US Bankruptcy Trustees Ask for Sanctions Against Countrywide

We have said that Countrywide is an institution that has deliberately operated on the edge of the law. Apparently we’ve been far too charitable in our views.

The federal bankruptcy trustees in Florida, Georgia, and Ohio have decided to take on Countrywide for a persistent practice of attempting to lard up the amount owed by homeowners in bankruptcy by failing to apply payments, adding fees (all fees are supposed to be approved by the judge) and making false claims. They result in extra costs to consumers (no doubt the hope is that they are too broke to fight) and burden the court system.

Observers believe this is the first time an action this extreme has been taken by the Justice Department.

From the New York Times:

In a move that escalates the legal trouble faced by the mortgage lender, the Countrywide Financial Corporation, federal regulators have asked the courts to sanction the company for abusing the bankruptcy system.

United States trustees in Florida, Georgia and Ohio have asked the courts to enjoin “Countrywide’s sustained bad faith conduct” in its treatment of distressed consumers trying to save their homes in bankruptcy court, according to a complaint filed by a United States Trustee Donald F. Walton.

“Countrywide’s failure to ensure the accuracy of its claims and pleadings has resulted in an abuse of the bankruptcy process,” Mr. Walton, the trustee for the region that includes Atlanta, wrote in papers filed Thursday in the Federal Bankruptcy Court for the Northern District of Georgia…

The action by an arm of the Department of Justice marks a rare concerted effort by the government to rein in Countrywide for behavior that has exasperated consumer attorneys for years: Misapplied mortgage payments, false court filings and unexplained extra fees.

“This is the first case that I know of where the U.S. trustee has actually filed an adversary proceeding in bankruptcy court against a creditor of this type,” said O. Max Gardner III, a consumer bankruptcy lawyer in North Carolina. ”The relief that it is asking for is based on a long pattern and practice of behavior that is all too familiar.”

In “9 out of 10” Chapter 13 bankruptcy cases, wage earner bankruptcies where people try to catch up on their bills, Countrywide complicates court proceedings with erroneous legal filings, mishandled payments and fees that are not explained, Mr. Walton said…

Mr. Walton is seeking sanctions against Countrywide for its behavior in the case of a Georgia couple who filed for Chapter 13 bankruptcy. He said Countrywide falsely accused the couple, John and Robin Atchley, of defaulting on their mortgage, assessed $2,793 in unexplained fees and kept taking money after the home was paid off.

Countrywide returned the extra payments and dropped threats of foreclosure. But Mr. Walton said Countrywide added ”unnecessary delay and expense” to the bankruptcy process and should not go unpunished.

Courts in Pennsylvania, Texas and North Carolina have sanctioned Countrywide and imposed punitive damages for “aggravated and egregious” misconduct in bankruptcy cases that caused problems for courts and consumers.

Countrywide, based in Calabasas, Calif., also faces an inquiry into the suspected mishandling of payments sent by court officials in nearly 300 Pittsburgh bankruptcy cases.

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  1. Anonymous

    Countrywide/BofA are not worried. They’ll just appeal this up to the Roberts Court and all will be fine.

  2. Independent Accountant

    It’s about time. I’ve heard stories like this for years. Anonymous, don’t laugh. The Roberts’ Supreme Court pays off for big business like a broken slot machine. I have blasted it at my blog.

  3. Anonymous

    Question: Hospitals routinely do this (double bill insurance co. and insured, bill for services not recieved, bill dead people for services that allegedly occurred after death, etc.), why is it that hospitals never have legal trouble over this?
    Sure, 9 arrogant lawyers in robes can come up with a rationale for just about anything being required by the constitution, but countrywide is lying to courts. I don’t see any help for them in the courts on this.

  4. Anonymous

    “why is it that the hospitals never have legal trouble over this?”

    I have been thinking that the difference here is that this credit mess (combined with these abusive practices) is throwing more people all the way to bankruptcy where the courts are overseeing and are becoming aware, via these trustees.

    When you are alone, how do you fight them?

    If so, it’s terrific. Let’s just hope it inspires some legislation to put some teeth into making them clean up their act. They’ve proven the nonsense of ‘self-regulating.’


  5. Anonymous

    Re: Department of Justice

    They need to get these rouge people out of there and get The Bush people back on the job and ignore these things! Let business take care of business and let the little guy work out!

  6. Anonymous

    Gosh…how else is Countrywide going to pay for the Colorado, Hollywood and Florida trips for their clients. At 4,000 dollars per person, they need to be sure they can cover expenses. Nice eh? B of A what are you buying? The NEG-AM’s will all start resetting and we’ll see round II. There were a lot more of those than sub-prime.

  7. Tranchefoot

    Hmm. Sounds like a trigger for an MAE clause in the merger agreement, don’t you think?

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