These

exceptions to Bank policy were not addressed.

617. Van Dellen and Shellem knew, or in the exercise of due diligence should




Shellem in regard to this loan include, but are not limited to, the following:



difficulty.






the loans.




debt.




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618. Van Dellen and Shellem as officers, owed IndyMac the obligation to





Van Dellen and Shellem failed and neglected to perform their duties properly as officers



duties of Van Dellen and Shellem, Plaintiff has suffered losses and other compensatory



administering the affairs of IndyMac, Van Dellen and Shellem pursued a common plan or

design with each other, and therefore are jointly and severally liable for all losses.



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AA. Counts Based on Allegations Related to the Loans Made By HBD in the

Mountain View Bravo Borrower Relationship.

Count 54



of a Loan to S.K.Y. 21, LLC for the Section 21 Land Loan Project)



623. Van Dellen, Shellem, and Rothman approved a loan to S.K.Y. 21, LLC for a

project known as Section 21. This land acquisition loan was entered into on October 9,

2006, and replaced an existing credit facility on 453 acres representing three quarters of

Section 21. The remaining one quarter was not to be encumbered by this loan. The

property was located in the northeast section of Bakersfield, California. This loan had a

36-month term, and the loan commitment totaled $9,820,972. The losses on this loan are

estimated to exceed $3 million.

624. The primary source of repayment of this loan was to be via refinancing of

the loan to facilitate site development. The secondary source of repayment was identified

as support from the borrower and its affiliates. However, no personal guarantees were

obtained.

625. This loan was downgraded to Special Mention 1 in December 2007 and then

to Substandard 1 on December 27, 2007 due to deterioration of the value of the collateral

as shown by significant drops in the appraised value. The borrower was described as

nonresponsive and as having “marginal liquidity and financial strength.” Notice of

termination of the commitments was sent to the borrower on May 12, 2008, and on May

14, 2008, the commitments were collapsed to their outstanding balances.

626. As of May 20, 2009, this loan had an unpaid balance of $7,188,574 with an

impairment of $3,055,416.



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a. No personal guarantees were obtained from Mountain View Bravo’s

principals. This violated HBD’s credit policy, and was especially risky for a land

acquisition loan where no project was being constructed through the loan.

b. The profit margin on this loan was shown as negative. This was

purportedly mitigated by the borrower’s significantly lower cost basis on the land.

c. This loan was for a 36-month term, which violated the maximum term

of 24 months for land loans allowable under HBD policy. Van Dellen, Shellem,

and Rothman were already aware that the real estate market, particularly in the

California Central Valley, was in decline. Accordingly, their decision to approve a

land loan that would not mature until October of 2009 was irresponsible.

d. The land loan was made with no defined plans for land development

or build out, and therefore was entirely speculative.

e. The Bakersfield market and a north submarket were a Pass 5 market at

the time of loan origination, and had a reported 19 months of inventory. The CAM

acknowledged “continued weakness in the resale market [which] will eventually

take a toll on new home sales.” The CAM also acknowledged that builders were

adopting a “wait and see” attitude with respect to land purchases.

f. This loan was a Pass 3 credit in a Pass 5 market in violation of HBD

policy.

628. Van Dellen., Shellem, and Rothman knew, or in the exercise of due

diligence should have known, that their practices and the practices of IndyMac’s

employees who reported to them and over whom they exercised supervisory control,

were improper, imprudent, and harmful to IndyMac. The negligence and breaches of

duty by Van Dellen, Shellem, and Rothman in regard to this loan include, but are not



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limited to, the following:



difficulty.






the loans.




debt.












market.




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market.



629. Van Dellen, Shellem and Rothman as officers, owed IndyMac the obligation

to exercise the degree of care, skill and diligence that ordinarily prudent persons in like












all losses.

Count 55



of a Loan to S&J Alfalfa for the Section 19 Project)



634. Van Dellen, Shellem, and Rothman approved a loan to S&J Alfalfa, Inc. for

a project known as Section 19. This land acquisition loan was entered into on November

28, 2006, and replaced an existing HBD raw land loan that was scheduled to mature in



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February 2007. The new loan was to be a land loan secured by Section 19 which was

approximately 591 net acres of land located in northeast Bakersfield. The Section 19

loan and previously financed loans to the borrower, and entities related to the borrower,

resulted in HBD having 26.4% of the 23,866 lots contained in the Bakersfield market. As

a result, HBD was financing about 1.21 years of inventory. This loan had a 36-month

term, and the loan commitment totaled $19,865,248. The losses on this loan are

estimated to exceed $4.5 million.

635. The primary source of repayment of this loan was to be via refinancing of

the loan to facilitate site development. The secondary source of repayment was identified

as support from the borrower and its affiliates. However, no personal guarantees were

obtained.

636. Prior to this loan’s maturity, the Bakersfield market unsurprisingly

continued to deteriorate. Subsequent appraisals valued the project at significantly less

than the appraisal used during loan origination. As noted in a CAR from June 30, 2008,

the borrower had “significant exposure in the Bakersfield area and marginal liquidity and

financial strength.”

637. In early November 2007, an appraisal showed that the value of the collateral

had fallen to $12 million such that the loan-to-value ratio increased to 124%. On May

14, 2008, the commitment on the Section 19 land loan, as well as other commitments to

Mountain View Bravo, were collapsed to their outstanding balances. The land loan for

Section 19, along with the land loan for Section 21, was in the note sale pool and had a

potential buyer. But on June 24, 2008, the borrower cancelled the purchase agreement

due to issues discovered in the due diligence process.

638. The note for the Section 19 land loan was finally sold on March 31, 2009.

The unpaid balance at the time of sale was $9,474,906. The note sale proceeds were

$396,337. The resulting total loss was $9,078,569 or $4,539,285 net of a 50%

participation.



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principals. This violated HBD’s credit policy, and was especially risky for a land

acquisition loan where no project was being constructed through the loan.

b. The profit margin on this loan was 6.22%, which violated HBD’s

credit policy.

c. This loan resulted in HBD having 26.4% of the lots in the Bakersfield

market. The appraisal submitted with the CAM identified market saturation,

decreasing absorption rates, and declining sales. This loan resulted in significant

overexposure by HBD in late 2006 to the deteriorating Pass 5 Bakersfield market.

In fact, Van Dellen, Shellem, and Rothman had approved another land loan to the

same borrower relationship in the same market only one month earlier. Their

decision to compound risk to HBD through this loan is astounding.

d. This loan was for a 36-month term, which violated the maximum term

of 24 months for land loans allowable under HBD policy. Van Dellen, Shellem,

and Rothman were already aware that the real estate market, particularly in the

California Central Valley, was in decline. Accordingly, their decision to approve a

land loan that would not mature until November of 2009 was irresponsible.

e. This land loan was made with no defined plans for land development

or build out, and therefore was entirely speculative.

f. The appraisers assumed that the 46 active and abandoned oil wells on

the site would not interfere with a proposed development. This was an unrealistic

assumption that was clearly called out to Van Dellen, Shellem, and Rothman in

HBD’s appraisal review.



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g. The appraisal review acknowledged that Bakersfield was attempting

to shift development to the northeast, where Section 19 was located, but the area

was a new area for development having absorbed only a few hundred homes over

the prior 10 years and “some sections have soil issues.”

h. The appraiser reported that overall market conditions were slowing

down, especially in resales where inventory had ballooned and price cutting was

occurring. Nonetheless, “the appraised values [did] not take into consideration any

deterioration in the current market.” This was also an unrealistic assumption that

was clearly called out to Van Dellen, Shellem, and Rothman in HBD’s appraisal

review.

i. This loan was a Pass 3 credit in a Pass 5 market in violation of HBD

policy.

j. The workout officer assigned to address the Mountain View Bravo

relationship candidly acknowledged that both the Section 19 and Section 21 land

loans were risky and that he likely would not have recommended them because he

was a bit more conservative in regard to lending than simply taking a section of

land in Bakersfield.






following:



difficulty.




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the loans.




debt.

f. Causing or allowing a loan to be made, extended, and/or renewed with











j. Causing or allowing a loan to be made, renewed, and/or extended


market.



market.




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641. Van Dellen, Shellem and Rothman as officers, owed IndyMac the obligation

to exercise the degree of care, skill and diligence that ordinarily prudent persons in like












all losses.

Count 56



of a Loan to Sycamore Villas Development, LLC for the Summer Moon II Project)



646. Van Dellen and Rothman approved a loan to Sycamore Villas Development,

LLC for a project known as Summer Moon II. This loan was an interim construction

loan to facilitate the construction of 80-detached-single-family residences with price

points between $215,000 and $316,000 located in Arvin, Kern County, California in the

Bakersfield area. This loan was entered into on January 10, 2007, and had an 18-month

term, and the loan commitment totaled $17,909,040. The losses on this loan are



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estimated to exceed $917,000.

647. The primary source of repayment of this loan was to the sale of completed

homes to end buyers. The secondary source of repayment was identified as support from

the guarantor. However, as with the other loans in the Mountain View Bravo borrower

relationship, no personal guarantee was obtained from the principal, Philippe Laik.

