HOT TOPICLEGAL UPDATES
Presented by the AFN’s Legal Services Committee
SPEAKERSWilliam M. LeRoy - ModeratorCEOAmerican Legal & Financial Network “AFN”
Asha Shravah, Esq. - PanelistSenior AssociateRosicki, Rosicki & Associates, P.C.
Matthew C. Abad, Esq. - PanelistPartnerBurke, Costanza & Cuppy L.L.P.
Michelle Garcia Gilbert, Esq. - PanelistAttorneyKass, Shuler, Solomon, Spector, Foyle & Singer, P.A.
Nosek - Update
Sanctions: Ameriquest - $250,000 Wells Fargo - $250,000
Various law firms Creditors’ rights firm #1 - $25,000 Partner/Atty at firm #1 - $25,000 Creditors’ rights firm #2 - $100,000
Practice Pointers From Nosek Sanctions
Holder of the note, servicer, creditor’s rights attorneys must accurately inform Themselves, debtor, the Court
Communication with Parties/Court must be Reasonable, Accurate, and Not increase the burden on the trustee/debtor or the Court
Holder of the note, servicer, creditor’s rights attorneys must accurately inform Re: Status of debt
Pre-petition Post-petition
Changes in escrow requirements Changes in interest rate and payments
Why The Practice Pointers Matter
Holder of the note, servicer, creditor’s rights attorneys may be sanctioned for failures to: Accurately communicate status of account Identify actual holder of note Identify the servicing relationship
Reliance on another party’s assertion not a defense to potential sanctions No Finger Pointing – PPPPPP - Power Proper Preparation Prevents
Poor Performance) Strict liability for misrepresentation Scienter not relevant.
In assessing sanctions – court uses objective or reasonableness standard while analyzing behavior of parties
Nosek Best Practices Not Followed
Timely and appropriate communication re: status of mortgage loan during the: POC Notice of Transfer of claim Motion for Relief Adversary proceedings
Facts
11-25-97 - Debtor gave Ameriquest a note and mortgage
11-30-97 – Ameriquest assigned to Norwest 5-22-00 – Assignment recorded 3-31-05 – Ameriquest assigns servicing rights to
AMC Ameriquest not a holder since 11-30-97 Not a servicer of loan since 3-31-05
Ameriquest and its various attorneys continually made contrary representations as to status as Servicer Note holder
Facts (Cont)
2-13-03, Ameriquest filed POC Claim #1 No reference to assignment or status as servicer
4-22-03 Ameriquest filed an Amended POC No reference to assignment or status as servicer
Debtor objected to POC 2-17-03 – Atty signed a pleading in response to
objection – Part of the pleading: Ameriquest is the holder of the first mortgage on real
property known as 60 Bolton Road, South False assertion – resulted in sanctions 2-24-03 - Same atty signed a Motion for Relief
identifying Ameriquest as “. . .the holder of a first mortgage ....”
Facts (Cont)
Ameriquest sent several letters over a period of time identifying itself as the holder, for e.g. 10-26-02 – Ameriquest’s Customer Serv. Dept letter 4-26-03 - Ameriquest sent another letter containing this
language stated: Both letters stated that Ameriquest Mortgage
Company (AMC) holds an Adjustable Rate Note secured by a mortgage (or Deed of Trust)
These failures violate BR 4001-1(b)(2)(F), a (not part of the rules at the time
Nothing in previous rules allowed misrepresentation of movant’s role
At time of trial, Ameriquest was not the servicer
Facts (Cont)
1-3-05 another atty at the same firm signed the answer to the Adversary Complaint Admitted the allegation in the complaint filed
December 2, 2004 (Ameriquest “is” the holder of the first position mortgage)
Atty defending Ameriquest failed to advise the Court that Ameriquest was neither the note holder nor mortgagee
2nd creditor’s rights firm entered the melee 7-17-06 – atty filed an appearance in Adversary
Proceeding 04-4517 1-9-08 finally notified the court on 1-9-08 in another
Adversary of Ameriquest’s true role
Analysis
Court noted mistakes in the residential mortgage industry: Not limited to confusion, lack of knowledge,
sloppiness, as to the entities roles Servicer’s reputation in industry is poor Sloppiness causes court/debtor/trustee to
expand valuable resources
In re: Laskowski - Lessons Follow all applicable laws (that do not conflict)
RESPA, BK, FDCPA, State statutes Follow the Best Practices Liability can result from multiple sources
Federal Statutes State Law
Servicers must comply with RESPA Respond to QWR inquiries(20 and 60 day letters) Annual escrow analysis
Increase post-petition mortgage and escrow payments to reflect increases in taxes/insurance
Notify Debtor/Trustee/Court of changes Principal, interest, insurance and tax payments Escrow deficiencies or changes
Bound by the plan If the terms are not favorable – violate your rights – you must object Failure to object results in a waiver of your rights
In re: Laskowski - Facts
Confirmed Ch 13 Plan required monthly payments to servicer Principal interest, and escrow (taxes and insurance)
Servicer provides a “refund” of overpayments during course of Bk
Debtor completes the Plan payments 10/06
Trustee sends QWR to servicer requesting final accounting pursuant to RESPA
Facts (Cont) Servicer fails to respond to QWR
No 20 day letter No 60 day letter
After the Bk plan is complete/discharged Servicer notifies trustee of post-petition fees due Amounts owed
