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MEMORANDUM OF UNDERSTANDING
This Memorandum of Understanding (“MOU”) is made and entered into as of this 25
th
day
of September 2019 (the “Effective Date”), by and between Ditech Financial LLC (“the Company”)
and the Executive Office for United States Trustees (the “EOUST”), a component within the
Department of Justice. The EOUST and the Company (collectively, the “Parties”) have held
numerous discussions and meetings dating back to mid-2014 regarding issues concerning the
Company’s historical Mortgage Loan practices for Borrowers in Bankruptcy Cases. This MOU is
the culmination of those discussions and is intended to set forth a summary of the mutual
understanding between the Parties.
I. Definitions
Capitalized terms used in this MOU but not defined in this section are defined elsewhere
in the MOU or the Appendices.
“Advances” shall mean fees, expenses or charges assessed against the Borrower’s account
during a Bankruptcy Case.
“APOC” shall mean an Amended Proof of Claim.
“Bankruptcy Case” shall mean a case filed under Chapter 13 of Title 11 of the United States
Code.
“Bankruptcy Code” shall mean Title 11 of the United States Code.
“Bankruptcy Documents” shall mean PCNs, POCs, APOCs, and NPFCs, as those terms
are defined herein.
“Bankruptcy Rule(s)” shall mean the Federal Rules of Bankruptcy Procedure.
“Borrower” shall mean an individual, or his or her authorized agent or attorney, who has
or had a Mortgage Loan account serviced by the Company.
“Covered Practices” shall mean and include LMA Practices, Escrow Practices, and
Advances Practices, each as defined herein. For the avoidance of doubt, the Covered Practices do
not include: (1) the review, preparation, signing and filing of PCNs or the lack of filing of PCNs,
or (2) the origination and servicing of reverse mortgages.
“CTO” shall mean the Company’s Compliance Testing Operations division, which is
independent of the line of business that performed the LMA Remediation, Escrow Remediation
and Advances Remediation.
“Escrow Account” shall mean an account that the Company establishes in connection with
a Mortgage Loan for the receipt of Borrower escrow payments and disbursements of taxes,
insurance, and/or other assessments on a Borrower’s behalf.
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“Investor” shall mean an entity that owns a Mortgage Loan serviced or subserviced by the
Company.
“Loan Modification” shall mean an agreement to change existing loan terms in response to
a Borrower’s long-term inability to repay the loan. A Loan Modification typically involves a trial
payment plan followed by a reduction of the interest rate, an extension of the term of the loan, a
change in the type of loan (e.g., adjustable rate to fixed rate), or any combination thereof.
“LMA Reviews” shall mean the individual file reviews and recommendations made by the
Vendor regarding the LMA Remediation.
“Motion for Approval” shall mean a motion filed with the bankruptcy court to approve a
Loan Modification.
“Mortgage Loan” shall mean any forward federally related mortgage loan, as that term is
defined in 12 C.F.R. § 1024.2, or other credit agreement related to a loan secured by residential
property that is not federally related. Further, as used herein, the term Mortgage Loan shall refer
to a loan that is or was in a Bankruptcy Case.
“NPFC” shall mean a Notice of Post-Petition Fees, Expenses, and Charges required to be
filed and served pursuant to Bankruptcy Rule 3002.1.
“PCN” shall mean a Notice of Mortgage Payment Change required to be filed and served
pursuant to Bankruptcy Rule 3002.1.
“POC” shall mean a Proof of Claim required to be filed and served pursuant to Bankruptcy
Rules 3001 and 3002.
“Reconciliation” shall mean a review, at or around the time of discharge or prior to filing
a motion for relief from the automatic stay, of the Borrower’s account to verify that, among other
things, all fees, expenses or charges assessed against the Borrower’s account during a Bankruptcy
Case were noticed in accordance with the Bankruptcy Rules and were collectible in accordance
with the Bankruptcy Code and Rules or were waived from the account.
“Remediation Populations” shall mean and include the LMA Remediation Population,
Escrow Remediation Population, and Advances Remediation Population, each as defined herein.
“Streamlined Loan Modifications” shall mean Loan Modifications that do not require a
Borrower to submit a financial application, but rather a servicer identifies a pool of eligible
Borrowers, as determined by criteria established by the Investor, and sends a solicitation letter to
each eligible Borrower.
