Mortgage Lender Sanctioned for Charging Excessive Unexplained Fees

Once a debtor files for Chapter 13 bankruptcy, the mortgage lender must adjust its records so that the next payment due after the filing of the case is applied to that month’s payment and not to any previous month. All the pre-petition arrears that the debtor may owe the mortgage lender are being paid by the Chapter 13 Trustee through the plan. In order to receive payment by the Trustee, the lender must file a proof of claim in the debtor’s bankruptcy case. The claim will advise the court of the balance due on the loan as well as the amount of pre-petition arrears.

In the recent case of Fleming v. National City Mortgage, (In re Fleming), from the Bankruptcy Court in the Southern District of Ohio, the mortgage lender had filed a proof of claim in the debtors’ case. Two years later the debtors attempted to refinance their loan but were unable to do so because the payoff figure given to them was $7,688 higher than the amount shown on the lender’s proof of claim. This was despite the fact that they were current on their mortgage payments. A year later they again attempted to refinance. This time the payoff figure was $8,653 higher than the amount shown on its proof of claim. The largest single item on the payoff figure was a charge for $21,420 in foreclosure costs. The proof of claim indicated an amount for foreclosure costs of less than $3,000. The debtors filed an adversary proceeding against the lender to determine the exact amount of what was owed on the loan.

Instead of answering the question of what was owed, the lender engaged in litigation and discovery tactics that increased the costs to obtain the answers. The court found that the debtors would never be able to match the defendant’s financial resources and would inevitably have to abandon the cause and their home. The court entered a default judgment against the lender as the “only viable recourse to avoid such an unjust result.” The court then ordered the lender to amend its records so that the amount due conforms with the Chapter 13 Trustee’s records, that it correct the debtors’ credit reports and also pay the debtors their attorneys fees and costs incurred in pursing the case.

I am involved in litigation against mortgage lenders in the bankruptcy court in my state for similar problems. The mortgage lenders’ tactics are the same in my cases as they were in the Ohio case. Getting the lenders to answer discovery requests in a straightforward manner has been almost impossible. It has taken multiple hearings in one of my cases for the lender to answer basic questions. I only hope the judges in my state will be as bold as the judge in Ohio.

Laura J. Margulies is a principal in the firm of Laura Margulies & Associates, LLC. We represent consumers in bankruptcy and litigation matters in Maryland and the District of Columbia.