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through their attorneys, bring this action on behalf of themselves and all others similarly
situated against HSBC Bank USA, National Association and Wells Fargo Bank, N.A.
Plaintiffs hereby allege, on information and belief, except as to those allegations which
pertain to the named Plaintiffs, which allegations are based on personal knowledge, as
follows:
This Third Amended Complaint amends the definition of the class sought to be
I. INTRODUCTION
1. Plaintiffs bring this action against Wells Fargo Bank, N.A., its division
Wells Fargo Home Mortgage, and HSBC Bank USA (collectively, "Defendants") on
Case 1:10-cv-00785-LY Document 20 Filed 04/08/11 Page 2 of 26
behalf of Texas resident home equity loan borrowers who were offered loan
Defendants knew or should have known violated Article XVI Section 50(a)(6)(L) of the
home equity loan be repaid in "substantially equal" installments that "equal or exceed
the amount of accrued interest as of the date of the scheduled installment." Thus, a home
equity loan with interest arrears would not be a proper subject for a modification unless
(1) the borrower caught up past due payments or (2) the lender waived accrued interest
as of the date of the modification. Interest arrearages cannot be rolled into a home equity
Constitution entail penalties including a refund or credit to the owner of $1,000, and
offering the owner the right to refinance the extension of credit for the remaining term of
the loan at no cost to the owner on the same terms, including interest, as the original
extension of credit with any modifications necessary to comply with the Texas
Constitution or on terms on which the owner and the lender or holder otherwise agree
order to qualify them for loan modifications under HAMP but without disclosing how
this would simultaneously make a permanent modification all but impossible. Since
many of the borrowers were in financial distress already and unable to make loan
payments, these borrowers could not reasonably have been expected to bring their loans
current, particularly as they fell further behind owing to participation in a HAMP loan
modification trial period. Defendants would have had to forgive interest arrearages in
order to give borrowers a loan modification that complied with the Texas Constitution,
but Defendants did not do that and had no intention of doing that.
many roadblocks to modification that borrowers would finally cry uncle in the face of
running against them during the pendency of Defendants' purported "review" of their
loans. An already distressed loan situation became all but impossible to escape because
of Defendants' misconduct and deception. Borrowers' interest arrearages for the months
and years they got chewed up in Defendants' maniacal mortgage meatgrinder made any
5. Plaintiffs bring this class action on behalf of themselves and all others
similarly situated asserting violations of the Texas Constitution Article XVI Section
50(a)(6)(L) and the Texas Deceptive Trade Practices Act, Tex. Bus. & Com. Code §
promissory estoppel, and breach of contract. Plaintiffs seek damages and equitable relief
on behalf of the Class, which relief includes a payment by Defendants of $1,000.00 per
subject loan and refinance or remedy that otherwise complies with the Texas
interest and charges incurred by or assessed against class members by Defendants during
securing the subject home equity loans; costs and expenses, including attorney's fees and
expert fees; and any additional relief that that Court determines to be necessary to
II. PARTIES
individuals and were at all relevant times citizens of the State of Texas, residing at
months in the home equity loan modification process with Defendants before
diversity purposes.
9. Defendants removed this case to the United States District Court for the
Western District of Texas on October 20, 2010. Defendants have not filed an answer.
10. The court has subject matter jurisdiction over the lawsuit under 28 U.S.C.
§1332(d), the Class Action Fairness Act, because the suit is a class action, the parties are
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Exhibit 1.
minimally diverse, and the amount in controversy exceeds $5 million, excluding interest
and costs.
11. The court also has subject matter jurisdiction under 28 U.S.C. §1367 over
Plaintiffs' state-law claims against Defendants because Plaintiffs' claims are so related to
the claims within the court’s original jurisdiction that they form part of the same case or
12. The court has personal jurisdiction over both Defendants because both
substantial part of the events or omissions giving rise to this claim occurred in this
district.
IV. FACTS
14. Defendant Wells Fargo Bank, N.A. ("Wells Fargo") is the successor in
interest to Wells Fargo Home Mortgage, Inc., which engaged in home equity lending in
Texas.
capacity of Trustee for certain trusts, received assignments of these home equity loans
16. Wells Fargo now services those loans for HSBC under an agreement
17. In late 2008, Wells Fargo signed a contract with the U.S. Treasury
(“TARP”), 12 U.S.C. § 5211. HAMP was designed to stem the foreclosure crisis by
to eligible borrowers.
