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2.18.1 Overview

In addition to all of the servicing abuses discussed above, borrowers who have filed for bankruptcy face even more challenges.315 Some servicers consistently inflate their claims filed in the bankruptcy case by miscalculation, misunderstanding the loan contract, or deliberate addition of unauthorized fees.316 Other mistakes can cause a loan to be wrongly treated as in default. When an problem appears deliberate, or the servicer fails to correct a problem after due notice, debtor’s attorneys should consider claims for unfair trade practices (and attorney fees),317 breach of contract, breach of the duty of good faith and fair dealing andin egregious casesintentional infliction of emotional distress and sanctions under Bankruptcy Rule 9011. Remedies may also be available under various sections of the Bankruptcy Code,318 RESPA, and the FDCPA.319

Footnotes

  • 315 {307} A more detailed discussion of mortgage servicing abuses in bankruptcy is found at National Consumer Law Center, Consumer Bankruptcy Law and Practice § 14.4.4 (12th ed. 2020), updated at www.nclc.org/library.

  • 316 {308} See, e.g., Ogden v. PNC Bank, 2016 WL 1077355 (D. Colo. Mar. 18, 2016) (affirming actual damages, punitive damages, and attorney fees when servicer did not properly apply postpetition payments); In re Gravel, 556 B.R. 561 (Bankr. D. Vt. 2016) (sanctioning servicer $375,000 for misapplying mortgage payments and improperly assessing fees); In re Jones, 489 B.R. 645 (Bankr. E.D. La. 2012) (sanctioning servicer more than $3 million for its “high reprehensible” actions, including routine misapplication of payments and overcharging accounts), aff’d, 489 B.R. 645 (E.D. La. 2013); In re Obasi, 2011 WL 6336153 (Bankr. S.D.N.Y. Dec. 19, 2011) (attorney’s failure to properly review proof of claim before filing it with his electronic signature violated Rule 9011; but conduct not sanctionable due to debtor’s failure to send safe harbor letter); In re Prevo, 394 B.R. 847, 851 (Bankr. S.D. Tex. 2008) (reviewing servicers’ practices of inflating proofs of claim with undocumented and excessive fees, court concludes, “[b]ased upon hearings in this and other cases, the Court believes that certain members of the mortgage industry are intentionally attempting to game the system by requesting undocumented and potentially excessive fees and then reducing those fees in amended proofs of claim only after being exposed by debtor’s counsel.”). See also Katherine M. Porter, Misbehavior and Mistake in Bankruptcy Mortgage Claims, 87 Tex. L. Rev. 121 (2008) (analyzing data from lender and servicer claims in 1700 chapter 13 cases, finding lack of documentation of costs and misleading categorizations in substantial portion of claims).

  • 317 {309} See generally National Consumer Law Center, Unfair and Deceptive Acts and Practices (9th ed. 2016), updated at www.nclc.org/library.

  • 318 {310} See generally National Consumer Law Center, Consumer Bankruptcy Law and Practice (12th ed. 2020), updated at www.nclc.org/library.

  • 319 See, e.g., Saccameno v. Ocwen Loan Servicing, L.L.C., 372 F. Supp. 3d 609 (N.D. Ill. 2019) (jury trial verdict for $3.5 million in damages for breach of contract, violations of RESPA, state UDAP, FDCPA, and punitive damages for multiple errors servicing a mortgage after chapter 13 discharge), remanded, 943 F.3d 1071 (7th Cir. 2019) ($3 million punitive damages award exceeded constitutional limits and therefore reduced to $582,000).