As a member of the Bankruptcy Law Network, I am part of a small group of knowledgeable and prolific bankruptcy lawyers from all over the country. If you have not yet checked out the Bankruptcy Law Network blog, I encourage you to do so.
In addition to writing for the BLN family of blogs, most of my colleagues in this endeavor publish their own websites and blogs that address more local concerns. Just as this blog focuses on bankruptcy issues relevant to the Northern District of Georgia, frequently the BLN member blogs will have a local focus as well. However, there are some bankruptcy and consumer protection issues that have a national focus. I subscribe (using RSS and my iGoogle page) to a variety of bankruptcy and consumer bankruptcy blogs from around the country for the purpose of picking up trends and learning about case strategies that may very well work for me in my local practice. If you are a bankruptcy lawyer or individual interested in keeping track of what is going on in the bankruptcy world, I invite you to subscribe not just to this blog, but to several of the bankruptcy related blogs listed on my blogroll.
BLN member (and founder) Jay Fleischman recently posted a blog article that has relevance in any bankruptcy jurisdiction. His post entitled “Chase Home Finance, Caught Manufacturing Defaults in Bankruptcy Court, Nears Deal with U.S. Trustee” discusses a problem that I believe has existed for years with many mortgage lenders who file claims in bankruptcy court.
Mortgage lenders use very complex mathematical formulas to keep track of your monthly payments. These formulas have to account for grace periods, daily interest calculations, adjustments for extra principal payments, adjustments for incorrectly low payments amounts, adjustable rate fluctuations where applicable, mortgage insurance, always changing property tax payment obligations and adjustments, and other variables. Add to this separate rules that may apply in the various States, and you can imagine how difficult it would be for a mortgage lender to accurately calculate exactly what you owe and how to apply your payments. I would suspect that if you presented an identical mortgage and payment history to five different mortgage companies and looked at the “bottom line” numbers at the end of 5 years, you would have five different numbers.
Add bankruptcy to this already complex math and it is not surprising that mistakes will be made. I have seen this myself when looking at motions for relief from stay. The payment history documentation produced by mortgage companies is all but unreadable and there is almost no way to identify how various payments and charges were calculated or applied.
Jay’s blog post about Chase discusses this problem. In the Pawson case, which was filed in the Southern District of New York, Chase had filed a motion for relief from stay alleging that the debtor was delinquent with on-going mortgage payments. Unfortunately for Chase, the debtor had been attempting to make on-going payments electronically and those payments were being rejected. At the time of the motion, Chase alleged both a default as well as extra bankruptcy related charges. Chase made little or no effort to investigate or resolve this matter and instead filed a motion that, if granted, would have resulted in a significant loss to the debtor.
Debtor Pawson’s attorney responded aggressively to Chase’s motion and counterclaimed for damages. In the final resolution of the case, Chase paid damages to the debtor but also found itself in a more global agreement with the U.S. Trustee to change its procedure for dealing with real or imagined mortgage delinquencies. Judges in the Southern District of New York are now developing a procedure that all mortgage companies must follow in that district prior to filing a motion for relief from stay. A copy of the proposed settlement is available within Jay’s post. Interestingly part of the resolution would be for mortgage lenders to provide debtors and their counsel with clear and easy to understand documentation of how payments and charges are applied to a particular mortgage account. Such a procedure would be a welcome change here in the Northern District of Georgia.