Mortgage mess beckons in regional bankruptcy trustee's retirement

The regional bankruptcy trustee whose office oversaw the bankruptcy of Agriprocessors in Postville and thousands of others is retiring to take a role with Wells Fargo Home Mortgage.

Habbo Fokkena of Clarksville will retire effective Dec. 4 as U.S. Bankruptcy Trustee for Region 12, which includes Iowa, Minnesota and the Dakotas. He will join a Wells Fargo default services unit that is working to resolve thousands of mortgage foreclosure cases amid a changing backdrop of federal requirements.

Fokkena is a former Butler County attorney who got his start in bankruptcy law during the farm crisis of the 1980s. He later oversaw administration of more than 6,000 individual bankruptcy cases as a "panel trustee," the professional appointed by the court to safeguard, manage, or distribute the assets of the debtor.

"Bankruptcy is an arcane subject area," said Fokkena, who is 64. "It's a complex, difficult area. Not that many lawyers practice in it. It's a mystery to a lot of people."

The bankruptcy of Agriprocessors in late 2008 was one of the more closely watched cases in Region 12 during Fokkena's tenure, partly because of the company's notoriety associated with a major immigration raid. The U.S. Trustee's Office managed to keep the company in operation and facilitate the sale of the company's assets to Agri Star in a long, costly and difficult bankruptcy process that is still continuing under Judge Paul Kilburg.

"There were a lot of people who got hurt by that whole mess," Fokkena said. "There were a lot of people who had trauma. I remember being in the middle of a group of very very angry workers who had not been told accurate information and I didn't have good news for them either."

While many creditors and workers lost money, Fokkena defended the outcome as a testament to the bankruptcy process. The kosher meat processor around which much of Postville's economy revolves remains in business.

"The key thing is there were people who needed a job and most of those people are still employed there, so bankruptcy is still a success," Fokkena said.

The bankruptcy of Cedar Rapids landlord Robert Miell in 2009 was another high-profile case in which Fokkena's office played a hand. Fokkena eventually filed a motion with the court to deny the discharge of Miell's debts because he hadn't made a truthful disclosure of assets such as extensive collections of memorabilia and musical instruments.

The bankruptcy of Petters Group Worldwide, the Minnesota company accused of operating the largest Ponzi scheme in United States history before the Bernie Madoff case, also erupted under Fokkena's watch. The company and founder Tom Petters were accused of bilking investors out of $3.65 billion, and Fokkena expects it to grind on for five or ten more years.

Fokkena said the number of bankruptcy cases involving deliberate fraud remains a small percentage, and most debtors are honest people who got in financial trouble because of bad decisions or uncontrollable life events such as job loss and illness, or because of unintentional mismanagement of their finances.

Among business debtors, Fokkena said he's seen one common thread.

"They didn't have a real clear idea how much it cost them to stay open on a daily basis," Fokkena said. "They just didn't have good numbers."

Fokkena said a lot of businesses seeking bankruptcy also grew too fast, or failed to make accurate financial projections as their markets changed.

A traditional retirement of fishing and traveling was on Fokkena's mind when he was approached by a friend to help out at Wells Fargo, and he decided that he could postpone the easy life for a couple of years.

Like many other people, he's heard and witnessed stories of mishandled foreclosures that produced misery for homeowners. Fokkena believes they are a minority of the cases, and that Wells Fargo, like most of the mortgage industry, is making an honest effort to deal with a huge reversal in the number of homeowners who could afford to pay their mortgages.

"It should be interesting," Fokkena said. "Their focus is the same as the focus I've had here. I wanted to do it the right way."

The United States Department of Justice is expected to announce an appointment Monday to fill the Region 12 trustee's position being vacated by Fokkena.

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