Gibbs Law Group was court-appointed co-lead counsel for a certified class of more than 500 home mortgage borrowers who lost their homes to foreclosure by Wells Fargo after a calculation error in the bank’s software caused it to erroneously deny class members trial mortgage modifications.
On October 12, 2020, Judge William Alsup approved an $18.5 million settlement for the class. Judge Alsup praised the settlement as bringing “significant” relief to each class member and noted the amount was “greater than those approved by other courts in this district involving similar claims concerning loan modifications.”
Throughout the case, Wells Fargo admitted that it should have offered these borrowers a mortgage modification, but the bank denied violating any laws and the case came close to trial.
We expect settlement payments to go out to class members before the end of the year. You can read more about the case and the settlement at www.homeloanmodificationsettlement.com.
Class Action Lawsuit: Wells Fargo Loan Modification Error Caused By Wells Fargo's Negligence
The class action lawsuit we filed alleges that Wells Fargo failed to implement and maintain the proper software and protocols to correctly determine whether a mortgage modification was required under federal regulations. The lawsuit also alleges that Wells Fargo knew of the error in 2015 but failed to disclose it for nearly three years. And that as a result, hundreds of borrowers suffered grave consequences of the improper denials, including wrongful foreclosures, serious damage to their credit, and other harmful effects.
The complaint concludes that Wells Fargo acted negligently in denying loan modifications to hundreds of borrowers, at a time they were struggling, and failed to uphold its duty under the Home Affordable Housing Program (HAMP) to issue modifications to all troubled homeowners who qualified.
The complaint also alleges that Wells Fargo engaged in “conversion” by taking away homes that it wasn’t legally entitled to foreclose on. The criminal law counterpart to conversion is “theft.”
Wells Fargo Admits Loan Modification Error, Wrongfully Foreclosed On Homes
A quarterly filing with the Securities & Exchange Commission in August 2018 revealed that Wells Fargo made an “error” in denying mortgage modifications to hundreds of borrowers. The securities filing says that Wells Fargo discovered a “calculation error” in its automated software for calculating whether a borrower should be offered more favorable loan terms in lieu of foreclosure. Wells Fargo says the “error” affected 625 homes that were “in the foreclosure process between April 13, 2010, and October 20, 2015.”
In November 2018, Wells Fargo revised its estimate, announcing that the miscalculation actually affected 870 homes that were going through foreclosure between March 15, 2010, and April 30, 2018.
As Wells Fargo explains, two federal government programs require Wells Fargo and other lenders to offer loan modifications to keep people in their homes when they are in default, rather than going through the expensive process of foreclosure. Wells Fargo did not comply with this law, it says, due to a software glitch that affected 870 mortgages that were in default. Ultimately, 545 homes were foreclosed on, when a mortgage modification should have been offered, according to Wells Fargo’s own disclosures.
Wells Fargo Sends Letters and Checks to Wrongfully Foreclosed Homeowners
Wells Fargo has already sent letters and checks to many individuals who it admits were affected by the loan modification error. The letters typically say that the person was affected by the calculation error, and offers them a check in the range of $10,000 as a gesture of good will. If the person isn’t satisfied with the amount, Wells Fargo generally offers to submit to independent mediation to determine if the person should get more money. Wells Fargo doesn’t make clear that they may have an attorney present during the mediation. Mediators are generally former judges or practicing attorneys.
Many of the individuals who received these letters and checks from Wells Fargo feel that the offered money is not enough to compensate for all the harms that come with foreclosure. Many people lost substantial home equity value when their home was foreclosed on; others suffered adverse life events from having a poor credit rating; and others experienced significant upheaval to their personal lives, including pain and suffering.
Senator Elizabeth Warren said of Wells Fargo’s “remediation” plan: “Setting aside a few thousand dollars for each of the people affected. Pathetic.” And according to Senator Schatz, who sits on the Senate Banking Committee, Wells Fargo’s remediation plan does not offer near enough to compensate for the “devastating ripple effect” a foreclosure can have, including the “stress and trauma” of losing one’s home, “related health problems,” and “destroy[ing] people’s credit.” Senator Schwartz continued:
“It is hard to imagine how Wells Fargo’s estimate of $8 million for remediation would come close to remunerating impacted customers.”
Wells Fargo Refuses to Tell Borrowers Whether They Are Among Those Wrongfully Foreclosed On
The Charlottesville Observer reports, “Although Wells has announced plans for $8 million in relief for the victims, it said it hasn’t contacted them yet or said when it will do so.”
The Observer continues that “[a]fter Wells Fargo[’s] error, frustrated customers wonder: Did it cost me my home?”
Some individuals who have contacted Wells Fargo to see if they have been affected, and those that were sent notice letters and checks, were assigned a Wells Fargo Home Preservation Representative to answer their questions. The answers these individuals appear to provide are limited.
Gibbs Law Group's Mortgage Fraud Experience
Gibbs Law Group’s financial fraud and securities lawyers have more than two decades of experience prosecuting fraud. Our attorneys have successfully litigated against some of the largest companies in the United States, and we have recovered more than a billion dollars on our clients’ behalf.
We have fought some of the most complex cases brought under federal and state laws nationwide, and our attorneys have been recognized with numerous awards and honors for their accomplishments, including Top 100 Super Lawyers in Northern California, Top Plaintiff Lawyers in California, The Best Lawyers in America, and rated AV Preeminent (among the highest class of attorneys for professional ethics and legal skills).