A California federal judge has certified a nationwide class of Wells Fargo mortgage borrowers who say the bank breached its contract by denying them home loan modifications, while excluding proposed subclasses of borrowers bringing consumer protection, wrongful foreclosure and emotional distress claims.
In partially granting the certification bid Wednesday, U.S. District Judge William Alsup approved a class definition that encompasses Wells Fargo mortgage borrowers who qualified for a home loan modification between 2010 and 2018 but were not offered it due to a software glitch and whose homes were later foreclosed upon.
Proposed subclasses for a nationwide class bringing intentional emotional distress claims and various state consumer protection claims were deemed to be too individualized to fulfill federal class action requirements, while California homeowners rights and wrongful foreclosure subclasses were found to be too small to satisfy the numerosity requirement.
“In other words, we will, on a nationwide basis, determine the value of the equity lost by each homeowner through a foreclosure by reason of the failure of Wells Fargo to give notice of the modification procedure (assuming that it is a breach of contract),” he said. “There will not otherwise be a wrongful foreclosure subclass.”
The judge also appointed Gibbs Law Group LLP and Paul LLP class counsel, according to the order.
The borrowers claim they were eligible for loan modification and repayment plans under the federal Home Affordable Modification Program, a Great Recession-era program for which they said Wells Fargo received billions of dollars from the government.
Under HAMP, responsibility fell on the bank to determine which of its borrowers were eligible, so the bank developed software that applied the government's formula to assess existing loans.
But according to the borrowers, a glitch in the software "double-counted [attorney] fees when calculating eligibility for a mortgage modification" and caused erroneous outcomes that deemed ineligible around 870 borrowers who should have received loan modifications. Of those, the borrowers say, 545 were foreclosed on.
Despite discovering the error in 2013, Wells Fargo "refused to even try to fix it until 2015," the borrowers said, adding that the issue wasn't ultimately fixed until 2018.
The class’s first attempt at certification was denied in October after Judge Alsup found that the initial motion failed to identify which plaintiffs would represent a variety of subclasses and containing inconsistencies in defining the scope of the various claims, calling it a “mess.”
The renewed motion in November focused first on the borrowers’ proposed California subclass, asking Judge Alsup to "certify first a California liability-only class and one issue class, and to hold in abeyance a ruling on nationwide and other state subclasses until after a California-wide merits determination."
Although the borrowers sought to address remedies in a later phase of litigation, the breach of contract class Judge Alsup approved Wednesday will tackle both liability and damages at the same time, he said.
Counsel for the parties did not immediately respond to requests for comment Thursday.