648. Mountain View Bravo commitments were collapsed to their outstanding

balances on May 14, 2008. This loan was downgraded to Special Mention 1 in early

December 2007 and to Substandard 1 on December 27, 2007.

649. The note on this loan was sold on March 31, 2009. Prior to sale, the unpaid

balance on this loan was $1,915,517. The note sold for $79,681, which resulted in a loss

of $1,835,836 of which HBD’s share was $917,918.





principals. This violated HBD’s credit policy.

b. The profit margin on this loan was 3.4%, which violated HBD’s credit

policy.

c. This loan was part of a number of loans in the latter half of 2006 and

into 2007 that increased HBD’s exposure to the Bakersfield market. This loan

caused HBD to exceed its geographic concentration limitation for the Central

Valley. Van Dellen, Shellem, and Rothman had approved two others loan in the

same borrower relationship in the same market only one month earlier. Van

Dellen’s and Rothman’s decision to compound risk to HBD through this loan is

astounding.

d. The Bakersfield market had a 20-month supply of inventory as of the

fourth quarter of 2006.



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e. The Bakersfield market was continuing to deteriorate. This loan was

a Pass 4 credit in a Pass 5 market in violation of HBD policy.








difficulty.






the loans.




debt.










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market.



market.


















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BB. Count Based on Allegations Related to the Loan Made By HBD in the

Pacific Pride Communities Borrower Relationship.

Count 57



of a Loan to PPC Westwood Country 3, LLC for the Westwood Country Unit #3

(Inspirations) Project)



657. Van Dellen, Shellem and Rothman approved a loan to PPC Westwood

Country 3, LLC for a project known as Westwood Country Unit #3 (Inspirations). This

loan was entered into on November 16, 2006, and provided an 18-month extension on

financing for the third phase of the 177-unit Westwood Country Project located in

Escalon, California, a suburb of Sacramento. Phase 3, known as Inspirations at

Westwood Country, consisted of 69 units comprised of seven home plans. The loan

commitment totaled $23,622,185, and the losses on this loan are estimated to total

approximately $7 million.


individual units in the project. A secondary source of repayment was noted to be cash

flow generated by the guarantors’ six unrelated projects.

659. On December 20, 2005, HBD entered into the original version of this loan.

At that time, the transaction had a credit risk rating of Pass 4, but contained many risks

that made HBD’s decision to underwrite this loan highly questionable. These risks

included the following: (1) the borrower and guarantors put none of their own cash into

the transaction and engaged in 100% financing; (2) the borrowers’ and guarantors’

combined adjusted equity totaled $5.172 million on a $25 million loan commitment; (3)

HBD appears to have engaged in an effort to make the borrower and guarantors’ numbers



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look better by including the borrowers’/guarantors’ projected profits in their other

projects financed by IndyMac, which effectively increased their equity to nearly $15

million; (4) the borrower/guarantors had nearly $24 million in outstanding commitments

with other lenders, which likely represented contingent liabilities; (5) the guarantors were

only required to provide financial statements annually; (6) a paltry minimum liquidity

covenant of $500,000 was set; (7) the property did not yet have a final map; (8) HBD

exceeded its $15 million loans-to-one-borrower limit; (9) this was the guarantors’ largest

project to date; (9) the guarantors’ combined liquidity totaled $349,000; and (10) one of

the guarantors had a FICO score of 661. The credit officer for the original approval

recommended a participation of the difference between the loan-to-one-borrower

maximum and the loan cap amount. This was rejected by the Junior Loan Committee.

660. On April 13, 2006, financial analyst John Garibay submitted a memo noting

that the borrower had not begun construction on Westwood Country 3 because Westwood

Country 2 project had not performed to projections. Thus, the interest payments had

depleted the interest reserve by nearly $200,000. The borrower had not met the minimum

sales rate during the past six months on the earlier project, and had averaged less than one

sale per month. The borrower had also resorted to offering free options and upgrades.

661. On October 15, 2006, account officer Roger Perry submitted a CAM for this

loan to request an 18-month extension to the existing loan. Van Dellen, Shellem and

Rothman approved the request, and the extension was booked with a new building loan

agreement executed on November 16, 2006.

662. On October 3, 2007, the borrower informed HBD that it would be

liquidating the standing inventory. HBD filed a notice of default in December 2007. As

of June 3, 2008, the property consisted of 10 homes and 50 finished lots. HBD sold this

note through the Eastdil note sale on June 20, 2008. The unpaid balance at the time of

sale was $9,640,000, and the sale price was $2,701,000.




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a. The credit risk rating for this transaction was a Pass 5 due to weak

financial support and deteriorating market conditions. Van Dellen’s, Shellem’s,

and Rothman’s decision to approve a Pass 5 loan in late 2006 was irresponsible.

b. The borrower’s earlier project was not performing as projected, which

caused a need to extend this loan. The CAM noted that Westwood Country Unit

#2 had 2.8 sales per month versus a projected absorption of 5 sales per month.

Van Dellen, Shellem, and Rothman failed to recognize this as an indicator of how

the Westwood Country Unit # 3 project would perform.

c. Van Dellen, Shellem, and Rothman approved this loan despite

statements in the CAM that construction had been delayed, sales were delayed,

interest reserve was partially depleted, and home prices had declined.

d. The projected profit margin dropped to only 4.31% versus a 10%

policy requirement. This left little room for the borrower to cut prices in order to

respond to market declines. There was no mitigant provided for this policy

exception.

e. Van Dellen, Shellem, and Rothman approved this loan despite a

statement in the CAM that the borrower had no profit incentive to complete the

project because the land seller was entitled to over $2 million for the return of his

equity, 7% interest on the note, and 40% of the project’s net proceeds.

f. Credit officer David Boggs noted in his credit review memo that the

“as-is” loan to value was high. This should have caused Van Dellen, Shellem, and

Rothman concern given the borrower’s inability to meet sales expectation on the

earlier phase.

g. David Boggs also noted that a minimum liquidity covenant of

$500,000 was low for a loan commitment that exceeded $23 million.



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h. As with the prior loan, the borrower and guarantors were not

contributing upfront cash equity, but rather were engaging in 100% financing.

i. The borrowers’ and guarantors’ combined adjusted equity totaled

$4.619 million on a $23.6 million loan commitment. As with the earlier loan,

HBD improperly included the borrower’s and guarantors’ projected profits in their

other projects financed by IndyMac, which effectively increased their adjusted

equity to $14.747 million.

j. The borrower and guarantors had nearly $22 million in outstanding

commitments with other lenders, which likely represented their contingent

liabilities. Their failure to produce 2005 tax returns for this application appears to

have not caused Van Dellen, Shellem, and Rothman any concern.

k. The guarantors were only required to provide financial statements

annually, which compromised HBD’s ability to react quickly to a declining

sponsorship.

l. Krcmarik noted that Mr. Hein’s FICO scoring being only 661 in

September of 2005, and dropping 80 points since September of 2003 due to the

proportion of revolving balances involving credit limits being too high, and nine

inquiries within the past three months, signified a red flag because Mr. Hein was

“leveraging himself up, and was trying go even further.” Similarly, the CAM

noted that Mr. Hurburt’s FICO score dropped below 700 due to too many recent

credit inquiries, which should have raised additional concerns.

m. Krcmarik indicated that the guarantors’ liquidity was low for a loan

this size. He further indicated that he would want to see liquidity of at least $1

million.

n. Van Dellen, Shellem, and Rothman approved this loan despite the

CAM’s warning that the borrower’s and guarantors’ financial condition was weak,

and there was a question of whether they could handle a market downturn and/or a



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rise in material costs. Van Dellen, Shellem, and Rothman already knew the market

was in a downturn, and yet approved this loan anyway. Krcmarik stated that this

weakness identified precisely what went wrong with this loan, and that the

weakness would have been called out to Van Dellen, Shellem, and Rothman prior

to loan approval.






following:



difficulty.






the loans.




debt.






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market.



market.


















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all losses.

CC. Count Based on Allegations Related to the Loan Made By HBD in the

Rokas International Borrower Relationship.

Count 58



of a Loan to 2300 S. Michigan Development Group, LLC for the Motor Row

Project)



670. Van Dellen and Rothman approved a loan to 2300 S. Michigan

Development Group LLC for a project known as Motor Row. This loan was entered into

on March 16, 2007, and provided financing for the acquisition, development and

construction of a 94-unit, 7-story-condominium building located in the south loop area of

downtown Chicago. The building was to include 99 deeded parking spaces on the initial

two levels, and approximately 8,600 square feet of retail space on the first floor. The

loan commitment totaled $25,305,356, and the losses on this loan are estimated to total

$3.5 million.


individual condominium units in the project. The CAM did not identify any secondary

source of repayment.

672. On November 29, 2007, IndyMac learned of a $360,000 broker lawsuit

against the borrower and IndyMac for funds owed to the broker on the purchase

transaction. IndyMac notified the borrower that it was responsible for defending the suit.

673. On February 8, 2008, the mezzanine lender informed HBD that the borrower

and guarantor, Andrius Augunas (“Augunas”), left the country and abandoned the project

due to the expiration of his immigrant work status. HBD was unable to verify the details



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of any immigration issues and was unable to contact the borrower directly. HBD was

forced to take over the defense of the broker lawsuit at its cost.

