November 14, 2013
by Joel W. Giddens
Wilson & Associates, P.L.L.C.
USFN Member (Arkansas, Tennessee)
The National Association of Chapter Thirteen Trustees (NACTT) held its annual conference in New York City this past August. There continued to be focus on mortgage issues at the conference with an emphasis on implementing and maintaining best practices in mortgage servicing in chapter 13 cases, supervision of bankruptcy case administration by the Office of the U.S. Trustee, and enforcement of the national consent judgments by the Office of Mortgage Settlement Oversight.
NACTT Presentations and Panels
The Director of the Administrative Office of the U.S. Trustee program, Cliff White, provided opening remarks for the conference. The Office of the U.S. Trustee (UST) falls under the Department of Justice and is responsible for overseeing the administration of bankruptcy cases and private trustees. In this the 25th year of the UST program, Director White reported that chapter 13 bankruptcies are in a three-year decline with 310,000 filings in 2012 and a total of 970,000 open cases. Major initiatives of the UST continue to be mortgage servicer enforcement under the national mortgage servicing settlement programs (NMSS) by the settlement monitor, as well as enforcement apart from the NMSS, chapter 11 issues, and review of unsecured creditor practices, and proofs of claim. Director White reported that it appears servicers are making progress, but that some deficiencies had been found by the settlement monitor. Unlike in prior years, Director White’s comments did not focus primarily on enforcement efforts aimed at mortgage servicers.
National Monitor Joseph Smith followed with an update from the Office of Mortgage Settlement Oversight. Monitor Smith explained that since implementation of the NMSS in October 2012, testing of metrics by the five consenting servicers has been phased in with few reported failures (there are 304 servicing standards, 84 relate to bankruptcy; there are 29 metrics, 8 relate to bankruptcy). Any potential violation or failure of a standard must be disclosed to the NMSS committee by the failing servicer, along with a plan for remediation, which is subject to approval by the committee and then is to be implemented. If there is an additional failure, the NMSS committee can seek relief from a court of competent jurisdiction, including monetary damages and injunctive relief.
The conference included a presentation by members of the Committee on Rules of Practice and Procedure of the Judicial Conference of the United States, which published a national form plan and amendments to the Federal Rules of Bankruptcy and Civil Procedure on August 15, 2013. The comment period runs until February 15, 2014, with the earliest effective date of the amendments and national form plan being December 1, 2015. Citing the constitutional mandate for uniformity and the need for plan finality, the panelists reviewed the more important features of the proposed rules and plan, including the prohibition against local modification (proposed amendment to FRBP 9009), a uniform objection to confirmation deadline of at least seven days prior to the confirmation hearing (proposed amendment to FRBP 3015(f)), motions for strip-offs and cramdowns contained within the plan itself (proposed model plan), and shortening the bar date for filing proofs of claim to 60 days from the date of petition filing with an additional 60 days to supplement claims with supporting documentation (proposed amendment to FRBP 3002). The proposed amended rules and national model plan can be found at http://www.uscourts.gov/RulesAndPolicies/rules/proposed-amendments.aspx.
Meeting of Trustees, Servicers, and Attorneys
Apart from the NACTT panels, a meeting of a group of trustees, mortgage servicers and their attorneys was held during the conference to discuss issues relating to mortgage servicing in chapter 13 cases. This meeting was a continuation of an effort by chapter 13 trustees, mortgage servicers, and attorneys to provide open communication on issues affecting mortgages in chapter 13 proceedings. Topics of discussion included implementation of the 2011 Federal Rules of Bankruptcy Procedure (FRBP) amendments, including FRBP 3002 (changing the requirements of proofs of claim) and FRBP 3002.1 (providing a regime for notification by servicers of payment changes and disclosure of post-petition fees, charges, etc., as well as a method to determine the status of residential mortgages at the end of chapter 13 cases), proof of claim issues, and the impending Consumer Financial Protection Bureau (CFPB) rules.
Regarding the implementation of the 2011 FRBP amendments, an issue for servicers was inconsistency in the treatment by chapter 13 trustees of notices filed by servicers as well as the form and procedure for the responses to notices of final cure. FRBP 3002.1(c) requires servicers to file and serve on debtors, debtor’s counsel, and chapter 13 trustees, a notice itemizing any post-petition fee or expense asserted to be recoverable against a debtor. The notice applies only to mortgages secured by a debtor’s principal residence and must be filed within 180 days after the fee is incurred. Although FRBP 3002.1(c) is a nationwide rule, chapter 13 trustees address the notices differently among themselves. Some trustees do not pay the amounts on these notices because they do not believe that they are authorized under a confirmed plan to pay them, while other trustees have local form plan provisions that allow payment of the amounts listed (absent an objection by the debtor). If post-petition amounts listed in the notices aren’t paid, problems may await debtors and servicers at, or after, the time of case completion.
Another area of inconsistency discussed was the lack of a standardized form for the FRBP 3002.1(f) Notice of Final Cure Payment (NOFC). Although the 2011 FRBP amendments provided for national forms for proofs of claim and attachments, notices of payment changes, and notices of fees, expenses and charges, a national form was not provided to file the NOFC at case completion. This notice is to be filed by chapter 13 trustees or debtors after the final payment under the plan is made and is to be responded to by servicers within 21 days to acknowledge if the servicer agrees or disagrees that the account is current. A small committee was formed to explore the drafting of a national form for the NOFC to submit to the larger group and to the Federal Rules Committee.
The group also discussed the impending CFPB final mortgage servicing rules that come into effect on January 10, 2014. Among other CFPB rules, servicers are required to send borrowers periodic disclosures of payment applications. The CFPB rules do not distinguish between borrowers who have filed Chapter 13 bankruptcy and those who have not. Opportunities for the consumer advocate bar could arise when servicers comply with CFPB disclosures and other requirements while their borrowers are protected by a bankruptcy stay and other bankruptcy-imposed restrictions. (Editor’s Note: In an effort to clarify, among other things, treatment of consumers who have filed for bankruptcy, on October 15, 2013, the CFPB issued Bulletin 2013-12 and Amendments to the 2013 Mortgage Rules under the Real Estate Settlement Procedures Act (Regulation X) and the Truth in Lending Act (Regulation Z), (“Interim Final Rule”) as this USFN Report went to press. See pages 26-32 of the Interim Final Rule.)
As in years past, the NACTT conference provided many informative educational panels, including panels on lien stripping, updates on case law around the nation in the past year, and other topics impacting chapter 13 practice. Once again, the conference proved to be a valuable experience for bankruptcy practitioners and mortgage servicers.
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Autumn 2013 USFN Report