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Home Foreclosures: 9.4.5 Payment of Interest on the Arrears

Another important question is whether additional interest must be computed during the bankruptcy case on the unpaid portion of the arrears. As the bulk of the arrears is usually accumulated interest, the question in large part amounts to whether a debtor is required to pay interest on unpaid interest claims.

Home Foreclosures: 9.4.6.3 Application of Rule 3002.1

When Rule 3002.1 first went into effect on December 1, 2011, it applied only to claims that were (1) secured by the debtor’s principal residence and (2) provided for under section 1322(b)(5) in the debtor’s plan.

Home Foreclosures: 9.4.6.4 Notice of Payment Change—Rule 3002.1(b)(1)

Bankruptcy Rule 3002.1(b)(1) requires the mortgage creditor to file and serve on the debtor, debtor’s counsel, and the trustee “a notice of any change in the payment amount, including any change that results from an interest rate or escrow account adjustment, no later than 21 days before a payment in the new amount is due.”359 Notice must be given on Official Form 410S-1 (Supplement 1), the Notice of Mortgage Payment Change.360 The form shall be filed as a supplement to the creditor’s proof of c

Home Foreclosures: 9.4.6.7 Fee Dispute Procedure—Rule 3002.1(e)

If the debtor, chapter 13 trustee, or any party in interest disputes that postpetition fees are owed, Rule 3002.1(e) establishes a procedure for resolving the dispute.386 The debtor or trustee may file and serve a motion within one year after service of the fee notice (Form 10—Supplement 2) seeking a determination of the propriety of the fee.387 If a motion is filed, the court shall determine, after notice and hearing, whether any claimed fee, expense, or charge is required by the mortgage agree

Home Foreclosures: 9.4.6.8 Notice of Final Cure Payment—Rules 3002.1(f) Through 3002.1(h)

Rule 3002.1(f) provides that “[w]ithin 30 days after the debtor completes all payments under the plan, the trustee shall file and serve on the holder of the claim, the debtor, and debtor’s counsel a notice stating that the debtor has paid in full the amount required to cure any default on the claim.” The notice must also inform the creditor of its obligation to file a response to the notice.

Home Foreclosures: 9.4.6.10 Rule 3002.1 and Attorneys General Settlement with Major Servicers

The settlement agreement between the states’ attorneys general and the five leading mortgage servicers, finalized in April 2012, contains terms that mandate compliance by the servicers with Bankruptcy Rules 3001 and 3002.1. The affected servicers in the initial settlement were Bank of America, JP Morgan Chase, Wells Fargo, Citibank, and Ally/GMAC.422 The settlement agreement with those entities was concluded in September 2015.

Home Foreclosures: 9.4.7 Proper Crediting of Plan Payments

The Code was amended in 2005 to provide that the creditor’s willful failure to credit payments received under a confirmed plan in accordance with the plan constitutes a violation of the injunction of section 524(a).435 The section does not apply, however, if confirmation of the plan has been revoked, the plan is in default, or the creditor has not received the plan payments as required by the plan. The provision is also limited to cases in which the failure to credit payments has caused material injury to the debtor.

Home Foreclosures: 9.6.1 Home Secured Loans

11 U.S.C. § 506 provides that a secured claim in bankruptcy may be limited to the amount of the value of the creditor’s collateral.465 The statute further provides that a lien may be voided to the extent it exceeds the value of the collateral to which it is attached.466 The process of voiding liens under this provision has come to be called “strip down.”

Federal Deception Law: 4.1.2.3 Raising Seller-Related Claims Against the Credit Card Issuer

The FTC Holder Rule does not apply if the consumer pays by credit card because the rule’s definition of “creditor” does not apply to the person applying in the particular transaction as a credit card issuer.23 The rule does not provide the basis for consumers to raise against their credit card issuers’ claims that consumers have against their sellers. Nevertheless, other federal law—part of the Truth in Lending Act—does provide such a right.

Federal Deception Law: 4.2.2.7a Application to Loan Brokers

The FTC Holder Rule gives the consumer rights against the entity holding the credit agreement. Loan brokers do not hold the credit agreement and are generally not subject to liability under the Holder Rule.82 Fraudulent entities seeking to escape liability under the Holder Rule may therefore set up a scheme whereby they provide sellers with referrals to lenders willing to offer financing for seller’s transactions with consumers.

Federal Deception Law: 4.2.2.9 Student Loans

Public and actual nonprofit schools fall outside the FTC’s jurisdiction and are not covered by the FTC Holder Rule.95 Thus, the FTC Notice is not required to be included in student loans for attendance at such schools.

Federal Deception Law: 4.3.1 Seller-Related Claims Covered by the Rule

The holder of a credit agreement containing the Holder Notice is liable for all seller-related “claims or defenses connected with the transaction.”98 As a result, consumers may not only raise seller-related defenses against creditors but also may bring affirmative claims against the creditor relating to the seller.99

Federal Deception Law: 4.3.2 Consumer’s Claims Can Offset Remainder Due on the Note

Since the FTC Holder Rule limits the consumer’s recovery from the creditor for seller-related claims to the “amounts paid by the debtor hereunder,”107 sometimes there is confusion as to whether the consumer can also offset the remainder due on the note. The FTC Holder Rule statement that “recovery hereunder by the debtor shall not exceed amounts paid by the debtor hereunder” does not mean that the consumer can only get back payments already made on the loan.

Federal Deception Law: 4.3.3 Effect on Security Interest

In the typical consumer transaction, the entity that financed the sale will have a security interest in the items purchased and possibly other property as well. If the consumer has claims or defenses that offset the entire debt, then there is no longer any obligation for the collateral to secure.

Federal Deception Law: 4.3.4.1 General

In addition to canceling under the FTC Holder Rule all or part of the remaining indebtedness, the consumer can seek an affirmative cash recovery.124 In practice, in individual cases, the consumer’s claim is usually applied first to reduce the indebtedness the consumer owes the holder. If the consumer’s claim exceeds this amount, then the consumer can recover the difference affirmatively from the holder.125

Federal Deception Law: 4.3.4.2 Recovering from a Prior Holder

In some cases, the consumer will want to bring into an action the prior holder and seek to recover from this intermediary holder for the seller’s misconduct. For example, the assignee of a credit seller may reassign the credit agreement to the credit seller after the consumer disputes the obligation but before the consumer files suit. Courts find that the consumer can bring seller-related claims against intermediate holders.132

Federal Deception Law: 4.3.4.3.1 Courts that get it wrong

Although the FTC rule clearly states that consumers can recover on their claims all amounts the consumer has already paid, a number of courts have found otherwise.133 These courts acknowledge that consumers in a collection action can raise defenses cancelling the remainder of the amount due and that they can sue affirmatively both to cancel the amount due and (at least in certain situations) to recover affirmatively.