Damages Rising: Wrongful Foreclosure Costs Wells Fargo $3.2 Million

Damage awards for wrongful foreclosure are rising across the country. In New Mexico a judge issued a $3.2 million judgment (including $2.7 million in punitive damages) against Wells Fargo for foreclosing on a man’s home after his death even though he had an insurance policy through the bank that paid the remaining balance on his mortgage. The balance “owed” on the mortgage was $125,000. Despite the fact that the bank knew about the insurance (because it was purchased through the bank) Wells Fargo continued to pursue foreclosure, ignoring the claim for insurance. It is because of cases like this that people are asking “why would they do that?”

The answer is what I’ve been saying for years.  Where a loan is subject to claims of securitization, and the investment banks lied to insurers, investors, guarantors and other co-obligors, they most likely have been paid many times for the same loan and never gave credit to the investors. By not crediting the investors they created the illusion of a higher balance that was due on the loan. They also created the illusion of a default that probably never occurred. But by pursuing foreclosure and foreclosure sale, they compounded the illusion and avoided claims for refund and repayment received from third parties and created claims for recovery of servicer advances. In many foreclosures that I have  reviewed, payments received from the FDIC under loss-sharing were never taken into account. Thus the bank collects money repeatedly for a loss it never incurred.

This case is another example of why I insist on following the money. By following the money trail you will discover that the documents upon which the foreclosure relies referred to  fictitious transactions. The documents are worthless, but nevertheless accepted in court unless a proper objection is made based upon preserving issues for trial and appeal by proper pleading and discovery.

Lawyers should take note of this profit opportunity. Most homeowners are looking for attorneys to take cases on contingency. Typical contingency fee is 40%. If these lawyers were on a typical contingency fee arrangement, their payday would have been around $1.2 million.

I should add that for every one of these judgments that are reported, I hear about dozens of confidential settlements that are of similar nature, to wit: clear title on the house, damages and attorneys fees.

Wells Fargo Ordered to Pay $3.2 Million for “Shocking” Foreclosure

Litigation AFTER Eviction or Sale

I’ve been thinking about this for a while. In fact, when I first started out on the blog in 2007 I spent quite a bit of time interviewing big and small law firms and retired judges and they all said the same thing: wait until the whole thing is over and they can’t move the goal post around anymore.

The action would then be for damages sand could be settled for the house plus the money. And the lawyer could get a contingency fee, which in all states, is allowable after the primary case is over. The key question is how you collect when the monetary settlement is nominal even with an award of attorney fees and costs (which could be substantial). I would be willing to provide considerable assistance in getting the pleadings right and the exhibits.

The attack would center on the money and the fact that the “credit bid” was offered by a non-creditor (i.e., a party who neither loaned the money nor purchased the loan). The secondary attack would be that the amount stated in the notice of default and sought for collection was wrong because there were co-obligors who presumably paid (insurance, credit default swaps etc.).

The payment was received by the investment bank affiliate who served as MASTER SERVICER that was the agent of the investors, even if they failed to adhere to the requirements of the PSA in transferring the loan into the REMIC pool. The fact that the REMIC pool was unfunded by either cash or assets, and that there was no trusts account for the pool would be beneficial in that claim. Remember that only the subservicer submitted an “accounting as to how much was due and payable.” The MASTER SERVICER never submitted anything so they could “plausibly deny” the “mistake.”

By claiming that the investors should have been informed of these payments might be the key to unlocking discovery on who the investors are. The real issue of course is that by diverting the investment capital obtained from the investors away from the REMIC, the account(s) from which the loans were funded were not disclosed to the investor or the buyer, who signed a note evidencing an obligation that differed in terms of repayment from the terms of the “mortgage bond” which was issued by the unfunded REMIC.

This approach side-steps the dubious conclusion by most courts that practically ANYONE can initiate the foreclosure “on behalf of” the actual investor-lenders. They might be able to start it but they can’t finish it with a credit bid in anyone’s name except the real creditor(s). The real creditors are not just the investors in the REMIC because their money was never invested in the REMIC.

The real investor-lenders are ALL of the investors whose money was commingled by the investment bank into one or several accounts without regard to the REMICS. In order for them to prove otherwise they would be required to show that the accounts had entries with reference to the REMICS.

It is doubtful that any such accounts exist, since it was the investment banks who were “Borrowing” the ownership of the loans so they could trade the loans, buy insurance, credit default swaps etc. Then they “borrowed” the loss from defaults and the loss declared by the Master Servicer (which was always more than the actual amount of projected losses on defaults) to collect insurance, credit defaults swaps and bailouts.

But since they were the agents of the investors and were acting contrary to the contractual provisions of the prospectus and PSA, the money received from these co-obligors should have been paid to the investor-lenders, and thence reducing the principal balance due to the investor-lender. Instead the bank kept the money and they intend to keep it.

If the principal balance (receivable) was reduced by the proper allocation of funds received from insurance, credit default swaps, cross collateralization and over-collateralization, then the borrowers’ payable would be correspondingly and proportionately reduced. The only way this would not be true is if the the loan were considered to be sold to the payor. But the insurance contracts and contracts for credit default swaps specifically and expressly state a waiver of subrogation or any claim against the borrower (to prevent the duplicate filings of foreclosures).

With the use of insurance, credit default swaps and outright multiple sales of the same loan to different entities, the banks were able to sell most loans for multiples of the amount actually funded. Thus an overage might be created that would entitle the homeowner to receive the extra money that should be allocated to investor-lenders. So your cause of action would, in addition to wrongful foreclosure, RICO etc., would be under contract or common law that specifically states that a creditor is entitled to be repaid only once — not multiple times through the use of sham conduits.

ONE CAVEAT: The more you litigated during the foreclosure and eviction, the more likely the doctrine of res judicata or collateral estoppel might be applied — unless the case was brought on new facts that could not have been determined during the litigation of the case before.

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