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NACTT Annual Conference 2018

Posted By USFN, Tuesday, November 13, 2018
Updated: Monday, November 5, 2018

November 13, 2018

by Joel W. Giddens
Wilson & Associates, P.L.L.C.
USFN Member (Arkansas, Mississippi, Tennessee)

The National Association of Chapter Thirteen Trustees (NACTT) held its annual four-day conference in Miami, Florida from June 27-30. The NACTT administers Chapter 13 bankruptcy cases in the 94 federal judicial districts. Mortgage issues continued to be an important topic at the conference, with several interesting educational panels addressing mortgage subjects; plus there was useful dialogue among mortgage representatives, mortgage servicing attorneys, and Chapter 13 trustees. This article highlights a few of the educational offerings and events of interest to the mortgage servicing industry.

Meeting of Trustees, Servicers, and Attorneys
As in past years, the conference began with the NACTT Mortgage Committee meeting. This group is composed of Chapter 13 trustees, servicer representatives, and their attorneys; it is a continuation of the efforts begun in 2004 to improve mortgage servicing in Chapter 13 bankruptcy cases. Participation is through monthly teleconferences, subcommittees on specific issues, and biannual in-person meetings. The group is open to any interested mortgage servicer representative, bankruptcy attorney, or Chapter 13 trustee (contact the USFN Bankruptcy Committee for information about joining). Topics that the mortgage committee addressed in Miami included:

 

Consumer Financial Protection Bureau Periodic Statement Rules — Required for borrowers in bankruptcy since April 19, 2018, the group discussed “pain points” that servicers are feeling since the rolling out of bankruptcy periodic statements. These include how to comply with the periodic statement rules for accounts to be paid in full in a bankruptcy case, Chapter 13 plans that “cramdown” or “strip-off” mortgage claims, and how to deal with Chapter 13 plans that require “gap payments” to be included in the pre-petition arrearage claim. Servicers are still navigating their way around how to best comply with the periodic statement rules in these circumstances.

 

Federal Rule of Bankruptcy Procedure (FRBP) 3002.1 relating to Payment Change Notices — FRBP 3002.1(b) requires mortgage servicers to file notices with the court at least 21 days prior to the effective date of a monthly payment increase or decrease for mortgages secured by borrowers’ principal residences in Chapter 13 cases. The mortgage committee approved proposals for changes to FRBP 3002.1(b) — to be presented jointly with the American Bankruptcy Institute’s (ABI) Chapter 13 Committee of the Commission on Consumer Bankruptcy — for submittal to the Advisory Committee on Rules of Bankruptcy Procedure for consideration later this year. If adopted by the advisory committee, they could amend the payment change rules after a comment period and approval by the U.S. Supreme Court. The proposed changes are in two areas:

 

o The current rule does not provide guidance for what happens if a notice is filed less than 21 days prior to the effective date. The proposed change provides that if the payment increases and the notice is not filed timely, then the effective date for the increased payment would be the due date that is at least 21 days from the filing of the notice. Under the proposed rule, a servicer would have to waive any increase in the payment amount for non-compliance with the rule. If the monthly payment decreases, the proposed rule provides that the effective date would be the effective date set out in the notice. For decreased payments, the new rule would give Chapter 13 trustees flexibility in implementing payment decreases that may not be in technical compliance with the rule, but that would be to the benefit of debtors.

 

o Home Equity Lines of Credit (HELOC) notices of payment change are problematic for servicers because changes may occur monthly, making compliance with the rule difficult. The proposed change would provide an exception to filing notices of payment change for any increased or decreased payment of $10 or less. Instead, servicers of HELOC accounts would be required to file an annual notice in which the servicer would have to provide a reconciliation of the account for any over- (or under-) payment received during the prior year, which would be accounted for by the trustee in the first payment to the servicer in the month after the annual notice.

 

Loan Modification Agreements — The mortgage committee and the ABI will also present to the rules committee a proposal to change the process by which loan modification agreements are approved in Chapter 13 cases. The proposal would allow a servicer to initiate the approval process through motion practice that would temporarily forebear payment of its pre-petition claim in bankruptcy while a trial period plan is in effect. If the modification becomes permanent, then a final order approving it would be entered.


NACTT Presentations and Panels

Director of the Administrative Office of the U.S. Trustee program, Clifford J. White III, provided opening remarks for the conference, as is customary for the NACTT annual meeting. The Office of the U.S. Trustee (UST), in its 30th year of existence, falls under the Department of Justice and is responsible for overseeing the administration of bankruptcy cases and private trustees (including Chapter 13 trustees), as well as enforcement of bankruptcy compliance rules. Over the previous year, the UST has focused its efforts in policing the system for instances of inadequate debtor representation in bankruptcy cases, seeking to punish incompetent and unethical attorneys. Of particular interest to the UST has been multi-jurisdictional debtor firms, national firms that solicit business over the internet and then partner with local counsel attorneys to file bankruptcy cases. In some instances, the UST has found questionable practices that have led to sanctions and bans from filing cases by these firms. See, e.g., In re Williams, 2018 Bankr. LEXIS 382 (Chicago-based law firm and principals fined $250,000 and banned for five years from filing cases in Western District of Virginia).

Director White did not completely omit mention of mortgage servicer bankruptcy compliance in his comments. Continued servicer adherence to best practices in bankruptcy should remain the ongoing objective.

The NACTT offered many topical and informative educational sessions of interest to mortgage servicers, including the annual Chapter 13 case law update, a panel addressing remedies when proof of claim compliance fails, and one discussing the impact of the changes to the Federal Rules of Bankruptcy Procedure that became effective on December 1, 2017.

The Chapter 13 case law update covered cases impacting all aspects of Chapter 13 practice, including cases that were of interest to mortgage servicers. Contained in the discussion was a case from California involving a real estate “hijacking” scheme. In re Vazquez, 580 B.R. 526 (Bankr. C.D. Cal. 2017). In Vazquez, the borrower retained a “foreclosure prevention” specialist who claimed to be able to stop a foreclosure by legitimate means through negotiations with the lender, but who then forged the borrower’s signature on a deed to a random debtor. The deed was subsequently sent to the foreclosing mortgage holder with a demand to halt the foreclosure sale. This practice was repeated multiple times to thwart the lender’s foreclosure efforts. The bankruptcy court held that, even though the borrower may not have known or authorized the agent’s actions, the court was authorized to grant the servicer in rem relief from the automatic stay for all future bankruptcy filings. Of note in this case: the court did not limit the in rem relief period to two years as provided in 11 U.S.C. § 362(d)(4) but extended it indefinitely, pursuant to the court’s inherent powers to enforce its orders under 11 U.S.C. § 105(a).

The proof of claim compliance panel discussed practical remedies available to creditors for missed bar dates, given that the bar date was shortened with the rule changes last year. Several options were discussed that have been used in different jurisdictions, including filing a motion to allow a late claim, amending a timely filed debtor proof of claim, filing a late claim and matching it with the amount in the confirmed plan, and a trustee notice of intention to allow a late claim. The last mentioned remedy is a trustee form used by the Chapter 13 trustee in the southern district of Ohio that gives notice to debtors and creditors regarding a late-filed claim and an opportunity to object to it. As with many bankruptcy matters, late-filed proof of claim remedies are specific to each jurisdiction, and local bankruptcy counsel should be consulted to determine the fix (if any) for a missed bar date.

Conclusion
The NACTT conference continues to provide opportunities for mortgage servicers and their attorneys to interact with Chapter 13 trustees, judges, and debtors’ counsel in an informal setting, with 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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