national bankruptcy services the ledger

8/22/2019 National Bankruptcy Services The Ledger

1/28

VOL.

1,ISSUE2

A NATIONAL BANKRUPTCY SERVICES PUBLICATION

Right

enforce the nWill the r

party in interplease stand

A WINNING

STRATEGYPREPARING FOR TOMORROWS RULES


2/28

Close monitoring of all your case developments via one of the mosttechnologically advanced Bankruptcy Loss Mitigation and Servicingsystems in the nation allows up-to-the-minute information on the statusof a specific case or your entire portfolio. Valuable time is saved andlosses associated with delays in case resolution are avoided. Its onemore way were staying ahead of the game. Call today to find out more.

NATIONAL BANKRUPTCY SERVICES

9441 LBJ Freeway, Suite 250

Dallas, TX 75243

1-800-766-7751

NBSdefaultservices.com

RESIDENTIAL MORTGAGE LENDERS AUTOMOBILE FINANCE COMPANIESBANKS, CREDIT UNIONS, & FINANCIAL INSTITUT

CONSUMER LENDING ORGANIZATIONSPORTFOLIO SERVICERS, OWNERS & INVE

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WWW.NBSDEFAULTSERVICES.COM VOL. 1, ISS

A NATIONAL BANKRUPTCY SERVICES PUBLICATION

IN THIS ISSUE

ISSUES

A discussion o current trendsand issues in the world

o bankruptcy andbankruptcy servicing.

2

FOCUS

Interviews with industryproessionals oering

insight into servicing andlegal developments.

20

DATA

Inormation aggregated romauthoritative data sources

detailing bankruptcy flingstatistics around the nation.

16

TABLE OF CONTENTS

PROOF Right to enforce the note 2

POWER SPORTS, BOATS & AUTOMOBILES Driving higher reafrmation agreement rates 6

A WINNING STRATEGY Prepare today for the rules of tomorrow 8

PIGS GET FAT, HOGS GET SLAUGHTERED A debtors motto practiced with creditors 14

BY THE NUMBERS Taking a look at the state of bankruptcy 16

CASE STUDY Will the real party in interest please stand up 20

HOT SEAT: BETSY HANSON The clients view of effective default servicing 22

Lance Vander Linden, Chairman

[email protected]

Paul Bourke, CEO

[email protected]

Larry Buckley, EVP of Business Development

[email protected]

Brad Cloud, COO

[email protected]

The Ledger is a National Bankruptcy Services publication.

2010 National Bankruptcy Services All Rights Reserved9441 LBJ FREEWAY, SUITE 250 DALLAS, TX 75243

Contributing Writers

Sharmila Bharwani, Paul Bourke, Larry Buckley,

Paul Cervenka, Sammy Hooda, Luke Madole

Magazine Design

The LTV Group, www.theLTVgroup.com


4/28

THE LEDGER WWW.NBSDEFAULTSERVICES.COM

PAGE2

BY LUKE MADOLE

RIGHT TO ENFORCE THE NOTEPROOF

THEservicer o a home mortgage acts, in the most sim-ple arrangement, as an independent contractor en-gaged by the current creditor. The current creditor is almost never

the notes payee. It is, rather, a notes holder, owner or transereewith the r ights o a holder. That last category o creditor a transer-

ee with the r ights o a holder will hereater be abbreviated TRH.

As securitized home loans have made their way into bank-

ruptcy and other courts, some judges have pressed servicers or

confrmation o servicer/current creditor alignment. They have

asked servicers to produce the contracts, contract assignments

and other papers by which the servicer is acting and to align those

papers to a creditor demonstrated to be the debtors current credi-

tor. On occasion and in response, servicers (through an honest

misunderstanding which somehow the court misapprehended as

intentional deception) have sometimes become the object o the

courts ire. The sticking point has been that what the servicer calls

the holder o the note was not what the court calls the holder.When the court used the term holder o the note as identiying

the current creditor, the court meant the technical and legal term

holder as defned by the Uniorm Commercial Code (UCC).

When the servicer heard the term holder, the servicer registered

the colloquial term holder as the current physical possessor o

the note, e.g., the company or whom the document custodian o

the securitized pool physically saeguards the originally signed

notes in collateral fles.

But the colloquial holder may not be a technical holder

der the law o negotiable instruments. The colloquial holder

be, rather, a TRH. And, on occasion, some courts have viewed

ing a TRH a holder as misleading. To help avoid those kinmisunderstandings, the ollowing is oered.

I a court demotes a colloquial holder to a TRH, it is usuall

cause o a gap in the chain o endorsements. Using the law o T

(which adopted the UCC eective July 1, 1966) to illustrate,

with First Nat. Bank in Dallas v. Lampman, 442 S.W.2d 858

Civ. App.Eastland 1969, writ red n.r.e.) which dealt with th

ect o an endorsement gap under the UCC. The issue was wh

Dozier Productions, Inc. was the holder or owner o a check

able to the order o Joy C. Dozier but endorsed to First Nati

Bank only by Dozier Productions, Inc. The check was deposit

Dozier Productions, Inc.s account at First National Bank in

las ater Lampman, a creditor o Dozier Productions, Inc., had

nished the bank. Bankers Trust, the bank on which the checkdrawn, dishonored the check because it lacked the endorsem

o Joy C. Dozier and consequently First National Bank retu

the check to Joy C. Dozier rather than paying the proceeds o

check over to Lampman. First National Bank was correct in d

so i the money was Joy Doziers but erred in so doing i the m

belonged to Dozier Productions, Inc..

There was, o course, the evidence stamped on the back o

check that Dozier Productions, Inc. transerred its rights, i


5/28

[ turn the page


in the check to First National but there was no evidence Dozier

Productions, Inc. had any rights to transer. The check was pay-

able to the order o Joy C. Dozier and she testifed that the rubber

stamp endorsement on the back o the check was not made by heror at her direction but, rather, got there by inadvertence and mis-

take. In short, it was undisputed the endorsement o the original

payee, Joy C. Dozier, was missing. Dozier Productions, Inc. could

not, by placing its rubber stamp on the back o the check, ap-

point itsel owner o the check absent any evidence o transer

rom Joy C. Dozier to Dozier Productions, Inc. Consequently, the

creditors garnishment ailed because title to the check did not

pass to Dozier Productions, Inc. rom Joy C. Dozier by negotiation

or otherwise. The court said:

Where a check is payable to order the endorsement o the payee, in

addition to delivery, is necessary to pass title sufcient to support

an action thereon, unless the party in possession otherwise shows

ownership o the check.

442 S.W.2d at 861

Note that the issue was not whether the signature o Dozier Pro-

ductions, Inc. on the check was authorized by Dozier Productions,

Inc. First National had the power to supply the signature o its cus-

tomer even had Dozier Productions, Inc. not rubber-stamped the

back o the check. 4.205(a), Texas Business and Commerce Code

(TBCC). The point was that Dozier Productions, Inc. had no abil-

ity to pass title to an order instrument not endorsed by the orig

nal payee without showing the title o the original payee, Joy C

Dozier, had been transerred to Dozier Productions, Inc. This is th

point servicers do well to understand. Endorsement gaps can usually be accounted or by transers made not on the ace o the not

but by separate papers. Had Lampman produced an assignment o

the check rom Joy Dozier to Dozier Production, Inc., Lampma

would have won his case.

In Behring International, Inc. v. Greater Houston Bank, 66

S.W.2d 642 (Tex. App.Houston [1st Dist] 1983, writ dismd b

agreement), Behring International, Inc. drew a check to the orde

o Norwegian American Lines, c/o Norton Lilly. Somehow, th

check ended up in the possession o Nordship [Nordship Agencie

Inc.] in New Orleans. 662 S.W.2d at 645. Nordship deposited th

check in the Nordships account at Greater Houston Bank as o

lows: For Deposit Only by Nordship Agencies, Inc. as agents. 66

S.W.2d at 646. When the drawee o the check returned the checto Greater Houston Bank (or lack o the payees endorsement

Greater Houston Bank oset the account o Behring Internation

al, Inc. at Greater Houston Bank on the theory Greater Housto

Bank was the holder and owner o Behrings check to Norwegia

American Lines and could enorce Behrings promise to pay. Beh

ring deeated the banks oset. Why? Because the bank never ex

plained the endorsement gap. There were transers written on th

check but they were not endorsements. A true endorsemen

LUKE MADOLE is a partner in the Dallas law frm o Carrington, Coleman. Sloman & Blumenthal, L.L.P. Over a

extended period o litigation practice, he has represented debtors, creditors, mortgage insurers, lawyers an

insureds in commercial and consumer real estate disputes.


