New Lawsuit Alleges That Wells Has a Manual for Mass Fabrication of Foreclosure Documents

Recall that some of the most damaging documents released by Edward Snowden were NSA manuals. They discuss in detail how certain abuses are performed and provide strong proof that that behavior is routine and presumably widespread.

Catherine Curan of the New York Post has an important new story on a Federal lawsuit that looks to have unearthed a smoking gun about systematic document fabrication at Wells Fargo. As the article notes, this filing confirms a report we received from a whistleblower in 2013.

Recall that we’ve long been critics of Wells Fargo, not simply for its bad conduct, but for the intelligence-insulting manner in which it keeps asserting that it is better than other mortgage servicers, when the evidence is overwhelmingly the reverse. For instance, during the not-really-supervised-by-the-OCC Independent Foreclosure Reviews, whistleblowers told us how Wells Fargo’s serving conduct was worse even than that of Bank of American, which took over subprime miscreant number one Countrywide. For instance, both by statute and via the mortgage securitization contracts, borrower payments are required to be applied in a specific order: interest first, then principal, then fees. If a borrower had incurred a late fee, Wells would apply the payment to fees first, guaranteeing the payment would be too small. That would enable Wells to declare the payment to be insufficient for the current month and charge another late fee. That scam is called “pyramiding fees” and because the amount the borrower supposedly owes grows rapidly, almost always means that the delinquent borrower is never able to dig his way out of his hole and loses his home.

The reason this new case is a bombshell is that so far, the cases against Wells, both in court and in the court of public opinion, have specific. Even though the abuses are often grotesque, they are noise to Wells, since the allegations of particular borrowers or individual whistleblowers seldom gets traction outside foreclosure-defense-oriented sites and local newspapers. By contrast, this suit has the potential to demonstrate that Wells constructed a well-oiled machine to flout the law.

Key sections of Curan’s article:

In a filing in New York’s Southern District in White Plains for a local homeowner in bankruptcy, attorney Linda Tirelli described a 150-page Wells Fargo Foreclosure Attorney Procedures Manual created November 9, 2011 and updated February 24, 2012. According to court papers, the Manual details “a procedure for processing [mortgage] notes without endorsements and obtaining endorsements and allonges.”…

Attorneys, forensic accountants and consumer advocates have long suspected that banks were systematically creating improper documents to prove ownership of loans. Foreclosure defense lawyers use the term ‘ta-da’ endorsement to describe situations in which they say a document appears, as if by magic, in the bank’s possession as needed in a foreclosure case—even though the proper endorsement was not included in the original foreclosure filing. It might sound like a technicality, but correct proof of ownership lies at the heart of the foreclosure crisis for securitized loans, which were sold by the lender that originally issued the mortgage. To legally transfer a securitized loan, the endorsements and allonges have to be created in a very specific way and within a specific time frame, usually 90 days after a residential mortgage trust closes. For many loans in foreclosure now, which were originated years ago and then sold, it’s way too late to correct incomplete documents, experts said.

If the allegations in Tirelli’s court filing are true, this manual represents the first time ‘ta-da’ endorsements are “being described and admitted to be a procedure” at a major bank, as Tirelli claimed to The Post.

The manual, a copy of which was obtained by the Post, appears to provide step-by-step instructions for a Wells Fargo Home Mortgage “Default Docs Team” and foreclosure attorneys if a blank endorsement is in a file and the attorney wants that note executed. In addition, the manual outlines steps for attorneys and the Default Docs Team to create allonges, endorsements to a note on a separate sheet of paper when there is no room left at the bottom of the note. Step 3 under the header “Allonge” on page 17 reads: “WFHM Default Docs Team: If file was ordered and received, review … to determine what entities the attorney needs the note endorsement to reflect.”

Foreclosure experts called these procedures shocking.

Of course, sanctimonious Wells claims the manual has been updated 30 times since the version filed in the lawsuit, and it’s only a piece of the process, since Wells has internal checks. If you believe that, as Wells asserts, they are in full or even substantial compliance, I have a bridge I’d like to sell you.

