Wells Fargo won’t talk settlement if homeowner class certified

SAN FRANCISCO -- Wells Fargo will not engage in settlement discussions to resolve accusations it improperly denied mortgage modifications that led to hundreds of potentially avoidable foreclosures if plaintiffs are allowed to proceed as a class, a defense attorney said to a San Francisco federal judge Wednesday.

Stacie Knight, representing Wells Fargo, argued the lawsuit shouldn't proceed as a class action. She continued, "We are more than happy to sit down" to settle the case if plaintiffs instead file individual complaints.

Wells Fargo revealed in a 2018 regulatory filing that a software error caused it to improperly reject loan modifications. Of the 870 customers issued incorrect denials, 545 lost their homes.

In addition to the proposed class action in California, there are similar lawsuits in New York, Pennsylvania and Ohio.

U.S. District Judge William Alsup considered at the hearing whether to allow a group of 24 California plaintiffs to proceed as a class. He said at the outset he didn't like the idea of certifying various classes from different states because "there could be differences between them and what the law is."

The individual circumstances of each applicant denied a mortgage modification should be scrutinized, he added.

Alsup proposed allowing the California class to move forward to "see how it goes."

"If it turns out to be triable on a class-wide basis, you can do it nationwide for the rest of the states," he said. "If it turns out to be a nightmare, at least it's only 24 plaintiffs."

Michael Schrag, representing the plaintiffs, argued Wells Fargo broke the terms of its contracts with all the homeowners by neglecting to notify them their defaults could be cured through loan modifications.

The banking giant accepted as much as $6.4 billion through a federal program introduced in 2009 designed to help homeowners avoid losing their homes by loan modifications. Loans backed by Fannie Mae or Freddie Mac are eligible for modification even before the borrower requests one, according to plaintiffs' attorneys at the Gibbs Law Group.

States interpret the bank's obligation to notify homeowners differently, according to Knight.

"This is an area states are all over the place," she said. "Deciding those issues on a California basis does not materially advance the litigation."

In response to Knight's argument, the plaintiffs should all proceed individually, Alsup responded, saying it's "not practical to say to these people to bring your own lawsuit."

"My plan is simpler: We go to trial with these two people only," he said. "I don't know why we can't come up with a way to try this and get to the heart of case so people who deserve money get their money."

Knight responded Alsup should deny class certification, at which point the defense will be better positioned to engage in discussions to settle individual cases.

Alsup said he will issue a ruling within two weeks.