Court dismisses some claims in Wells Fargo forbearance suit

A federal court judge found that private plaintiffs suing Wells Fargo for issues related to the receipt of automatic forbearance without consent could support some of their claims, but not others.

U.S. District Court Judge James Donato in a decision issued last week dismissed racketeering, unjust enrichment, implied covenant and certain Real Estate Settlement Procedures Act claims under Regulation X with leave to amend.

Donato, whose court is located in California's Northern District, also dismissed with prejudice claims related to more general servicing policies in another section of RESPA, and others that relate to credit reporting.

However, the judge denied the attempted dismissal of claims related to the Truth in Lending Act and the California Unfair Competition Law.

The lawsuit, like a similar regulatory action the bank settled for $94 million last year, highlights the fact that while recent policy has encouraged a more streamlined approach to loss mitigation, servicers still can be exposed to risk if they skip remaining, required steps.

The judge denied dismissal of TILA claims due to an alleged lack of "timely credit" for plaintiffs' payments while loans were in forbearance.

TILA requires servicers to do this "except when a delay in crediting does not result in any charge to the consumer or in the reporting of negative information to a consumer reporting agency," he said.

The bank had sought to have the claim dismissed because "the complaint does not establish that Wells Fargo owns or ever owned their specific loans."

In denying the dismissal of this claim, Donato said, "At pleadings stage, there are enough specific factual allegations to support a plausible inference that Wells Fargo repurchased, and at some point owned, at least some of the named plaintiffs' loans."

Meanwhile, the judge said he dismissed racketeering claims that the bank tried to unjustly profit from automatic forbearance in conjunction with its technology vendors because plaintiffs couldn't prove that the business interactions involved were in line with that description.

"Allegations of 'a run-of-the-mill commercial relationship where each entity acts in its individual capacity to pursue its individual self-interest' are not enough to establish an enterprise," the judge said.

The mortgage industry's biggest concerns in lawsuits like this may revolve around the extent to which courts and regulators rule automatic forbearance unjustly profited companies and hurt consumers.

The state UCL claims in the Wells case would require a determination of whether plaintiffs "suffered injury in fact and … lost money or property as a result of the unfair competition."

Wells did not immediately address the "unfair" portion of the claims but instead asked only for dismissal for a separate prong of the UCL suggesting its actions were "unlawful."

This argument was "not well taken because "[a]dequately pleading any one of the prongs is sufficient to survive a motion to dismiss," the judge said, citing a case called Comin v. International Business Machines Corp.

If plaintiffs want to amend any of the claims in the case, they must do so before the end of next week.