It’s been about nine months since several federal judges in Ohio issued the
widely-read foreclosure dismissals that shined a light on sloppy paperwork
done by companies that specialize in handling foreclosures.Since then, the WSJ reports tonight, other judges across the country have
caught on and are carefully scrutinizing mortgage documents filed as part of
foreclosures and dismissing cases based on mistakes they’re finding, which
borrowers might be able to exploit when facing foreclosure. (For another good
read on judges and lawyers working to staunch foreclosure, click here for a
recent NLJ story.)Among the issues hitting snags among the judges, according to WSJ:
“Backdated” mortgage assignments: Assignments, documents that transfer ownership of the mortgage, are executed after the foreclosure process has begun but state that they are “effective as of” a date prior to the foreclosure action. Some judges are dismissing those cases, saying attempts to retroactively assign the mortgage aren’t valid.
Suspicious multiple hats: Employees for mortgage companies are signing affidavits stating
they are employees of one company, but other mortgage documents say they work at
another firm. In some cases, an employee claims to work for companies on both
sides of a transaction, prompting one skeptical judge to ask for that person’s
work history for the last three years.Shared office space: In foreclosure filings, one judge has found that numerous mortgage-related companies, including units of Wall Street banks, all claim to share the same address: a suite of a West Palm Beach, Fla., building. “The Court ponders if Suite 100 is the size of
Madison Square Garden to house all of these financial behemoths or if there is a
more nefarious reason for this corporate togetherness,” the judge wrote in a
recent decision.Brooklyn Crusader: The judge making Madison Square Garden references is Brooklyn’s own Arthur M. Schack (pictured) of Kings County Supreme Court, who has dismissed dozens of foreclosures sua sponte because of shoddy documents or suspicious patterns he notices in the filings. Schack, 63, a former counsel to the MLB Players Association who is known for peppering his rulings with pop culture references such as Bruce Willis movies, says barely any of the foreclosures he has denied eventually are completed.
In one of his foreclosure dismissals, Schack (Indiana, New York Law School) cited the film
“It’s a Wonderful Life” to make the point that homeowners now deal with “large
financial organizations, national and international in scope, motivated primarily by their interest in maximizing profit, and not necessarily by helping people.”In an interview, Schack, a Brooklyn native, told WSJ: “Taking away someone’s home is a serious matter. I’m a neutral party and in reviewing papers filed with the court, I have to make sure they’re proper.”
Wednesday, July 30, 2008
Judges Scrutinize Mortgage Docs, Deny Foreclosures
Monday, July 28, 2008
Fresno No. 9 Nationally in Foreclosures
NACTT Mortgages Best Practices
MORTGAGE BEST PRACTICES
NACTT Mortgage Committee
The NACTT Mortgage Committee is comprised of Chapter 13
trustees, mortgage servicers, mortgagees and creditors' counsel. The committee's
mission is to foster communication between the parties, resolve differences and
to recommend best practices of conduct for all stakeholders. Our goal is to
improve the bankruptcy system. Although the committee recommends the practices
set forth below, we recognize that there may be other acceptable procedures.
Therefore, we remain open to further discussion and review.
BEST
PRACTICES FOR TRUSTEES and MORTGAGE SERVICERS IN CHAPTER 13
If
servicers/mortgagees include a flat fee cost in the proof of claim for review of
the Chapter 13 plan prior to confirmation and for the preparation of the proof
of claim, it should be reasonable and fairly reflect the attorney's fee
incurred.
If Servicers/mortgagees include attorney fees for pursuing
relief from stay, such fees should be clearly identified as well as how such
fees are to be paid in any agreed order resolving a Motion for Relief from Stay
or any other matter before the court.
Servicers/mortgagees should
analyze the loan for escrow changes upon the filing of a bankruptcy case and
each year thereafter. A copy of the escrow analysis should be provided to the
debtor and filed with the Bankruptcy Court by the servicers/mortgagee or their
representative each year.
Servicers/mortgagees should not include any
pre petition cost or fees or pre petition negative escrow in any post petition
escrow analysis. These amounts should be included in the prepetiton claim amount
unless the payment of such fee or cost was actually made by the servicer.
Servicers/mortgagees should attach a statement to a formal notice of
payment change outlining all post petition contractual costs and fees not
previously approved by the court and due and owing since the prior escrow
analysis or date of filing whichever is later. This statement need not contain
fees, costs, charges and expenses that are awarded or approved by the Bankruptcy
Court order. In absence of any objection or challenge to such fees, the trustee
should take appropriate steps to cause such fees to be paid as part of Debtor's
Chapter 13 plan.
