Understand the complexities and nuances of the Bankruptcy Code to better advise clients and prepare for court.
By Daniel Gill
Ocwen Loan Servicing LLC and Bank of New York Mellon were fined more than $44,000 for attempting to collect on a mortgage after the property was in foreclosure and the debtors received a bankruptcy discharge ( Todt v. Ocwen Loan Servicing, LLC (In re Todt) , 2017 BL 165139, Bankr. D.N.H., No. 15-1040-JMD, 5/17/17 ).
The May 17 opinion by Judge J. Michael Deasy of the U.S. Bankruptcy Court for the District of New Hampshire may serve as a reminder to mortgagees and mortgage servicers of what they can and can’t do when a borrower is awarded a discharge in bankruptcy.
Suffering from illness and financial setbacks, Randall and Sharon Todt filed a Chapter 7 case July 1, 2011. At that point they stopped paying for the mortgage on their house.
The Todts received their discharge—effectively wiping out their debts, including under the mortgage—Jan. 26, 2012.
Ocwen began foreclosure in 2013 but continued to send invoices for the debt and contact them regarding “resolving” their “mortgage problems.”
Although the bankruptcy code allows lenders to attempt to collect payments in lieu of foreclosure, that provision doesn’t apply once the foreclosure is underway, the court said.
Ocwen argued that because the Todts had received a discharge its invoices were informational only, pointing to language on their backs saying as much.
But the language was mere boilerplate and didn’t overcome the fact that the statements were clearly seeking payments for the mortgage, the court said. “The use of a pro forma bankruptcy disclaimer is not a ‘get out of jail free’ card that can absolve a creditor of liability for a pattern of conduct that is inconsistent with the terms of the disclaimer,” it said.
The court awarded $13,000 actual damages for the Todts’ emotional distress from the collection efforts, plus attorneys’ fees and costs of $31,077.
The court denied the Todts’ request for punitive damages, noting that the debtors had already had the advantage of living in their house for many years without paying their mortgage, property taxes, insurance, or any kind of rent.
Raymond DiLucci, Concord, N.H., represented the Todts. Ocwen and The Bank of New York Mellon were represented by William J. Amann, Manchester, N.H.
To contact the reporter on this story: Daniel Gill in Washington at firstname.lastname@example.org
To contact the editor responsible for this story: Jay Horowitz at JHorowitz@bna.com
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