Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-4_17-cv-02092/USCOURTS-cand-4_17-cv-02092-14/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332 Diversity-Breach of Contract

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ROBINS 

KAPLAN LLP

ATTORNEYS 

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ROBINS KAPLAN LLP

Michael F. Ram (SBN 104805)

mram@robinskaplan.com

Susan S. Brown (SBN #287986)

sbrown@robinskaplan.com

2440 West El Camino Real, Suite 100

Mountain View, CA 94040

Telephone: 650 784 4040

Facsimile: 650 784 4041

EPPS, HOLLOWAY, DELOACH &

HOIPKEMIER, LLC

Kevin E. Epps (appearing pro hac vice)

kevin@ehdhlaw.com

Adam L. Hoipkemier (appearing pro hac vice)

adam@ehdhlaw.com

1220 Langford Drive, Bldg. 200

Watkinsville, GA 30677

Attorneys for Plaintiff Vana Fowler

MCGUIREWOODS LLP

DAVID S. REIDY SBN #225904

Two Embarcadero Center

Suite 1300

San Francisco, CA 94111-3821

Telephone: (415) 844-9944

Facsimile: (415) 844-9922

K. Issac deVyver (appearing pro hac vice)

Karla L. Johnson (appearing pro hac vice)

Tower Two-Sixty

260 Forbes Avenue, Suite 1800

Pittsburgh, PA 15222-3142

Telephone: (412) 667-6000

Facsimile: (412) 667-6050

Sara F. Holladay-Tobias (appearing pro hac vice)

50 North Laura Street, Suite 3300

Jacksonville, FL 32202

Telephone: (904) 798-3200

Facsimile: (904) 798-3207

Attorneys for Defendant

Wells Fargo Bank, N.A.

Case 4:17-cv-02092-HSG Document 79 Filed 06/28/18 Page 1 of 23
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UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

OAKLAND DIVISION

VANA FOWLER, individually and on 

behalf of all others similarly situated

Plaintiff,

v.

WELLS FARGO BANK, N.A.,

Defendant.

Case No. 4:17-cv-02092-HSG

JOINT STIPULATION TO 

CONDITIONALLY AMEND THE 

COMPLAINT FOR SETTLEMENT 

PURPOSES 

HON. HAYWOOD S. GILLIAM

DATE: May 31, 2018

TIME: 2:00 p.m.

LOCATION: Courtroom 2 

STIPULATION

WHEREAS, the Complaint filed by Plaintiff Vana Fowler on March 9, 2017 is the operative 

complaint; 

WHEREAS, the Complaint originally alleged causes of action for violation of California 

Business and Professions Code § 17200 et seq. and a California class;

WHEREAS, Wells Fargo moved to dismiss the Complaint; 

WHEREAS, the Court granted in part and denied in part Wells Fargo’s motion;

WHEREAS, counsel for Plaintiff also represent Michael Peters with respect to claims 

against Wells Fargo on behalf of a putative nationwide class (ex-California) related to the collection 

of post-payment interest, which are currently pending in the Southern District of Texas (Michael 

Peters, et al. v. Wells Fargo Bank, N.A., Civil Action No. 4:18-cv-00136); 

WHEREAS, the Parties engaged in a day-long mediation on January 15, 2018, before the 

Hon. Daniel Weinstein (Ret.) of JAMS;

WHEREAS, the Parties reached a nationwide settlement which they are presenting 

concurrently with the submission of this Joint Stipulation to Conditionally Amend the Complaint 

for Settlement Purposes (“Joint Stipulation”);

 , JR.

Case 4:17-cv-02092-HSG Document 79 Filed 06/28/18 Page 2 of 23
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NOW THEREFORE, the Parties have agreed to stipulate to the filing of an amended 

complaint pursuant to Federal Rule 15(a)(2), subject to the Court’s approval, as follows:

1. Upon entry of the Order granting this Joint Stipulation, Plaintiff be permitted to 

amend her Complaint to conform to the terms of the proposed settlement as follows: (1) add 

Michael Peters as a plaintiff pursuant to Federal Rules 15 and 24; (2) allege a cause of action for 

breach of contract; and (3) amend the class definition to allege a nationwide class.

2. Upon the entry of the Order granting this Joint Stipulation, the First Amended 

Complaint attached as Exhibit A shall be deemed filed and served. Defendant’s previously filed 

Answer to Plaintiff’s Complaint shall be deemed as Defendant’s Answer to Plaintiff’s First 

Amended Complaint.

3. This agreement shall remain in effect only if the settlement becomes final, which 

means that neither party has voided the settlement, the settlement is approved by the Court, and the 

judgment becomes final, in that all dates for appeal have passed and no successful appeal 

challenging the judgment has occurred. If, for some reason, the settlement does not become final, 

then this agreement and this amendment to the complaint shall be deemed null and void, the 

operative complaint in this action shall be the Complaint, and the Parties shall be returned to their 

status as of the date of this filing without prejudice to any claim, right, or defense. 

IT IS SO STIPULATED.

/s/ Adam L. Hoipkemier______________ /s/ K. Issac deVyver

Adam L. Hoipkemier

Epps Holloway DeLoach 

& Hoipkemier LLP

1220 Langford Drive

Watkinsville, Georgia 30677

Michael F. Ram

Susan S. Brown

Robins Kaplan LLP

2440 W. El Camino Real, Suite 100

Mountainview, CA 94040

Counsel for Plaintiff Vana Fowler

K. Issac deVyver 

McGuireWoods LLP

Tower Two-Sixty

260 Forbes Avenue, Suite 1800

Pittsburgh, PA 15222-3142

Counsel for Defendant Wells Fargo Bank, N.A.

Case 4:17-cv-02092-HSG Document 79 Filed 06/28/18 Page 3 of 23
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PURSUANT TO STIPULATION, IT IS SO ORDERED.

