Wells Fargo Bank can charge New Jersey homeowners full back interest on mortgages in foreclosure cases that were delayed by a judicial review of abuses in the process, a Superior Court judge has ruled.
The decision by chancery Judge Margaret Mary McVeigh boosts the debt owed on thousands of properties at a time when major banks ostensibly are offering loan modifications to homeowners in arrears.
Now, the debt starting point for modifications will be higher for thousands of borrowers, which may increase the likelihood of foreclosure. They will be hit with back interest accrued at rates as high as 13 percent, set before the cost of borrowing plunged along with the economy.
Wells Fargo, represented by Mark Melodia and Diane Bettino of Reed Smith in Princeton, tacitly acknowledged that most of the affected homeowners will lose their properties. They told the court that the bank would not pursue borrowers for deficiency payments after sheriff’s sales, “so borrowers will never likely realize the burden of accrued interest.”
“If that’s the case, why then pursue a judgment that sets the amounts as high as possible?” said Margaret Jurow of Legal Services, who presented an amicus brief on behalf of borrowers.
In one sense, the judge’s ruling was unsurprising. With some amendments, McVeigh previously approved corrected notices of intent to foreclose submitted by Wells Fargo. In confining herself to that issue, she also rejected requests by borrowers to order Wells Fargo to negotiate mortgage modifications. The rulings cover 3,300 homeowners who have not previously contested foreclosures of their properties.
In the 3½-page letter opinion, sent to the attorneys for Wells Fargo and Legal Services, McVeigh systematically rejected most arguments made by the bank. Only at the very end did the judge endorse without elaboration the bank’s position that under contractual law she was “bound” to apply the mortgage interest rates.
Earlier in the letter, McVeigh cited a precedent giving courts discretion to set interest “based on equitable principles and considerations.”
The judge pointedly rejected the bank’s arguments that it has not been responsible for foreclosure delays, while homeowners benefitted by staying in their homes. But the case involved homeowners who received faulty notices of intent to foreclose, so “it is clear the delay was not caused by the borrower,” McVeigh wrote.
The judge noted that state Chief Justice Stuart Rabner in 2010 ordered the review in response to such widespread deficiencies. As a result, major lenders dramatically slowed their foreclosure filings in 2011. State officials have estimated there is a foreclosure backlog of 60,000 cases or more.
Wells Fargo “fails to address that its service of deficient NOIs [notices of intent] in the first place on borrowers is what caused necessary action taken by the Court,” McVeigh wrote. The bank also could have chosen to dismiss the faulty cases rather than petition to be allowed to submit corrected notices, she said.
The problem has been widespread in foreclosures around the country since the deregulation of financial markets at the turn of the century and an explosion of sales of mortgage-backed securities.
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