As the country tried to crawl out of the last recession, homeowners all across America sought mortgage modifications to make their home loans more manageable. However, some homeowners say that Wells Fargo not only modified their loans without asking, but that this lower rate added years — perhaps decades — to the terms of their mortgages.
Wells Fargo has once again found itself in the middle of a growing scandal, as the bank faces accusations of making unauthorized changes to the mortgage loans held by customers who have entered into bankruptcy.
This issue came to light after multiple homeowners sued the bank, claiming it had changed the terms of their mortgages without permission. While it’s unclear just how many of these modifications Wells Fargo has made, at least seven lawsuits, including one potential class-action complaint, have been filed against the bank.
The class-action lawsuit [PDF], filed last week in a federal court in North Carolina, accuses the bank of making at least three improper modifications to one couple’s mortgage beginning in 2015.
The couple filed for Chapter 13 bankruptcy, which allows people to reorganize their finances while they work toward getting out of debt, in Feb. 2014. According to the complaint, they were surprised to find in Nov. 2015 that Wells Fargo had filed a “stealth modification” to their mortgage despite the fact that their bankruptcy plan had been approved by the court.
Any modifications to a bankruptcy plan must be approved by the court and those involved in the case. However, in this case, the couple claims they never agreed to allow Wells Fargo to change their loan terms.
The filed modification, which was part of a loan modification trial process at Wells Fargo, lowered the couple’s monthly mortgage payments from $1,404 to $1,270.
While paying a few hundred dollars less each month might be nice, buried deep in the terms of the modification was notice that the mortgage had been extended to 40 years.
Under the couple’s Chapter 13 plan, they were to pay their remaining $145,000 mortgage over 14 years, incurring about $55,000 in interest charges. With Wells Fargo’s unauthorized extension, they would pay the remaining mortgage amount over an additional 26 years, incurring not only the $55,000 interest charges already planned, but an additional $85,000 to $129,000 depending on interest rates.
To make matters worse, the couple claims the Wells Fargo notice of modification implied that they would lose their home if they did not accept the modification.
“By following the steps outlined below, you can begin to restore your mortgage account to good standing,” the notice stated. “If you fail to take the following steps and continue to mis or make late mortgage payments, you risk further damage to your credit and possibly foreclosure of your home.”
The lawsuit claims that the couple should not have been in danger of foreclosure as they had not missed any payments prior to filing for bankruptcy and had made all planned payments that had come due.
Following the filing of this modification, the couple claims that Wells Fargo filed similar changes with the court in June 2016 and Oct. 2016, neither of which were approved or requested by the couple.
According to the lawsuit, Wells Fargo may have submitted the modification plans in order to “enrich itself through incentive payments by the U.S. government.”
The New York Times reports that some lenders take part in certain programs designed to encourage loan modifications for troubled borrowers. In these cases, the bank can receive up to $1,600 from government programs for each loan it adjusts.
Additionally, the lawsuit claims that by modifying the loans for a longer term, Wells Fargo can collect millions of dollars in additional interest and servicing fees.
Allegations found in the North Carolina class-action lawsuit have been detailed in several other complaints against Wells Fargo, the Times reports.
In one case, Abelardo Limon Jr., a Texas lawyer, tells the Times that he first thought Wells Fargo had made a simple clerical error when it came to a client’s loan modification. But after looking into the issue he found a “pattern of filing false documents with the federal court.”
These modifications, he says, wreaked havoc on the customers’ finances and bankruptcy reorganization.
Limon tells the Times that one of his clients, who filed for bankruptcy in Sept. 2016, received a letter in October from the bank notifying them that they had been approved for a trial loan modification. While the couple didn’t approve or request the changes, the bank submitted them to the court.
In this case, the payments were reduced from $1,019 to $663. While the client had a plan in place to repay their loan in nine years, the modification extended that time to 40 years, increasing interest charges by an extra $40,000.
A spokesperson for Wells Fargo tells the Times that the bank denies the claims made in the lawsuits, contending that both the borrowers and courts were notified of mortgage modifications properly.
As for pushing through modifications without borrower approval, the rep says, “We do not finalize a modification without receiving signed documents from the customer and, where required, approval from the bankruptcy court.”