Our Wells whistleblower saw evidence first hand of document fabrication at a Wells facility, indicating that the idea that the internal procedures were intended to follow the law is a canard. The notion was clearly to complete as many foreclosures as cheaply as possible, the law be damned. From our 2013 post:

A contractor who worked at a Wells Fargo facility in Minnesota reports that the bank engaged in systematic, large scale alteration of mortgage notes and fabrication of related documents in preparation for foreclosure. The procedures the bank used are questionable for a large portion of the mortgages.

A team of roughly 100 temps divided across two shifts would review borrower notes (the IOU) to see whether they met a set of requirements the bank set up. Any that did not pass (and notes in securitized trusts were almost always failed) went to another unit in the same facility. They would later come back to the review team to check if the fixes and fabrications had been done correctly.

Not only is having Wells Fargo tamper with documents in this way dubious in many cases (more detail on that shortly), but amusingly, the bank does not even appear to be terribly competent at this sort of falsification. The bank changed procedures frequently, and did not go back to redo its prior work. In addition, it regularly took loans that appear to have been endorsed properly and changed them as well. Finally, even if the procedures had been proper, the temps were required to meet such aggressive production timetables and were so laxly supervised that it seems unlikely that their work was done well.

This account confirms what foreclosure defense attorneys have reported for some time: that servicers have been engaging in document fabrication for some time. It’s not uncommon for a servicer or foreclosure mill to present “tah dah” documents that miraculously remedy the problems that homeowner attorneys have raised, sometimes resulting in clear proof of fabrication, like two different notes (borrower IOUs) having been presented to the court, each supposedly an original.

But what is striking about this practice is both the brazenness and the scale. Our source was told that Wells Fargo added a second shift to its mortgage review operation in November 2011 [update: it is likely the related doctoring activities were increased correspondingly]; he* did not know when it had been established. Bank employees claimed that some of these operations had formerly been done by outside firms and the cost of doing it in-house was much lower than the cost of doing it externally. Apparently having plausible deniability was too expensive.

For those with an appetite for train wrecks, the post contains much more granular detail.

I don’t know how much stamina the attorney, Linda Tirelli, has, but the fact that the core of the case revolves around a manual would enable her to do wide-ranging, potentially very damaging discovery on related policies and procedures. Wells would be nuts not to settle this case.

But bank has consistently been arrogant and obstructionist. So as much as Wells allowing her to proceed with discovery will be a longer, harder road than a quick and quiet settlement, it has the potential to do a tremendous amount of good for beleaguered borrowers by exposing the deliberate, orchestrated nature of Wells’ bad conduct. Stay tuned.

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  1. psychohistorian

    Isn’t Wells Fargo a TBTF entity? And wouldn’t it follow from that, given our increasingly corrupt legal system that Wells is also TBTP (Too Big To Prosecute)?

    I mean, what ever happened to the state AG’s and the “prosecution” of MERS improprieties? MERS is still being used, right? No one went to jail, right? Eric Holder, one of the creators of MERS is still the US AG, right?

    I am staying tuned because I believe that no house of cards like this can stay upright forever, but I am not holding my breath. I am more chuckling these days about DiFi huffing and puffing about her staff being spied on by the CIA. Does anyone think all this corruption is magically going to cease? I would posit that if the stench gets too thick a trumped up war will erupt somewhere…..grin…and all attention will be diverted…..just like now with Israel bombing the shit out of Gaza while all eyes are on John McCain in Kiev.

    I am jaded about the same old shit every day now. When is Mother Nature or Aliens going to step in and end this insanity?

    1. Skeptic

      “Isn’t Wells Fargo a TBTF entity? And wouldn’t it follow from that, given our increasingly corrupt legal system that Wells is also TBTP (Too Big To Prosecute)?”

      The larger principle: Isn’t X Corporation a TBTF entity? And wouldn’t it follow from that, given our increasingly corrupt legal system that X Corporation is also TBTP (Too Big To Prosecute)? This principle goes into all sectors of the economy not just FIRE.

