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In re Schmidt

Case Conclusion Date: 07.15.2008

Practice Area: Chapter 13 bankruptcy

Outcome: Obtained Record Sanctions Award

Description: A Perfect Example of Mortgagee Abuse Falls in My Lap. In 2004, I filed a routine Chapter 13 proceeding. In December 2007, more than three years later, the debtor's mortgagee, Bayview Financial, brought a typical motion to lift the stay. They argued that the debtor neglected to pay his real estate taxes which had come due two months earlier, and for this reason, the stay should be vacated. This was quite a surprise because it was the mortgagee, not the debtor, who was obligated to pay the real estate taxes. Since it was the mortgagee's obligation to pay the real estate taxes, their position in the motion to lift the stay was totally erroneous and therefore frivolous and abusive. It thus seemed that not only did the debtor have a perfect defense to the motion to lift the stay, but he also had a great case for bringing a cross-motion seeking sanctions for bringing a frivolous motion. The Mortgagee was Guilty of Violating Other Statutes. Upon reviewing the situation further with the debtor, I learned that the mortgagee often paid the real estate taxes late, resulting in penalties, and that there was one period that the mortgagee neglected to pay the real estate tax altogether. The mortgagee had also failed to provide debtor with post-petition annual escrow disclosure statements. Apparently, the last time the debtor received an annual escrow disclosure statement was in November 2004. This violated federal law. The Real Estate Settlement and Procedures Act of 1974 is a federal consumer protection statute that requires mortgage servicers who collect escrow to conduct an escrow account analysis each year to determine the borrower's monthly escrow account payments for the next year. Upon completing an escrow account analysis, the servicer must provide an annual escrow account disclosure statement to the borrower. For each and every year from 2005 to the present, the lender failed to adhere to its federally-mandated obligation to provide the debtor with the annual escrow account disclosure statement. There is no exception that gives mortgage servicers a vacation from this requirement while the borrower is in a Chapter 13 bankruptcy proceeding. RESPA provides that a servicer's failure to provide the borrower with the annual escrow account disclosure statement is a violation of the statute. RESPA also gives individuals a private right of action against mortgagees who violate such provisions. I Sought Sanctions Against the Mortgagee. I argued that the mortgagee engaged in egregious conduct which was abusive under BAPCPA, filed a frivolous motion, sometimes failed to pay the debtor’s real estate taxes, often paid the taxes late which resulted in penalties and late fees, and violated RESPA statutes for failing to provide the debtor with annual escrow account disclosure statements. As with any application for sanctions, I also sought costs and attorney's fees as well. The Mortgagee Quickly Withdraws Motion to Lift Stay. Shortly after serving the cross-motion for sanctions, counsel for the mortgagee conceded that the mortgagee had made an egregious mistake, and blamed it on the mortgagee's prior bankruptcy counsel. Soon, the motion to lift the stay was deemed withdrawn, just leaving my cross-motion for sanctions. The Mortgagee Agrees to Pay Debtor $32,000 in Sanctions -- A Record. The mortgagee was now faced with a most-embarrassing situation where, if we went forward with my cross-motion, it would certainly be sanctioned, the only issue being how much. In addition, as sloppy mortgagee bankruptcy practices had become somewhat newsworthy as a result of Countrywide’s problems, this mortgagee now faced potential negative publicity on a national level. We then hammered out a settlement which resulted in a $32,000+ package for the debtor. I was very pleased with the resolution and felt that I had truly achieved justice for my client. I believe that this was the highest award or settlement ever for mortgagee abuse in the

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