6/28

CLEARING THE PILEUP OF AUT

BANKRUPTCY.

NATIONAL BANKRUPTCY SERVICES

9441 LBJ Freeway, Suite 250

Dallas, TX 75243

1-800-766-7751

NBSdefaultservices.com

Call today to see how NBS can accelerate recovery through

precision auto loan bankruptcy management services.


7/28


has several ingredients. Not only is an endorsement (a) a group o

words (b) written on the instrument itsel, but (c) the words must

be put on the instrument by a holder!

The endorsee side o the endorsement o an order instr ument is

addressed by 1.201(21) TBCC, which defnes a holder o an order

instrument as one who possesses an instrument endorsed to him.

The endorsor side o the endorsement o an order instrument is

addressed by 3.201(b) TBCC which requires that an endorsement

be written by or on behal o the holder.

The court, in Behring International. Inc. v. Greater Houston

Bank, held that the words looking like an endorsement which

Nordship put on the check did not constitute the endorsement

needed by Greater Houston Bank to obtain holder status because

Nordship was not the payee o the check, i.e., Nordship was not

itsel a holder o the check.

On the ace o the check, Norwegian American Lines was the pay-

ee. The endorsement o Norwegian American Lines was missing

and unexplained There was no evidence adduced showing how

the check in question came into Nordships possession.

662 S.W.2d at 651

Under the UCC, an endorsement gap precludes any subsequent

possessor o the instrument rom being a holder as that term is

used in the UCC. In the mortgage servicing context, the possessor

o the note in those circumstances is usually a TRH but it will

take papers in addition to the note itsel to show that. As a graphic

Texas case illustrates, even where all the original payee does is

change its name and sues in its new name, it is not a holder, in

the UCC sense, o notes payable to it under its ormer name:

Prior to the adoption o the Uniorm Commercial Code, the mere

possession by a plainti o notes payable to the order o a dierent

payee, and which were not endorsed by the payee, was not su-

fcient to establish the prima acie title to the instr uments. TexasState Bank & Trust Co. v. St. John, 103 S.W.2d 1104 (Tex. Civ.

App.El Paso 1937, err. dismd); 12 Am. Jur. 2d, Bills and Notes,

1194 at 218. The last authority points out that this is clearly the

rule under the Uniorm Commercial Code. Negotiation o com-

mercial paper not payable to bearer takes eect only when the

endorsement is made, and until that time there is no presumption

that the transeree is the owner. The transeree, without endorse-

ment o an order instrument, is not a holder and so is not aided by

any presumption that he is entitled to recover on the instrument.

He must account or his possession by proving the transaction

through which he acquired the note...

Contrary to its contention, the Appellee, even though in possession,

was not a holder o the instruments. Tex. Bus. & Comm. CodeAnn. 1.201(20); 9 Tex. Jur 2d, 150 at 159. It could not enorce

payment in its own name under 3.301 without proving its right

to the instruments and accounting or the absence o the necessary

endorsements. See Note 2 to 3.307.

The necessary proo was not urnished by any constructive admis-

sion resulting rom any ailure to comply with Rule 93. None o

the subdivisions apply to the allegations that the present plainti

[Finance America Private Brands, Inc.] was ormerly GAC Pr i-

vate Brands, Inc. It is proo as a holder o the instruments that is

involved and not the capacity or deect o the party to bring this

suit. Lawson v. Finance America Private Brands, Inc ., 537 S.W.2d

483, 485.

Tex. Civ. App.El Paso 1976, no writ

It should be noted here that in the case quoted above, Clet

Lawson won the battle over holder status but lost the war ove

note liability. She was unable to escape note liability because sh

hersel, supplied the missing evidence during her case-in-chie

which established that Finance America Private Brands, Inc. wa

a non-holder owner o the note. So the court noted:

However, reversible error is not presented. Ater the plainti had

rested, the deendant, upon direct examination by attorney, testi-

fed that GAC Private Brands, Inc. [the payee named in the note]

was the ormer name o the present plainti. This admission estab-

lished the missing proo.

As the Lawsoncase also illustrates, endorsement gaps are usu

ally much ado about nothing once the endorsement status is a

counted or. Upon demonstration o how the current credito

became the current creditor, it is usually easy or the servicer t

accumulate the papers needed to satisy the courts inquiry int

servicer/current creditor alignment.

Endorsement gaps can usually be accounted for by transfers

made not on the face of the note but by separate papers


8/28


PAGE6

BY LARRY BUCKLEY

ONEo my avorite all-timeflm comedies is Planes,Trains & Automobiles starring Steve Mar-

tin and the late, great John Candy. It also

serves as the inspiration or the title othis article. More importantly, it puts the

ocus on one o NBS most important and

successul lines o business Consumer

Secured Bankruptcy Servicing. Consumer

lenders come in all shapes and sizes (like

Martin & Candy) and they utilize a variety

o collateral types to secure their loans.

While we have not seen any trains and

only a handul o planes in our review o

security instruments, our clients oer up

the whole gamut o collateral, rom auto-

mobiles to motorcycles, to tractors, to mo-

tor homes, to jet skis, to ATVs and so on.While consumer lenders may special-

ize in one or more orms o secured lend-

ing, one thing they have in common when

their loans are aected by a bankruptcy

fling is simply this: They either want to

get paid, or quickly obtain the legal right to

enorce their security interest and recover

their collateral.

The traditional approach to achieving

one o these two goals has been to ollow a

path based on ormal legal processes in the

bankruptcy courts. Objecting to confrma-

tion o Chapter13

plans and fling motionsor relie rom stay certainly are important

and necessary unctions. Fortunately, se-

cured creditors have other options in the

post-bankruptcy reorm world in which

we have lived since October 2005.

Bankruptcy reorm provided personal

property secured lenders with some addi-

tional tools or servicing bankruptcy loans

that, when properly implemented and ex-

ecuted upon, can provide tangible benefts

or secured creditors.

What are some o the potential ben-

efts? How about improved reafrmationand lease assumption agreement rates; re-

duced charge-os; reduced loss severities

and improved recovery rates; and one o

the major benefts lower legal expense

or attorneys ees!

Those are benefts that put consumer

lenders and servicers in the mood or a

good laugh like watching Martin and

Candy in eigned terror as the doo

their car come ying o!

So how does a secured lender m

all this happen? One way is to look o

outsourcing vendor whose oundingguiding principle is very simple m

the best eorts to get loans in bankru

to either perorm fnancially or get t

out o bankruptcy as quickly as pos

As Lance Vander Linder, chairman o

board and one o the ounding mem

o NBS, is ond o saying, bankrupt

congressionally-mandated loss mitiga

Creditors should take ull advantag

what the law allows.

There is no trick or secret sauce

makes a bankruptcy portolio perorm

way that signifcantly improves a lenperormance.

It takes lots o hard work, a dedic

team o subject matter experts inclu

bankruptcy administrators, manager

ecutives and attorneys all working in

to achieve defned goals and perorm

metrics. And what are some o those g

How about obtaining every possible


9/28


LARRY BUCKLEY has served as the executive vice president of business development for Nationa

Bankruptcy Services and managing attorney for Brice, Vander Linden & Wernick since 2005. Mr. Buckle

previously served as president of First American Title Insurance Companys National Default Title Insuranc

division from 20032005. Mr. Buckley was also the founding shareholder of The Buckley Firm, P.C. anpresident of Buckley & Associates, Inc. and served in that capacity for over 20 years. Mr. Buckley is an A

rated attorney licensed to practice law in the states of California, Arizona, Texas & Colorado.

frmation agreement in your Chapter 7

portolio? How do you make that happen?