674. On February 29, 2008, HBD received notice that the architects on the project

filed a mechanics lien totaling $111,836.

675. On March 4, 2008, Van Dellen sent an e-mail to Rothman, Camp, and the

account officer noting that they needed to research how HBD underwrote the borrower’s

financial situation. In particular, Van Dellen noted various liens and lawsuits involving

the borrower. That same day, Rothman drafted an e-mail to the account officer asking

why he believed Augunas was a United States citizen if he only immigrated to the United

States in 2003. The account officer’s response simply noted that Augunas told HBD he

was a citizen. Van Dellen and Rothman approved this loan despite the fact that HBD

failed to perform any due diligence in this regard such as requesting a birth certificate or

naturalization papers.

676. On March 8, 2008, HBD received confirmation from the borrower’s attorney

that the borrower misappropriated the buyer escrow deposits totaling $350,000.

677. On March 14, 2008, Van Dellen, Rothman, and Wohl authorized HBD to

accept the mezzanine lender, Equibase Capital, as the borrower. Equibase was willing to

step into the borrower position and hire a suitable developer if HBD agreed to waive a

requirement for an additional guarantee. Equibase agreed to be responsible for the

architects’ lien, and the loss of the borrower deposits. In addition, Equibase approved

HBD assuming the defense of the broker’s lawsuit and agreed to cover the first $50,000

of the costs of defense. Any costs, settlement or judgment would be paid by IndyMac

and added to the first mortgage debt. A formal modification agreement was executed as

of April 15, 2008. In June of 2008, Equibase informed HBD that it would no longer

support the project financially. This put Equibase in default, and a Notice of Default was

issued on June 12, 2008.

678. As of July 28, 2008, the building was 74% complete. The “as-is” value at



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that time indicated a potential impairment of approximately $2.19 million. However, the

account officer noted that HBD was highly skeptical of that valuation because the

appraisal set forth an average sales price of $313,000 per unit, which was higher than the

initial average value of $306,000 per unit at the original underwriting. Thus, the account

officer noted that the true market value was considerably lower. More importantly, the

account officer believed the project would be looked upon by interested buyers as an

apartment project, which would render a much lower value.

679. On August 20, 2008, Van Dellen and Rothman approved a workout plan that

put a receiver in place to continue with construction to complete the building up to tenant

improvements. The plan also recommended proceeding with the foreclosure process with

the ultimate goals of selling the asset when it was near completion.

680. Subsequent to the FDIC being appointed receiver, the FDIC sold the note on

this loan to Flagstar (the participant). Camp testified that this loan was impaired at the

time of sale. The unpaid loan balance at the time of sale was $19,479,100. The most

recent appraisal report dated July 2008 provided an “as-is” value of $15,976,800.




a. The CAM noted that condominium sales in downtown Chicago had

slowed, and that the market was rated as non-qualifying in the loan pricer due to

the overall months of supply. The mitigant for this weakness states that the 27.8

months of supply in the Chicago market was substantially higher than the 12-15

months reported for the downtown Chicago area for the first half of 2006. Van

Dellen’s and Rothman’s reliance on stale data was unreasonable given that this

loan was closed in March of 2007. In addition, the general decline of the Chicago

market constituted a warning of the overall market trend. Van Dellen and



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Rothman appear to have relied unreasonably on “optimism that the submarket

[would] remain healthy despite the nation’s housing slowdown.”

b. Van Dellen’s and Rothman’s decision to approve a loan for a new

condominium development in March of 2007 was inherently risky due to declining

market conditions, and the inability to phase construction. Van Dellen and

Rothman exacerbated this risk by approving a loan with an 80% loan-to-value ratio

and an 85% loan-to-cost ratio. Their decision to approve a lengthy 24-month-loan

term also increased the risk due to the already softening real estate market.

Moreover, Van Dellen and Rothman disregarded HBD’s credit risk matrix by

approving a loan that had a combined credit risk rating of Pass 5, and a market

rating of Pass 5.

c. HBD knew Rokas International was formed in 2000 by a Lithuanian

entrepreneur named Andrius Augunas. While the CAM reported that he was a

United States citizen, there was insufficient due diligence performed to confirm his

citizenship. A routine credit check noted a lack of credit history, which should

have presented an immediate red flag. In addition, Augunas did not move to the

United States until 2003, which was less than four years prior to loan origination.

In fact, the CAM identified as a “weakness” that Augunas had less than 5 years

experience in the United States. Camp indicated that if he knew Augunas came to

the United States in early 2000, it would have raised a question in his mind as to

whether he was, in fact, a U.S. citizen. Not only was this not an immediate red

flag to Van Dellen and Rothman, but they decided to approve the loan with limited

disbursement controls, which were typically reserved for “established customers

with conforming projects.” Camp stated that the bank could have easily verified

citizenship by asking for a birth certificate or naturalization papers.

d. Augunas provided a full repayment and completion guarantee. Van

Dellen and Rothman should have known that the guarantee provided little to no



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support as Augunas’ financials showed anemic liquidity totaling $1.46 million, and

a net worth totaling $16.02 million. Camp stated that the borrower’s net worth of

$16.02 million was insufficient to repay the loan. Van Dellen’s and Rothman’s

decision to approve a loan that exceeded the borrower’s net worth by nearly $10

million demonstrates irresponsible loan underwriting. This was particularly true

because the borrower had over $9 million outstanding on unrelated projects, which

likely represented an equal sum of contingent liabilities for the guarantor. Camp

noted that the fact that the sponsorship could not independently repay the loan

suggests that a lower advance rate would have been appropriate.

e. The borrower relied upon a mezzanine lender to provide the bulk of

the equity contribution. This was particularly risky given the borrower’s weak

financial support, the product type, and the market conditions.

f. Van Dellen and Rothman knew that the borrower and guarantor

afforded weak financial support at the time of underwriting. Nonetheless, Van

Dellen and Rothman approved this loan without requiring any financial reporting

covenants that obligated the borrower to provide financial statements. In addition,

Van Dellen and Rothman permitted the guarantor to provide annual financial

statements instead of quarterly statements. This decision compromised HBD’s

ability to carefully monitor the financial condition of the sponsorship.

g. Van Dellen’s and Rothman’s irresponsible decision to approve this

loan was articulated quite well in an e-mail written by IndyMac’s CEO Perry on

March 7, 2008. Specifically, Perry admonished HBD management and stated:

“You guys were nuts to do this loan. The original LTV and LTC are far too high

for a condo project… when we knew housing was slowing. I don’t think our

guidelines allowed us to go this high. And we should never make a loan to

someone whose net worth is below our loan amount… ever!!! In addition, we

should never make a loan to a builder with so little skin in the game… and to a guy



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who is barely off the boat!!!!! I don’t know what you guys were thinking.” These

problems were exacerbated by the fact that this was a 24-month-condominium

development that could not be phased.






a. Causing or allowing a loan to be made to a borrower and guarantor


difficulty.






the loans.



debt.










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market.
















DD. Count Based on Allegations Related to the Loan Made By HBD in the

Pacific Century Homes Borrower Relationship.

Count 59



of a Loan to PCG Savannah, LLC for the Savannah 76 Project)




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688. Van Dellen and Rothman approved a loan to PCG Savannah, LLC for a

project known as Savannah 76. This loan was entered into on April 10, 2007, and

provided financing for the acquisition of 76 finished lots, followed by the development

and construction of single-family homes in Litchfield Park, Arizona, a suburb of Phoenix.

The loan commitment totaled $21,350,000, and the losses on this loan are estimated to

total $4.5 million.

689. The primary source of repayment of this loan was to be the sale of the homes

constructed in the project. The secondary source of repayment of this loan was support

from the borrower and guarantors, and the liquidation of assets or refinance of collateral.

690. The construction on this project never commenced. As of October 2008, the

guarantors Pacific Century Homes and William Lo had no liquidity and no means to

support the loan. On June 28, 2008, a notice of default was recorded, and a foreclosure

sale was scheduled for December 2, 2008. A receiver was in place to manage the project.

691. Van Dellen and Rothman authorized a note sale on October 14, 2008, to

Cason Tyler Communities. The unpaid balance at that time was $6,481,823, and the

negotiated sale price was $3,250,000 for a loss of $3,335,323. There was a FAS 114

impairment at that time totaling $2,805,323. The note sale did not close, and this loan is

currently being administered by IndyMac Ventures LLC. The unpaid balance totals at

least $6.6 million.




a. Arizona was a new market for the borrower. Both Mr. Lo and HBD

lacked experience in the market. In fact, HBD’s account officer in this market,

Letty Kaufman, was terminated for poor performance.



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b. The Phoenix market was softening during the year prior to loan

approval, which resulted in declining home prices and rising inventory and slowing

absorption rates. The submarket had 32 months of supply, and the subject project

had nearly 28 months of supply, with 24 months of supply at the subject price

point. Van Dellen’s and Rothman’s decision to approve a 24-month loan in a

deteriorating market with 24 months of supply evidences irresponsible

underwriting.

c. The project involved a new community with few comparables to

support the valuation assigned to the project. In addition, the project was not “in

fill” as preferred by HBD.

d. The CAM predicted a low 6.5% profit margin versus 10% policy


to market declines.

e. The loan-to-value ratio was at the policy maximum of 85%, which

provided no flexibility to respond to market declines.

f. There were 23 speculative units versus a policy maximum of 12 units.