      I no longer spin my mental wheels hopiuming that these TBTPs will ever be prosecuted. They are in control and are expanding their criminal activity. My personal solution is to limit or eliminate my transactions with any of them. If many other citizens did the same, we would see change.

      1. Procopius

        This is basically what Yves has been writing about for years. I first heard about it in blog posts by Tanta over at Calculated Risk. Earlier, read Noah Smith’s blog post about the coming of cheap robot armies and implications for the future (I got to thinking also about Cordwainer Smith’s stories and the Manshonyaggers [corrupt form of Maenschen Jaeger], the autonomus killing machines created by the VIIth Reich). Decided the best thing to do is go back to bed and pull the covers over my head. At least I figure the monsters underneath there are the least of my worries.

      2. OMF

        My personal solution is to limit or eliminate my transactions with any of them. If many other citizens did the same, we would see change.

        You solution is flawed. It ignores the fact that allowing this behavior to go unpunished for the institutions and individuals involved ends up encouraging others to do the same. Increasingly, your wallet will run out of non-crooked places to vote for.

        The only solution is a Holy Crusade of legal prosecutions, against individuals. Put the fear of god and Law into the entire financial and mortgage sector. After that, you’ll be able to drop your wallet on the street and come back for it the next day.

    2. tiger

      Right. Evil, evil Israel. The most Evil country in the world. Bombing the “shit” out of gaza. If Israel is bombing the “shit” out of gaza, what noun would you use for Syria?
      Syria is bombing the _____ out of its own cities and people.
      North Korea is torturing and mass murdering the _____ out of its citizens.

      Any luck filling in the blank?

      Can you find any nouns 10x, 100x, or 1000x worse than “shit”? Because those are the numbers. In most conflicts around the world, people are being killed by 1,2,3+ orders of magnitude higher than in conflicts Israel is involved in. Actually, let’s consult wikipedia and just throw out examples:

      Mexican Drug War North America Mexico 112,440+
      Syrian Civil War Asia Syria 100,000 – 143,050
      Central African Republic conflict (2012–present) Africa Central African Republic 2,000+
      Communist insurgency in the Philippines Asia Philippines 43,388+

      Just in the phillipines communist insurgency, which began in 1969, more people died this year than in the Israel-Arab conflict. But why bother! let’s just criticize Israel y’all !!

      1. OMF

        Overall, I rate this offtopic derailment as a 6/10.

        While the original OP’s subtle injection of middle east issues was deftly topical, the follow up response (channeling I believe a PG rated Derek Smart) ramped up the tone too quickly to allow a realistic further derailment to continue. The follow up comments — including this one– have gone so far off topic, and so deeply into meta-internet memes that the thread is by now an obvious lemon in unlikely to attract further posters and will almost certainly be removed.

        Truly, this is a sad moment in American online internet discourse.

    3. William Neil

      MERS? I haven’t heard of it in years…did the Congressional attempts to sanctify what had unfolded informally ever pass? And who remembers the testimony by University of Utah law Professor Christopher Peterson before the House Judiciary Committee on December 2, 2010, when he said “…that MERS is a deceptive and anti-democratic institution designed to deprive county governments of revenue…undermining mortgage loan and land title record keeping?” And who remembers the testimony of former high officials of the Wall Street due diligence firm, Clayton Holdings, in front of the Financial Crisis Inquiry Commission on September 23, 2010, held way out in remote Sacramento, California, while the nation was pre-occupied with the congressional elections featuring the rise of the Tea Party? The testimony was from D. Keith Johnson and Vicki Beal – not quite household names – then or today. But their testimony led Eliot Spitzer – remember, he had his talk show – to call the revelations ” ‘Fraud, plain and simple.'”

  2. Daize

    I wish I could say I am shocked, but I am not. I am very happy this is at least coming out into the light of the day though. Our entire financial system needs to be torn down and rebuilt imho.

  3. big ed

    Great stuff! It reminds me of a joke: what’s the difference between big business and organized crime?

    Answer: the tailoring of the bosses.

