Back in March, we posted a blog on “judicial nullification” in mortgage cases.
Recent judicial decisions have proven us to be correct — and that “judicial nullification” in mortgage cases has expanded into federal bankruptcy proceedings.
When a jury refuses to follow the law or the instructions of the judge, and instead renders a verdict counter to the law but based on their sympathies or their sense of fairness, it is called “jury nulllification.”
Judges too can refuse to follow the law when they believe it is unfair, or they can interpret the law so that the outcome favors the side that the judge believes to be morally right — even if that side would be legally in the wrong according to previous interpretations of the law.
We call that “judicial nullification.”
Now we hear that in an increasing number of cases, federal bankruptcy judges are refusing to stay bankruptcy proceedings to permit lenders to move forward with foreclosure actions, and even sanctioning lenders whose conduct seem to them to be abusive or improper.
According to the New York Times, “Slowly but surely, a handful of public-minded bankruptcy court judges are drawing back the curtain on the mortgage servicing business, exposing, among other questionable practices, the sundry and onerous fees that big banks and financial companies levy on troubled borrowers.”
The cases cited by the Times are from bankruptcy courts in Delaware, Louisiana and New York, and “each one shows how improper, undisclosed or questionable fees unfairly penalize borrowers already struggling with mortgage debt or bankruptcy.”
In a case in Louisiana, Judge Elizabeth W. Magner found that Wells Fargo was guilty of “abusive imposition of unwarranted fees and charges,” and improper calculation of escrow payments, among other things. She found Wells Fargo negligent and assessed damages, sanctions and legal fees of $27,350.
The Times wrote that “The heart of the case is that Wells Fargo failed to notify the borrower when it assessed fees or charges on her account. This deepened her default and placed her on a downward spiral that was hard to escape. And Wells Fargo’s practice of not notifying borrowers that they were being charged fees ‘is not peculiar to loans involved in a bankruptcy,’ the court said. During a 12-month period beginning in 2001, for example, Well Fargo assessed 13 late fees totaling $360.23 without telling Ms. Stewart or her late husband, whose name was on the loan before he died. Even though the terms of the mortgage required that Wells Fargo apply any funds it received from the Stewarts to principal and interest charges first, the late fees were deducted first. This meant that the Stewarts’ mortgage payments were insufficient, making them fall further behind — and keeping them subject to more late fees.”
“Then there were the multiple inspection fees Wells Fargo charged the borrowers. Because its computer system automatically generates a request for property inspections when a borrower becomes delinquent — to make sure the property is being kept up — the $15 cost of the inspections piled up. The court noted that the total cost to the borrower for one missed $554.11 mortgage payment was $465.36 in late fees and property inspection charges.”
“From late 2000 and 2007, Wells Fargo inspected the property on average every 54 days, the court found. But the court also determined that inspections charged to Ms. Stewart had often been performed on other people’s properties. Of the nine broker appraisals charged to Ms. Stewart from 2002 to 2007, two were said to have been conducted on the same September day in 2005 when Jefferson Parish, where the Stewart home was located, was under an evacuation order because of Hurricane Katrina.”
“The broker appraisals were conducted by a division of Wells Fargo that charged more than double its costs for them, the court found. It concluded that the charges were an undisclosed fee disguised as a third-party vendor cost and illegally imposed by Wells Fargo. The bank also levied substantial legal fees and failed to credit back to the borrower $1,800 that had been charged for an eviction action but that had been returned by the sheriff because it never occurred.”
“While Wells Fargo claimed that the borrower owed $35,036, the judge said the actual figure was $24,924.10. The judge ordered Wells Fargo to provide a complete loan history on every case pending with her court after April 13, 2007.”
In a Delaware case, Judge Brendan Linehan Shannon refused to allow a lender to charge fees owing under the mortgage after the borrower had satisfied all obligations under a Chapter 13 bankruptcy.
Mortgage lenders argue that their contracts allow them to recover all the fees and costs they incur when a borrower files a Chapter 13 bankruptcy plan, even after a case is resolved.
“This cannot be,” the judge wrote. “If the court and the Chapter 13 Trustee fully administer a case through completion of a 60-month Chapter 13 plan, only to have the debtor promptly refile on account of accrued, undisclosed fees and charges on her mortgage, it could fairly be said that we have all been on a fool’s errand for five years.”
And in a recent case in New York, Judge Cecilia G. Morris refused to allow a lender to foreclose even though the borrowers had technically failed to make the required payments on their mortgage.
The Times reports that “The case involved Christopher W. and Bobbi Ann Schuessler, borrowers who had $120,000 of equity in their Burlingham, N.Y., home when their bank, Chase Home Finance, a unit of JPMorgan Chase, moved to begin foreclosure proceedings. The couple had filed for personal bankruptcy protection, which automatically prevents any seizure of their home. But the bank moved for a so-called relief from the bankruptcy stay, and claimed the couple had no equity.”
“The Schuesslers got into trouble because Chase had refused a mortgage payment they tried to make at a local branch. Testimony in the case revealed a Chase policy of accepting mortgage payments in branches from borrowers who are current on their loans but rejecting payments from borrowers operating under bankruptcy protection.”
“The Schuesslers did not know this. When Chase rejected their payment, they briefly fell behind on their mortgage, according to the court documents. Then Chase moved to begin foreclosure proceedings.”
“Without informing debtors, Chase Home Finance makes it impossible for JPMorgan Chase Bank branches to accept any payments,” Judge Morris wrote. “It appeared that Chase Home Finance intended to commence an unwarranted foreclosure action, due to ‘arrears’ resulting from Chase Home Finance’s handling of the case in its bankruptcy department, rather than any default of the debtors.”
We predicted in March that “that more judges will engage in ‘judicial nullification’ of mortgages unless Congress and the Executive Branch exercise their responsibilities and turn their attention to the mortgage and credit crisis in a far more comprehensive and meaningful way than they have so far.”
These recent cases are proving us correct.