A mortgage company that improperly charged fees and costs in a Chapter 13 case without disclosing the practice to the Bankruptcy Court or to the Debtor will be forced to return all of the improperly applied money. The Bankruptcy Court for the Southern District of Texas discovered that Ameriquest Mortgage Company had been misapplying mortgage payments to fees that were not allowed in the Chapter 13 case and plan. As a result, the Debtor’s mortgage was permitted to fall further and further behind so that the Ameriquest could attempt a foreclosure of the Debtor’s residence.
In the case of In Re Sanchez, Bankruptcy Judge Jeff Bohm wrote
The Court would like to be very clear: a creditor holding a lien on a debtor’s homestead may not assess a debtor post-petition charges without giving notice to the debtor and without seeking court approval, whether or not those charges are specifically allowed under a prepetition contract. Nor may such a creditor purchase another creditor’s claim without notifying the Court, or modify a confirmed plan. To hold otherwise would be to prefer one creditor over others, and deny Chapter 13 debtors the chance for a fresh start–thereby upending the twin pillars of the bankruptcy system.
This decision shows that the Courts are looking carefully at the actions of the mortgage companies. For a more technical view of this case, check out Jay Fleischman’s post at the New York Bankruptcy Litigation blog.
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