Delayed Payments at Issue in Countrywide Settlement

Earlier this week, Countrywide Home Loans Inc. and Chapter 13 Trustee Ronda J. Winnecour submitted a settlement agreement to the U.S. Bankruptcy Court for the Western District of Pennsylvania. The proposed settlement would put an end to the trustee’s litigation against Countrywide in which she alleged that the company failed to process chapter 13 trustee distribution payments in a timely manner.

The trustee was concerned that Countrywide’s delay had resulted in unnecessary late fees, attorney’s fees and negative information on debtors’ loan files.

In October 2007, Winnecour filed 293 motions asking the court to impose sanctions on Countrywide for its conduct and to compel Countrywide to produce loan histories for the 293 affected debtors. To settle the dispute, the company agreed to mediation with the trustee in December 2007. As a result of these efforts, Countrywide has agreed to pay $325,000, which includes fees and expenses that the trustee incurred in prosecuting the motions.

The terms of the settlement also contemplate continued cooperation between the trustee’s office and Countrywide — which was acquired by Bank of America Corp. on July 1 — by requiring Countrywide to reconcile its records for the 293 debtors. With respect to each debtor, Countrywide must either adjust its records to match those of the trustee or provide support for its belief that the trustee’s records are inaccurate.

U.S. Bankruptcy Judge Thomas P. Agresti, who must approve the settlement agreement before it will become effective, is expected to conduct a hearing on the matter on Aug. 11.

In 10 of the 293 cases that were the subject of the dispute between Winnecour and Countrywide, U.S. Trustee Kelly Beaudin Stapleton initiated an investigation of Countrywide’s actions, which she also deemed questionable.

U.S. Trustees are appointed by the U.S. attorney general to oversee the administration of bankruptcy cases and private trustees.

MortgageDaily.com reported in April that Judge Agresti authorized the U.S. Trustee Office to proceed with its examination of Countrywide. However, the proposed settlement between Countrywide and Ms. Winnecour is not binding on the U.S. Trustee.

In re Consolidated Proceedings
Misc. No. 07-00203 (Bankr. W.D. Pa.)

Related

Judge Rules Against Countrywide on BK Examination
Countrywide Home Loans Inc. failed in its efforts to block an examination by the U.S. Trustee to determine whether the company inflated expenses and other costs in bankruptcy claims.

Countrywide BK Claims Probed by U.S. Trustee
Countrywide Financial Corp. is being investigated by a U.S. trustee to determine, among other things, whether it inflated the amount it is owed on bankruptcy claims. Counsel for Countrywide said the actions by the trustee, who has entered more than 16 cases involving lenders in at least five states, are random instances of prosecution without cause.

Servicers Accused of Overstating Loan Balances
Mortgage servicers frequently disregard bankruptcy law and submit inadequate or erroneous claims, a university law professor alleged in a recent 48-page report that indicated lenders and borrowers disagreed on the balance owing in most cases. She suggested illegal fees regularly tacked on to balances without sufficiently identifying the nature of the fees are symptomatic of servicing in general.

Michelle H. Holmes is an associate with the Washington, D.C.-based firm of Weiner Brodsky Sidman Kider PC, where she focuses on representation of members of the financial services and mortgage industries. She graduated cum laude from George Mason University School of Law, J.D., in 2007 and was an editor of the Federal Circuit Bar Journal.

e-mail Michelle at holmes@wbsk.com