Wells Fargo Draws $3.1M Fine for ‘Reckless Disregard’ with Single Loan

A fed up federal bankruptcy judge in Louisiana has ordered Wells Fargo to pay $3.1 million to a New Orleans man after showing “reckless disregard” and “egregious” behavior in the handling of a single mortgage in default.
The judge’s order last week covers five years of litigation by the borrower against one of the top U.S. lenders.
Elizabeth Magner, a federal bankruptcy judge in the Eastern District of Louisiana, said in her opinion that Wells Fargo’s automated procedure for applying loan payments amounted to “egregious” conduct, particularly because it continued even after the borrower, Michael Jones, filed for Chapter 13 bankruptcy protection.
Magner’s order of $3,171,154 in punitive damages is considered one of the highest for a single mortgage misconduct case.
The Huffington Post reported on the judge’s opinion after following one of Magner’s other cases involving hundreds of Wells Fargo home loans in her jurisdiction.
In a 2007 decision, Magner had ruled that Wells Fargo improperly charged Jones more than $24,000 in fees, blaming it on the automated payments application.
After Jones fell into default, the bankruptcy judge found that Wells Fargo applied payments first to fees and costs assessed on the mortgage, then to outstanding principal, accrued interest, and escrowed costs. This method was directly contrary to the terms of Jones’ note and mortgage, and even Wells Fargo’s standard treatment of mortgages and notes, the judge said.
“Wells Fargo assessed post petition charges on this loan while in bankruptcy,” Magner said in her opinion. “However, it was not the assessment of the charges, but the conduct which followed that this Court found sanctionable. Despite assessing post petition charges, Wells Fargo withheld this fact from its borrower and diverted payments made by the trustee and Debtor to satisfy claims not authorized by the plan or Court.”
The judge wrote that “Wells Fargo exhibited reckless disregard for the (bankruptcy court) stay it violated,” the judge said.
The Huffington Post reported that a Wells Fargo spokesman said: “The ruling handed down by the court in an individual bankruptcy case covers allegations going back more than six years and ignores significant changes in servicing practices that have occurred since that time. We believe that there are numerous factual and legal problems with the opinion and are reviewing our options regarding an appropriate legal response.”
Wells Fargo is considering its options, including an appeal, the spokesman said.

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