April 10, 2012

Court Spanks Clandestine Wells Fargo With $3.1M Damages

A federal judge who has fiercely criticized how big banks service home loans is fed up with Wells Fargo.

In a scathing opinion issued last week, Elizabeth Magner, a federal bankruptcy judge in the Eastern District of Louisiana, characterized as “highly reprehensible” Wells Fargo’s behavior over more than five years of litigation with a single homeowner and ordered the bank to pay the New Orleans man a whopping $3.1 million in punitive damages, one of the biggest fines ever for mortgage servicing misconduct.

“Wells Fargo has taken advantage of borrowers who rely on it to accurately apply payments and calculate the amounts owed,” Magner writes. “But perhaps more disturbing is Wells Fargo’s refusal to voluntarily correct its errors. It prefers to rely on the ignorance of borrowers or their inability to fund a challenge to its demands, rather than voluntarily relinquish gains obtained through improper accounting methods.”

The opinion reflects Magner’s disgust with tactics that Wells Fargo used to fight the case — and perhaps frustration with an appeals court ruling in a separate, but similar case, that overturned her order that would have forced Wells Fargo to audit and provide a full accounting for more than 400 home loans in her jurisdiction.

As The Huffington Post previously reported in a story co-published with The Center for Public Integrity, sources familiar with the preliminary findings said that the bank made costly accounting errors in the administration of practically all of those loans. (more…)

April 1, 2010

Short Sale After Bankruptcy

Paul:

I am in a trial modification with CHASE, ending April 2010. Payment in trial mod ok, but not sure about after that.  I am filing Chapter 13 bankruptcy the same month to strip my second mortgage and protect against an investment property that was foreclosed on. 

I would like to know if we can still pursue a short sale after we file, which is of interest to us after reading about the changes supposed to go in effect April 15th.  We are upside down $75000.00 in our house. 

We are trying to minimize the hit to our credit for when we want to buy another home down the road.  Is there any difference in trying to sell, or should we give the house back in the bankruptcy?

Thank you for all the useful information we have found on your site!

Jason (more…)

December 30, 2009

The Lack of Evidentiary Foundations Fosters Fraud

Filed under: Bankruptcy,Mortgage

CreditSlips.org – The expanding market for that buying, selling and securitization of consumer debts has resulted in a serious problem regarding the “quality and admissibility” of the computer data that is being tendered to the United States Bankruptcy Courts to prove the nature and extent of consumer debt obligations. The same thing can be said with respect to the quality of the evidence that is being offered by Mortgage Servicers with respect to the nature and extent of the mortgage obligations of homeowners in bankruptcy cases. The analysis of these records by the attorneys for the debtors and by the Court has tended to overlook the underlying evidentiary foundations necessary to authenticate the same in order to create admissible and competent evidence. Also, since none of these records are generated in the normal course of business of an entity other than the proponent of the evidence in court, the business record foundation has also been either ignored or overlooked by the litigants and the courts. These are all important concepts in a consumer bankruptcy practice since the evidence presented in a proof of claim and in support of motion for relief from stay normally consist exclusively of “electronic evidence.”

In order to introduce electronic records into evidence, the witness for the moving party must be able to establish all of the evidentiary foundations.

Fed. R. Evid. 104. The Judge acts as gatekeeper on the preliminary questions regarding the admissibility of evidence if a Federal Proceeding. The basic elements for the introduction of business records under the hearsay exception for records of regularly conducted activity all apply to records maintained electronically. American Express v Vee Vinhnee, 336 B.R. 437 (B.A.P. 9th Cir. 2005). See also In re Lee, 2009 WO 1917010 (Bankr. C.D. Cal. 2009)(court found witness not “competent to testify regarding the accuracy of the payment records and denied admission of this evidence).

Generally, such records must be:

1. Made at or near the time by, or from information transmitted by, a person with knowledge;

2. Made pursuant to regular practices of the business activity;

3. Kept in the course of regularly conducted business activity; and

4. The source, method, or circumstances of preparation must not indicate a lack of trustworthiness.

See Fed. R. Evid. 803(6) and United States v Catabran, 836 F.2d 453, 457 (9th Cir. 1988).

These elements must either be established by the testimony of the custodian or other qualified witness or must meet prescribed certification requirements. Fed. R. Evid. 803(6). Such records, however, will not be admitted unless the court is also persuaded by their proponent that they are authentic. Ordinarily, because the business records foundation commonly covers these elements, the authenticity analysis is merged into the business record analysis without a proper focus on the elemental foundation questions.  See 5 Weinstein 900.06[2][a]. The primary authenticity issue in the context of business records is on what has, or may have, happened to the record in the interval between when it was placed in the computer data file and the time of the hearing. In other words, the record being proffered must be shown to continue to be an accurate representation of the record that originally was created.

