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  IN THE NEWS

U.S. Seeks Sanctions Against Lender

By Gretchen Morgenson
The New York Times
3/1/08


Countrywide Home Loans, the troubled mortgage lender that has agreed to be sold to Bank of America, engaged in questionable conduct in a bankruptcy case involving two borrowers in Atlanta, the United States Trustee contended in a lawsuit filed late Thursday.

The lawsuit, citing a pattern of questionable practices, asked the Federal Bankruptcy Court in Atlanta to sanction Countrywide.

The United States Trustee, a unit of the Justice Department that oversees the integrity of the country’s bankruptcy courts, filed suit against Countrywide over a 2005 bankruptcy filing involving John Wayne Atchley and Robin April Atchley, homeowners in Waleska, Ga.

Countrywide, the servicer of the loan, levied improper fees on the borrowers and claimed they were behind on their mortgage on two occasions when they were actually current on the loan, the trustee’s suit contended.

“Countrywide’s failure to ensure the accuracy of its pleadings and accounts in this case is not an isolated incident,” Donald F. Walton, the trustee for the Atlanta region, wrote in a brief. “In recent years, Countrywide and its representatives have been sanctioned for filing inaccurate pleadings and other similar abuses within the bankruptcy system.”

A spokeswoman for Countrywide said in a statement that the lender did not comment on pending litigation.

The United States Trustee had previously intervened in cases involving Countrywide that were pending in bankruptcy courts in Florida, Pennsylvania and Texas. But the suit filed Thursday is unusual because it is a lawsuit that is being initiated by the trustee on its own.

“This case is proof positive that the U.S. Trustee intends to enforce creditor abuses against consumers in bankruptcy cases, and I welcome that,” said O. Max Gardner III, a lawyer in North Carolina who represents troubled borrowers. “I can’t speak for the United States Trustee, but my opinion would be that they filed this proceeding because they are going to seek a national remedy against Countrywide.”

According to the lawsuit, the Atchleys filed a Chapter 13 bankruptcy in Oct. 2005 and set up a mortgage payment plan, which was confirmed by the bankruptcy court that December. They immediately began making payments to Countrywide as required by the plan.

Two months later, however, Countrywide filed a motion with the court seeking permission to foreclose on the Atchley’s home, claiming that the borrowers had failed to make two payments and were in default. The borrowers disputed Countrywide’s contention, supplying the lender with receipts and other documents showing that they were current on the loan. Countrywide then withdrew its foreclosure papers.

But again on May 24, 2006, Countrywide filed papers asking for permission to foreclose on the Atchley’s property, maintaining that two payments had been missed. The borrowers supplied Countrywide with proof that they were up to date and the lender withdrew its foreclosure action once more.

The couple sold the home in May 2007, and Countrywide was paid almost $200,000 from the sales proceeds. But the company improperly accepted additional payments from the bankruptcy trustee overseeing the Atchley’s loan after the sale, even though they had received a “satisfaction of mortgage” acknowledgment from the company. Countrywide did not return those improper payments for more than three months after they were identified, the trustee claimed.

“By accepting the plan payments to which it knew it was not entitled, and failing to promptly return such payments, Countrywide has acted in bad faith in the conduct of litigation before the court in this case that the rules are not up to the task of adequately sanctioning,” Mr. Walton wrote.

He asked the court to enjoin and restrain Countrywide “from engaging in bad faith and abusive practices” like those that occurred with the Atchleys.

Mr. Gardner said that if the bankruptcy court in Atlanta entered an injunction against Countrywide in the Atchley matter, it could be enforced against the company by bankruptcy courts across the country if they found similar conduct in their jurisdictions.

“The U.S. Trustee could file a motion for a contempt hearing to find out whether Countrywide had violated this court’s order by something they did in New York or California,” he said. “I really think that this is potentially a significant case.”



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