Posted on Aug 10, 2016

If Wells Fargo is your mortgage company and you are in chapter 13 or have been recently, you may receive a check or a credit to your mortgage loan because of a settlement with the U.S. Trustee's office. Wells Fargo will pay out $81.6 million in settlement payments and credits.

The payments average $1254 each, but yours could be more or less, depending on what happened on your particular loan. Your payment may be sent to your chapter 13 trustee if you are still in a chapter 13 case. We are not sure yet if the trustees will refund the payments to you, or apply them to your chapter 13 case, either as a credit against what you owe to your plan (so your case is completed sooner) or as an "additional" payment that would only benefit your unsecured creditors (assuming that you are not paying your creditors in full through your plan). We will update this article as more information becomes available.

If you receive a check or a credit and you receive an IRS Form 1099 from Wells Fargo, be sure to provide the 1099 to your tax preparer, or if you prepare your own taxes you may need to report the payment or credit as income for the year. 

Why did this settlement happen? Because mortgage companies or "mortgage servicers" as they are known, are required by Bankruptcy Rule 3002.1 to file Notices of Payment Change in chapter 13 cases, each time the amount of the monthly mortgage payment changes. Mortgage payments commonly change either because of changes to escrow amounts due to taxes or insurance changing, or because the loan is a variable interest rate or ARM loan. 

According to the Bankruptcy Rule, mortgage servicers must send out the Payment Change Notices at least 21 days before the date of the payment change. In some cases Wells Fargo was sending the notices late, or not performing escrow analyses on some mortgage loans for years.

The U.S. Trustee's office that filed the lawsuit is part of the U.S. Department of Justice. The UST brought suit against Wells Fargo in a court case called In re Green, Case No. 11-33377, in the U.S. Bankruptcy Court for the District of Maryland. As part of the settlement, and in addition to the payments and credits, Wells Fargo agreed to change its practices and comply with the law. 

If you are a homeowner with questions and Wells Fargo is your mortgage servicer, you can call Wells Fargo at 1-800-274-7025.

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J Thomas Black
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Board Certified, Consumer Bankruptcy Law- Texas Board of Legal Specialization