Will Countrywide be Able to Defend Itself Against Serious Claims that it Attempted a Fraud in the Bankruptcy Court?

09 Jan Will Countrywide be Able to Defend Itself Against Serious Claims that it Attempted a Fraud in the Bankruptcy Court?

Appearing in the pages of the New York Times today was an article about a bankruptcy Court showdown which raises profound questions for the Debtors in that particular case, as well as broader questions about the continuing viability of the sacred principle known as the “rule of law” in our society.

The consumer debtor in this case, Sharon Hill, does not deserve the nightmare that is now befalling her. Unlike the vast majority of Chapter 13 Debtors, Ms. Hill did everything right in her Chapter 13 case, according to her attorney, Kenneth Steidl. She made all of her plan payments, and every Court Order and every schedule, Proof of Claim, and other document filed in her bankruptcy case was intended to provide Ms. Hill with the certainty that the making of every plan payment would result in a “cure” of the mortgage default which had forced her into Chapter 13 in the first place. Countrywide even went so far as to file a “Proof of Claim” at the very beginning of her case so that Ms. Hill’s plan could be formulated accurately, consistent with mortgage company records.

Ms. Hill’s nightmare began almost as soon as she received her Chapter 13 Discharge, which consists of a federal Court Order certifying that Ms. Hill performed all of the obligations expected of her in her Chapter 13 case, the most significant of which is to make all of her Chapter 13 Plan payments. Soon after receiving her Discharge on May 18, 2007, Countrywide notified Ms. Hill that she was in arrears by approximately $4,700 and declared that she was back in default on the mortgage. Perplexed by how she could be in default when she did everything right, and even going so far as to use Countrywide’s numbers in her Chapter 13 Plan, Ms. Hill contacted Attorney Ken Steidl. Mr. Steidl filed a “Motion to Enforce the Discharge” on June 25, 2007.

Following an initial hearing into the Motion to Enforce the Discharge held on August 8, 2007 before Judge Jeffery A. Deller of the United States Bankruptcy Court for the Western District of Pennsylvania, the hearing concerning the Countrywide default was continued, presumably to provide the Parties time to resolve the matter in an amicable fashion. However, before the continued hearing scheduled for October 31, 2007 could be held, the Hill matter became swept up into a broad, district-wide dispute between Ronda Winnecour, Esquire, who is the Standing Chapter 13 Trustee for the Western District of Pennsylvania, and Countrywide. The matters became consolidated by an Order of Court dated November 19, 2007. It was at this time that the matter was transferred from Judge Deller to Judge Thomas A. Agresti, to whom the district wide dispute had previously been assigned.

The precise nature of the broader, District-wide dispute between Ronda Winnecour and Countrywide referred to above will be discussed in a future post. The purpose of this post is to focus on the potential ramifications related to the hearing which occurred before Judge Agresti on December 20, 2007.

A transcript of the December 20th hearing is available here. In this dispute, as the Debtor continues to fight with Countrywide over Countrywide’s claim that the Debtor is in default despite having successfully completed her Chapter 13 Plan, Countrywide’s primary defense to the Debtor’s argument that Countrywide is in violation of the Discharge Order is that Countrywide sent a series of three letters to Counsel for the Debtor, Attorney Steidl, with carbon copies to Ronda Winnecour, the Chapter 13 Trustee. Ms. Hill’s mortgage was apparently an “ARM” (Adjustable Rate Mortgage) which, according to Countrywide, reset three times during the course of the Chapter 13 case. Counsel for Countrywide produced three letters allegedly notifying the Chapter 13 Trustee and Counsel for the Debtor of the three separate interest rate increases. Both the Chapter 13 Trustee and Counsel for the Debtor deny having received the letters produced by Countrywide.

This brings us to the reason this case has made the national news. Evidently, the first of the three letters bears the wrong address for Mr. Steidl, Debtor’s Counsel. This fact alone isn’t remarkable. Human error happens all the time. The problem is that when the date on the letter is compared to the errant address, the address is for an office that Mr. Steidl wouldn’t move into for another year or so. In other words, either the letter is some kind of fabrication, or someone at Countrywide is a prophet.

To Countrywide’s credit, Countrywide’s attorney admits that the letter is a “re-creation”. Their position is that the letters were produced for the limited purpose of showing what the mortgage payment was at certain points of time, and that as the interest rate increased, the mortgage payment increased. In other words, the letters aren’t “letters” at all.

This raises the critical question: would Countrywide be saying the same thing about the character of the letters had they not been forced into this corner by the “mystery of the wrong address”?

During the hearing, Judge Agresti wondered out loud why, if the letters were produced for the limited purpose described above, the letters would not have been marked conspicuously accordingly. This is a particularly poignant thought given the fact that this is a case that is made or broken on the factual issue of whether letters were indeed sent by Countrywide to Mr. Steidl and Ms. Winnecour. The Judge further speculated why, instead of using these fictitious “letters” to display their records, Countrywide would not have produced a ledger sheet of some kind.

As of today’s date, no determination has yet been made in this case, but we shall be sure to keep you updated.

We also need to address broader questions related to document fabrication. Given the advent of laser printers and simple desktop computers that can be utilized as sophisticated image alteration machines, how can our courts be sure that documents presented to them as evidence have not been altered our outright manufactured? Interviews with lawyers who appear frequently in proceedings where document integrity is critical are sure to reveal that such fabrication is believed to occur more frequently than one would like to admit.

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