By now, almost everyone in our industry has, at least to some extent, felt the effect of the most recent change that went into effect on December 1, 2015 concerning the official form for mortgage proofs of claim in bankruptcy cases. In this article, we are going to focus on some of the issues we are already beginning to see regarding the new required Proof of Claim form.
The first interesting and seemingly problematic change is the omission of the property address field. While the address can easily be gleaned by reviewing the attached loan documents, some of our clients are having a hard time parting with this field and have thus made requests to our firm to add the address into the form even though it has no assigned field. We recommend avoiding the urge to change the format of the form to add the address field because any information entered into a pleading creates, not only an increased risk of incurring a typographical error, but also more scrutiny by the bankruptcy trustees and debtors counsel. Since the property address is not required information in the new form, it is better left out.
The next items of confusion are contained within the Mortgage Proof of Claim Attachment. First, in Part 1: Mortgage and Case Information, there is a field entitled “Fixed accrual/daily simple interest/other.” According to Proof of Claim Attachment instructions, this field is where the creditor describes the method used to calculate interest on the debt. We have seen this field completed with information describing whether the Note is fixed or variable. However, the fixed versus variable interest rate issue is already addressed in the Proof of Claim form itself at Part 1 Section 9. As such, the information input into this field should indicate how the interest is accruing/calculated, such as daily, quarterly, annually, etc., and not how the interest rate has been determined.
Another confusing aspect of the Mortgage Proof of Claim Attachment relates to two fields entitled “Escrow deficiency for funds advanced” which appear in both the Part 2: Total Debt Calculation and the Part 3: Arrearage as of Date of the Petition sections. The total for these fields should match column O of the loan history. If the Debtor’s escrow account showed a negative balance at filing, this field will show the same amount in both sections. However, per the Official Instructions, if the Debtor had a positive escrow balance at filing, the positive amount should be included with and entered into the “Less total funds on hand” field of the Total Debt Calculation and a $0 should be entered in the corresponding field of the Arrearage section. We are already fielding requests to ignore the Official Instructions and enter a negative figure to represent the positive balance in the “Escrow deficiency for funds advanced” field of the Total Debt section, but we strongly advise against this approach.
A portion of the new form subject to varying interpretations is the Part 5: Loan Payment History from the First Date of Default. The term “First Date of Default” in and of itself is unclear. Some servicers are starting the history with the date of the first missed payment. This method is fine so long as there are neither unreimbursed fees nor any unreimbursed escrow advances accrued prior to the date of the first missed payment that will be listed in and collected as part of the arrearage. In other words, the Loan History should not begin with an amount already appearing as due in columns “O” or “P” unless the first line of the history is illustrating the date on which that amount was incurred or the columns “zero” out at some point in the loan history prior to the bankruptcy filing. In light of this, the creditor might weigh the benefit of attempting to collect a very old fee/corporate advance against the time and labor involved in creating a history that will go back far enough to support the incurrence of said fee. We have also seen issues with the method used to calculate escrow shortages. Each of our clients seems to take a slightly different approach. The instructions are as follows: “The projected escrow shortage is the amount the claimant asserts should exist in the escrow account as of the petition date, less the amount actually held.” Thus, the escrow shortage amount should be based on and appear in the figures contained in the escrow analysis run using the date of the filing of the case and that will be filed with the Proof of Claim.
While the new Proof of Claim form certainly adds a level of detail regarding the status of the loan not found in prior versions, the form astonishingly still does not address at least one piece of crucial information the creditor might need to disclose. For example, there are several districts where the Debtor might, via their Chapter 13 Plan, request the creditor add one or more post petition payments to the Proof of Claim. As this is certainly not an uncommon occurrence, we had hoped the new form might address the issue. However, as it stands, creditors are still forced to create an addendum to the form to address these additional payments.
These are only a few of the issues coming to light with the advent of the new Proof of Claim form. Stay tuned for more excitement as the Debtor’s bar, Trustees and others begin reviewing filed claims and coming up with questions and interpretations of their own.