Authenticating a paperless electronic record, in principle, poses the same issue as for a paper record, the only difference being the format in which the record is maintained: one must demonstrate that the record has been retrieved from the file, be it paper or electronic, and is the same as the record that was originally placed into the file. Fed. R. Evid. 901(a). Footnote 5 to this Rule provides that “the requirement of authentication or identification as a condition precedent to admissibility is satisfied by evidence sufficient to support a finding that the matter in question is what its proponent claims.”

Hence, the focus is not on the circumstances of the creation of the record, but rather on the circumstances of the preservation of the record during the time it is in the computer data base so as to assure that the document being proffered is the same as the document that originally was created. 

In the case of a paper record, the inquiry is into the procedures under which the file is maintained, including custody, access, and procedures for assuring that the records in the files are not tampered with. The foundation is well understood and usually is easily established. See Edward J. Imwinkelried, Evidentiary Foundations 4.03[a] (5th ed. 2002); 5 Weinstein 900.07[1][b][i].

The paperless electronic record involves a difference in the format of the record that presents more complicated variations on the authentication problem than the paper records. Ultimately, however, it all boils down to the same question of assurance that the record is what it purports to be.

The logical questions extend beyond the identification of the particular computer equipment and programs used. The entity’s policies and procedures for the use of the equipment, database, and programs are important. How access to the pertinent database is controlled and, separately, how access to the specific program is controlled is all important questions. How changes in the database are logged or recorded, as well as the structure and implementation of backup systems and audit procedures for assuring the continuing integrity of the database, are pertinent to the question of whether records have been changed since their creation.

There is really little mystery to all of these rules. All of these questions are recognizable as analogous to similar questions that may be asked regarding paper files: policy and procedures for access and for making corrections, as well as the risk of tampering. But the increasing complexity of ever-developing computer technology necessitates a more precise focus on the problem.

Some of these computer-related questions are becoming more important as the technology advances.  For example, digital technology makes it easier to alter text of documents that have been scanned into a database, thereby increasing the importance of audit procedures designed to assure the continuing integrity of the records. See George L. Paul, The “Authenticity Crisis” in Real Evidence, 15 PRAC. Litigator No. 6, at 45-49 (2004). This adds as extra dimension to consideration of whether the computer was “regularly tested” for errors. See 5 Weinstein 901.11[2] (2005).

This ever-expanding complexity of the cyberworld has prompted authors of the current version of the Manual for Complex Litigation to note that a judge should “consider the accuracy and reliability of computerized evidence” and that a “proponent of computerized evidence has the burden of laying a proper foundation by establishing its accuracy.”  Manual for Complex Litigation (Fourth), 11.446 (2004).  The Manual quotes with approval the following statement for an Article by Gregory P. Joseph,  A Simplified Approach to Computer-Generated Evidence and Animations, 43 N.Y. Sch. L. Rev. 875(1999-2000). In the Article, it is stated that in general the Federal Rules of Evidence apply to computerized data as they do to other types of evidence. “Computerized data, however, raise unique issues concerning accuracy and authenticity. Accuracy may be impaired by incomplete data entry, mistakes in output instructions, programming errors, damage and contamination of storage media, power outages, and equipment malfunctions. The integrity of data may also be compromised in the course of discovery by improper search and retrieval techniques, data conversion, or mishandling.” Manual for Complex Litigation, Id, at fn. 6.

In effect, it is becoming clearly recognized that early versions of computer foundations were too cursory, even thought the basic elements covered the ground. For example, it has been said that a qualified witness must testify as to the mode of the record preparation, that the computer is the standard acceptable type, and that business is conducted in reliance upon the accuracy of the computer in retaining and retrieving information. Barry Russell, Bankruptcy Evidence Manual P.17 (2005). These several elements, however, subsume a number of constituent elements.

Rule 901(b)(9), which is designated as an example of a satisfactory authentication, describes the appropriate authentication for results of a process or system and contemplates evidence describing the process or system used to achieve a result and demonstration that the result is accurate. Fed. R. Evid. 901(b)(9). Advisory Committee Note 7 to this Rule provides and “evidence describing a process or system used to produce a result and showing that the process or system produces an accurate result.” 

