Mireles v. Wells Fargo Bank, N.A.

Decision Date11 January 2012
Docket NumberCase No. CV 11–07720 MMM (FMOx).
PartiesLuis MIRELES, et al., Plaintiffs, v. WELLS FARGO BANK, N.A., a national banking association; Wells Fargo Home Mortgage, a national banking association; America's Servicing Company, a national banking association; Wachovia Mortgage, FSB, a national banking association; Wachovia Bank, FSB, f/k/a World Savings Bank, FSB–TX, a national banking association; Golden West Financial Corporation, a Delaware corporation; World Savings Bank, FSB, a national banking association; World Savings, Inc., a California corporation; Cal–Western Reconveyance Corporation, a California corporation; and Does 1 through 1000, inclusive, Defendants.
CourtU.S. District Court — Central District of California


Joshua P. Shelton, Vito Torchia, Jr., Brookstone Law, P.C., Newport Beach, CA, David G. Epstein, David Epstein Law Firm, Laguna Beach, CA, for Plaintiffs.

Drew Ann Robertson, Neal R. Marder, Winston and Strawn L.L.P., Los Angeles, CA, Stacie C. Knight, T. Thomas Cottingham, III, Winston & Strawn L.L.P., Charlotte, NC, Robin P. Wright, Wright Finlay & Zak L.L.P., Newport Beach, CA, for Defendants.


MARGARET M. MORROW, District Judge.

On August 16, 2011, plaintiffs filed this action in Los Angeles Superior Court.1 Defendants removed the case to this court on September 16, 2011, asserting that the action was a “mass tort” action and invoking jurisdiction under the Class Action Fairness Act (“CAFA”), 28 U.S.C. § 1332(d).2 Defendants also invoked the court's diversity jurisdiction under 28 U.S.C. § 1332(a).3 On October 14, 2011, plaintiffs filed a motion to remand.4 Defendants filed a motion to dismiss one week later, on October 21, 2011.5 Both motions are opposed.6

A. The Complaint's Factual Allegations

The complaint in this action was filed on behalf of 108 named plaintiffs. It is a sprawling document that is 84 pages and 387 numbered paragraphs long; many paragraphs contain multiple subparagraphs. The court summarizes the complaint's allegations below.

The complaint alleges that [a]s the result of an aggressive and relentlessly pursued growth strategy between 2003 and 2009,” Wells Fargo Bank, N.A. (Wells Fargo) became the fourth largest banking institution in the nation, and was the “master servicer” for loans and mortgages at issue in this action. 7 As part of a massive scheme of investor fraud, defendants allegedly inflated property appraisals, disregarded underwriting standards, sold predatory loan products, and promised refinancing packages, all while asserting that they were “prudently lending to qualified homeowners.” 8 Defendants allegedly sold mortgage products to borrowers who could not otherwise meet traditional underwriting standards for such loans, and thereby contributed to a massive housing price bubble.9 After the bubble collapsed, plaintiffs' net worth and credit ratings were devastated. 10 The complaint alleges that defendants are responsible for a host of other ills related to the current economic crisis, including a “mortgage meltdown in California that was substantially worse than any economic problems facing the rest of the United States,” 11 and a “knowing[ ] and systematic[ ] destr[uction of] California home values.” They assert that defendants “acted with callous or reckless disregard” for the fact that “their actions [might] cause California home prices to plummet.” 12

Defendants allegedly created risky “mortgage pools,” promising investors lucrative benefits, and “managed risk through leverage and derivatives trading.” 13 They purportedly knew that the mortgage pools contained loans that were at very high risk of default.14 Borrowers like plaintiffs were allegedly “handcuffed” and required to accept these “dangerous products” because defendants imposed substantial early payment penalties if borrowers “tried to get out of the[ ] toxic loans [and replace them with] more stable fixed rate products.” 15

With the proceeds of TARP funds, defendants allegedly committed numerous fraudulent acts, including issuing notices of default in violation of California law, misrepresenting their intention to arrange loan modifications for plaintiffs, and failing to respond to plaintiffs' communications. 16 Plaintiffs assert that defendants have been foreclosing on their homes without proof that defendants hold the notes and deeds of trust they seek to enforce, and without being able to demonstrate ownership of notes and trust deeds in question.17

