Countrywide Sanctioned by Ohio Court Citing Porter & Twomey

As many Credit Slips readers may be aware, Countrywide Home Loans (which is now part of Bank of America) has been the subject of proceedings in several bankruptcy courts because of the shoddy recordkeeping behind their claims in bankruptcy cases. Judge Marilyn Shea-Stonum of the U.S. Bankruptcy Court for the Northern District of Ohio recently sanctioned Countrywide for its conduct in these cases. Having previously found Countrywide to have committed sanctionable conduct, the question for Judge Shea-Stonum was the appropriate penalty.

The resulting opinion makes extensive reference to Credit Slips regular blogger Katie Porter and guest blogger Tara Twomey's excellent Mortgage Study that documented the extent to which bankruptcy claims by mortgage servicers were often erroneous and not supported by evidence. Specifically, the court adopted Porter's recommendation from a Texas Law Review article that mortgage servicers should disclose the amounts they are owed based on a standard form. Judge Shea-Stonum found that such a requirement would prevent future misconduct by Countrywide. All of Countrywide's claims now or hereafter pending in this court have to be supported by the form attached to the end of the opinion.

If you look at the form and wonder "Weren't mortgage servicers disclosing this information anyway?" The answer is that they often were not. Hence the need for such a form. Although the issue before the court was only what do to with Countrywide, we should move toward this sort of form as a requirement nationally for all mortgage servicers. (Hat-tip to Professor Marianne Culhane for pointing me toward this opinion.)

Comments

[Mike Dillon]

Very nice opinion from Judge Shea-Stonum. Mild shame on the Trustee for not asking for sanctions but, hopefully, future arguments will adjust for the oversight...

As far as C-Wide - and now BoA - are concerned... http://supak.com/simpsons/wavs/homer_simpson_32dohs.wav

[loyalcredijournal]

judge shea Stonum has her views , Trustee should have ask for sanction.

[loyalcreditjournal]

Very good views.

[Martin, the Netherlands]

Thank you for this post. It's indeed quite remarkable that mortgage servicers weren't already obliged to disclose the information required to enable the Courts to decide a case in a clear way. Did you notice that the Judge refers to a workload of 12,700 cases in 15 years, i.e. 850 cases per year, which means (allowing for vacation, training, meetings, the occasional flu and so on) to about 4 cases per net working day?

[Patches]

Hope the Cir. doesn't reverse like we did here in the 5th Cir. in re: Campbell(showed so much promise) Judge Bohm (Houston) has actually ordered that a separate hearing be conducted on attorneys fees and other fees aside from or separate from the POC. He said he was even inclined to award attorneys fees to debtors counsel for the Claim Objection. He said that including attorneys fees and BPOS in a proof of claim unfairly shifts the burden onto debtors and that if there are attorneys fees they have to make a separate application with time sheets. 1601 Motion I think was what it was??.. The crux was how was he to determine if the fees were reasonable through a POC.

Mad props KP and TT. We have made POC objections routine (for quite some time now) here in this office, it does slow things up a bit but its all about the system.

[David Fuller]

I'd be happy if they would just file the indorsement page with the proof of claim. I have never ever seen a promissory note attached to the POC that included indorsements.

[Patches]

So David, whats up on the endorsement page? We are getting them down here in STX. Even the really crappy stuff like signed in a mobile home kind of stuff...Unfortunately. I see so much of that crap but what can you do? That was the industry in 03-07 on Refizzzz. Why would someone, like an older person...like 70 or so refi a home from a standard 30 fixed to a 25 year variable? I hear a lot of "I asked for a fixed" or they could not tell the difference; shown the difference or even knew the what difference are. Seems so hopeless with out the power to modify. and....it is... hopeless. A variable refi with no equity on Social Security or on a modest retirement just wont cut it. It just sux having to relay that information or even knowing its coming. The transition of ownership, Servicers and accounting on refizzz get quite screwed up in POCs....sometimes...well in volume, more than we would like. It's so rare to get debtors with a history of every payment. But who does that?

[Patches]

Anyone read In Re: Depugh Southern District of Texas? Bad faith for filing a POC without proper documentation. Credit card debt. F.R.B.P. 3001.

[David Fuller]

@Patches - I'm averaging about one case per month in which the "creditor" isn't really the creditor, because they aren't a person entitled to enforce under 3-301. The endorsement page usually helps to ferret out the 3-301 problems.

I also think that shows creditor game theory at its finest. Creditors are aware that they have some segment of legally insufficient debts. In order to collect on those debts, the creditors try to put the least information in the POC an supporting docs. This shifts the burden to debtors to make all kinds of objections and requests in the bankruptcy. Because that has a higher cost, it is less likely that he debtors will follow through, and some percentage of legally insufficient debts are collected upon. In other words, the creditors don't filter and make it hard for the debtors to filter.

[Patches]

True true. Because of the fixed fees, our trustee is resisting us on any additional attorneys fees incurred within 180 days. Even though we would be losing on the proposition of filing an Obj. Claims as far as paralegal and attorney time, we still do them anyway. We even go a bit further. We have been using Texas statute of limitations to filter out additional unsecured debts. Past the Statute to Sue here in Texas gets an objection. Any bit of room in the debtors plan that we can make increases the odds of lasting through a bout of illness and unemployment during the 13. Not to mention our attorneys fees are at state also being that Vehicles are now a Super Priority with Adequate protection payments and all.... What people don't understand is that BK Attorneys risk their time and money in BK. If the Plan dismisses 3-8 months post-confirmation, most likely attorneys will be swallowing confirmation money..

[David Fuller]

@Patches - in the WDWA the trustee is pretty decent about not objecting to our fees, but the problem is keeping the plan reasonable for the debtor. Most of my chapter 13s are Kagenveama cases, where there is no minimum plan payment or applicable commitment period. The problem with a Kagenveama case is that the debtors usually only have enough income to cover the arrearage, the trustee's fee, and a very small attorney's fee, if they debtor is to have any hope of making it to discharge. At least in a case where the DMI applies, there money to fund at least some of the objection to claims process.