A federal judge ruled last month that Wells Fargo Bank could have forged a document in a bankruptcy case.
U.S. District Court Judge Kenneth Karas upheld a ruling by U.S. Bankruptcy Judge Robert Drain that Wells Fargo had failed to prove that it had submitted genuine documents to support a claim for payment.
Karas overruled Drain on a related issue, stating that the bank had done enough to establish its role as a loan servicer, despite evidence that was “not overwhelming.”
The case concerns Cynthia Carssow Franklin, a speech pathologist who lives in Yonkers. She filed for bankruptcy in 2010 in White Plains.
Among her debts was a 2000 mortgage on a house in Round Rock, Texas.
Wells Fargo submitted a proof of claim demanding $170,073. The bank included an assignment of the mortgage from a previous holder, showing Wells Fargo as the owner, dated just three days before the claim was submitted.
Wells Fargo also claimed that the Federal Home Loan Mortgage Corp. owned the loan and Wells serviced it on behalf of Freddie Mac, as the government-sponsored enterprise is known.
Franklin’s attorney questioned the bank’s standing to file a claim. The loan was not endorsed to Wells and the signature on the mortgage assignment was of a Wells employee and not that of anyone for the previous owner of the loan.
Wells then filed a second proof of claim that was identical except that it included an endorsement.
Franklin challenged the second claim, alleging that the endorsement was forged and Wells did not own the loan.
A Wells Fargo employee testified that he was part of an assignment team that rubber-stamped documents prepared by a bank attorney to “improve” the record. He signed between 50 and 150 original documents a day and his team gave very little thought about what they were doing.
“He pretty much signed whatever outside counsel working on the default put in front of him,” Judge Drain wrote in his 2015 opinion, “to fill in missing gaps in the record.”
The evidence shows a “willingness and practice on Wells Fargo’s part to create documentary evidence, after-the-fact, when enforcing its claims,” Drain said, “which is extraordinary.”
The judge questioned why Wells Fargo would need to create a document that endorses an assignment from itself to itself. He found it reasonable to infer that the bank was improving its own position by creating a new document to enforce its claim.
The evidence does not conclusively prove that the endorsement was forged, Drain said. But Wells Fargo had failed to establish by a preponderance of evidence that the documents were genuine.
He noted that Franklin’s house is still encumbered by a deed. “There is a serious limitation to the notion that the debtor now has a ‘free house.’”
But there are certain bare minimums to proving a claim and Wells Fargo had failed to establish that it holds the debt. Therefore, he disallowed the bank’s claims.
Judge Karas concluded that Drain did not err in ruling that Wells Fargo lacked standing as a holder of the debt.
The sequencing of the two claims and the dubious, last-minute assignment of mortgage make it plausible, Karas says, that Wells Fargo’s efforts to improve the record led to forgery.
But he said Wells Fargo could amend its claims as servicer of the loan on behalf of Freddie Mac. He was troubled that the bank did not produce a service agreement, but at this stage in the process it had produced enough evidence that it had serviced the loan.
Franklin’s attorney in White Plains, Linda Tirelli, has filed a new complaint in bankruptcy court against Wells Fargo and Freddie Mac.
She asks the court to void a lien that Wells Fargo has placed on Franklin’s house.