NEW YORK (Reuters) – Wells Fargo Bank (WFC.N) and Citigroup’s (C.N) mortgage unit must face claims that they violated federal law by falsely notifying credit reporting agencies that thousands of homeowners went through bankruptcies or foreclosures, a federal judge has ruled.
In an order on Monday, U.S. District Judge Janis Sammartino said consumers had offered enough facts to support their claims that Wells and CitiMortgage Inc gave inaccurate information to a credit reporting agency, hurting consumers’ ability to get new loans.
Mark Rodgers, a spokesman for Citi, denied the allegations and said the case is without merit. A spokesman for Wells did not immediately respond to a request for comment.
Filed last year, the lawsuit said the mistakes were made after mortgage customers of Citi and Wells sold their homes in a short sale, an alternative to foreclosure. In a short sale, a home is sold for less than the amount owed on the mortgage, with the bank agreeing to accept the proceeds to settle the loan.
Instead of reporting the transactions as short sales, the banks reported them as foreclosures or bankruptcies and failed to correct the reports when they were disputed, the lawsuit said.
According to the lawsuit, the mistakes occurred because Citi and Wells used the wrong codes when they submitted information about short sales to credit reporting agency Experian (EXPN.L) to update borrowers’ credit reports.
The lawsuit also named Experian as a defendant, saying it failed to assure the accuracy of information about short sales and did not properly investigate when borrowers complained. A spokesman for Experian did not immediately respond to a request for comment.
The lawsuit, which seeks class action status, was filed on behalf of Alpine, California resident John Shaw and other consumers nationwide whose short sales were incorrectly reported by Wells or Citi as foreclosures or bankruptcies. It seeks damages for violations of the U.S. Fair Credit Reporting Act, passed in 1970 to insure the accuracy of information reported to credit bureaus.
The case is Shaw v Experian Information Solutions Inc et al, U.S. District Court, Southern District of California, No 13-cv-1295