Dated: 

Honorable Haywood S. Gilliam, Jr.

United States District Judge

6/28/2018 o

 except counsel for Plaintiff is 

 

ordered to e-file the amended complaint on the docket.

Case 4:17-cv-02092-HSG Document 79 Filed 06/28/18 Page 4 of 23
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Robins Kaplan LLP 

Michael F. Ram (SBN 104805)

mram@robinskaplan.com

Susan S. Brown (SBN #287986)

sbrown@robinskaplan.com

2440 West El Camino Real, Suite 100

Mountain View, CA 94040

Telephone: 650 784 4040

Facsimile: 650 784 4041

Adam L. Hoipkemier [Admitted Pro Hac Vice]

adam@ehdhlaw.com

Kevin E. Epps [Admitted Pro Hac Vice]

kevin@ehdhlaw.com

EPPS, HOLLOWAY, DELOACH &

HOIPKEMIER, LLC

1220 Langford Drive, Bldg. 200 

Watkinsville, GA 30677

Turke & Strauss LLP

Samuel Strauss [Admitted Pro Hac Vice]

sam@turkestrauss.com

613 Williamson Street, Suite 209

Madison, Wisconsin 53703-3515

Telephone: 608 237 1774

Facsimile: 608 509-4423

Attorneys for Plaintiffs and Proposed Class 

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF CALIFORNIA

SAN FRANCISCO DIVISION

VANA FOWLER and MICHAEL 

PETERS,

Plaintiffs,

v.

WELLS FARGO BANK, N.A.,

Defendant.

Case No. 4:17-CV-02092-HSG

FIRST AMENDED COMPLAINT

Case 4:17-cv-02092-HSG Document 79 Filed 06/28/18 Page 5 of 23
i

CLASS ACTION COMPLAINT 

Case No. 4:17-CV-02092-HSG

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TABLE OF CONTENTS

Summary......................................................................................................................................... 1

Parties.............................................................................................................................................. 2

Jurisdiction...................................................................................................................................... 2

Fact Allegations.............................................................................................................................. 3

A. Borrowers Pay for and the FHA Supplies Mortgage Insurance To Lenders. ......... 3

B. The FHA Prohibits Lenders from Collecting Post-Payment Interest on 

FHA-Insured Loans, Unless They First Provide A FHA-Approved 

Disclosure Form...................................................................................................... 3

C. Lenders Have Collected Billions Of Dollars In Post-Payment Interest On 

FHA-Insured Loans. ............................................................................................... 7

D. Wells Fargo Did Not Provide An FHA-Approved Form To Plaintiffs

Before Collecting Post-Payment Interest.............................................................. 10

Class Action Allegations............................................................................................................... 13

FIRST CAUSE OF ACTION (Breach of Contract) ..................................................................... 15

Relief Requested ........................................................................................................................... 16

Case 4:17-cv-02092-HSG Document 79 Filed 06/28/18 Page 6 of 23
CLASS ACTION COMPLAINT 

Case No. 4:17-CV-02092-HSG

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Summary

1. Defendant Wells Fargo Bank, N.A. has a systematic practice of collecting “postpayment” interest on loans insured by the Federal Housing Administration without first complying 

with the uniform provisions of the promissory notes and the regulations governing these loans. As 

a result, Wells Fargo has collected tens of millions of dollars in post-payment interest from 

Californians in breach of contract, and through this class action, Plaintiffs seeks to recover 

damages for those Class members injured by Wells Fargo.

2. Post-payment interest refers to interest that a lender collects after the borrower has 

paid the full unpaid principal of the loan. For example, if a borrower pays off the loan in full on 

August 5, and the lender continues collecting interest for the remainder of August, the interest 

collected after August 5 is post-payment interest.

3. A promissory note governs the contractual relationship between borrowers and 

lenders, and lenders issuing FHA-insured loans must include certain uniform provisions in the 

notes for these loans. Among other things, the uniform provisions provide that the lender may 

collect post-payment interest for the remainder of the month in which full payment is made, but 

only “to the extent . . . permitted by [FHA] regulations.” Multistate – FHA Fixed Rate Note, 

USFHA.NTE.

4. HUD regulations prohibit lenders from collecting post-payment interest unless two 

strict conditions are met: (a) the borrower makes payment of the full unpaid principal on a day 

“other than [the first of the month]” and (b) the lender must provide the borrower with “a form 

approved by the [FHA].” 24 C.F.R. § 203.558 (c) (2014) (emphasis added).

5. HUD requires use of its approved form because the form explains to borrowers, at 

the appropriate time, that the lender is seeking to collect post-payment interest, the terms under 

which the lender can collect post-payment interest, and how they can avoid such charges. See 

HUD Housing Handbook, Administration of Insured Home Mortgages, 4330.1 REV-5 Appendix

8 (C).

6. Although the uniform provisions of the note, HUD handbooks, and HUD

regulations prohibit lenders from collecting post-payment interest unless they provide borrowers 

with a HUD-approved form, Wells Fargo does not use the approved form attached to HUD 

Handbook 4330.1 or the “Payoff Procedure Disclosure Form” hyperlinked in HUD Handbook 

4000.1. Instead, Wells Fargo uses its own unauthorized form, which is not approved by HUD and 

Case 4:17-cv-02092-HSG Document 79 Filed 06/28/18 Page 7 of 23
CLASS ACTION COMPLAINT 

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does not fairly disclose the terms under which Wells Fargo can collect post-payment interest or 

properly explain how borrowers can avoid such charges.

7. Because Wells Fargo does not use a HUD-approved form as required by both the 

uniform provisions of the note, the HUD Handbooks and HUD regulations, Wells Fargo has no 

right to collect post-payment interest from borrowers. Yet, Wells Fargo has collected tens of 

millions of dollars in post-payment interest from Plaintiffs and the nationwide class of borrowers 

of FHA-insured loans to which it was not entitled. Through this class action, Plaintiffs seek to 

recover the overcharged interest for themselves and Class members.

