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Bankruptcy Trustee Program Finds Widespread Errors by Banks Trying to Foreclose

May 18, 2011

As Colton foreclosure defense lawyers, we work routinely with people who are considering bankruptcy as a way to avoid foreclosure. Consumer bankruptcy has major financial repercussions, so it's not for everyone, but it does allow a court to closely examine the foreclosure for legal and financial improprieties. In fact, national bankruptcy data is providing compelling evidence that lenders are making widespread mistakes -- usually in their own favor -- when they foreclose. According to a May 15 column from New York Times business columnist Gretchen Morgenson, the United States Trustee Program found the abuses by examining foreclosures from bankruptcies in 88 judicial districts across the country.

According to Clifford J. White III, who directs the executive office of the U.S. Trustee, the office found hundreds of obvious problems in the bankruptcies it's studied. Usually, these fall into two categories: inaccurate charges against borrowers and fees that are improper altogether. The inaccurate amounts are sometimes numbers with no basis in reality, like a demand for $52,043 that dropped to $3,156 after a trustee asked for documentation to support it. Other times, they come from "dual-track" foreclosures that don't reflect payments the borrowers are making on a loan modification. The improper fees include fees that have been inflated as well as fees that aren't related to work actually done or don't seem to have a purpose. One bankruptcy included more than $10,000 in "prior service fees" that was not backed by documentation.

To make matters worse, White said banks are actively fighting his office's attempts to collect the information. When the U.S. Bankruptcy Trustee requests information related to a foreclosure, banks often oppose it by arguing that the office shouldn't get the information because it's not a party to the dispute. No court has yet accepted this argument. Lenders also agree to provide the information, but refuse to explain their policies and procedures, so the office cannot look for flaws or fraud in the system.

Our Garden Grove foreclosure defense attorneys are not surprised by these results. Many of them repeat allegations made in lawsuits by borrowers who allege unfair or inflated fees by loan servicers. If these anticonsumer practices are as widespread as the trustee suggests, it's not surprising that some of those borrowers ended up in bankruptcy. However, it's disturbing that lenders are continuing to claim apparently unjustified fees in bankruptcy court, because claims made in bankruptcy court are the basis for the debts that bankruptcy debtors must repay. That is, the fraud can unnecessarily deepen filers' debt and keep them in bankruptcy longer than necessary. Although the Trustee's office is not done with its study, we hope bankruptcy filers and their attorneys start to closely examine servicers' filings for this kind of fraud.

Howard Law PC offers bankruptcy services as well as foreclosure defense, loan modification and predatory lending defense. In fact, we work with our new clients to identify which legal avenue offers the best chance for them to save their homes. As this story suggests, loan servicers aren't necessarily looking out for borrowers' best interests. Clients come to our San Juan Capistrano foreclosure defense lawyers with stories about repeatedly lost paperwork, mixed messages, surprise foreclosures and many other actions suggesting deep incompetence or intentional attempts to drive them toward foreclosure. That's why we take our clients' cases to court whenever possible -- so a judge can compel the servicer to prove its claims or grant qualified clients a loan workout.

If you're tired of calling and calling your lender and never getting a meaningful response, call Howard Law instead. For a free, confidential case evaluation, send us a message online or call 1-800-872-5925.