Additional Charges and Curing Your Mortgage Arrearage

Resolve disputes with your lender in Chapter 13 about 1) additional fees and charges, and 2) whether you’ve cured the mortgage arrearage.

Last week we described a Chapter 13 procedure to force mortgage lenders to resolve mortgage accounting disputes. This procedure focuses on changes to the monthly mortgage payment amount during the case. These are often just the normal contractually mandated changes arising from adjustments to the mortgage interest rate, and in property taxes and homeowners’ insurance. You and your lender need to be on the same page on the monthly amount so that you can stay current. Because of the importance of this, Rule 3002.1 of the Federal Rules of Bankruptcy Procedure provides an enforceable way within Chapter 13 for you to timely learn about mortgage payment changes and to efficiently resolve any related disputes.

This Rule also addresses two other practical problems about mortgage accounting:

• Determining the appropriateness of fees or charges a mortgage lender wants to add to your mortgage debt

• Determining at the end of a Chapter 13 whether you have in fact fully cured the mortgage arrearage

Determination of Fees and Charges

During the course of a Chapter 13 case, a mortgage lender may add what it considers to be a contractually appropriate fee or charge to the mortgage balance. Common examples include residence inspection fees, late charges, and the lender’s attorney fees. Rule 3002.1 (c) requires the lender to give an itemized notice of any such fee or charge. It must provide this notice within 180 days of incurring the fee or charge. It’s served on you, your bankruptcy lawyer, and your Chapter 13 trustee.

Then either the trustee or you have a year to dispute the fee or charge. The bankruptcy court then determines “whether the fees, expenses, or charges set forth in the notice are required by the underlying agreement or applicable nonbankruptcy law to cure a default or maintain payments.” Rule 3002.1 (e).

Determination of Final Cure of The Mortgage

Chapter 13 effectively gives you up to 5 years to pay, or “cure,” any amount of your mortgage that you’re behind on. But what if you don’t know how much you need to cure because of miscommunications or disputes with your lender? You get to the end of your case believing that you’ve cured the arrearage but your lender says you haven’t.

Rule 3002.1 (f) of the Federal Rules of Bankruptcy Procedure addresses this. After you complete your Chapter 13 plan payments the trustee gives notice that you’ve done so. This notice goes to you, your bankruptcy lawyer, and your lender within 30 days after you’ve completed payments. Then within another 21 days the lender responds, stating whether you’ve cured the arrearage and are current on monthly payments. “The statement shall itemize the required cure or postpetition amounts, if any, that the holder contends remain unpaid as of the date of the statement.” Rule 3002.1 (g). Then both you and the trustee have another 21 days to ask for a bankruptcy court determination about these issues.

If your lender fails to provide the required information it is subject to sanctions. The court can award you “appropriate relief, including reasonable expenses and attorney’s fees caused by the failure.” Rule 3002.1 (i)(2).