Parties

8. Plaintiff Vana Fowler is a citizen of California, residing in Victorville, California. 

In November 2013, Fowler paid off an FHA-insured loan held by Defendant Wells Fargo Bank, 

N.A.

9. Plaintiff Michael Peters is a citizen of Texas, residing in Montgomery, Texas. In 

February 2017, Plaintiff Peters paid off an FHA-insured loan held by Defendant Wells Fargo Bank, 

N.A.

10. Defendant Wells Fargo Bank, N.A. is a national banking association. Wells Fargo 

held FHA-insured loans for Plaintiffs and other Class members. These loans have been paid off 

in full.

11. Wells Fargo’s Articles of Association state that its main office shall be in Sioux 

Falls, South Dakota. Thus, Wells Fargo is a citizen of South Dakota. See 28 U.S.C. § 1348.

Jurisdiction

12. This Court has subject matter jurisdiction over this class action. Plaintiffs are

citizens of States different from Wells Fargo, and so are many other Class members. See 28 U.S.C. 

§ 1332 (d)(2). And the claims of the Class in the aggregate exceed the minimally required amount 

in controversy. See 28 U.S.C. § 1332 (d)(6). In fact, the amount in controversy involves tens of 

millions of dollars.

13. This Court has personal jurisdiction over Wells Fargo. Among other things, Wells 

Fargo is registered to and does conduct business in California, holds mortgages on real property 

in California, has breached contracts with persons located in California, has caused injuries in 

California, and generally engages in substantial activity in California.

14. This Court is also a proper venue for this action. Wells Fargo is subject to personal 

Case 4:17-cv-02092-HSG Document 79 Filed 06/28/18 Page 8 of 23
CLASS ACTION COMPLAINT 

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jurisdiction in the Northern District of California, which “[f]or purposes of venue,” means that 

Wells Fargo resides in this judicial district. 28 U.S.C. § 1391 (b)(1), (c).

Fact Allegations

A. Borrowers Pay for and the FHA Supplies Mortgage Insurance To Lenders.

15. The Department of Housing and Urban Development is a department within the 

executive branch of the United States government. HUD was established in 1965 by the 

Department of Housing and Urban Development Act. See 42 U.S.C. § 3532. The Federal Housing 

Administration was established in 1934 by the National Housing Act of 1934. See 12 U.S.C. § 

1701. When HUD was created, Congress re-organized the FHA as an agency within HUD.

16. Among other things, the FHA provides mortgage insurance to FHA-approved 

lenders for loans on single-family homes. See U.S. Dep’t of Housing and Urban Devt., 

http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/fhahistory. The FHA is the 

largest insurer of mortgages in the world, currently insuring approximately 4.8 million single 

family homes. Id.

17. Mortgage insurance protects lenders against losses that are caused by borrower

defaults. The lenders bear less risk on FHA-insured loans because the FHA will pay lenders in the 

event of a borrower default. Id. In exchange for FHA mortgage insurance, borrowers pay an 

upfront mortgage insurance premium and also make monthly premium payments.

18. To be eligible to receive FHA mortgage insurance, lenders must be pre-approved 

by the FHA. Lenders must also comply with FHA regulations, including but not limited to the 

regulations contained in Title 24, Subtitle B, Chapter II, Subpart B, Part 203 of the Code of Federal 

Regulations. Among other things, FHA regulations require that, for any FHA-insured loan, the 

lender must include certain uniform provisions in every promissory note. As a result, each of the 

approximately 4.8 million FHA-insured loans is documented by a promissory note containing 

certain uniform provisions.

B. The FHA Prohibits Lenders from Collecting Post-Payment Interest on FHAInsured Loans, Unless They First Provide A FHA-Approved Disclosure Form.

19. One uniform provision lenders must include in the promissory note for every FHAinsured loan addresses the borrower’s promise to pay interest for unpaid principal:

2. BORROWER’S PROMISE TO PAY; INTEREST

In return for a loan received from Lender, Borrower promises to pay the 

principal sum of ____________ Dollars (U.S. $ _________), plus interest, to the 

Case 4:17-cv-02092-HSG Document 79 Filed 06/28/18 Page 9 of 23
CLASS ACTION COMPLAINT 

Case No. 4:17-CV-02092-HSG

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order of Lender. Interest will be charged on unpaid principal, from the date of 

disbursement of the loan proceeds by Lender, at the rate of ____________ percent 

( ___________ %) per year until the full amount of the principal has been paid.

Multistate – FHA Fixed Rate Note, USFHA.NTE at 1 (emphasis added).

20. Under this provision, the borrower agrees to pay interest only on the unpaid 

principal, and once the borrower pays the full unpaid principal, interest no longer accrues. This 

makes sense because, by definition, interest is calculated from the amount of the outstanding 

principal loaned by the lender to the borrower.

21. In fact, when lenders issue loans backed by Fannie Mae, Freddie Mac, and the 

Veterans Administration, interest charges stop on the day the borrower pays the full unpaid 

principal of the loan, and the lender cannot collect any post-payment interest.

22. However, for nearly thirty years, the FHA maintained a policy different from the 

other government agencies. For mortgages insured by the FHA on or after August 2, 1985 and 

through January 20, 2015, the FHA allows lenders, subject to strict limitations, to collect interest

even after the borrower has paid the full amount of the unpaid principal.

23. This type of interest is often referred to as “post-payment” interest. Post-payment 

interest is interest that a lender collects even after the borrower has paid the full unpaid principal. 

It is also considered a “penalty” because, at that point, the borrower owes the lender nothing; the 

full unpaid principal has been paid, and the lender has all the money it was owed. The lender is 

penalizing the borrower for paying the loan before the maturity date.