Je Dowdle, vice president o consumer

bankruptcy operations at NBS, says it

works like this:Reafrmation and loan assumption agree-ment perormance is obtained by havinga well-defned solicitation strategy that

ocuses on a pre-determined eligible popu-lation o loans. Providing experiencedadministrators with clearly defned clientperormance expectations is a key driverin this process. Our approach at NBS haspushed reafrmation agreement ratesnorth o 55% across our entire portolioo cases reerred by captive auto fnancecompanies, indirect lenders, national andregional banks and credit unions.

The NBS approach to driving higher rea-

frmation agreement rates is coupled with

utilization o another beneft o bankruptcy

reorm, stay lit by operation o law. Bank-

ruptcy code amendments in 2005 required

debtors to state their intent with regard to

personal property secured loans. Debtors

must either afrmatively state whether they

intend to reafrm their debt, redeem the

amount owed, or surrender the collateral.

Failure to act on one o these intents

starts the clock ticking, so that the au-

tomatic stay is lited by operation o lawwhen debtors do not timely perorm their

stated intent, rather than through the fl-

ing o a motion or relie rom stay.

Jennier Brown, senior bankruptcy coun-

sel at NBS, says, Stay lit by operation o law

has dramatically changed the approach

creditors may take to obtain the right to ob-

tain possession o their collateral.

NBS monitors debtors intents and mea-

sures the time rames upon which stay lit

by operation o law can take eect. This ap-

proach has signifcantly lowered legal ees

and costs or our clients. It also expedites theprocess o collateral recovery without the ne-

cessity o fling motions or relie rom stay.

NBS utilizes a similar approach in

Chapter 13 cases to ensure its clients are

receiving the proper treatment in Chapter

13 plans, rom both delinquency and valu-

ation perspectives.

Wes Wiley, NBS director o client man-

agement, says a vast majority o objectio

able Chapter 13 plans proposed by debto

are resolved at NBS via negotiation wit

debtors counsel. Our proactive approach

designed to obtain proper creditor treatmen

without the unnecessary expenditure o

legal ees. We utilize the ormal legal proce

when it is necessary based on the servicin

strategy defned by a given client.

As executive vice president o busines

development at NBS, my views on bank

ruptcy outsourcing are colored by my pa

sion or what we have done at NBS duri n

the fve plus years o my employmen

More importantly, my observations ar

actually based on empirical perormanc

metrics, reduced internal costs, losses an

legal expenses, coupled with improved rcoveries.

There is no singular way to servic

bankruptcy loans. Outsourcing this com

plex, costly and risk-intensive process

one very viable alternative or consume

lenders o all stripes. We like to thin k th

in the end the NBS approach winds up lik

a lot o movies do with a happy ending


10/28


PAGE8

COVER STORY


11/28

[ turn the page


BY PAUL CERVENKA

WITHthe ever increasingnumber o bankruptcycases flling the courts dockets, there hasbeen a consistent amount o time and ener-

gy placed toward elaborating and expand-

ing upon the Federal Rules o Bankruptcy

Procedure. Amendments to the rules are

oten needed to address repeating prob-

lems or concerns within the bankruptcy

process. Any changes to these rules are not

taken lightly and the process can be quite

lengthy. This article will examine two spe-

cifc proposed rules as they relate directly

to the proo o claim and specifcally toChapter 13 bankruptcy requirements.

These newly proposed rules will ollow

the same path as any other amendment.They began in the Advisory Committee

where they were created and will soon be

reviewed by the Standing Committee. I

approved, they will then move on to the

Judicial Conerence, ollowed by the U.S.

Supreme Court. Assuming all groups ap-

prove, the rules will be sent to the U.S.

Congress or fnal review. I no changes are

made by Congress, these rules take eect

on December 1, 2011.

Even though these proposed rules

will not take eect until 2011, it is impor-

tant that all lenders and servicers in themortgage industry are aware o where the

bankruptcy process is headed. While these

ederal rules may not yet be in eect, theare an excellent indicator o bankruptc

trends across the nation. Typically, chan

es in the ederal rules have already bee

addressed by many jurisdictions throug

their individual local rules. Thus, by

miliarizing onesel with the latest trend

a lender/servicer can always stay ahea

o the curve and better avoid the dreade

objection to claim. The prudent lende

servicer should take these new trends an

adopt them as part o their internal pr

cedures to ensure compliance across th

nation. Additionally, acting now will savtime and money later spent in deendin

claims th rough litigation.

A WINNING

STRATEGYTRENDS IN BANKRUPTCY BECOME LAW:

PREPARE TODAY FOR THE RULES OF TOMORROW


12/28


PAGE10

RULE 3001

PROOF OF CLAIM AND

SUPPORTING DOCUMENTATION

The proposed rule change to Rule 3001

involves a ew amendments regarding the

fling o a proo o claim, with a special

emphasis on supporting documentation.

As we look at where we are now with proo

o claims, we remember the all too amil-

iar Rule 3001(c) requiring that any claim

based on a written agreement must have

the writing fled with the proo o claim.

This is ollowed by Rule 3001(d) which

requires proo o perection o a secured

claim.

When read in conjunction with one

another, a secured claim or real property

must have the Note (written agreement)

and Recorded Deed o Trust (proo o per-ections) attached as supporting docu-

mentation to every fled proo o claim.

This ederal standard is the minimum

requirement.

However, many local rules across the

nation have expanded upon this to require

an increasing amount o additional docu-

mentation. Additionally, many trustees

have interpreted these rules to require as-

signments or endorsed notes to prove the

lender/servicer is the correct successor

in interest to fle the claim. It was only a

matter o time beore the Federal Rules o

Bankruptcy would ollow suit and expand

upon these minimum national standards.

That time is now.

Revolving or Open-end Loans

The frst proposed amendment to Rule

3001 involves an open-end or revolving

loan (typically a credit card type o agree-

ment). This new amendment requires an

attachment to the proo o claim which

is: the last account statement sent to the

debtor prior to the fling o the petition.

(Proposed Rule 3001(c)(1)). A requirement

such as this is not an entirely new or un-

heard o practice, as there are some juris-

dictions that have already adopted this as

part o their local rules (Maryland LocalRule 3001-1(a)).

What distinguishes this type o rule is

that this statement is required, even i t he

last statement was sent out by a prior lend-

er/servicer. Thus, it is the responsibility o

the current lender/servicer to provide this

prior statement with the proo o claim fl-

ing, even i the current lender was not re-

sponsible or sending it out. The prudent

lender/servicer who deals with these types

o loans should develop a business prac-

tice to accommodate this rule. Whe

this means having an immediate co

with the prior lender, or obtaining

documentation when the loan is acqu

the lender/service should assume this

be required or all open-end or revo

loans. As a best practice, every len

service dealing with these types o l

should be able to produce this acc

statement in a reasonable amount o t

Supporting Documentation

Itemization and Escrow Analysi

The second amendment to Rule

lays out a detailed list o supporting d

mentation specifcally required when

debtor is an individual. This section o

posed Rule 3001(c)(2) requires an item

statement o all interest, ees, expeor other charges included in the pro

claim. It also puts special requirem

on secured claims by requiring a s

ment o the amount necessary to cure

deault as o petition date. Additional

the secured claim is regarding the deb

principal residence, an escrow statem

must be provided or all escrowing lo

This escrow statement must be prepar

o the petition date and must be fled

the proo o claim.

PAUL W. CERVENKA is an associate attorney at Brice, Vander Linden, & Wernick, P.C. with a primary o

on the Real Property bankruptcy portolio. He is a graduate o The University o Texas at Dallas and Sout

Methodist University Dedman School o Law who is licensed to practice in Texas.

IT WAS ONLY A MATTER OF TIMETHAT TIME IS NOW


13/28

[ turn the page


Again, these requirements are not news

to the bankruptcy world. Many trustees

have ollowed the guidelines established

by the National Association o Chapter

13 Trustees (NACTT), which suggest a de-

tailed itemization o any amounts listed

in the proo o claim. The goal o detailed

itemization is to clearly show all parties

(debtor, trustee, and court) exactly what

dollar amounts are being collected and

what each dollar is being collected or. For

the lender/servicer this means you must

be able to clearly label every amount you

wish to collect in the claim.

