Thought You Were Caught Up On That Mortgage After Chapter 13 Completion

You file a Chapter 13 case to save your house.

Scrimp through three, four, or even five years, make all the payments to the Trustee, even your tax refunds. You get a letter from the Trustee, congratulations! start paying your mortgage directly again. Then you get the discharge from the Court.

And, wham! Mortgage company says you are $4,000, $5,000, even $20,000 behind.
What happened?

Several things may have contributed. One, the mortgage company, or, more likely, the servicer handling the payments, has improperly accrued late fees for every month you were in Chapter 13. They are allowed to accrue these charges on their books, as many cases are dismissed, withdrawn, or converted to Chapter 7, in which case it is legal for you to be charged late fees. It is not correct for late fees to be charged when you have successfully completed your case.

Two, if you have an adjustable rate mortgage, and the payments increased while your case was pending, but your plan was not modified to reflect that increase, so the Trustee paid an incorrect lower payment. In Detroit, a local rule requires the mortgage company to notify you, your lawyer, and the trustee, in advance, if the payment amount changes during the pendency of the case. Depending on how your court rules, and what the court rules are, you may be able to defeat any charges added to your account in violation of this rule.

This Detroit rule also applies to changes in escrow payments for insurance and taxes. If no one is notified, you should not have to pay years’ worth of tax and or insurance increases which were concealed from you during the case, and sprung on you after its conclusion. Several courts have supported this view.

Third, you may have been responsible for making the tax and insurance payments directly, so there is no escrow account. Then, during the Chapter 13, being strapped for funds, you fall behind the taxes and or insurance. The mortgage company makes those payments, but, keeps it a secret. They should file a motion to lift the stay, and or dismiss your case, if taxes or insurance are not being paid. For some reason, it is becoming more common for them to just pay these items and tell no one. Then, you get zapped with a big bill as soon as your case is over. Some courts have held this is improper, and the mortgage company cannot get the payments back from you.
I have also seen cases in which overdue property taxes are being paid through the plan, but the mortgage company hauls off and pays them during the plan, again, without telling anyone. I have had a Court rule that the mortgage company could not add that amount back on to the mortgage balance.

Fourth, the mortgage company just screwed up. Of course, you could be the victim of more than one, or all, of these possibilities. The moral of the story, keep records of all payments to and communications from the mortgage company. Send a RESPA (Real Estate Settlement and Procedures Act) letter to your mortgage company when your Chapter 13 case is finished. This requires the company to give you a complete accounting of all payments made and what was done with them.

Stand up for your rights, and find a lawyer who will help you! You have done the hard work of succeeding in a Chapter 13, you deserve all the benefits.