24. Although HUD permits lenders to collect post-payment interest, it has imposed 

strict limitations on the lender’s ability to do so. HUD prohibits lenders from collecting postpayment interest unless the lender complies with HUD regulations. And HUD regulations require 

the lender to provide the borrower with a disclosure form approved by HUD.

25. The limitations on post-payment interest are reflected in a uniform provision of 

the note, which again must be included in the note for every FHA-insured loan:

5. BORROWER’S RIGHT TO PREPAY

Borrower has the right to pay the debt evidenced by this Note, in whole 

or in part, without charge or penalty, on the first day of any month. Lender 

shall accept prepayment on other days provided that Borrower pays interest on 

the amount prepaid for the remainder of the month to the extent required by 

Lender and permitted by regulations of the Secretary. If Borrower makes a 

partial prepayment, there will be no changes in the due date or in the amount of the 

Case 4:17-cv-02092-HSG Document 79 Filed 06/28/18 Page 10 of 23
CLASS ACTION COMPLAINT 

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monthly payment unless Lender agrees in writing to those changes.

Multistate – FHA Fixed Rate Note, USFHA.NTE (emphasis altered) at 2.1

26. Under this provision, the borrower has the right to prepay the full unpaid principal 

without charge or penalty on the first of the month. The borrower also has the right to prepay the 

full unpaid principal on days other than the first; provided however that, in such cases, the lender 

can collect post-payment interest for the remainder of that month if the lender complies with

FHA regulations.

27. The relevant FHA regulation is titled “Handling Prepayments” and provides that:

(a) Notwithstanding the terms of the mortgage, the [lender] may accept a 

prepayment at any time and in any amount. Except as set out below, monthly 

interest on the debt must be calculated on the actual unpaid principal balance

of the loan.

. . . 

(c) If the prepayment is offered on other than an installment due date [the 

first of the month], the [lender] may refuse to accept the prepayment until the next 

installment due date (the first day of the month), or may require payment of interest 

to that date, but only if the [lender] so advises the [borrower], in a form 

approved by the Commissioner, in response to the [borrower’s] inquiry, request 

for payoff figures, or tender of prepayment.

. . .

(e) If the [lender] fails to meet the full disclosure requirements of 

paragraphs (b) and (c) of this section, the [lender] may be subject to forfeiture 

of that portion of interest collected for the period beyond the date that prepayment 

in full was received and to such other actions as are provided in part 25 of this title.

24 C.F.R. § 203.558 (2014) (emphasis added).

28. Under this regulation, if payment of the full unpaid principal is made on a day other 

than the first of the month, and the lender provides the borrower the FHA-approved form, then, 

and only then, can the lender collect post-payment interest for the remainder of the month in which 

payment of the full unpaid principal was made.

29. For the convenience of lenders, for mortgages insured on or after August 2, 1985 

and through January 20, 2015, HUD provided an approved form as Appendix 8 (C) to the HUD 

Housing Handbook:

 

1 Plaintiff’s note is a fixed rate note, and for FHA fixed rate notes, the uniform provision regarding 

the borrower’s right to prepay is located at section 5. For FHA adjustable rate notes, the same 

uniform provision regarding the borrower’s right to prepay is located at section 6. There is no 

difference in the relevant language.

Case 4:17-cv-02092-HSG Document 79 Filed 06/28/18 Page 11 of 23
CLASS ACTION COMPLAINT 

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MORTGAGEE NOTICE TO MORTGAGOR

(In response to prepayment inquiry, request for payoff or tender of prepayment in 

full)

Mortgagor: ___________________ Date: __________________

Address: _____________________ Loan #: ________________

_____________________________ FHA#: _________________

This is in reply to your ______(date)______ inquiry/request for payoff 

figures or offer to tender an amount to prepay in full your FHA-insured mortgage 

which this company is servicing.

This notice is to advise you of the procedure which will be followed to 

accomplish a full prepayment of your mortgage.

The ________(mortgagee name)_________ will:

(a) [ ] accept the full prepayment amount whenever it is paid and 

collect interest only to the date of that payment; or

(b) [ ] only accept the prepayment on the first day of any month 

during the mortgage term; or accept the prepayment whenever 

tendered with interest paid to the first day of the month following 

the date prepayment is received[.]

NOTE: It is to your advantage to arrange closings so that the 

prepayment reaches us on or before (as close to the end of the month as 

possible) the first work day of the month.

If you have any questions regarding this notice, please contact 

____(name and/or department) ___at___(telephone number)___.

_________________

Mortgagee

Attachment (Pay off Statement)

HUD Housing Handbook, 4330.1 REV-5 Appendix 8 (C) at 1-2.

30. As HUD explains, “[t]he basic disclosure language is necessary because it pertains 

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to the [borrower’s] rights under the mortgage.” HUD Housing Handbook, Administration of 

Insured Home Mortgages, 4330.1 REV-5, Chapter 5-1 (C), at 2 (emphasis added).

31. HUD also confirms that the lender “must disclose the procedures that must be 

followed with respect to the payoff and must explain how the amount of the prepayment has been 

determined. Otherwise, the [lender] must forfeit any interest collected after the date of 

prepayment.” Id. at 6. (emphasis added)

32. In May 2016, HUD Handbook 4000.1 went into effect, and reiterates the

requirement that lenders must provide borrowers with an approved disclosure as a condition to 

charging post-payment interest.

33. For example, Handbook 4000.1 states that, “[w]hen notified of the Borrower’s intent 

to prepay a Mortgage, the Mortgagee must send to the Borrower directly the Payoff Disclosure and 

copy of the payoff statement.” The handbook also states “this option [i.e., post-payment interest] may 

only be used if the Mortgagee has provided the Payoff Disclosure to the Borrower.”

34. The Payoff Procedure Disclosure Form is found on HUD’s forms webpage which is 

hyperlinked in the handbook.

