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

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

Mortgage companies are well known for havingnumerous and continuous problems keeping a proper accounting of the mortgages they hold. This is particularly true in the context of aChapter 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-petitionmonthly 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.

Oneflagrantongoing problem is that of “double dipping”.This can occur in a number of ways. Mostmortgage payments include an “escrow” for property taxes, school taxes and insurance.When you include mortgage arrears in your Chapter 13,each payment your Trustee ispaying to the mortgage company includes a portion towards principle, a portion towards interest, and a portion forproperty 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, theyreceive enough to cover the arrears, including the escrow amount.

The problem often arises afteryour bankruptcy is filed, when the mortgage companysends you a letter saying that they have to increase your regular monthly mortgage paymentsto 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.
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