This increased the Bank’s exposure to this weak and low profit project.

g. The project’s average appraised retail value of $371,108 per unit

versus Phoenix’s median price of $305,000 represented 121.7% of the CMA, and

would likely have created further absorption problems.

h. Van Dellen and Rothman approved this loan with no verification of

the borrower’s or guarantor’s assets, who were ultimately unable to repay the loan

when it defaulted. The borrower had a low FICO score of 619 due to improper

billing and misapplications of funds. This violated HBD’s policy requirement of

660.



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i. The combined credit risk rating of Pass 4 in a Pass 5 market violated

HBD policy designed to prevent the approval of mediocre credits in poor or

declining markets.

j. The guarantor, Bill Lo (“Lo”) had 36 projects in process totaling

27,934 units. While Lo reported liquidity of $19.2 million and adjusted net worth

of $288.8 million, he had $282.2 million in contingent liabilities as of December

31, 2006. Lo’s exposure weakened his strength as a guarantor.

k. Van Dellen and Rothman approved this loan without any quarterly

financial reporting covenant. Their decision to settle for annual reporting was

risky given the guarantor’s high leverage and the declining market conditions.








difficulty.






the loans.



debt.



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EE. Counts Based on Allegations Related to the Loans Made By HBD in the

Dunmore Homes Borrower Relationship.

Count 60



of a Loan to Dunmore Fullerton Ranch, LLC for the Whispering Oaks Project)



699. Van Dellen and Rothman approved a loan to Dunmore Fullerton Ranch,

LLC for a project known as Whispering Oaks. This loan was entered into on May 22,

2007, and refinanced a land loan that was originally provided by Guaranty Bank on

August 2004. Guaranty’s loan matured on March 27, 2007. This loan’s term was 12

months and contemplated 112 units. The loan commitment totaled $4,136,956, and the

losses on this loan are estimated to total approximately $3 million.

700. The primary source of repayment of this loan was to be a land loan and

construction loan to build out the 112 proposed zero-lot-line homes. A secondary source

of repayment was noted to be the sale of the property. A tertiary source of repayment

was noted to be the liquidation of the assets of the guarantors Dunmore Homes and

Sydney B. Dunmore (“Dunmore”).

701. In August 2007, the underlying managing member of the borrowing entity

Dunmore Fullerton Ranch LLC notified all lenders that they were stopping construction

on all projects. In September 2007, Dunmore Homes sold the company and all assets to

Michael Kane, an individual unknown to HBD, and presented HBD with a plan to build

out all assets with 100% financing and a 4% management fee. HBD rejected the plan and

that same month classified this loan Substandard 1. HBD filed a notice of default on

October 30, 2007, and subsequently foreclosed on the property.

702. On February 28, 2008 a foreclosure took place with the unpaid loan balance



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as of that date being $3,849,184. HBD made a credit bid at foreclosure of $2,313,034 for

a resulting loss on foreclosure of $1,536,150. The security was sold on March 31, 2009

for net sale proceeds of $875,500, resulting in an additional loss given the bid value on

the collateral at foreclosure. The additional loss at the time of the sale was $1,437,534

which, together with the loss at foreclosure (and net of the recovery on sale), results in a

total loss of $2,973,684.




a. This loan was a Pass 3 credit in a Pass 5 market in mid-2007 when

Van Dellen and Rothman were aware the market was deteriorating.

b. Only the borrower’s liquid assets were verified.

c. The profit margin was disregarded in underwriting.

d. This loan was a refinance of a Guaranty Bank loan where the only

apparent explanation by Guaranty Bank as to why it was not renewing the loan was

that it had had the loan on its books too long.

e. This loan was a raw land loan on unentitled land. The land had no

tentative map in place. Approval of a tentative map was estimated to be three to

five months away with approval of the final map sometime after that. This

information was communicated to Van Dellen and Rothman prior to their approval

of the loan.

f. This loan was not cross-collateralized, cross-defaulted, or cross-paid

with the Dunmore Windsor loan.

g. The contingent liabilities of the personal guarantor Sydney Dunmore

were not analyzed.

h. The quick collapse of the borrower after the origination of this loan

demonstrates that the underwriting of this loan failed to utilize adequate due



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diligence to sufficiently explore the financial condition of the borrower and

guarantors.








difficulty.






the loans.



debt.











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market.



market.
















Count 61



of a Loan to Dunmore Canterbury LLC/DHI for the Windsor Project)




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710. Van Dellen and Rothman approved a loan to Dunmore Canterbury LLC/DHI

for a project known as Windsor. This loan was entered into on June 4, 2007, and

provided financing to construct 65 single-family residences and to refinance three models

and construct one additional model in Yuba City, California, in Sutter County about 40

miles north of Sacramento. This loan replaced prior financing from Guaranty Bank

which was assisting the borrower in the construction. This loan’s term was 30 months.

The loan commitment totaled $16,265,600, and the losses on this loan are estimated to


711. The primary source of repayment of this loan was to be the sale of homes

constructed in the project. A secondary source of repayment was noted to be support

from the guarantor Dunmore Homes. Dunmore himself did not personally guarantee this

loan.

712. In August 2007, the underlying managing member of the borrowing entity

Dunmore Fullerton Ranch LLC notified all lenders that they were stopping construction

on all projects. In September 2007, Dunmore Homes sold the company and all assets to

Michael Kane, an individual unknown to HBD. In September 2007, this loan was

classified as Substandard 1. The borrower reportedly admitted not using draw funds

appropriately and liens were filed against the project.

713. HBD sold the note through Eastdil in a sale closing on June 30, 2008, prior

to the seizure of the Bank. The unpaid balance at the time of sale was $3,705,000 and the

sale proceeds were $2,036,750, resulting in a loss of $1,667,250.






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a. This loan was approved in mid-2007, when Van Dellen and Rothman

were aware of deteriorating market conditions. Indeed, this loan had a combined

credit risk rating of Pass 5, and involved a Pass 5 market.

b. The borrower had over $330 million in contingent liabilities.

c. The borrower experienced a significant decrease in revenue and net

income over the past several years.

d. The guarantor had a large inventory of lots on a consolidated basis.

e. The project was in an outlying market.

f. In violation of HBD policy, no personal guarantee was provided from

principal Sydney Dunmore. This was particularly risky given the market

condition.

g. HBD was slightly exceeding its market concentration limits in this

market. In addition, HBD had loans to Corinthian Homes and Reynen & Bardis

Communities with tract developments located in Linda, California, five miles east

of Yuba City, the location of this project.

h. Consideration of HBD projects with Corinthian Homes and Reynen &

Bardis in nearby Linda, California suggested that sales rates could be as slow as

one unit per month. In addition, the account officer’s discussions with other banks

lending to the borrower, including Comerica, revealed that the borrower was

offering incentives on all of their projects because absorption had slowed

significantly.

i. This loan involved refinancing an existing loan by Guaranty Bank.

The account officer discussed the refinance with Guaranty Bank, but she provided

an inadequate explanation as to why Guaranty Bank was not continuing on as the

lender.

j. This loan was approved with high loan-to-value ratios and loan-to-

cost ratios, which offered little margin for declining values.



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k. The 30-month-loan term was unreasonably long given the

deteriorating market conditions. It was unreasonably risky for Van Dellen and

Rothman to approve a loan that was not projected to pay off until January of 2010.

l. The quick collapse of the borrower after the origination of this loan

demonstrates that the underwriting of this loan failed to utilize adequate due

diligence to sufficiently explore the financial condition of the borrower and

guarantors.








difficulty.






the loans.



debt.






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market.



market.


















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FF. Count Based on Allegations Related to the Loan Made By HBD in the

AKT Development Borrower Relationship.

Count 62



of a Loan to Angelo K. Tsakopoulos for the Mangini Ranch Project)



721. Van Dellen and Rothman approved a loan to Angelo K. Tsakopoulos

(“Tsakopoulos”) for a project known as Mangini Ranch. This land acquisition loan was

entered into on June 4, 2007. The purpose of this loan was to refinance the Mangini

Ranch Property, with all loan funds being advanced at loan closing -- $39.1 million to the

borrower, and $900,000 toward loan fees ($40 million total). The CAM identified a

seller carry back note totaling $8,709,400. Thus, the borrower was permitted to take out

over $31 million in appraised equity out of this property for his discretionary use. This

loan did not include an interest reserve; the borrower was to pay approximately $3.6

million per year in interest out of pocket.

722. Mangini Ranch consisted of 934 gross acres of land within the City of

Folsom’s sphere of influence. The city is approximately 20 miles from Sacramento,

California. The property was zoned AG-80, which provides for agricultural uses.

Nonetheless, approximately 453 acres were proposed for development of 3,506

residential units of low, medium, and high density. This loan was the first loan with Mr.

