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Chapter 13 Trustee Joins Lawsuit Against Foreclosure Processors

While the foreclosure debacle continues to twist and turn, allegations of improprieties in foreclosure processing are the focus of a lawsuit. The lawsuit takes a much broader look at the foreclosure industry. A chapter 13 bankruptcy trustee has even joined in the fray. Chapter 13 bankruptcy trustees have a duty in Ohio, as elsewhere, to scrutinize both lenders and creditors in administering the bankruptcy estate.

Last April a couple filed for bankruptcy protection in Mississippi. Last month they filed a civil action against two mortgage loan and foreclosure processing technology providers and against a foreclosure law firm. A homeowner can often make up mortgage arrearages through chapter 23 relief.

The processing companies provide banks software and technology to manage monthly mortgage payments. The firms also assist in foreclosure processing. The Florida law firm being sued handles foreclosures for the banking industry. The couple alleges that law firm and the foreclosure processing companies engaged in illegal fee-splitting. Lawyers in that state are not allowed to share fees with non-lawyers to gain referrals.

The couple says the fee-splitting contracts are disguised as administrative fees, document fees and other foreclosure processing fees in paperwork filed with the bankruptcy court. The lawsuit alleges the businesses are able to "harvest fees which are neither reasonable nor lawful and which are undisclosed to the bankruptcy court.

The chapter 13 bankruptcy trustee received permission from the bankruptcy court to hire an attorney to join the lawsuit against the companies. The trustee joined the lawsuit last week. The trustee believes the allegation that fees were hidden from the bankruptcy court have merit and intends to vigorously pursue the case.

Source: The Wall Street Journal. "Trustee in Bankruptcy Joins Foreclosure Case," Carrick Mollenkamp and Dionne Searcey, 15 Oct 2010

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