On November 6, 2015, a Texas jury awarded Mary Ellen and David Wolf $5.38 million because Wells Fargo Bank and Carrington Mortgage services submitted forged documents to foreclose on the couple's home. You read that right, a $5.38 million settlement for one home! Journalist David Dayen points out that if you multiply that amount by the roughly six million homes that have been foreclosed since the financial crisis began in 2008, you get $32 trillion. Compared to the $25 billion the banks paid as part of the National Mortgage Settlement, and the continuing foreclosure fraud, it sure seems like the banks got off easy.
What Happened In This Case?
The Wolfs, of Houston Texas, took out a $400,000 home equity loan from Carrington Mortgage Services. Their loan was then sold into a mortgage-backed trust that Wells Fargo Bank administered. And that's where the problem started, because the chain of title was broken when the loan was not properly placed into the trust. In what has become an all-too-common story, the banks, in a rush to securitize, buy, and sell mortgage products, neglected the legally-required assignment documentation. The assignment is the legal document that records the transfer of a loan from one party to another. Without it, how can you prove a transfer happened or who owns a mortgage? Forgery, of course.
That's exactly what happened to the Wolfs when they defaulted on their loan. Carrington, which acquired New Century, falsified a transfer document in order to foreclose. But they didn't own either of the two parts of the mortgage, the promissory note and the deed of trust, so they couldn't transfer the lien.
The jury sided with the former homeowners, and decided that the foreclosure was not valid because of the robosigned documents. They awarded the Wolfs $5.38 million for punitive damages, financial injuries, mental anguish, and attorney's fees.
What Does It Mean?
While the money the wrongly-foreclosed upon former homeowners were awarded by a jury is exceptional, the fraud they were victims of is not. Many of the six million homes foreclosed on since 2008 could have involved some kind of falsified documents, but most of those cases will never end up before a jury or result in the homeowner being awarded money. And the foreclosure crisis isn't over.
However, there has been money paid by the banks to settle wrongdoing on their part. In 2012 the National Mortgage Settlement was announced, which is a settlement with the five largest mortgage servicers (Ally/GMAC, Bank Of America, Citi, JP Morgan Chase, and Wells Fargo) and the federal government and 49 states. It requires the banks to pay $26 billion to homeowners and the government to settle numerous federal and state investigations related to mortgage servicing and foreclosure abuses. It is the second largest civil settlement in U.S. history.
If you divide the $26 billion paid by the banks as part of the National Mortgage Settlement by the six million homes foreclosed, you get $4,333 per home. That doesn't seem like very much of a penalty, given the effect foreclosure has had on families, and how serious of a crime forging legal documents is supposed to be. Most homeowners who were foreclosed on were probably underwater by much more that $4,333 anyway, right? Of course, the money wasn't divided up and given to each foreclosed homeowner, but this shows how small the settlement is in relation to the size of the problem.
What Are You Going To Do About It?
If you are in default on your mortgage right now, you're probably having fantasies about taking your bank to court, proving they did something wrong, and walking away a multi-millionaire. Maybe you picture yourself saying something really witty in court that makes you look smart, and also being in phenomenal shape. It's your fantasy. If you have proof of the banks wrongdoing and six figures to spend on attorneys, more power to you. If not, you may want to pursue something a bit more realistic.
While the settlement between the big mortgage servicers, the government, and state attorneys general may not put money in your pocket, it does have positive consequences, along with rules that have been issued by the Consumer Financial Protection Bureau that actually can help you.
Today, options for refinancing and loan modifications are more plentiful than they used to be. Servicers are required to seriously consider loan modifications and may not engage in dual-tracking, which is the practice of considering a loan modification application while pursuing foreclosure. And servicers are supposed to maintain appropriate staff levels and training and have better communication with their borrowers.
So, suing your lender for millions of dollars is probably not in the cards, but there are options that are much more likely to be successful that are also affordable. If you're eligible, a loan modification can be a great option. It doesn't cost anything to apply, but it can be a lot of work, and they are often denied. Working with an experienced attorney who has achieved successful loan modifications for their clients can give you the best odds of getting the results you want. Even if you can't keep your home, a knowledgeable law firm can help you come to the best resolution with your bank.