Claims and Bad Faith Law Blog

Adjustable-Rate Mortgages a Fraud?

    The Federal Bureau of Investigation is reportedly investigating 17 corporations to see whether they committed Crimes and Corporate Fraud when these corporations were involved in selling adjustable-rate mortgages.  "The government is investigating whether many of these adjustable-rate mortgages were sold under fraudulent pretenses."  "Justice Dept. is Gathering Data on Mortgage Industry" p. B7, col. 4 "Business Day" Section (Reuters Report published in the New York Times Nat'l Ed., Saturday, March 22, 2008).

    Will the FBI's investigation of possible Criminal Fraud reveal actionable  Breach of Fiduciary Obligations or other Bad Faith or Unfair Dealings?

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Socialized Risk, Private Gain?

    Do Directors and Officers of lending institutions have a Fiduciary Duty to the Shareholders of their Corporation which involves giving money back to the Corporation if they do not do their jobs well?  What about Directors and Officers of Corporations in general, including Corporations that are not lending institutions?

     In an editorial about "financial-industry executives," "bankers," and "financiers" on Good Friday, 2008, the New York Times  observes:

But as a rule, they won't have to return the money they made in the good days when they were making all the crazy bets that eventually took their banks down.

Editorial, "Socialized Compensation" p. A22, col. 1 (New York Times Nat'l Ed., Friday, March 21, 2008).

     Why not?

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Bankruptcy Court Reprimands Mortgage Lender, But Not in Bad Faith.

    In a 72 page opinion, a Bankruptcy Judge in the United States District Court for the Southern District of Texas has listed many errors by Countrywide Financial Corporation in a borrower's Bankruptcy case, including fees that were allegedly improper or unexplained, a motion to lift a bankruptcy stay that should never have been filed as the Court described it, and negligence.  The Court told Countrywide to reevaluate how it handles the kinds of policies and procedures that were listed in these 72 pages including what the Court itself described as a disregard for professional and ethical obligations.

    However, this misconduct could not be sanctioned as Bad Faith in litigation, said the Court, which felt compelled to apply a standard of "clear and convincing" evidence.  The Court's opinion is so long that it is in two parts, available by linking here:  Download Countrywide_(In_re_Parsley)_decision_(S.D. Tex., Bankr., Opinion Filed 03.05.08).Pages1through40.pdf and here:  Download Countrywide_(In_re_Parsley)_decision_(S.D. Tex., Bankr., Opinion Filed 03.05.08).Pages41to72(end).pdf.

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United States Trustee Sues a Second Time Alleging Litigation Misconduct.

    The United States Trustee has sued Countrywide a second time for alleged misconduct in Bankruptcy cases and related foreclosure litigation.  "Countrywide is Sued Again By U.S. Overseer" p.C3, col. 6 (Reuters Report Published in New York Times Nat'l Ed., Wed., March 5, 2008) 

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United States Trustee Files "Bad Faith" in Bankruptcy Complaint.

    The United States Trustee took an unusual step.  The office filed a lawsuit on its own, accusing a lender of Bad Faith in Bankruptcy litigation.  Reportedly, the United States Trustee has sought instead to intervene in Bankruptcy litigation in the past.

    The lender in question is Countrywide Home Loans.  Countrywide is presently involved in many foreclosure and Bankruptcy proceedings across the nation.  The United State Trustee's complaint contains these allegations concerning Countrywide's behavior in one particular Bankruptcy case, in pertinent part:

     "By accepting the plan payments to which it knew it was not entitled, and failing to promptly return such payments, Countrywide has acted in bad faith in the conduct of litigation before the Court in this case that the rules are not up to the task of adequately sanctioning."

[Emphasis added.]

    The relief requested?  An Injunction and Restraining Order prohibiting Countrywide "from engaging in bad faith and abusive practices".  [Emphasis added.]  Gretchen Morgenson, "U.S. Seeks Sanctions Against Lender/Countrywide Sued Over its Practices" p. B3, col. 4 "Business Day" Section (New York Times Nat'l Ed., Saturday, March 1, 2008).

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