Tsakopoulos since June 2006; he had been an IndyMac client since 1997.


property. The CAM noted that the property’s “as-is” value was $110 million, and that a

sale of a portion “should” pay off the loan. The secondary source of repayment of this

loan was noted in the CAM as reoccurring cash flow from income properties, and one



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time land sales from properties controlled by the borrower. In addition, full recourse

guarantees were obtained from AKT Development and Tsakopoulos.

724. On September 13, 2007, HBD approved the borrower’s request to modify

the liquidity reporting requirement to enable the borrower to include availability in lines

of credit. Camp indicated that allowing Tsakapoulos to satisfy his minimum liquidity

covenant through the use of lines of credit was not as beneficial as cash because the lines

of credit create a liability.

725. In January 2008, HBD obtained an updated appraisal of the property that

revealed an “as-is” value of $93,000,000.

726. On May 19, 2008, Wohl sent Tsakopoulos a letter noting a request to extend

this loan an additional three years.

727. In July 2008, HBD obtained another updated appraisal of the property that

revealed an “as-is” value of $63,000,000. Thus, the loan-to-value ratio had increased to

over 63%. In December 2008, HBD obtained another appraisal of the property that

revealed an “as-is” value of $23,350,000. Thus, the loan to value ballooned to 171%.

728. Despite the impairment, the borrower continues to make interest payments

out of pocket. It is currently unknown how Tsakapoulos plans to repay this loan, but he

requested a loan extension. Absent an extension, the term of this loan expires in mid-

2010.




a. A $40 million land loan in a deteriorating Pass 5 market in May 2007

with a three-year term was inherently risky. This is especially true when HBD’s

collateral was unentitled, agriculturally-zoned, raw land. HBD’s policy states that

a land loan should not exceed 24 months. In addition, HBD’s maximum



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commitment amount per loan was not to exceed $25 million. There was no

meaningful mitigant identified for these policy violations.

b. Van Dellen’s and Rothman’s decision to approve a $40 million land

loan on property that had only an $8.7 million note was tantamount to an equity

line of credit, and bore little resemblance to residential subdivision financing. It

does not appear as if the borrower intended to utilize any of the surplus funds to

develop the property, and there was no loan budget that accounted for

development. Moreover, the entire commitment amount was to be disbursed at

loan closing. While the CAM did not address this issue, the Senior Loan

Committee noted that “cash out” to the borrower of over $30 million was a policy

exception. Van Dellen’s and Rothman’s decision to approve such a loan without

having the borrower’s updated financial statements and in a deteriorating market

was strikingly risky.

c. The CAM identified a slow housing market and substantial

entitlement issues that might include public opposition from environmental groups

and potential lawsuits. Wohl noted in an e-mail to Perry that “lending on land --

particularly in this dollar amount -- merits more scrutiny in today [sic] market

environment…” Van Dellen’s and Rothman’s decision to approve a loan on

property that might prove not to have development potential was truly risky, as its

value and marketability would drop considerably if it proved undevelopable.

d. HBD’s policy precluded new land acquisition financing transactions

for tracts of land that would not have a recorded tentative tract map within 12

months of closing. Van Dellen and Rothman approved this loan despite the fact

that the property was at least 2-3 years away from receiving a recorded tentative

tract map.

e. The CAM noted that HBD’s policy required a 50% participation on

all loans over $5 million. Van Dellen and Rothman approved this loan without



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making such a participation a condition of closing. A participation was never sold

on this loan.

f. The borrower’s purchase price for the property on September 12,

2002 was $5,602,620. As noted, the appraised value in 2007 was $110 million.

Thus, the collateral value appears overstated. Moreover, while the loan-to-value

ratio was conservative at 36.35%, it necessarily hinged on an appraised value of

$110 million. A 50% drop in land value -- not uncommon in down markets --

would bounce the loan-to-value ratio up to 73%.

g. The borrower’s financial statements were dated as of December 31,

2005, which were unreasonably stale given his large land holdings, and the

drastically changed market conditions present in May 2007. The guarantor, AKT

Development Corp., provided financials from June 2006, which were also stale,

and revealed adjusted equity of negative $17.5 million. HBD’s policy required

business financial statements and personal financial statements within 180 days of

the credit request. The mitigating factor focused on the strength of the borrower’s

and guarantors’ financial conditions in 2004 and 2005, which failed to provide an

actual mitigant.

h. The borrower had 21 other loan facilities as of January 31, 2007.

These loans totaled nearly $200 million, and had an outstanding sum in excess of

$166 million. The vast majority of these facilities were lines of credit and land

loans. IndyMac’s loan was the single largest commitment amongst the 21 other

loans. In addition, this loan was roughly double the size of any prior loan HBD

ever made to this borrower. Van Dellen’s and Rothman’s decision to approve such

a land loan given the market conditions reveals an undue risk taken by HBD.

i. Tsakapoulos’ total liquid assets at underwriting were a little over

$40.5 million, and of that amount, over $39 million were in a line of credit. As of

June 30, 2007, Tsakapoulos had a paltry $83,668 in cash.



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j. The borrower and guarantors were only required to provide annual

financial statements, which minimized HBD’s ability to assess the quality of its

secondary source of repayment in a declining real estate market. HBD’s policy

required quarterly financial statements. There was no meaningful mitigant

provided.

k. Credit officer Denise Gomez (“Gomez”) was very junior and lacked

experience to handle this transaction. Camp stated that while Gomez could verify

the accuracy of the CAM, she may not have had the financial background to

analyze the borrower’s financials for this transaction. The borrower’s financial

condition was of paramount importance to the security of this loan. Van Dellen’s

and Rothman’s decision to approve this loan after HBD’s most junior credit officer

was assigned to it evidenced very questionable judgment.








difficulty.






the loans.




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debt.














market.



market.










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GG. Count Based on Allegations Related to the Loan Made By HBD in the

Alpine Real Property Borrower Relationship.

Count 63



of a Loan to Whittier Ranch Homes LLC for the Whittier Ranch Project)



736. Van Dellen and Rothman approved a loan to Whittier Ranch Homes LLC

for a project known as Whittier Ranch. This loan was entered into on or about May 2,

2007, and provided financing to construct 40 single-family residences and to pay down

an existing construction loan with Security Pacific Bank. The remaining 101 lots that

comprise Whittier Ranch were to remain with Security Pacific Bank. The project was

located in Indio, California. This loan’s term was 12 months. The loan commitment

totaled $10,550,000, and the losses on this loan are estimated to exceed $5 million.

737. The primary source of repayment of this loan was to be the sale of units

constructed in the project. A secondary source of repayment was noted to be support

from the guarantor Lane Lowry and his trust.

738. In the third quarter of 2007, the borrower and guarantors defaulted on their



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liquidity covenant. An updated appraisal report indicated a decline in collateral value.

The borrower informed the Bank of significant financial decline whereby it was unable to

make interest payments on the loan or otherwise repay the loan outside of project

performance.

739. In the fourth quarter of 2007, the borrower reported that it was unable to

obtain certificates of occupancy due to additional improvements/reimbursements required

by the City on HBD’s collateral as well as the adjacent 101 lots held by Security Pacific

Bank. Security Pacific Bank was unwilling to cover any additional expenses and had

initiated foreclosure proceedings on the 101 lots.

740. In the first quarter of 2008, the borrower ceased all construction and

marketing efforts on the project due to IndyMac’s decision to initiate foreclosure

proceedings. A notice of default was recorded on April 24, 2008.

741. The account officer stated that it was a foolish decision on workout with

Whittier Ranch that ultimately led to a bigger loss because the borrower was prepared to

complete the homes. The account officer further stated that the borrowers had agreed to

pay interest out-of-pocket if the Bank allowed them to finish the homes and get them in

sale-ready conditions. In fact, the borrowers sent in their first interest check only to have

management “pull the rug out from underneath them.” This caused the borrowers to

issue a stop payment on the interest check. Approximately 19 homes had been completed

except for floor coverings and countertops. The borrower was also willing to make a

personal guarantee and sign a note on any deficiency on the sale of those notes. But the

borrower needed an additional loan advance, a portion of which was going to be used to

energize street lights for the tract. While the cost to energize the street lights was only

$38,000, the account officer stated that Van Dellen and Rothman did not want to pay for

something that was not part of HBD’s collateral. Shortly after this deal, Van Dellen and

Rothman transferred the account officer out of workout. The account officer explained

that at the time he was taken out of workout, his most recent evaluation demonstrated that



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he was performing at 100% of expectation as a workout officer.




a. The CAM noted that the submarket where this project was located

was over-supplied with 33 months of inventory. The account officer characterized

this as “a lot” of inventory.

b. The borrower and guarantor had large land holdings with 19 projects

in various stages of pre-development and limited interest reserves to draw upon.

They were clearly overextended and had low liquidity at approximately 5%. The

account officer stated that the guarantor maintaining a large land holding was a

weakness because land does not produce any revenue, and it requires large

amounts of revenue to “keep going.”

c. The account officer acknowledged that real estate prices in the

Riverside/San Bernardino area were softening at the time this loan was approved.

d. The account officer conceded that this loan involved a property in the

Indio area, and there was a huge amount of competition there.

e. The account officer conceded that while the secondary source of

repayment identified in the CAM noted that the loan guarantor Lane Lowry and

Trust offered sufficient liquidity and net worth to provide secondary support to the

loan, that proved not to be true because most of Lowry’s real estate holdings were

raw land that was in the entitlement stage, and when land values dropped, land was

particularly impacted and he lost all of his net worth. The account officer

explained that these were all risk factors that were identified in the CAM.

f. The account officer conceded that a problem with this loan was that

the borrower was heavy in land holdings and lacked revenue producing projects,



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and that any borrower that is heavy in land holdings is riskier than a borrower that

is building projects via actual construction loans.








difficulty.






