Wells Fargo, one of the larger mortgage servicers in the nation, agreed
to an order in Louisiana Bankruptcy Court that requires Wells Fargo to
take substantial steps to make sure that unauthorized fees and expenses
are not tacked onto Chapter 13 cases. The full decision is In re Jones,
No. 06-01093 (Bankr. E.D. La. Aug. 29, 2007),
1. Upon the filing of a chapter 13 bankruptcy petition, the amounts outstanding
on a debtor's loan will be divided into two new, internal administrative
accounts. The first account will contain the sums to be paid under debtor's
plan by the Chapter 13 Trustee; typically the pre-petition past due amounts
including past due interest, costs, charges, and fees ("Account One").
The opening balance on Account One should directly correlate to the amounts
reflected on Wells Fargo's proof of claim. Account One will also include
any amounts added by subsequent court order to the plan for payment by
the Trustee during the case's administration. All payments made by
the Trustee will be applied to the reduction of the amounts owed on Account One.
The second account will reflect the principal amount due on the petition
date ("Account Two"). No other sums should be owed on Account
Two at the start of the case. Account Two will include post-petition interest
accrual, post-petition property insurance or property tax expenditures,
and other court authorized postpetition charges as provided in paragraph
2 below. A debtor's regular monthly note payments will be posted to
this account, reducing post-petition interest accrual, postpetition property
and tax expenditures, and principal. The account's first posting will
typically be the first installment payment due on the loan following the
Wells Fargo may maintain, post-petition, its customary records on the loan
provided that the two new internal accounts shall control the loan's
administration during the pendency of the case.
2. With the exception of post-petition property taxes and property insurance
expenditures, Wells Fargo may provisionally accrue, but not assess or
collect, any post-petition charges, fees, costs, etc. allowed by the note,
security agreement and state law. Post-petition property tax and insurance
expenditures may be assessed against debtor's account and collected
after the delivery of a ten day written notice to debtor, debtor's
counsel, and the Trustee. The assessment and collection of expenditures
for post-petition property inspections and taxes will not require approval
of the bankruptcy court unless a written objection is filed within ten
days of the notice of assessment and collection. If authorized by Wells
Fargo's note, security agreement, and state law, the collection of
amounts necessary to pay postpetition insurance and property tax expenditures
may be made in advance through the use of escrow accounts. If escrows
are utilized, Wells Fargo must give a written accounting of the amounts
collected at the time it seeks to apply the escrowed funds to payment
of the insurance or property tax expenditures.
As to Post-Petition Charges, annually, between January 1 and February 28
of each year during a case's administration, Wells Fargo shall file
with the Court and serve
upon the debtor, debtor's counsel, and the Trustee, notice of any
Post-Petition charges (which do not include property taxes or insurance),
accrued in the preceding calendar year. The notice shall contain an itemization
describing the charge, amount provisionally incurred, the date incurred,
and if relevant, the name of the third party to whom the charge was paid.
The notice will also provide a direct reference to the provisions of the
note, security agreement, or state law under which Wells Fargo asserts
its authority to assess each type of charge.
The notice shall also state that debtors, the Trustee, and any other interested
party, shall have 30 days within which to object to any or all assessments
outlined in the notice. It shall contain a statement to the effect that
debtor may elect to add the charges to his plan with approval of the bankruptcy
court, satisfy the charges directly outside the plan, or defer repayment
until the conclusion of his case. If no objection to the amounts provisionally
assessed is filed, or if filed, upon entry of an order approving some
amount of the provisional charges, Wells Fargo may submit a proposed ex
parte order authorizing assessment of the Post-Petition Charges as set
forth in its notice or as approved by the court, as applicable. However,
Wells Fargo may not collect on any approved Post-Petition Charges unless
the debtor voluntarily delivers payment separate and above from that due
as a regular monthly installment or obtains approval of the court to modify
the plan and satisfy the amounts due through periodic payments by the
Trustee. If the approved Post-Petition Charges are to be paid through
the modified plan, they will be added to Account One and satisfied by
the Trustee. If to be paid by the debtor, they may be added to Account Two.
If no provision for payment is made by a debtor, the collection of the
approved Post-Petition Charges must be deferred until the close of the
case or relief from the stay is obtained.
3. If Wells Fargo does not issue a notice of Post-Petition Charges, in
accordance with paragraph 2, for any given year of the case's administration,
then Wells Fargo shall be prohibited from collecting or assessing any
charges accrued against the debtor for that year and shall treat the debtor
as fully current at the time of discharge.
4. Upon the issuance of a discharge, Wells Fargo shall adjust its permanent
records to reflect the current nature of debtor's account. Provided
however, that if debtor elected to defer the payment of approved Post-Petition
Charges until the conclusion of the case's administration, then Wells
Fargo shall be authorized to collect said sums in accordance with the
provisions of its note, security instrument, and state law.
The court was deciding whether to impose massive punitive damages (in the
millions of dollars). Wells Fargo said, “we’ll agree to an
order like this if you agree not to impose massive punitive damages.”
So, this order was entered. The order further states:
“Wells Fargo also offered to memorialize this agreement into an order
of the Court, enforceable in any case pending or subsequently filed before
any court in the country.” The court took them up on this offer and agreed not to impose a multi-million
dollar punitive damage award.
If Wells Fargo fails to abide by this order in any case in the country,
they could be subject to punitive damages, because they are disobeying
a court order, and more than that, an agreed court order, and even more
than that, an agreed court order entered for the purpose of avoiding multi-million
dollar sanctions. Wells Fargo better comply or there will be a deluge
of suits alleging violation of this agreement.