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Wells Fargo Ordered by Bankruptcy Judge to pay $3.1 Million Penalty

Wells Fargo Ordered by Bankruptcy Judge to pay $3.1 Million Penalty

A bankruptcy judge in Louisiana recently ordered Wells Fargo to pay $3,171,154.00 in punitive damages for violating the automatic stay.  The Huffington Post has a great summary of the case.  To read the complete bankruptcy judge’s decision, click here.

Here is a super short summary of the case:

The debtor was in an active Chapter 13 bankruptcy case.  During this case, Wells Fargo did not apply all of his payments correctly.  Later in the case, the debtor applied for a motion to refinance his house.  Wells Fargo added a significant amount of extra charges to his balance owed.  To complete the refinancing, the debtor paid these charges under protest.  Wells Fargo got caught with their hands in the cookie jar.

I think these are the best quotes from this decision:

“Wells Fargo will willfully violated the automatic stay imposed by 11 U.S.C. § 362 when it [C]harged Debtor’s account with unreasonable fees and costs; failed to notify Debtor that any of these postpetition charges were being added to his account; failed to seek Court approval for same; and paid itself out of estate funds delivered to it for payment of other debt.”

“Wells Fargo has taken advantage of borrowers who rely on it to accurately apply payments and calculate amounts owed,” states Elizabeth Magner, a federal bankruptcy judge in the Eastern District of Louisiana.  But perhaps more disturbing is Wells Fargo’s refusal to voluntarily correct its errors.  It prefers to rely on the ignorance of borrowers or their inability to fund a challenge to its demands, rather than voluntarily relinquish gains obtained through improper accounting methods.”

After considering the compensatory damages of $24,441.65 awarded in this case, along with the litigation costs of $292,673.84; awards against Wells Fargo in other cases for the same behavior which did not deter its conduct; and the previous judgments in this case none of which deterred its actions; the Court finds that a punitive damage award of $3,171,154.00 is warranted to deter Wells Fargo from similar conduct in the future. This Court hopes that the relief granted will finally motivate Wells Fargo to rectify its practices and comply with the terms of court orders, plans and the automatic stay.

I’m happy to see Wells Fargo get punished for bad acts.  However, my fear is that many potential bankruptcy clients will read this decision and come into their case with unrealistic expectations.  I think it is important to note that this case has taken years to resolve. Any Chapter 13 debtor who thinks they can go into bankruptcy court and get an immediate slap down of their bank is mistaken. Resolving payment disputes can take a long time.  It is also important to note that the debtor in this case spent $292,673.84 in litigation costs pursuing this claim before they achieved their victory.

The ability to review bank charges listed in the proof of claim in a Chapter 13 case is a great benefit fore debtors.  However, it is not always a happy experience.  When a bank begins foreclosure proceedings before the Chapter 13 is filed, they will be able to list all of the legal costs in the proof of claim.  These costs can run as high as $2,000.00.  Some bankruptcy clients get upset when they read that their mortgage company has charged them $350 in attorney fees just for reviewing the Chapter 13 and filing a proof of claim.  While bogus appraisals and unjustified late fees can be knocked out, some other charges will be ruled valid.  Maintaining realistic expectations is important.

The trend across this nation is that mortgage companies are coming under intense scrutiny for their practices.  This trend is a good thing for all consumers.

Other posts you might be interested in reading.

1.  What is Chapter 13?

2. What is Chapter 7?

3. How much does it cost to file?

4.  How do I stop a garnishment?

5.  How do I stop a foreclosure?

6.  Bankruptcy and exempting equity of your house in Georgia.

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