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market.



market.


















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HH. Count Based on Allegations Related to the Loan Made By HBD via PBG

in the Shahvand Aryana and James Braswell Borrower Relationship.

Count 64



to Aryana/Olive Grove Land Development, LLC for The Olive Project)



749. Van Dellen and Shellem approved a loan to Aryana/Olive Grove Land

Development, LLC for a project known as The Olive. The borrower’s equal managing

members were Shahvand Aryana and James Braswell. This loan was a PBG loan that

was entered into on or about March 15, 2006, and provided financing for the acquisition,

development, and construction of 33 lots and the subsequent construction of 14 single-

family homes in Yucaipa, California. This loan had a 12-month term, and the loan

commitment totaled $5,600,000. The losses on this loan are estimated to exceed $2

million.

750. A letter from HBD dated November 6, 2006 advised the borrower that the

final recorded map was due August 1, 2006 and the construction was supposed to

commence on July 1, 2006. The letter requested an update on the status of the map and

warned that the borrower’s failure to obtain a final map or start construction could be

considered an event of default. However, the Bank continued to approve draws and

disburse funds to the borrower.

751. On December 11, 2006, a stop notice and mechanic’s lien was recorded in a

dispute over $36,963.

752. On March 28, 2007, the loan was extended for 60 days. The extension did

not include a requirement to have a final tract map.

753. On April 26, 2007, a letter from HBD advised the borrower that the loan



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term matured on March 14, 2007 and that the following items were outstanding:

recorded mechanics lien, clouded title from wrongfully recorded grant deed and deed of

trust, and the need for current general liability insurance. However, the Bank continued

to approve draws and disburse funds to the borrower.

754. On May 25, 2007, a second extension memorandum was approved with a

10-month term that included an additional advance of $698,500. There was still no final

tract map, and many other items remained unfulfilled by the borrower. The loan was

extended twice despite the fact that a year after funding, the site development was only

74% completed and direct construction work had not begun.

755. On March 28, 2008, a default letter was sent to the borrower. In excess of

$4.2 million was disbursed on the project as of that time. A full payoff demand was

made on July 18, 2008. On August 27, 2008, the borrower sought bankruptcy protection

pursuant to Chapter 11.

756. An original condition of the loan was to have a final map by August 1, 2006,

but no final map had been approved and recorded at the time of the two extensions and

no final map was ever obtained.



of due diligence. In addition, Van Dellen and Shellem in the exercise of due diligence

should have known that their practices and the practices of IndyMac’s employees who


imprudent, and harmful to IndyMac. These risks include, but are not limited, to the

following:

a. The majority of the equity contributed by the borrower was from

market appreciation over the two years prior to funding the loan. HBD advanced

most of the cost of the land as part of the initial loan advance. No cash was

contributed to this deal, which was a policy violation.



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b. The appraisal used for the underwriting of the loan was dated August

6, 2005 and prepared for 1st Centennial Bank, which was more than six months

prior to the anticipated funding. There was no indication in the file that the

appraiser issued a reliance letter for use by IndyMac. IndyMac advanced most of

the cost of the land as part of the initial loan advance.

c. Guarantor Aryana had a FICO score of 645 at the time of the initial

CAM. In addition, there were 40 derogatory credit items on the report.

d. Financial covenants for 2008 were not adhered to. Financial

statements were 298 days past due, tax returns were 328 days past due, and

minimum liquidity was 84 days past due. Yet, funds in excess of $360,000 were

still advanced in 2008. There was a repeated failure to properly supervise loan

disbursements on this loan. In fact, extensive disbursements were made prior to

the borrower obtaining a final tract map.

e. The CAM lacked any background information regarding the

guarantors other than a reference that they “had prior experience.” The slightest

bit of due diligence would have revealed that James Braswell and Shahvand

Aryana had an unsuccessful partnership in other projects from 2006 through 2009

that resulted in ownership battles and lawsuits.

f. James Braswell had an $18,000 tax lien that required resolution before

funding. The guarantor was supposed to provide evidence of the resolution of this

tax lien prior to funding the vertical construction. A note in the Bank file suggests

that the tax lien may have been one of the causes for the delay in the final tract

map. Nonetheless, HBD funded the loan and later extensions.

g. HBD extended the loan twice without obtaining new financial

information and without performing a new credit analysis. The borrower was

clearly having difficulty, but the loan was not downgraded, and no reasonable plan

to retire the loan was presented.



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h. The $5.6 million loan commitment exceeded the policy maximum for

PBG of $5 million. This violation was compounded by the subsequent additional

advance totaling nearly $700,000.

i. The 33 units on this project exceeded PBG’s policy limit of 25 units.








difficulty.






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debt.








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II. Counts Based on Allegations Related to the Loans Made By HBD via

PBG in the John Gates Borrower Relationship.

Count 65



to Caymus Court, LLC for Caymus Court Project)



764. Van Dellen and Shellem approved a loan to Caymus Court, LLC for a

project known as Caymus Court. John Gates (“Gates”) was the principal for Caymus

Court, LLC and provided a full recourse guarantee. This loan was a PBG loan that was

entered into on or about March 30, 2006. The loan provided financing for the

acquisition, development, and construction of 33 lots and the subsequent construction of

9 single-family homes in Paso Robles, California. This loan had a 12-month term, and

the loan commitment totaled $4,150,000. The losses on this loan are estimated to exceed

$850,000.

765. The project experienced entitlement delays. As of July 31, 2007, the loan-

to-value ratio for Caymus Court exceeded 157%. Gates’ net worth declined from $22.4

million as of December 2, 2005 to negative $20.6 million as of December 31, 2007. In

addition, Gates had nearly $62 million in contingent liabilities at that time.







following:



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a. The loan-to-value ratio was 82.42% which was stated to be a policy

exception.

b. The CAM did not identify Gates’ prior experience with residential

developments. The workout officer conceded that she discovered that Gates’

experience was almost entirely with commercial real estate.

c. There was no analysis of the borrower or guarantor’s contingent

liabilities set forth in the CAM. The workout officer conceded that the guarantor

proved to not be a viable secondary source of repayment because he was pursued

by many other lenders on other projects he was involved in. She further

acknowledged that this information should have been reflected at origination by


d. The CAM failed to identify that Gates had several legal actions

against him over the years, he had a possible bankruptcy in the early 90s, had

several state and federal tax liens, and had $770,000 in delinquent taxes. The

workout officer stated that this information should have been included in the CAM.








difficulty.







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the loans.




debt.












market.



market.









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Count 66



to Poplar Pointe, LLC for Poplar Pointe Project)



773. Van Dellen and Shellem approved a loan to Poplar Pointe, LLC for a project

known as Poplar Pointe. Gates was the principal for Poplar Pointe, LLC and provided a

full recourse guarantee. This loan was a PBG loan that was entered into on or about June

13, 2006. The loan provided financing for the acquisition, development, and construction

of 8.36 acres of raw land in Wasco, California into 39 finished lots and to construct

detached single-family residences on the finished lots. This loan had a 15-month term,

and the loan commitment totaled $9,925,000. The losses on this loan are estimated to


774. HBD agreed to reset the minimum liquidity requirement several times after

the loan was approved. This loan matured on September 13, 2007. A notice of default

was filed on October 30, 2007. The Bank foreclosed on May 14, 2008.




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following:

a. The CAM did not identify any of Gates’ other projects. Van Dellen

and Shellem approved the Caymus Court loan to Gates, and should have known

that the CAM was lacking pertinent information regarding Gates’ other projects

and his contingent liabilities. The workout officer acknowledged that this

information should have been provided and considered as a part of “prudent

underwriting” because it reflects on the guarantor’s ability to repay the loan if the

project failed.

b. The CAM did not discuss Gates’ prior experience with residential

projects. The workout officer assigned to this loan conceded that his prior

experience was exclusively with commercial projects.

c. This loan involved a large loan commitment and large number of units

for PBG, which increased risk. In fact, the 39 units violated PBG credit policy.

d. The borrower only contributed $600,000 in cash equity to this loan,

which violated PBG’s credit policy. The workout officer assigned to this loan

indicated that the cash equity was insufficient for this loan.

e. The workout officer indicated that there were enough red flags

relating to whether the guarantor had contingent liabilities such that the approving

loan committee members had enough information to inquire further of the account

officer.



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f. The loan was underwritten with 2004 tax information despite the fact

that it was approved in mid-2006. The workout officer characterized the financial

statements as being “pretty stale.” The cash flow in 2004 was negative.

g. Wasco is a commuter market for Bakersfield, which means that it

would be impacted first and hardest by a downturn in real estate.

h. The seller of the property carried back a note that was payable by the

borrower. HBD considered this third-party debt as borrower equity, which was

inherently risky.








difficulty.






the loans.




debt.




