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Major Mortgagee in Trouble Again with Bankruptcy Court

The U.S. Trustee is seeking major sanctions against Countrywide as well as across-the-board system reforms.  A bankruptcy court judge determined last week that Countrywide’s system is unreasonable, reckless and sanctionableWritten by Craig D. Robins, Esq.
  
The U.S. Trustee is seeking major sanctions against Countrywide, as well as across-the-board system reforms.  A bankruptcy court judge determined last week that Countrywide’s system is unreasonable, reckless and sanctionable
 
I previously wrote several posts about how some of this country’s largest mortgage companies had engaged in abusive and frivolous litigation practices in bankruptcy court proceedings.  (see Finally. . . U.S. Trustee getting tough on mortgage lenders [1]).
 
Now the United States Trustee is seeking major sanctions against Countrywide Home Loans in a case in Akron, Ohio.  Last year I called Countrywide the “Poster Child of Bad-boy Bankruptcy Litigation” because of the extreme level of chronic abusive litigation they were engaged in across the country.
I, myself, sought sanctions against a mortgagee last year for bringing frivolous litigation in the Central Islip Bankruptcy Court and obtained a record sanctions award for my client — Litigating Against Abusive Mortgagees. Your Columnist Scores Big Win Against Mortgagee Who Filed Frivolous Motion [2].
 
With this Ohio bankruptcy case, the United States Trustee, which is the federal arm of the U.S. Department of Justice that monitors all bankruptcy proceedings in this country, is seeking to reform a mortgage-servicing system that is riddled with errors.
 
Last week, the U.S. Trustee sought remedies against Countrywide, which was recently renamed Bank of America Home Loans by owner Bank of America Corp.
 
Ohio bankruptcy court Judge Marilyn Shea-Stonum determined that Countrywide showed a “disregard for diligence and accuracy” and called for sanctions against Countrywide.
 
Today, the judge entertained arguments on what sanctions the court should impose in this bankruptcy case.
 
The facts of the case grew out of the 2007 bankruptcy of Marlynn R. O’Neal, who totally satisfied her mortgage debt in 2005. However, when O’Neal filed for personal Chapter 13 bankruptcy two years later, Countrywide filed papers in bankruptcy court saying she owed $88,000.  Such conduct was purely frivolous. 
 
The U.S. Trustee’s office took action against Countrywide for having commenced frivolous and abusive litigation.  Countrywide admitted to negligence in demanding payment from the debtor, but they denied that they were reckless. 
 
However, Countrywide didn’t simply overlook one entry on  a loan history, the judge noted. Months of phone calls and e-mails establishing that the debtor’s mortgage was satisfied  never showed up in the part of Countrywide’s system that produces information for bankruptcy court filings.
 
The judge determined that “Countrywide’s system is reckless.”  The judge wrote, “It appears to me designed to allow each actor in the process to act with indifference to the truth.”  Judge Shea-Stonum concluded that Countrywide’s conduct “was not reasonable, was reckless and is sanctionable.”
 
In even harsher words, the bankruptcy judge stated, “There is no evidence in the record to support that Ms. O’Neal was other than a victim of a predator whose business operations are enabled by and depend upon a mortgage servicing industry that is unconcerned with the accuracy of records and information.”
 
I will report the results of the bankruptcy sanctions hearing when they become available.
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