Indeed, judicial notice is commonly taken of the validity of the theory underlying computers and of their general reliability. Imwinkelried, Id., at 4.03[2]. Theory and general reliability, however, represent only part of the foundation. Professor Imwinkelried perceives electronic records as a form of scientific evidence and discerns an eleven-step foundation for the admissible of such records:

1. The business regularly uses a computer.

2. The computer is reliable.

3. The business has developed a procedure for inserting data into the computer.

4. The procedure has built-in safeguards to ensure accuracy and identify errors.

5. The business keeps the computer in a good state of repair and has regular and professional maintenance.

6. The computer system has appropriate firewalls and security features in order to eliminate the possibility of corruption or manipulation of data.

7. The witness had the computer readout certain data.

8. The witness used the proper procedures to obtain the readout including the entry of a proper user-name and password and the proper commands.

9. The computer was in proper working order at the time the witness obtained the readout.

10. The witness recognizes the exhibit as the readout.

11. The witness explains how he or she recognizes the readout.

12. If the readout contains strange symbols or terms, the witness explains the meaning of the symbols and terms for the trier of fact.

13. The business has implemented a proper computer policy and system control procedures that limit access to the data.

14. The computer system can generate reports as to when any original data was changed, modified, or deleted, including the time and date, the name of the employee taking such action, and the basis for the action.

15. The business exercises control over access to the database.

16. The software programs have been verified for accuracy and all patches, fixes, and new features have been and are uploaded on a regular basis.

17. The business has implemented regular audit procedures to assure the continuing integrity of the records.

18. The business has a regular system to backup all databases and checks the system for accuracy on a daily basis.

19. The witness has complete access to the computer system and database, is familiar with how the data is entered, stored and maintained, has personal knowledge of ally verification and security systems, and can testify that all of these matters were personally verified in connection with the evidence proffered.

20. The witness must be able to offer evidence of sufficient training, experience and expertise in these areas to offer the detailed foundation evidence required for authentication.

How should the attorney for the Debtor deal with this type of evidence? It is suggested that a Motion to Strike the Affidavit with the defective account data should be filed. This type of motion can be filed pursuant to Rule 7012 of the Bankruptcy Rules and Rule 12(e) of the Federal Rules of Civil Procedure. The motion must be filed with “20 days after service” of the Affidavit and the substantive objection is that the document is replete with data or account information that is not admissible and therefore immaterial to the issues before the Court.

With the number of affidavits and legal documents that are currently being executed by third-party providers, or by document assembly and preparation operations pursuant to “signing authorities,” it is essential that these foundation rules be enforced in every case in order to prevent the complete high-jacking of our system of justice and to prevent a total disregard for the Rules of Evidence. 

November 2, 2009

IRS Tax Liens & Foreclosure

I own 3 rental properties which I included in a recent bankruptcy.  The debts were discharged and the lenders received permission to foreclose.  Although I am not liable for the debts, I still own the properties and the lenders have first mortgage liens on them.  There is also a sizable tax lien on them from the IRS.

It appears that the lenders are content to sit on the liens and the community still requires me, the owner, to upkeep the properties, which is as it should be. I doubt these properties would sell at sheriff’s sale due to the large tax lien which would still be in place even if the 1st mortgages were paid .  The mortgages are for much more than the appraisal values due to the bubble bursting.

All the properties have PMI on them.  I would think the lenders would simply walk away, release the liens and collect from the PMI company.  Is there any way I can force the lenders to move ahead with whatever action they chose to take?  I have even offered to let them rewrite the loans for a smaller amount and I would still accept the tax liens which I will have to resolve anyway.

My income is way more than enough to qualify for the mortgages.  I have no other debt due to the discharge.  It seems to me that this would be a good answer for me and the lenders.  They would cut their losses and I would get my properties back at lower principals.  I don’t understand their failure to accept this deal when they are looking at a loss which is much higher.  Can you suggest any resolution or tell me why they may be reluctant to rewrite the loans?

Mel (more…)

October 30, 2009

Bankruptcy Attorneys & Short Sales

Filed under: Bankruptcy,Short Sale

Sorry I haven’t been posting with the vigor of days of yore.  I’ll try to improve on that.  But in the meantime, I thought this conversation I had with a Florida bankruptcy attorney one late night a few months ago was interesting.  The names have been changed to protect the innocent.  And now for the question: should I do a short sale if I’ve already filed for bankruptcy? (more…)

October 6, 2009

Wells Fargo – Bankruptcy, Loan Mod, Short Sale, Advertising, etc.

Hi Paul. 

