Consumer Law

Mortgage Servicers, Bankruptcy, and Phony Evidence

By Alan White

At an almost comical December 20 hearing an attorney for Countrywide explained some fishy-looking documents to a Bankruptcy Court judge and trustee. The letters presented as evidence, sent to notify a homeowner of payment adjustments in 2003 during her Chapter 13 case, were actually "recreated", that is to say, created in 2007. Evidence of what? It's a bit hard to determine from the transcript. It appears that after this homeowner completed a Chapter 13 plan providing for a cure of her mortgage default, Countrywide asserted that she was still thousands of dollars in arrears. Countrywide seems to have blamed the problem on the debtor ignoring annual payment increases required by adjustments to the escrow for property taxes and insurance. The debtor and trustee, on the other hand, claim that Countrywide either lost payments made through the plan or misapplied them. More ominously for Countrywide, there is reference to 293 cases in the same district in which the trustee is questioning the proper application of mortgage payments.

The case illustrates a serious practical problem with Chapter 13 as a foreclosure prevention tool. Thirty years after Congress created Chapter 13, mortgage servicers still don't seem to have the software and systems capable of carrying out the terms of debtor's plans. Although the amount owed by a homeowner is supposed to be fixed by the claim process, in reality the amounts claimed by mortgage servicers are a constantly moving target. Questionable servicer fees are also a serious concern.

Meanwhile the rumors concerning Countrywide's future continue to fly. Will Bank of America buy the ailing mortgage lender? Will the FDIC put it in receivership (Banks, unlike their borrowers, cannot file bankrupty)? The answer will in all likelihood emerge soon. UPDATE And by soon I meant tomorrow. Bank of America announced on January 11 that it will now be buying Countrywide and thus taking on Countrywide's litigation problems.

Full post as published by CL&P Blog on January 10, 2008 (boomark / email).