The Department of Justice's U.S. Trustee Program has entered into a national settlement agreement with Wells Fargo Bank N.A. (Wells Fargo) requiring Wells Fargo to pay $81.6 million in remediation for its repeated failure to provide homeowners with legally required notices, thereby denying homeowners the opportunity to challenge the accuracy of mortgage payment increases. These failures violated federal bankruptcy rules that took effect in December 2011 and imposed more detailed disclosure requirements to ensure proper accounting of fees and charges on homeowners in bankruptcy.
Bankruptcy Rule 3002.1 requires mortgage creditors to file and serve a notice 21 days before adjusting a Chapter 13 debtor's monthly mortgage payment. Wells Fargo acknowledges that it failed to timely file more than 100,000 payment change notices (PCNs) and failed to timely perform more than 18,000 escrow analyses in cases involving nearly 68,000 accounts of homeowners in bankruptcy between Dec. 1, 2011, and March 31, 2015. Under the settlement, Wells Fargo also will change internal operations and submit to oversight by an independent compliance reviewer. The proposed settlement has been filed in the U.S. Bankruptcy Court for the District of Maryland, where it is subject to court approval.
“I am pleased that Wells Fargo has acted responsibly by accepting accountability for its deficient bankruptcy practices, agreed to compensate affected homeowners for those deficiencies and committed to making necessary improvements in its bankruptcy operations,” said Director Cliff White of the U.S. Trustee Program. “When creditors fail to comply with the bankruptcy laws and rules, they compromise the integrity of the bankruptcy system and must be held accountable. Transparency in the process is of paramount importance. Homeowners in bankruptcy have the right to proper and timely notices, particularly when they are being asked to pay more. The U.S. Trustee Program remains diligent in its effort to hold financial institutions that disregard the law accountable for their actions.”
Wells Fargo agrees to pay a total of $81.6 million to homeowners who were in bankruptcy between Dec. 1, 2011, and March 31, 2015, and who were affected by Wells Fargo's failure to timely file PCNs and escrow statements, including:
· $53.6 million will be paid to more than 42,000 homeowners whose payments increased as to which Wells Fargo failed to timely file a PCN with the court. The payment will be in the form of a credit to the homeowner's mortgage account in a lump sum amount, which averages $1,254 per homeowner and varies depending on the homeowner's mortgage balance. More than 70 percent of the total payments will go to homeowners who have mortgage balances under $300,000. These payments will be made regardless of whether homeowners actually paid the increased amount.
· An estimated $10 million will be paid by crediting homeowners' accounts at the end of their bankruptcy cases if, upon a detailed review of the accounts, it is determined the homeowners were not fully compensated through the initial crediting process described above. Wells Fargo estimates that 15 to 20 percent of homeowners who receive the initial payments will be due additional amounts at case closing.
· $1.5 million will be refunded in cash to about 3,000 homeowners where notices of decreases in monthly payments were not timely provided and the homeowners paid more than the actual amount due.
· $1 million will be refunded in cash to about 2,400 homeowners who satisfied escrow shortages by making a lump sum payment, but whose monthly payments did not decrease to account for the lump sum payment.
· $4.5 million will be paid by crediting the mortgage escrow accounts of about 6,000 homeowners who did not receive timely escrow statements. Wells Fargo will credit the amount of any increase in escrow shortage that was incurred between the time Wells Fargo should have performed the analysis and the time it actually did perform the analysis. As a result, homeowners will not be responsible for any increase in the escrow shortage stemming from Wells Fargo's failure to timely perform the escrow analysis.
· $4 million will be paid to about 12,000 homeowners by crediting mortgage accounts in the amount of $333, where Wells Fargo failed to timely perform an escrow analysis that would have resulted in a PCN being filed and the homeowner is not already receiving remediation for a missed or untimely PCN.
· $4 million will be refunded in cash to about 6,000 homeowners who did not receive timely escrow statements and whose escrow accounts contained surpluses that Wells Fargo had not refunded or credited toward the next year's escrow payment.
· $3 million in remediation to about 8,000 homeowners has already been completed by Wells Fargo for certain violations.
In addition to the monetary remediation, Wells Fargo will make changes to internal procedures to prevent recurrence of the violations. These changes include improvements to its computer platform, improvements to employee training and oversight and implementation of quality control processes to ensure the accuracy and timeliness of PCNs and escrow statements.
The settlement resolves any actions that could be brought by the U.S. Trustee Program for the covered conduct, but does not limit the rights of any homeowner or other third party to take action against Wells Fargo.
Wells Fargo and the U. S. Trustee Program have selected Lucy Morris of Hudson Cook LLP, to serve as an independent reviewer who will verify that Wells Fargo complies with the settlement order. The independent reviewer will file periodic public reports with the bankruptcy court. Wells Fargo will pay all costs associated with the compliance review, including the compensation of the independent reviewer.
Homeowners with questions about the settlement may contact Wells Fargo at 1-800-274-7025.
Director White commended the U.S. Trustee Program team who expertly investigated, litigated and settled this matter, including Deputy Director and General Counsel Ramona Elliott, Senior Trial Attorney Diarmuid Gorham, National Creditor Enforcement Coordinator Gail Geiger, Assistant U.S. Trustee Catherine Stavlas and Trial Attorney Kelley Callard.
The U.S. Trustee Program is the component of the Justice Department that protects the integrity of the bankruptcy system by overseeing case administration and litigating to enforce the bankruptcy laws. The U.S. Trustee Program has 21 regions and 93 field office locations.
Settlement Addresses the Bank's Errors AffectingNearly 68,000 Accounts of Homeowners in Bankruptcy
Central District of California DOJ / 15-1361 / November 05, 2015