PERSON OF THE WEEK: On Dec. 12, 2011, changes to the federal bankruptcy rules took effect. To understand the impact of these rules on the mortgage banking industry, MortgageOrb spoke with Alberta E. Hultman, executive director and CEO of Orange, Calif.-based USFN.
Q: What are some of the most significant changes in the federal bankruptcy rules?
Hultman: Rule 3001 governs the filing of the proof of claim, and the amendments require additional documentation, itemization, and an escrow statement component. They also provide a new proof of claim for attachments. A completely new rule is Rule 3002.1, which requires timely notices of payment changes; timely notice of fees, expenses and charges incurred; and a new procedure for determining the account status at the completion of a Chapter 13 bankruptcy, or the ‘Final Cure’ notice. The changes to the rules were designed to increase transparency and require the disclosure of any activity during the case.Â
Q: Does homeowner bankruptcy play a significant role in today's distressed housing market?
Hultman: Bankruptcy remains the last resort for homeowners facing foreclosure. If a loan modification cannot be successfully negotiated, filing bankruptcy provides an opportunity to stop foreclosure and reschedule a mortgage delinquency.Â
While it is still a problem for future credit, filing bankruptcy no longer holds the stigma it once did, and more consumers are looking at it as a solution to otherwise unresolvable mortgage problems. If a borrower can complete a successful Chapter 13 bankruptcy, he or she can emerge current on the mortgage obligation, remaining in the home. Such cases benefit the borrower, the servicer and the community.Â
Q: How can a servicing company executive be certain that his or her staff is fully up to speed on bankruptcy rules and regulations?
Hultman: Ensuring that the company's management team is gathering and reading everything out there on this subject is a good first step, taking advantage of industry education programming is also recommended, at least for supervisory/management staff who can then take information back to the troops. Avail yourself of industry publications that focus on the rules. Ask local counsel to assist in training your staff or at least your managers and supervisors.
Q: Last summer, a review by the Executive Office for the U.S. Trustee of servicers' bankruptcy filings suggested that errors in proofs of claim in the bankruptcy courts might be far greater than previously disclosed. What are some of the most common bankruptcy-related errors, and how can they be prevented?Â
Hultman: The Office of the U.S. Trustee has, indeed, increased its scrutiny of proofs of claim. Servicers and attorneys filing proofs of claim have been dedicated to resolving any potential shortfalls through a diligent and careful review of the proofs of claim, and the trustee initiative provided opportunities to disclose and explain the thorough processes involved to ensure an accurate claim is filed.Â
The hope is that the transparency required by the new rules will lead to fewer objections and accurate, comprehensive claims filed. Clear and direct communication between clients and local counsel is imperative to in order for this to happen.Â
While the new rules may present some difficulties in the coming months as all parties learn and understand them, they also represent an opportunity for clients and local counsel to work closely on these matters and get it right. Borrowers will also benefit from receiving more easily understandable information that can assist them through the process.