U.S. trustees sue Countrywide
Federal watchdogs have asked courts to sanction Countrywide Financial Corp. for “sustained bad faith” in allegedly levying unjustified fees on consumers in bankruptcy and failing to return overpayments.
“Countrywide’s failure to ensure the accuracy of its claims and pleadings has resulted in an abuse of the bankruptcy process,” U.S. Trustee Donald F. Walton asserted in a lawsuit filed in Atlanta.
Similar complaints against the nation’s largest mortgage lender were filed Thursday in Ohio and Florida, said Walton, the federal trustee in Georgia, Florida, Puerto Rico and the U.S. Virgin Islands. The Georgia case alleged that the Calabasas-based firm couldn’t even show that it owned a loan it said it had bought.
A Countrywide spokeswoman wouldn’t comment, citing a company policy against discussing pending litigation.
The actions add to a load of legal headaches at Countrywide, which is being acquired by Bank of America Corp. after losing $1.6 billion in the second half of 2007.
Borrowers and shareholders say that they were misled and that Countrywide Chairman Angelo Mozilo and other executives cashed in hundreds of millions of dollars in stock options while failing to disclose the company’s worsening condition. Countrywide and Mozilo have denied wrongdoing.
The bankruptcy trustees’ legal actions accuse Countrywide of “sustained bad faith conduct in failing to ensure the accuracy of its claims and pleadings in attempting to obtain money from debtors and/or the bankruptcy estates.”
The lawsuits ask for restraining orders barring Countrywide from engaging in abusive practices in pursuing claims and handling payments. They also ask the courts to fine the company.
The office of the trustee is a U.S. Justice Department arm that monitors bankruptcy courts. The Times reported in November that the office had subpoenaed Countrywide in at least a dozen cases in Florida, Pennsylvania and Texas, seeking information about questionable claims for fees.
To have the federal trustee intervene in such a way is “unusual, if not extraordinary,” said Carl Tobias, a law professor at the University of Richmond in Virginia who is familiar with the dispute. “At some point you have to wonder if there is a pattern that goes beyond any specific locale.”
Walton’s lawsuit cites the case of John and Robin Atchley of Waleska, Ga., who filed for protection from creditors in U.S. Bankruptcy Court in Georgia in October 2005.
Countrywide was the servicer, or bill collector, on their mortgage and claimed to have purchased it from another company, American Freedom Mortgage Inc.
The lawsuit says Countrywide never filed any documentation showing it owned the Atchleys’ loan.
It accuses Countrywide of filing two “inaccurate and/or misleading motions” contending that the Atchleys were two months behind on their loan payments; failing to justify $2,793 in fees; failing to account properly for payments the Atchleys made; and continuing to take money from the bankruptcy estate after the couple had sold their home and paid their mortgage in full.
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