USFN | MO: New Bankruptcy Local Rule regarding Conduit Payments

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MO: New Bankruptcy Local Rule regarding Conduit Payments

by Chelsea Herring
South & Associates, P.C. - USFN Member (KS,MO)

The Western District of Missouri has now followed the District of Kansas in implementing a mandatory conduit payment local rule that became effective October 1, 2008. The general order amending the local rules can be viewed here.

Some of the most important requirements for servicers are as follows:

1. The local rule applies to all real estate loans, regardless of whether the property is a debtor’s principal residence.

2. The local rule applies when a debtor is past due on payments or charges when he files his case, other than only the payment due in the month of filing.

3. Servicers must file a proof of claim before the trustee will disburse post-petition conduit payments. Servicers must also attach an addendum that conforms to the “Addendum to Proof of Claim For Real Estate Claims.”

4. The trustee will only disburse full monthly conduit payments; he will not disburse partial payments to servicers.

5. The trustee will begin disbursement immediately upon the filing of a proof of claim in the form of pre-confirmation adequate protection payments, only if the debtor’s plan provides for an equal monthly amount (EMA). Servicers must carefully review the plan and object to it as necessary if an EMA is not listed.

6. The trustee will pay the amount of a monthly payment as listed on the proof of claim addendum if listed differently in a debtor’s plan.

7. After a case is filed, the trustee will treat the first two monthly post-petition payments plus a late charge equal to five percent for each payment as a separate payee record known as the “Initial Post-Petition Arrearage.” No separate proof of claim necessary.

8. Servicers may object to the initial post-petition arrearage claim within 30 days of plan confirmation.

9. Servicers may not assess late charges to a debtor’s loan if that debtor is current on his plan payments to the trustee.

10. Servicers must file a “Notice of Payment Change” with the court and serve it on the trustee, debtor, and debtor’s counsel 60 days prior to the effective date of any change to a post-petition payment amount. A party in interest has 30 days to file an objection. Further, if a notice of payment change is filed less than 60 days before the effective date, servicers must also file a separate proof of claim for the difference without assessing a late charge.

11. Servicers must audit these loans annually, and a “Notice of Fees and Costs Incurred” must be filed with the court and served on the trustee, debtor, and debtor’s counsel no later than one year after charges are incurred. A party in interest has 30 days to file an objection. Failure to file a notice of fees and costs incurred is deemed a waiver of such charges.

12. Upon completion of a debtor’s plan, the trustee will file a “Notice of Completion” to deem the debtor’s mortgage loan current including all fees, costs, and charges. Servicers have 30 days to file an objection.