35. Likewise, a Frequently Asked Questions page linked from and accessible through 

the HUD website contains the question “Is there a current Payoff Procedure Disclosure for FHA 

Loans?”

36. The answer to the FAQ is: "Yes, in response to a prepayment inquiry, request for 

payoff, or tender of prepayment in full, mortgagees must use the Payoff Procedure Disclosure 

notice provided on the Single Family Mortgages Model Documents webpage at:

https://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/model_documents

The specific link is at: 

https://portal.hud.gov/hudportal/documents/huddoc?id=SFPayoffProcDisc.pdf”

37. In sum, pursuant to the uniform provisions of the note, HUD Handbooks, and HUD

regulations, lenders cannot collect post-payment interest on FHA-insured loans unless (a) the 

borrower pays the full unpaid principal on a day other than the first of the month and (b) the 

lender has provided the borrower the FHA-approved form. If the lender satisfies both of those 

requirements, only then can the lender collect post-payment interest for the remainder of the month

in which payment of the full unpaid principal was made.

C. Lenders Have Collected Billions Of Dollars In Post-Payment Interest On FHACase 4:17-cv-02092-HSG Document 79 Filed 06/28/18 Page 13 of 23
CLASS ACTION COMPLAINT 

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Insured Loans.

38. From August 2, 1985 through January 20, 2015, lenders including Wells Fargo have 

collected billions of dollars in post-payment interest.

39. The National Association of Realtors estimates that “more than 40 percent of FHA 

borrowers close during the first 10 days of the month, exposing them to at least 20 days of interest 

payments.” Kenneth R. Harney, Interest Costs Don’t End With Payoff Of FHA Loan, Chicago 

Tribune, Apr. 11, 2004, http://articles.chicagotribune.com/2004-04-

11/business/0404110057_1_fha-loan-ginnie-mae-fha-borrowers. The NAR further “estimate[s]

that during 2003, . . . FHA customers who terminated their loans paid an average of $528 in ‘excess 

interest fees,’ a cumulative ‘prepayment penalty’ to those borrowers of $587 million.” Id.

(emphasis added).

40. “HUD doesn’t get the interest, lenders do. In effect, lenders are getting interest 

for money that isn’t outstanding. This may not sound like a big deal, but according to HUD, 

such post-payment interest charges cost borrowers $449 million in 2012.” Peter Millar, The Very 

New Deal: How FHA Mortgages Are Changing For 2015, The Simple Dollar, Jan. 9, 2015, 

http://www.thesimpledollar.com/the-very-new-deal-how-fha-mortgages-are-changing-in-2015/

(emphasis added).

41. “This practice . . . has cost consumers staggering amounts, with estimates ranging 

into the hundreds of millions of dollars a year during periods when mortgage rates were high.” 

Kenneth R. Harney, FHA Will Stop Lenders From Charging Extra Interest When Homeowners 

Sell or Refinance, Washington Post, Sep. 5, 2014, 

https://www.washingtonpost.com/realestate/fha-will-stop-lenders-from-charging-extra-interestwhen-homeowners-sell-or-refinance/2014/09/04/478a2a04-32a6-11e4-8f02-

03c644b2d7d0_story.html (emphasis added).

42. “[T]he clear loser in the full-month interest policy is ‘the one who can least 

afford it, the consumer.” Harney, Chicago Tribune, Apr. 11, 2004 (emphasis added). 

“Hundreds of thousands of home sellers have had their pockets picked at closings during the 

past decade: They’ve been charged interest on their mortgages after their principal debts had been 

fully paid off.” Harney, Washington Post, Sep. 5, 2014 (emphasis added).

43. Meanwhile, “the true beneficiaries of the long-standing practice were [the 

lenders], who could earn interest on the ‘float’ – the money they collected from borrowers and had 

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free use of until the end of the month, when they had to disburse final interest payments to bond 

investors.” Kenneth R. Harney, Controversial FHA Payoff Rule to End, Los Angeles Times, Mar. 

30, 2014, http://articles.latimes.com/2014/mar/30/business/la-fi-harney-20140330 (emphasis 

added).

44. All of the relevant government agencies now agree that collecting post-payment

interest is an unfair prepayment penalty and is against public policy.

45. On August 26, 2009, the Board of Governors of the Federal Reserve System 

proposed a rule “to amend Regulation Z, which implements the Truth in Lending Act (TILA),”

which regulates prepayment penalties. 74 Fed. Reg. 43232, 43232 (Aug. 26, 2009). The Board 

stated that “[o]ne such example [of a prepayment penalty] is ‘interest charges for any period after 

prepayment in full is made.’ When the loan is prepaid in full, there is no balance to which the 

creditor may apply the interest rate.” Id. at 43257 (emphasis added).

46. On January 30, 2013, the Consumer Financial Protection Bureau issued a final 

version of its rule titled “Ability-to-Repay and Qualified Mortgage Standards under the Truth in 

Lending Act (Regulation Z).” See 78 Fed. Reg. 6408, 6408 (Jan. 30, 2013). Regulation Z broadly 

defines “prepayment penalty” as the “charge imposed for paying all or part of the transaction’s 

principal balance before the date on which the principal is due.” Id. at 6444.

47. This definition includes “charges resulting from FHA’s monthly interest accrual 

amortization method.” 79 Fed. Reg. 50835, 50835 (Aug. 26, 2014). As CFPB explains:

[I]t is appropriate to designate higher interest charges for consumers based on 

accrual methods that treat a loan balance as outstanding for a period of time after 

prepayment in full as prepayment penalties . . . . In such instances, the consumer 

submits a payment before it is due, but the creditor nonetheless charges 

interest on the portion of the principal that the creditor has already received. 

The Bureau believes that charging a consumer interest after the consumer has 

repaid the principal is the functional equivalent of a prepayment penalty.

