$5M Jury Award for One Foreclosure Fraud Makes U.S. Punishment Look Trivial
A Texas jury’s recent decision to award over $5 million in damages and fees for the fraudulent foreclosure of a single home suggests that the big banks could have been on the hook for as much as $32 trillion — before the Justice Department and state attorneys general settled for $25 billion, or less than one-tenth of a penny on the dollar.
In the trial in Harris County district court, the jury awarded Houston foreclosure victims Mary Ellen and David Wolf $5.38 million on November 6, on the grounds that Wells Fargo Bank and Carrington Mortgage Services knowingly submitted false documents to kick them out of their home.
The Wolfs had taken out a $400,000 home equity loan from Carrington (then known as New Century), which was immediately sold into a mortgage-backed trust administered by Wells Fargo. The loan was never properly placed into that trust, however, breaking the chain of title and making it impossible for Carrington or Wells Fargo to legally enforce the lien.
They put the Wolfs into foreclosure anyway, relying on a transfer document fabricated (or “robo-signed”) by Tom Croft, a New Century employee. New Century did not own the promissory note or deed of trust and could therefore not legally transfer the lien, and Croft signed off without personal knowledge of the underlying loan.
The jury agreed with the Wolfs that this made the foreclosure invalid, and awarded the family $150,000 in financial injuries, $40,000 for mental anguish, $5 million in punitive damages and $190,000 in attorney’s fees. Wells Fargo can seek a new trial, ask the judge to reduce the damages, or appeal the case, though it hasn’t done so yet.
Numerous court depositions released in 2010 revealed that robo-signing of mortgage documents in an attempt to prove ownership of loans and secure foreclosures — in other words, foreclosure fraud — was a widespread industry practice. Two years later, the five leading mortgage servicing companies, including Wells Fargo, paid $5 billion in fines and $20 billion in credits in return for federal and state prosecutors agreeing not to pursue civil charges.
With the jury award in the Wolf family case, we can now assess the true financial exposure on these banks and mortgage companies. There have been roughly 6 million foreclosures since the beginning of the financial crisis in 2008, and virtually all of them were completed with robo-signed, fabricated or fraudulent documents in one form or another. If we apply the $5.38 million jury award to all of those loans, you have a potential cost from the foreclosure fraud scandal of $32.28 trillion.
This obviously represents the extreme edge of the possible financial hit to the industry. A small number of foreclosures may have been completed properly. And while the settlement didn’t preclude individual civil lawsuits most foreclosure victims don’t have the wherewithal or fortitude for a protracted legal fight like the Wolf family did.
It’s law enforcement’s job to step in and protect the rights of vulnerable victims lacking resources. And the contrast between the penalty banks actually paid, and what they could have been put on the hook for, could not be more stark. The $25 billion National Mortgage Settlement — and calling it that is extremely generous, since banks got credit to pay off the penalty through routine activities like bulldozing blighted properties and donating homes to charity — represents roughly 0.08 percent of the total possible exposure.
That barely qualifies as a slap on the wrist for breaking the centuries-old American property rights system, and fraudulently mocking up foreclosure documents to cover it up.
As far as LIT can make out, this case is closed as of 2017 and it appears the decision in favor of the Wolf’s stands. No appeal can be traced by Wells Fargo NA. Cause No. 2011-36476
Bankers ask judge to disregard $5.4 million foreclosure verdict
Original Publish Date; Jan. 11, 2016
In a case that’s being watched by legal and real estate interests, the bankers who lost a $5.4 million jury verdict against a pair of homeowners in West University asked State District Judge Mike Engelhart to set aside the jury’s decision and allow the bank to foreclose.
Lawyers for Wells Fargo and Carrington Mortgage Services appeared before Engelhart Monday to argue that David and Mary Ellen Wolf shouldn’t receive the $5.4 million that a Harris County jury awarded them in November nor should they be able to keep their house.
The bankers argued that the Wolfs, who were sitting on the front row of the courtroom listening to the proceedings, were not victims of fraud as the jury found, and that if the banks did file documents improperly at the courthouse, it wasn’t intended to harm the couple.
At worst, it was a “paperwork slipup or negligence,” said Thomas Panoff, a commercial litigation lawyer with Mayer Brown in Chicago who is representing Wells Fargo and Carrington.
The lawyers representing the Wolfs argued that the couple had been harmed by the turmoil surrounding their loan and the confusion over which entity owned their property.
The jury found that Wells Fargo violated a Texas law prohibiting fraudulent real estate filings in 2009 when it retroactively attached the Wolfs’ mortgage to the Carrington Mortgage Loan Trust – an instrument called a securitized trust that combines multiple debts into a single security for sale to investors. The Carrington trust had closed to additional investment three years earlier.
In the midst of Wells Fargo’s foreclosure beginning in 2011, the Wolfs put their house up for sale and found interested buyers who were willing to pay enough to cover the mortgage loan and provide the couple with a $150,000 profit. But because they couldn’t get a clear title, the couple couldn’t sell their 1950s ranch-style house on Buffalo Speedway.
“When you file documents in deed records, you have to get it right,” said Brandy Wingate Voss, an appellate lawyer with the Smith Law Group who is representing the Wolfs.
Voss said another mortgage company was the owner of record but that lender had gone out of business. When Wells Fargo learned the Wolfs were seeking federal mortgage assistance, Voss said, the bank filed a lien at the Harris County courthouse so it would be notified of a sale. Wells Fargo served as trustee for the Carrington Mortgage Loan Trust.
Request to slow down
In the fast-paced hearing, Engelhart reminded lawyers repeatedly to slow down as they discussed complicated banking laws. He said he would rule after studying underlying statutes and court precedents.
While the jury awarded the Wolfs punitive damages of $5 million – $2.5 million from Wells Fargo and $2.5 million from Carrington – they conceded that damage caps in Texas would prevent them from collecting the entire amount, said D. Todd Smith, an appellate lawyer in Austin who is representing the Wolfs. He said they are entitled to $800,000 in punitive damages.
Mortgage note
While the jury determined that Wells Fargo does not own the Wolfs’ mortgage note, it did find that Wells Fargo has physical possession of the note. The jury also determined the Wolfs owe $655,000 on the note they signed in 2006.
It’s unclear who owns the house, and the Wolfs’ chief trial lawyer, W. Craft Hughes, hopes Engelhart’s decision will clear things up.
A bank has to both own and hold a note to be able to foreclose, he said. The Wolfs are asking Engelhart to disregard the jury’s finding that Wells Fargo is the holder of the note.
“It’s unclear how Wells Fargo got the note in the first place,” said Smith, arguing that the proper steps weren’t followed in transferring it from one owner to another.
In any event, Hughes said it’s possible the ultimate outcome of case will set a precedent for other states because of similar laws regarding the filing of fraudulent courthouse documents. It has attracted the attention of mortgage bankers and consumer advocates nationwide because it’s uncommon for foreclosure cases to go to a jury.
