by A Delaware Bankruptcy Judge took on the task of calculating the debtors’ mortgage payment history in the face of erroneous calculations by Ocwen Loan Servicing, LLC. Judge Shannon found that the debtors were current on their payments when Ocwen initiated foreclosure proceedings and that Ocwen’s errors forced the debtors into bankruptcy to save their home. Williams v. Ocwen, No. 13-12234 (Bankr. D. Del. July 18, 2014).
The debtors emerged from a 2006 bankruptcy with mortgage arrears paid through the plan. In the “dispiritingly predictable” aftermath, the new mortgage servicer, Ocwen, after accepting two regular payments, claimed that the debtors were 16 months behind on their payments and initiated foreclosure proceedings. Having determined that the debtors were in default, Ocwen refused to accept mortgage payments for the following 12 months. To save their home, the debtors filed a second bankruptcy. Ocwen filed a claim for mortgage arrears representing 28 months in unpaid mortgage.
Although the debtors’ payment history was irregular—with some payments coming together and others mislabeled—Ocwen could not produce a coherent payment history or explanation of how payments were processed or applied. Taking the evidence presented at the hearing on the debtors’ objection to Ocwen’s claim, the court rejected both parties’ explanations of the payment history. It found that, contrary to the debtors’ position, the debtors were current when they emerged from their first bankruptcy, and contrary to Ocwen’s position, they had continued to make regular payments on the mortgage since that time.
The court proceeded to conduct its own analysis of the documentary evidence. Combining all the records of payments kept by Ocwen and its servicing predecessor, the court created a detailed chart which led to the conclusion that the debtors had paid approximately, $58,000.00 over the period Ocwen claimed to have received no payments. Subtracting that amount from Ocwen’s total claim, the court concluded that the difference represented the 12 months of payments Ocwen had refused to accept. In other words, the debtors were not behind in their payments except to the extent that Ocwen, by its own actions, caused them to be.
Because Ocwen’s erroneous assertion of material default were the cause of the debtors’ having to file bankruptcy a second time, the court awarded fees and costs to the debtors.
As reported in the Wall Street Journal, Katherine Porter, a law professor at the University of California at Irvine, opined that where the mortgage industry “continues to suffer from chronic under-investment in technology,” such involvement by judges is a boon to consumer debtors. Ms. Porter singled out Delaware judges as “financially sophisticated” and “used to seeing competent creditor behavior. They know what a large corporation can do, properly prepared for trial.” The judge’s willingness to independently explore the financial records “is a step forward for people making a last stand in bankruptcy to hang on to their homes.”
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