Bank Accurately Reported Mortgage as “Past Due” and “Delinquent” Despite Borrower’s Compliance with Forbearance Program

When a mortgage lender offers a borrower a forbearance plan—agreeing to accept lowered monthly payments in exchange for refraining from foreclosure—is it accurate for the lender to report that the borrower’s account is “past due” and “delinquent” even when the borrower complies with the plan? “Yes” was the Eleventh Circuit’s answer in Felts v. Wells Fargo Bank, N.A., 2018 WL 3130674 (11th Cir. June 27, 2018), which affirmed the district court’s grant of summary judgment in favor of Wells Fargo on claims brought under the Fair Credit Reporting Act (FCRA).

The plaintiff, Christina Felts, obtained a home mortgage loan from Fannie Mae that was serviced by Wells Fargo. As servicer, Wells Fargo was responsible for, among other things, reporting information to the consumer credit reporting agencies (“CRAs”) regarding Felts’s compliance with her payment obligations. After Felts lost her job and requested a revised payment plan, Felts enrolled in an unemployment forbearance program offered by Fannie Mae and administered by Wells Fargo. Under this plan, the terms of which were set out in a letter from Wells Fargo to Felts, Felts was required to make payments of $25.00 per month through the forbearance period.

The letter further provided 3 conditions that would apply during the forbearance period: (1) if the loan was already in foreclosure, the foreclosure proceedings would be placed on hold; (2) Wells Fargo would “report to the credit bureaus that you are paying under a partial payment agreement for your Wells Fargo Home Mortgage”; and (3) the regular mortgage payments would accrue during the course of the plan. With respect to the third condition, the letter further explained, “Even though your monthly forbearance plan payments are lower than your regular mortgage payments, the difference in the payment amounts accrues. We keep track of the total amount that accrues during the Plan period. The total accrued amount then becomes due and is your responsibility to pay after you complete the Plan, or when you become fully employed. When that happens, you can apply for payment assistance through a loan modification.”

Finally, the letter made clear that “[e]ven though you are participating in this Plan, you remain responsible for all other terms and conditions of your existing mortgage.”

Before she enrolled in the plan, Felts spoke with a with a Wells Fargo representative (in a recorded phone call), who explained that, after the plan ended, Wells Fargo would “take all that past due and they’ll just tack it on to the end of the loan.” In response to Felts’s question whether her payments would still be considered late, the representative responded, “Yes. Because it’s not the contractual payment.”

Felts was enrolled in the plan for a few months, during which time she timely made the $25 monthly payments. Eventually she found new employment; applied for and got a loan modification; made timely, full payments on the modified loan; and then sold the home, paying off the remaining balance.

But, when she attempted to purchase a new home later that month—and a loan officer obtained her credit report—Felts learned that Wells Fargo had reported to the CRAs that her mortgage was “past due” and “delinquent” throughout the time that she was in the forbearance plan. Felts filed multiple disputes with the CRAs, and, in response to these disputes, Wells Fargo did change the current status of the account to “paid in full,” but it did not change the delinquency information, instead continuing to report that the account was past due during the time that Felts was in the forbearance plan.

Felts ultimately was denied financing to purchase the new home and brought claims against Wells Fargo and the three major CRAs alleging various violations of the FCRA. Felts alleged that Wells Fargo failed to conduct a reasonable investigation in response to her disputes, as required under § 1681s-2(b) of the FCRA, resulting in the denial of financing for the new home and other related damages. After Felts settled with the CRAs, Felts and Wells Fargo filed cross-motions for summary judgment. The district court granted Wells Fargo’s motion for summary judgment and denied Felts’s motion. The court concluded that there was no genuine factual dispute as to the accuracy of the information Wells Fargo reported to the CRAs because there was no evidence of any factual inaccuracy or materially misleading representation.

The Eleventh Circuit agreed, in an opinion authored by Judge Eduardo Robreno of the U.S. District Court for the Eastern District of Pennsylvania and joined by Judges Tjoflat and Wilson. After outlining the requirements for a furnisher’s reasonable investigation under § 1681s-2(b), the court noted that, regardless of the furnisher’s investigation (or lack thereof), a plaintiff cannot prevail on a claim for failure to conduct a reasonable investigation “without demonstrating that had the furnisher conducted a reasonable investigation, the result would have been different; i.e., that the furnisher would have discovered that the information it reported was inaccurate or incomplete, triggering the furnisher’s obligation to correct the information.”

Here, the court concluded, there was no record evidence establishing that the information Wells Fargo reported to the CRAs about Felts’s account was inaccurate. The reduced payments that Felts made, although timely under the forbearance plan, were not the payments she was contractually required to make under her mortgage note, and it was therefore not inaccurate to report the note as “past due.”

The court rejected Felts’s contention that Wells Fargo inaccurately reported that (1) the “Scheduled Monthly Payment Amount” for the loan was $2,197.38 per month every month during the forbearance plan’s effective period and (2) Felts’s payments on the account for the Loan were “past due” and “delinquent” during that time. Felts based her argument on the text of the letter and telephone call with Wells Fargo, claiming that “it is undisputed that during the Forbearance Plan period, Felts was not required to pay $2,197.38.” Felts also argued that Wells Fargo was required to report the account differently during the forbearance period under guidelines promulgated by the Consumer Data Industry Association (“CDIA”).

As to the two allegedly inaccurate items, the court concluded that Felts’s argument “misconstrues Wells Fargo’s reporting obligation.” Specifically, Wells Fargo was required to furnish the CRAs with information about Felts’s payment status history with respect to only one account—the mortgage note; Wells Fargo was not required to furnish information to the CRAs regarding every agreement it formed with Felts—i.e., the forbearance agreement—unless that agreement legally modified the terms of the note. Because there was no evidence that the forbearance plan modified the note, the information Wells Fargo reported regarding Felts’s compliance with the terms of the note was not inaccurate.

The FCRA’s requirement of “maximum possible accuracy” from furnishers did not change this result. Wells Fargo was not “inaccurate” in ignoring its representations to Felts about the forbearance plan, because none of those representations identified any legal modification of the note. Indeed, the letter specifically confirmed that the plan did not satisfy the amounts “owed” under the note, and this was confirmed by the phone call during which the Wells Fargo representative stated that the payments would still show up as late because “it’s not the contractual payment.”

As to the CDIA guidelines, Wells Fargo admitted that its reporting did not comply with the requirement to report the scheduled monthly payment amount at the “new” amount under the forbearance plan. There was no evidence, however, that this would have changed the reporting of the account as “past due” and “delinquent.”

The court also distinguished a handful of out-of-circuit district-court cases relied upon by Felts. Notably, two of these cases involved a loan-modification agreement, which changes the legal terms of the loan, rather than a forbearance agreement, under which a lender simply agrees to temporarily refrain from exercising its rights under the loan.

Finally, the court rejected Felts’s alternative argument that, even if not technically inaccurate, Wells Fargo’s reporting was materially misleading. Noting that the forbearance agreement allowed Felts to stay in her home while making payments of less than 2% of the amount owed each month, the court noted that Wells Fargo’s reporting of her payments as timely could have made her report misleading to prospective lenders.

Stacey Mohr

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