78 Fed. Reg. 6408, 6445 (Jan. 30, 2013) (emphasis added).

48. Based on Regulation Z’s definition, charges for post-payment interest are now 

subject to the Truth in Lending Act. See 79 Fed. Reg. 50835, 50835 (Aug. 26, 2014); 75 Fed. Reg. 

58539, 58586 (Sep. 24, 2010) (“[T]he Board believes that the charging of interest for the remainder 

of the month in which prepayment in full is made should be treated as a prepayment penalty for 

TILA purposes, even when done pursuant to the monthly interest accrual amortization method.”).

49. In response to those changes by FRB and CFPB, on March 13, 2014, “HUD 

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published a proposed rule in the Federal Register, at 79 FR 14200, to eliminate post-payment 

interest charges to borrowers resulting from FHA’s monthly interest accrual amortization method 

for calculating interest.” 79 Fed. Reg. 50835, 50835. And, on August 26, 2014, HUD issued a 

final version of its rule titled “Federal Housing Administration (FHA): Handling Prepayments: 

Eliminating Post-Payment Interest Charges.” Id.

50. Under the new regulation, “[w]ith respect to FHA-insured mortgages closed on or 

after January 21, 2015, notwithstanding the terms of the mortgage, the [lender] shall accept a 

prepayment at any time and in any amount.” 24 C.F.R. § 203.558 (a). “Monthly interest on the 

debt must be calculated on the actual unpaid principal balance of the loan as of the date the 

prepayment is received, and not as of the next installment due date.” Id.

51. Although CFPB, FRB, and HUD have now all prohibited post-payment interest 

charges for FHA-insured mortgages closed on or after January 21, 2015, they did not make this 

change retroactive. “[T]he estimated 7.8 million existing FHA mortgage borrowers who are not 

covered by the forthcoming policy change will continue to be vulnerable to paying more than 

they should.” Harney, Los Angeles Times, Mar. 30, 2014 (emphasis added).

D. Wells Fargo Did Not Provide An FHA-Approved Form To Plaintiffs Before 

Collecting Post-Payment Interest.

52. Wells Fargo was the holder of Plaintiff Fowler’s loan secured by her home in 

Victorville, California. Plaintiff Fowler’s loan was insured by the FHA, and so Wells Fargo is 

required to comply with the HUD Handbook and HUD regulations with respect to her loan.

53. Pursuant to HUD regulations, Plaintiff Fowler’s promissory note contains certain 

uniform provisions found in the note for every FHA-insured loan. These uniform provisions 

include, among others, section 2 titled “Borrower’s Promise to Pay; Interest” and section 5 titled 

“Borrower’s Right to Prepay.” See Multistate – FHA Fixed Rate Note, USFHA.NTE, at 1-2.

/ / /

54. In 2013, Plaintiff Fowler refinanced her home. So that she could pay off her loan

with Wells Fargo, Plaintiff Fowler requested that Wells Fargo provide her with a payoff statement.

Wells Fargo provided a payoff statement dated October 18, 2013.

2

 The statement is a form 

 

2 This is the only payoff statement currently in Plaintiff Fowler’s possession, but she does not deny 

additional payoff statements in the same form may exist and have been sent to her by Wells Fargo. 

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document, in which Wells Fargo uses form language throughout the document and fills in only the 

particular numbers and address information that correspond to a specific borrower. 

55. The form includes the statements “TOTAL PRINCIPAL, INTEREST AND 

OTHER AMOUNTS DUE UNDER NOTE / SECURITY INSTRUMENT”; “Unpaid Principal 

Balance $ ”; “Interest as of ”; and “TOTAL AMOUNT DUE through $ .” Id. at 2.

56. The statement contains the following specific numbers for Fowler’s loan: “Unpaid 

Principal Balance $154,907.90”; “Interest as of 11-01-13 [$] 1,065.00”; “TOTAL 

CONTRACTUAL AND OTHER FEES AND CHARGES DUE $28.00”; and “TOTAL 

AMOUNT DUE through 09-01-13 $ 156,341.33.” Id. (emphasis added).

57. Plaintiff Fowler’s interest payments were $532.50 per month. Thus, by 

representing that Plaintiff Fowler owed $1,065.00 in interest, Wells Fargo charged and sought to 

collect interest for two months – interest for the entire month of September 2013 and interest for 

the entire month of October 2013, even though the payoff statement was issued on October 18, 

2013. Id.

58. Wells Fargo has an admitted policy of charging post-payment interest on all FHAinsured loans such as Plaintiff Fowler’s loan.

59. On or about November 25, 2013, Plaintiff Fowler paid Wells Fargo $156,147.18, 

which includes the interest Wells Fargo represented it was owed. And because Wells Fargo

required Plaintiff Fowler to pay interest for the entire month of November 2013 – even though 

Plaintiff Fowler paid the full unpaid principal by November 25, 2013 – Wells Fargo collected postpayment interest.

60. Likewise, in February 2017, Plaintiff Peters refinanced his home. So that he could 

pay off his loan with Wells Fargo, Plaintiff Peters requested that Wells Fargo provide him with a 

payoff statement. Wells Fargo provided a payoff statement dated January 30, 2017. The statement 

is in the same provided to Plaintiff Fowler and other class members. 

61. The statement contains the following specific numbers for Plaintiff Peters’ loan: 

“Unpaid Principal Balance $123,760.18”; “Interest as of 03-01-17 [$] 1,031.34”; “TOTAL 

CONTRACTUAL AND OTHER FEES AND CHARGES DUE $11.00”; and “TOTAL 

AMOUNT DUE through 03-01-17 $ 124,970.85.” Id. (emphasis added).

62. Plaintiff Peters’ interest payments were $515.67 per month. Thus, by representing 

that Plaintiff Peters owed $1,031.34 in interest, Wells Fargo charged and sought to collect interest 

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for the entire month of February 2017, even though the loan was paid off by February 21, 2017. 

Id.

