Judge Fines Wells Fargo for “Highly Reprehensible” Behavior

In one of the largest fines ever for misconduct in mortgage servicing, Wells Fargo was ordered to pay $3.1 million in punitive damages to a single homeowner, the Huffington Post reports. Federal bankruptcy judge Elizabeth Magner of the Eastern District of Louisiana cited the bank’s behavior over five years of litigation with the New Orleans homeowner as being “highly reprehensible.”

“Wells Fargo has taken advantage of borrowers who rely on it to accurately apply payments and calculate the amounts owed,” Magner wrote in her decision. “But perhaps more disturbing is Wells Fargo’s refusal to voluntarily correct its errors. It prefers to rely on the ignorance of borrowers or their inability to fund a challenge to its demands, rather than voluntarily relinquish gains obtained through improper accounting methods.”

Magner has said previously that of the over 20 borrowers in her court whose loan records she has analyzed, every one of them had errors in how their loans were handled.

“These are loans of working-class people who bought homes they could afford and whose loans were not administered correctly from an accounting perspective,” Magner said. “I think that these types of problems occur in almost every [defaulted] loan in the country.”

The homeowner in the current case is Michael Jones of New Orleans. In 2007, Magner issued a ruling that found that Wells Fargo charged Jones over $24,000 in improper fees.  When Jones entered into default, Wells Fargo disregarded his service contract and applied his mortgage payments to accrued interest and fees instead of principal.  As a result, Jones was hit with additional interest and fees and ended up applying for bankruptcy, after which Wells Fargo continued to improperly apply his payments.

In her 2012 opinion, Magner criticizes Wells Fargo’s tactics of dozens of motions, briefs and other filings. The blizzard of litigation, she wrote, not only greatly slowed down the resolution of the case, but served to discourage other borrowers from suing over potentially improper charges or fees.

In her new opinion, Magner writes that Wells Fargo’s behavior was “clandestine” and it would not communicate with Jones while it was improperly processing his loan payments.

“Only through litigation was this practice discovered,” Magner writes. “Wells Fargo admitted to the same practices for all other loans in bankruptcy or default. As a result, it is unlikely that most debtors will be able to discern problems with their accounts without extensive discovery.”

Magner adds that Wells Fargo still fails to acknowledge errors that it has made in home loan accounting.

“[W]hen exposed, [Wells Fargo] revealed its true corporate character by denying any obligation to correct its past transgressions and mounting a legal assault to ensure it never had to,” Magner writes.

Tom Goyda, a Wells Fargo spokesman, said that the bank believes that “there are numerous factual and legal problems with the opinion.”

Jon Lewin is a Feature Writer for the Compliance Exchange and Wall Street Job Report. He is also a columnist for the Faster Times and a blogger for Subway Squawkers. Lewin’s work has appeared in the New York Daily News, Huffington Post and Digital Innovation Gazette as well as the “Cambridge Companion to Baseball” and the Daily News history essay collection “Big Town Big Time.”

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