Wells Fargo Socked with Damages in Excess of $3 Million – Again

Upon the death of its mortgagor, the hulking beast that is Wells Fargo blindly slouched toward foreclosure heedless of the fact that it had sold an accidental death insurance policy to the mortgagor. The decedent’s personal representative, filed a complaint in state court alleging: 1) Wrongful foreclosure and breach of the covenant of good faith and fair dealing; 2) unconscionable and unfair trade practices; 3) breach of contract; 4) violation of the Home Loan Protection Act; and 5) attorneys’ fees under NMSA § 48-7-24. The court found Wells Fargo liable under each of the five claims except the claim for violation of the Home Loan Protection Act. Dollens v. Wells Fargo Bank, CV 2011-05295, Letter Decision (N.M. Dist. Ct. Aug. 27, 2013).

The decedent purchased a home using a loan from Wells Fargo (WF). The loan was current up to the time of his death in 2011. Eight months prior to his death, the decedent purchased a Mortgage Accidental Death insurance policy through Wells Fargo and underwritten by Minnesota Life. His premiums for the insurance policy were combined with his mortgage payments. Upon his death in a work accident, decedent’s son, Christopher Dollen, notified WF of the claim on the insurance policy. Although WF did not respond to Dollens’ notification of death or the pending claim on the life insurance policy, it did continue to send monthly past due notices, as well as a demand and cure letter, due to the decedent’s posthumous default on the mortgage. Dollen, through counsel, requested that WF not take any action on the mortgage default while the insurance claim was pending. Minnesota Life also contacted WF asking it to take no action. WF did not respond to either request. After initially denying the claim, Minnesota Life eventually granted it and sought and received from WF the balance due on the decedent’s WF account showing $121,082.31 owing on the mortgage. In the same month WF initiated foreclosure proceedings and began incurring foreclosure costs.

Upon granting of the claim, Minnesota Life sent WF a check in the amount of $133,559.15. WF applied the funds first to its costs incurred in the foreclosure proceedings, then to the outstanding balance on the mortgage, leaving a balance due in the amount of $4,416.45. Though Freddie Mac authorized writing off the balance of the account, WF merely reinstate the account and continued dunning the decedent’s estate for repayment. Furthermore, WF did not dismiss the foreclosure action until five months after payment from the insurance policy. Evidence at hearing revealed that, in so doing, WF made improper charges and acted in the normal course of business.

After a hearing, the court found the insurance policy that WF marketed and sold was understood by both parties to constitute a method of paying off the purchaser’s mortgage in the event of accidental death to help “protect [his] family’s financial security.” Upon decedent’s death WF had an obligation to assist with the collection of the insurance proceeds and apply them properly to the mortgage. Instead, WF ignored the notification of the decedent’s death, and threatened the decedent’s family’s financial security by instituting foreclosure proceedings. Testimony at the hearing revealed that, despite the prevalence of this scenario, WF had no procedure for filing a claim for insurance upon the death of a mortgagor. This “systemic failure,” the “shocking” refusal to work with the insurance company with which it had undertaken to do business, and WF’s failure to follow Freddie Mac guidelines to grant forbearance on the foreclosure, all harmed the estate. The misapplication of the insurance proceeds to pay off fees associated with the foreclosure violated WF’s policy of applying the funds to the mortgage and forgiving the other costs. WF’s conduct which furthered its own interests at the expense of the mortgagor’s estate, constituted wrongful foreclosure and breach of the covenant of good faith and fair dealing.

The court further found that WF’s “conduct was intended to take advantage of a lack of knowledge, ability, experience or capacity of decedent’s family members, and tended to or did deceive,” thereby violating the Unfair Practices Act as well as constituting a breach of contract. Although WF finally agreed that it owed the estate $400.00 as a result of wrongful fees in the amount of over $15,000.00, it took no action to repay the estate.

Turning to the issue of punitive damages, the court honed in on one example of WF’s “staggering” misconduct in which WF charged the estate for cutting the grass on the property. In defense of this charge, WF asserted that Freddie Mac guidelines authorized it. However, WF did not cut the grass because the property at issue did not have a lawn. This and other “minor” mistakes were not the result of unique circumstances but were inherent in WF’s computerized system which was designed to maximize WF’s profits at the expense of the welfare of its clients. Moreover, expert testimony as well as a survey of cases around the country, revealed that WF had been sanctioned in the past for similar conduct yet had taken no steps to rectify its internal flaws. The court found that it could consider these matters, as well as the “reprehensibility of WF’s systemic misconduct,” WF’s net worth, and the need for deterrence, when determining the propriety and amount of punitive damages. The court further found that Dollens was entitled to recovery of attorney’s fees, which, after deducting certain fees, amounted to $439,051.44. The court added in the compensatory damages to raise the total award to $454,684.86. In calculating punitive damages, the court multiplied the award by six to reach a sanction amount of $2,728,109.16 for a total of $3,182,794.02. Additionally, the court noted that under the UPA, the plaintiff could recover treble damages which would increase the damage award alone to $1,364,054.58.

Perhaps at some point WF will decide that it is cheaper to treat its clients fairly and even compassionately.

Dollens Letter opinion