An 11th-hour settlement is expected to stave off potential class action status in a lawsuit that claims foreclosed borrowers were overcharged for attorneys’ fees that the Mortgage Electronic Registration Systems Inc. did not actually incur.

The plaintiffs, Jose and Lorry Trevino, filed a motion seeking class action status and an amended complaint on Jan. 12. The defendants had until Jan. 17 to respond, but received a two-week extension, “so that the parties can memorialize their settlement,” according to court documents filed Jan. 13.

The parties have agreed to terms, but the settlement is pending final paperwork. The case hasn’t been dismissed and likely won’t until the settlement is finalized.

The suit, originally filed in 2007, names Merscorp and a number of its shareholders, including Citigroup, Countrywide, Fannie Mae, Freddie Mac, GMAC Residential Funding, HSBC, JPMorgan Chase, Washington Mutual and Wells Fargo.

The shareholder defendants were dismissed from the case in 2008, though they were renamed in the recent amended complaint. Representatives from the companies declined to comment about the case.

Janis Smith, Merscorp vice president of corporate communications, said the parties resolved the case, but declined to provide additional details, citing the settlement’s confidentiality agreement.

The lawsuit claims foreclosed borrowers were overcharged for attorneys’ fees and other expenses that were not actually incurred during the foreclosure process.

“MERS has extracted and continues to extract improper costs, fees and expenses from Plaintiffs and members of the Class in excess of sums they actually incurred and/or were obligated to pay,” the complaint reads.

By seeking class action status, the plaintiffs in the case would have been expanded to include all foreclosed borrowers since Sept. 20, 2001 whose mortgages or deeds of trust were assigned to MERS and who received a demand to pay expenses in excess of what MERS and its member servicers actually paid.

Mortgage documents authorize note holders to be reimbursed for their expenses when a loan goes into foreclosure. But since MERS and the servicers have prearranged set fees with foreclosure attorneys, those costs are limited, the plaintiffs argue. The suit claims MERS has a flat-fee arrangement of $400 to $500 per foreclosure, but that attorneys are sending demands for payment ranging from $1,200 to $2,000 “and upwards.”

“A demand for payment of fees and expenses that exceed actually incurred or obligated amounts, represents a clear breach of contract under the laws of the various states in which MERS operates,” the complaint reads.

The lawsuit claims breach of contract, unjust enrichment, and breach of duty of good faith and fair dealing.

“Defendants breached the agreement with Plaintiffs and the other members of the Class by causing, directing and/or allowing their loan servicers and retained attorneys to overcharge for costs, fees and expenses in connection with enforcement or foreclosure proceedings, in an amount in excess of the amounts actually incurred or obligated to be paid,” it reads.

According to court documents, the Trevinos borrowed a $194,000 Veterans Administration-backed mortgage in 2003 and subsequently defaulted, causing Wells Fargo to initiate a foreclosure on the property.

The complaint seeks to recover the alleged excessive expenses, but does not specify how much the Trevinos were allegedly overcharged, nor does it provide an estimate of the number of potential members in the class and how much they were allegedly overcharged.

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