Wells Fargo Bank, N.A. has fraudulently changed the terms of home equity line of credit (HELOC) mortgages without providing notice to borrowers as a means to cover up a maturity date error that created the risk of the bank holding hundreds of millions in unsecured debt, a proposed class action lawsuit alleges.
Filed in Florida federal court, the 16-page lawsuit says the plaintiffs and similarly situated borrowers obtained from Wells Fargo purchase-money financing for new homes by entering into EquityLine with FlexAbility agreements with the bank. Pursuant to these agreements, proposed class members were given access to a revolving line of credit (known as HELOC loans) secured by second mortgages (commonly known as HELOC mortgages) on their homes, the suit relays.
Given HELOC loans are secured by a second mortgage lien on a borrower’s home, it is crucial for the lien to terminate after the loan’s final maturity date, the date on which a borrower must repay their outstanding balance in full, the suit goes on. Otherwise, Wells Fargo’s security interest in a property would be terminated before a borrower had repaid their debt, with the balance of the debt due and owing being unsecured, according to the complaint. In this scenario, Wells Fargo would be exposed to a higher risk of nonpayment “across the entire product line,” the lawsuit says.
The plaintiffs allege that upon realizing its mistake—and being unwilling to expose itself to possibly holding hundreds of millions in unsecured debt—Wells Fargo changed the terms of its HELOC mortgages “fraudulently and without notice to borrowers.” Rather than inform borrowers, Wells Fargo instead unilaterally recorded instruments entitled “Affidavit of Correction” in counties where borrowers resided in an apparent effort to “correct” the maturity dates on HELOC loans as stated on HELOC mortgages, according to the complaint.
As a result of executing and recording Affidavits of Correction without informing borrowers, Wells Fargo clouded the titles to proposed class members’ properties and reduced the properties’ values and marketability, the lawsuit alleges, charging Wells Fargo should be subject to criminal liability in every state where the lender recorded the instruments.
The lawsuit looks to represent a class of borrowers nationwide, as well as a Florida-only subclass, who obtained HELOC loans from Wells Fargo and had a fraudulent Affidavit of Correction recorded that purported to change the terms of their HELOC mortgages.
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