Exploiting Borrowers Amidst the Foreclosure Crisis

On Tuesday, May 6th, a Senate Judiciary subcommittee held a hearing on abusive practices perpetuated by mortgage lenders in the bankruptcy court system. Businesses and consumers often turn to bankruptcy courts as they liquidate their assets in an effort to workout reasonable payment plans with their creditors. For families on the brink of losing their homes, bankruptcy courts play a key role in allowing at-risk homeowners one last chance to keep their homes.

In recent months, however, some mortgage services such as Calabasas, California based Countrywide Financial Corporation have come under intense scrutiny for foreclosing homes prematurely only to pile on unnecessary and costly fees on borrowers during bankruptcy proceedings.

Steve Bailey, the Chief Executive for Loan Administration at Countrywide, however, disputed those allegations. In a prepared statement before the Senate Judiciary Committee’s Subcommittee on Administrative Oversight and the Courts, he said, "Countrywide is committed to helping our borrowers avoid foreclosure whenever they have a reasonable source of income and a desire to remain in the property."

He also claimed, "Recent media reports alleging that mortgage servicers are systematically charging excessive fees and using the bankruptcy process to push borrowers into foreclosure or abusing the process more generally are inaccurate." Bailey attributed any perceived abuses to no more than run of the mill "individual employee errors."

Countrywide's track record of overcharging borrowers facing foreclosure and during bankruptcy proceedings, however, suggests otherwise. One New Jersey couple who owned their home for the last 10 years were served with foreclosure papers by Countrywide and were inexplicably charged expensive flood insurance that they could not afford and did not need. It took months to resolve the error. Meanwhile, they fell behind on her mortgage payments.

In several other instances, the mortgage company has also been accused by attornerys representing borrowers and U.S. Trustees in bankruptcy courts of inflating overdue mortgage payments and fabricating documents to bolster their claims and collect more money in bankruptcy court.