The complaint also contains a number of allegations regarding Wachovia, and its acquisition of Golden West Financing Corporation (Golden West). Golden West was an Oakland, California-based mortgage lender run by Herbert and Marion Sandler.18 It offered a product known as the “Pick–A–Pay” mortgage.19 This type of mortgage permitted borrowers to choose from multiple payment options every month: (1) full payment of interest and principal sufficient to pay down the loan over a traditional 30 year term; (2) a higher payment that would pay off the loan in 15 years; (3) an interest-only payment; or (4) a minimum payment that did not cover interest, and caused the unpaid interest to be added to the loan balance.20 Plaintiffs contend that the fourth option resulted in “negative amoritization,” i.e., in growth of the outstanding balance over time.21 Plaintiffs contend that this product lured borrowers to take out loans by offering low “teaser” rates that “ratcheted sharply upwards as interest rates increased.” 22 It was purportedly marketed to unsophisticated home buyers who did not understand the financial risks they faced if they entered into such a loan. 23 Plaintiffs assert that Golden West's loans were labeled the “Typhoid Mary of the mortgage industry” by The New York Times, and that the Sandlers were included on a list of “25 people to blame for the financial crisis” by Time Magazine.24 After Wachovia acquired Golden West, its mortgage portfolio was dominated by Pick–A–Pay mortgages. By the end of 2007, it held $120 billion of these mortgages, compared with $50 billion of “traditional mortgages.” 25 More than $70 billion of Wachovia's Pick–A–Pay mortgages were issued to California borrowers.26

When Wachovia announced its purchase of Golden West, the housing market was already beginning to decline, and investors were concerned about their potential exposure.27 To reassure its investors, Wachovia's officers made various representations regarding the safety and stability of Golden West's portfolio, and claimed to have implemented policies to ensure that borrowers could pay their loan obligations.28 Wachovia stated in 2007 that it did not “anticipate any meaningful potential impact to earnings with the sub prime going forward.” 29

The Pick–A–Pay loans were allegedly concentrated in California, and when these loans “reset prematurely due to the contractual breaches by Wells Fargo,” many homeowners lost their homes through foreclosure.30 Plaintiffs allege that defendants were motivated to foreclose on properties quickly so that the homes could be added to their growing inventory of Real Estate Owned (“REO”) properties.31 When Wells Fargo acquired Wachovia, it allegedly took a large ‘paper loss' on Wachovia's nonperforming loans and mortgages, so that whatever money or benefits it was able to recoup on the defaulted mortgages could be reflected as new profits.32

Plaintiffs contend that, according to data reported pursuant to the Home Mortgage Disclosure Act, fully one-fifth of all the loans defendants made to low and moderate income borrowers, including plaintiffs, were high-cost refinance loans with an average interest rate of 9.8%; these loans purportedly represented close to $11 billion in lending. Plaintiffs assert that the loans went directly into mortgage pools securitized and sold by defendants, who profited from the loans' “secret excessive markups.” 33

The complaint alleges that had all of this information been properly disclosed to plaintiffs, they would have behaved differently, deferring their purchase of a home and refusing to enter into expensive adjustable rate mortgages. 34 It pleads a multitude of purportedly deceptive acts by defendants, including their failure to:

(1) establish due diligence policies, procedures and controls reasonably designed to detect and report instances of money laundering, (2) establish procedures to take reasonable and practicable measures to verify the identity of those applying for an account with the institution and maintain records of the information used to verify a person's identity, including name, address, and other identifying information, (3) determine and report the sources of funds used for the mortgages they originate[d] and service[d], as well as the sources of funds used to acquire any mortgages, [and] (4) disclose to Plaintiffs the identities, address and telephone numbers of transferees of their mortgages.” 35

Essentially, the complaint asserts that defendants engaged in a fraudulent scheme by offering mortgages at unsustainable loan-to-value ratios, often to individuals who they knew were a poor credit risk and at high risk of default. 36 Defendants were allegedly aware of the consequences of their actions, and knew that defaults on a large scale would have a cascade effect and depress property values throughout the state, causing plaintiffs and other similarly situated individuals to lose the equity in their homes and have no means to refinance their mortgage or sell their home.37

Plaintiffs charge that defendants fraudulently misrepresented to multiple plaintiffs that they would receive assistance securing a loan modification. 38 They also implied or stated that if plaintiffs sought a loan modification, defendants would assist them and they would often be able to obtain a modification. Defendants purportedly made these representations with no...

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