US judge won't punish Countrywide for botched case
Wed Mar 5, 2008 4:57pm EST
By Jonathan Stempel
NEW YORK, March 5 (Reuters) - A U.S. bankruptcy judge refused on Wednesday to punish Countrywide Financial Corp (CFC.N: Quote, Profile, Research) for errors in a case involving a mortgage borrower, saying the largest U.S. mortgage lender's mistakes did not reflect bad faith.
Judge Jeff Bohm of the U.S. bankruptcy court in Houston said he was "disheartened that Countrywide and outside counsel showed "a disregard for the professional and ethical obligations of the legal profession and judicial system."
But in his 72-page opinion, the judge said he did not find the required "clear and convincing" evidence that the conduct "transcended from merely negligent bungling to full-blown bad faith." Bohm nevertheless urged Countrywide to "reevaluate its policies and procedures" so that its actions would not "undermine the integrity of the bankruptcy system."
The decision comes as Countrywide faces growing pressure to clean up alleged excesses in servicing home loans, including those of borrowers in bankruptcy.
In the last week, the U.S. Trustee, appointed by the Department of Justice to oversee bankruptcy proceedings, has sued Countrywide at least twice in federal court, seeking sanctions for alleged abuses in bankruptcy cases.
Countrywide did not immediately return requests for comment, but has said it does not discuss pending lawsuits. The Calabasas, California-based lender agreed in January to be acquired by Bank of America Corp (BAC.N: Quote, Profile, Research).
The Texas case involved William Parsley, a resident of Willis who filed in 2005 to reorganize his finances under Chapter 13 of the U.S. bankruptcy code.
According to the opinion, the court has ordered Countrywide over the course of the bankruptcy to justify its actions with respect to how it processed Parsley's mortgage payments, and various improper or unexplained fees it assessed.
The judge concluded that Countrywide's "corporate culture" was partly to blame for problems.
"What kind of culture condones blockading personnel from communicating with outside counsel?" the judge wrote. "What kind of culture discourages the checking of outside counsel's work? What kind of culture promotes payment histories that are so confusing to the vast majority of persons, including attorneys and judges -- not to mention borrowers -- that it becomes necessary for legal assistants to 'simplify' them -- leading to more errors and confusion?"Parsley's lawyer did not immediately return a call seeking comment.
(Additional reporting by Gina Keating, editing by Richard Chang)