Tag Archives: Wells Fargo

Strike Two for Wells Fargo, Says 9th Circuit

Second strikeIn its second opinion this summer that involved Wells Fargo and mortgage modifications, the Ninth Circuit ruled that Wells Fargo violated the Equal Credit Opportunity Act (ECOA) when it agreed modify the mortgage of Mr. and Mrs. Schlegel, accepted payments from them under the new agreement, but then pursued foreclosure anyway.

(In the other case this summer, the Ninth Circuit told Wells Fargo that it cannot enter into a trail plan period agreement with a homeowner under the HAMP program, and then fail to live up to its end of the bargain after the homeowner has done his part.  See 9th Circuit Tells Wells Fargo: You Can’t Have Your Cake and Eat it Too.)

Saying Sorry Is Not Enough

In 2010, Wells Fargo and the Schlegels entered into an agreement that modified their mortgage. The Schlegels began making payments in accordance with the new agreement. When the Schlegels received a default notice from Wells Fargo, they contacted the bank. When they got no action, they eventually filed a lawsuit. After receiving the lawsuit, Wells Fargo sent two more default notices. After the fifth notice (and presumably after a lawyer finally read the Shlegels’ complaint), Wells Fargo admitted that the default notices were sent in error.

According to the Ninth Circuit, Wells Fargo’s belated apology was not enough to get it off the hook. Schlegel v. Wells Fargo, No. 11-16816 (9th Cir. July 3, 2013) It ruled that Wells Fargo’s threats to foreclose on the Schlegels violated the modification agreement and therefore also violated the section of the ECOA that prohibits lenders from taking an “adverse action” without providing the consumer with a statement of reasons for taking such action.

(The Schlegels also argued that Wells violated the Federal Fair Debt Collection Practices Act, but the court said that Wells did not qualify as a “debt collector” for purposes of the act.)

Wells Fargo Cannot Rely on Its Own Wrongdoing to Get Out of Liability

Wells Fargo  argued that it didn’t violate the ECOA because it’s threats of foreclosure violated the modification agreement and therefore were unenforceable. Because the threats were unenforceable, said Wells, they didn’t really constitute an adverse action. What???  Yep, that’s what the Ninth Circuit thought too. You can’t rely on the illegality of your actions, said the court, to get out of liability.

Dual-Tracking Now Expressly Prohibited in California

While the Schlegels had to rely on the ECOA in seeking monetary damages for Wells’ egregious actions, getting relief is now more straightforward. The events in the Schlegels case arose in 2010. Since then, the California legislature passed the California Homeowner Bill of Rights, which prohibits a mortgage holder from pursing foreclosure while its considering a loan modification. The new law provides a private right of action (meaning consumers can sue) and allows for monetary damages. (To learn more, see Nolo’s article California Foreclosure Protection: The Homeowner Bill of Rights.)

9th Circuit Tells Wells Fargo: You Can’t Have Your Cake and Eat it Too

Processed by: Helicon Filter;In a recent case, the Ninth Circuit Court of Appeals told Wells Fargo that it had to live up to its part of the bargain when dealing with modifications under the federal HAMP program.

HAMP and the Trial Period Plan

In that case, Corvello v. Wells Fargo (and its companion case Lucia v. Wells Fargo), the homeowners applied for mortgage modifications under the federal Home Affordable Modification Program (more commonly known as HAMP).  Although lender participation in the HAMP program is voluntary (lenders get monetary incentives to join in), if a lender does choose to offer HAMP modifications, it must comply with program rules.  (To learn more about HAMP, see the articles in Nolo’s  Federal Making Home Affordable Programs topic page.)

In accordance with HAMP rules, Wells provided the homeowners with a trial period plan (TPP). Under the TPP, the homeowners were to submit required documentation so that Wells could determine HAMP eligibility. The homeowners also had to make trial payments to Wells. The TPP also lays out Well’s obligations.

  • If Wells determined that the homeowners did not qualify for modifications, Wells was required to notify them of this fact and immediately end the period of trial payments.
  • If Wells determined that the homeowners did qualify and the homeowners made all trial payments, Wells was required to offer the homeowners permanent mortgage modifications.

Mr. Corvello kept his end of the bargain – he submitted all required documentation and made the trial payments. Wells Fargo didn’t keep its end of the bargain. It accepted and kept all of Mr. Corvello’s trail payments, yet:

  • it never notified Mr. Corvello that he did not qualify for HAMP
  • nor did it offer him a permanent modification.

The facts in the Lucias’ case were similar, except that Wells actually foreclosed on their home.

The Ninth Circuit Says:  Wells Fargo Is Not King

When taken to court, Wells argued that it was not “contractually obligated” to offer Mr. Corvello or the Lucias a permanent loan modification.

The Ninth Circuit, in its majority opinion, was less than thrilled by Wells’ position which it characterized, more or less, as this:

“Hey homeowner, thanks for the trial payments and for living up to your end of the bargain. So sorry we never got back to you about your eligibility, but actually we don’t feel like offering you a permanent modification after all.”

The concurring judge (he agreed with the final result but for different reasons), was more blunt in his assessment of Wells Fargo’s business practices.  He pointed out that Wells Fargo drafted the TPP agreement itself and worded it in such a way as to engage in “flim-flam or, in plain words, to work a fraud.”

The bottom line: If the lender signs a TPP with the homeowner, the homeowner complies with the terms of the TPP, and the lender does not notify the homeowner of ineligibility, the lender is contractually obligated to provide the homeowner with a permanent modification under HAMP.

Will Mortgage Lenders Change Their Behavior?

The Ninth Circuit pointed out that the Seventh Circuit and some other courts have come to the same conclusion – that if a lender chooses to participate in HAMP and the homeowner complies with all terms of the TPP, the lender must offer a permanent mortgage modification if it does not inform the homeowner of ineligibility. Hopefully, lenders will start to get the picture – they cannot always have their cake and eat it too.  Although if history teaches us anything, it will take even more litigation to drive the point home.