In a recent class action settlement, wronged homeowners received $178.04, while their attorney’s received $12.5 million a piece, and Wells Fargo won the guarantee these homeowners would never sue again.
New Jersey attorney Josh Denbeaux wrote an analysis of the settlement that details how Wells Fargo and a few attorneys profited from a lawsuit meant to punish the bank and provide relief to misguided homeowners.
When Wells Fargo purchased Wachovia Bank following the 2008 financial crisis, it inherited tens of thousands of predatory and illegal loans that had devastated borrowers and contributed to the collapse of the housing bubble.
Among these loans, which were offered in bad faith to naïve borrowers, was the “Pick-A-Payment” loan, which allowed homeowners to choose from several repayment plans. One option allowed them to make monthly payments below the interest rate, so their loan balance actually increased every month.
Once their loan hit a certain balance, homeowners would suddenly be forced to make higher payments, usually at a rate they could never have been approved for in a typical loan. At this point, most homeowners defaulted and the bank then foreclosed on their home. (RELATED: Long Forgotten Debt Haunting Thousands Of Americans)
Facing legal action from several attorneys general following the collapse of the housing bubble, Wells Fargo agreed in 2010 to modify the loans of eligible borrowers, and to pay millions to some states to provide relief to those who already lost their homes.
In a separate legal battle, more than half a million wronged homeowners across the country had filed a class action lawsuit against Wells Fargo, which was settled a few months after the agreement with the attorneys general was signed.
In the settlement, Wells Fargo paid $75 million to the homeowners and offer them a restructured loan, if they waived their right to sue again. The attorneys split $25 million, and $125,000 was split between the homeowners 26 representatives, which left the other members of the suit with $178.04.
Most of the homeowners were not asked to consider the terms of the settlement.
Thousands of them waived away their right to sue in exchange for the check and restructured loan — not realizing they were already entitled to the restructured loan because of the agreement Wells Fargo signed with the attorneys general.
Jayme Brunkhorst joined the suit following a recommendation from her lawyer. She met with some of the class action attorneys and provided them with documents. Although Brunkhorst was a representative in the case, she never heard from the lawyers again, until she received a check in the mail for $2,500. She was not informed of the terms or how much the attorneys were paid until after the settlement was reached.
“Wells Fargo was allowed to revoke the terms of the original settlement for homeowners in New Jersey by brokering another deal where homeowners surrendered their rights to legal action in exchange for $178.04,” Denbeaux said.
In another misleading move, Wells Fargo is requiring homeowners to initiate the loan restructuring process, although the terms of the settlement explicitly states the homeowners will be contacted if they qualify. “If the Court grants final approval to the Settlement, you will automatically receive benefits if you qualify,” it reads.
Denbeaux has written letters to all of the attorneys generals who signed the agreement with Wells Fargo, asking them to reopen their investigation, and is pursuing further litigation against Wells Fargo. His firm, Denbeaux & Denbeaux, has more than a dozen active cases in state and federal trial and appeals court against Wells Fargo, and is filing two more next week.
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