Servicers/mortgagees should supply and maintain a
contact for debtor's counsel and trustee's for the purpose of restructuring,
modifying a mortgage, or other loss mitigation assistance including a short sale
or deed in lieu of foreclosure. The contact should be an individual or group
with the ability to implement or assess with objective criteria a loss
mitigation modification after filing of a chapter 13 petition with the goal of
keeping the Debtor in the house and the success of the bankruptcy.
Mortgage servicers should provide a dedicated phone line and contact for
Chapter 13 Trustee inquiry use only.
Mortgage servicers should monitor
post petition payments. If the mortgage is paid post petition current then the
servicers/mortgagees should not seek to recover late fees. No late fees should
be recovered or demanded for systemic delay but should be limited to actual
debtor default.
Pre petition payments should be tracked as applied to
pre petition arrears, post petition payments should be tracked as applied to
post petition ongoing mortgage payments.
Servicers/mortgagees should
file a notice and reason of any payment change with the court and provide same
to the Debtor
Servicers are required to file with court a notice of any
protective advances made in reference to a mortgage claim, such as non escrow
insurance premiums or taxes. Such notice should be provided to the debtors and
filed with the court.
Servicers/mortgagees should review the Trustee web
site or NDC for payment discrepancies with their system prior to the filing of a
Motion for Relief from Stay in Trustee pay jurisdictions.
Servicers/mortgagees should review the Trustee web site or NDC at the
close or discharge of the bankruptcy for payment discrepancies with their system
in Trustee pay jurisdictions.
Servicers/mortgagees should clearly
identify if the loan is an escrowed or escrowed loan and break out the monthly
payment consisting of Principal, Interest, Escrow and PMI components.
Servicers/mortgagees should identify nontraditional mortgage loans in
their proof of claims. Loans with options should identify on the proof of claim
the type of loan as well as the various contractual payment options available
during the bankruptcy to the borrower/Debtor.
Trustees should initiate a
communication with mortgage servicers when questions arise in a review of a post
petition escrow analysis.
United States Trustees and Trustee Education
Network should modify the requirements of the financial management class
regarding adjustable rate mortgages, the calculation of mortgage escrows and, in
particular, the potential of increased mortgage payments resulting from
increased taxes, interest rate hikes and/or mortgage premiums.
Trustee
voucher checks, check stubs or vouchers provided with any other form of payment
contain the following information, except to the extent prevented from doing so
by local rule:
1. The Name of the debtor and case number.
2. The trustee's claim number.
3. The mortgagee's
account number (to the extent provided on the proof of claim).
4. If
the mortgagee account number is not available, e.g. not contained on the proof
of claim, at least one other piece of identifying information e.g., property
address.
5. The amount of the payment.
6. Whether the
payment is for the ongoing mortgage payment or the mortgage arrearage.
7. If for the mortgage arrears, the balance owing on the arrears
claim after application of the payment.
8. If the trustee has set up
a separate claim for post-petition charges of the mortgagee, that the voucher
clearly identify that fact.
9. If any portion of the payment on
arrears is intended to pay interest on the mortgage arrears, the amount of that
interest portion of the payment.
10. If the mortgage is to be paid
off during the bankruptcy under the confirmed plan through payments by the
trustee, e.g., a total debt claim, the portions of each payment which represent
principal and interest, and the balance owing on the claim after application of
the payment.
There is a movement among servicers to redact all but the
last four numbers of the mortgagors' loan numbers on proofs of claim, because
those claims are public records. While mortgage servicers in general want as
much information as possible on the vouchers, the mortgage servicers on the
Working Group felt that if the voucher had the bankruptcy case number, the name
of the debtor and the redacted loan number from their filed claim, they would be
able to post the payment. Using the account number to the extent provided in a
filed proof of claim also insures that trustees are not disclosing information
on their website that is not already disclosed in the public record.
Voucher Narrative re Payments: The Working Group places particular
emphasis on No. 6 above. The voucher should identify if a payment is for the
regular mortgage payment or for the mortgage arrearage in consistent language.
While Chapter 13 trustee disbursement applications focus on the claims to be
paid, mortgage servicer computer systems focus on their mortgagor account
number. Posting of receipts, whether or not the account is in bankruptcy, is
typically handled by a Cash Processing group or department of the mortgage
servicer. Those departments focus on the account number on the voucher and the
narrative on the voucher for that account number to determine if the payment is
for the regular mortgage payment or the mortgage arrearage.
Mortgage
Arrearage Claims: When filing their initial proofs of claim, mortgage servicers
should state their mortgage arrearage up to the date of the filing date of the
bankruptcy petition, unless the plan or trustee indicates otherwise, or local
rule provides otherwise. The Chapter 13 Trustee will use the mortgage arrearage
claim to set up the arrearage balance on the claim, which in turn will show up
as the "balance" on the voucher check, absent objection to the claim.
