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.