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The mortgage mess and Chapter 13

With the announcements that several national banks are halting home foreclosures and 50 state attorneys general and the District of Columbia have launched an investigation into falsified signatures and other paperwork improprieties, the mortgage industry can officially be declared a mess.

But what does that mean for bankruptcy practitioners trying to help clients navigate through the Chapter 13 process?

For some, it could mean a reprieve, said Marc Stern, a sole bankruptcy practitioner in Seattle.

“An awful lot of people file Chapter 13 just to try to save their house,” he said, and the halt of foreclosures could have a “fairly large impact” where consumers are able to stave off bankruptcy.

For others, it could mean greater uncertainty, as the moratorium will have different impacts in each state and for each client, said Henry Sommer, former President of the National Association of Consumer Bankruptcy Attorneys and Head of Consumer Law Project at Community Legal Services in Philadelphia.

“Some banks have halted the litigation process, but others have stopped just the foreclosure sale itself while the process continues,” he said. “It’s unclear what the moratorium really means,” and lawyers should be careful to find out how it applies to each client’s case, he advised.

Verify if possible

On Oct. 8, Bank of America announced that it was halting foreclosures and the sale of foreclosed homes nationwide. JP Morgan Chase and Ally Financial – previously known as GMAC Mortgage – announced that they were halting foreclosures in 23 states, a decision that expanded to a review of documents in all 50 states. Other companies, like Wells Fargo & Co. and PNC, said they would be reviewing their documents, although not halting foreclosures yet.

Facing an unprecedented number of homes in foreclosure, mortgage companies and note holders often signed documents without reviewing them in order to expedite the process – what is now being referring to as “robo-signing.”

In addition to the nationwide investigation, several states have already taken action. In New York, Attorney General Andrew Cuomo called on companies that used robo-signers to suspend all foreclosure actions in the state, while Ohio Attorney General Richard Cordray filed a lawsuit against Ally.

In the ever-changing, tumultuous climate of the mortgage industry, the most important thing bankruptcy practitioners can do: verify the amounts and documentation of a client’s mortgage as best they can.

“Certainly don’t take what the mortgage company says at face value, because most often it’s wrong,” Sommer warned.

Stern agreed.

“My experience has been that there will be lots of fees and other charges that the banks can’t substantiate,” Stern said, such as late fees or fees “in suspense” for no apparent reason.

“I have a case right now where a client missed one mortgage payment, and the bank has been assessing a late charge for each succeeding payment, even though they were made on time,” he said.

However, verifying amounts is easier said than done, he noted, as most clients don’t keep detailed records and often shred documents out of fear of identity theft. “It can be very difficult to prove that payments were actually made,” Stern said.

Bank statements showing the exact amount withdrawn at the same time each month might help, but unless an electronic transfer occurred, the date a payment was received could still be disputed by the bank.

“It can be a laborious process,” Sommer said, but attorneys can potentially decrease the amount the mortgage holder claims it is owed, increasing a debtor’s chance at success by disputing fees and other charges.

Lawyers should also try to verify and document the chain of title. Getting affidavits that transfers took place can be very complicated, Sommer said, and lawyers should always ask for the actual, underlying documentation and originals where possible, in addition to the actual note.

Stern said he also advises his clients not to move out of their home during the foreclosure process until the sheriff shows up and forces them out.

Banks are increasingly failing to finish the foreclosure process, he said, and then the house sits empty.

“A lot of the houses are so underwater [in value] that the banks aren’t finishing the foreclosure process,” Stern said.

In addition, moving will have an effect on the means test for a client in Chapter 13, he added.

What happens next?

The AG investigations and the fact that the mortgage companies have acknowledged problems with the system probably won’t help individual bankruptcy filers in court, Stern said.

He said he typically has better luck with smaller, local banks than national ones.

“At the smaller bank, you can find someone to talk to who can make a decision,” said Stern. “I can’t count the number of cases where we are working with the loss mitigation department on a modification while the foreclosure department is churning ahead.”

While the moratorium leaves practitioners and clients uncertain what happens next, it provides little help for debtors who already agreed to a Chapter 13 plan.

Courts have held that if the mortgage holder’s claim was incorporated into the plan, the debtor is bound by the amount already agreed to, Sommer said.

“If there was fraud involved, there might possibly be grounds for taking another look, but it’s a tough standard,” he said.

Correy Stephenson can be reached at [email protected].


  1. It is a MUCH TOO OVERLOOKED fact that underhanded foreclosures are also being deliberately conducted by unscrupulous foreclosure mills. This has resulted in mill lawyers (or their affiliates) obtaining ownership of fraudulently properties after bids at “simulated” auctions through “straw buyers.” Some properties become “flipped” illegally to Freddie Mac. Some foreclosure lawyers have filed in court records fee-making pleadings (summary judgments, etc) when Freddie Mac is NOT party to cases, and bill $$$$ as Freddie’s representative.

    Through falsified Bankruptcy Court pleadings, foreclosure frauds wrongfully, illegally impede homeowners’ restructuring debts, and impede discovery of the actual owners of mortgage notes. Lenders, Investors, and property owners are losers from foreclosure frauds!

    False bankruptcy “Lift Stay” motions in names of either defunct lenders or lenders with no ownership of property notes NOT ONLY HELP illegal property repossessions, any other creditors whom debtors owe, becomes deprived wrongfully of entitled shares of proceeds from purported auctions; illegal foreclosures also leads to ILLEGITIMATE “deficiency judgments,” and third party debt-buyers who seek $$$$ after fraudulently low auction (straw purchase) bids result in large balances paid to unentitled entities.

