Wells Fargo Lawsuit Could Impact Chapter 13 Bankruptcy Filers

If you recently filed for Chapter 13 bankruptcy in part to avoid foreclosure, and if your mortgage was with Wells Fargo, it is important to know about a recent lawsuit that alleges fraudulent practices by the bank. In short, according to an article from CNN Money, a married couple who filed for Chapter 13 bankruptcy have alleged that Wells Fargo pushed through “stealth” mortgage modifications after bankruptcy. These new modification terms did in fact modify monthly mortgage payments, but they also extended the terms of the mortgages, resulting in hundreds of thousands of dollars in interest.
Individuals who have filed for Chapter 13 bankruptcy in Illinois could be impacted by the outcome of the case. To better understand the stakes, let us tell you a bit more about the current case against Wells Fargo.
Debtors Allege that Wells Fargo Modified Mortgage without Authorization
In 2014, Christopher and Allison Cotton had a mortgage with 16 remaining years of payments. Due to extensive medical expenses, they filed for Chapter 13 bankruptcy. As you may know, Chapter 13 bankruptcy is often a powerful tool for debtors who own homes and are having difficulty making mortgage payments. When you file for Chapter 13 bankruptcy, an automatic stay can prevent a home from going into foreclosure. Chapter 13 is not a liquidation bankruptcy (like Chapter 7), but rather a type of bankruptcy through which debtors restructure their debts. As such, once a debtor files for Chapter 13 bankruptcy and has a repayment plan approved, she typically will not have to worry about losing her home but instead will make mortgage payments based on the Chapter 13 plan.
What is the basis of the Cottons’ claim against Wells Fargo? They contend that, after filing for bankruptcy, Wells Fargo used a “routine, but little-noticed form to ‘sneak through’” a mortgage modification. The claim alleges that Wells Fargo has used this form to modify mortgages, without authorization, of numerous debtors who have recently filed for Chapter 13 bankruptcy. As the CNN Money article clarifies, “the form is usually used to alert homeowners and the bankruptcy court about subtle shifts in real estate taxes or insurance costs.” In this case, however, “Wells Fargo has been accused of using these documents to make unauthorized and substantial changes to the structure of mortgages.”
For the Cottons, the “stealth” modification resulted in a monthly reduction in mortgage payments, but that modification extended the life of the loan to 40 years.
Case Could Have Far-Reaching Implications for Debtors with Wells Fargo Mortgages
After the Cottons filed for Chapter 13 bankruptcy and learned that Wells Fargo had pushed through a “stealth” modification, they filed a lawsuit. That lawsuit is currently a class-action claim that could impact debtors throughout the country who have mortgages with Wells Fargo and filed for Chapter 13 bankruptcy.
Did you recently file for Chapter 13 bankruptcy, and do you have a mortgage through Wells Fargo? You may have been impacted by the practices alleged in the Cottons’ class-action claim. You should discuss your situation with an Oak Park bankruptcy attorney as soon as possible. Contact the Emerson Law Firm to learn more about how we can assist you with your case.
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