New Bankruptcy Forms Affect Residential Mortgage Lenders, Servicers

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Sweeping changes to the federal bankruptcy forms went into effect on December 1, 2015. The changes pertaining to proofs of claim for residential mortgage loans are especially significant. The new forms are to be used in all cases, even cases filed prior to the December 1 effective date. While some courts have established a 30-day grace period for compliance, such grace periods will expire at the beginning of 2016.

Many of the amendments are technical or designed to ''modernize'' the forms; however, there are also changes that affect the substance of information and analysis that is now required. In this alert, we provide an overview of some of the most significant changes which were made to new Official Form 410A ''Mortgage Proof of Claim Attachment'' (formerly and superseding Official Form 10A) (Attachment A). The former Attachment A was viewed as inadequate for purposes of issues that frequently arise with proofs of claim for residential mortgage loans. 

Part 1 of the new Attachment A now provides a separate space to list servicer information. While often challenged by homeowners under a prudential standing theory, bankruptcy courts generally have held that mortgage servicers have standing to file proofs of claim on behalf of the mortgage creditors whose loans they service. Attachment A's use of the term and the instructions' specific command to fill in ''servicer information, if applicable'' as well as the revised Proof of Claim's (Form 410) acknowledgment that a ''corporate servicer'' may be the ''authorized agent'' of a creditor who may ''identify'' itself as the ''Company'' signing the proof of claim form on behalf of the creditor, provide explicit language that further supports the majority view that servicers have standing to file such claims. It should be noted that the forms clearly contemplate that servicers will identify themselves as a mortgage creditor's ''authorized agent'' on Part 3 of the Proof of Claim.

The changes to Attachment A are intended to provide better explanations for how the total claim, arrearages, and monthly payments should be calculated. While Parts 2-4 provide spaces for a mortgage creditor to list a summary of information regarding the calculation of these amounts, Part 5 of new Attachment A requires a mortgage claimant to provide in chart format the loan payment history from the first date of default. This date is defined in the Committee Notes and instructions as ''the first date on which the borrower failed to make a payment in accordance with the terms of the note and mortgage, unless the note was subsequently brought current with no principal, interest, fees, escrow payments, or other charges immediately payable.'' As explained in the Committee Notes, ''the form now requires the claimant 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.... Attachment of a loan history with a home mortgage proof of claim will also provide transparency about the basis for the claimant's calculation of the claim and arrearage amount.''

The Committee Notes also indicate that the revised Attachment A may be ''automated'' or able to be filled in online so that calculations may be automatically made and compared to the amounts listed on the proof of claim. However, it may continue to be impractical to use the automated calculations in the electronic forms for mortgage loans with extensive histories or unique circumstances. Mortgage lenders and servicers should be prepared to be able to provide detailed loan history and payment information as part of their standard bankruptcy claim filing practice in order to avoid procedural challenges to their claims.

While the instructions for Attachment A provide clearer explanations of how to calculate appropriate escrow deficiencies, Attachment A does not supplant the requirement of filing a separate escrow statement pursuant to Bankruptcy Rule 3001(c)(2)(C). Links to the new forms and instructions may be found here.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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