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market.
















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Count 67

(Claim for Negligence and Breach of Duty of Care Against Van Dellen Related to

the Underwriting, Administration, Extension and Modification of a Loan to Paso

Robles VII, LLC for Windmill Ranch Estates Project)



782. Van Dellen approved a loan to Paso Robles VII, LLC for a project known as

Windmill Ranch Estates. Gates was the principal for Paso Robles VII, LLC and provided

a full recourse guarantee. This loan was a PBG loan that was entered into on or about

December 19, 2006. The loan provided financing for the acquisition of seven estate-

sized lots in Paso Robles, California. This loan had a 12-month term, and the loan

commitment totaled $4,150,000. The losses on this loan are estimated to exceed $1

million.

783. Van Dellen approved, renewed and/or extended this loan despite substantial

known risks and or risks that should have been known in the exercise of due diligence. In

addition, Van Dellen in the exercise of due diligence should have known that their

practices and the practices of IndyMac’s employees who reported to them and over

whom they exercised supervisory control, were improper, imprudent, and harmful to

IndyMac. These risks include, but are not limited, to the following:

a. The CAM noted that the bulk of Gates’ net worth was in 14

partnership LLC interests valued at over $45 million. The workout officer for this

loan stated that she would expect to see contingent liabilities associated with those

partnerships. Nonetheless, there were no contingent liabilities identified in the

CAM.



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b. The CAM did not discuss Gates’ prior experience with residential

projects. The workout officer assigned to this loan conceded that his prior

experience was exclusively with commercial projects.

c. There were 34 months of supply in Paso Robles at the time the loan

was approved.

d. This loan caused HBD to violate its total loans to one borrower limit.

e. The appraisal report used to underwrite this loan was dated April 10,

2006, which violated PBG credit policy.

f. The price point for the completed project was going to be 163% of

median prices.

784. Van Dellen knew, or in the exercise of due diligence should have known,

that his practices and the practices of IndyMac’s employees who reported to him and over

whom he exercised supervisory control, were improper, imprudent, and harmful to

IndyMac. The negligence and breaches of duty by Van Dellen in regard to this loan




difficulty.






the loans.






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debt.














market.



market.



785. Van Dellen as an officer, owed IndyMac the obligation to exercise the

degree of care, skill and diligence that ordinarily prudent persons in like positions would

use under similar circumstances in the management, supervision and conduct of

IndyMac’s business and financial affairs.

786. By his actions and inaction, as generally and specifically described above,

Van Dellen failed and neglected to perform his duties properly as an officer of IndyMac

and breached his fiduciary duty of care to IndyMac.



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787. As a direct and proximate result of the negligence of Van Dellen, Plaintiff

has suffered losses and other compensatory and consequential damages, in amounts to be

established at trial.

JJ. Count Based on Other Loans Resulting in Losses

Count 68

Claim for Negligence and Breach of Duty of Care Against All Defendants Related to

the Underwriting, Administration, Extension and Modification of Loans Not

Specifically Detailed as an Individual Count)



789. Subsequent to the seizure of the Bank by the FDIC, 108 HBD loans were

sold to OneWest Bank. Based upon information and belief, only two of the 108 loans are

performing or performed. In addition, Plaintiff did not sell a number of loans where the

collateral had been foreclosed and was held as REO. Based upon information, these

loans have an unpaid balance exceeding $280 million, a percentage of which will result

in losses to Plaintiff in an amount to be established at trial.




IndyMac. The negligence and breaches of duty by Defendants in regard to these loans




difficulty.






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i. Causing or allowing a loan to be made outside the normal and prudent




k. Causing or allowing a loan to be made, renewed, and/or extended


market.

l. Causing or allowing a loan to be made, renewed or extended despite


market.

m. Causing or allowing a loan to be made, renewed or extended where



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VII. PRAYER FOR RELIEF.

WHEREFORE, Plaintiff prays for relief against Defendants as follows:

A. For compensatory and consequential damages, jointly and severally, in an

amount to be proven at trial;

B. For its costs of suit against all Defendants;

C. For prejudgment interest;

D. For attorneys’ fees, costs for the investigation and litigation, and interest;

and


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E,. For such other and further relief as this Court deems just and proper.

JULY 2,2OIO NOSSAMAN LLPTHOMAS D. LONGDAVID GRAELER

ATTORNEYS FOR FEDERAL DEPOSITINSURANCE CORPORATION, AS RECEIVEROF INDYMAC BANK, F.S.B.

JURY DEMAND

The Plaintiff requests a trial by jrrty for all claims alleged herein.

Respectfully submitted this 2nd day of July, 2010.

NOSSAMAN LLPTHOMAS D. LONGDAVID GRAELER

ATTORNEYS FOR FEDERAL DEPOSITINSTIRANCE CORPORATION, AS RECEIVEROF INDYMAC BANK, F.S.B.

393199.1 DOC -309-

DAVID GRAELER

COMPLAINT


UNITED STATES DISTRICT COURTCENTRAL DISTRICT OF CALIFORNIA

NOTICE OF ASSIGNMENT TO UNITED STATES MAGISTRATE JUDGE FOR DISCOVERY

This case has been assigned to District Judge Ronald S. W. Lew and the assigned

discovery Magistrate Judge is Stephen J. Hillman.

The case number on all documents filed with the Court should read as follows:

Cv10- 4915 RSWL (SHx)

Pursuant to General Order 05-07 of the United States District Court for the Central

District of Californi a, the Magistrate Judge has been designated to hear discovery related

motions.

All discovery related motions should be noticed on the calendar of the Magistrate Judge

:::::::::::::::::::::::::::::: :: -NOTICE TO COUNSEL

A copy of this notice must be served with the summons and complaint on all defendants (if a removal action isfiled, a copy of this notice must be served on all plaintiffs).

Subsequent documents must be filed at the following location:

[X] Western Division U Southern Division U e"9!"In Division- - 312 N. Spring St., Rm. G-8 4ll West Fourth St., Rm. 1-053 3470 Twelfth St., Rm. 134Los Angeles, CA 90012 Santa Ana, CA927014516 Riverside, CA 92501

Failure to file at the proper location will result in your documents being returned to you.

cv-18 (03/06) NOI|CE OF ASSTGNMENT TO UNTTED STATES MAGTSTRATE JUDGE FOR DISCOVERY


Name & Address:

Nossaman LLPThomas D. Long (SBN 105987)

David Graeler (SBN 197836)

445 S. Figueroa Street, 3lst Floor

Los Angeles, CA 90071

UNITED STATES DISTRICT COURTCENTRAL DISTRICT OF CALIFORNIA

CASENUMBERFEDERAL DEPOSIT INSURANCE

CORPORATION, AS RECEIVER FOR INDYMAC

BANK, F.S.B.PLAINTIFF(S)

SCOTT VAN DELLEN, RICHARD KOON,

KENNETH SHELLEM, AND WILLIAMROTHMAN

DEFENDANT(S).

CtJ 10 4e15-P5

SUMMONS

SCOTT VAN DELLEN, RICHARD KOON, KENNETH SHELLEMTO: DEFENDANT(S):AND WILLIAM ROTHMAN

A lawsuit has been filed against you.

Within 2l days after service of this summons on you (not counting the day you received it), you

must serve on the plaintiff an answer to the attached Ú complaint fl amended complaint

n counterclaim tr cross-claim or a motion under Rule l2 of the Federal Rules of Civil Procedure. The answer

or motion must be served on the plaintiffls attorney, Nossaman LLP445 S Fioreroa Streef- ilstFloor- I.os Anseles. CA 90071

whose address is

445 S. Fisueroa Street, 31st Floor, Los Angeles, CA 90071 . If you fail to do so,

judgment by default will be entered against you for the relief demanded in the complaint. You also must fileyour answer or motion with the court.

Clerk, U.S. District Court

Dated:r'ó A JUL m

(Seal of the Court)

[(Jse 60 days if the deþndant is the United States or a United States agency, or is an fficer or employee of the United States- Allowed

60 days by Rule I2(a)(3)1.

cv-OlA (12107) SUMMONS


UNITED STATES DIS:TRT€T COURT; CENTRAL DISTRTCT OF CALIFORJYIACIVIL COVER SHEET

I (a) PLAINTIFFS (Check box ifyou are representing yourself D)

Federal Deposit lnsurance Corporation, as Receiver forlndyMac Bank, F.S.B.

(b) Attorneys (Fim Name, Address and Telephone Number. Ifyou are representingyourself, provide same.) Nossaman LLP

Thomas D. Long (SBN 105987)David Graeler (SBN 197836)445 S. Figueroa Street,31st FloorLos Angeles, CA 90071

BASIS OF JURISDICTION (Place an X in one box only.)

El I U.S. Govemment Plaintiff t 3 Federal Question (U.S.Govemment Not a Party)

n 2 U.S. Govemment Defendant tr 4 Diversity (lndicate CirizenshipofParties in ltem III)

DEFENDANTS

Van Dellen, ScottKoon, RichardShellem, KennethRothman, \MIliam

Attomeys (lf Known)

III. CITIZENSHIP OF PRINCIPAL PARTIES - For Diversity Cases Only(Place an X in one box for plaintiffand one for defendant.)

