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The New York Times: Two Judges Who Get It About Banks

By Gretchen Morgenson for The New York Times

Photo: Kile Brewer for The New York Times

David and Crystal Holm of Holt, Mo., fought a foreclosure sale of their $142,000 home for years

Big banks hold great sway in Washington these days, far more than troubled homeowners do. But outside the Beltway, many people remain caught in the maw of the financial giants, which is why it is heartening when some judges step into the fray.

Consider two opinions involving Wells Fargo, a bank that enjoys a somewhat better reputation than many of its peers. On Monday, a judge in a state court in Missouri ordered Wells to pay over $3 million in punitive damages and other costs for abusing a borrower. Then, on Thursday, a judge in Federal Bankruptcy Court in suburban New York ruled on behalf of another borrower, concluding that there was substantial evidence Wells Fargo forged documents when it foreclosed on a property.

It was not a good week on the litigation front for Wells Fargo.

The award in Missouri went to David and Crystal Holm of Holt, Mo., a town northeast of Kansas City with a population of 450. For the last six and a half years, the Holms have battled Wells Fargo over a foreclosure sale of their $142,000 property. As they fought against what they considered a wrongful taking of their property, they remained in the home, which they built themselves in 1997 and where they were married.

According to court filings, the Holms fell behind on their mortgage in spring 2008 after a storm damaged the property. They quickly put together the roughly $10,000 needed to bring the loan current, and Wells agreed to reinstate the mortgage one day before a scheduled foreclosure sale.

The couple, who have a 12-year-old daughter, scrambled to do what Wells required: fax a copy of a certified check to one office and send it by overnight mail to another. The next day, the bank foreclosed anyway. Freddie Mac bought the Holms’ 5.5-acre property.

Lawyers in the Missouri case and the New York matter contended that Wells had moved to foreclose on both properties even though the bank had no proof that it possessed the notes underlying the mortgages. This is a common and often persuasive argument, given the documentation failures that were rife in the mortgage industry.

Another common element in such cases — conflicts of interest in mortgage loan servicing — also seemed to disturb the judge overseeing the Holm matter. An employee of Freddie Mac testified that it would have welcomed a reinstatement of the Holms’ mortgage. But Wells stood to make more money foreclosing on the couple’s home, an expert witness in the case testified.

“Defendant Wells Fargo’s deceptive and intentional conduct displayed a complete and total disregard for the rights of David and Crystal Holm,” wrote R. Brent Elliott, a circuit judge in Missouri’s 43rd Judicial District, in a Jan. 26 opinion. “Wells Fargo took its money and moved on, with complete disregard to the human damage left in its wake.”

In addition to $2.9 million in punitive damages awarded to the Holms, Judge Elliot gave them clear title to their home and almost $96,000 to be paid by Wells Fargo, representing the difference between the amount it paid for the property in 2008 and its current value.

The Holms were also awarded $200,000 for emotional distress. Mr. Holm, who is 40, had heart problems that were worsened by anxiety over the case, the judge concluded. Finally, $33,000 of the couple’s legal fees must be paid by Freddie Mac and Wells.

The judge ordered these sanctions because lawyers for Wells and Freddie Mac “have demonstrated a pattern of contempt for the Missouri Supreme Court rules as well as this court’s rules and orders.”

Mr. and Ms. Holm, in a telephone interview, said they were relieved that the threat of eviction was no longer hanging over them. “Our lives have been so much on hold,” Ms. Holm, 37, said. “It will be nice to breathe and be able to live our lives now.”

A spokesman for Freddie Mac declined to comment on the case.

Tom Goyda, a Wells Fargo spokesman, provided the following statement. “There’s a lot more to this case than the decision reflects, and we have strong arguments to appeal the judgment and the unwarranted damages that were awarded.”

Wells Fargo, he added, is committed to helping borrowers stay in their homes and has modified more than one million mortgage loans and forgiven $8.4 billion in principal since the beginning of 2009.

Foreclosure defense lawyers say a $2.9 million punitive damages award is highly unusual. While judges hearing foreclosure cases are not as uniformly pro-bank as they used to be, said April Charney, a foreclosure defense lawyer formerly with Jacksonville Area Legal Aid in Florida, many still don’t recognize how banks can run roughshod over borrowers.

Judge Elliott certainly seems to have understood. In his ruling, he quoted from the testimony of a bank representative at trial, bridling at her lack of remorse. “I’m not here as a human being,” she testified. “I’m here as a representative of Wells Fargo.”

Gregory Leyh, a lawyer in Gladstone, Mo., who represented the Holms, said: “This is a family that was trying to do everything right to keep their house. When you pit a family in financial distress against a powerful company that wants to make a few more dollars in a foreclosure, I think that’s pretty egregious.”

In the other case, presided over by Judge Robert D. Drain at a Bankruptcy Court in White Plains, Wells lost a five-year-old foreclosure dispute involving a $170,000 property owned by Cynthia Carrsow-Franklin.

Her lawyers contended that the bank, after initiating foreclosure proceedings, had simply created a missing document that it needed in order to foreclose. That document, known as an indorsement, transferred the underlying note to Wells Fargo.

On Thursday, Judge Drain sided with the borrower. He wrote that testimony from a Wells Fargo manager in charge of the bank’s default documents and part of its assignment team “constitutes substantial evidence that Wells Fargo’s administrative group responsible for the documentary aspects of enforcing defaulted loan documents created new mortgage assignments and forged indorsements when it was determined by outside counsel that they were required to enforce loans.”

The testimony, Judge Drain went on, shows “a general willingness and practice on Wells Fargo’s part to create documentary evidence, after the fact, when enforcing its claims, WHICH IS EXTRAORDINARY” (emphasis his).

Mr. Goyda, the Wells Fargo spokesman, strongly disputed the judge’s conclusions in the case. “Wells Fargo’s processes ensure that all note indorsements are done legally and appropriately,” he said in a statement. “More importantly, we are extremely troubled by the additional comments about our general practices that are unsupported by the evidence and unrelated to the case.”

Linda Tirelli, a lawyer at Garvey, Tirelli & Cushner in White Plains, represented the borrower in this case. She applauded Judge Drain. “This is a judge who gets it,” she said in an interview on Friday.

What’s depressing is that it has taken so long for these cases to be resolved. Many people — especially officials at the banks themselves — want us to move on from the foreclosure mess. And no doubt those stuck — out of the limelight — in its unrelenting and crippling machinery would like to do so. But they can’t.

“I very respectfully disagree that this is extraordinary behavior,” Ms. Tirelli said. “This is business as usual, not just at Wells Fargo.”

Correction: Feb. 8, 2015The Fair Game column last Sunday, about a Missouri judge’s decision in a wrongful foreclosure case involving Freddie Mac and Wells Fargo, misidentified which of the two the judge ordered to pay the borrowers almost $96,000. It was Wells Fargo.


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