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Mortgage

Wells Fargo to pay $13 million to settle claims of improperly modifying bankrupt borrowers’ mortgages

Lawsuit accused bank of improperly filing mortgage payment change notices

Wells Fargo will pay more than $13 million to settle a pending class-action lawsuit that accused the bank of “improperly” modifying the mortgages of borrowers who had declared bankruptcy.

According to the bank, it recently reached a settlement in the pending class-action suit, which accused the bank of “improperly filing mortgage payment change notices” on borrowers who were in the midst of Chapter 13 bankruptcy proceedings.

The complaint alleged that the bank engaged in “fraud, violations of bankruptcy rules and laws, and unfair and deceptive trade practices” by “improperly and unilaterally” modifying the mortgages of the bankrupt borrowers.

Wells Fargo revealed the settlement in its recent annual report from 2018. In the report, Wells Fargo said that it reached a preliminary settlement agreement last year that would see the bank pay $13.5 million to resolve the lawsuit’s claims.

And Law360 reported late last week that the settlement was approved by the United States Bankruptcy Court for the Western District of North Carolina, meaning the settlement will now move forward.

The settlement comes on the heels of Wells Fargo CEO Tim Sloan taking a beating on Capitol Hill over the bank’s run of scandals that stretches back to 2016.

Last year, the bank revealed that an error in its mortgage underwriting software led to hundreds of improperly denied mortgage modifications for borrowers facing foreclosure over a five-year period.

That came just two days after the bank agreed to pay more than $2 billion for allegedly lying about the quality of subprime and Alt-A mortgages that backed residential mortgage-backed securities in the run-up to the housing crisis.

Wells Fargo’s troubles began in 2016 when the Consumer Financial Protection Bureau, the Office of the Comptroller of the Currency, and the city and county of Los Angeles fined the bank $150 million for more than 5,000 of the bank’s former employees opening as many as 2 million fake accounts in order to get sales bonuses.

That issue led the bank to agree to pay $480 million to shareholders to settle class-action suit over the bank’s fake accounts scandal.

The fake accounts issue also led to class-action lawsuit being brought on behalf of the bank’s customers who had fake accounts opened in their names, which the bank eventually settled for $142 million.

In April 2018, the CFPB and the OCC announced a $1 billion fine for the bank over auto insurance and mortgage abuses.

Before that, Wells Fargo revealed that it was preparing to hand out $80 million in remediation for potentially wrongfully force-placing auto insurance on as many as 570,000 customers.

The bank later disclosed that it agreed to pay $108 million to the federal government to settle allegations that the bank overcharged military veterans for refinances.

The bank later reached a $575 million settlement with all 50 state attorneys general and the attorney general for the District of Columbia regarding previously disclosed retail sales practices, auto collateral protection insurance and guaranteed asset/auto protection, and mortgage interest rate lock matters.

But none of those settlements prevented Wells Fargo from giving Sloan a $2 million bonus the day after he received his congressional thrashing. Must be nice.

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