18. In early 2009, Wells Fargo and HSBC accepted billions of dollars in
funds from the United States Government in accordance with their agreement to
participate in programs that TARP authorized the Secretary of the Treasury to establish
to minimize foreclosures.
19. The agreement with the U.S. Treasury required Wells Fargo and HSBC to
comply with the HAMP program requirements and to perform loan modification and
guidelines issued by the Treasury Department set forth a detailed process whereby a
a. identify loans that are subject to modification under the HAMP program,
both through its own review and in response to requests for modification
HAMP;
formula, that is effective for a three-month trial period for borrowers that are
20. As HAMP participants, Wells Fargo and HSBC entered into written Trial
Period Plan ("TPP") Agreements for loan modifications with borrowers.2 Under these
payments less than those required by the original loans, providing certain information,
and complying with other terms, then Wells Fargo and HSBC agreed to grant a
Trial Period" at Para. 3 ("The Modification")). The TPP Agreement states that it "is not a
performed his or her obligations under the contract, id at Para. 3 ("The Modification").
21. Plaintiffs, as well as the members of the Class, complied with their
22. Despite Plaintiffs' and the other putative class members’ full performance
of all obligations and conditions, Defendant Wells Fargo breached its obligation to grant
23. The Texas Constitution Article XVI Section 50(a)(6)(L) at all relevant
times forbade modifications to home equity loans with outstanding interest arrearages.
Either the borrowers have to bring their loans current, or the lender or servicer has to
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Exhibit 2.
waive the interest arrears. A modification to a home equity loan in Texas cannot increase
the principal.
25. Wells Fargo nevertheless offered Texas home equity loan borrowers
HAMP program modifications and sent out TPP Agreements to borrowers, impliedly
interest, before it would even consider allowing a borrower for a TPP Agreement.
28. Wells Fargo accepted payments under the TPP Agreements that did not
comply with the Texas Constitution Article XVI Section 50(a)(6)(L) in that interest was
29. When Wells Fargo did not grant permanent modifications to borrowers
following the three-payment trial period required by the TPP Agreements, Wells Fargo
30. In the meantime, interest and other charges still accrued on the loans, and
Wells Fargo kept borrowers mired in bureaucratic limbo awaiting word on whether there
31. Wells Fargo never disclosed to home equity loan borrowers that the
HAMP TPP Agreement payments violated the Texas Constitution and that, by
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Exhibit 3. Document available at http://www.fc.state.tx.us/homeinfo/modibulletin.pdf.
extension, the granting of a permanent modification per the TPP Agreement would also
32. Wells Fargo did not apprise borrowers that interest forgiveness for the
arrears could cure this problem; nor did Wells Fargo offer interest forgiveness; nor when
33. In any event, Wells Fargo as the servicer had no authority from HSBC,
34. From the inception of a given home equity loan borrower's HAMP
fraud in which borrowers could never figure out what was happening with their loan
modification for months and years on end. Meanwhile, interest kept running.
permanent mortgage relief as promised by Defendants under the TPP Agreements and
36. Defendants' use of the HAMP loan modification scheme was a sham
37. Plaintiffs Ellery and Laura Pennington purchased a home in 2002 and got
a mortgage with Wells Fargo. In 2004, they got a home equity loan from Wells Fargo
38. In March, 2009, Plaintiff Ellery Pennington lost his job. When he and his
wife Laura became unable to pay their home equity loan, they sought a traditional loan
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The Texas Constitution, Article XVI Section 50, generally forbids non-judicial
foreclosures of such loans.
modification from Wells Fargo in late April, 2009. They went through a process of
repeatedly sending financial information to Wells Fargo, getting denials, demands to pay
$8,000.00 in arrearages, and foreclosure notices, and generally getting the runaround.
40. In September, 2009, Plaintiffs received a letter informing them that they
42. Wells Fargo sent Plaintiffs a TPP Agreement with a reduced monthly
payment and a 3-payment trial period. Plaintiffs fulfilled these and all other
43. Plaintiffs spent the next year, through September, 2010, getting the
new solicitations for a loan modification; assertions by Wells Fargo of phantom liens
preventing Plaintiffs' modification from being made permanent; and a litany of other
payments according to the TPP Agreement. Plaintiffs ended up making no fewer than
ten such payments. Plaintiffs do not know how Wells Fargo accounted for or applied
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Exhibit 1.!
