Mortgage Servicing Fraud
occurs post loan origination when mortgage servicers use false statements and book-keeping entries, fabricated assignments, forged signatures and utter counterfeit intangible Notes to take a homeowner's property and equity.
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Nye Lavalle
NY: BK Court Sanctions Creditor in Relief from Stay Matter

by Lisa Milas
Rosicki, Rosicki & Associates, P.C. – USFN Member (NY)

On September 24, 2007, the U.S. Bankruptcy Court for the Southern District of New York issued an order requiring a secured creditor to pay attorneys’ fees and costs incurred by the debtor in opposing the creditor’s motion for relief. (In re Fagan, 2007 WL 2782773). Additionally, the court concluded that because the debtor was substantially current at all times post-petition and the creditor had already been sanctioned for filing a similar motion, the imposition of a harsher sanction in the amount of $10,000 was warranted.

The debtor filed a petition under Chapter 13 on September 21, 2004. The creditor filed a motion for relief, alleging a default in monthly mortgage payments in the amount of $4,020.03 from February 2007 through May 2007. This was the second motion filed by the creditor. The creditor previously filed a motion for relief that the court determined to be baseless and sanctioned the creditor $700.

In response to the motion, the debtor alleged that she had made all of her post-petition payments and that those payments were cashed by the creditor. In further support of its motion, the creditor filed a reply affirmation annexing a post-petition loan history. The creditor later amended the post-petition loan history.

The court found the loan history submitted by the creditor indicated that, as of April 30, 2007, the loan was current through and including March 1, 2007. As of April 30, $4,021.30 was being held in suspense, which amount was $1.27 in excess of the mortgage payment due on April 1, 2007.

With respect to the May 2007 payment, the debtor’s affidavit in opposition stated the payment was sent to the creditor on or about May 14, 2007. When it was not cashed, the debtor contacted the creditor who confirmed receipt of the check but could not provide an explanation as to why it was not cashed. The debtor stopped payment on the check and sent a replacement check via overnight mail that was then credited to her account on June 25, 2007. On June 25, 2007, the creditor apparently attempted to cash the May 2007 payment, but the debtor had stopped payment on that check.

In reaching its decision to award significant sanctions, the court stated it knew of no other way to protect those debtors who may not have the means to defend against baseless motions for relief.

This case illustrates that even routine motions for relief can expose creditors to substantial monetary sanctions. However, with the assistance of local counsel in reviewing loan histories and reducing inadvertent errors, creditors protect themselves from this type of significant monetary award.

© Copyright 2007 USFN. All rights reserved.
November/December e-Update
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