Mortgage lender Wells Fargo Bank NA has agreed to pay $3.45 million over a processing error that delayed letters to nearly 8,000 homeowners in bankruptcy, shortening the notice time they got about changes to their monthly mortgage payment amounts.

In a letter filed to the court Thursday, bank officials said they have worked out a deal with a Justice Department watchdog agency, agreeing to fix the mailing error and promising to credit homeowners who received delayed notifications in the mail.

The processing delay meant that some homeowners weren't getting 21 days' worth of notice before a change in their mortgage payment amount—a period required under U.S. bankruptcy law, according to the letter filed in U.S. Bankruptcy Court in Greenbelt, Md. The delay meant that the letters were sent out a day or two after the mailing date recorded in court filings, the letter said.

The Justice Department division, the U.S. Trustee Program, said the error was discovered by an independent reviewer who was installed as part of an $81.6 million settlement with bank officials in November. Under that settlement, bank officials admitted that they had failed to notify thousands of bankrupt homeowners that it was increasing their mortgage payments.

Specifically, the Justice Department said Wells Fargo acknowledged that it failed to file more than 100,000 notices involving homeowners in bankruptcy between Dec. 1, 2011, and March 31 of this year, according to earlier court papers.

A Wells Fargo spokesman declined to comment on the latest $3.4 million settlement.

Of the earlier settlement, the bank released a statement saying it has made "the necessary investments and improvements in our systems and processes to ensure that payment change notices for the bankruptcy court and escrow analyses for customers in bankruptcy are properly prepared and delivered in a timely fashion."

The letter on the latest deal was sent to U.S. Bankruptcy Court Judge Thomas J. Catliota, who approved the November settlement.

The settlement payout in the latest deal will benefit Wells Fargo mortgage customers who have filed for chapter 13 protection, a type of bankruptcy that enables them to pay debts over a three- to five-year period.

Cliff White, director of the Executive Office for U.S. Trustees, said the latest settlement "shows cooperation and self-reporting by Wells Fargo," which told the agency about the systemic flaw that led to the violations.

"This settlement illustrates the success of our enforcement efforts and may augur well for future consensual resolution of violations by creditors and financial institutions," he said in a statement.

Write to Katy Stech at katherine.stech@wsj.com

 

(END) Dow Jones Newswires

August 25, 2016 15:35 ET (19:35 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
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