these payments, which were lower than required by the 2004 home equity loan and thus
45. As of late 2010, Defendants were informing Plaintiffs that their loan was
46. Plaintiffs' purpose in seeking a loan modification in the first instance was
47. Defendants acts put Plaintiffs in a worse position than if foreclosure had
V. CAUSES OF ACTION
SECTION 50(A)(6)(L)
exceeds the amount of accrued interest as of the date of the scheduled installment
...
violated the Texas Constitution insofar as they included interest arrearages or other non-
misleading and deceptive acts, practices and/or omissions actionable under the Texas
Deceptive Trade Practices - Consumer Protection Act (Texas Business and Commerce
the detriment of Plaintiff as that term is defined by Section 17.45(5) of the Texas
Business and Commerce Code, by taking advantage of the lack of knowledge, ability,
of Wells Fargo's relationship to the lenders whose loans it serviced and Wells
obligations which it does not have or involve, or which are prohibited by law
which the consumer would not have entered had the information been
disclosed in that borrowers would not have chosen to make TPP Agreement
payments, or otherwise enter into TPP Agreements, had they been apprised
that simply by entering into such agreements and suffering continued interest
55. Plaintiffs would show that the acts, practices and/or omissions
complained of were the producing cause of Plaintiffs' damages more fully described
hereinbelow.
56. Plaintiffs would further show the acts, practices and/or omissions
complained of under Section 17.46(b) of the Texas Business and Commerce Code were
relied upon by Plaintiffs to Plaintiffs' detriment in that they were induced by Defendants
to incur interest arrearages and then threatened with or noticed of foreclosure because of
C. NEGLIGENT MISREPRESENTATION
the course of Defendants' loan servicing and lending business that if borrowers complied
with the terms of the TPP Agreements, they would be given permanent loan
modifications.
D. PROMISSORY ESTOPPEL
67. Interest arrearages and other charges also accrued incident and integral to
68. Interest arrearages and other charges also accrued after TPP Agreement
trial periods concluded and Defendants stalled for additional months and required
illusory loan modification process rather than take steps to limit or eliminate interest
in that escalating interest arrearages and other charges rendered the prospect of a loan
Texas Constitution.
foreseen that borrowers would refrain from taking steps to ameliorate their interest
arrearages had they known that TPP Agreement payments worsened their prospects for a
loan modification.
equity loan interest and charges incurred by borrowers at Defendants' request or during
73. Under the TPP Agreement, Defendants were obligated to give permanent
precedent.
74. Once borrowers had fully performed, Defendants then refused to perform
breach.
Defendants' breach.
78. Plaintiffs and class members continued to make payments under the TPP
loan modification.
80. Plaintiffs and the class are therefore entitled to restitution under the
82. Plaintiffs and the Class will suffer irreparable injury if Defendants are not
enjoined while this suit is pending from foreclosing on Plaintiffs' and putative class
members' homes securing the home equity loans at issue. Loss of real property is
presumptively irreparable.
83. There is no adequate remedy at law because Plaintiffs and putative Class
members are threatened with getting thrown from their homes and having their credit
and finances destroyed. Money damages cannot return borrowers' homes to them nor
repair the negative impact on their credit and lives. The loss of one's home under
84. There is a substantial likelihood that Plaintiffs and the putative Class will
prevail on the merits because the Texas Constitution plainly forbids home equity loan
modifications under the facts and circumstances alleged herein, yet Defendants drew
Plaintiffs and other borrowers deeper and deeper into incurring interest arrearages and
other charges.
85. The harm faced by Plaintiffs and the putative Class outweighs the harm
Defendants' only losses are to their balance sheets, and they've been setting aside
reserves to deal with the consequences of their mishandling of loans and foreclosures.
Plaintiffs and putative Class members are losing their homes and in many cases have
86. Issuance of a preliminary injunction would not adversely affect the public
interest. It would have the effect of keeping people in their homes and obviating the
87. Plaintiff is willing to post a bond in the amount the court deems
appropriate, giving due consideration to the issue of Plaintiffs' and putative Class
members' typically dire financial situations, which formed the basis for their being
88. Plaintiffs ask the court to set their application for preliminary injunction
for hearing at the earliest possible time and, after hearing the request, to issue a
irreparably harmed. They are making HAMP trial period payments and incurring interest
that will prevent them from ever getting a permanent loan modification.
interest, underscoring the need for injunctive relief. Such actions were taken in complete
disregard for the interests and the well-being of home equity loan borrowers. Thus, the
interest and rights of these borrowers can only be protected through permanent
injunctive relief.