  4. Stupendous Man - Defender of Liberty, Foe of Tyranny

    Yves, please finish, or correct, sentence 1, in par. 4. I have a feeling doing so will further add “punch” to a hard hitting piece.

  5. Ulysses

    While I’m very grateful that Yves and others are keeping us informed, on a granular level, of just how criminal the banksters are, it is distressing to realize that, with their protectors and enablers in charge, they can continue on their merry way.

    The kleptocrats are so firmly in control that they are completely untouchable. The laughable fines and wrist-slaps meted out every now and again are just a bit of kayfabe posturing to maintain the illusion that some rule of law still exists.

    We can no longer afford to merely keep begging this corrupt system to reform itself. We need to oppose this regime with all our strength– and force the construction of a better system. As Guy Standing says, our opposition needs to “develop an alternative perspective, one that is based on rescuing a sense of social solidarity, empathy and compassion.”
    Skunksters arise!!

  6. james

    Banking system will be torn down when the housing market crashes again. You can’t find a decent home in many parts of the country for under 200.000. A 200.000 dollar home cost about 2000.00 a month to own with interest, principle payback over 20 years, taxes, insurance and upkeep. With so many people working part time and on minimum wages It is hard to see How the housing recovery is going to be sustainable. Look at any real estate web site and you will see where 70% of the listings are for homes 300.000 and up. It looks like every high priced home in the country is on the market. But you can’t find a reasonably priced home that is affordable for working class people. That is why the RV parks are full every one has found out that living in your RV is the last affordable housing but even the rates for parking it in a Resort is getting costly these days.

    1. PrairieRose

      James, I agree a thousand percent. It is mystifying to me how our fellow citizens, with a median annual income BEFORE taxes of $50,000, are able to “afford” a $200,000 home which, as you correctly point out, is the median price in this country for a starter home (LOL). It defies explanation. Are we all living off credit cards and home equity loans?

  7. R Foreman

    I’ve got a Wells Fargo mortgage (originally created in 2001 by another bank, subsequently sold to Wells), and I know from looking it up that it was in MERS. I suspect they don’t have the original documents, although I have no way of establishing that except by going into foreclosure. I’m sure I could dig up all my original loan documents if I had to.. it’s just been a while and they’re buried in boxes somewhere.

    1. Brian

      Try quiet title if your state is amenable. It requires them to bring proof. Most cases as plaintiff require you provide all the proof. Or, wait for non judicial foreclosure, which is almost always illegal and a denial of due process. Use wrongful foreclosure and add quiet title.

    2. Nathanael

      Your best procedure depends on what state you’re in. If you’re in one of the “good” states — Mass. or NY — there is a sequence of stuff you can do to force Wells Fargo to prove that they actually hold your loan, and you can start escrowing your payments while they try to prove it. Expensive legal procedure, but necessary due to the fact that some other bank may ACTUALLY hold your loan and come after you later (and you need to keep emphasizing this at every stage of the proceedings).

      If you live in a state where the courts suck, you’re out of luck. You don’t own your house, you’ll never have clear title without an adverse possession lawsuit.

  8. pat b

    I don’t doubt, that, Wells did a crappy job on these “Paper Mills”, like
    much of Wall Street, if they weren’t willing to pay the money
    to paper them correctly at the start, why would they pay the money
    to paper them now?

  9. William Hunter Duncan

    I worked in that mortgage doc mill. It was more like jail, than a job. When they asked us to not include any document in the final compilation to be sent to Fanny and Freddy, that would make the loan look distressed (they were all in foreclosure), I engineered my way out. I didn’t whistleblow, because we all know what happens to whistleblowers in this culture. I did write about it in my blog:

    Of the few thousand loans I worked on while I was there, about 80% were in excess of $350,000, up to $1.7 million. I remember one, a $350,000 loan to a guy making $11/hr. He made $27,000 the year before, but only because he worked so much overtime.


  10. cnchal

    So, Wells Fargo has a manual that instructs it’s employees on the methods and techniques to use to break the law, lie to the courts and disregard the sanctity of contracts when it benefits them.