Citizen of This State

Citizen of Another State

Citizen or Subject ofa Foreign Country

PTF DEF PTF DEFDl trl IncorporatedorPrincipalPlace E4 D4

of Business in this State

D2 D2 IncorporatedandPrincipalPlace tr5 n5ofBusiness in Another State

tr3 tr3 ForeignNation tr6 tr6IV.

EII

ORIGIN (Place an X in one box only.)

Original !2 Removedfrom E3 Remandedfrom D4 ReinstatedorProceeding State Court Appellate Court Reopened

E 5 Transferred from another district (specifo): E 6 Multi- E 7 Appeal to DistrictDistrict Judge fromLitigation Magistrare Judge

V. REQUESTEDINCOMPLAINT: JURYDEMAND: E]Yes

CLASS ACTION under F.R.C.P.23: D Yes E No

tr No (Check'Yes'only if demanded in complaint.)

Et MoNEy DEMANDED IN coMpLAINT. $ 350 m¡ll¡on +

VI. CAUSE OF ACTION (Cite the U.S. Civil Statute under which you are filing and write a brief statement of cause. Do not cite jur¡sdictional statutes unless diversity.)

Negligence and breach of fiduciary duties.VII. NATURE OF SUIT (Place an X in one box only.)

Wt 400 State Reapportionment Insurance

MarineMiller ActNegotiable InstrumentRecovery ofOverpayment &Enforcement ofJudgmentMedicare ActRecovery ofDefaulted

130140

t50

Itr l5ltf t52

lwlHÈå*Þ.ÞXf; ffiñfr'13.ú.;*i.{l$lïfi#trffiffiffi:rÊf;Itrìîö"örk;Ë;";å - 'ln:zt rruttr in LendinglE 380 otherPersonal

I Property Damage

Itr 385 Property Da*ageI Product Liabiliwffiú 422 Appeal 28 USC

158tr 423 Withdrawal 28

USC I57

ffiffiffiD zl4l VotingE zl42 Employmentt3 zl43 Housing/Acco- ]

mmodations i

ll444 Welfare I

D ¿f45 Ame¡ican with I

lJlsablht¡es - |

Employment I

E 446 Ame¡icæ with I

l)isahilities - I

other I

D 440 Other Civil I

Riehts I

Fair Labor StandardsActLabor/Mgmt.RelationsLabor/Mgmt.Reporting &Disclosure ActRaìlway Labor ActOther LaborLitigationEmpl. Ret. Inc.Securitv Act

tr 820 CopyrightsE 830 Patent

E 840 TrademarkWr 861 HrA (r39sf0û 862 Black Lung (923)D 863 DrWC/DIWW

(¿05(e))tr 864 SSID Title XVIn 865 RSI 14051ø)l

870 Taxes (U.S. Plaintiffor Defendant)IRS-Third Party 26

USC 7609

710

720

730

740790

79t

871

tr 410Et 430û 450

trl460t 470

tr 480E 490tr 810tr 850

AntitrustBanks and BankingCommerce/lCCRates/etc.

DeportationRacketeer lnfluencedand Com.rptOrganizationsConsumer CreditCable/Sat TVSelective ServiceSecurities/Commodi ties/Exchange

E 875 CustomerChallenge l2usc 3410

E 890 Other Statutory ActionsE 891 Agricultural ActD 892 Economic Søbilization

ActE 893 Environmental Matteßt 894 Energy Allocation ActE 895 Freedom oflnfo. Actü 900 Appeal ofFee Determi-

nation Under EqualAccess to Justice

E 950 Constitutionality ofState Statutes

Itr 310 AirplaneItr 3 l5 Airplane Producr

I I-iauitity

l! 320 Assault, Libel &Slander

! 330 Fed. Employers'Liability

tr 340 MarineD 345 Marine Product

LiabilityD 350 Motor VehicleO 355 Motor Vehicle

Product Liability! 360 OtherPersonal

Injurytr 362 Personal Injury-

Med MalpracticeÍ 365 Personal Injury-

Product LiabilityD 368 Asbestos Personal

Injury ProductLiability

Motions toVacate Sentence

Habeas CorpusGeneralDeath PenaltyMandamus/OtherCivil RightsPrison Condition

510

530535

s40

l-¡nE

fr 550D 555

Student Loan (Excl.Veterans)

û 153 RecoveryofOverpayment ofVeteran's Benefìts

! 160 Stockholders'SuitsD 190 OtherContractE 195 Contract Product

LiabilityD 196 Franchiseffi!210 LandCondemnation

ffiffiffiWû610 Agriculture! 620 Other Food &

DrugD 625 Drug Related

Seizure ofProperty 2 I USC881

tr 630 Liquorlaws¡ 640 R.R. & Trucktr 650 Airline Regs

D 660 OccupationalSafety /Health

1690 Other

n 220 Foreclosure3 230 Rent Lease & Ejectmentf 240 Torts to LandI 245 Tort Product LiabilityI 290 AII OtherReal Propeny

WîffiqffiI462 Naturalization

ApplicationJ 463 Habeas Corpus-

AIien Detaineef 465 Other lrnmigation

Actions

FOR OFFICE USE ONLY: Case Number:

AFTER COMPLETING THE FRONT SIDE OF FORM CV-71, COMPLETE THE TNFORMATION REQUESTED BELOW.

cv-7r (05/08) CIVIL COVER SHEET Page I ol2


UNITEDSTATES DISTRICT EOURT, CENTRAL DÍSTRIET OF CALTFORNIACIVIL COVER SHEET

VIII(a). IDENTICAL CASES: Has this action been previously filed in this court and dismissed, remanded or closed? El No ü Yeslfyes, list case number(s):

IX.

(a)

VII(b). R-ELATED CASES: Have any cases been previously filed in this court tbât are related to the present case? E No E YesIfyes, list case number(s):

Civil cases are deemed related if a previously filed case and the present case:

(Check all boxes that apply) tr A. Arise from the same or closely related transactions, happenings, or events; or

tr B. Call for determination of the same or substantially related or similar questions of law and fact; or

IC. Forotherreasonswouldentailsubsøntialduplicationoflaborifheardbydifferentjudges;or

! D. lnvolve the same patent, trademârk or copyright, and one of the factors identified above in a, b or c also is present.

VENUE: (When completing the following information, use an âdditionâl sheet if necessary.)

List the County in this District; California Counry outside of this District; State if other than Califomia; or Foreign Counrry, ìn whìch EACH named plaintiff resides.!l Check here lt the government. rts aqencres or emDlovees rs a named Dla¡ntitt. lfthis box is checked. so to item

Counfy in this District:* Califomia County outside of this District; State, if othe¡ than Califomia; or Foreign Country

(b) List the County in this District; Califomia Counry outside of this District; State if other than Califomia; or Foreign Country, in which EACH named defendant resides.Check here if

(c) List the County in this District; Califórnia County outside of this District; State if other than Califomia; or Foreign Country, in which EACH claìm arose.

Note: In land condemnation cases, use the locâtion of the tract of land involved.

Counfy in this District:* Califomia County outside of this District; State, if other than Califomia; or Foreign Country

Los Angeles

* Los Angeles, Orange, San Bernardino, Riverside, Ventura, Santa Barbara, or San Luis Counties

X. SIGNATURE OF ATTORNEY (OR PRO PE ¡,1" July 2,2010

Notice to CounseVParties: The CV-7 I (JS44) Civil Cover Sheet and the information contained herein neither replace nor supplement the fìling and service ofpleadingsor otherpapers as required by law. This form, approved by the Judicial Conference ofthe United States in September 1974, is required pursuant to Local Rule 3- I is not filed

Key to Statistical codes relating to Social Sècurity Cases:

Nature ofSuit Code Abbreviation Substantive Statement of Cause of Action

All claims for health insurance benefits (Medicare) under Title I 8, Part A, of the Social Security Act, as amended.Also, include claims by hospitals, skilled nursing facilities, etc., for certification as providers ofservices under theprogram. (42 U.S.C. l935FF(b)

All claims for "Black Lung" benefits under Title 4, Part B, of the Federal Coal Mine Health and Safety Act of I 969.(30 u.s.c. 923)

All claims filed by insured workers for disability insurance benefits under Title 2 of the Social Securiry Act, as

amended; plus all claims fìled for child's insurance benefits based on disability. (a2 U-S.C. a05(g))

All claims filed for widows or widowers insu¡ance benefits based on disability under Title 2 of the Social SecurityAct, as amended. (a2 U.S.C. a05@))

AII claims for supplemental security income payments based upon disability filed underTitle l6 ofthe Social SecurityAct, as amended.

All claims for retirement (old age) and survivors benefits under Title 2 of the Social Security Act, as amended. (42

u.s.c. (e))

862

V¡d

861 HIA

BL

DIWC

DIWW

SSID

RSI

863

8ó3

8U

u uneck nere ll me rtS or to ¡tem

County in this District:+ Califomia County outside of this Dist¡ict; State, if othe¡ than Califomia; or Foreign Country

Los Angeles

cv-7 r (05/08)

86s

CIVIL COVER SHEET Page2 oî2


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