“Unnoticed Advances” shall mean Advances that are not noticed in accordance with
Bankruptcy Rules 3001, 3002 and 3002.1, or allowed by court order.
“USTP” shall mean, collectively, the EOUST and the United States Trustees and Acting
United States Trustees for Regions 1 through 21.
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“Vendor” shall mean the third party consultant engaged by the Company to assist in the
development and execution of the LMA Reviews.
II. Loan Modifications for Accounts in Bankruptcy
A. Statement of Facts
The Company represents that the following facts are accurate to the best of its knowledge
and belief:
Between approximately August 2011 and the end of September 2015, the Company
regularly completed Loan Modifications for Borrowers in Bankruptcy Cases, including
Streamlined Loan Modifications between June 9, 2013 and September 7, 2014.
Historically, the Company or a prior servicer did not consistently seek approval and
provide notice to bankruptcy courts through either a Motion for Approval, APOC, and/or PCN
when a Borrower in an active Bankruptcy Case entered into a Loan Modification. As a result, in
certain instances, the Company continued to accept monthly mortgage payments at the (typically
higher) pre-modification amount as well as arrearage payments even though such arrearages had
been capitalized. These issues were complicated by the nature of Streamlined Loan Modifications,
where the review of the account for bankruptcy status was not typically conducted prior to Loan
Modification solicitation. Not all Mortgage Loans modified by the Company in Bankruptcy Cases
were missing court approval or notice and nothing herein should be construed to imply that such
issues apply to all Loan Modifications.
Additionally, the Company sometimes calculated amounts to be capitalized in Loan
Modifications without determining whether any fees and/or costs to be capitalized were properly
noticed in accordance with Bankruptcy Rules 3001, 3002 or 3002.1, or were allowed by court
order. Neither was such a determination made following the completion of the Loan Modification.
Not all Mortgage Loans modified by the Company in Bankruptcy Cases had unnoticed fees and/or
costs capitalized, and nothing should be construed herein as to unnoticed fees and/or costs
capitalized to apply to all Loan Modifications.
The practices described directly above are collectively defined as the “LMA Practices.”
B. Population & Remediation
The Company has undertaken corrective action as described in Appendix 1
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to address the
LMA Practices. Such corrective actions are referred to as the “LMA Remediation.” To determine
the population eligible for LMA Remediation, the Company identified Mortgage Loans according
to the criteria described in Appendix 1. This population is the “LMA Remediation Population.”
The final in-scope LMA Remediation Population is comprised of 2,731 Loans. The final
LMA Remediation consisted of:
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Appendices 1-3 reflect the Company’s representations as to the corrective action and remediation undertaken with
respect to the Covered Practices in keeping with the requirements of the MOU.
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- approximately $3.86M in account adjustments; and
- approximately $5.75M in overpayments identified, some of which were returned to
Chapter 13 trustees and/or Borrowers. The balance of identified overpayments
remained on Borrowers’ Mortgage Loan accounts.
C. Operational Enhancements
The Company implemented a number of operational enhancements to address the LMA
Practices. In particular, the Company has:
- as of September 7, 2014, ceased the practice of sending solicitation letters for
Streamlined Loan Modifications to Borrowers in a Bankruptcy Case;
- enhanced its practices to ensure that only fees and costs properly noticed in accordance
with Bankruptcy Rules 3001, 3002 and 3002.1, or allowed by court order, will be
assessed and/or capitalized into Loan Modifications that occur during Bankruptcy
Cases. These enhanced processes and procedures also ensure that all accounts are
reviewed at certain milestones such as following the implementation of the Loan
Modification and discharge for any unnoticed capitalized fees or costs;
- appointed a designated bankruptcy liaison to coordinate loss mitigation efforts for
bankruptcy accounts and facilitate communication between the loss mitigation and
bankruptcy departments regarding bankruptcy Loan Modification issues; and
- enhanced its policies and procedures for the preparation and filing of Bankruptcy
Documents related to Loan Modifications, including a more robust reporting
mechanism so that the reports make clear that, at a minimum: (i) Motions for Approval,
PCNs, and/or APOCs are appropriately and timely filed in Bankruptcy Cases in which
the Company enters into a Loan Modification with a Borrower as may be required by
a particular jurisdiction;
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and (ii) there is a process for escalating and resolving issues
about a proposed pleading to management as necessary.
The operational enhancements described above were implemented by the Company on or
before the third quarter of 2017.
