Wells Fargo has agreed to “good faith class settlement negotiations” to resolve a lawsuit that alleges the bank was making “stealth” mortgage modifications that could vastly increase homeowners’ borrowing costs, according to a filing Monday in federal bankruptcy court in Charlotte.
Gaston County homeowners Christopher and Allison Cotton gained national attention in June when they filed their class-action lawsuit in federal bankruptcy court here against the San Francisco-based bank. The case was another black eye for Wells as it tries to recover from a major scandal over its consumer banking sales practices.
After the parties agreed to settlement talks, U.S. Bankruptcy Court Judge Laura Beyer agreed to postpone a hearing Friday on the plaintiffs’ motion for a preliminary injunction to stop the bank from making alleged loan changes without borrower approval.
Among other conditions, Wells has also agreed not to make any of the payment changes in question in any Chapter 13 debtors’ bankruptcy cases while settlement talks are ongoing.
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Thad Bartholow, an attorney for the Cottons, declined to comment. Wells Fargo, which has strongly denied the claims in the case, also would not comment.
The Cottons filed their voluntary Chapter 13 bankruptcy petition in February 2014, according to the complaint filed in June. They were current on their mortgage payments to Wells Fargo at the time, and have remained current on payments outlined by their Chapter 13 plan, the suit said.
However, the complaint alleged Wells Fargo made “illegal stealth modifications” that caused the Chapter 13 trustee in the case to pay less than originally required, resulting in “defaults that were not the Cottons’ fault.”
The suit also alleged the bank made loan modifications that would have added thousands of dollars to the couple’s mortgage debt over the term of the loan without their knowledge. One change, for example, resulted in a new 40-year loan that would have extended their mortgage by 26 years, incurring at least $84,939 in additional interest.