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An ‘inflammatory’ opinion? Judge bars pre-emption defense absent a Wells Fargo resolution

Posted Oct 1, 2013 6:30 AM CDT
By Debra Cassens Weiss

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A federal judge who agreed a homeowner’s predatory lending claim was pre-empted by federal law plans to take the case to a jury anyway—unless Wells Fargo submits a board resolution standing by the defense.

U.S. District Judge William Young of Massachusetts called his pre-emption ruling “technical” and told Wells Fargo to let him know—in the form of a corporate resolution—whether it wished to waive the defense in the case of homeowner Joseph Henning. The resolution should be submitted within 30 days, and should be signed by the bank's president and a majority of its board, Young said in the Sept. 17 opinion (PDF posted by Stop Foreclosure Fraud).

If Young does not receive the resolution, he will consider the pre-emption defense to be waived.

The New York Times highlights the ruling in a story about some federal judges who “seem to be losing patience with the banks.” The newspaper spoke with Wells Fargo spokeswoman Mary Eshet, who called Young’s remarks “inflammatory and unsubstantiated.” The company is asking an appeals court to order dismissal of the case without a corporate resolution.

Henning had received a “stated income” loan—which required no documentation—from World Bank, which merged with Wachovia, which was acquired by Wells Fargo. Henning says he was approved by World Bank based on his ability to pay a low initial rate, though the bank raised the adjustable rates to borrowers by three or four times, sometimes within months. His loan agreement did not require the bank to apply his payments toward principal, and the bank later piggy backed an additional line of credit onto his obtained his 2006 mortgage, he alleges.

Henning says World Bank’s advertising focused on low initial monthly payments and didn’t disclose negative amortization, which increased his outstanding balance. His suit says the bank's contract language was impenetrable and its advertising deceptive. Henning had claimed breach of the implied covenant of fair dealing, negligence and unjust enrichment, but the claims would impose requirements on lenders beyond that of federal law, the judge said.

“Were Henning to prove his case on the merits, the conduct of Wells Fargo would be shown to be nothing short of outrageous,” Young wrote. “On the other hand, perhaps if Wells Fargo addressed the merits, its conduct would be vindicated by fair-minded American jurors. A quick visit to Wells Fargo’s website confirms that it vigorously promotes itself as consumer-friendly,… a far cry from the hard-nosed win-at-any-cost stance it has adopted here. …

“The technical … pre-emption defense upon which Wells Fargo relies is an affirmative defense which can be waived. …The disconnect between Wells Fargo’s publicly advertised face and its actual litigation conduct here could not be more extreme. These facts lead this court to inquire whether Wells Fargo wishes to address Henning’s claims on the merits."

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