SUTCLIFFE v. WELLS FARGO BANK | Wells Fargo Loses Bid to Dismiss Homeowner Suit RE Permanent Loan Mod

Wells Fargo Loses Bid to Dismiss Homeowner Suit

SAN FRANCISCO (CN) – A federal judge dismissed part of a class action accusing Wells Fargo of offering temporary loan modifications without the intention of ever making the modifications permanent.

U.S. Magistrate Joseph Spero found the class failed to state a claim for breach of contract or debt collection violations while allowing unfair competition claims to remain. Spero also gave the class leave to amend the complaint to allege damages from the bank’s alleged contract breach.

Lead plaintiffs Vicki and Richard Sutcliffe claim Wells Fargo offered them a temporary home loan modification after they fell behind on their mortgage payments. The Sutcliffes made the required reduced payments but did not receive paperwork for a loan modification at the end of the trial period. Instead Wells Fargo sent paperwork indicating the loan was in default and another letter stating it was not going to permanently modify their loan. Over a month later Wells Fargo sent another letter offering them a “Special Forbearance Plan,” under which they would make more reduced payments. Plaintiffs made the payments, only to be sent another letter again stating the loan was in default. The bank returned one payment and told the Sutcliffes not to make any more. Soon after they received a letter from a law firm indicating they had been retained by Wells Fargo to initiate foreclosure proceedings. Plaintiffs asked Wells Fargo again to reconsider the loan modification. The bank responded by putting them on another forbearance plan. Plaintiffs accepted the offer and began making payments. They soon received another letter saying the property would be sold at a trustee’s sale.

Plaintiffs filed suit on behalf of “all homeowners nationwide who received a trial loan modification proposal substantially similar to the TPP (Home Affordable Modification Program Trial Period) from any of the Defendants; made the payments set forth in the proposal; provided true information with respect to all representations required by the proposal; and were either (a) denied a permanent loan modification; (b) offered an illusory ‘modification’ on terms substantially similar to their unmodified loan; and/or (c) who received, entered into, and complied with the above described Forbearance Plans from Wells Fargo, consisting of the Offer Letter and Agreement, in substantially the same form(s) presented to Plaintiffs.”

Plaintiffs accuse Wells Fargo of unfair competition, breach of contract and bad faith. Claims for rescission and restitution were rendered moot when the Sutcliffes recently accepted a permanent loan modification from Wells Fargo, according to the ruling.

The court rejected Wells Fargo’s argument that the other claims were not ripe, finding their claims “turn on conduct that had already occurred at the time the action was filed, namely, Wells Fargo’s failure to offer them a permanent modification after Plaintiffs allegedly complied with all requirements of the TPP.”

The court also noted that “the allegations were sufficient to show that denying judicial consideration would have imposed significant hardship on Plaintiffs because they had received notices that they were in default on their loan and that their file had been passed on to Wells Fargo’s counsel to initiate foreclosure proceedings.”

Spero similarly refuted Wells Fargo’s argument that by offering a permanent modification, all plaintiffs’ claims are moot. According to the ruling, “claims that are related to a foreclosure but which are based on alleged wrongful conduct that goes beyond the wrongful foreclosure are not necessarily rendered moot where the foreclosure is vacated… The Court finds that is the case here because Plaintiffs’ claims are based on Wells Fargo’s alleged unfair and deceptive conduct in connection with the two forbearance offers and the TPP and not on wrongful conduct committed in foreclosure proceedings.”

The court found Wells Fargo’s assertion that the relevant conduct in the case did not occur in California to be a factual question that may be suitable at summary judgment but does not support dismissal. Wells Fargo had tried to have plaintiffs’ allegations under California’s unfair competition law tossed on the grounds that the conduct did not occur in California.
Concluding that the public would likely be deceived by communications from Wells Fargo that claim the borrower would be offered a modification if the borrower complied with the terms of the TPP and forbearance the court found the allegations sufficient to hold up at this stage of the litigation.

While noting disagreements among courts about whether an enforceable contract was created when the TPP was sent to plaintiffs Spero ultimately found it was, at least for the purposes of surviving a motion to dismiss, rejecting multiple arguments by Wells Fargo, including that the TPP could not create an enforceable contract because it did not set forth the terms of repayment that would apply to the modified loan.
According to the ruling, “As the court explained in (Wigod v. Wells Fargo Bank), while the TPP did not set forth the specific terms of repayment, Wells Fargo was required to offer a modification that was consistent with HAMP (Home Affordable Modification Program) guidelines and therefore, the agreement did not give Wells Fargo unlimited discretion as to the repayment terms… Because Wells Fargo was required to comply with HAMP guidelines in determining the terms of repayment under a modification agreement, the Court concludes, at least at the pleading stage, that the terms of the TPP are sufficiently definite to support the existence of a contract.”

And since plaintiffs were required to submit financial documents not required under the original loan and agreed to go to credit counseling they adequately alleged consideration to survive a motion to dismiss.
Spero did end up dismissing the claim for breach of contract, however, agreeing with the bank that the only alleged damages are the reduced payments made under the TPP and these payments do not constitute damages because plaintiffs had a pre-existing duty to make payments on their loan.

The court gave leave to amend that part of the complaint, however, noting that plaintiffs represented at oral argument that they could allege other types of damages, including adverse credit consequences in an increase in the principal amount owed on the loan.

Copy of the opinion below…




4 Responses to “SUTCLIFFE v. WELLS FARGO BANK | Wells Fargo Loses Bid to Dismiss Homeowner Suit RE Permanent Loan Mod”
  1. Glenda Chauncy says:

    First of all the so called “Trial Modification” is a GLORIFIED FORBEARANCE…..of past due amounts that more than likely are “illegal” charges of late fees, interest rates, etc….most of those in trials are NEVER converted to a permanent solution…hence the reason you will hear those still being evicted in trial modifications….because that will NOT protect them from being evicted and losing their homes…and to add insult to injury because the GOVERNMENT (when this was enacted by President Bush) was INSTRUCTED to become delinquent a minimum of 60 days to help to save their properties!!! YES they were told they had to be late…end of story…and even through the OBAMA Administration…the banks were STILL INSTRUCTING homeowners to go delinquent a minimum of 60 days (I will always question the legality of forcing a PAID and CURRENT homeowner to be late on payments)!!! NO ONE HAS FOUGHT ON THIS LEVEL THAT I KNOW OF….PEOPLE wake up…this was INTENTIONAL…do NOT kid yourselves….many reasons they had to take back as many properties as they can from the VOTING AMERICAN PEOPLE!!! Until we stand up…this will continue to get worse….

  2. Barbra Orr says:

    The banks could shoot the homeowner , beat their infant children, kill the dog and come out smelling like a rose. I would love for the judge to say I am waiving the accrued during this 18 months, and WF you are guilty. Reduce the rate, reduce the principal and get you rear our of the mortgage business.
    instead the judge takes his money and on we go

  3. Kathleen Burt says:

    The surplus accrued during the trial period, (amount left over from the reduced trial paymets over a number of months) definitely increased both the homeowner’s principal and his monthly payments by the time he’s denied, leaving him much worse off financially than before he applied for the modification.

    But apparently it’s not illegal to string him along for (in some cases) 18 monts?

    The modification trials just made it easier for banks to take houses, Most homeowners, by hindsight ,would have been better off seling their unencumbered houses themselves back in 2008..

    Is it any wonder nobody wants to fill out paperwork for mortgage refis now? In spite of the low interest rates?The industry has lost its credibility.

    • Gene says:

      Let’s see… who would have preferred they sold their house in 2008? I think everyone raised their hand.

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