Wells Fargo has come under a fresh wave of public scrutiny over allegations that the largest mortgage servicer developed an in-house, how-to manual for producing bogus documents to justify foreclosures.

Bankruptcy attorney Linda Tirelli has unearthed a 150-page document that she says outlines "a step-by-step procedure" for Wells Fargo's lawyers to request retroactive documentation that another lender has signed over a loan to the bank. Such documentation, known as an endorsement, is needed to prove that Wells Fargo now owns the loan and has the right to foreclose on the borrower.

Wells denies wrongdoing. "Wells Fargo's foreclosure processes — today and back in 2012 — are appropriate, legal and customer focused," says spokeswoman Vickee Adams. The manual "provides guidelines for outside attorneys to be compliant with state and regulatory requirements."

Tirelli and other consumer advocates who have reviewed the document say it shows Wells has been fabricating evidence of ownership. While borrowers have been challenging foreclosures on the basis of faulty documents for several years since the housing crash, the Wells Fargo manual provides a rare window onto a lender's procedures for foreclosure when papers are missing.

"This is the first internal document that has a blueprint for how to commit the fraud," Tirelli says. "It's fraud because Wells Fargo is endorsing the note on behalf of another party."

Tirelli included a copy of the manual — which Wells says it believes to be genuine — as evidence in a lawsuit filed on behalf of a homeowner in bankruptcy in New York’s Southern District court in White Plains. The lender used the manual as recently as February 2012 — nearly two years after the industry "robo-signing" scandal broke — according to Tirelli.

Banks use endorsements to verify that the right to a promissory note — which identifies the amount of the loan and terms of repayment — has been legally transferred to a new lender. The procedures outlined in the manual suggest that Wells is in the business of producing on-the-spot, "ta-da!" endorsements in order to facilitate foreclosures, according to Tirelli.

"In my two cases (and hundreds of cases over the years), we have a filing from Wells Fargo where the note has no endorsement," Tirelli says. "I write to ask why and then magically, there is a new and improved copy with an endorsement."

Wells' attorneys are instructed to enter a code in order to receive an endorsement on page 17 of the manual, a copy of which was obtained by a reporter. The same page also outlines steps for the attorneys and Wells' default documents team to obtain an allonge — an attachment to a note showing the chain of endorsements.

The instructions indicate that "before requesting an allonge, the attorney would have to first determine whether or not [Wells Fargo] has authority to execute the allonge," Tirelli says. "But there is no such requirement [in the manual] for the endorsement of notes, which seems to indicate that they will endorse the note itself even if they don't have the authority to do so."

Wells Fargo spokesman Tom Goyda says the manual "has been updated more than 30 times" since February 2012 to keep pace with new regulations.

"Team members carefully review any endorsements required to initiate foreclosures," Goyda says. "The procedure manual ….includes only the information the attorneys need to know, not all the details of Wells' internal procedures and check points to make sure that endorsement procedures are done properly."

During the housing boom, so many loans changed hands in the frenzy to securitize that lenders often lost, or failed to create, documentation of transfers in ownership. Complicating matters, many originating lenders went bust.

The robo-signing scandal, which rocked the mortgage industry in 2010, gives reason to doubt the thoroughness of Wells' internal reviews, according to Jim Kowalski, a lawyer in Jacksonville, Fla., who represents consumers. Before the nation's five largest servicers, including Wells, agreed to reform their foreclosure practices as part of a $25 billion settlement in February 2012, regulators found "a high number of procedural mistakes," Kowalski notes.

"It's always important to pay attention to the paperwork," Kowalski says. "If you're faking an assignment, chances are you're also the servicer that lost the payment, rejected a cashier's check, or force-placed insurance on a house in a flood zone that was never in a flood zone. Paperwork and technical problems are substantive problems that are still plaguing a healthy return to the housing market."

Banking attorney Larry Platt at K&L Gates says lenders are allowed to endorse notes after filing for foreclosure under the Uniform Commercial Code, a guideline that is "substantially" the same across all states.

"Article Three provides that you can transfer interest and notes, either by endorsing the note in blank or by completing the endorsement," Platt says. "Both are effective to transfer the right of the endorsement."

Platt says there is "nothing inappropriate" about a lender filling in a blank endorsement after the fact, although it can raise ethical questions. Massachusetts law bars lenders from completing endorsements after they have filed for foreclosure.

Another consumer bankruptcy attorney, O. Max Gardner, says the manual is proof of deficiencies in Wells' documentation process.

"This manual provides a 'road map' for the attorneys retained by Wells Fargo of how to create and manufacture these fake forms," Gardner says in an email. "And, of course, the fundamental legal and ethical problem arises out of the institutional mandate by Wells Fargo to implement these indorsement practices with respect to mortgage notes that were originated, sold and securitized many years ago without all of the indorsements as required by the respective trust agreements."

The allegations against Wells Fargo were initially reported by the New York Post.


Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.