Banking

Homeowners seek to halt Wells Fargo loan changes in high-profile bankruptcy case

A customer uses an ATM outside a Wells Fargo branch in Charlotte.
A customer uses an ATM outside a Wells Fargo branch in Charlotte. AP File Photo

The Gaston County homeowners who have filed a class-action lawsuit against Wells Fargo are asking a judge in Charlotte this month to stop the bank from making alleged loan changes without borrower approval.

The suit filed in June by Christopher and Allison Cotton gained national attention over its allegations that the San Francisco-based bank was making “stealth modifications” that could vastly increase homeowners’ borrowing costs.

The complaint was another black eye for the bank as it tries to recover from a major scandal over its consumer banking sales practices.

Lawyers for the Cottons, who live in Dallas, N.C., filed a motion for a preliminary injunction last week against the practices outlined in their suit. The request applies to all Wells Fargo borrowers nationwide who have filed Chapter 13 bankruptcy cases. A hearing is scheduled for July 26 in federal bankruptcy court in Charlotte.

“We want to make sure that no one gets taken advantage of because of these practices,” said Theodore Bartholow III, a Texas-based attorney who is among the lawyers representing the Cottons.

Wells Fargo spokesman Tom Goyda said the bank “strongly denies the claims” in the lawsuit and wants to “make it clear that we do not modify loans without receiving signed documentation from the customer and, when it’s required, approval from the bankruptcy court.”

Goyda said the bank sends loan modification offers to borrowers or their attorneys and then follows up by telephone or email. The “payment change notices” cited in the lawsuit are a bankruptcy court requirement but are not part of a loan modification package that requires customer consent, he said. Goyda declined to comment on the upcoming hearing.

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 says.

However, the complaint alleges 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 alleges 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.

The suit seeks relief for the Cottons and “all other consumer bankruptcy debtors nationwide” who have been affected by Wells Fargo’s practices.

Bartholow, the attorney in Texas, said he got involved in the case through Max Gardner, a friend and well-known consumer bankruptcy attorney in Shelby. Gastonia lawyer Frederick Henderson, of the Sigmon & Henderson law firm, is also representing the Cottons.

Rick Rothacker: 704-358-5170, @rickrothacker

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