A few months ago in March, JP Morgan Chase (Chase) and the United States Trustees Office reached a settlement that pays more than $50 million through payments, credits and loan forgiveness to Debtors in bankruptcy.
The basis of the settlement was Chase’s admitting it filed thousands of notices of mortgage payment changes in bankruptcy cases that not been properly signed under penalty of perjury. Chase realized it had used the signature of former employees or employees who were not involved in reviewing the mortgage payment changes. Chase also acknowledged in many cases that it did not timely file the mortgage payment changes or timely provide escrow statements to debtors.
The Chase Settlement with United States Trustee is important because determining the proper ongoing mortgage payment is necessary for many chapter 13 debtors to complete their repayment plan. Escrow requirements frequently change due to property tax increases and homeowner insurance cost changes. Sometimes the escrow change can be the direct result of a calculation error too. If the proper escrow amount is not captured, it can put a debtor in the position of completing his repayment plan with a short escrow account. Bankruptcy is all about notice. The system relies on all parties providing accurate numbers that everyone can rely on.
Now that the Chase Settlement with United States Trustee is finalized, our law firm is starting to see some of the results of the national settlement with our clients. Over the past two months a few clients with Home Equity Lines of Credit (HELOC) have received notices that Chase had forgiven the balances owed on their loans. Having a home equity loan forgiven has allowed two of our clients to realize significant savings in their Chapter 13 repayment plans. One client was able to finish her case early. By not paying her equity loan, she was able to pay her other creditors in full and finish her case early.
In the settlement, Chase agreed to audit all of its files and institute a new procedure to make sure the mortgage payment changes are timely and properly filed. In the Houston Division of the Southern District of Texas, the Chapter 13 Trustee pays the Debtors’ mortgage payments each month. So it is critical that notice is given if the escrow amount is changing so we can review it to make sure the change is valid.
We would rather be in front of the Judge now to determine if the change is proper than two or three years after a case ends. We have discovered a number of errors in the payment change notices. It could be that the Debtor was not credited properly for a refund of the homeowners insurance policy. Or it could be that the escrow shortage is being improperly charged against the account post-filing rather than being in the pre-filing arrearage claim. If we did not review these changes, the errors would continue after the case was done. It would be a major headache to unravel the accounting and calculations years after the case is done.
Part of the settlement involves a waiver of fees and charges in the escrow account. It also involves an outright settlement payment to the bankruptcy Debtors. We have not seen any of these yet, but we are keeping our eyes open.
This settlement does not prevent homeowners from seeking additional relief from Chase is if needed. If you are in a bankruptcy or were recently in one, and had a mortgage loan with JP Morgan Chase, you may wish to review your mortgage statements and annual escrow disclosures with your attorney to make sure they accurately reflect the mortgage payments you made. We sure are doing this with our clients.