Wells Fargo Must Pay Back Homeowners

8125974243_f6ce8726f2_zWhen you file a bankruptcy, you have the choice to surrender your home or try to continue making mortgage payments and keep the home. Most filers who wish to keep their homes will file under Chapter 13, where their mortgage payments can be incorporated into their overall debt payment plan.

When you’re in the process of a Chapter 13 bankruptcy, your mortgage lender must follow special rules to ensure that you are treated fairly. Wells Fargo admitted to breaking those rules and will now return more than $80 million to homeowners who filed for bankruptcy.

What Did Wells Fargo Do?

In December 2011, the federal government passed a new rule to protect borrowers in Chapter 13 from unexpected changes to their payments. The rule requires lenders to give borrowers at least 21 days’ notice before raising or lowering their bill. During a recent investigation by the Department of Justice, Wells Fargo admitted that it had failed to warn more borrowers about bill changes more than 100,000 times between December 2011 and March 2015. For some, that meant that their bills went up unexpectedly, making payment more difficult. Others weren’t warned of a reduction in their bills and paid more than they should have. In total, almost 70,000 mortgages and almost 20,000 escrow accounts were affected.

Payment Change Rules In Bankruptcy

When you file a bankruptcy under Chapter 13, you’ll work with the court and your attorney to come up with a payment plan for your debts. That plan will usually last 3-5 years, after which time your remaining unsecured debts will be discharged. The amount of the monthly payments is determined by comparing certain local and national standards for living expenses with your income, so payments are based on what you can pay and not what you owe.

Chapter 13 is often a good choice for people who need bankruptcy protection but want to keep their homes. The Chapter 13 plan allows you to make up any back payments and continue making your current mortgage payments. You can also make up back payments to your escrow account (the part of the mortgage that is held in escrow for property taxes, insurance, and other costs). The mortgage loan and escrow account are still part of the bankruptcy process, which means they are subject to the rules of the bankruptcy court.

The new rule instituted in December 2011 requires mortgage lenders to give you at least 21 days’ notice before changing your monthly payments. Your payments may change if you have an adjustable rate mortgage loan or if due to changes in your escrow account. Sometimes your payment may fall, which is a good thing, but your bill may also go up as interests rates rise. The rule is designed to help protect borrowers from surprising bill changes and give them time to prepare for a higher payment.

That’s especially important because a mortgage payment is usually a borrower’s biggest bill every month. If the payment goes up unexpectedly, the borrower may not be able to make the full payment. That’s trouble enough outside of bankruptcy, but missing a Chapter 13 plan payment can have serious consequences for your bankruptcy case and your debts.

Who Is Wells Fargo Paying?

That $81.6 million settlement will go to the homeowners who were not warned 21 days or more before their payments changed. About 42,000 homeowners had their payments increased without notice, so more than $50 million of the settlement will go toward repaying those borrowers. Another $20 million will go toward adjustments of escrow accounts and homeowners who overpaid because they weren’t warned their payments were decreasing. The final $10 million will be used to ensure that everyone who is entitled to a payout gets one; Wells Fargo estimates that about 20% of those who receive an initial payout will turn out to be entitled to a second one.

These payments will be applied directly to borrower’s mortgage and escrow accounts; the average amount of the payout is expected to be about $1,200.

If you took out a mortgage loan from Wells Fargo and filed for bankruptcy between December 2011 and March 2015, you may be entitled to a payout from this settlement. The Department of Justice is notifying borrowers who qualify for the payout by letter. If you believe you’re entitled to part of the payout, you may reach out to Wells Fargo directly to ask if you’re included in the settlement.

Avoiding Payment Change Problems

While the new rules require mortgage lenders to give you at least 21 days worth of notice if you’re involved in a bankruptcy proceeded, lenders can and do make mistakes. Be proactive about your mortgage account and stay in touch with your mortgage lender. If you receive a notice that your payment is going to change, look at it right away. If it doesn’t seem right or if you have less than 21 days before the change is expected to take effect, contact your bankruptcy attorney immediately so you can address the issue before it affects your loan. By the same token, notify your bankruptcy attorney immediately if you get a bill that has a different amount than you’re expecting – it may be the result of a payment change for which you were not given appropriate and timely notice.

Your bankruptcy attorney can help you communicate with your lender to figure out whether there has been an error and what the proper payment amount should be. It’s important to address these concerns as soon as possible so that they don’t affect your Chapter 13 plan payments.

We Can Help

Mortgages are complicated at the best of times, and even more so during a bankruptcy case. The mortgage warriors are standing by to help you keep your mortgage on track. Whether you’ve been the victim of a surprise payment change in Chapter 13, you believe you’re entitled to a payment from Wells Fargo, or you’re struggling with your mortgage payments in general and looking for options, contact us today for a free case evaluation to learn more about your rights and your options. Banks have teams of experts on their side – you deserve the same.

 

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