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A lawsuit by New York’s attorney general says the bank subjects borrowers to ‘Kafkaesque delays and obstructions.’

By E. Scott Reckard and Andrew Tangel
October 2, 2013, 6:09 p.m.

Wells Fargo & Co. subjects borrowers seeking mortgage modifications to “Kafkaesque delays and obstructions,” in violation of last year’s $25-billion national mortgage settlement, New York Atty. Gen Eric Schneiderman said in a federal lawsuit.

The suit, filed Wednesday, asks the federal court in Washington to force the bank to comply with the landmark agreement. It alleges that the bank on at least 210 occasions violated timelines imposed by the settlement.

At a news conference at his Manhattan offices, Schneiderman mocked a Wells Fargo letter to a homeowner. Brandishing a copy, he read excerpts riddled with unclear writing, typos and stray characters not from any recognizable alphabet.

“I appreciate their efforts at honoring the diversity of New York and the fact that they are looking out for the Martian-speaking population,” Schneiderman said.

The national mortgage settlement grew out of investigations into complaints that foreclosure documents were “robo-signed” en masse by bank employees with no review of the facts. The banks agreed to the settlement to avoid further enforcement action by 49 state attorneys general and the federal departments of housing and justice.

The settlement timelines gave banks three business days to acknowledge in writing that they had received modification applications and five business days to notify borrowers of missing documents. The banks also promised to give borrowers 30 days to submit missing documentation or correct a deficiency. They agreed to make a decision on a completed modification application within 30 days.

Attached to Schneiderman’s lawsuit were complaints by 97 borrowers describing how Wells Fargo had missed deadlines and failed to keep other pledges. The suit described how one borrower had supplied information for seven months to no avail, submitting the same tax return several times. Wells Fargo at one point demanded an explanation of a $2 amount listed on one pay stub, according to the suit.

The lawsuit described “a pattern of obstructive practices designed to avoid reasonable modifications to loan terms by burying homeowners in paperwork and besieging them with bureaucratic delays and dead ends.”

Wells Fargo, the nation’s largest mortgage lender, issued a statement expressing disappointment that Schneiderman had chosen to sue instead of negotiate a solution. “We are doing everything we can to help our customers remain in their homes,” it said.

Wells said it had completed more than 26,000 loan modifications for borrowers in New York over the last four years — six modifications for every foreclosure sale in the state.

“We believe that a collaborative approach — not protracted litigation or continued threats — offers the best path toward continuing to improve services to borrowers,” Wells said.

Schneiderman in May had threatened to sue Wells Fargo and Bank of America Corp. over alleged violations of the agreement. He said they had generated far more complaints than the other banks in the settlement — JPMorgan Chase & Co., Citigroup Inc. and Ally Financial.

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