Mortgage lenders are abusing the bankruptcy court system by pursuing unjustified foreclosures

Mortgage lenders are abusing the bankruptcy court system by pursuing unjustified foreclosures against struggling homeowners, piling on questionable fees and misstating the amounts owed, witnesses alleged at a congressional hearing on Tuesday.

The result is a systemic breakdown that increases foreclosures, raises the number of families losing their homes and threatens the integrity of the legal system, the witnesses told the Senate Subcommittee on Administrative Oversight and the Courts.

“While bankruptcy is supposed to offer families one last chance to save their homes from foreclosure, the reality is that bankruptcy gives mortgage servicers new opportunities to engage in abusive practices,” Katherine Porter, a University of Iowa law professor who has analyzed the system, testified.

Porter said her review of 1,700 recent Chapter 13 bankruptcy cases found mortgage lenders regularly disobey laws and rules as they try to collect thousands of dollars more than homeowners feel is owed.

Robin Atchley, a letter carrier from Georgia, said Countrywide Financial (CFC), the nation’s largest home lender, twice asked a bankruptcy judge for permission to foreclose on her home in 2006, even though “we were current on our mortgage payments.”

Countrywide dropped the efforts when given proof the payments had been made. But Atchley and her husband, who sold the home last year, said Countrywide claimed the final mortgage amount owed was nearly $14,200 higher than what the company had claimed in bankruptcy court.

“We will not stand for the continued abuse of homeowners who have worked hard and played by the rules of bankruptcy, only to have their homes and credit ratings and livelihoods threatened by misconduct,” said Sen. Charles Schumer, D-N.Y., the subcommittee chairman.

Although the witnesses alleged many lenders use abusive tactics, Schumer focused on Countrywide.

He challenged testimony in which Steve Bailey, the firm’s chief for loan administration, said internal reviews showed Countrywide had an error rate under 1% for bankruptcy mistakes that went against a borrower.

Saying Countrywide is “at the top of the list” of firms responsible for the national mortgage crisis, Schumer said Bank of America should “think even harder” about whether to complete its plan to buy the mortgage giant.

Bailey said Countrywide would hire an auditor to review selected Countrywide loans for accuracy in bankruptcy proceedings. He said the firm would also form an ombudsman’s office to resolve disputes during bankruptcies and adopt “best practices” drafted by an association of bankruptcy court trustees.

4 Responses

  1. In reference to the above post, how does one spell F.R.A.U.D. ?? Give them enough rope, and they will indeed continue to hang themselves. Let the dirty truth come out, the more that does, the better for all our cases.


    Case No. 01-22574


    MS. STEIDL: In the process of going back and forth Countrywide did supply us with a loan history. They also supplied me with some letters that I didn’t understand, but I spoke to Attorney Puida about it, and she explained to me that there are three letters in my file, all with different dates, where they’re saying Countrywide’s mortgage went up during the process of the plan.

    The first letter is dated September of ’03 that talks about the first increase. The problem with that is we weren’t in our offices in ’03. We were at a whole different address, and our carbon copy is to Ken Steidl at the new address where we are now, which we weren’t then. And she explained to me that —

    THE COURT: Wait a minute. Wait a minute. Hold it. Wait a minute. You’re saying that you — there’s a letter dated 2003 at a certain address that you weren’t in until a subsequent time?

    MS. STEIDL: Yes, sir.

    THE COURT: Yet this is a letter that was represented to acknowledge or support the first change notice on this property?

    MS. STEIDL: Yes, sir. The letter was dated September 22nd, 2003, directed toward my client, carbon copied to Ronda Winnecour and Ken Steidl at the Gulf Tower address, but on September 22nd, 2003, we were at 210 Grant Street. So I just asked Ms. Puida to explain the two, because I didn’t understand the discrepancy, and she told me that these letter that they sent — they sent three — are recreation letters. They’re not the first letter that was sent. They’re just —

    THE COURT: What is a — never heard of a recreation letter. That’s a letter that they don’t have, and now they’ve recreated to support the allegation that they actually sent a prior letter?

    MS. STEIDL: Well, that would be how it sounds. I don’t mean to mis-characterize it, but that’s how it sounds. All of these letters were — there are three of them, and they were all recreated.

