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Lawsuit alleges America's Servicing Company induced distressed borrowers into default

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New York law firm Harwood Feffer filed a class action lawsuit against a Wells Fargo (WFC) servicer America's Servicing Company alleging it induced distressed borrowers to default on their mortgage in order to get a modification, meanwhile accruing late fees and penalties. According to the suit, ASC allegedly told the borrowers now represented by Harwood Feffer that they would not be able to modify the mortgage as long as they were current. The firm said by making a loan default a pre-requisite for modification — even if the borrower qualified because of financial hardship — credit scores were harmed and fees, penalties and additional interest were charged. The firm is suing ASC for compensation on those fees, totaling more than $5 million for the 12 plaintiff households. The suit was filed in U.S. District Court for the Northern District of California. According to the Treasury Department's Home Affordable Modification Program guidelines, a participating servicer can offer a modification to a borrower facing imminent default. Wells Fargo participates in the voluntary program, but ASC does not. Mortgage servicers have come under fire from Congress, regulators, state attorneys general and the public for mishandling foreclosure affidavits. Class action attorneys have used the issue to raise questions over the entire mortgage documentation process, from foreclosures and securitization to now modifications. Wells Fargo and ASC did not immediately reply to requests for comment. Write to Jon Prior.

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