The sighting of a robin does not make a spring, nor do the actions of four judges constitute a trend. Nevertheless, the fact that some courts are taking a harder look at foreclosure practices may foretell a shift in attitudes.
Gretchen Morgenson, in “Foreclosures by Lender Investigated,” appears to have her facts right. Morgenson is often criticized by Tanta at Calculated Risk for mischaracterizing mortgage finance practices, but here Morgenson is dealing with court filings, and she usually does a good job with them.
However, one can take issue with the headline and her emphasis in this piece. Indeed, one has to question why a mere two foreclosures merits attention from the New York Times. Morgenson thinks it’s noteworthy because the United States Trustee decided to investigate Countrywide, the plaintiff in the two foreclosures.
While I enjoy Countrywide-bashing as much as the next guy, there is every indication that Countrywide was not alone in the practices at issue. So what makes this story interesting is that it is another example of a subtle shift in power in the judicial system. The plaintiffs have considerably more resources than the mortgage holders, most of whom cannot mount a fight. But judges may be starting to recognize that that power imbalance has led many banks to be sloppy, presumptuous, and at times extortionate, and at least a few jurists are holding their feet to the fire.
In this case, the issue was charges Countrywide added to mortgage balance in two bankruptcy filings. When the borrowers objected, Countrywide did not appear at the hearing, leading the judge to remove those costs. Countrywide’s failure to respond piqued the interest of the bankruptcy trustee, leading to the investigation. Note the judge ruled against Countrywide’s objections to trustee’s subpoenas.
From the New York Times:
The federal agency monitoring the bankruptcy courts has subpoenaed Countrywide Financial, the nation’s largest mortgage lender and loan servicer, to determine whether the company’s conduct in two foreclosures in southern Florida represented abuses of the bankruptcy system.
The subpoenas for Countrywide documents were issued in late October by the United States Trustee after the agency announced an effort to move against mortgage servicing companies that file false and inaccurate claims in foreclosure cases. The inquiries into Countrywide by the trustee’s office, a division of the Justice Department, come as foreclosures are increasing across the country.
The ways that lenders and loan servicers deal with troubled borrowers are also coming under increased scrutiny by judges. In recent weeks, three federal judges in Ohio have dismissed 73 foreclosure cases brought by lenders and loan servicers against borrowers because the companies failed to show proof that they owned the notes underlying the properties they were trying to seize.
In Florida, one of the trustee’s inquiries involves Manuel Del Castillo and Maria E. Pena, Miami borrowers who filed for protection last May under Chapter 13 of the bankruptcy code. In July, Countrywide Home Loans filed a claim, saying that the borrowers owed almost $279,000 on their loan.
Included in the figure, court documents show, was an $11,924 advance Countrywide said it had made to an escrow account before the borrowers filed for bankruptcy as well as an insufficient- funds fee of almost $683.
In the second case, the trustee has asked for documents relating to Countrywide’s claim for almost $101,000 against William and Joyce Chadwick, borrowers in Boca Raton, who filed for Chapter 13 protection in October 2005. Included in that figure was $2,400 in overdue mortgage payments.
The borrowers in both cases objected to Countrywide’s claims of what was owed. In court documents, the Del Castillos argued that Countrywide had not provided an itemized list of the charges, while the Chadwicks contended that their mortgage payments were current.
Countrywide failed to appear at hearings on both borrowers’ objections, and judges ordered the fees stricken from the claims.
The United States Trustee took an interest in both matters after Countrywide did not respond to the borrowers’ objections.
In court documents, the trustee said that it intended to examine the procedures Countrywide used to determine that it had a valid claim to the properties and that it had correctly calculated the amounts it said the borrowers owed. The trustee’s office asked Countrywide to produce a copy of the notes and mortgages, a payment history on both loans and the correspondence it had with the borrowers.
Countrywide objected to the trustee’s examination and subpoenas in both cases, saying that they were overly broad and exceeded the office’s powers. But the bankruptcy judge hearing the Del Castillo case ruled against Countrywide last week and the examination will go forward. A hearing on the Chadwick case is scheduled for Dec. 3….
Questionable or nonitemized charges levied on imperiled borrowers by lenders and loan servicers are an industrywide problem, consumer advocates contend. A recent study of more than 1,700 foreclosure cases by Katherine M. Porter, an associate professor of law at the University of Iowa, showed that questionable fees had been added to almost half of the loans she examined.
In a case involving Wells Fargo and a Louisiana borrower, for example, the court found that the bank assessed improper fees and charges that added more than $24,000 to a loan, some 12 percent more than the court said was actually owed.
