Wells Fargo is still reeling after a Houston jury slapped the company with a $5.4 million judgment. The jury ruled against the bank and its mortgage servicer in residential foreclosure case involving a Texas couple. The bank had originally sued for foreclosure but the couple shot back with their own lender liability claim against the bank.
We rarely write about residential mortgage cases. Few ever make it to trial. Everyone likes to see underdogs win, however, and this was a heck of a win. Read on because Wells Fargo is a sore loser. Notwithstanding the jury verdict, the giant lender has asked the court to disregard the jury and to go one step further and order the sheriff to sell the couple’s home. If that isn’t enough sour grapes, they also want the homeowners to pay their legal fees.
The case has implications well beyond the residential foreclosure process. Whether you are a commercial borrower or homeowner facing foreclosure, there is much here to enjoy!
David and Mary Ellen Wolf own a home in West University, Texas. Like many folks, the Wolfs got caught up in the post 2008 financial crisis and fell behind on their loan. By 2011 they were facing foreclosure. It was then that Wolfs did something novel. They decided to sue the bank to stop the foreclosure.
Lest you think that Wolfs were trying to game the system and get a free house, that isn’t what happened. David Wolf worked in the construction industry. He lost his job in 2009 like so many others in that industry. The couple applied for a loan modification but the bank responded by filing a foreclosure. Even while the court battle was raging, the couple offered to pay money into an escrow account while the case was pending.
The claims are simple. Wells Fargo wanted the home. The Wolfs said that Wells Fargo couldn’t prove that they owned the mortgage note. Late last year the case went to trial and after four days of testimony and arguments, the jury ruled against the bank and its mortgage servicer.
Like many real estate loans today, the loan was packaged and sold into a securitized trust. Both commercial and residential loans are often packaged into trusts. There are very special rules and regulations that apply to these trusts. Layer on 500 + page “pooling and serving” agreements that govern these trusts and it becomes easy to see how mistakes are made.
Many courts rule that the person or entity that physically holds the mortgage note can foreclose but jurors in this case were not convinced. There appeared to be so many problems with the bank’s paperwork and the trail of the note into the trust that jurors found that the bank did not meet its burden of proof. In order to foreclose, the bank has to prove it has the legal right to do so.
The final verdict by the jury was a $5.4 million award in damages in favor of the Wolfs and against Wells Fargo. The jury also found that the Wolfs owe $655,000 on the home. The unresolved question is who do the Wolfs pay?
When these rulings occur, the property becomes a so-called zombie. Everyone acknowledges that the Wolfs owe money on their home but who should they pay? That question will probably get resolved in a “quiet title” action which is typically heard by a judge and not a jury.
As we said earlier, Wells Fargo has a horrible case of sour grapes. Should the judge disregard the jury? No. Their request to ignore the jury, sell the house and force the Wolfs to pay legal fees is scheduled for January 11th.
Suing banks is no easy task. Banks have very deep pockets and have the ability to outspend most borrowers. Typically, banks will do everything in their power to have the case dismissed on technical grounds. They know that their best chances are in front of a judge and not a jury. If anyone needs a reminder of that, look no further than this case.
Cases against banks are also difficult because very few lawyers sue banks. There are foreclosure defense lawyers that have some skills but few specialize in actually suing banks. (This area of law is called “lender liability” and most lender liability lawyers are expensive, work for large firms and defend banks.)
The lawyers at MahanyLaw and Judge, Lang & Katers sue banks. We are two national boutique firms joined together in one common mission. Our lender liability team represent borrowers and bank customers in large transactions. [Attorney Brian Mahany was part of the legal team that helped the government and taxpayers recover $16.65 billion in 2014 against Bank of America, the largest civil recovery against a single defendant. Ever.]
Need more information? Contact attorney Chris Katers at [hidden email] or by telephone at (414) 777-0778. The author of this post, attorney Brian Mahany can be reached at [hidden email] or by telephone at (414) 704-6731 (direct).
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