A clear label must be a court riendly

description, meaning anyone outside o

the mortgage industry (or example the

debtor, trustee, or judge) can ascertain

exactly what each ee is or. Words suchas Prior Servicer Fees, Other Corporate

Advances, Fee Assessed or any other

vague language will not be considered a

detailed itemization under this proposed

rule. From a practical standpoint, vague

descriptions such as those mentioned

above have already proven to be accidents

waiting to happen.

Diligent trustees and debtors attorneys

are constantly on the lookout or these

unclear words. The best case scenario or

the lender/servicer is a phone call seek-

ing clarifcation. The worst case scenariois an adversary or show cause, resulting

in more money spent than the lender/ser-

vicer bargained or. Once again, the goal

is to put orth the extra eort to accom-

plish this task early on (when the proo o

claim is fled). This eort will pay or itsel

through reduced objections and litigation

costs or all parties.

Requiring an escrow statement at pe-

tition helps to better explain the escrow

amounts included in the claim. I this new

rules takes eect, it may require an actual

escrow analysis at petition or every es-

crowing mortgage. This ensures an accu-

rate snapshot is taken o each escrowing

loan at the start o the bankruptcy. Ideally,

this would help to ensure all pre-petition

escrow amounts are included in the proo

o claim, while also reducing the likeli-

hood that a pre-petition shortage is be-

ing collected in the ongoing post-petition

monthly payment.

Once again, this is not a new require-

ment (To name a ew: Delaware Local Rule

3023-1(b)(ii)(C); Florida Local Rule 3001-

1(B)(3); Maryland Local Rule 3001-1(b)(3);

New Jersey General Order3904

). However,this new rule makes this a minimum re-

quirement across all jurisdictions, not just

a select ew.

Thus, lenders/servicers will be orced

to conduct an escrow analysis on every

escrowing loan at the time o petition. As

a lender/servicer, i you have not yet de-

veloped an escrow analysis process as it

relates to bankruptcy, now is the time to

get to work!

Loan History for the Southern

District of TexasOne cannot discuss supporting docu-

mentation and proo o claims without

at least some mention o the Southern

District o Texas. When it comes to sup-

porting documentation requirements,

this district leads the way. Judge Marvin

Isgur advocates a loan history orm or

Chapter 13 arrears claims to help ensure

compliance with Fith Circuit case-la

requiring all pre-petition escrow amoun

be captured within the proo o claim a

rears (see Campbell v. Countrywide Hom

Loans, Inc., 545F.3d 348 (2008)).

This idea has been mentioned to th

advisory committee as a possible utur

amendment and the loan history requir

ment has already been adopted as part o

the local rules or the Southern Distri

o Texas (Southern District o Texas Loc

Rule 3001-1).

To comply with this local rule, the len

er/servicer must provide a complete hist

ry o all transactions on the loan relatin

to the current delinquency. The more d

linquent the debtor, the more months (an

in some cases years) the lender/service

will have to go back.Every transaction must be accurate

described using court-riendly terms s

that the history can be easily understoo

by the court, debtor, and trustee. Th

amount o detail required by such a orm

may seem quite burdensome rom th

lender/servicers perspective.

However, the goal o the court is th

same as all the other ederal courts a roun

the nation: paint an accurate picture o

the total debt owed by the debtor at pet

tion. While the Southern District o Texa

requires a more precise and specifc snapshot o the delinquency, the motive r

mains the same.

As seen with some o the example

above, the trend o one jurisdiction soo

becomes the trend o t he nation. Dont b

surprised when this Texas loan histor

requirement becomes the norm in a

expect it!


14/28


PAGE12

Sanctions

One o the most concerning amend-

ments to this section governs sanctions.

Proposed Rule 3001(c)(2)(D) states that i

a lender ails to provide any o the above

supporting documentation with the proo

o claim, the lender is prohibited rom pre-

senting the documentation at any later

time. This means the m issing inormation

cannot be presented as evidence at any

subsequent proceeding or the bankruptcy

case, such as an adversary hearing or any

other contested matter.

The ONLY exception is i the court can

be convinced that ailure to provide the doc-

umentation earlier was substantially justi-

fed or is harmless. Additionally, the court

may award other appropriate relie which

could include reasonable attorney ees andother expenses caused by the ailure.

While it remains to be seen exactly how

the courts will use this substantially jus-

tifed standard, sufce it to say they will

require a genuine and legitimate reason

or ailure to ollow the ederal rules. It is

also difcult to imagine a scenario where

the courts will deem such a ailure to be

harmless, especially rom the perspec-

tive rom the debtor.

The bottom-line is that these rules must

be ollowed i the lender/servicer wishes to

collect any amount o debt. The best way

or the lender/servicer to protect itsel is to

be proactive and tackle these new compli-

ance issues beore they come with a pen-

alty attached or ailure to comply.

RULE 3002.1

NOTICE MUST BE GIVEN

Proposed Rule 3002.1 would be a com-

pletely new rule added to the Federal Rules

o Bankruptcy Procedure. This new rule

applies to Chapter 13 cases where the debt-

ors principal residence is the secured col-

lateral. It is being added to help in the im-

plementation o 1322(b)(5) o the United

States Bankruptcy Code (which allows the

debtor in a Chapter 13 case to cure a deault

and maintain home mortgage paymentsthroughout the course o the debtors plan).

This goal is accomplished by requiring no-

tice in several situations.

Payment Change Notice

First, a Notice o Payment Change is

required at least 30 days beore any new

payment amount is due. This has been

a common trend among many districts

across the nation, and again this is another

requirement that alls in line with recom-

mendations o the NACTT. Under this

rule, payment change notices are requ

across the nation. While the adv

committee has recommended the n

requirement be reduced to at least 21

notice, it remains to be seen exactly

the fnal version will play out.

The ormat o this payment chang

tice must be substantially similar to

ormat used outside o bankruptcy

must be sent to the debtor, debtors a

ney, trustee, and the court.

As stated in the Advisory Comm

notes, Timely notice o these cha

will permit the debtor or trustee to

lenge the validity o any such cha

i necessary, and to adjust post-pet

mortgage payments to cover any p

erly claimed adjustment. The commgoes on to state that these rules will

eliminate any concern the lender/ser

might have that giving notice o a p

petition payment change might vi

automatic stay.

Once again, many local rules alr

require a payment change notice du

bankruptcy. The truly prepared lende

vicer will have a process in place or it

tional portolio beore this rule even t

eect.

DONT BE CAUGHT OFF GUARDDEVELOP BEST BUSINESS PRACTICES TODAY


15/28


Notice of Post-Petition Fees,

Expenses, and Charges

As it relates to the secured property

mentioned above, any post-petition ees,

expenses, and charges that a lender deems

recoverable against the debtor must be

itemized and notice must be sent to the

debtor, debtors attorney, trustee, and the

court. This notice must be fled within

180 days o when the charge occurred.

The debtor or trustee then has one year to

fle a motion with the court to determine

whether these ees and charges are al-

lowed under the agreement.

For lenders/servicers this means there

is no time to drag your eet. I an expense

is incurred that should be passed onto the

debtor, get notice to all parties involved in

the bankruptcy and be sure this is fledwith the court (typically via amended or

supplemental claim). The aster the better.

Notice of Final Cure Payment

Under this part o the proposed new

rule, the trustee is required to give notice

to all parties within 30 days ater the en-

tire pre-petition deault has been paid in

ull. This issuance o notice starts a 21 day

clock or the lender/servicer to respond.

The lender/servicer must respond in agree-

ment or disagreement with the trustees

notice and lender/servicer must also statewhether or not the debtor is current on all

post-petition mortgage payments.

Any remaining pre-petition or post-

petition delinquency must be itemized

as part o this response. This itemization

must ollow the same detailed require-

ments listed under Rule 3001 above. I

this response is disputed by the trustee or

debtor within the next 21 days, the court

will conduct a hearing to make a deter-

mination on whether the loan is deemed

current.

