A lawsuit filed last week in a New York federal court alleges that Wells Fargo, the nation's top mortgage provider, created a detailed, step-by-step internal manual on how to retro-sign foreclosure documents originated by other lenders.
The suit filed on March 11 by Linda Tirelli, a bankruptcy attorney and consumer advocate based in White Plains, N.Y., claims that Wells Fargo crafted a 150-page manual for its attorneys that outlines exactly how to make it look as if a lender has signed over a mortgage to the bank, by auto-signing electronic documents.
It is the latest layer of trouble regarding robosigning for Wells Fargo. Claims of improperly signing court-entered documents first surfaced in 2010, when Wells and CitiBank found themselves on the defensive for allegedly transferring mortgages that didn't belong to them.
According to the New York Post, which broke the latest story the day after Tirelli's filing and has reviewed the manual Tirelli cites in her suit, the Wells Fargo document spells out how to provide post-dated endorsements and allonges ‒‒two bits of paperwork that prove that the foreclosing lender actually owns the loan‒‒on mortgage notes that did not originally have them.
Wells Fargo denies it has done anything wrong.
Spokeswoman Vickee Adams said "Wells Fargo’s foreclosure processes—today and back in 2012—are appropriate, legal and customer focused. To allege otherwise is simply misrepresenting the facts." Adams also stated that a note endorsement review is "a thorough, multi-step internal process designed to ensure that Wells Fargo has the right to enforce the note in cases when a borrower defaults and foreclosure alternatives have been exhausted" and that the bank's Foreclosure Attorney Procedure Manual provides "only the information that our outside foreclosure attorneys need to know."
The reference to 2012 is an allusion to a landmark $25 billion federal mortgage fraud settlement with the five largest lenders in the country, regarding fraud and abuse claims in mortgage lending‒‒including the issue of robosigning documents retroactively.
How Wells Fargo found itself in its current position goes back to the beginning of the century, said bankruptcy and consumer litigation attorney Gary Armstrong, a partner at Armstrong Kellett Bartholow in Dallas. Around 2003, an insatiable global appetite to invest in securities generated a mortgage and lending boom that itself created numerous REMICs, or real estate mortgage investment conduits, that held bundles of mortgages from various lenders in trust. "We saw a ton of these trusts created then," Armstrong said.
What was supposed to happen, according to Armstrong, was that as notes changed hands, all necessary securitization documents were to be properly recorded as originals in these trusts, but because of the sheer volume of loans written at the time, many documents were instead photocopied.
This was not such a problem until the bottom fell out of the economy in 2008 and many major lenders such as Countrywide Home Loans and Washington Mutual, as well as numerous small "John Doe" lenders, went under.
The bust left an enormous number of mortgage notes effectively unowned, as the original loan holders were now out of business. It also subjected notes to changing many hands, given the structure of the REMIC model. To solve the problem, Armstrong said, lenders such as Wells Fargo set up a system that allowed them to electronically sign endorsements that transferred ownership of a note to a still-breathing lender within 90 days.
The trouble, Armstrong said, is that the practice begs the question of who has the authority to sign an endorsement when the originator of the note is out of business, especially given that the dates of the endorsements Wells Fargo is accused of creating on demand often would have to be retrofitted to comply with the 90-day limit.
New York Attorney General Eric Schneiderman is currently investigating Tirelli's claims, including the allegation that while the manual states that Wells' attorneys must determine whether they have the authority to execute an allonge on a note, there is no such instruction regarding endorsements.
And while Tirelli has referred to the Wells Fargo document as a "blueprint for how to commit the fraud," Wells Fargo stated that there are detailed internal processes and procedures that its attorneys "follow exactly to ensure that any note endorsements required are done legally and appropriately." Adams added that these procedures are "not included in the manual the New York Post reviewed."
The potential fallout could benefit some consumers in states such as New York, which require court proceedings for home foreclosures. Consumer advocate attorneys in these states, said Armstrong, already use the robosigning controversy to challenge or even block foreclosure proceedings.
"There have been so many hands that have touched some of these notes that you have to ask, 'Who on the end has the authority to sign?'" Armstrong said. "It creates a great deal of unreliability for everybody."