Mortgage servicer's improper move on Van Horne home gets $50,000 rebuke from judge

A bankruptcy judge has ordered one of the nation's largest mortgage servicers to pay $50,000 to a Van Horne couple for seeking permission to foreclose on their house after failing to tell them their payments had increased.

American Home Mortgage Servicing Inc. (AHMSI) of Texas, which has gotten in trouble with regulators in several states, was ordered to pay $40,000 in punitive and $10,000 in compensatory damages to Alan and Kristine Wright by U.S. Bankruptcy Judge Paul Kilburg on Dec. 28.

The couple had filed for Chapter 13 bankruptcy protection in September 2008 with the intention of catching up on their monthly mortgage payments on their Van Horne home. Chapter 13 bankruptcy is often sought as a way to resolve a mortgage delinquency, according to Janet Hong, the Cedar Rapids attorney who represented the couple.

The bankruptcy plan protected the couple from losing their home as long as they kept up with the court-approved payment plan, but in on May 13, 2010, AHMSI filed a motion to lift the bankruptcy's protective stay, saying that they were in default.

The motion was withdrawn by AHMSI, but the mortgage servicer filed a second motion about one year later again claiming that the Wrights were in default.

Without notice, AHMSI began placing mortgage payments from the couple in a "suspense account," drawing from the account to make up the deficiency in each monthly until it was fully expended and returning the next payment, according to the judge's ruling. The couple didn't know their account was in arrears until they received the returned check. Their requests for a payment coupon book from AHMSI had been rejected more than once.

The couple eventually found through the court that their payments had been increased due to higher requirements for escrow - the money set aside by the mortgage servicer to pay things like property taxes and insurance - but they had not been notified.

Neither the Wrights nor AHMSI's attorney, C. Anthony Crnic of Waterloo, returned calls seeking comment on the case.

AHMSI had argued that terms of the Wright's mortgage required them to furnish their lender, Deutsch Bank, with notice of escrow amounts to be paid. Because the borrowers had the obligation to furnish the mortgage company with changes in the amounts covered by escrow, AHMSI argued that they were obligated to know when their payments changed.

The Wrights and their attorney argued that AHMSI was required by terms of the bankruptcy plan to notify both them, their attorney, and the bankruptcy trustee if the required payments changed.

The judge ruled that AHMSI violated terms of the bankruptcy plan by failing to notify the couple of changes in their payments. The mortgage servicer failed to respond to the couple's requests for payment information and had not prepared and distributed annual statements showing activity on the debtors' loan, he ruled.

In the ruling, the judge called AHMSI's actions "willful" and "indefensible." He said the company was reminded of its duties to notify the couple of payment changes and account balances in 2010, but repeated its errors the following year by failing to notify them of payment increases and asking permission to commence foreclosure.

Hong, the Wright's attorney, said "it is pretty likely that these practices are more commonplace than anyone could possibly imagine." She said those practices are easier to monitor in bankruptcy, and can be brought to the court's attention.

Hong said homeowners in danger of losing their home should closely scrutinize their mortgage company's bookkeeping because it could make the difference between keeping or losing their home.

Alan Wright spent five to 10 hours addressing AHMSI's motions to lift bankruptcy protection and lost vacation time to attend a court hearing that was canceled at the last moment, the judge noted. Krstine Wright spent at least 20 hours tracking down payments, making calls sending emails and preparing records of payment histories while caring for three small children.

The damages were ordered on a motion to show cause why AHMSI should not be found in violation of the bankruptcy plan and sanctioned. The judge ordered AHMSI to pay the Wright's attorneys fees, and prohibited the company from further raising any amounts due by the couple without specific approval of the court.