This puts into rule a practice that oc-

curs on a regular basis in many jurisdic-

tions. Motions to Deem Current are oten

fled by debtors at or near the end o bank-

ruptcy. Failure to adequately respond to

such a motion can leave the lender/ser-

vicer with an order orcing them to make

the loan current (and writing o any

amounts not allowed by the courts).

When reading this rule in conjunction

with the notice regarding post-petition

ees, expenses, and charges the message is

clear. Lenders/servicers should promptly

give notice o any post-petition charges

to the debtor to ensure these can be recov-ered during the bankr uptcy case. I notice

is not given, the risk is never being able to

collect this amount rom the debtor.

Sanctions

Again there are penalties or not com-

plying with these rules. I proper notice

is not given or any o the three situations

mentioned above (payment change, post-

petition charge, or delinquency ater fnal

cure) then the lender/servicer is prohibited

rom presenting this inormation at any

later date.The only exception is convincing the

court the ailure was substantially jus-

tifed or harmless, which as discussed

above, could prove quite difcult.

Again, the court also has discretion to

award other relie, such as attorney ees

and other reasonable expenses result-

ing rom the ailure. One very important

note rom the advisory committee cau

tions that i the lender/servicer tries t

recover an amount that should have bee

disclosed under this rule, the debtor ma

move to have the [bankruptcy] case r

opened in order to seek sanctions again

the holder o the claim In other word

speak up about the debtors delinquenc

when you are supposed toor orever hol

your peace.

What Can You Do?

While these new Federal Rules o

Bankruptcy Procedure may seem to im

pose a great burden on lenders/servicer

one must remember the purpose o thes

rules are to promote consistency acros

the nation while also addressing concern

within the bankruptcy process. The idea that one standardized ederal rule is bette

than several variations o local rules o

each bankruptcy district.

The bottom-line is that change is com

ing. New requirements or one distri

spread to another, and beore you know it

new trend has developed in the bankrup

cy world. By the time the ederal rules ar

approved and take ull eect, there is o

ten already a new trend that has emerge

across the nation (with local rules to bac

it up). Dont be caught o guard. Develo

best business practices today to ollow thmost recent trends.

Its better to put orth the extra eort

the ront end o the bankruptcy case an

cover all o your bases, than to have to lit

gate the discrepancies later at an increase

cost. By working on building these be

practices now, you can avoid the headach

o an objection later.


16/28


PAGE14

BY SHARMILA BHARWA

THREE COMMON STRATEGIES

PRACTICED BY DEBTOR ATTORNEYS

THAT HARM CREDITORS

Pigs get fat

Hogs get slaughtered

A DEBTORS MOTTO

PRACTICED WITH CREDITO

DURING THE BANKRUPTCYprocess, the cred itor and debtor debatenumerous topics, including notice require-ments, accurate arrearage amounts andstanding issues. When debtor attorneysfle a bankruptcy, there are a ew strategiesthey employ in dealing with creditors.

These strategies are based on the behav-ior o creditors and allow debtor attorneysto design an efcient practice in the eyeso the Debtor and Court; however, thesepractices can be har mul to over-burdenedcreditors. It is a system that relies on the

weaknesses o creditors.Debtor attorneys try to use certain

methods to create an ideal situation or thedebtor. These systems oten impair credi-tors with unair, burdensome, and some-times illegal plan treatment. This articlediscusses three major strategies debtor at-torneys exploit, which cause major harmto the unaware creditor.

THE SHEER SIZE OFCREDITORS

The large size o fnancial service com-panies with numerous locations servic-

ing hundreds o thousands o loans is atrait debtor attorneys rely on when fling abankruptcy case.

Being aware o the size o creditors,debtor attorneys fle a case knowing thecreditor may not even become aware othe case beore plans are confrmed. Forexample, the majority o Chapter 13 bank-ruptcies are fled im mediately beore ore-closure.

Due to the stringent timeline o ore-closure, some debtor attorneys fle the casefrst and ask the debtor questions later.Debtor attorneys utilize the bankruptcynotice requirements to their beneft.

Knowing that notice o a bankruptcyto creditors is mandatory, they providenotice, but oten timing and delivery onotice to creditors is incorrect. A prime ex-ample is in the Bankruptcy Code 362, thatprovides or the automatic stay.

The automatic stay is in eect or anydebtor who fles within a 12-month pe-

riod. However, when a debtor has two ac-tive bankruptcy cases within one calendaryear, a motion is brought extending theautomatic stay.

Each creditor is required to be notifedo this motion and hearing in order to ob-ject or allow the stay to continue.

A creditors response time is limited,and i no response is received, the stayis extended at the hearing without theirknowledge.

Many debtor attorneys send the noticeto a mailing address that may not be theappropriate address or the creditor, such

as a billing or payment address. Thereore,when the creditor becomes aware o thecase, the stay has already been imposed.

I proper notice is given, it is given withlimited advance time, and creditors haveinsufcient time to properly object. Debtorattorneys are aware creditors are large en-tities that have numerous layers o depart-mental approval and attorneys use thatact to beneft the debtor.

THE BANKRUPTCY MILLThe more bankruptcies a debtor a

ney fles, the more money he makes.more clients they have and the more they can fle, the bigger the trustee chThis cycle requires extraordinary smanship or their cause.

A debtor may have an initial contation with what to them is a uniquedire situation; however most times deare simply categorized a nd placed in aSometimes, debtors are promised mthan the bankruptcy code allows. E

more surprising, due to time restradebtors may have received incorrect sments on the benefts o a bankruptcing.

For example, the majority o ors enter into a bankruptcy to save home, with high hopes o modiying mortgage. The bankruptcy code doesrequire a loan modifcation on a frstmortgage; nonetheless, many bankruattorneys regularly suggest that a modifcation is probable.

Other methods commonly utiby bankruptcy attorneys are fling a

without veriying the arrears on the mgage or the payo on a vehicle. I the diction is one in which the trustee pursuant to the amounts in the Plaopposed to the proo o claim, the cremay not have adequate notice to objethe amount listed in the plan.

Another common practice is impasecured debt or cramming down the vand waiting or the creditor objection


17/28


SHARMILA BHARWANI is an associate attorney at Brice, Vander Linden & Wernick, P.C. She has been practicin

consumer bankruptcy since 2008. Previously as a debtor attorney, her caseload included over 150 bankruptc

cases a month. She is well versed in Bankruptcy Chapters 7, 11, 12 and 13.

ore confrmation. Debtor attorneys mayalso reverse engineer bankruptcy sched-ules, specifcally exemptions (Schedule C),income and expenses (Schedule I and J) tomatch the payment plan.

This can cause major issues in court ithe debtor attorney is ound to be embel-lishing the debtors income and or exemp-tions.

In act, some courts have issued neces-sary and appropriate orders to debtors thathave had numerous misstatements andalsehoods in the sworn bankruptcy peti-

tion and schedules in a deliberate eort tomislead creditors.

The United States Trustee is litigatingmore cases where debtor attorneys embel-lish the debtors assets, exemptions andamounts to deraud creditors. Knowingthe creditors resources are strained by t hesheer volume o activity, debtor attorneysare in a better position to take advantage inpreparation o the petition.

THE CURRENTPOLITICAL SITUATION

Since the burst o the mortgage bub-

ble and the Obama administrations an-nouncement o the home-rescue plan in2009, the mortgage industry has receivedwidespread negative publicity. This shitin perception o mortgage companies hasmaniested itsel in the courtroom. A bank-ruptcy attorneys primary responsibility isto protect the interests o the debtor in thecase and to provide him the best treatmentthe bankruptcy code allows.

However, debtor attorneys now seethemselves as saviors against corrupt cred-itors. New contingents o debtor attorneysquestion the standing o mortgage compa-nies; the documents and actions o credi-tors in a case.

Recently, adversary proceedings as wellas objections to claims have risen to arguesuch items as standing, proper title, properassignments, issues with MERS and othersuch adversaries.

In act, numerous programs now teachdebtor attorneys how to strip a lien, invali-

date a sale or argue an assignment. Regard-less o the Debtors intent as to the prop-erty, creditors are at a disadvantage i orno other reason than the current politicalenvironment.

