Judge: Wells Fargo Fails to Follow Its Own Mortgage Contracts

Econintersect:  Buried in the middle of an article at FireDogLake which discusses the approval by a federal judge of the $25 billion foreclosure fraud settlement arranged by the states’ attorney generals and the U.S. Dept. of Justice is a much more important news item.  The buried case found in a federal court in Louisiana that Wells Fargo Home Mortgage Inc. violated its own mortgage contract to the detriment of the mortgaged home owner.  What is amazing about the decision is that the judge found that Wells Fargo was not acting illegally in this one case but that it had been systematically in violation of all Wells Fargo mortgage contracts.  Click on cartoon for larger picture of a bank serving its clients.

The essence of the Wells Fargo transgression was that it applied mortgagor payments first to fees and legal expenses.  The mortgage contract required that all payments be applied first to principal, interest and escrow before any added fees or costs are paid.  The court determined that this illegal action was standard practice:

The evidence established the utilization of this application method for every mortgage loan in Wells Fargo’s portfolio.

Here is another excerpt from the decision:

Wells Fargo has taken advantage of borrowers who rely on it to accurately apply payments and calculate the amounts owed. But perhaps more disturbing is Wells Fargo’s refusal to voluntarily correct its errors. It prefers to rely on the ignorance of borrowers or their inability to fund a challenge to its demands, rather than voluntarily relinquish gains obtained through improper accounting methods. Wells Fargo’s conduct was a breach of its contractual obligations to its borrowers. More importantly, when exposed, it revealed its true corporate character by denying any obligation to correct its past transgressions and mounting a legal assault ensure it never had to.  Society requires that those in business conduct themselves with honestly and fair dealing. Thus, there is a strong societal interest in deterring such future conduct through the imposition of punitive relief.

Another excerpt:

Wells Fargo has taken the position that every debtor in the district should be made to challenge, by separate suit, the proofs of claim or motions for relief from the automatic stay it files.

It has steadfastly refused to audit its pleadings or proofs of claim for errors and has refused to voluntarily correct any errors that come to light except through threat of litigation. Although its own representatives have admitted that it routinely misapplied payments on loans and improperly charged fees, they have refused to correct past errors. They stubbornly insist on limiting any change in their conduct prospectively, even as they seek to collect on loans in other cases for amounts owed in error.

Emphasis added by Econintersect.

The judgment also includes these statements:

• Wells Fargo’s conduct is clandestine.
  

• Wells Fargo simply stopped communicating with Jones once it deemed him in default.

• … an arrogant defiance of federal law is demonstrated,…

• … reckless disregard of the protected right…

The judgment awarded the plaintiff $317,000 in damages plus punitive damages of $3,170,000 (ten times the compensatory award).  The large punitive award is justified by the following statement:

Wells Fargo’s actions were not only highly reprehensible, but its subsequent reaction on their exposure has been less than satisfactory.

John Lounsbury

Sources:

• Foreclosure Fraud Settlement Rubber-Stamped by a Federal Judge (David Dayden, FireDogLake, 6 April 2012)

• DOJ Press Release on Mortgage Abuses Settlement (GEI News, 9 February 2012)

• Michael Jones vs. Wells Fargo Home Mortgage, Inc. (United States Bankruptcy Court, Eastern District of Louisiana, Case No. 03-16518, Section A Chapter 13 Adversary No. 06-1093, Filed and Entered 04/05/12)