Questionable Mortgage Servicing Practices Coming To Light In Bankruptcy Cases

The New York Times reports:

• As record numbers of homeowners default on their mortgages, questionable practices among lenders are coming to light in bankruptcy courts, leading some legal specialists to contend that companies instigating foreclosures may be taking advantage of imperiled borrowers. Because there is little oversight of foreclosure practices and the fees that are charged, bankruptcy specialists fear that some consumers may be losing their homes unnecessarily or that mortgage servicers, who collect loan payments, are profiting from foreclosures.

• Bankruptcy specialists say lenders and loan servicers often do not comply with even the most basic legal requirements, like correctly computing the amount a borrower owes on a foreclosed loan or providing proof of holding the mortgage note in question.

• “Regulators need to look beyond their current, myopic focus on loan origination and consider how servicers’ calculation and collection practices leave families vulnerable to foreclosure,” said Katherine M. Porter, associate professor of law at the University of Iowa.

[...]

• Questionable practices by loan servicers appear to be enough of a problem that the Office of the United States Trustee, a division of the Justice Department that monitors the bankruptcy system, is getting involved. Last month, It announced plans to move against mortgage servicing companies that file false or inaccurate claims, assess unreasonable fees or fail to account properly for loan payments after a bankruptcy has been discharged.

[...]

• [O. Max Gardner III, a Shelby, N.C., consumer bankruptcy attorney said,] “Somebody files a Chapter 13 bankruptcy, they make all their payments, get their discharge and then three months later, they get a statement from their servicer for $7,000 in fees and charges incurred in bankruptcy but that were never applied for in court and never approved.”

Included among the examples of questionable practices by mortgage servivcing companies is a reference to a class action lawsuit filed against Mortgage Electronic Registration Systems (aka "MERS"), a home loan registration system which oversees more than 20 million mortgage loans and is reportedly owned by Fannie Mae, Countrywide Financial and other large lenders. MERS is accused of overcharging borrowers for legal services in foreclosures. According to Jeffrey M. Norton, a lawyer who represents the plaintiffs, it pays its foreclosure attorneys a flat fee of $400 or $500 but charges the borrowers three or four times that amount. The plaintiff's mortgage loan is reportedly owned by Washington Mutual, and went into foreclosure in 2006.

For more, see Borrowers Face Dubious Charges in Foreclosures (if link expired, try here).

For another lawsuit accusing a mortgage servicing company of questionable practices, see Ellington Credit Fund, Ltd. vs. Select Portfolio, Inc., et al. (Plaintiff's First Amended Complaint - 19 counts - 52 pages, 2.35 MB approx.) - available online courtesy of Michael Dillon and GetDShirtz.com.

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