I see it in almost every mortgage proof of claim. Junk fees by mortgage companies that only line their pocket books and rip you off. Dont let it happen to you simply because you don’t bother to read their proof of claim!
After filing a Chapter 13, creditors and debt scavengers will come out of the woodwork to file proof of claims in your case. Many of these claims are no longer collectable under the law since they are past the statute of limitations, may have been previously discharged in a prior bankruptcy, are for a completely different debtor, or are by being asserted by a zombie debt buyer that claims they bought your debt when in fact they may never have. Such proof of claims are not only unenforceable and your attorney should object, but they also may be unlawful and subject to criminal fines, penalties, and jailtime if in fact they are false! Yes, a creditor can go to jail for up to 5 years and pay substantial fines by filing false proof of claims!
18 U.S.C. 152(4) Elements of the crime:
The criminal law elements of the offense of a false claim violation under 18 U.S.C. 152(4) that the government must prove are:
- That a bankruptcy proceeding had been commenced;
- That defendant presented or caused to be presented a proof of claim in the bankruptcy proceeding;
- That the proof of claim was false as to a material matter; and,
- That the defendant knew the proof of claim was false and acted knowingly and fraudulently.
Mortgage claims are no different. in fact, in many cases they are worse. Many of these claims have bogus fees such as “drive by appraisal” fees, late fees which should not exist, appraisal fees, suspense account fees, etc. Probably the worst are “attorney fees and costs.” While attorney fees and costs are not per se unlawful, they must still must pass 3 basic tests:
1) They must be provided for by a provision in the underlying contract. Usually, the deed of trust/mortgage and promissory note contains an attorney fee provision so this is generally ok.
2) They must be reasonable. This is often a big problem for 2 reasons. First, Bankruptcy Rule 2016 requires a fee application, hearing, and bankruptcy court order prior to any attorney fees and costs. There are some jurisdictions which allow such fees without the hearing provided the prof of claim adequately spells out the fees and services and the same are reasonable. Nevertheless, since most attorney fees asserted by mortgage companies are simply a line item in the prof of claim without any further explanation, its virtually impossible to assess what such fees are for and clearly evidence unreasonableness. Second, the fees charged must be reasonable in light of the services rendered. $150 to file a one page document that states”please send me notices of all bankruptcy papers that are filed in this case” which takes 2 minutes to prepare clearly is not reasonable.
3) They must qualify to be entitled to fees under 11 USC 506. This is where most problems arise, at least in most my cases, since the Mortgage is generally much higher than the value of the house and no equity exists. 11 USC 506 will only allow fees to the extent there is equity in the home(same with car, etc). No equity = no fees. Period! Yet almost every mortgage proof claim I see still attempts to assert $150 to $250 in bogus attorney fees despite the this very clear bankruptcy law which prohibits the same. Just yesterday I had a creditor who asserted $150 in attorney fees in the proof of claim, yet the same proof of claim admitted that the house was worth almost $100,000 less than what they owed on it! I dont see any difference between this unlawful request for money and someone walking into a bank with a $100 monopoly money bill and telling the bank teller that they know they can not get change for it, but are asking for 5 twenties anyways!
So watch out! Such requests for attorney fees are clearly not allowed. Moreover, chances are that once your attorney objects to such an unlawful proof of claim, they can also get the creditor to pay your attorney fees and costs because of a famous Supreme Court Ruling last year called “Travelers” may allow it depending upon your state law. In California, we have Civil Code 1717 and we are requesting fees in every case where creditors attempt to commit bankruptcy abuse.
Written by Michael G. Doan
Bankruptcy Law Network (BLN)
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Last modified: April 24, 2012