63. On or about February 21, 2017, Plaintiff Peters paid Wells Fargo $124,970.85, 

which includes the interest Wells Fargo represented it was owed. And because Wells Fargo 

required Plaintiff Peters to pay interest for the entire month of February 2017 – even though 

Plaintiff Peters paid the full unpaid principal by February 21, 2017 – Wells Fargo collected postpayment interest.

64. However, Wells Fargo did not first provide Plaintiff Peters with the disclosure in 

Appendix 8(c), the Payoff Disclosure, or any other HUD-approved form. For one, the form used 

by Wells Fargo is not a HUD-approved form, nor does it include all of the essential elements of 

the Payoff Disclosure, and FHA or HUD approval is an express requirement of HUD regulations.

65. HUD’s approved forms included with its handbooks are designed to be consumerfriendly. 

66. Appendix 8(c) to HUD Handbook 4330.1 rev-1 is nearly a page long, has a 

capitalized title (MORTGAGE NOTICE TO MORTGAGOR (In response to prepayment inquiry, 

request for payoff or tender of prepayment in full), two easy-to-read, distinct paragraphs labeled 

(a) and (b), with options for how interest will be charged, along with boxes for the lender to check

the applicable option, and a place for the lender to sign at the bottom, emphasizing the significance 

of the document to borrowers. 

67. Similarly the disclosure form appended to HUD Handbook 4000.1 is nearly a full 

page long, has a capitalized title (PAYOFF PROCEDURE DISCLOSURE), two easy-to-read 

distinct paragraphs with boxes for the lender to check the applicable option, and a place for the 

lender to sign at the bottom. 

68. Wells Fargo’s unapproved form is nothing like Appendix 8(c) or the Payoff 

Procedure Disclosure Form. 

69. Wells Fargo’s unapproved form does not have a title relating to post-payment 

interest, separate paragraphs, check-boxes, or anywhere for the lender to sign; instead, Wells 

Fargo’s form squeezes two sentences about post-payment interest into a single confusing 

paragraph. 

70. Moreover, the language that Wells Fargo uses is different from HUD’s approved 

disclosures and is both misleading and confusing. The relevant language consists of two sentences. 

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The first sentence tells Plaintiffs that “[w]e will collect interest through the end of the month in 

which we receive the payoff funds.” Id. at 1 (emphasis added). Because this language is 

unconditional, Wells Fargo wrongly tells Plaintiffs that, even if payment is made on the first of the 

month, Wells Fargo “will” collect interest through the end month of that month – which both the 

uniform provisions of the note and FHA regulations prohibit Wells Fargo from doing. See 

Multistate – FHA Fixed Rate Note, USFHA.NTE at 2 (“Borrower has the right to pay the debt . . 

. without charge or penalty, on the first day of any month.”); 24 C.F.R. § 203.558 (c) (2014).

71. The second sentence further reinforces the misleading and confusing nature of the 

first sentence. It tells borrowers that, “[t]o avoid paying an extra month of interest, it is to your 

advantage to arrange closing so the payoff funds reach us on or before the first business day of the 

month.” Because this language follows the first sentence – “[w]e will collect interest through the 

end of the month” – Wells Fargo wrongly tells borrowers that, no matter what they have to pay 

interest through the end of the month in which payment is received, and only addresses how to 

avoid payment of interest for an “extra month.” In other words, Wells Fargo only addresses how 

to avoid a second month of post-payment interest.

72. The effect of Wells Fargo’s illegal collection of post-payment interest is that

Plaintiffs and Class members were charged interest twice – by Wells Fargo and their new lender 

– for the period between the date of closing and the end of the month.

Class Action Allegations

73. Plaintiffs assert claims on behalf of themselves and a class of similarly-situated 

persons pursuant to Federal Rule 23.

74. Plaintiffs propose the following class:

the collective group of all persons nationwide who had an FHA-Insured Loan that 

was originated beginning June 1, 1996 and ending January 20, 2015, where (i) 

Wells Fargo, its agent, or its predecessor was the mortgagee as of the date the total 

amount due on the FHA-Insured Loan was brought to zero, (ii) Wells Fargo 

collected Post-Payment Interest on the FHA-Insured Loan during the applicable 

Limitations Period, and (iii) the borrower made a prepayment inquiry, request for 

payoff figures, or tender of prepayment but did not receive a Payoff Statement 

containing the verbatim Post-Payment Interest disclosure language in Housing 

Handbook, 4330.1 REV-5 Appendix 8(c) or the verbatim language contained in the 

“Payoff Disclosure” referenced in the Housing Handbook 4000.1. Excluded from 

the Class are Wells Fargo, all officers, directors, and employees of Wells Fargo, 

and their legal representatives, heirs, or assigns, and any Judges to whom the Action 

is assigned, their staffs, and their immediate families.

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75. Plaintiffs reserve the right to revise this class definition.

76. Plaintiffs propose certification of all issues, while reserving the right to 

alternatively seek certification as to any specific claim or issue. 

77. Plaintiffs would serve as the class representatives.

78. Plaintiffs satisfy the requirements of Federal Rule 23:

a. Numerosity – The class is so numerous that joinder is impracticable. The 

FHA is the largest insurer of mortgages in the world, currently insuring 

around 4.8 million single family homes. And, in just one month in 2015, 

Wells Fargo originated over 2,600 FHA-insured loans. Plaintiffs estimate 

that the class consists of tens of thousands of persons.

b. Commonality – There are numerous common questions of law and fact, 

including but not limited to the following:

i. Whether, before collecting post-payment interest, Wells Fargo 

complied with the contractual and regulatory requirements that it 

provide the borrowers with an approved disclosure. 

ii. Whether and when Wells Fargo knew that it failed to make required 

disclosures relating to post-payment interest. 

iii. Whether Wells Fargo breached the note with respect to the 

collection of post-payment interest.

iv. Whether Plaintiffs and Class members are entitled to restitution or 

damages.

v. Whether Plaintiffs and Class members are entitled to equitable relief 

and if so, the nature of the relief. 

c. Typicality – Plaintiffs’ claims are typical of the classes’ claims. Plaintiffs’

promissory notes are not just typical of the rest of the class, but are identical 

with respect to relevant provisions at issue in this case. Further, because 

Wells Fargo uses form payoff statements, Plaintiffs have been subject to 

conduct that is typical of the rest of the class. Wells Fargo has sought to 

collect post-payment interest from Plaintiffs in the same manner that it has 

sought to collect post-payment interest from the rest of the class.

