30 Nov Chapter 13 Payments Misapplied without Penalty
An appellate court has held that a mortgagee may wrongfully apply post-bankruptcy payments to the pre-bankruptcy account without penalty. Ameriquest Mortgage kept two separate books to account for mortgage payments, one computerized and one manually. The computerized account would apply the latest payment to the earliest unpaid month, even if that month was before a bankruptcy was filed and the arrears was being paid through a Chapter 13 plan.
The debtor learned of this when requesting a payment history as part of attempting to refinance her way out of the Chapter 13 bankruptcy. She, her counsel, and the bankruptcy judge were shocked at his practice, and $250,000 was awarded for emotional distress from Ameriquest’s breach of good faith and fair dealing covenant. This became $750,000 after punitive damages were added.
The First Circuit Court of Appeals found that there was no specific violation of any bankruptcy provision. Ameriquest’s internal records, provided at the debtor’s request, did not rise to the level of evidence that it regarded her as being in default.
Perhaps Ameriquest would have reconciled its separate books after all the Chapter 13 payments were completed, or perhaps litigation would have been required later. To avoid this problem, a well-crafted Chapter 13 plan should instruct the mortgagee exactly how to apply the payments.
The astute reader will relate this case to the Louisiana bankruptcy case of Jones v. Wells Fargo, described here by Kevin Gipson over three parts on October 21, 2007, October 22, 2007, and again on October 22, 2007.Jones was affirmed on appeal.
In Jones, Wells Fargo demanded and received unlawful funds as part of the debtor’s refinancing closing. Nosek only had Ameriquest’s unlawful internal records and her own fear that they would someday cause her to lose her home.
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