DS News

62 Legal Industry Update National Focus claim and a breakdown of all other sums owed (interest, fees, costs, attorneys' fees, late charges, etc., and an escrow statement). In addition, creditors who were unable to provide these details now faced sanctions pursuant to Bankruptcy Rule 3001(c)(2)(D), for failure to provide the information required by the form, including an "award of other appropriate relief, including reasonable expenses and attorney's fees caused by the failure." (Bankruptcy Rule 3001(c)(2)(D)). So while under 11 U.S. Code § 502 a claim is "deemed allowed, unless a party in interest" objects, the threat of sanctions places the onus on the creditor to make sure the claim is accurate and lessens the burden on the debtor to proffer the necessary evidence to object to a claim. e Mortgage Proof of Claim Attachment is undergoing another significant revision under the new rule and changes to this form are some of the most relevant for servicers. e new form drastically differs from the existing form in that it requires the creditor to provide a detailed list of all transactions on the claim from the first default date to the petition date. is obligates creditors to provide a loan history that "reveals when payments were received, how they were applied, when fees and charges were incurred, and when escrow charges were satisfied" (Committee Note). Upon the release of the new guidelines, there was concern that the loan history would need to include payments from the date of origination. However, according to the revised guidelines, the first date of default is defined as the first instance in the borrower's most recent, and not fully cured, default. To put it differently, if the borrower defaulted on the loan but subsequently fully cured, that time period would not need to be included. However, if the borrower defaulted further and did not fully cure, the payment history covering that default period would need to be included in the transaction history. e requirement of a more detailed loan history also entails the need to input all of this information into the Mortgage Proof of Claim Attachment; the form does not allow creditors to simply attach their own payment histories. ere is hope that this task will not prove too daunting for creditors and their attorneys as the Committee on Rules of Practice and Procedure notes explain that "completion of the revised form can be automated," and will therefore "permit claimants to comply with Rule 3001(c) (2)(C) with efficiency and accuracy" (Committee Note). Nevertheless, it is uncertain whether automation will be practical or useful at all for all creditors due to vast variations in creditors' systems and record keeping practices. It remains to be seen whether the automation will be compatible with the technology used by all creditors. While the argument from the committee and backed by judges, trustees, and debtor's attorneys that the increased levels information required to be provided by secured mortgage creditors provides clarity and cuts down on costs and time relating to the filing of objections to proof of claims is certainly compelling, the increased regulation also means more time expended by servicers and creditor's attorneys completing the form. For creditor's attorneys, the time to complete could likely double as the full history of default must now be physically entered into the new form. If a payment hasn't been made in 3 years for example, that means a creditor will need to list in detail 36 missed payments along with any partial payments made and exactly how those partial payments were applied. e increased time required to properly input the payment history data could ultimately lead to higher servicing and attorney's fees incurred, which consequently could be passed onto the debtor. A more practical solution would be to require creditors to attach a loan history, but in the format used in their ordinary course of business. For servicers, particularly for smaller servicers and for loans that have been service transferred multiple times during a default, providing payment history details required could prove difficult. Unfortunately, due to service transfers involving improperly boarded loans, servicers are sometimes unable to provide loan history details—this occurs predominantly where partial payments and trial modifications payments were made and no permanent modification followed. Moving forward, it will be incumbent on the servicers to ensure that when a loan is received as a service transfer, that the full history of loan since default is received, including all notes and annotations made in the file. Given the increased time and complexity involved in completing a claim, it will be incumbent on creditors to provide referrals for claims to their attorneys well in advance of the bar date. With the ever present threat of sanctions for failure to provide information required by the form, creditors find themselves in a very precarious position if the information required is not available. While these changes pose challenges such as increased time and cost, missing information resulting from service transfers and the threat of sanctions, by ensuring proper boarding of loans and providing payment history to creditor's attorneys well in advance of the bar date, servicers can make this transition as smooth as possible. "For creditor's attorneys, the time to complete could likely double as the full history of default must now be physically entered into the new form."

• Cover