    Modern day banking.

  11. susan the other

    Chris Whalen did a post today (ZH) on the SEC giving the TBTFs a monopoly on MBS securitizations and sales in 1998. Just before housing went turbo. In this post he claims that the reason adjustments and writedowns to troubled mortgages couldn’t be achieved after 2008 was because of the REMIC structure – the securitized trust was a combination of owners who could not effectuate such modifications, etc. This assumes that the trusts were legally securitized – which even Chris Whalen knows were not. Since it is more than apparent that securitization failed – some say in 80% of the mortgages nationwide – it should follow that these REMICs pose no barrier to rewriting or forgiving mortgages. Instead, Wells have resorted to obvious forgeries of the chain of title and the dates of the allonges. Everybody knows this is happening. Everybody. Wells probably even designed the procedure for the OCC “Review.” The trusts themselves have a responsibility to stop this behavior – they cannot enforce false documents and they were savvy enough when they invested in them to review all of this stuff and make sure it was legal. They failed to do their due diligence as much as the TBTF mortgage departments blew off the requirement for 90 days to securitize. It is their fault and they should stop this nonsense; quit their stupid cover story about MERS and just come clean. Anybody who’s title has been so mismanaged by the banksters gets their house free and clear because they are the only recorded party of interest. What other way out of this mess can there be?

    1. Punchnrun

      John, thanks for the link, I had read it earlier today and then learned my niece is in the final stages of home buying in downtown Seattle. I was looking for the link to pass it on to her, you saved me some time.

  12. mk

    can some bright programmer come up with an app that can unite people who use the same bank, so that they can negotiate as a group to pressure their bank for better terms? For example, what if most Wells Fargo customers were able to say to their bank that they want better interest rates on their savings or they’ll pull all their money out at the same time to ruin the bank. I know lots of people moved their money from banks to credit unions, but we need a way to force the banks to do our bidding. Is this just too naive or is this an idea that can work?

    1. HotFlash

      At a guess, I’d say it’s too naive. It is their ballpark, they make the rules and if you get them to agree on one point, eg interest rates, they will just gouge you on the fees or raise your credit card interest, as by dicking around with the payment date so you make a late payment or some other cute trick. They have whole depts of jpeople who have the time, training and incentive to think of that stun’tff all day long, we just don’t have that kind of firepower. We have entrusted the running of our lives to administrations which victimize us, the only way out is to govern ourselves. That seems to be an investment of time and energy that we are loathe to make. But it’s the only way out, I think. Includes actual government, but also admin of our supplies of money, food, air, etc.

      WRT banking, I would think that small, simple, ideally non-profit financial institutions, such as credit unions or building societies, which can be kept transparent, could serve us better. Again, a lot of work. How to begin it?

  13. JDJ

    “updated 30 times”. “A work in progress”. Which answers no questions but does provide superficially acceptable spin. Since their target is DOJ and the like, it should work.

    1. Yves Smith Post author

      That’s not the document. It’s only 2 pages while the Post read a 150 page document.

  14. OMF

    Can you imagine what is going to happen when, for the sake of “modern efficiency”, these kinds of legal documents are moved to an entirely digital format — no “paper” paper trail at all? Banks and lenders will be free to alter everything almost at will, in a completely automated way. Documents will pop in and out of digital existence like science fiction travelers hopping between multi-verses. At least for now, they’re only sticking to allonges. For now.

  15. Joseph Klein

    “This suit has the potential to demonstrate that Wells constructed a well-oiled machine to flout the law.” Thank you! An intentional, integrated process engineered from the top down. It also shows Wells Fargo’s contempt for the law and its practitioners, who are considered but another component. Robo-attorneys log-in at their cubicles, check assignments, enter codes. WF’s response in the article: We only tell our lawyers what they need to know, and that doesn’t include internal safeguards (like fact-checking). Officers of the court watched over by WF “Liaisons” and then DOS which has no legal staff. Wells Fargo’s Rules of Civil Procedure use the word “signor” instead of “affiant” whenever referring to affidavits, as if the two were synonymous. Laws are “guidelines”. But Wells didn’t construct this machine alone – LPS is featured on every page and deserves at least half the credit.