92. Unless and until enjoined and restrained by order of this Court,
Defendants will continue to harm home equity loan borrowers by inducing them into a
loan modification process doomed to fail. This will cause those borrowers great and
irreparable harm. There is no adequate remedy at law for the injuries suffered as a result
of Defendants' actions.
following actions:
without full disclosure that interest arrearages cannot be included in any loan
modification;
incurred by home equity loan borrowers who have complied with TPP
Agreement conditions;
d. cease and refrain from foreclosure proceedings against Texas home equity
94. Plaintiffs bring this class action on behalf of themselves individually and
all others similarly situated, pursuant to Rule 23(b)(2) and (b)(3) of the Federal Rules of
Civil Procedure.
95. The proposed class consists of all Texas residents who obtained home
equity loans from Wells Fargo Bank, N.A., or its predecessor Wells Fargo Home
Mortgage, Inc., as "Lender" under the relevant note and security instrument and who,
(1) missed one or more payments due according to the terms of the original home
equity loan;
(2) accrued interest arrearages;
(3) entered into any loan modification evaluation or review process with Wells
Fargo Bank, N.A., or its predecessor Wells Fargo Home Mortgage, Inc. while
interest arrearages existed; and
(4) the following resulted:
(a) the home equity loan borrower entered into a permanent loan
modification with a Wells Fargo entity that included interest arrearages;
or
(b) the home equity loan borrower entered into any other agreement with
a Wells Fargo entity wherein the borrower made three or more payments,
with each such payment less than the payments required by the original
home equity loan; or
(c) the home equity loan borrower was foreclosed on by Wells Fargo
Bank, N.A., or its predecessor Wells Fargo Home Mortgage, Inc., or
HSBC Bank USA National Association, As Trustee for Wells Fargo
Home Equity Trust 2004-2, during the pendency of any loan modification
evaluation or review process.
96. This action is properly brought as a class action for the following reasons:
a. the proposed class is so numerous that the joinder of all class members is
impracticable. While Plaintiffs do not know the exact number and identity of
all class members, Plaintiffs believe that there are thousands of class
discovery, which will include Defendants' loan servicing and other business
records;
b. There are questions of law or fact common to the class. Such common
if that meant that borrowers could not become current on their loans
denied a modification.
Practices Act;
c. The claims or defenses of the representative parties are typical of the claims
or defenses of the class. Plaintiffs and all class members have been injured by
the same wrongful practices of Defendants. Plaintiffs' claims arise from the
same practices and conduct that give rise to the claims of all class members
d. The representative parties will fairly and adequately protect the interests of
the class in that they have no interests antagonistic to those of the other
e. A class action is superior to other available methods for the fair and efficient
i. Given the size of individual proposed class member's claims and the
removed that suit from state court to federal court and are expected to
representative suit for the proposed class for purposes of litigating the
be insured; and
as a class action.
f. Defendants have, or have access to, address information for the Class
members, which may be used for the purpose of providing notice of the
g. Plaintiffs seek damages and equitable relief on behalf of the proposed class
action will provide substantial benefits to both the parties and the Court.
interest in the questions of law or fact alleged herein since the rights of each
WHEREFORE, Plaintiffs pray this Court enter a judgment against Defendant that:
A. This action be certified and maintained as a class action under Rule 23 of the
Federal Rules of Civil Procedure and certify the proposed class as defined, appointing
Plaintiffs as representatives of the Class, and appointing the attorneys and law firms
C. Awards Plaintiffs and proposed class members the costs of this action, including
D. Orders Defendants to immediately cease the wrongful conduct set forth above;
information, and conduct business via the unlawful and unfair business acts and
campaign, and requires Defendants to refund to Plaintiffs and all of the class members
F. Awards equitable monetary relief, including restitution and disgorgement of all ill-
gotten gains, and the imposition of a constructive trust upon, or otherwise restricting the
proceeds of Defendants' ill-gotten gains, to ensure that Plaintiffs and proposed class
I. Such further legal and equitable relief as this Court may deem just and proper.
JURY DEMAND
David M. Gottfried
Texas Bar No. 08231200
The Law Office of David M. Gottfried, PC
1505 W. 6th Street
Austin, TX 78703
Tel. (512) 494-1481
Fax (512) 472-4013
CERTIFICATE OF SERVICE
I hereby certify that a true and correct copy of the foregoing was served as
indicated on this 8th day of April, 2011, to the following:
via ECF and facsimile upon (512) 305-4800
B. David Foster
Locke Lord Bissell & Liddell LLP
100 Congress Avenue, Suite 300
Austin, Texas 78701