The Fox Guarding The Hen House: Who’s Keeping Mortgage Servicers In Check?

31 Oct The Fox Guarding The Hen House: Who’s Keeping Mortgage Servicers In Check?

Countrywide Home Loans, Inc., has been in the news alot lately.  One story recently reported in The Wall Street Journal is probably resulting in lots of cheering over at Countrywide.   In the case of In Re Sanchez, a bankruptcy court ruled that the United States Trustee did not have standing to bring a complaint in bankruptcy court against Countrywide for abusive mortgage services practices.   In a recent decision in the First Circuit, the appellate court reversed a bankruptcy court’s decision (In Re Nosek)  which ordered sanctions against Ameriquest for its abusive mortgage services practices as those practices did not violate the U.S. Bankruptcy Code or the Debtor’s Chapter 13 Plan.    The Sanchez decision suggests that the U.S. Attorney or the debtor’s attorney should bring the complaints if the mortgage company is not paying according to the terms of the debtor’s plan.   The problem, however, is that many courts utilize form plans, which the debtors are not allowed to change, in order to specify how mortgage payments are to be paid. 

Katie Porter over at Creditslips.com  discussed this issue in her recent blog entitled:  Creditors:  Fear Not.   Ms. Porter pointed out that if the debtors are not allowed to put in language directing mortgage payments to be paid a specific way in their plan, if the U.S. Bankruptcy Code does not prevent abusive mortgage services, if the  United States Trustee cannot bring an action to stop the practices, then the only option is that the judge sua sponte (latin:  on its own) raises the issue.   That seldom happens as judges are extemely busy.

Ms. Porter strongly disagrees with the Sanchez decision and encourages bankruptcy judges to allow debtors to insert 524i language into their plans, in order to protect their interests and in order to obtain that “fresh start” that bankruptcy proceedings should bring. 

The Sanchez decision puts the fox in charge of guarding the hen house and then blames the hens for not being more viligant if the fox gets caught eating the chicks.

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I'm a consumer protection lawyer in Oregon, working with people in Klamath; Lake; Jackson; Josephine; Curry; and Deschutes County. I speak regularly on bankruptcy and consumer protection issues nationwide.
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