Letter to Mortgage Servicers

Letter

Dear ADDRESSEE:

In the wake of reports of significant, ongoing problems related to servicer foreclosure filings in the bankruptcy courts, we write to seek clarification of the policies and procedures in place at your institution or mortgage servicing subsidiary that affect mortgage foreclosures, and your practices and policies related to filing proofs of claim and motions for relief from stay in the bankruptcy courts.

America's housing foreclosure epidemic is reaching critical levels, and has shown few signs of abating. Reports indicate that the Nation's biggest banks and lenders now hold nearly a million homes, are in the process of foreclosing on another million, and may ultimately take possession of several million more in the coming years.[1] Under these conditions, it is more important than ever to ensure that mortgage lenders and servicers follow the law when foreclosing on the homes of hardworking Americans struggling to make ends meet.

Evidence has been mounting for some time that loan servicing institutions are unprepared to deal adequately with the complexity of the crisis in a fair and equitable manner that is consistent for all homeowners. Fraudulent and faulty documents filed in state and bankruptcy courts to facilitate foreclosures have triggered several investigations, including inquiries by Federal regulators and state attorneys general, but the problem remains widespread. Clifford J. White, III, director of the Executive Office for the United States Trustee (EOUST), recently stated publicly that an investigation by his office has revealed that the rate of obvious, facial errors in proofs of claim in the bankruptcy courts may be 10 times higher than previously disclosed.[2] This is a shocking and disappointing statistic, but consistent with what bankruptcy judges, attorneys, and homeowners have been experiencing for some time.

Foreclosure is devastating to families and individual Americans. We have heard countless stories from our constituents who want to do the right thing -- taking on multiple jobs and seeking to do whatever is necessary to work with their lenders and servicers to continue making payments. Too often, these individuals have been met with unclear and contradictory responses regarding the steps they must take to remain in good standing with their mortgages. In some cases, these individuals struggle to even have a conversation with lenders and servicers regarding their mortgages, are unable to get the terms of their agreements in writing, or discover in follow-up interactions that no record was kept of previous discussions. And to make matters worse, it is clear that these problems are continuing within the bankruptcy courts.

Our first inquiry relates to the policies and procedures in place at your institution relating to foreclosures and filing proofs of claim in the bankruptcy courts, and what steps you are taking to make sure that homeowners are treated fairly, consistently, and honestly. Our conversations with constituents, bankruptcy attorneys, and others on both sides of foreclosure proceedings have indicated that servicers and lenders often give inconsistent or contradictory explanations for how loan balances are calculated. The information collected by the EOUST supports this, as these inconsistencies have manifested in part in defective proofs of claim. One example discussed publicly in the context of the Trustee program's investigation involved a bank claiming that a borrower owed $52,043, but when the borrower objected and asked for documentation, the amount was revised to $3,156 -- a mere fraction of the initial amount.[3]

No homeowner should be subject to a foreclosure that is based upon inaccurate balances, or faulty or fraudulent documentation. Of equal importance, the integrity of the bankruptcy system must be maintained through the proper and lawful conduct of all litigants. Defective or fraudulent filings, which have been far too common amidst the housing crisis, severely undermine the integrity of the Federal court system and greatly harm Americans navigating our Nation's current economic challenges.

Your prompt and thorough responses to the attached questions will assist the Judiciary Committee as we consider the appropriate steps forward. We look forward to your reply.

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