    THE COURT: All right. Okay. I think I understand. Attorney Puida, what is going on here? I mean I guess there’s a couple things on the table I need to know about. What are these recreated letters all about?

    MS. PUIDA: Your Honor, the letters —

    THE COURT: How about — could you — would you mind remaining seated and speak into that microphone? I can’t hear you. Otherwise, or if you stand — some lawyers are more comfortable standing. Make sure you bend over and talk into the microphone. Okay?

    MS. PUIDA: I’m sorry, Your Honor. Is this better?

    THE COURT: Yes, that’s fine as long as you’re comfortable.

    MS. PUIDA: Your Honor, regarding the letters, they were never held out to be letters that were sent notifying any one of the payment changes. They were purely generated — what happens is, is they were generated based on what the payments were in 2003, 2004, and 2007.

    THE COURT: When were they generated?

    MS. PUIDA: They were generated when we first were in settlement negotiations with Mr. Steidl regarding this case. There was a question as to what the payments were at various times within the bankruptcy. So we — they were not offered to prove that they had been sent. They were merely showing what the breakdown was of the PMI and escrow at those various points in time.

    THE COURT: Who created these letters?

    MS. PUIDA: A processor at Countrywide.

    THE COURT: Does it say anything on the letters themselves that has a disclaimer that these are not actual letters sent or simply used to show if a letter had been sent what the payment would’ve been at the time in question?

    MS. PUIDA: No, it does not.

    THE COURT: Boy, that’s a strange one. I don’t know. Why would you — when did you disclose that these letters were not what they purported to be but, in fact, were just memoranda of an event created years after the event in order to document the event?

    MS. PUIDA: Throughout my discussions with Mr. Steidl when we were trying to resolve this matter.

    THE COURT: From the very beginning you sent him copies of letters, and you described the fact —

    MS. PUIDA: I had —

    THE COURT: Go ahead.

    MS. PUIDA: I’m sorry, Your Honor. We had been providing him with payment histories, escrow analyses, breakdowns of all of the escrow that had been advanced throughout the case. It was just one of various things that were being sent to him just showing what the case status was at the time the discharge was entered, what the status is now, and what we were showing as being due on the loan.

    THE COURT: All right. Now, you know, you’re here representing your client. I want to — you know, it’s — I want you to be totally candid with me, because I’m going to ask these questions of Mr. Steidl as well at some point. Obviously, it looks like we have to, because this concerns me. I’m having trouble with these recreated letters that purport to be sent to a number of parties at a date — prior date well into the past and created at a subsequent date to show or represent, at least at first blush, the state of a record which didn’t really exist as such. When was Mr. Steidl informed by you or anyone at Countrywide, to your knowledge, that these letters are not what they would purport to be on a cold reading and view if received in a packet of papers?

    MS. PUIDA: Your Honor, I wouldn’t be able to give you an exact date. I had a conversation with Mr. Steidl where he indicated that he had never received the letter. He had checked his file, and I had told him, well, you wouldn’t have, because this was — these were not sent out. It’s just drawing — the system at Countrywide currently has Mr. Steidl as counsel. He was not counsel when this case was initially filed. It has the Trustee’s information in the system, so when they were recreated, it pulled that information in. But the point of the letters was to show what the payment changes were during the course of the bankruptcy.

    THE COURT: Well, why wouldn’t you just show that by an in-house document generated by Countrywide? Why would you go to the steps of creating a letter that never was sent, which appears — which could be used by a loan processor or somebody at Countrywide when a debtor calls up on their own to find out the background of a loan, and these letters were forwarded on without the benefit of counsel or you and Mr. Steidl talking about post-discharge injunction violations? Why would that type of document ever even be part of this system?

    MS. PUIDA: Your Honor, I can’t speak as to that. I don’t know the answer.

    THE COURT: Well, there’s definitely a need for discovery here. These letters are a smoking gun that something is not right in Denmark. I just — I can’t get over what I’m being told here about these recreations and what the purpose is or was and what was intended by them. It just — I don’t see any credible reason for doing that other than to create a perception that notices were timely sent. But maybe there is, and that’s why there’s a need for discovery, obviously.

  3. There truly is no end to the outright greed and corruption of these “lenders/banks”. I’d sooner take my chances facing a coiled rattlesnake.


  4. Mr Shummer should read this BLOG

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