Wells Fargo created an elaborate guide for how to produce missing documents to foreclose on homeowners, according to a lawsuit that has caught the attention of state and federal regulators.
The bank denies wrongdoing, but the allegations rekindle claims that lenders, including Wells Fargo, used forged and shoddy paperwork during the recession to quickly foreclose on struggling homeowners, a practice known as “robo-signing.” Those charges led to a $25 billion national mortgage settlement that was supposed to put an end to such abusive practices, but bankruptcy lawyer Linda Tirelli says nothing has changed.
In the course of defending a New York homeowner facing foreclosure, Tirelli said she found a 150-page manual instructing Wells Fargo lawyers how to process foreclosures when a key document, known as an endorsement, is missing. Lenders need endorsements to prove that they own the mortgage, before they can foreclose on a homeowner.
The manual, reviewed by The Washington Post, outlines steps for obtaining the missing document after the bank has initiated foreclosure proceedings. It also lays out what lawyers must do in the event of a lost affidavit or if there is no documentation showing the history of who owned the loan, paperwork the bank should already have.
“This is a blueprint for fraud,” said Tirelli, who attached a copy of the manual as evidence in the lawsuit filed in U.S. District Court in White Plains, N.Y. “The idea that this bank is instructing people how to produce these documents is appalling.”
Tirelli said she has long suspected Wells Fargo of manufacturing documents. A number of her past cases involving the bank featured mortgage notes that were not endorsed by anyone, but when she brought it to Wells Fargo’s attention the bank would “magically” produced the document, Tirelli said. It happened so often to her and other consumer lawyers that they started to call paperwork “ta-da” documents, she said.
Officials at Wells Fargo would not comment on Tirelli’s case in federal court but confirmed the existence of the manual. Company spokeswoman Vickee Adams said that the pages provided to Wells Fargo by the New York Post, which first reported the story, appear legitimate but that the bank has not “reviewed the complete document or every line of the section provided to confirm its authenticity entirely.”
Adams explained that the company updated the manual in the midst of the investigation that led to the national mortgage settlement to help its lawyers keep pace with changing laws, regulations and foreclosure procedures. What’s more, the procedures laid out in the manual are legal, she said.
“What’s so unfortunate here is the exaggeration on behalf of litigation,” Adams said. “There are a number of procedures in place and triple checking before a foreclosure is brought. This is a misrepresentation of facts.”
Banking lawyer Jeffrey Naimon at Buckley Sandler said the law does allow lenders to endorse notes after filing for foreclosure. He said lenders can transfer ownership of a mortgage by filling out the endorsement or leaving a blank endorsement.
“All you have to do is have a note endorsed in blank. . . . The reason why is because the note could be sold to a few more people,” he said. “The bearer of the note still has the right to enforce it.”
Within days of Tirelli filing suit last week, the office of New York Attorney General Eric Schneiderman and the New York State Department of Financial Services requested a copy of the manual. Neither office has launched a formal investigation, but they are reviewing the document, according to people familiar with the matter who were not authorized to speak publicly.
Tirelli said she was also contacted by the Consumer Financial Protection Bureau and the monitor for the national mortgage settlement, both of which declined to comment for this article. A fifth agency, the Justice Department’s U.S. Trustee Program, which oversees bankruptcies, could not be reached for comment.
In the past year, Wells Fargo’s mortgage servicing practices have run afoul of New York authorities. Schneiderman in October filed a lawsuit against the bank for allegedly dragging its feet in processing loan modification requests from homeowners, a violation of the national mortgage settlement.
New York’s top prosecutor said his office received 339 complaints from New Yorkers fighting to save their homes. Homeowners said Wells Fargo and Bank of America refused to allow them to submit missing documentation, or failed to respond to requests to have their mortgage balance or interest rates reduced within the 30 days allotted in the settlement.