III. Escrow
A. Statement of Facts
The Company represents that the following facts are accurate to the best of its knowledge
and belief:
With respect to Bankruptcy Cases filed before January 1, 2015, the Company historically
did not always run annual escrow analyses for certain Mortgage Loan accounts for Borrowers in
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Requirements regarding the approval of the Loan Modification may differ based on jurisdictional practice or rules.
For example, some jurisdictions may require the Borrower to file a Motion to Approve the Loan Modification.
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Bankruptcy Cases,
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as a result of the Company’s understanding of the federal regulatory
requirements for accounts in bankruptcy, and the functionality of the Company’s escrow analysis
automation. Not all Mortgage Loan accounts in bankruptcy had missing annual escrow analyses
and nothing herein should be construed to imply that such issues apply to all Mortgage Loan
accounts in bankruptcy (the “Escrow Practices”).
Even where the Company did not conduct an escrow analysis for each twelve month period
that a Mortgage Loan account was in active bankruptcy (the “Escrow Cycle”), it made the required
disbursements to third parties for taxes, insurance or other assessments for the benefit of
Borrowers, as well as in the interest of the Investor(s).
B. Population & Remediation
The Company has undertaken corrective action as described in Appendix 2 to address the
Escrow Practices. Such corrective actions are referred to as the “Escrow Remediation.” To
determine the population eligible for Escrow Remediation, the Company identified Mortgage
Loans according to the criteria described in Appendix 2. This population is the “Escrow
Remediation Population.”
The final in-scope Escrow Remediation Population is comprised of 13,774 Mortgage
Loans. The final Escrow Remediation consisted of approximately $23.98M million in credits to
escrow accounts or refunds to Borrowers.
C. Operational Enhancements
The Company has implemented a number of operational enhancements to address the
Escrow Practices. In particular, the Company has:
- established a requirement that escrow analyses be run annually for Mortgage Loans in
Bankruptcy Cases unless an exception applies;
- established a requirement for PCNs to be filed for such escrow analyses;
- established control processes and reporting mechanisms to identify any Mortgage
Loans in Bankruptcy Cases with an Escrow Account that have not had an escrow
analysis run for each Escrow Cycle, and to complete analyses for such Mortgage Loans
unless an exception applies; and
- implemented various technological enhancements to further enhance its escrow
process.
The operational enhancements described above were implemented by the Company on or
before the fourth quarter of 2016.
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Because an escrow analysis was not conducted, the Borrower’s monthly escrow payment amount did not change on
the Company’s system of record.
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IV. Unnoticed Advances
A. Statement of Facts
The Company represents that the following facts are accurate to the best of its knowledge
and belief:
Prior to the fourth quarter of 2016, the Company had inconsistent legacy practices for
noticing Advances during a Bankruptcy Case in accordance with Bankruptcy Rule 3002.1(c).
Additionally, upon the account review following the Borrower’s discharge, or prior to filing a POC
in a subsequent Bankruptcy Case, the Company did not always consistently review and remove
previously unnoticed fees and costs. These inconsistencies were largely caused by the fact that the
Company’s historical reporting did not adequately identify instances when Advances were
assessed to a Mortgage Loan account that was in an active Bankruptcy Case such that a NPFC
could be timely filed with the bankruptcy court. The practices described directly above are
collectively defined as the “Advances Practices.” Not all Mortgage Loans had unnoticed
Advances related to a Bankruptcy Case or had unnoticed Advances related to a Bankruptcy Case
that were not timely removed from the borrower’s account and nothing herein should be construed
to imply such issues apply to all Mortgage Loans.
B. Population & Remediation
The Company has undertaken corrective action as described in Appendix 3 to address the
Advances Practices. Such corrective actions are referred to as the “Advances Remediation.” To
determine the population eligible for Advances Remediation, the Company identified Mortgage
Loans according to the criteria described in Appendix 3. This population is the “Advances
Remediation Population.”
The final in-scope Advances Remediation Population is comprised of 785 Mortgage Loans.
The final Advances Remediation comprised of approximately $.90M in waivers and refunds to
Borrowers.
