Mortgage Servicing Fraud
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Countrywide Delays Foreclosure Sales
Wall Street Journal -March 5, 2008; Page B10 by Emir Efrati

Countrywide Financial Corp. voluntarily postponed 103 foreclosure sales scheduled for yesterday in Texas in connection with a private lawsuit that accuses it of trying to foreclose on homeowners who emerged from bankruptcy and were current on their mortgages.

That allegation, which the company denies, is also one of the issues raised by a federal bankruptcy watchdog in suits it filed against the company last week.

The Calabasas, Calif., lender, which has agreed to be acquired by Bank of America Corp. later this year, has been criticized for its handling of cases in bankruptcy proceedings by federal judges as well as lawyers at the U.S. Trustee Program, a division of the Justice Department that monitors the bankruptcy system.

The U.S. Trustee Program last week sued the company in three states for "bad-faith conduct" and "abuse" of the courts. In Florida, the U.S. trustee alleged that Countrywide tried to foreclose on a home after the borrowers had eliminated the company's mortgage through a bankruptcy proceeding four years earlier.

The Texas lawsuit, a putative class-action suit filed last month by five borrowers in Brownsville, alleges that the country's No. 1 home lender by volume is foreclosing or attempting to foreclose on borrowers who had been discharged from bankruptcy and were current on their loans, and that Countrywide added hidden fees to debtors' accounts. The suit seeks to stop the company from doing those alleged acts and asks for damages. The suit claims the company, in part because of flawed computer systems, "does not have policies and procedures in place" to properly account for borrower payments.

"Countrywide denies the allegations in the related complaint," the company said in a statement.

Katherine Porter, a bankruptcy-law professor at the University of Iowa who published an influential study on problems with claims made by mortgage companies in the bankruptcy system, has said Bank of America needs to help Countrywide rebuild its technology to overcome "structural shortcomings."

Countrywide in recent months has been hit with sanctions by judges and probed by U.S. Trustee Program lawyers for, among other issues, allegedly failing to appear at court-authorized depositions, charging debtors with unsubstantiated or erroneous fees, and improperly crediting a borrower's payments made during bankruptcy to prebankruptcy debt, which isn't allowed.     

                                                                                  --James R. Hagerty contributed to this article

Write to Amir Efrati at amir.efrati@wsj.com


 
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