Bankruptcy Judges Question Countrywide Errors, Evidence
Bankruptcy judges are criticizing the business practices of Countrywide Financial, part of the legal headaches that Bank of America Corp. will be taking on when it acquires the troubled lender.
Improper charges and suspect evidence have gotten the attention of judges overseeing the bankruptcies of Countrywide borrowers. The company is also likely to face suits by subprime borrowers alleging they were misled about loan terms and by shareholders and investors claiming they weren’t fully informed about the financial condition of the company and its packaged mortgage loans, ABAJournal.com reported in an earlier post.
In Houston, Bankruptcy Judge Jeff Bohm is considering sanctions against Countrywide, the Wall Street Journal reports (sub. req.). He chastised company lawyers after discovering the lender charged unsubstantiated fees to a borrower and improperly credited his mortgage payments made in bankruptcy to prebankruptcy debt.
In Miami, Bankruptcy Judge A. Jay Cristol has authorized the subpoena requests of a trustee who wants to find out how Countrywide miscalculated the monthly payment owed by a borrower, doubling the amount from $2,400 to $4,800, the newspaper says. Countrywide was caught “with its hand in the cookie jar,” Cristol said.
A bankruptcy judge in Pittsburgh had similar criticism when he learned that Countrywide had “re-created” letters for a bankruptcy court that appeared to have never been sent, the New York Times reported earlier this month. The letters are “a smoking gun that something is not right in Denmark,” U.S. Bankruptcy Judge Thomas Agresti said at a December hearing.
While Bank of America may be facing big legal costs, it will be getting some help from the federal government in the form of an “awesome” tax break, according to the headline of a Fortune article that goes into the details.
Bank of America will be able to use Countrywide’s losses to offset its own taxable income. By one estimate, the company will be able to deduct $270 million a year for Countrywide losses the first five years after the acquisition, creating an annual tax savings of more than $100 million. Bigger deductions could follow, depending on the extent of Countrywide’s losses.
A hat tip to TaxProf Blog, which posted the Fortune story.