Neria v. Wells Fargo Bank (In re Neria)
| Decision Date | 04 April 2022 |
| Docket Number | 14-32911-sgj13,Adversary 16-03148 |
| Parties | IN RE: CRISTINA ANGELINA NERIA Debtor v. (1) WELLS FARGO BANK, N.A. d/b/a AMERICA'S SERVICING COMPANY, and (2) WILMINGTON TRUST, NATIONAL ASSOCIATION, as Successor Trustee to Citibank, N.A., as Trustee for Bear Sterns Asset Backed Securities I Trust 2006-HE4 Asset-Backed Certificates, Series 2006-HE4 Defendants. CRISTINA ANGELINA NERIA Plaintiff, |
| Court | United States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Northern District of Texas |
IN RE: CRISTINA ANGELINA NERIA Debtor
CRISTINA ANGELINA NERIA Plaintiff,
v.
(1) WELLS FARGO BANK, N.A. d/b/a AMERICA'S SERVICING COMPANY, and (2) WILMINGTON TRUST, NATIONAL ASSOCIATION, as Successor Trustee to Citibank, N.A., as Trustee for Bear Sterns Asset Backed Securities I Trust 2006-HE4 Asset-Backed Certificates, Series 2006-HE4 Defendants.
No. 14-32911-sgj13
Adversary No. 16-03148
United States Bankruptcy Court, N.D. Texas, Dallas Division
April 4, 2022
Chapter 13
FINDINGS OF FACT AND CONCLUSIONS OF LAW REGARDING CHAPTER 13 DEBTOR'S NUMEROUS CAUSES OF ACTION ASSERTED AGAINST MORTGAGE SERVICER [1]
I. INTRODUCTION
In the above-referenced adversary proceeding (the "Adversary Proceeding"), [2] Cristina Angelina Neria, an individual Chapter 13 Debtor (the "Debtor"), has sued Wells Fargo Bank, N.A. d/b/a America's Servicing Company ("Wells Fargo"), the servicer of her home equity loan, alleging numerous incidents of servicer misconduct.[3]
Specifically, the Debtor alleges the following against Wells Fargo: (a) misapplication of her mortgage payments (in some cases, allegedly holding funds in suspense while the mortgage debt accumulated interest); (b) improper retention of post-petition interest paid on pre-petition arrearages-putting the post-petition interest collected in a "fee bucket," as opposed to forwarding such interest to the actual mortgage holder to apply to her loan; (c) escrow errors, including a failure to return an escrow surplus at one point - instead holding it for many months post-petition; (d) multiple failures to file payment change notices when required, pursuant to Bankruptcy Rule 3002.1; (e) failure to adequately respond to RESPA[4] requests (in some cases, alleging that Wells Fargo provided incomplete and misleading information regarding the Debtor's payment history and account balance); and (f) violations of the automatic stay by, among other things, collecting pre-petition debt through post-petition payments - specifically, by collecting pre-petition escrow
shortages through post-petition mortgage payments. The Debtor also complains that Wells Fargo improperly strung her along in a loan modification process that lasted years, even though Wells Fargo knew the Debtor did not qualify, all the while with the mortgage debt accumulating interest. The Debtor alleges multiple legal claims or causes of action including breach of contract; violation of RESPA; violation of the FDCPA;[5] violations of Bankruptcy Rule 3002.1; willful violation of the automatic stay; abuse of bankruptcy process; and attorney's fees. The overarching theme in the Adversary Proceeding is that Wells Fargo has systemic problems dealing with Chapter 13 debtors.
Wells Fargo defends by conceding that it did make a few minor mistakes, but the Debtor has blown them out of proportion. For example, Wells Fargo admits, on one occasion, mistakenly sending a no the r borrower's insufficient funds check to the Debtor with a letter indicating the Debtor would now have to make all her payments in certified funds (an event that the Debtor alleges caused her significant stress). Additionally, Wells Fargo acknowledges that mistakes may have been made regarding some escrow procedures (for example, allowing an escrow surplus to exist for several months-before refunding approximately $4, 700 to the Chapter 13 Trustee), but asserts that the Debtor was usually underfunded on her escrow. And Wells Fargo's primary witness conceded that there were "a few misapplications of payments" in this case by Wells Fargo and a couple of RESPA responses may not have been timely.[6] But Wells Fargo asserts that the Adversary Proceeding boils down to only about five, supposed servicing infractions: (i) Wells Fargo's retention (and non-application) of post-petition interest on pre-petition arrearages interest; (ii) escrow-related procedures; (ii) its overall application of payments during bankruptcy; (iv) its responses to numerous RESPA requests for information; and (v) mistakenly sending another
borrower's insufficient funds check to the Debtor. And it also stresses that the Debtor was behind on her home equity loan, from the time it began servicing it, back in April 2006 (the loan was only executed on November 22, 2005).
The court held a trial over four days and heard testimony from 12 witnesses.[7] The court admitted more than 600 exhibits (many of them very lengthy). The parties submitted voluminous post-trial briefing.