This sel-righteous behavior is seenin evidentiary hearings in BankruptcyCourts around the nation. Debtor attor-neys take advantage o the BankruptcyCourts sometimes inconsistent adherenceto evidentiary standards.

In certain instances where the burdeno proo is on debtor attorneys, it turns

again to creditors to prove the validity othe debt. This exemplifed in Real EstatSettlement Procedures Act (RESPA) rquests made by debtor attorneys. RESPwas originally created with the buyinand selling o real estate because dierenparties in sale transactions were inatincosts; however, now Debtors Attorneys arnow using RESPA as an inormal vehicle tavoid ormal discovery requests.

Debtor attorneys take broad libertiewith such requests because o the negativpublicity and the prevailing political a

mosphere regarding mortgage companiesThe practices o many debtor atto

neys may not strictly violate the Banruptcy Code but they do stretch thspirit o what the code is actually intended to provide in the way o debt relie

Creditors must be aware o the politcal climate and the common practices utlized by debtor attorneys. Having stroninternal management controls and prcedures, along with utilizing third partproviders and outside counsel, is criticato reducing losses and managing ris

REFERENCES maxbankruptcybootcamp.com

The Honorable Joe Lee, Chapter 12. Bankruptcy Code 101-112, Code 105. Power o the Court Pa

Two. Digests o Decisions IV. Enorcement o Orders and Authority o Court C. Acts Warrantin

Sanctions Other than Contempt, Bankruptcy Service, Lawyers Edition. July 2010, 2.

Bankruptcy Code 362(c)(4)(a).

National Conerence o Bankruptcy Judges: Judges, Insolvency Proessionals Discuss Gag Rul

Creditor Claims, Counsels Duties, Bankruptcy Law Daily, October 23, 2007 at 4.

Bankruptcy Law Daily Highlights The Bureau o National Aairs, Inc

Katherine Porter, Consumer Debtor Class Actions: One More Windmill, or the Ultimate Remedy or th

Subprime Mess? American Bankruptcy Institute, April 3, 2008 at 3.


18/28


PAGE16

DATA

> 7.5

4.5 6

6 7.5

3 4.5

< 3

D.C

STATE-BY-STATE FILINGS PER CAP

NATIONAL PER CAPITAL FILINGS5.16%

FILINGS PER CAPITA: TOP 10

StateFilings Per

CapitaPercentChange1

Nevada 11.44 0.21

Tennessee 8.01 -0.62

Georgia 7.95 0.35

Indiana 7.49 0.21

Alabama 7.30 -0.14

California 7.01 1.40

Michigan 6.97 0.20

Colorado 6.67 1.00

Utah 6.49 1.20

Arizona 6.41 1.18

FILINGS PER CAPITA: BOTTOM 10

StateFilings Per

CapitaPercenChang

Alaska 1.61 0.17

South Carolina 2.07 -0.11

District of Columbia 2.17 0.21

Texas 2.32 0.07

South Dakota 2.52 0.23

North Dakota 2.53 0.14

Vermont 2.74 0.25

North Carolina 2.84 -0.13

Wyoming 2.87 0.40

New York 2.93 0.01

PER CAPITA FILINGS BASED ON ESTIMATED JULY 1, 2009 CENSUS; 1. PERCERNT CHANGE VS PREVIOUS Y


19/28


STATE-BY-STATE TOTAL 2010 BANKRUPTCY FILINGSAND PERCENTAGES OF CHAPTER 7 VS. CHAPTER 13

StateCumulative 2010

FilingsRatio of Chapter 7

FilingsRatio of Chapter 13

Filings

Alabama 25,764 44% 56%

Alaska 844 82% 18%

Arizona 31,701 83% 17%

Arkansas 12,389 56% 44%California 194,279 77% 23%

Colorado 25,129 84% 16%

Connecticut 8,764 90% 10%

Delaware 3,191 74% 26%

District of Columbia 976 68% 32%

Florida 84,503 76% 24%

Georgia 58,590 54% 46%

Hawaii 3,028 80% 20%

Idaho 6,305 88% 12%

Illinois 61,967 76% 24%

Indiana 36,082 75% 25%

Iowa 7,639 92% 8%

Kansas 8,587 71% 29%

Kentucky 18,932 75% 25%

Louisiana 14,254 39% 61%

Maine 3,160 87% 13%

Maryland 22,559 73% 27%

Massachusetts 17,763 77% 23%

Michigan 52,127 85% 15%

Minnesota 17,120 87% 13%

Mississippi 10,564 57% 43%

Missouri 25,044 73% 27%

Montana 2,387 86% 14%

Nebraska 5,857 74% 26%

Nevada 22,670 76% 24%

New Hampshire 4,276 81% 19%

New Jersey 30,535 78% 22%

New Mexico 5,005 92% 8%

New York 42,988 81% 19%

North Carolina 19,950 55% 45%

North Dakota 1,228 89% 11%

Ohio 54,073 77% 23%

Oklahoma 11,278 83% 17%

Oregon 15,378 79% 21%

Pennsylvania 29,666 72% 28%

Rhode Island 4,140 87% 13%

South Carolina 7,065 51% 49%

South Dakota 1,538 91% 9%

Tennessee 37,821 51% 49%

Texas 43,082 50% 50%

Utah 13,563 67% 33%Vermont 1,276 80% 20%

Virginia 28,447 68% 32%

Washington 25,644 79% 21%

West Virginia 4,739 90% 10%

Wisconsin 23,394 82% 18%

Wyoming 1,173 87% 13%

Total States and DC 1,188,434 73% 27%

Please turn the page for a visual representation of this data.


20/28

BOTTOM TEN


PAGE18

STACKED UPSTATE-BY-STATE COMPARISON OF 2010 CUMULATIVE FILINGS(HEIGHT OF LETTERS REPRESENT FILING TOTALS)


21/28



22/28


PAGE20

CASE STUDY

WILL THE REALPARTY IN INTEREST PLEASE STAND UPIN RE HWANGS AFFECT ON THE MORTGAGE SERVICING WORL

IN 2008a bankruptcy judge in the Central Dis-

trict o Caliornia shocked the mortgage

servicing world by denying a motion or relie rom the automatic

stay fled by a servicer.

In Hwang, the court concluded that even though IndyMac (the

servicer) held the note with the power to enorce it under Calior-

nia law, it ailed to satisy the procedural requirements o ederal

law in seeking relie rom the automatic stay.

The court concluded that IndyMac must join the notes owner

on two separate grounds; frst, the notes owner is the real party in

interest under Federal Rules o Civil Procedure 17 (Rule 17), and

second the notes owner is a required party under Federal Rules

o Civil Procedure 19 (Rule 19). In re Hwang,396 B.R. 757, 772

(Bankr. C.D. Cal.2008

).

CASE OVERVIEW

In Hwang, the debtor executed a note in avor o MortgageIT

Inc., secured by a frst lien on his primar y residence. The loan was

transerred to IndyMac beore the debtor fled or bankruptcy. In-

dyMac then sold the note to unidentifed investors through Fred-

die Mac, and the court assumed the note was ultimately sold to a

securitization trust.

When the debtor fled or bankruptcy, the loan was owned by

unidentifed investors, but the original note was stil l in t he pos-

session o IndyMac. IndyMac fled a motion or relie rom the au-

tomatic stay.

The evidence established that IndyMac physically possessedthe note; the deed o trust had been assigned to it and recorded. In-

dyMac remained the note-holder even though it had sold the loan

to Freddie Mac and serviced it on Freddie Macs behal.

Based on the assumption that the loan was securitized, the

court concluded that IndyMac was not the real party o interest.

In the courts view, the real party in interest was the securitized

trust. Thus, the court required that the trustee o the securitized

trust must be involved with IndyMac to prosecute the note.

The Hwangcase has signifcant implications or the mort

servicing world, dealing with motions or relie rom the a

matic stay and oreclosure actions. However, on July 21, 2010

United States District Judge or the Central District o Calio

reversed on appeal In re Hwangand returned the mortgage se

ing worlds bankruptcy and oreclosure processes back to s

quo. The district court held that a note-holder is the real par

interest and the notes owner does not need to join as a neces

party. In re Kang Jin Hwang, Case No. CV-08-7871-PSG (C.D

July 21, 2010).

