Former Wells Fargo Employee Claims Bank Defrauded Government Of $1.4B In Foreclosure Funding

Image courtesy of Mike Mozart

There has been no shortage of lawsuits filed against Wells Fargo in recent years, from accusations the bank pushed mortgages on borrowers who couldn’t repay them to claims the company pressed employees to engage in fraudulent conduct with regard to customer accounts. Now, a recently unsealed whistleblower lawsuit melds together those issues, claiming the bank encouraged employees to withhold information from customers that could potentially lead to foreclosure proceedings. 

The former employee claims in the suit, originally filed in 2015, that he was terminated in 2014 after he learned the bank had repeatedly collected on mortgages that it didn’t have proper documentation for.

According to the lawsuit [PDF] — unsealed last week when the Department of Justice declined [PDF] to intervene in the case — the employee claims Wells Fargo defrauded the government by collecting $1.4 billion in federal foreclosure-prevention funding for loans the bank knew lacked proper documentation during the housing crisis.

The employee, who had worked for the company for 10 years, testified that he discovered Wells Fargo’s allegedly illegal action in December 2013 while assisting a customer.

The couple, the lawsuit states, were afraid their home was going to be foreclosed on, as they were overdue on their second mortgage and the bank was demanding a balloon payment.

When the employee looked in the company’s computer system for the couple’s contract he realized it was missing or nonexistent. He told the couple of his findings.

“[The employee] promptly reported the issue with the customers to his supervisor and others within Wells Fargo,” the suit states. “The next day, [he] received multiple emails from Wells Fargo headquarters that the loan documents were missing and that the company did not have the customers’ contract. Despite this, Wells Fargo directed [he] to deceive the customers and treat the loan like a balloon payment was due.”

The man says he was not comfortable with the directive, believing it to be unethical and illegal. He says he was “berated” by a supervisor for telling customers the truth about their loan documents.

After the incident the worker says he received several of the same calls and later noticed that many of the loans with missing documentation had been acquired by Wells Fargo from First Union or Sun Trust Bank.

Three months after the first incident, the complaint alleges the employee and others received an email about a company policy that stated when “Wells Fargo has lost loan documents, especially those securing a home, employees are to not share this information with customers under any circumstance.”

In the following months, the man claims he was treated poorly by supervisors and unfairly criticized for his work performance. In November 2014 he was fired.

With the lawsuit, the employee claims Wells Fargo violated the False Claims Act.

A spokesperson for Wells Fargo tells the Oregonian that the company did not violate the law.

“We believe that our claims submitted to the government under the Home Affordable Modification Program were proper and were subject to substantial oversight and review, and will be prepared to defend our record against the claims in the lawsuit,” the spokesperson said.

A lawyer for the former employee says that his client is hopeful that other employees will come forward and join the lawsuit.

Whistleblower claims Wells Fargo misled borrowers, government [The Oregonian]