Chapter 13 Debtor’s Beware: Recurring Problems With Mortgage Companies – Part 1 “Double Dipping”

by Peter Orville, Binghamton Bankruptcy Lawyer

January 25, 2010

Mortgage companies are well known for having numerous and continuous problems keeping a proper accounting of the mortgages they hold.  This is particularly true in the context of a Chapter 13 case where the mortgage company is paid by the Chapter 13 Trustee for the pre-petition arrears, and by the homeowner for the ongoing post-petition monthly mortgage payments.  Oftentimes, the problem with the mortgage company is that one department has no idea what the other department is doing within the same company.  Usually, the one who gets hurt by this practice is the homeowner.

One flagrant ongoing problem is that of “double dipping”.  This can occur in a number of ways. Most mortgage payments include an “escrow” for property taxes, school taxes and insurance.  When you include mortgage arrears in your Chapter 13, each payment your Trustee is paying to the mortgage company includes a portion towards principle, a portion towards interest, and a portion for property taxes, school taxes and insurance.  This is because in order to get paid, the mortgage company must file a “proof of claim” in which they must detail how they arrived at the amount of the arrears.  In their break down, they add in missed payments (which include principle, interest and escrow amounts).  As they get paid by the Trustee, they receive enough to cover the arrears, including the escrow amount.

The problem often arises after your bankruptcy is filed, when the mortgage company sends you a letter saying that they have to increase your regular monthly mortgage payments to make up for their “negative escrow balance”.  Since this negative escrow balance is only caused by the fact that you were in arrears on your pre-petition payments, and since the money the Trustee is paying to the mortgage company will make up for this negative balance, they are double dipping…getting paid twice for the same negative escrow balance (once by the trustee and once by you when you pay the higher monthly mortgage payment).

Be sure to let your bankruptcy attorney know of any communication you get from your mortgage company while you are in your Chapter 13 bankruptcy case.

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Peter Orville is a bankruptcy lawyer in Binghamton, located in the Southern Tier of New York. He is a member and New York co-chair of the National Association of Consumer Bankruptcy Attorneys.

Last modified: January 25, 2010