A lawsuit filed against Wells Fargo claims that the mortgage servicer induced some borrowers to default on their mortgages in an effort to increase servicing fees. Attorneys in the case seek class-action certification.
A complaint was filed Tuesday against the company in U.S. District Court for the Northern District of California. Named as defendants are Wells Fargo & Co.; Wells Fargo Home Mortgage; and Wells Fargo Bank, N.A., doing business as America’s Servicing Co.
A copy of the complaint was provided by the plaintiff’s law firm, Harwood Feffer LLP — which is seeking class-action certification.
The servicer is accused of inducing the plaintiffs — borrowers with mortgages serviced by Wells Fargo who sought a loan modification under the Home Affordable Modification Program — to default on their mortgages and breach their mortgage agreements even though HAMP modifications have “no requirement that a mortgage borrower be in default” to be eligible for the program.
According to the lawsuit, the induced breach was an effort by Wells Fargo to collect “substantial” late charges, interest and penalties.
The borrowers were allegedly current on their loans when they initially requested the modifications. But Wells Fargo’s alleged actions left them with ruined credit.
“Because [Wells Fargo] collects and retains late fees, interest and penalties from borrowers who default on their mortgage loans, regardless of whether those borrowers’ loan modification requests are granted or denied, [Wells Fargo] is motivated to induce borrowers to default,” the complaint says. “Stated otherwise, [Wells Fargo] makes more money off borrowers facing foreclosure than it does from borrowers in good standing.
“In short, [Wells Fargo] sets up borrowers to fail.”
While just a small share of the modification requests were actually approved, the lawsuit alleges all borrowers were hit with the fees whether or not their requests were approved.
“Plaintiffs bring this class action against defendants for breach of the implied covenant of good faith and fair dealing, equitable estoppel, inducing breach of contract, unjust enrichment, and for unlawful, unfair, or fraudulent business practices in violation of California Business & Professions Code 17200, et seq.,” the complaint states.
Wells Fargo was unable to immediately respond to a request for a statement.
The company has completed 50,815 HAMP modifications as of Sept. 30 since the program was launched, according to data reported by the Department of the Treasury. Wells Fargo’s servicing portfolio stood at $1.8 trillion as of Sept. 30.
Harwood Feffer estimates that the number of class members is in the “tens of thousands.”
The plaintiffs are seeking compensatory damages; restitution for fees, interest and penalties; and an injunctive relief that halts the alleged illegal practices by Wells Fargo. The amount of the claims exceed $5 million.
Keith and Ying Forster, Sonya Foster, Gregory McNutt, Wendy Scribner, Michelle Wilkinson, Dana Moody, Florin Moldovan, John Jones and Martine Sonnon-Jones, Ralph and Nancy Iannuzzi, Bryan Weisz, Alma Quezada, and Todd and Lisa Phillips, Individually and on behalf of all others similarly situated, Plaintiffs, v. Wells Fargo & Co.; Wells Fargo Home Mortgage; and Wells Fargo Bank, N.A., doing business as America’s Servicing Co., Defendants.
Case No. , Nov. 23, 2010 (U.S. District Court for the Northern District of California).