    I know for a fact that dishonest foreclosure mills work in concert with Wells Fargo. Among other things, Wells Fargo has tax advantage from fraudulent foreclosure proceedings after placing distressed homeowners’ names / social security numbers on false IRS (acquisition) form 1099-A’s, even when no lawful “acquisition” of properties occurred; such homeowners wrongfully become forced to explain these turn of events to the IRS after surprise receipts of tax bills. “Fee-splitting” is also a factor of fraudulent foreclosure. **fee splitting: “Lender Processing Services Discusses Legal Issues” @

    People who think that people who can no longer afford their mortgage should pack up and move out, ignore that it is unjust to render people homeless by use of intentional, dishonest, illegal foreclosure proceedings. Foreclosure mill illegalities accounts for “illegal foreclosures” and “Tent Cities” which could be Anyplace, USA. Foreclosure fraud (on farmers, businesses, as well as residences) MUST become investigated;” it can cripple peoples’ abilities to move forward with their lives for a very long time; and the cloaked perpetrators are often millionaires –as bad as, or worse than Bernie Madoff.
    OPEN LETTER TO PRESIDENT OBAMA on Foreclosure Crisis (concerning Wells Fargo)

    Lehman Brothers, Wells Fargo Foreclosure and Insurance Claims

    Important Facts About Foreclosure and Mortgage Fraud

  2. “Take another look?” The federal government needs to look into placing Bank of America
    into receivership and bringing criminal felony fraud charges against its CEO and other high-ranking officials. The same goes for the other banks involved in in what amounts to nation-wide criminal fraud.

    So far, the government’s response has been to protect the banks, not the home-owners damaged
    by the criminal activities of these banks. If this Administration will not act, it is time for state attorney generals to start filing criminal actions. If they won’t act, then we need to ask ourselves why.

  3. Letter to Wells Fargo Spokeswpman Vickee Adams,

    Dear Ms. Vickee Adams,

    In your recent Wells Fargo’s press release, you declared that “”Our records show that
    Wells Fargo’s foreclosure affidavits are accurate, When the company finds employees
    that don’t follow procedure, it takes “corrective action.”

    That’s a lie. I can say for a fact that Wells Fargo made us fraudulent mortgage loan and
    foreclosed my home based on hugely inflated and fraudulent appraisal and refused to
    correct its mortgage fraud.

    Wells Fargo teamed up with its attorneys and spent last 4 years in Nevada courts
    defending its appraisal and mortgage fraud.

    Wells Fargo and its attorneys knew it’s Category C Felony to make mortgage loan based
    on fraudulent appraisal.

    Wells Fargo and its attorneys knew it’s Category C Felony to foreclose home based on
    fraudulent appraisal.

    Wells Fargo chose to violate the law and chose to defraud us.

    Hold Wells Fargo Accountable! Save American Dream! Restore banking integrity.

    Please sign the Petition at Let our voice be

  4. Barbara Ann Jackson

    Foreclosure Fraud Assault – A Cry For Help

    A foreclosure that entails savagery, fraud, corruption, greed, intrusion, peril, trauma, desolation, shocking deviation from established law and court rules and procedures, and reprisals for whistleblowing and for not relinquishing one’s home to sham foreclosure is a riveting story worth being told.

    The victim’s painful story comes with a plea for humanity to rise to a duty of raising awareness, and not merely for the sake of aiding this one victim. It is for the sake of calling attention – and hopefully “making a difference” by requiring lawmakers to make changes in what appears to be third-world judicial systems of shocking perversion and inequality, harmful to the entire economy.

    Encapsulated in the story “Foreclosure Gang Rape,. . .,” the victim’s graphic details of years of harm from lawyers, judges, and banks summed up as ‘gang rape’ is commensurate with defilement, exploitation, humiliation, bigotry, betrayal, invasion, revilement, assault, depredation, torture, despoliation, stigmatization, maltreatment, denigration, ruin, pillage, ransack, intrusion, and racism.

    Wells Fargo turned over the modified loan debt to a foreclosure mill debt collection lawyer who used a defunct lender’s identity to foreclose, as well as demand unfair fees. At some point after foreclosure had been filed, the victim discovered that the modification consisted of a contract between the homeowner and a fictitious lender. . .

  5. Request for Congressional Foreclosure Panel to Examine Foreclosure Lawyers

    “Although increasing numbers of courts are continuing to reject improper and fraudulent foreclosures, the Congressional Foreclosure Panel examination of mortgage services and foreclosure practices did not include foreclosure lawyers.

    Lawyers are officers of the court; knowledge of applicable laws and civil procedure is not required from mortgage lenders. In states that require judicial foreclosures, lawyers are the ones who file lawsuits to seize and sell property; and lawyers are responsible for filing and recording foreclosure property deeds.

    An investigation could prove helpful to sorting out whether improper and illegal foreclosure proceedings are linked to any self-dealing conduct disadvantaging lenders, investors, homeowners, and city governments. . .”

  6. We could have written this ourselves minus having an investigation or lawyer. Medical needs with a high level of disability came first. In November the sale is finalized. We lost big time. They had no title, no records for many years, wrong account numbers, they messed up my title and did all that they did to the other guy. We are left with nothing after 24 years of paying. We can’t go get a pro Bono lawyer. We spend a lot on medical and make too much but cannot afford. Crimes were committed. The bank did plenty in 2011 and again since 2018.

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