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More Mortgage Lawsuits Filed

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The latest activity in mortgage-related litigation focuses on home-equity lines-of-credit, payment history reporting to credit bureaus and subprime ratings. Ellie Mae responded to allegations that it used its monopoly in the mortgage transaction process to put a document preparation firm out of business.

A class action complaint was filed against Wells Fargo Bank, N.A., on Sept. 9 in U.S. District Court for the Northern District of California on behalf of HELOC borrowers, the law firm of KamberEdelson LLC announced. The bank is accused of freezing millions of dollars in lines based on “falsely claiming” that borrowers finances had materially changed.

Wells also allegedly violated the Truth-in-Lending Act by suspending HELOCs based on disputed derogatory credit items. The lead plaintiff, Marika Hamilton, allegedly lost her credit line over a disputed $25 late charge.

“We are confident in our fair and responsible lending practices, including how we determine home equity credit limits available to customers depending on the amount of equity in their home,” Wells said in a prior statement to MortgageDaily.com. “Our controls are based on contractual and regulatory guidelines and include a fair appeals process.”

In another case, the California Court of Appeal, Fourth Appellate District in Riverside, reduced a $1 million judgment against Wells Fargo Home Mortgage to $500,000, according to a news release from the plaintiff’s attorney Robert F. Brennan. The judgment was originally awarded by the Superior Court in Rancho Cucamonga, San Bernardino County, for $765,000 in actual and punitive damages and $283,594 in attorneys fees.

Plaintiffs Reed and Mary Ann Fisher’s San Clemente, Calif., home had been “red-tagged” due to land instability, so they obtained a forbearance agreement from Wells, the statement said. The loan was subsequently transferred to Freddie Mac, which charged it off. The Fishers allege that Wells violated the Fair Credit Reporting Act by inaccurately reporting their loan as delinquency over a two-year period, hurting their credit scores and leading to credit denials.

DocMagic Inc. was terminated from Ellie Mae’s ePASS Network because it wouldn’t sign an updated agreement, according to a formal statement from Ellie in response to an Aug. 28 lawsuit filed by DocMagic. Ellie is accused of using its monopoly to squeeze DocMagic out of the $200 million document services market and direct the business to its own documentation service — Online Documents Inc.

But in its statement, Ellie said that the existing ePASS technology and reseller agreements it had with DocMagic were set to expire on Sept. 1. It notified DocMagic on May 21 that it would not renew the outdated agreement and proposed a new agreement. But DocMagic failed to respond.

While the lawsuit claims Ellie “took drastic steps to prevent hundreds of current DocMagic/Encompass users from accessing DocMagic products,” Ellie claims DocMagic violated its copyrights by trying to induce its customers to breach their license agreements and by trying to bypass Ellie’s technology and get access to its servers and software.

Ellie alleges that DocMagic abruptly stopped servicing the two firms’ mutual customers on Aug. 31 even though it had a two-month transition period available. The statement noted that the ePASS network supports “10 of the industry’s leading document services providers.”

“This is about one vendor that is displeased to be losing the overly favorable terms it negotiated a long time ago,” Ellie Mae Chief Strategy Officer Jonathan Corr said in the statement.

A federal judge ruled that the parent companies of Moody’s Investors Service and Standard & Poor’s Ratings Services must defend themselves in a lawsuit filed by Abu Dhabi Commercial bank and Washington State’s King County, according to an Opinion and Order filed on Sept. 2. Also named as defendants are Morgan Stanley & Co. and The Bank of New York Mellon. The case centered around subprime residential mortgage-backed securities.

However, U.S. District Judge Shira A. Scheindlin granted a motion for dismissal by Bank of New York.

Hahn & Hessen LLP announced last month that it was selected as counsel to the official committee of unsecured creditors in the Chapter 11 Bankruptcy cases filed by Extended Stay Inc. and its affiliates in U.S Bankruptcy Court for the Southern District of New York. The case is the “largest hotel bankruptcy in history,” with Extended Stay maintaining “one of the largest and most complicated commercial mortgage-backed securities structures.”

More than 5,000 laid off employees from failed First Magnus Financial Corp. are expected to receive around half of their final pay outstanding over the next month-and-a-half, the Arizona Daily Star reported. But a pending class action lawsuit by a group of employees over alleged violations of the Worker Adjustment and Retraining Notification Act could get in the way if the dismissal by the bankruptcy judge is overturned by the U.S. 9th Circuit Court of Appeals.

The Wall Street Journal reported that former Countrywide chief Angelo Mozilo is seeking a dismissal in the Securities and Exchange Commission’s lawsuit against him because of misquoted evidence and ignored company disclosures.

The law firm of Dimond Kaplan & Rothstein, P.A., issued a Sept. 10 statement indicating that it is investigating alleged recommendations by Bank of America that borrowers refinance their home loans and use the proceeds to invest in securities and risky derivatives. The law firm cited alleged recommendations by BoA to invest proceeds from home-equity lines-of-credit with Agape World Inc. and Nicholas Cosmo — who has been arrested for allegedly running a $400 million Ponzi scheme.

Marika Hamilton, an individual, on her own behalf and on behalf of all others similarly situated, Plaintiff, v. Wells Fargo Bank, N.A., Defendant.
Sept. 9, 2009 (U.S. District Court for the Northern District of California).

Reed & Mary Ann Fisher v. Wells Fargo Home Mortgage.
Appellate Case No. E043771 (Court of Appeal of the State of California, Fourth Appellate District, Division Two).

DocMagic Inc., a California Corporation, Plaintiff, v. Ellie Mae Inc., a California corporation; and Does 1 through 10, inclusive, Defendants.
Case No. CV 09 4017, Aug. 28, 2009 (U.S. District Court for the Northern District of California).

Abu Dhabi Commercial Bank et al v. Morgan Stanley & Co. Incorporated et al.
Case No. 1:08-cv-07508-SAS, Aug. 25, 2008 (U.S. District Court for the Southern District of New York).

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