Friday, July 25, 2008
Thorough Servicer Analysis
Loan Administration
Ms. Miller explained that Wells Fargo administers 7.7 million home mortgage loans. [FN16] The management or administration of these loans is accomplished through several computer software packages, some owned by Wells Fargo, some licensed from third party vendors. Entries on the loan account are tracked with a licensed computer software platform commonly known as Fidelity Mortgage Servicing Package or Fidelity MSP. Fidelity MSP provides extremely sophisticated computer software for the management of home mortgage loans and is one of the largest providers of this service nationally. When a payment is received on a mortgage loan, it is entered into the Fidelity MSP system and then deposited. Fidelity MSP applies the payment to a borrower's account; in this case, satisfying outstanding fees and costs first.
In this Court's experience, virtually every home mortgage executed in the United States contains provisions that determine when payments are due, when they are considered late, what fees or charges may accrue if late, when a default can be declared, the remedies available on default, and which collection fees or charges are recoverable after default. In addition, most notes and mortgages provide fairly clear directives regarding the application of payments between principal, accrued interest, fees, costs, and amounts due to satisfy insurance and property taxes. Mercifully, most home mortgage loans have relatively standard, predictable language. However, the right to assess certain charges or fees on late payment or default is often at the discretion of the holder of the note. How this discretion is exercised is subject to guidelines not contained in the note or mortgage.
In this Court's opinion, the exercise of that discretion may be impacted by the relationship between the holder of the note and the party that administers its collection. In the present financial market, almost every home mortgage loan is packaged with thousands of other loans and sold to investors assembled on Wall Street. The securitization of mortgage loans allows the original lender to immediately recover the amounts lent, providing it with liquidity and reducing its risk of default. The investors that acquire these bundled loans or portfolios are most often not banks or credit unions, the traditional members of the lending community. Instead, they are investment or brokerage houses; insurance companies; hedge, pension, or mutual funds; and other investment groups. They then hire a loan service provider to administer the loan portfolio.
*6 The securitization of home mortgage loans has divorced the lending community from borrowers. Not only are the new holders of the mortgage notes nontraditional lenders, but a mortgage service provider is a buffer in the relationship between lender and borrower. The holders of notes do not see themselves as lenders, but investors in an asset. They have little interest in the relationship between lender and borrower except as it might affect their return on investment.
Mortgage service providers administer notes for a fee. The terms of their agreements with investors, as well as the guidelines the investors set for administration of the loan, have ramifications for the borrower. Most servicing agreements allow the service provider to charge a flat fee, usually stated as a percentage of the portfolio under administration. All principal and interest payments collected are paid to the note holder. Usually, fees are additional income to the service provider while costs are simply a pass through, or reimbursable items. In addition, servicers invest the "float," or funds held on deposit, and retain earnings on that investment. Therefore, amounts held in escrow or in debtor suspense are an addition source of revenue for the servicer. While a mortgage service provider and note holder's interests are closely aligned, they are not perfectly aligned. It is in a mortgage service provider's interest to collect fees and hold funds, both of which generate additional income for its account. Conversely, a note holder or investor is interested in the collection and application of payments to principal and interest.
Since many fees and charges are imposed at the discretion of the lender and must be "reasonable" under the law, servicing agreements may establish guidelines for the exercise of that discretion. [FN17] In this case, Wells Fargo did not produce its servicing agreement. Therefore, the exact terms of its relationship with Lehman Brothers and the financial incentives available to Wells Fargo are not in evidence.
In any event, Ms. Miller testified that once the guidelines for management of a loan are determined by the loan's investor, Fidelity MSP imports the guidelines into its internal logic. [FN18] For example, if investor guidelines suggest the assessment of a late charge every time a payment is fifteen (15) days past due, the Fidelity MSP system will automatically assess a late charge if payment is not posted to the account within fifteen (15) days of its due date.
Other charges or fees are assessed against the account by virtue of "wrap around" software packages maintained by Wells Fargo. These software packages interface with Fidelity MSP and implement decisions based on their own internal logic. For example, if a borrower is delinquent in making a payment, Wells Fargo's computer system may automatically send a demand letter to the borrower. Guidelines might also recommend a property inspection if a loan is past due. If such an event occurs, the computer system will automatically generate a work order for an inspection, allow the vendor to upload the completed report, generate a check to the vendor for the inspection, and charge the customer's account--all without human intervention.
*7 When a loan is involved in foreclosure, bankruptcy, or other litigation, Wells Fargo manages that loan through its Bankruptcy Department located in Fort Mill, South Carolina. Ms. Miller is the Vice President who oversees this department of 375 people.
