A&B ABstract:
On December 7, the Department of Justice U.S. Trustee Program (“USTP”) announced that it has entered into agreements with three servicers to address mortgage servicing deficiencies impacting borrowers in bankruptcy.
Issues
Addressing allegations that the entities failed to comply with the Bankruptcy Code and the Federal Rules of Bankruptcy Procedure, the agreements reflect issues with the servicing of mortgages for more than 60,000 borrowers in bankruptcy dating back to 2011.
According to the USTP, the issues included application of payments, inaccurate, missing, and untimely bankruptcy filings; and delayed escrow statements. Specifically, the USTP alleges that:
- Two of the servicers failed to run annual escrow analyses for borrowers in bankruptcy;
- Two of the entities failed to accurately apply payments in bankruptcy cases;
- One servicer failed to file timely and accurate proofs of claim in bankruptcy cases; and
- All three entities failed to: (1) file timely and accurate notices of changes to mortgage payments for borrowers in bankruptcy; (2) file timely and accurate notices of fees assessed during bankruptcy cases; and (3) provide an accurate final accounting of payments made by borrowers during bankruptcy cases.
Settlement Terms
To resolve these issues, the USTP entered into memoranda of understanding with two of the servicers, and a letter of acknowledgment with the third. Altogether, the servicers will pay more than $74 million in credits and refunds; additionally, one entity will waive approximately $43 million in fees and charges.
Takeaway
While the issue of servicing mortgages for borrowers in bankruptcy received significant attention with the CFPB’s most recent revisions of the Mortgage Servicing Rules, the USTP’s settlements serve as a reminder that additional obligations arise under the Bankruptcy Code and the Federal Rules of Bankruptcy Procedures. Servicers should review their practices against the USTP’s allegations to ensure that they are compliant with all applicable provisions.