Wells Fargo Faces California Claims on Mortgage Interest Payments

By Chris Bruce

Wells Fargo must face claims that it violated California law by failing to properly alert borrowers that it would collect interest payments for a short time after they paid off federally insured mortgages, a federal judge said Sept. 11 ( Fowler v. Wells Fargo Bank, N.A. , N.D. Cal., 17-cv-02092, 9/11/17 ).

The suit in the U.S. District Court for the Northern District of California, which plaintiffs’ counsel said could seek as much as $40 million in damages, is similar to a separate action against Wells Fargo involving Texas law that’s also in the Northern District, as well as another lawsuit against Cerritos, Calif.-based Sun West Mortgage Co. in Los Angeles Superior Court.

The common thread in all three cases is the claim that lenders failed to use notices approved by the Department of Housing and Urban Development (HUD) to tell borrowers with loans backed by the Federal Housing Administration (FHA) that lenders would be collecting interest even after they’d paid off their loans. If a borrower pays off the loan after the first of the month, HUD rules allow lenders to collect interest for the remainder of the month, but only if they disclose their collection of interest by using a HUD-approved notice.

Michael F. Ram, a partner in the Mountain View, Calif., offices of Robins Kaplan who represents the plaintiffs in each case, called the Sept. 11 ruling good news. “We have a number of these cases that we’ve filed, so we think that this order bodes well for our FHA post-payment interest payment cases generally,” Ram told Bloomberg BNA. Although discovery hasn’t yet begun, he estimated that plaintiffs in the Fowler case will seek between $30 million and $40 million in damages.

It’s not clear how much plaintiffs in the other cases will seek. Those also are at an early stage. The case against Sun West was filed in early March, while the other case against Wells Fargo in the Northern District of California was filed Aug. 1.

Wells Fargo spokesman Tom Goyda said the Sept. 11 decision, while allowing the case to proceed, doesn’t address the merits of Fowler’s underlying claims. “We are reviewing our legal options and will proceed accordingly,” Goyda said.

Class Suit Filed

The Sept. 11 ruling involves an April lawsuit by Vana Fowler. She filed would-be class claims that Wells Fargo violated California’s Unfair Competition Law (UCL) by collecting post-payment interest on her FHA loan without using a HUD-approved notice as required by regulations found at 24 C.F.R. 203.558.

Wells Fargo moved to dismiss the suit, but met only partial success. Judge Haywood S. Gilliam Jr., dismissed Fowler’s claim for unjust enrichment, but allowed Fowler’s other claims — including breach of contract claims and others—to move forward.

Among other points, Wells Fargo said the HUD rules can’t serve as a basis for Fowler’s state-law UCL claim because the HUD rules don’t give borrowers a private right of action. Gilliam disagreed, saying the rules also don’t prohibit private enforcement. “Because [Section] 203.558 does not explicitly bar private enforcement, the Court concludes that a UCL claim premised on a violation of this regulation may proceed,” Gilliam said. Importantly for the ruling, Gilliam said Fowler adequately alleged for this stage of the case that the HUD regulations were incorporated by reference in the loan agreement. Wells Fargo says they weren’t.

Certification Ruling Pending

Fowler first filed the suit in state court, saying Wells Fargo collected “tens of millions” of dollars in unlawful payments, but Wells Fargo later removed it to federal court. Fowler also asked Gilliam to certify a class of affected borrowers who had FHA-backed loans in California between June 1996 and January 2015. Gilliam hasn’t yet ruled on that request.

In each of the three cases, affected loans are those insured by the FHA on or after Aug. 2, 1985, and through Jan. 20, 2015. However, claims for the proposed classes in each case don’t go back to 1985. They all begin on June 1, 1996, and run through Jan. 20, 2015.

In addition to Ram, the plaintiffs are represented by Susan S. Brown of Robins Kaplan in Mountain View, as well as Adam L. Hoipkemier and Kevin Epps of Epps, Holloway, DeLoach and Hoipkemier in Watkinsville, Ga.

Wells Fargo is represented by David S. Reidy, K. Issac deVyver, Karla L. Johnson, and Sara F. Holladay-Tobias in the San Francisco, Pittsburgh, and Jacksonville offices of McGuireWoods.

To contact the reporter on this story: Chris Bruce in Washington at cbruce@bna.com

To contact the editor responsible for this story: Michael Ferullo at MFerullo@bna.com

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