A trend among debtor attorneys has emerged that could significantly affect the rights of mortgage lenders and servicers of home mortgages. Recently, attorneys have begun objecting to Proof of Claims filed by lenders and servicers when the claim is not amended immediately after a loan modification. Instead of Responding to said Objection, some creditors mistakenly believe that having the proof of claim amended is enough to quash the Objection. However, a Response must be filed, prior to any set Response Deadline or, if no Response Deadline has been set, the hearing must be attended. What is the risk? A failure to respond to these Objections could result in an order being entered Disallowing the Proof of Claim. Should this occur, the creditor will likely have to disgorge any amounts that had been disbursed by the Trustee and applied to the loan prior to the modification.
We have also come across many cases where the debtor attorney has objected to a Notice of Payment Change (“NPC”) or a Notice of Fees, Expenses, and Charges (“PPFN”) under rule 3002.1. The NPC objections stem from debtor attorneys looking very closely at the escrow analysis. More and more attorneys are dissecting these analyses to determine if the projected escrow is correct and digging into why there are shortage amounts. Even a simple shortage of less than $50 per month has been raising Objections. Often times, the shortage has accrued over more than just the last twelve months due to either a lack of analysis run in prior years or a failure by the servicer to have calculated an earlier shortage into an earlier payment change amount. The next type of Objection relates to the 21 day NPC time frame as we are now seeing Chapter 13 Trustees object to late filed NPCs in some states and districts. We have concerns that this trend may catch on.
The final objection under 3002.1 we have seen recently comes in regards to PPFNs. A PPFN should be used to disclose and thus recover any post- petition fee, cost, or charge the lender or servicer has incurred during the bankruptcy. This is not limited to just attorney’s fees, but should include inspection costs, escrow advances, court costs, etc. The only standard for the amounts listed in a PPFN is that they be reasonable unless the court has set a limit of how much can be recovered (As is the case for our clients servicing loans in Mississippi). A debtor attorney or Trustee can file a motion to determine whether or not the amount in the PPFN is reasonable and if payment of the PPFN is required. They have up to one year to file this motion. As more PPFNs are being filed since the new Rules took effect, we are seeing more and more debtor attorneys filing Objections and arguing that the amounts listed in a PPFN are not reasonable. In our experience, Responses filed with detailed explanations of the amounts incurred go a long way with opposing counsel and the Court. So far, we have seen no Order entered that might set a “reasonableness” standard. However, the possibility of such an Order and the amount it might be set as the bar for certain actions should be thoughtfully considered when defending this type of objection.