Garcia v. Wells Fargo Bank
| Decision Date | 30 January 2023 |
| Docket Number | 20 C 2402 |
| Parties | EDUARDO GARCIA and JULIA GARCIA, Plaintiffs, v. WELLS FARGO BANK, N.A., Defendant. |
| Court | U.S. District Court — Northern District of Illinois |
In 2008, two years after refinancing their mortgage, Plaintiffs Eduardo and Julia Garcia faced a twin crisis. At the same time the national economy cratered-and Mr. Garcia encountered difficulty finding work-the interest rate on Plaintiffs' adjustable-rate mortgage skyrocketed. Their payments, once $1,600 a month, jumped to a monthly payment in excess of $3,000. In a matter of months, the Garcias were in default facing foreclosure and at risk of losing their home. In April 2010, Plaintiffs applied for a mortgage modification under then-President Obama's signature “Home Affordable Mortgage Program,” known as “HAMP,” a modification which would have reduced their monthly payments. In hindsight, everyone agrees the Garcias qualified for the loan modification they sought. Defendant Wells Fargo, the loan servicer for the Garcias' mortgage loan, was therefore required to offer them a “trial” modification. If they made three trial payments on time Wells Fargo would make the modified payment permanent.
But in August 2010, Wells Fargo denied Plaintiffs' application. As Wells Fargo would later admit, in developing software to evaluate HAMP applications, Wells Fargo introduced an error that resulted in more than a thousand erroneous denials. As a result, Wells Fargo denied the Garcias a trial modification that both parties agree it should have granted and that both parties agree would have reduced Plaintiffs' monthly payments by more than 50 percent. Wells Fargo admitted its error in a 2019 apology letter to Plaintiffs and mailed checks totaling $24,500 in compensation. Wells Fargo later settled a class action stemming from the same error, agreeing to pay more than $40 million to resolve the claims of approximately 1,250 class members. See Final Approval Order [337], Hernandez v. Wells Fargo Bank N.A., No. 3:18-cv-07354 (N.D. Cal. Jan. 9, 2022). Plaintiffs, not satisfied with the cash payments or the class action recovery, sued under the Illinois Consumer Fraud and Deceptive Business Practices Act (“ICFA”).[1]
Wells Fargo now moves for summary judgment, arguing that Plaintiffs cannot show its conduct was “unfair” under ICFA because they could have accepted an earlier modification offer, but chose not to do so: Specifically, in March 2010, Wells Fargo offered Plaintiffs an opportunity to modify their loan under Wells Fargo's standard loss mitigation procedures. Under that modification proposal, Plaintiffs would have paid approximately $3,000 up front and $1,871 per month thereafter, about $500 more per month than the offer Plaintiffs should have received under HAMP. Wells Fargo now contends that, had Plaintiffs accepted this earlier modification offer, the HAMP error would not have occurred-meaning, according to Wells Fargo, that Plaintiffs' refusal to accept the earlier offer defeats their unfairness claim. Wells Fargo argues, further, that, even if Plaintiffs had received the HAMP trial modification to which they were entitled, they would have ended up in foreclosure anyway.
As explained below, these arguments are insufficient to support summary judgment. True, Plaintiffs may have been able to afford the earlier modification. And it is also true that Plaintiffs may have been unable to afford the payments required under the HAMP modification, meaning that they would have lost their home even if their application for a HAMP modification had been granted. But those are factual disputes for the jury to weigh, not for the court to decide.
In January 2006, Plaintiffs refinanced the mortgage on their home at 407 Beach Avenue in LaGrange Park, Illinois. (Defendant's Local Rule 56.1 Statement of Undisputed Material Facts [105] (“DSOF”) ¶ 15; Plaintiffs' Statement in Response to Defendant's Local Rule 56.1 Statement of Undisputed Material Facts [127] (“PSOFR”) ¶ 13.) America's Servicing Company-a division of Wells Fargo[2]-took over loan servicing duties a few months later. (PSOFR ¶ 13.)
