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Fifth Circuit Upholds Class Certification for Bankruptcy Filers Challenging Countrywide Fees - Rodriguez v. Countrywide

September 21, 2012

Vincent Howard and our Riverside County foreclosure defense attorneys have written here about several court cases challenging alleged overcharges by banks to people who are in bankruptcy. After the housing crisis, many homeowners filed for bankruptcy to try to save their homes, and of course, mortgage lenders were unable to assess extra fees to those homeowners during the bankruptcies. Eager to avoid having those fees discharged as debt, many lenders started waiting until after the debt was discharged to assess late fees and other charges that should have been disclosed earlier. One court case challenging this practice is Rodriguez et al. v. Countrywide Home Loans, a proposed class action whose class certification was recently upheld by the Fifth U.S. Circuit Court of Appeals.

The class was certified by the bankruptcy court for the Southern District of Texas. All three parties (one individual and two couples) were Chapter 13 filers with debt to Countrywide; all three came out of bankruptcy, only to be threatened with foreclosure by Countrywide if they did not pay the arrears on fees charged during their bankruptcy cases. Payments they made toward their mortgages were allegedly misapplied to satisfy these arrearages. They sought a declaratory judgment that this behavior violated the Bankruptcy Code, an injunction, sanctions, and compensatory and punitive damages. Countrywide acknowledged to the bankruptcy court that the charges were unauthorized, but denied that this was a regular practice. The bankruptcy court ultimately certified a class for the claim for an injunction against the practice.

Countrywide appealed, saying the proposed class did not have enough in common and that a Central District of California consent judgment rendered the class moot. On the first issue, the Fifth Circuit found no abuse of discretion in certification under Rule 23(b)(2). That rule requires common behavior by the defendant (Countrywide in this case) toward the class. Because Countrywide charged unapproved fees to every member of the narrowly defined class, the court said, that led to the same alleged harm to every class member. Rather than defying the Fifth's 2010 ruling in In re Wilborn, a very similar case involving unauthorized fees by Wells Fargo, the bankruptcy court followed it exactingly, the Fifth said. The court went on to rule that the California consent judgment does not moot the injunction because the consent judgment does not force Countrywide to follow the bankruptcy rules, or give relief to those whose mortgage payments were misapplied. It also chastised Countrywide for improper use of a motion to reconsider to bring up a new issue.

At Howard Law, P.C., our Rancho Cucamonga foreclosure defense lawyers are pleased to see this issue making its way into the appeals courts. Failing to disclose fees during a bankruptcy, then hitting debtors with them after discharge, is not just a violation of bankruptcy laws. It also subverts the point of bankruptcy, which is to give filers a fresh start unencumbered by the debt that drove them into bankruptcy. Creditors hiding fees from the bankruptcy court is a lot like the reverse of debtors hiding assets from the court, which is severely penalized when it's intentional and can even be criminally prosecuted. Vincent Howard and our Orange County foreclosure defense attorneys are pleased to see courts taking action to fight it, whether it's through strict disclosure rules, litigation or the consent judgment referred to here.

If you're deep in debt because of an underwater mortgage or other serious home loan problem, you should call Vincent Howard and the team at Howard Law. Based in Santa Ana, we represent clients in Orange County, the Inland Empire and across California. To learn more, call us toll-free at 1-800-872-5925 or send us an email.

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