In another case, Ms. Porter found that a lender had claimed that the borrower owed more than $1 million but that an examination of the loan history showed the true balance to be $60,000.
William J. Brennan Jr., director of the Home Defense Program of the Atlanta Legal Aid Society, said dubious fees were common among the cases he sees.
“Since there has been so little response from the federal regulators in terms of addressing mortgage lending abuses, including adding post-petition bankruptcy fees to borrowers’ loans, it is refreshing and gratifying to see that the U.S. Trustee is taking an interest in this,” Mr. Brennan said. “We see so many instances where our clients have filed Chapter 13 bankruptcies, and property inspections, broker price opinions, late fees will appear. Those fees are improper and illegal and should be credited back to the homeowners.”
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1. Countrywide and virtually every mortgage lender adds fees to their loans in foreclosure.
2. Most GOOD bankruptcy attorneys file objections to claims when those fees are present. Most of the time, the lender removes the fees prior to a court hearing.
3. When a matter does make it to a court hearing, the court will usually schedule an evidentiary hearing where the mortgage company is required to prove the charges, and prove they were necessary. Almost all the time, the issue is settled before that hearing.
So the issue is not just 2 cases, I can state that in the last 100 foreclosure/bankruptcy cases we handled, the fees issue came up in 84 of them. The other 16 were filed prior to the foreclosure actually being filed and the fees were not an issue.
Those 2 cases would have been dealt with just like THOUSANDS of others, except the Trustee got curious – finally for the debtor’s benefit!
Even a hack attorney should be able to spot & object to fraudulent fees.
William J. Brennan Jr., director of the Home Defense Program of the Atlanta Legal Aid Society, seems to think federal regulators are needed to stop this fee fraud. Nope. Victims themselves are the best watch dogs.
Not everyone who files for bankruptcy can afford an attorney, and legal aid can’t help everyone. Explain to me why lenders should get to use the courts, where rules of evidence require accurate documentation, to push claims using fraudulent documents?
In my experience (I work for an attorney), courts accept documents from attorneys as accurate and truthful unless someone or something suggests otherwise. Every court requires that attorneys practicing before them exercise reasonable care in insuring documents and testimony is truthful. Only when someone questions the documents does the court seek proof. Most people are too afraid to ‘take on’ corporations. The mere act questioning is often sufficient to get at least a hearing, though often insufficient to change a courts opinion.
We have often argued that creditors provide insufficient evidence to support their claims but courts have been unwilling to get into a big trial on the matters when the first complaint is at the proof of claim level in bankruptcy court.
(If you have been getting statements from Capital One for years and you never complained about the amount, demanding proof of the amount in bk court is not likely to get you far.)
True, many people can’t afford attorneys (we are not cheap) but, especially in real estate, too many people forgo a couple hundred dollars to an attorney to review purchase/sale/refinance documents that end up costing them thousands later.
I would bet that half the people dealing with ‘unexpected’ costs/fees/adjustments would not be in the trouble they are if an attorney had been part of the process. But I am biased.
I agree that people who have an attorney are more able to push back against fraudulent fees. I do think, however, that people who are deep in debt/bankruptcy/foreclosure are less likely to have the money to spend, as indicated by their reliance on the scantily funded legal aid system. No one need shed a tear for the servicers, who come equipped with the most expensive lawyers money can buy.
In the ordinary course of things courts could rely on the truthfulness of the plaintiff’s lawyers. That reliance appears to be misplaced in these cases and the plaintiffs should not profit from it. The courts are to be commended for spotting the racket and acting accordingly, since their job is to adjudicate the soundness of claims, not to rubber-stamp fake ones.
BIG VOODOO Here!!
Pursuant to 12 U.S.C. § 371, national banks may “make, arrange, purchase or sell loans or extensions of credit secured by liens on interests in real estate, subject to * * * such restrictions and requirements as the Comptroller of the Currency may prescribe by regulation or order.” The OCC’s real estate lending regulations provide that, “[e]xcept where made applicable by Federal law, state laws that obstruct, impair, or condition a national bank’s ability to fully exercise its Federally authorized real estate lending powers do not apply to national banks.” 12 C.F.R. § 34.4(a). The Banks assert that application of the CFA is preempted because it would interfere with their power as national banks to purchase loans as authorized under 12 U.S.C. § 371, and that holding them liable for violations of the CFA as loan purchasers would be contrary to 12 C.F.R. § 34.4(a), which preempts state laws that interfere with national bank real estate lending authority