    1. Yves Smith Post author

      We’ve gone after LPS very hard, but LPS was a liability-shifting device for the servicers. LPS was a tool, not a driver.

      1. Jim A

        The remarkable thing IS, as you said, that plausible deniability wasn’t worth the cost of employing LPS. WF is so BRAZEN that they “in-housed” the forgery and fraud division. If people don’t go to jail for this, there should at least be wholesale disbarments , but even that is probably too much to ask.

  16. Joseph Klein

    “Crimes of Omission” redux: True, but hey – manual published way back in 2012, and 30 revisions since. How is this relevant today? What OTHER fact patterns have been twisted around? As with all corporate crime, doesn’t the truth ultimately fall somewhere in between the perpetrator and its victims?

    1. Yves Smith Post author

      Puhleeze. How much smoke can you blow in one paragraph?

      Document fabrication and forgeries are not crimes of omission. Forgery is a felony.

      30 revisions does not mean they were consequential, in fact, that frequency of revision almost certainly means they were inconsequential.

      Readers here are way too smart to buy this “everyone is guilty” line in the face of considerable evidence to the contrary.

      1. Stupendous Man - Defender of Liberty, Foe of Tyranny

        I’ll go with that; “everyone is guilty.” I’ll suggest the addition that “everyone should go to jail.”

  17. DolleyMadison

    Mr. Klien this is organized crime. Period. And the little people like you will be the first ones thrown under the bus. Forgery and perjury are not “technicalities.”

  18. Jim A

    The article does seem to conflate the note and the mortgage. The loan agreement and the right to foreclose are not the same thing.

  19. Joseph Klein

    Whoa – slow down the stagecoach!

    I was mocking what I anticipated would be the reaction from certain apologists and industry shills based on their reaction the LAST time I found “evidence to the contrary” and made it available to the public. See and Hence “Crimes of Omission redux”. I should have recognized the reference was obscure because it was personal to me. It does NOT reflect my opinion. I was obviously not clear and can see how it was misunderstood.

    Let me clarify: I am aware that forgery is a felony, as well as perjury by declaration, uttering false instruments, mail fraud, wire fraud, obstruction of justice, and conspiracy. To be more clear: I emphasized each section of the manual where I felt a criminal cause of action could be asserted when Mrs. Curan interviewed me for the Post article. As a consumer law and foreclosure defense attorney I’ve spent the better part of seven years defending the “little people thrown under the bus”, sometimes successfully and often for little (or no) money. I think this is an important insider document and in excellent hands with Linda. A post from one of the way-too-smart readers would not get under my skin. But one like that from Yves Smith – ouch.

    Now. With all possible respect, Yves, your minimization of LPS-Black Knight’s role is wrong. Let’s stick with just half of the tool-and-driver mixed metaphor. The manual is a map, similar to one used by all mortgage servicers, everyone is going to the same place and trying to get there as quickly as possible. Practices that could be considered unethical – to be generous – become illegal per se when you introduce an independent third party default servicer as intermediary. Based solely on the handbook it’s not impossible that a Wells Fargo affiant (“signor”) COULD have personal knowledge of the contents of their declarations. That doesn’t mean I think Wells affiants HAVE personal knowledge, only that it’s not impossible based on the document. It is, however, impossible when the affiant obtains the information directly from a separate entity charged with creating, maintaining, and exercising exclusive control over that information to which the affiant had no prior access. Now exchange “independent entity” with “agent” or “co-conspirator.”

    If Wells is the driver, LPS isn’t the tool – it’s the car. And, coincidentally, it’s ALWAYS the car – only the drivers change. Once that attorney referral goes out, LPS is arguably more the servicer than Wells. MSP doesn’t direct itself. The same sort of attendant WF hierarchy and procedures exist there, too – sometimes they’re employed by both – and it’s a mistake to dismiss them so quickly.

    Still love the blog and grateful for your thoughtful contribution.

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