FUTURE OF THE REAL PARTY IN

INTEREST REQUIREMENT

Even though the district courts decision reversed the bruptcy courts determination that IndyMac was not the real p

in interest under Rule 17 and its determination that Rule 1

quired the owner o the note to join the motion, the mort

servicing world should be extremely cautious o the reaso

behind the reversal.

The district court held the bankruptcy courts conclusion

IndyMac ailed to join the real party in interest was an abuse o

cretion, which is defned as a decision based on an erroneous

clusion o law or when the record contains no evidence on w

the court could have rationally based that decision. Simply pu

bankruptcy courts decision was not supported by any eviden

the record thereore the conclusion o law was erroneous.

Hence, i a record contains sufcient evidence that the was securitized, t hen a bankruptcy courts determination tha

servicer ailed to join the real party in interest would not be a

roneous conclusion o law. It is plausible that a bankruptcy c

could determine that a note is securitized, based on the evid

in the record (e.g., an endorsed note to a securitization trust

quiring a servicer to join the real party in interest (i.e. the tru

o the securitization trust).

In Hwang, both the courts expressly recognized that u

BY SAMMY HOO


23/28


Caliornia law, the holder o a note has the right to enorce the note,

regardless o whether or not the holder is the owner o the note.

The district court went a step urther, stating that IndyMac, as

the party with the right to enorce a claim on the note, is the real

party in interest on a motion or relie rom the automatic stay.

However, the district court did not reverse the bankruptcy courts

decision on that ground.

The district court merely concluded that, the record simply

does not support the bankruptcy courts supposition that the

note was likely securitized. In re Hwang, Case No. CV-08-7871-

PSG (C.D. Cal. July 21, 2010). This leaves the bigger question unan-

swered: whether it is necessary to join the trustee o a securitiza-

tion trust as a real party in interest i the evidence shows the note

was securitized.It is likely that this will be the central issue in uture cases, but

it is uncertain in which partys avor the gavel will all. Thereore,

it would behoove the mortgage servicing world to reevaluate cur-

rent practices and procedures regarding motions or relie rom

the automatic stay and oreclosure actions.

One best practice suggestion is to bring actions in both parties

names and clearly identiy the relationship (e.g., ABC Servicing

Company, as servicing agent or XYZ Trust). Regardless o whether

debtors or servicers win t he battle in bankruptcy court, ultimate-

ly the issue is likely to be decided by the highest court, especially

because there seems to be a split o authority among the circuits

on who is the real party in interest under Rule 17. In re Hwang, 396

B.R. at 770 (Bankr. C.D. Cal. 2008).

FUTURE OF THE REQUIRED JOINDER

OF THE NOTES OWNER

The district court reversed and held that the bankruptcy court

abused its discretion in concluding that Rule 19 requires the notes

owner to join IndyMacs motion or relie rom the automatic stay.

The court reasoned that the bankruptcy court ailed to recognize

that, to qualiy as a necessary party under Rule 19, the impair-

ment o the partys ability to protect its interest must be caused b

the partys absence rom the litigation. The district court was no

persuaded by the bankruptcy courts argument. Thus, one inte

pretation o the district courts holding is that joinder o a note

owner is not required when the note holder is a party to a motio

or relie rom the automatic stay.

The likelihood o this issue being relitigated under substan

tially similar sets o acts is less than the real party in interest i

sue. This conclusion rests on the district courts explanation tha

necessary parties under Rule 19 are only those parties whos

ability to protect their interest would be impaired because oth

partys absence rom the litigation. In re Hwang, Case No. CV-0

7871-PSG (C.D. Cal. July 21, 2010).

In Hwang, the district court observed that only IndyMac, athe note-holder had the right to enorce the note; neither Freddi

Mac nor any subsequent owner o the note had that right. In

Hwang, Case No. CV-08-7871-PSG (C.D. Cal. July 21, 2010). Thu

the court concluded that the difculties perceived by the bank

ruptcy court in protecting the note owners interests on this mo

tion did not result rom the owners absence rom the motion, bu

rom the owner not having the right under Caliornia law to en

orce the note. In re Hwang, Case No. CV-08-7871-PSG (C.D. Ca

July 21, 2010).

Thus, the mortgage servicing world can breathe a sigh o r

lie on this particular issue. The district court did an analysis o

the bankruptcy courts holding and expressly stated the reason

or reversing, rather than simply stating that the evidence in threcord did not support the holding, as it did or the real party i

interest issue.

However, the mortgage servicing world should be cognizant o

cases where the notes owner is a person who claims an intere

relating to the subject matter o the action, and is so situated tha

disposing o the action in the persons absence may, as a practica

matter, impair or impede the persons ability to protect their inte

est. Fed. R. Civ. P. 19(a)(1)(B).

SAMMY HOODA is a bankruptcy attorney at Brice, Vander Linden & Wernick. Sammy was the Valedictorian o

his graduating law school class, served as the Editor-in-Chie o the Law Review and was a Judicial Intern t

the Honorable Je Bohm, U.S. Bankruptcy Judge or the Southern District o Texas.


24/28


PAGE22

HOT SEAT

THE LEDGER: Tell us a little bit about

your career in servicing?

BETSY HANSON: I have been in the

industry more than 25 years. I started my

career on the origination side and tran-

sitioned over to servicing, working in

bankruptcy, oreclosure, loss mitigation,escrow and DIL, REO and recovery units.

The ability to adapt to change and look

or process improvements has aorded me

the opportunity to be exposed to all parts

o the mortgage industry.

I believe in laying out a process, test-

ing it and continually refning it until you

have the best in class. Learn to use resourc-

es and systems that are around you and lis-

ten to people who may have a better way o

doing something.

I have been ortunate to work with

good role models who have been in theindustry ar longer than mysel and who

continually challenged me to get better.

L: How did you become amiliar w ith NBS

prior to coming on board and what drove

your decision to make the move to vendor

world?

BH: NBS is well known within the in-

dustry and was already a vendor o mine,

so I knew the management at NBS rom

frsthand experience. I have long elt that

servicers didnt use their vendors to theirull capacity.

There are lots o opportunities in this

industry or vendors and servicers to

bridge the gaps and help each other be

more successul in their partnerships.

Part o that can be done through report-

ing and sharing data, identiying the root

cause o delays in a process and providing

ongoing training or the servicers to e

their sta and vendors with what is n

ed to be successul.

L: Having managed REO as a serv

what were your general views on outs

ing key pieces o this internal unctio

BH: Very good question. When you the volume servicers have today, its

portant to know where you have the

exposure or curtailments and rep

tional risk, and i the vendors can mee

demands and adjust to an ever chan

regulatory environment.

It is also difcult or vendors to tak

the fnancial responsibilities surroun

code violations and HOA fnes. You m

determine a capacity plan or every

dor and monitor their perormance.

servicer, you must have confdence in

vendors.Due to the various platorms tha

work on, there is not always transpar

and oten times a vendor or servicer

miss critical inormation. It is impo

when reviewing a new fle, to identi

pertinent documents that are necessa

begin and complete the transaction.

L: Deault management processes

largely been measured by timeline as

ments over the last 10+ years. What o

aspects o managing the oreclosure

cess have you discovered as critical idition to timelines?

BH: Servicers today more than eve

having to react to the ever changing

regarding oreclosure, eviction and

mitigation, and thus, rely strongly on

vendors to help acilitate all actions.

Along with the high unemploym

Betsy Hanson is a seasoned

servicing executive with a broad

range of experience in the

mortgage and consumer lending

spaces. Her decisive management

style might best be described

as challenging, innovative and

inspirational. Betsy combines an

old school approach of leading

by example with a more modern

approach driven by metrics,

reporting transparency and

process improvement.

Having assumed leadership over

a business segment that has been

effectively operating for more

than 20 years, Betsy has taken a

measured but aggressive approach

to assessing the status quo and

determining where changes are

required. She has brought a freshperspective to foreclosure and

related state court processes that

incorporate technology, people

and compliance. Betsys extensive

servicing experience has provided

clear insight into the clients view

of effective default servicing.