Generally, "servicer misconduct" lawsuits like this one are extremely challenging because there are few human fact witnesses. In the modern world of mortgage servicing, so much of the necessary activity is automated, and no individual human is assigned to any one particular borrower. Also, the typical servicer's use of acronyms, code numbers, and "screenshots" (rather than layman concepts) seem to obscure rather than clarify the facts. Moreover, the human beings involved appear to have a lack of discretion when it comes to decision-making.
As set forth below, while mistakes were made here by Wells Fargo, the court has determined that very few mistakes were actionable or resulted in actual damages. Therefore, as set forth below, the Debtor will be awarded only a fraction of the damages she is seeking.[8]
II. STIPULATED FACTS
These are the "Stipulated Facts" jointly submitted by the parties.[9] The subheadings have been added by the court for ease of reading.
A. Parties
Cristina Angelina Neria is the debtor in In re Cristina Angelina Neria, Case Number 14-32911-sgj13, filed in the United States Bankruptcy Court for the Northern District of Texas, Dallas Division. The Debtor was also the debtor in a prior Chapter 13 case, In re Cristina Angelina Neria, Case Number 11-36319-hdh13, also filed in the United States Bankruptcy Court for the Northern District of Texas, Dallas Division (the "2011 Bankruptcy").
Wells Fargo services (or has serviced) mortgages under the name of its mortgage division, Wells Fargo Home Mortgage, and under the name America's Servicing Company ("ASC").
On or about November 22, 2005, the Debtor executed a fixed rate Texas Home Equity Note (the "Note") with Aames Funding Corporation DBA Aames Home Loan ("Aames") in the amount of $91, 700.00, which was secured by a Texas Home Equity Security Instrument (the "Security Instrument") against the Debtor's homestead property at 9106 Boundbrook Avenue, Dallas, Texas 75243 (the "Property"). The Note and Security Instrument are referred to herein as the "Mortgage Loan" or the "Loan." The Debtor's Mortgage Loan is a 15-year scheduled monthly payment home equity loan with annual interest accruing at the fixed rate of 10.86%. The Debtor owns a 50% interest in the Property, with the other 50% interest owned by her mother; however, the Debtor is the sole obligor on the Note. The funds obtained from the Mortgage Loan were used for, among other things, paying off the existing lien against the property and for the benefit of the business of the Debtor's mother.
Aames was the lender and original servicer for the Debtor's mortgage loan. The first scheduled payment on the Debtor's mortgage loan was due January 1, 2006. The January, February, and March 2006 monthly mortgage payments came due during the time when Aames serviced the Debtor's loan.
Wells Fargo acquired servicing of the Debtor's Loan in April of 2006. At the time that Wells Fargo acquired the servicing rights for the Debtor's Mortgage Loan, Wells Fargo's records indicated that the Debtor's Loan was due for the March and April 2006 monthly payments. Wells Fargo was the servicer for the owner of the Debtor's Mortgage Loan in both of the Debtor's Chapter 13 bankruptcies.
The current owner of the Debtor's Mortgage Loan is Wilmington Trust, National Association, as Successor Trustee to Citibank, N.A., as Trustee for Bear Sterns Asset Backed Securities I Trust 2006-HE4 Asset-Backed Certificates, Series 2006-HE4 ("Wilmington"). At the time the Debtor filed her 2011 Bankruptcy, the trustee for the trust that owns the Debtor's Loan was Citibank, N.A.
B. Financial Distress of the Debtor
In 2008, the Debtor experienced extreme financial hardship due to an unexpected discontinuance of child support income and the halt of construction in Dallas at the onset of the economic recession. Also in 2008, Wells Fargo added an escrow account to the Debtor's originally non-escrowed loan, raising the Debtor's payment by almost $584.07 per month.
Beginning in 2008, Wells Fargo offered to consider the Debtor for HAMP and non-HAMP modifications on multiple occasions. Between 2008 and 2010, the Debtor completed multiple HAMP and non-HAMP loan modification application forms that Wells Fargo provided to the Debtor for consideration of a possible modification of her Mortgage Loan, and, in connection with the loan modification application process, the Debtor provided Wells Fargo with documentation and explanations regarding her financial circumstances and her mother's business income, including among other things, profit and loss statements for her mother's business. However, Wells Fargo did not modify the Debtor's Loan at any time between 2008 and 2010.
C. The 2011 Bankruptcy
The Debtor filed her 2011 Bankruptcy, Case No. 11-36319-hdh-13 in the United States Bankruptcy Court for the Northern District of Texas, Dallas Division on October 3, 2011. The Debtor's original Chapter 13 Plan proposed, among other things, to pay the entire scheduled principal balance of her mortgage loan, with 5.5% interest, through her Chapter 13 Plan via Chapter 13 Trustee disbursements. Wells Fargo objected to confirmation of the Debtor's first proposed plan.
On December 23, 2011, the Debtor filed an Amended Chapter 13 Plan, which proposed, among other things, to pay the entire scheduled principal balance of her Mortgage Loan through the Chapter 13 Plan and increasing the rate of interest to...
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