Wells Fargo faces class action over “dual tracking” practice

Posted on: June 4th, 2012 by Steve Larson

A Kansas couple has filed a class action suit against Wells Fargo, accusing the nation’s largest mortgage lender of providing only “illusory trial loan modification programs” to borrowers facing foreclosure — without any intention of offering them permanent loan reductions.

The suit brings to light “dual-tracking,” a practice by lenders of offering mortgage loan modifications while initiating foreclosure proceedings against the same borrower during the same period.

The recently approved $25 billion mortgage settlement between federal and state officials and the five top mortgage lenders, including Wells Fargo, prohibits “dual-tracking.”

U.S. Magistrate Joseph Spero last week ruled that the “class” in the lawsuit brought by Vicki and Richard Sutcliffe failed to state a claim for breach of contract or debt collection violations.  But Judge Spero allowed a separate claim in the lawsuit to remain.  Judge Spero also gave the class leave to amend the complaint to allege damages from the bank’s alleged contract breach.

The Sutcliffes made the required reduced payments under the trial modification offered by Wells Fargo, but did not receive paperwork for a loan modification at the end of the trial period, the suit claims.  The couple continued to make payments at the trial period rate through July 2010.

However, Wells Fargo sent paperwork indicating the loan was in default and a letter stating it was not going to permanently modify the loan, the suit alleges.

Wells Fargo later sent letters to the couple offering them a “Special Forbearance Plan,” under which they would make more reduced payments.  The Sutcliffes made the payments, only to be sent another letter again stating the loan was in default.

Finally, on January 4, 2011, the Sutcliffes received a letter from a law firm informing them that it had been retained by Wells Fargo to initiate foreclosure proceedings.