New Mexico Homeowners Win Partial Victory against Wells Fargo

The U.S .Ninth Circuit Court of Appeals which rules on federal cases originating from several western states issued a decision earlier this year which gave two New Mexico homeowners a continued opportunity to prevail in a suit against Wells Fargo bank. The plaintiffs in the case of Schlegel v. Wells Fargo Bank[1]  procured a loan from a lender referred to as NTFN, Inc. using their residence as collateral. When they later fell behind in making their loan payments, they filed bankruptcy. As part of that process, they reaffirmed the loan under 11 U.S.C. § 524 and the loan and deed were assigned to Wells Fargo; subsequently, Wells Fargo entered into a loan modification agreement which extended the loan’s maturity date by about 11 years while keeping the same interest rate.

The Schlegels entered into the agreement with Wells Fargo on July 1, 2010 with the first payment due on August 1, 2010. They were discharged from bankruptcy on July 9, 2010, but just ten days later, before having a chance to make their first payment, they received the first of what would be five default notices from Wells Fargo. The last notice came on December 7, 2010 and demanded they become current by December 14, 2010. During this entire period, the Schlegels did make the required payments under the loan modification agreement and some officials at Wells Fargo told them not to worry about the notices, whereas others demanded they meet the requirements in the notices. On December 3, 2010, the Schlegels sent a letter to Wells Fargo asking for an explanation of its failure to acknowledge the loan modification.

As they did not receive a response to their correspondence, they proceeded to file suit against Wells Fargo claiming that the Bank violated the Fair Debt Practices Collection Act and the Equal Credit Opportunity Act. The first act prevents collection agencies from engaging in certain abusive or improper methods in seeking to collect debts from consumers. The Ninth Circuit Court of Appeals found that the dismissal by the trial court of that claim was proper as Wells Fargo’s primary business is not debt collection and the Bank was not collecting any debt for anyone else since NTFN, Inc. had assigned the loan to Wells Fargo. Wells Fargo was not collecting it on behalf of NTFN, Inc.

But on the second claim, the lower court found, and the Circuit Court agreed, that Wells Fargo had failed to comply with 15 U.S.C. § 1691(a)(1)  which states the following: “Each applicant against whom adverse action is taken shall be entitled to a statement of reasons for such action from the creditor.” As the Bank never gave such notice, the suit for harassment and infliction of mental distress could proceed. While the Court did criticize Wells Fargo for not knowing what one part of its bank was doing and resolving the problem earlier, they relied on the lack of notice by Wells Fargo as the reason for giving the Schlegels the opportunity to continue their suit.       

In Albuquerque, Giddens & Gatton Law, P.C. has attorneys who offer expert handling of Chapters 7, 11, 12 and 13 bankruptcy cases. The firm represents many debtors and creditors in Albuquerque, Santa Fe, Taos, Raton, Farmington, Gallup, Grants, Roswell, Los Lunas, Placitas, Belen and the rest of New Mexico. Contact Giddens & Gatton Law, P.C. at (505) 633-6298 to set up an appointment or visit the firm’s website at giddenslaw.com. Giddens & Gatton Law, P.C. is located at 10400 Academy Road N.E., Suite 350 in Albuquerque, New Mexico.