in the escrow account in 04/06 Servicer admitted it didn’t analyze escrow accounts for loans in
bankruptcy Trustee filed an Adversary claiming contractual, and statutory
damages, legal fees and costs RESPA Violations
Failure to conduct annual escrow analysis Failure to notify debtor of surplus or deficiency Failure to acknowledge receipt of QWR (20 days) Failure to respond with written explanation (60 days)
Servicer delays caused Debtor to remain in bankruptcy
Facts (Cont)
Servicer Response to Debtor: Pre-emption - Bankruptcy Code has priority
and precludes RESPA claim No Private Cause of Action under RESPA §
2609 Trustee Lacks standing to bring QWR claim RESPA doesn’t require annual accounting for
bankrupt borrowers Bankruptcy Code precludes state based
contract claim. Contract law doesn’t apply to Ch. 13 plan
Court’s Analysis (Judge Dees)
RESPA and Bankruptcy are different statutes Different Purposes Different requirements Different remedies
RESPA does grant private rights of action for certain violations (including the violations claimed in this case)
Trustee has standing to bring RESPA claim as agent of debtor Servicer must conduct annual analysis Servicer not required to provide debtor with annual statement Bankruptcy Code does not preclude state contract claims.
No showing that state law claims actually conflict with Bankruptcy Code Contract claims are allowed:
Ch. 13 plan operates like a court-approved contract Ch. 13 provided that creditor must notify debtor of change in payments
In Re: Laskowski – Best Practices
Best Practices Not Followed Communication – accurately re: identify of
parties, amount of debt (pre- and post-petition Allows debtor and Trustee to make appropriate,
timely post-petition and claim payments Servicer failed to inform trustee/debtor of
changes in post-petition payments Servicer failed to take action to ensure
accuracy and completeness of the balances to reduce litigation
Accurate balances and amounts due post-petition
Best Practices (Cont)
Failed to analyze not only this loan, but any loan in Bankruptcy on an annual basis
Servicers Policy was to not analyze escrow accounts for Bk loans
Court held that RESPA requires servicer to conduct annual analysis
Servicer failed to provide a dedicated phone line and contact for Ch. 13 trustee inquires Although not required, assists with inquiries and
resolutions Dedicated line would have avoided sixth month gap
between mailing of QWR and response
Best Practices (Cont)
Servicers should supply and maintain a contact for debtor’s counsel and trustees for the purpose of loss mitigation for active bankruptcy accounts
This was not done in Laskowski and trustee later brought a claim alleging that the creditor delays re responding caused the debtor to remain in bankruptcy longer and prevented the debtor from re-financing the home
This claim brought by the trustee seemed likely to succeed so the practice of maintaining such a creditor contact seems to be very important given the negative effect of delays caused by the creditor
Best Practices (Cont)
But what about the Professional Rules of Ethics As creditors’ rights attorneys representing the servicer, we could not
call the debtor’s directly How is it that the Trustee and the debtor’s attorney are exempted
from this requirement in this suggestion Servicer failed to inform debtor’s attorney and trustee of
changes in payment/interest/taxes as they occurred Servicer should have notified of the changes no later than 30
days before the effective date Servicers should have concurrently filed a notice of the
payment change with the court clerk Servicer did not have an appropriate Corporate Governance
Process in Place Did not appear to have any mechanism to catch or notify
anyone of the charges until the completion of the bankruptcy
Best Practices (Cont)
Corporate Governance – LACRP Legal – advise as to the legal risks (statutory, regulatory, litigation) Audit – check to see that the other departments are following the
procedures Compliance – checks for compliance with regulations Risk – Credit and Reputational Privacy – checks for compliance with privacy regs The groups should coordinate with the line of business Set-up the appropriate processes and procedures for the line of
business (servicing) Prevent litigation, regulatory or reputational risk Prevent debtors from going straight into foreclosure after
completing their Ch 13 Servicer in this case failed to file escrow changes with the BK court Remember PPPPP – Proper Power Planning Prevents Poor
Performance
ConclusionQuestion & Answer Period
If you have any further questions that were not addressed in this presentation, or want to contact one of our speakers, please email Matt Bartel, COO of AFN, at [email protected].
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* AFN provides the information contained in these webinars as a public service for educational and general information purposes only, and not provided in the course of an attorney-client relationship. It is not intended to constitute legal advice or to substitute for obtaining legal advice from an attorney licensed in the relevant jurisdiction.
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