BY PAUL BOURKE

Up Close with Betsy Hanso

HANSON


25/28


rates and increasing fnes surrounding

code violations, it is a challenge to reach the

massive population needing assistance and

to satisy the investors whom they serve.

Servicers must rely on the vendors they

use to provide actual inormation regard-

ing loss mitigation activity, condition o

the property, code violations and past duetaxes to be able to make the best possible

decision to move orward with a oreclo-

sure. Failure to do so can be costly.

L: How do you compare managing rom

the vendor side o the equation as opposed

to working or a major loan servicer?

BH: Surprisingly enough, its quite simi-

lar. Throughout my career, I have been

called upon to build start-up operations or

develop process improvement rom exist-

ing operations.

The basic undamentals o learning

ones job and ensuring the employee un-

derstands ones decisions on a fle can

mitigate risk, improve bottom-line proft,

increase customer satisaction or can have

the opposite eect.

The more time a manager has to invest

in an employee by teaching them the busi-

ness rom all aspects makes them well

rounded. It also makes the employee eel

more valuable and empowered in making

their daily decisions.

What I hope to bring to the table at NBSis teaching the perspective o what a ser-

vicer is wanting rom their vendor.

L: The Texas oreclosure process is widely

noted or its expedited timeline and singu-

lar monthly sale date on First Tuesday.

What benefts and challenges do you see

arising rom this expedited process?

BH:An obvious beneft or the servicer isonce they gain possession, especially on

abandoned homes, they can quickly begin

property preservation to prevent blight on

neighborhoods and get the property listed.

Code violations are escalating nationwide

and can be very expensive to cure.

Many cities around the nation are look

ing or a ast track oreclosure proce

on homes that have been abandoned. Th

servicers challenge is identiying i th

home is abandoned, tenant, or mortgago

occupied.

There are neighborhood stabilizatio

programs in many cities which have undallocated to assist in purchasing propert

rom banks in order to allow tenants t

stay in the property, and in some case

even work with a ormer mortgagor.

This is an opportunity or the service

city and attorney to help acilitate the or

closure process and assist with t he closin

in a timely manner.

The challenge with the short process

managing your volume to the peak tim

lines. The servicer has to learn to manag

around the short sale and loss mitigatio

opportunities and make every reasonab

eort to keep someone in their home.

Our goal here is to ensure that, as the

vendor, we are passing along every com

munication that we receive rom a mor

gagor to the servicer, and the servicer

working to do the same thing.

We have learned to sta around th

peak call times as well as ensure ou

posting deadlines are met month in an

month out.

L: Loss mitigation has been dominatin

the headlines or some time now. How eective do you believe are the various pro

grams oered to borrowers in deault, an

what are some o the roadblocks to succe

loan workouts?

BH: The ultimate goal or any servicer it

try and prevent a home rom going to sal

That being said, the servicer, mortgago

I believe in

laying out a

process, testing

it and continually

refning it until

you have the

BEST IN CLASS.

Learn to use

resources and

systems that

are around you

andLISTENto

people who

may have a

better way o

doing something.


26/28


DATA

ISSUES

PAGE24

FOCUS

UPCLOSEWITHBETSYHANSONBYPAULBOURKE

and vendor must work together to make

this happen.

One o the challenges or all parties

experiencing todays volumes is making

contact with the individual who can a-

ect change.

Most mortgagors want to stay in their

home but have limited knowledge on whatprograms are available or i they may qual-

iy or a program.

The good news is that more and more

servicers are providing inormation on

their websites, along with enlisting ven-

dors to help acilitate transactions.

Another obstacle in large institutions

is that certa in departments and associates

may only handle DIL, short sale or oreclo-

sure, and thereore are unamiliar with

other remedies to recommend.

Other issues can come rom depart-

ments using dierent sotware applica-tions that do not share current inorma-

tion with other departments.

L: You also have responsibility or manag-

ing the REO eviction process at NBS. What

are some o the strategies you have ound

most eective or getting REO properties

back in the hands o servicers or liquida-

tion and sale?

BH: The frst thing the vendor needs to

know is whether you have a mortgagor,

personal property, or a tenant in the prop-

erty this drives the timelines under the

PTAF Act. The tenant occupancy can cre-

ate the longest timeline.

To prevent delays in the process, its

critical to have a solid working relation-

ship with your broker, property manage-

ment and servicer, and to keep everyone

inormed as the process moves orward.

It is not uncommon to see more and

more mortgagors fling wrongul oreclo-

sures or issuing a TRO to halt the eviction.

It is important to quickly understand what

the issues surrounding the claims are and

to engage the servicer and broker to pro-vide all the acts in order to be prepared or

hearings.

One o the common themes I heard at

a Legal League conerence when I was on

the servicing side was that frms would ap-

pear at a hearing, but be unaware o acts

that the mortgagor or tenant would bring

orward. This creates delays in the process.

Other issues that you have to mine or

post oreclosure are HOAs, code violations

and other types o liens that may be work-

ing behind the scenes but the investor has

not yet provided the servicer with the in-ormation.

Code violations are on the radar in

every city, and it is imperative that i we

fnd those issues, we report them and

have the servicer start curing the issue

sooner than later.

Finally, you have to invest in creating

reporting to identiy and report to the ser-

vicer i and when these types o impedi-

ments occur.

L: What advice would you give to aspiring

managers and executives in the deaultmanagement space?

BH: Take a step back and review your met-

rics against best practices in the industry.

I your timelines are defcient, identiy

what process is causing the most signif-

cant problem. Identiy what deects t

are in the current process.

For example, you determine your

ing dates are all pushed back 10 days

sistently because there are title im

ments, you should create a process to

curing the issue upon fle entry into

not at the closing.Evaluate your stafng: Do you hav

right people in place to drive perorma

What is the skill set o those around

Do they understand the daily objec

and how to recognize issues?

Over communicate, dont under

municate, and make sure you stay eng

in the business at hand.

Develop leaders within your orga

tion; you cannot do it all by yoursel

need to rely on others around you to aand carry part o the load. Give praise

recognition; that goes a long way witeryone!

L: What motivates you to continue to

on the unique challenges in the de

servicing environment?

BH: I started in customer service m

years ago. What Ive discovered is t

like working with people. An empl

and a customer both want the same t

to understand all that is availab

them and weigh all o their options.

You have to learn to approach s

tions and people on their level. Neve

sume the person you are speaking

understands everything you are tr

to communicate; ask questions, ollow

and make sure they are inormed e

step o the way.


27/28

OUR MISSION IS SIMPLE.We strive to improve the

bottom line performance of our clients bankruptcy

portfolios through careful, efcient and client-specic

management of each individual case.

NBS provides nationwide bankruptcy management

services to the following types of organizations:

* Residential Mortgage Lenders* Automobile Finance Companies

* Banks and Financial Institutions

* Consumer Lending Organizations

* Portfolio Servicers, Owners and Investors

Learn more about how our services, our technology

and our people can help your organization today.

Contact us and let us have the opportunity to discuss

how we can work together.

NBS is a leader in bankruptcy servicing for the con-

sumer nance industry. NBS is a subsidiary of Advent

International.

ABOUT NBS

NATIONAL BANKRUPTCY SERVICES COMPANY NEWS

NBS NEWS DESK

WWW.NBSDEFAULTSERVICES.COM

NBS WINS DIAMOND AWARDNBS is proud to announce that Dallas-based bank-

ruptcy and oreclosure law frm, Brice, Vander Linden &

Wernick, P.C., has, or the tenth consecutive year, been

named a recipient o USFNs Award o Excellence.

Since 1993, the annual Award o Excellence has

been given to USFN member frms that meet rigor-

ous standards evaluating the proessional activities,

industry volunteerism and community and charitable

involvement o the frm.

The prestigious 2010 DIAMOND AWARD was

presented on November 6th at USFNs Annual Mem-

ber Education Retreat in Paradise Island, Bahamas.

Please join us in congratulating Brice, Vander Lin-

den & Wernick, P.C. or achieving these high stan-

dards o excellence in service to industry clients andtheir communities.

LATEST NEWS


28/28

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