Jones Versus Wells Fargo Addresses The Rights Of Debtors In Bankruptcy Part Two

In Part One we looked at the underlying facts of In re Jones. In this part we will look at the accuracy of the prepetition charges assessed to Jones by Wells Fargo.

The accounting prepared and used by Wells Fargo at trial, showed that Wells Fargo had at times applied Jones postpetition installment payments to the prepetition payments that he owed. The Court noted that applying the postpetition payments to the prepetition debt was contrary to what was called for in the plan, which had the prepetition debts paid through the plan by the trustee.

The accounting also assessed interest on prepetition charges, fees, and missed payments which were to be paid through the plan and should not have been assessed interest at all. The effect of this accounting method was that interest charged and paid on the loan was more than was actually due.

The Court noted that because the prepetition arrearage is paid by the Trustee under the plan, the debtor’s balance should only reflect the principal amount due under the Wells Fargo Note as of the petition date, and all other charges, fees, or negative escrow balances should be zero.

However, the Court noted that in its experience, few, if any, lenders make the adjustments necessary to properly account for a reorganized debt repayment plan, making it common to see late charges, fees, and other expenses assessed to a debtor’s loan as a result of postpetition accounting mistakes made by lenders.

The Court further noted that Wells Fargo was no exception, applying any amounts received to pre and postpetition charges, interest and noninterest bearing debt, creating “such a tangled mess” that neither Jones, a certified public accountant, nor Wells Fargo’s own representative could fully understand or explain the accounting.

The court also found mistakes in the amount of some prepetition charges themselves.

Louisiana is a judicial foreclosure state and all sales of seized real estate are conducted by a sheriff.  The sheriff is paid a commission to conduct the sale.  When Wells Fargo calculated the fees due by Jones, it improperly added $6,741.67 in additional Sheriff’s commissions even though the sale of Jone’s real estate never occurred and therefore no Sheriff’s commission was charged.

The Court found that the actions of Wells Fargo’s in misapplying payments cost Jones almost $13,000.00 in additional interest charges over the life of the plan. The effect of this was that the payments by Jones were insufficient to satisfy the amounts due, resulting in postpetition defaults, and also resulting in Wells Fargo collecting additional interest to which it was not entitled.

The Court also discovered an instance where payments that were made by Jones were placed into a suspense account rather than being applied to the outstanding loan, having the effect of making Jones past due on his postpetition installments. It also kept the outstanding principal balance artificially higher, ultimately affected the calculation of future interest, making interest payments higher than what was actually owed.

In Part Three we will discuss the postpetition charges assessed by Wells Fargo.

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