Bank of America Protests Judge's $45 Million Fine In Homeowner Case

Bank of America Corp. asked a bankruptcy judge to reconsider his $45 million fine over its treatment of a California couple who requested lower mortgage payments, calling the amount "unprecedented in its magnitude."

In court papers, bank officials asked Judge Christopher Klein to amend his 107-page ruling against the bank, arguing that his "excessive" fine amount violates guidance from Supreme Court justices in 2008 meant to prevent outsized awards. The fine, the bank said, stands as the largest punitive damages award for violations of bankruptcy law's automatic stay rules, which ban lenders from advancing foreclosures and taking other actions.

The ruling, issued March 23, said that bank officials mistreated California couple Renee and Erik Sundquist as they fought to save their home outside Sacramento from foreclosure. The decision, which renewed attention to the mortgage industry's loan-servicing business, called for the Sundquists to donate most of the $45 million award to five law schools and two legal-aid nonprofits.

The bank's amendment request, filed in U.S. Bankruptcy Court in Sacramento, said the award far surpasses the punitive damages amounts handed down in similar cases, including when a Louisiana judge issued a $3.2 million fine against Well Fargo & Co. in 2013. The median punitive damages award in instances where someone violated bankruptcy's automatic stay protection is $4,500, the bank said.

"The court's punitive award represents a stunning departure from past practice," the bank said.

Judge Klein set a May 9 hearing to go over the bank's request. The bank also plans to appeal the ruling, which would put the dispute before another federal judge.

The Sundquists' trouble began in 2008 when the couple's construction business closed during the economic downturn and they bought a cheaper home. They borrowed roughly $590,000 from a lender later taken over by Bank of America with a promise from a loan official that they could request lower monthly payments.

The Sundquists stopped making payments in March 2009 after Bank of America officials said they wouldn't consider loan modifications for customers who were current on payments. In the following years, their roughly 20 loan modification requests were "routinely either lost or declared insufficient, or incomplete or stale or in need of resubmission or denied without comprehensible explanation," Judge Klein's ruling said. The couple filed for bankruptcy in June 2010.

The ruling was punctuated by dozens of excerpts from Ms. Sundquist's journal, which the judge used to show the extent of the couple's efforts to resolve their issues with the bank and the emotional distress that effort took on them. In its amendment request, Bank of America said the journal's excerpts should be disallowed because they weren't properly admitted as evidence.

The bank also said that Judge Klein's order for the Sundquists to donate money to five law schools associated with the University of California system, along with two consumer-advocacy nonprofits, was "unconstitutional." An attorney for the Sundquists declined to comment.

Federal law says punitive damage money can't flow to entities that weren't harmed by bad behavior and "bar courts from undertaking broad-based, public-interest policy-making," the bank said in court papers.

In addition to the fine, the judge awarded $1,074,581.50 in damages to the Sundquists.