My ex-husband and I purchased a 2 acre lot and and new manufactured house about 6 years ago.  We are both on the mortgage.  We filed bankruptcy and got divorced a couple years ago. 

When we got divorced, he stayed in the home.  the mortgage was not reaffirmed in the bankruptcy.  Since then, I have gotten remarried. 

My ex is now 3 months behind on the mortgage and is in the process of moving out.  Since i am on the loan, wells-fargo is working with me and has offered a loan modification. 

My ex has decided that he doesnt want us to move in to the house and I suspect he is going to try to short sale it behind my back.  The property is in a very distressed condition (his doing) and now is worth way less than the loan amount.  Can he do that if I dont agree to it? 

If I am willing and able to make the payments (which I am), can he prevent me from doing so?  I really dont want to lose the house and we are willing to rehab the property.  We would like to live there long term. 

Any advice would be a blessing.  Thanks!!!

Patti (more…)

September 9, 2009

Bankruptcy Filings Jump

Filed under: Bankruptcy,Real Estate

Bloomberg – Wealthy individuals’ Chapter 11 bankruptcy filings jumped 73 percent in the second quarter from a year earlier, according to the National Bankruptcy Research Center, a research firm in Burlingame, California.

More individuals or families with at least $1,010,650 in secured debt and $336,900 unsecured are using Chapter 11 of the U.S. bankruptcy code typically associated with business reorganizations. Falling U.S. home prices leave them unable to refinance or sell properties when they drop below the value of the mortgage, said Chicago bankruptcy attorney Joseph Baldi.

Chapter 11 is more expensive and time-consuming for debtors and creditors than a Chapter 7 liquidation of assets. Wealthier people filing for bankruptcy typically have large homes, two car payments and children in private schools, said Leslie Linfield, executive director of the Institute for Financial Literacy in Portland, Maine, a credit-counseling and research group.

“You’re living on the edge, you’re juggling those financial balls,” Linfield said. “When one ball goes, they all fall down.”

Listings of homes for sale worth $1 million or more increased 27.3 percent in July from October, according to Zillow.com, a Web site that tracks real-estate transactions. The number of homes sold with a value between $1 million and $2 million fell 23 percent in July from a year earlier, according to the Chicago-based National Association of Realtors. There was a 21-month supply, up from 16 months last year.

Expensive Real Estate

Actor Stephen Baldwin sought voluntary Chapter 11 bankruptcy protection in July after lenders began foreclosure proceedings. Baldwin, 43, listed $1.1 million in assets and $2.3 million in debt in documents filed in U.S. Bankruptcy Court in White Plains, New York. His home is valued at $1.1 million and the banks sought to recover about $1.2 million in mortgage loans, according to court papers.

“There are a lot of people with real estate, and they can’t afford it,” said Baldi, the Chicago attorney, who is scheduled to speak to the American Bankruptcy Institute on Chapter 11 next month. “They can’t make the payments, and they can’t sell the house.”

About 4.3 percent of U.S. homes, or one in 25 properties, were in foreclosure in the second quarter, according to an Aug. 20 report from the Mortgage Bankers Association in Washington. That’s the most in three decades of data.

Go to Zero

“Real-estate is an incredible thing on the downside,” said Jason Green, a bankruptcy attorney based in Washington. “Equities can only go to zero. Property can go well below zero,” because of ongoing expenses such as property taxes, insurance and maintenance on primary residences, vacation homes and investment properties.

Congress amended the bankruptcy law in 2005 making it harder to file for Chapter 7, which allows debts to be completely discharged. Chapter 11 gives individuals time to make a plan to reorganize their finances.

Approval for National Football League quarterback Michael Vick’s Chapter 11 plan took almost 14 months of legal wrangling with creditors who submitted over $19 million in claims. His bankruptcy docket, beginning in July 2008, includes 795 entries for motions, requests for hearings and transcripts. The plan includes a promise to pay approximately $2 million to his legal team and to devote a portion of Vick’s future NFL earnings to pay creditors.

The debt levels in the 2005 law prevent many higher-income people from filing Chapter 7, said Green. “They’re locked out of Chapter 7, because they make a lot of money, and it’s a disaster,” Green said. “They’re in a netherworld, just hanging out there.”

Multiple Steps

Unlike Chapter 7, which may be resolved in a single hearing, Chapter 11 takes multiple steps, all of which can be contested, said Stephen Kass, a New York tax and bankruptcy attorney.

The process begins with the debtor’s request for court protection preventing lenders from seizing assets, Kass said. The plan to repay a portion of the debt during bankruptcy is also usually contested, he said.

