Banking Law

Borrowers Facing Foreclosure Often Overpay, Study Finds

Bankruptcy court filings indicate that some lenders and loan servicers foreclosing on properties are charging questionable fees and misstating outstanding balances.

University of Iowa law professor Katherine Porter analyzed more than 1,700 Chapter 13 filings from April 2006 and found that questionable fees were tacked on to more than half of the loans, the New York Times reports. The fees were for items such as faxes, payoff statements, frequent property inspections and something called “demand fees.”

She also found that creditors failed to attach the required promissory note in 40 percent of the claims and the itemized charges in nearly 17 percent of the claims. And in most of the cases, the borrowers claimed they owed less than the amount sought by creditors, a wide-ranging discrepancy she attributes to possible overcharges rather than record-keeping errors. In one case, a lender sought $1 million for what turned out to be a $60,000 unpaid balance.

Bankruptcy trustees are finding similar problems, the newspaper says. In Texas, a trustee is seeking sanctions against Houston law firm Barrett Burke Wilson Castle Daffin & Frappier, allegedly for providing inaccurate information about mortgages held by Chapter 13 petitioners. The firm says it did nothing wrong.

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