The transfer of loans involved in a bankruptcy to Ms. Miller's department begins with America InfoSource ("AIS"), a third party vendor hired by Wells Fargo to provide daily information regarding new bankruptcy filings that may potentially involve Wells Fargo loans. At the inception of this relationship, Wells Fargo supplied AIS with a listing of every credit relationship it held or serviced, as well as certain fields of information (debtor's name, address, social security number, etc.) on each borrower. The information is updated daily as Wells Fargo acquires new relationships and old ones are closed.
AIS scans the electronic databases of all the bankruptcy courts in the country and attempts to match debtors to any of the information supplied by Wells Fargo. If a match is made for one field of information, Wells Fargo is immediately notified. The notification provides Wells Fargo with the debtor's name, address, social security number, the bankruptcy court, case number, chapter type, and judge assigned. Once notified, Wells Fargo verifies that the debtor is a borrower. To verify the "match," Wells Fargo scans the information supplied by AIS against its own records. Ideally, three fields or pieces of information will be verified and matched. [FN19] If a three field match is not secured by Wells Fargo's internal computer system, the system will reject the borrower and a manual match will be attempted. This is one of the few times any human being touches or reviews a loan's electronic record.
Once Wells Fargo's computers have verified the AIS borrower match, the program automatically activates a system within the Fidelity MSP software platform called a Bankruptcy Work Station ("BWS"). This sub-part of Fidelity MSP is allegedly infused with computer logic designed to manage a loan during a pending bankruptcy. The supervision of that loan then falls to Ms. Miller.
Once a borrower's status as a bankruptcy debtor has been confirmed, the Fidelity MSP/BWS automatically advises counsel for Wells Fargo when a loan is referred for legal action. Who is selected to represent Well Fargo is dependent on who owns the loan. If a loan is owned by Wells Fargo, it is automatically referred to one of its national counsel; either Brice or McCalla Raymer. If held by one of the federal agencies, Wells Fargo will refer the loan to a firm on an approved list supplied by the agency. If held by a private investment group, that group can specify counsel or can delegate the responsibility to Wells Fargo as the service provider. If the loan is managed by national counsel, local counsel are retained to physically file pleadings and make court appearances when necessary. Local counsel are not given access to either the electronic files or accounting history but receive all of their information from national counsel. They typically do not have direct client access and may even be prohibited from contacting the service provider or note holder by their retainer agreements. [FN20]
*8 Once the BWS notifies Brice that it has been retained, Brice is given immediate access to Wells Fargo's mainframe computer platform. In addition, the computer automatically searches different parts of Wells Fargo's multiple software packages and compiles a storage file where counsel can obtain all the information necessary to perform his or her duties. For example, when a loan is owned or serviced by Wells Fargo, the documents evidencing the initial loan transaction are kept in pdf format under a software platform called FileNet. FileNet is scanned for copies of the note, mortgage, recordation certificate, and other relevant closing documents. Those electronic files are then assembled in a storage file for counsel's use. The Fidelity MSP system, containing the loan's account history, is open to review by counsel. iClear, another computer program, contains copies of the invoices that represent costs billed to the loan. [FN21]
The first task of counsel, once a bankruptcy is filed, is to prepare a proof of claim. Because counsel has direct access to Wells Fargo's complete loan accounting, as well as the documents that support its debt and security interest, national counsel prepares the proof of claim without ever speaking to a Wells Fargo representative. In fact, Wells Fargo testified that it does not review any proof of claim prior to its filing. Wells Fargo's testimony was that only after filing was the proof of claim reviewed for accuracy. [FN22] Other legal assignments are executed in a similar fashion.
For example, when a loan goes into postpetition default, the BWS automatically notifies legal counsel of this fact. Legal counsel then prepares a motion for relief utilizing information obtained from the Fidelity MSP system and BWS, including attaching any necessary documents to support the motion and the financial allegations of the default. The motion is typically filed without Wells Fargo's input or review. Wells Fargo testified that it does not maintain records of the legal documents filed on its behalf but relies exclusively on counsel for this service.
The logic utilized by the BWS in its decision making process is both detailed, court, and even judge specific. For example, if under local rules, or even local custom of a particular district or judge, a motion for relief may not be filed until the loan is at least ninety (90) days past due, the computer can be adjusted to notify counsel of the need to file a motion for relief when the debtor's account is past due ninety (90) days rather than the typical sixty (60). Other adjustments to the system can be made to eliminate fees or charges prohibited by a particular jurisdiction or judge within a jurisdiction. In summary, Fidelity MSP and BWS allow Wells Fargo to input the individual demands of a particular investor or note holder as well as a court district or even judge.