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A Wake Up Call for Servicers
Recently, Henry E. Hilderbrand III published an article in
the September, 2003 Edition of the American Bankruptcy Institute
Journal entitled "The Sad State of Mortgage Service Providers"
that should concern all those in the mortgage servicing industry.
While sympathetic to the plight of today's mortgage servicer,
Mr. Hilderbrand was also very critical of the servicing industry’s
perceived inability to deal with Chapter 13 cases. In defense
of his position, he cited specific instances relating to the
assessment of controversial fees in proofs of claims, the
inability to apply payments correctly, and inadequate record
keeping on the part of servicers. Mr. Hilderbrand, who has
served for several years as a Standing Chapter 13 Trustee
in Nashville, TN, is widely regarded as one of the more knowledgeable
and engaging trustees in the country. He is a frequent lecturer
on consumer bankruptcy issues and is also a past-president
of the National Association of Chapter 13 Trustees. Thus,
while many (including our firm) may disagree with his generalizations,
there should be cause for concern. We have all heard the statement
that "perception is reality". Those in the mortgage
servicing industry would be well served to work with groups
like the National Association of Chapter 13 Trustees (www.nactt.org)
and the National Association of Consumer Bankruptcy Attorneys
(www.nacba.org)
to enhance the overall perception of the servicing industry.
For more information on this article, you may contact Glen
D. Rubin or American Bankruptcy Institute (ABI) directly
at: www.abiworld.org
New Agreement to Assist in Title Clearance
Matters
In the fall of 2003, all major title insurance companies
licensed to issue title insurance in Georgia executed a Mutual
Indemnification Agreement "MIA." The purpose of
the MIA is to streamline cross-indemnity requirements relating
to previously insured titles on Georgia properties.
The practical effect of the MIA is relief from obtaining
specific indemnification between participating insurers for
title defects that are "covered matters" under the
agreement. The "covered matters" are routine title
defects/objections that are not exceptions to previously issued
title insurance policies such as unsatisfied judgments and
federal or state tax liens which pre-date the indemnitor's
policy (with some limitations), unsatisfied mortgages (security
deeds) and absence of corporate seal or lack of stated corporate
capacity on corporate deeds prior to the indemnitor's policy
(with limitations). For example, if there is evidence of a
payoff of a previous mortgage, but that mortgage is not canceled
of record, a subsequent participating title insurer can rely
on the MIA to provide affirmative coverage over the open mortgage
without having to obtain a specific indemnification letter
from the previous title insurer.
In order to rely on the MIA, the indemnitor's policy (either
owner's or mortgagee's) must be at least one year old, thus
evidencing the continuing obligation to remedy more recent
and easily correctable title defects as opposed to reliance
on the terms of the MIA. Also, the liability under any indemnitor's
policy is limited to the face amount and terms of the prior
policy or $500,000, whichever is less.
Should you have any questions or comments relating to the
MIA, please contact either Anthony
DeMarlo or Michael
Dugan.
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Bankruptcy: Latest Developments
1. Attorneys' Fees
It seems like the Southern District of Georgia is a hot spot
for emerging law on the collection of attorneys' fees through
proof of claims. It is important to note local rules in this
district mandate that a copy of the proof of claim be served
on debtor's counsel. Certain debtor’s counsel have made
a living off of scrutinizing claims and objecting to them
in search of the next big class action. In one case, a debtor
filed a class action complaint against a servicer alleging
improper assessment and collection of attorneys' fees. Ironically,
in the case no attorneys' fees and costs were sought in the
proof of claim. However, the servicer did post certain post-petition
bankruptcy fees and costs to the account without disclosing
them to the court or first obtaining court approval. The Court
dismissed the case finding that the debtor had no standing
to bring the complaint since (i) there were no fees included
in the claim itself, (ii) the claim was not objected to prior
to confirmation, and (iii) the servicer had not actually attempted
to collect the post-petition fees from the borrower (they
were only listed on an account statement). The decision can
be viewed in its entirety at: http://www.gamb.uscourts.gov/Opinions/Walker/S02-41629.pdf
In another case, an adversary proceeding was filed against
a servicer alleging improper attempts to collect attorneys'
fees. In this case, again no attorneys' fees were sought in
the proof of claim itself. However, the claim did contain
a statement that post-petition bankruptcy fees might accrue
and be assessed and collected in the future. Sure enough,
when the debtor sold the home during the pendency of the bankruptcy
case, it appears that pre-petition foreclosure fees and some
post-petition bankruptcy fees totaling $ 1,060.00 were included
in the payoff. The Court did not dismiss the suit and its
holding is a bit of a mixed bag for servicers. While, the
servicer took the position that the fees were allowed to be
collected in the payoff, the Court indicated that since the
claim did not list any fees, in order for the servicer to
collect fees, the Judge must first assess whether or not the
charges were reasonable. The Judge also held that the servicer
may not be entitled to a portion of those fees (foreclosure
fees) since they failed to provide a required notice under
state law in connection with the foreclosure proceeding. This
decision may be viewed in its entirety at: http://pacer.gasb.uscourts.gov/b_orders/2003/02-01089Adv.pdf
2. Motions for Relief
In this case our firm filed a Motion for Relief from the
Automatic Stay for a servicer. The loan was significantly
in arrears post-petition. Debtor responded to the Motion by
filing a Motion to Modify Plan and have all delinquent post-petition
payments repaid under the Plan. We opposed this proposed modification
on behalf of the servicer. After considering the amount of
the post-petition arrearage, the number of consecutive payments
missed, the lack of equity in the property and the lack of
feasibility, the Court did not approve the proposed plan modification
and lifted the automatic stay. The decision may be viewed
in its entirety at: http://pacer.gasb.uscourts.gov/b_orders/2003/400-2733.pdf
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