November 9, 2015
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 scenic Salt Lake City, Utah this past July. While there continued to be focus on mortgage issues, other topics (including recent U.S. Supreme Court decisions affecting chapter 13 practice and broader bankruptcy issues) took center stage at the event. This article is intended to highlight a few of the educational offerings and events of interest to the mortgage servicing industry.
Opened by U.S. Trustee
As in recent years, the Director of the Administrative Office of the U.S. Trustee program, Clifford J. White III, 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. Director White began with a rather ominous statement of looking forward to the day when he opened the conference without comments directed at the mortgage servicing industry. Unfortunately, he went on, this was not that day, and compliance by mortgage servicers was still an issue three years after the national mortgage servicing settlement (NMSS) had been in effect.
Director White commented that all of the regional offices of the UST were monitoring compliance of servicer proofs of claim and the Federal Rule of Bankruptcy Procedure (FRBP) 3002.1 notices. There was a particular focus in the past year by the UST offices with regard to FRBP 3002.1(b) Notice of Payment Changes (NPC). Highlighted in the director’s remarks was a case in the Eastern District of Michigan in which the UST’s office intervened to investigate a servicer that had filed an NPC that tripled the ongoing mortgage payment. After the servicer could not substantiate the change, the UST’s office and the servicer entered into a $50 million settlement agreement in which the servicer agreed to remediate its practices, subject to independent review. With the vast number of NPCs required nationally, UST scrutiny on servicer practices in this area is likely to continue. Despite these adverse remarks, Director White did comment that he is seeing some improvement in servicer practices in general and, especially, in regards to cooperation.
Apart from mortgage servicer practices, the UST’s office has recently focused on buyers of credit card and other unsecured debt (and their collection practices) in chapter 13 cases. Director White commented that debtors’ fresh starts were being interfered with by this practice and that his office was closely scrutinizing it. The problem occurs when debt purchasers do not review accounts to determine whether collection is barred by a statute of limitation and then file a proof of claim for the debt. This problem, along with suspected robo-signing of the claims, will continue to be a focus of the UST program.
Highlights of the educational program were a session on recent U.S. Supreme Court decisions impacting bankruptcy court jurisdiction and other areas of bankruptcy practice; a panel addressing current mortgage servicing issues, including the impending changes to the proof of claim form and attachment; bankruptcy judges Brown’s and Lundin’s and chapter 13 Trustee Hildebrand’s entertaining and informative chapter 13 case update; as well as a session on how the Consumer Financial Protection Bureau (CFPB) affects chapter 13 practice.
Attorney G. Eric Brunstadt, Jr. surveyed the history of jurisdiction of bankruptcy courts leading up to the recent Supreme Court’s decision in Wellness International Network v. Sharif, 575 U.S. __, 135 S. Ct. 1932 (May 26, 2015). Following the Supreme Court’s decision in Stern v. Marshall, 564 U.S. 2, 131 S. Ct. 2594 (2011), bankruptcy court jurisdiction was somewhat unsettled, leading to uncertainty about the extent to which parties could rely on bankruptcy courts to adjudicate certain claims.
In Stern, the Supreme Court held that while bankruptcy courts had the statutory authority under 28 U.S.C.S. § 157(b)(2)(C) to enter a judgment on a debtor’s core state law counterclaim (a counterclaim for an alleged tortious interference with a gift was involved in Stern), they lacked constitutional authority under Article III of the United States Constitution to enter a judgment. The Supreme Court said that this was because Article I bankruptcy courts were not subject to constitutional assurances of independence (i.e., life tenure of judges and non-diminishment of salaries) which would allow adjudication of such claims.
Left open by Stern was the question of whether parties in bankruptcy could cure the lack of constitutional authority by consenting to the entry of a final order by a bankruptcy court. If not, a party would be faced with the decision of either requesting that the district court withdraw the reference so that it could try the matter instead of the bankruptcy court, or having the bankruptcy court hear the matter and make proposed findings of fact and conclusions of law to be submitted to the district court. In Wellness, the Supreme Court calmed the unsettled state of bankruptcy jurisdiction by finding that parties could indeed consent to a bankruptcy court entering a final order on so-called “Stern claims.”
In so holding, the Supreme Court found that the constitutional right to have an Article III judge hear such claims is a personal right that can be waived by either express or implied consent of the parties. In Wellness, the Court appears to have limited the effect that the Stern decision had on bankruptcy court jurisdiction.
A panel of interest to the industry included a presentation on mortgage servicing issues by Russell Simon, standing chapter 13 trustee for the Southern District of Illinois; attorney Michael Bates (formerly Senior Legal Counsel for Wells Fargo Bank, N.A.); attorney John Crane; and Eduardo Rodriguez, Judicial Appointee for the Southern District of Texas. With the sunset of the NMSS on October 5, 2015, the group posed the question of whether the industry had learned anything from the NMSS requirements. The consensus of the panel was that, at least with the five servicers who were parties to the NMSS, mortgage servicing had significantly improved. Areas of improvement could be seen in a renewed emphasis in accuracy, increased transparency, robust internal compliance programs with multiple testing criteria, and in greater cooperation with compliance monitors.
In bankruptcy, the NMSS shifted the focus to getting documents (motions for relief from stay, proofs of claim) right at the time of filing, instead of in the speed of getting them filed. The NMSS also has had positive effects in industry practices outside of the consenting servicers, as other servicers have voluntarily complied with the NMSS standards. The panel was of the opinion, that as an industry standard for “best practices,” NMSS quality controls would continue into the future to maintain the improvements seen in the servicing industry.
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 initiated in Little Rock, Arkansas in January 2004 by this author’s firm and its founder, the late Robert Wilson, Jr., to bring together chapter 13 trustees, mortgage servicers, and attorneys to provide open communication on issues affecting mortgages in chapter 13 proceedings. Since 2004, the group has met by teleconference and at the annual NACTT conference. Over the past two years, the group has also held an interim meeting for planning and issue discussion.
During this year’s meeting, the focus of the group was narrowed to three specific areas: (1) bankruptcy compliance with CFPB regulations, particularly with monthly billing statements; (2) implementation of the new proof of claim Form 410 and proof of claim attachment Form 410A by the mortgage servicing industry; and (3) the national model chapter 13 plan. The committee felt that narrowing its focus to these three areas over the next year would help the group channel its efforts to ease any transition to come with new compliance standards and forms. In the wake of the NACTT conference, subcommittees were formed by the group to address each topic and prepare for the changes in the coming months.
As in years past, the NACTT conference provided many informative educational panels impacting chapter 13 practice and mortgage servicing. Once again, the conference proved to be a valuable experience for bankruptcy practitioners and mortgage servicers; a place to come together to discuss the issues impacting our world.
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