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d. Adequacy – Plaintiffs would adequately protect the class’s interests. 

Plaintiffs have a genuine interest in protecting the rights of the class and 

Plaintiffs’ counsel are experienced in handling complex class actions. 

Indeed, Plaintiffs’ counsel has been designated and approved as class 

counsel in numerous state and federal courts. Further, because Plaintiffs

challenge form payoff statements used by Wells Fargo, the interests of 

Plaintiffs and the class are aligned.

e. Predominance – The answers to the common questions in this case will 

decide liability for the entire class. If Plaintiffs establish that Wells Fargo’s 

practice of collecting post-payment interest without making the approved 

disclosure required under the note and HUD regulations breached the 

contract, it will establish liability for all Class members, without the need 

for any additional proof as to liability. Thus, common issues predominate 

over individual issues.

f. Superiority – A class action is superior to other available remedies. The 

common questions would predominate over any individual questions, and 

thus no other form of litigation could be superior to a class action. Further, 

because of the low dollar amounts at stake for each class member, a class 

action is the only way for Plaintiffs and other Class members to obtain 

redress. Moreover, the most efficient way to resolve the class’s claims is 

for a court to decide all claims in a single class. Requiring tens of thousands 

of Class members to individually litigate their claims over and over again 

in various courts would be vastly inefficient. It also raises the possibility of 

inconsistent judgments or conflicting declaratory and injunctive relief.

FIRST CAUSE OF ACTION

(Breach of Contract

On Behalf of all Plaintiffs and Class Members)

79. Plaintiffs incorporate by reference the allegations contained in all preceding 

paragraphs of this Complaint.

80. Plaintiffs had a contract with Wells Fargo. The terms of the contract are set forth 

in the promissory note between Plaintiff and Wells Fargo. The note is a form contract containing 

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certain provisions that are identical to provisions found in the promissory notes for every FHAinsured loan.

81. In Section 2 of the note, titled “BORROWER’S PROMISE TO PAY; INTEREST,” 

Wells Fargo agreed that “[i]nterest will be charged on unpaid principal” and only “until the full 

amount of the principal has been paid.” Multistate – FHA Fixed Rate Note, USFHA.NTE, at 1.

82. In section 5 of the note, titled “BORROWER’S RIGHT TO PREPAY,” Wells 

Fargo agreed that it would charge “interest on the amount prepaid for the remainder of the month” 

only “to the extent . . . permitted by regulations of the Secretary.” Id. at 2.

83. And the relevant FHA regulation, titled “Handling Prepayments,” provides that, 

“[e]xcept as set out [in this regulation], monthly interest on debt must be calculated on the actual 

unpaid principal balance of the loan.” 24 C.F.R. § 203.558 (2014). “If the prepayment is offered 

on other than an installment due date [the first of the month], the [lender] . . . may require payment 

of interest to that date, but only if [the lender] so advises the [borrower], in a form approved by 

the Commissioner, in response to the [borrower’s] inquiry, request for payoff figures, or tender of 

prepayment.” Id.

84. In addition to the express terms of the promissory note between Plaintiffs and Wells 

Fargo, the law also implies a duty of good faith and fair dealing in every contract, and Wells Fargo

is subject to this duty as well.

85. Wells Fargo breached the contract, including the duty of good faith and fair dealing,

by collecting post-closing interest payments from Plaintiffs without first providing them with 

FHA-approved notice in response to their inquiry, request for payoff figures, or tender of 

prepayment.

86. Plaintiffs were damaged by Wells Fargo’s breach, and seek damages for Wells 

Fargo’s improper collection of post-closing interest payments. Plaintiffs seek damages for interest 

collected for the period beyond the date Wells Fargo received full repayment of the unpaid 

principal.

Relief Requested

Plaintiffs ask this Court to:

a. certify this action as a class action, including certifying Plaintiffs as class 

representative and undersigned counsel as class counsel;

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b. award Plaintiffs and the Class any damages they are entitled to, including 

but not limited to statutory damages and penalties, attorney fees, prejudgment interest, post-judgment interest, and costs;

c. enjoin Wells Fargo from continuing the unlawful practices set forth here;

d. and order any other relief as the Court may deem proper and just.

Respectfully submitted this 28th day of June, 2018. 

/s/ Adam L. Hoipkemier_________________________

Adam L. Hoipkemier (Ga. Bar No. 745811)

Kevin E. Epps (Ga. Bar No. 785511)

(appearing pro hac vice)

Epps Holloway DeLoach & Hoipkemier LLC

1220 Langford Drive, Bldg. 200 

Watkinsville, GA 30677

Telephone: 706 508 4000

Facsimile: 706 842 6750

Robins Kaplan LLP 

Michael F. Ram (SBN 104805)

mram@robinskaplan.com

Susan S. Brown (SBN #287986)

sbrown@robinskaplan.com

2440 West El Camino Real, Suite 100

Mountain View, CA 94040

Telephone: 650 784 4040

Facsimile: 650 784 4041

Turke & Strauss LLP

Sam Strauss (WIBN 46971)

613 Williamson Street, Suite 209

Madison, Wisconsin 53703-3515

Telephone: 608 237 1774

Facsimile: 608 509 4423

Email: sam@turkestrauss.com

Attorneys for Plaintiff and Proposed Class 

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