There are meetings with the U.S. Trustee, which oversees the case, the judge and creditors. When a debtor moves to sell an asset, a motion must be filed and is likely to be contested, Kass said. An operating report is prepared each month, including the debtor’s activities, remaining debts, ongoing income, projections for the future and negotiations with other creditors, Kass said.

Chapter 7 cases may cost between $1,300 and $6,000 in legal fees, Kass said. Chapter 11 cases generally start at $15,000 and can easily grow to twice that amount.

“It’s a lot of hearings, a lot of paperwork,” Kass said. “Chapter 11 is really geared for the big boys.”

Credit Counseling

Before filing for bankruptcy, all consumers must see an approved credit-counseling agency. An individual applying for Chapter 11 protection has 120 days to file a plan to repay a portion of debt, according to the Web site of the U.S. federal courts.

Rebuilding credit after a bankruptcy may take as much as five years of good payment history, said Ken Lin, chief executive officer of CreditKarma.com, a San Francisco-based Web site that allows consumers to monitor their credit scores. A secured credit card, which requires an upfront deposit, is a good way to start, he said.

Scores may actually improve because of the discharged debts, Lin said, but credit will still be difficult to get and will be more expensive, because most companies do a separate search for bankruptcies as part of their underwriting.

‘Penalty Period’

“There will be a penalty period where you’ll be under extra scrutiny,” Lin said. “A consumer should be prepared to be declined a lot.”

If consumers are using credit cards to pay utilities or groceries, it may be time to speak to a counselor, said Dianne Reichl, group manager at Greenpath Debt Solutions in Detroit. Other signs of trouble: taking numerous cash advances; paying one bill one month, another the next month; and falling behind on basic needs, such as housing and utilities.

“We’re seeing people who historically never would consider they were having a problem seeking help,” said Mike Croxson, president of Care One Services, a credit-counseling company in Columbia, Maryland.

August 27, 2009

Marisa’s Credit Score

Hello Paul.

I have a question about the impact bankrupcy has on credit scores. I had filed chapter 7 in 2007 with a discharge in 2008. I went today for an auto loan and was told that my credit looked good, no debt, and timely loan payments. He said that he would guess by looking at my credit report I would have high 600 score but instead I have a 558.

I know that it hasnt been that long since I filed but I have paid off 2 loans since then and have one now, with timely payments being made, which is secured. I have known numerous people who have filed bankrupcy and within months they were getting car loans and even buying a house.

When do your scores go up? Why does it seem that mine is so low while others must be higher, given the same circumstances. I just dont understand. Will anyone help me rebuild my credit or will I just have to wait it out?

Thanks.
Marisa (more…)

August 20, 2009

Portfolio Recovery & Professional Debt Management Busted

St. Louis, Mo. – Attorney General Chris Koster today filed suit against two debt collection companies that are operating scams to collect debts from citizens who do not owe the money.

Koster filed law suits in St. Louis against Portfolio Recovery Associates, a public company based in Virginia, and Professional Debt Management located in Kansas City.

Koster said Portfolio buys old and bankruptcy-discharged debt, often from another bad debt buyer, and then tries to collect, sometimes through court action. He said the company often is attempting to collect on accounts that are already paid or have been discharged in bankruptcy; sometimes they try to collect from the wrong consumer or for the wrong amounts. He said the company has threatened to garnish consumers’ social security checks, which they have no authority to do, and has refused to provide consumers with proof that the debt is valid.

Koster said Professional Debt Management uses scare tactics, leaving messages on consumers’ phones that there is an emergency. He said that like Portfolio, they attempt to collect on accounts already paid or from the wrong party.

“The Attorney General’s office intends to take aggressive action to protect Missouri consumers,” Koster said. “I am asking the court to issue a permanent injunction prohibiting these companies from violating consumer protection laws and to order that they provide full restitution to the people they have harmed.”

Koster also is asking that the court impose monetary penalties and require the companies to pay all court costs.

August 10, 2009

I Affirm I Did Not Reaffirm

Filed under: Bankruptcy,Mortgage

My husband and I filed a chapter 7 bankruptcy which was discharged in October of 08. We intended to keep the house and kept up the payments on both the 1st and 2nd mortgages. Since then the marriage fell apart and we handed in the keys and the property is now in foreclosure. 

I was under the impression that since we did not reaffirm either mortgage that we would not be liable for the loans because of the bankruptcy.  We are in California.  Is this correct? 

I talked with the mortgage company today about the foreclosure process and they said we are still liable.

Kristy (more…)

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