(AP)--A new court decision highlights why debtors who file Chapter 13 so that they can cure their mortgage arrears often find their accounts loaded with junk fees after the case is completed. This is an area ripe for litigation, and an area in which I’ve begun to accept new referrals.
In In re Nosek, 2007 WL 682581 (Bkrtcy.D.Mass. 2007) the debtor executed a $90,000.00 adjustable rate note (”Note”) with Ameriquest secured by a mortgage on her principal residence. When Nosek began missing payments on the Note, Ameriquest instituted foreclosure proceedings. To halt the foreclosure, Nosek filed for bankruptcy under Chapter 13. When Ameriquest received a payment, whether it was from the Chapter 13 Trustee on account of the arrears or Nosek herself for the then currently due installment, Ameriquest would apply the funds to the oldest outstanding contractual obligation due under the Note. If the payment was insufficient to satisfy a contractual obligation in full, Ameriquest would place the funds in a “suspense” account. In theory, the suspense account acted like a collection bucket to hold the payments until there were enough funds to satisfy one in full.
The Court noted several flaws with Ameriquest’s accounting system and found an overall failure to properly and timely account for Nosek’s payments. First, the process did not distinguish between pre-petition and post-petition payments; it simply looked to satisfy the oldest contractual obligation first. Thus, when a payment was received from the Chapter 13 Trustee or from Nosek, it was matched against the oldest outstanding contractual obligation. If the payment did not satisfy that contractual obligation in full, the funds were placed in a “suspense” account. Second, even when the total funds in the suspense account were sufficient to satisfy a contractual obligation in full, Ameriquest did not necessarily post them in a timely manner. Third, the accounting system, and the payment history Ameriquest generated for the rest of the world, gave the impression that Nosek was delinquent in her payments. It did not show that Nosek was current, something she claimed prevented her from refinancing her Note with another lender. Although Ameriquest claimed to have manually credited Nosek with having made the payments and internally considered her current, nothing in its accounting system, or on the payment history provided to her, reflected this.
The court, after lengthy discussion of the issues, awarded $250,000.00 in emotional distress damages and $500,000.00 in punitive damages under Section 105(a) for Ameriquest’s violation of Section 1322(b) of the Bankruptcy Code.
If your practice encompasses Chapter 13, let me know and I’ll be glad to walk you through the process of determining whether any of your discharged clients have a valid cause of action against their mortgage servicer.
In In re Nosek, 2007 WL 682581 (Bkrtcy.D.Mass. 2007) the debtor executed a $90,000.00 adjustable rate note (”Note”) with Ameriquest secured by a mortgage on her principal residence. When Nosek began missing payments on the Note, Ameriquest instituted foreclosure proceedings. To halt the foreclosure, Nosek filed for bankruptcy under Chapter 13. When Ameriquest received a payment, whether it was from the Chapter 13 Trustee on account of the arrears or Nosek herself for the then currently due installment, Ameriquest would apply the funds to the oldest outstanding contractual obligation due under the Note. If the payment was insufficient to satisfy a contractual obligation in full, Ameriquest would place the funds in a “suspense” account. In theory, the suspense account acted like a collection bucket to hold the payments until there were enough funds to satisfy one in full.
The Court noted several flaws with Ameriquest’s accounting system and found an overall failure to properly and timely account for Nosek’s payments. First, the process did not distinguish between pre-petition and post-petition payments; it simply looked to satisfy the oldest contractual obligation first. Thus, when a payment was received from the Chapter 13 Trustee or from Nosek, it was matched against the oldest outstanding contractual obligation. If the payment did not satisfy that contractual obligation in full, the funds were placed in a “suspense” account. Second, even when the total funds in the suspense account were sufficient to satisfy a contractual obligation in full, Ameriquest did not necessarily post them in a timely manner. Third, the accounting system, and the payment history Ameriquest generated for the rest of the world, gave the impression that Nosek was delinquent in her payments. It did not show that Nosek was current, something she claimed prevented her from refinancing her Note with another lender. Although Ameriquest claimed to have manually credited Nosek with having made the payments and internally considered her current, nothing in its accounting system, or on the payment history provided to her, reflected this.
The court, after lengthy discussion of the issues, awarded $250,000.00 in emotional distress damages and $500,000.00 in punitive damages under Section 105(a) for Ameriquest’s violation of Section 1322(b) of the Bankruptcy Code.
If your practice encompasses Chapter 13, let me know and I’ll be glad to walk you through the process of determining whether any of your discharged clients have a valid cause of action against their mortgage servicer.
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