SAN JOSE (CN) - A federal judge ruled on several motions from borrowers who wanted to opt out of a class action against Wachovia Mortgage, which paid $50 million to settle claims involving "Pick-a-Payment" mortgage loans.
Wachovia offered the loans from 2003 to 2008, letting borrowers make minimum payments for a limited time, under certain conditions.
But borrowers said they were not told that when a payment was insufficient to cover the interest, unpaid interest was tacked on to the loan balance, which increased. Borrowers said this "negative amortization" was not adequately disclosed to them.
They claim that Wachovia, a division of Wells Fargo Bank, violated state and federal laws.
Wachovia, which denied any wrongdoing, agreed to a $50 million settlement in February 2011.
But the settlement has not put the issue to rest. Several individual class members seek a court declaration granting them late opt-out status, freeing them to file separate lawsuits against Wachovia.
Dina Flotte, who got a pick-a-payment loan, claims she learned of the class action late. She claims in her motion that Wachovia told her she would have to opt out of the class action if she wanted to file her own lawsuit.
Flotte says she wasn't able to opt out in time - she even received a $178.04 check in settlement of the class action - and offered an explanation, primarily blaming Wachovia for her delay. But U.S. District Judge Jeremy Fogel didn't buy it.
"The court concludes that Flotte has not demonstrated that the relief she requests is warranted," Fogel ruled. "Defendants would be prejudiced by having to defend a state law UCL [Unfair Competition Law] claim that they reasonably believed had been settled."
Fogel added that while Flotte offered an explanation for her delay in seeking an opt-out, her explanation "is contradicted by credible evidence submitted by defendants." "It appears that Flotte has remained in her home for more than four years without making any mortgage payments whatsoever, and that when she was offered a loan modification almost two years ago, she failed to accept it. Based upon this record, Flotte's request for a late opt out will be denied."
Like Flotte, borrower Nick John Makreas said he did not make the opt-out list, but that it wasn't his fault.
Fogel found his situation more acceptable and granted Makreas' motion for a late opt-out.
Wachovia filed six motions for enforcement of the settlement, all of them involving late opt-out motions by borrowers. Fogel granted two, denied another and made recommendations for further actions on two others.
Wachovia's sixth motion involves attorney Catherine Czyz and the judicial foreclosure of her property. She cites counterclaims based on Truth in Lending Act violations and other violations connected to her pick-a-payment loan.
Czyz, who filed pro se, sought to quash Service of Process, saying she wasn't "properly served with the instant motion to enforce settlement, that this court lacks personal jurisdiction over her and that she opted out of the settlement agreement."
Fogel found Czyz credible and her explanations reasonable, stating that "the court is inclined to permit Czyz to opt out of the class action settlement. She represents that she did not receive notice of the action until she received the settlement check for $178.04 at the end of October 2011."
Fogel found that a declaration by a Wachovia witness could not establish that Czyz received a notice of settlement.
Finally, Fogel denied Thomas Worthington's motion to enforce settlement. Worthington claimed he was entitled to a loan modification under the settlement agreement.
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