Mortgage Lenders Continue To Find Themselves In Legal Hot Water For Abusive Practices Targeting Home
When a homeowner requests a mortgage modification, they go into
the application process assuming it will be a simple and quick
process, only to be met with delays, unreturned telephone calls,
and multiple claims by the mortgage company that the homeowner
failed to send in documents. Homeowners may even have proof the
documents were sent such as a fax confirmation sheet or a
certified mail receipt - but the mortgage company denies
receiving the document.
To highlight some of the ongoing issues of mortgage lenders
abusing homeowners, below are two cases involving two of the
nation's larger mortgage lenders.
Sundquist v. Bank of America, No. 10-35624, Adv. Proc. No.
14-2278 (Bankr. E.D. Cal. March 23, 2017). A copy of the opinion
can be found here.
Facts of Case 1
The Sundquists were current on their mortgage when they reached
out to Bank of America ('BOA') to request a mortgage modification
due to financial difficulties. They were told by BOA that they
could not apply for a mortgage modification until they were
behind on their payments. The Sundquists, on the instructions
provided by BOA, began missing mortgage payments and eventually
applied for several modifications. They dealt with BOA claiming
they did not receive documents, denied the modification
application without giving a reason, and promised to offer a
future modification, all while putting the home in foreclosure.
It was even claimed that one BOA employee told the Sundquists
that mortgage modifications were not real and were just a scam so
BOA could make more money before foreclosing on a home.
The Sundquists subsequently filed Chapter 13 bankruptcy to keep
BOA from foreclosing on their home. The effect on the homeowners
was devastating, including a heart attack and an attempted
suicide. The Court found BOA acted willfully and intentionally
and found the behavior so egregious that the Court awarded the
homeowners $1,000,000 in damages and another $45,000,000 in
punitive damages.
The punitive damages were intended to send a message to BOA -
that this type of behavior was not acceptable and needs to stop.
$40,000,000 of the punitive damages were directed by the court to
be paid to the National Consumer Rights Bankruptcy Center, the
National Consumer Law Center and five University of California
law schools.
In my opinion, the initial fines and sanctions that mortgage
lenders faced in the past were a drop in the bucket. As more and
more mortgage lenders get fined for questionable practices
related to mortgage modifications, these hefty sanctions may
continue to be imposed. It is expected that this legal decision
will be appealed.
Cotton v. Wells Fargo Bank, N.A., Adversary Proceeding No.
17-03056, pending in the United States Bankruptcy Court for the
Western District of North Carolina
Facts of Case 2
This class action lawsuit is ongoing (it was filed in June of
2017) and alleges that Wells Fargo intentionally and improperly
used forms to put homeowners currently in active Chapter 13
bankruptcy into an unsolicited mortgage modification. As a result
of the forms filed with the Court, the Chapter 13 bankruptcy
Trustee would start paying an amount lower than the homeowner's
current mortgage putting the homeowner further behind on their
monthly obligation each month.
This modification, being called a 'stealth modification' by the
lawyers handling the case not only put the homeowner further into
default on their loan, but it also put them in default of their
Chapter 13 bankruptcy plan. The terms of the 'stealth
modification' frequently extended the term of the homeowner's
loan by as much 26 years and would have cost many homeowners
upwards of $100,000 in additional interest.
It is speculation at this point as to why Wells Fargo would have
put homeowners into these stealth modifications. Some legal
experts believe the reason may have been to receive government
payments given to mortgage lenders for each loan modified. Other
lawyers believe the reason may have been to receive the increased
income that would be paid over the life of the loan. The reason
for the stealth modifications may have been a combination of
these and other reasons.
It is important to note that this lawsuit comes on the heels of a
2015 settlement in the amount of $81.6 million between Wells
Fargo and the Justice department. Wells Fargo was accused of
failing to properly file the same forms in Chapter 13
bankruptcies. It is now accused of using them to put homeowners
intostealth modifications. The Justice Department's release
regarding the settlement can be read here.
The information contained in this blog is for general information
and educational purposes and is not legal advice. Reading these
posts does not create an attorney/client relationship.