When Plaintiffs refinanced, they signed an adjustable rate note for $223,000. (See Note [101-13].) The interest rate on that note was initially 8.14 percent-resulting in a monthly payment of $1,658.11-but would begin fluctuating in February 2008 and could increase up to 15.14 percent. (Id.) Mrs. Garcia testified that, while the Garcias understood the rate could fluctuate, the financial institution who provided financing told them this was not a concern because they would be able to refinance at an affordable rate later. (Deposition of Julia Garcia ( )[3] at 84:7-24.) As it turned out, when their interest rate skyrocketed in early 2008, pushing their monthly payment above $3,000, the Garcias were not able to refinance because housing prices had begun to crash. (Id. at 85:1-12; DSOF ¶ 20; PSOFR ¶ 20.)
Mr. Garcia initially worked as an independent carpenter (DSOF ¶ 6) and later formed a business called Woodland Lumber, which dissolved in November 2006, not long after it started. (Id. ¶ 11.) Before Woodland dissolved, the Garcias learned that their business partners had absconded with between $20,000 and $40,000, including Plaintiffs' entire investment in the business. (Id. ¶¶ 12-13.) After Woodland dissolved and the 2008 financial crisis loomed, Mr. Garcia found it difficult to find work. (Id. ¶ 14.) As Plaintiffs' financial problems mounted, they stopped making their car payments so that they could continue to stay current on their mortgage obligation. (Id. ¶ 16; Deposition of Eduardo Garcia ( ) at 88:6-25.)
In February 2007, when Plaintiffs fell behind on those payments, Wells Fargo offered and Plaintiffs accepted their first Temporary Forbearance Agreement. (DSOF ¶ 18.) They made all the required payments under that Agreement and brought their loan current by September 2007. (Id. ¶ 19; Feb. 2007 Temporary Forbearance Agreement [101-15].) In March 2008, however, Plaintiffs' mortgage payments increased from $1,658 to around $3,000. (DSOF ¶ 20). That same month, worried about their ability to pay $3,000 per month over the long term, the Garcias applied for a loan modification, which was evaluated under Wells Fargo's standard (non-HAMP) loss mitigation process. Wells Fargo denied the Garcias' request because their expenses exceeded their income. (Id.; see also March 2008 Denial Letter [101-16].) By September, the increased payments became too much for the Garcias; they fell behind again and were notified that they were in default. (DSOF ¶ 21.)
Over the next several months, the Garcias entered into two other forbearance plans, but they were unable to make the required payments. (See id. ¶ 22 ().)[4] In December 2009, Mr. Garcia wrote a letter to Wells Fargo, explaining that the Garcias had been victims of fraud, were left with many debts, and that Mr. Garcia was having trouble finding work. (Id. ¶ 24.) In January 2010, Plaintiffs were again denied a loan modification, purportedly because they “did not provide . . . all of the information needed” (January 2010 Denial [101-28]), though Plaintiffs claim that they repeatedly did send the required documents. (See PSOFR ¶ 38.)[5]
In response to the financial crisis-specifically, in response to the massive spike in default and foreclosure rates-then-President Obama announced the creation of HAMP in February 2009. (Expert Report of Peter M. Ross [102-1] ( ) ¶¶ 18-20.) The program went into effect in April. (Id.) HAMP was intended to balance the financial interests of borrowers and lenders/investors. (Id. ¶ 26.) To that end, HAMP directed that lenders evaluate loan modification requests using a formula that assessed whether “the financial return for investors from a modification was superior to the anticipated financial outcome of foreclosure proceedings.” (Id.) Put differently, borrowers would qualify for a HAMP modification if a modification also served the financial interests of their lender. To qualify for such a modification, a borrower had to meet certain requirements. A borrower had to have a first lien mortgage loan, the loan had to be in default, the borrower had to document financial hardship, and the borrower's pre-modification monthly housing payment had to exceed 31 percent of their income. (Id. ¶ 29.) If a borrower met these requirements and submitted necessary paperwork, a sequential series of reductions would be applied to the loan until the payment was equal to or less than 31 percent of the borrower's income. (Id. ¶ 34.) Under that process, servicers would first capitalize the past due balance, then lower the interest rate, then extend the remaining term up to 480 months, and finally would reduce or defer the principal balance until it produced a monthly payment that was less than 31 percent of the borrower's gross income. (Id.)
Borrowers who qualified for a HAMP modification were required to first make three successful “trial” payments in full and on time before their loan would be permanently modified.
(Id. ¶ 36.) As an incentive to servicers, for every borrower whose loan was successfully modified, the Treasury Department would pay the servicer $1,000 up front and $1,000 annually for up to five years thereafter, so long as the borrower remained current. (Id. ¶ 45.)
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