C. Operational Enhancements
The Company has implemented a number of operational enhancements to address the
Advances Practices. In particular, the Company has:
- established a team within the bankruptcy department with the responsibility of
preparing, reviewing, and filing NPFCs;
- adopted or enhanced checklists to assist in the preparation of and quality control review
of NPFCs as they relate to Advances in order to ensure compliance with the
requirements of the Bankruptcy Code and Bankruptcy Rules;
- established a procedure by which, when performing a Reconciliation of an account for
a Borrower in a Bankruptcy Case, all Unnoticed Advances will be waived from the
Borrower’s account in accordance with the Bankruptcy Rules; and
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- established a procedure by which, when preparing a POC, bankruptcy representatives
will review the Mortgage Loan for Unnoticed Advances from a previous, discharged
Bankruptcy Case that remain on the account or were previously paid, and will waive
or credit, as appropriate, any such Unnoticed Advances before a POC is filed in a
subsequent Bankruptcy Case.
The operational enhancements described above were implemented by the Company on or before
fourth quarter of 2016.
V. Company Validation Assurances
A. Validation Processes and Reporting
The Company has completed a review and validation of the LMA Remediation, Escrow
Remediation and Advances Remediation undertaken pursuant to the MOU. The Company
represents that it utilized the CTO to independently review the population approach, review the
remediation via a statistically valid sampling of Mortgage Loans in the Remediation Populations
and confirm the Operational Enhancements via review of present day policies and procedures (the
“Validation Assurances”).
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The CTO provided a written summary of its findings to the Company
that detailed the background of the review, the population approach, the sampling methodology,
and the review’s conclusions for the LMA Remediation, Escrow Remediation and Advances
Remediation (the “Summary”) and the Company will provide a copy of the Summary to the USTP
within 15 business days of the Effective Date. Supporting materials related to the Summary will
include policies and procedures, test scripts, and example work papers (the “CTO Materials”). The
USTP shall have an opportunity to review the Summary and CTO Materials.
Following Ditech’s submission of the Summary and CTO Materials, the USTP shall have
45 days (or as otherwise agreed upon between the Parties) to submit questions, concerns or
otherwise respond to the Validation Assurances and results set forth in the Summary and CTO
Materials. Such matters shall be submitted to the Company in writing. If the USTP does not raise
issues or otherwise respond as set forth in this provision, the Company shall have no further
obligations under the MOU.
If the USTP submits questions, concerns or otherwise responds to the Validation
Assurances and the results set forth in the Summary and CTO Materials, the Company shall submit
a response to the USTP within 45 days (or as otherwise agreed upon between the Parties) in
writing. If the Company’s response thereto is satisfactory to the USTP, then the Company shall
have no further obligations under the MOU. As set forth herein, the Parties agree to work in good
faith informally to resolve any disputes arising in connection with the Validation Assurances.
B. Access to Information and Confidential Information
Upon reasonable notice to be made within 90 days of Ditech’s submission of the Summary
and CTO Materials (or as otherwise agreed upon between the Parties), the Company shall permit
the USTP to inspect and copy non-privileged records pertinent to this MOU. The Company, if
appropriate, may designate documents, information, or portions of a document or other tangible
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The Company has engaged a Vendor to assist in the LMA Review, LMA Remediation and validation.
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thing (except this MOU, the Appendices, and the Summary) provided by the Company to the
USTP, which the Company asserts contains a trade secret or confidential research, development,
or commercial information subject to protection under applicable state or federal laws as
Confidential (collectively, “Confidential Information”).
The USTP agrees to protect Confidential Information to the extent permitted by law.
However, this agreement shall not prevent or in any way limit the ability of USTP to comply with
any subpoena, Congressional demand for documents or information, court order, request under the
Right to Financial Privacy Act, or a public records or a Freedom of Information Act request;
provided, however, that in the event that USTP receives such a subpoena, Congressional demand,
court order or other request for the production of any Confidential Information covered by this
MOU, the USTP shall, unless prohibited under applicable law or unless the USTP would violate
or be in contempt of the subpoena, Congressional demand, or court order, (1) notify
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the Company
of such request as soon as practicable and in no event more than ten (10) calendar days of its receipt
or three (3) calendar days before the return date of the request, whichever is sooner, and (2) allow
the Company ten (10) calendar days from the receipt of the notice to obtain a protective order or
stay of production for the documents or information sought, or to otherwise resolve the issue,
before the USTP discloses such documents or information. In all cases covered by this provision,
the USTP shall inform the requesting party that the documents or information sought were
produced subject to the terms of the MOU and these requirements.
VI. USTP Actions
For the purposes of this section, the “Company” includes the Company and any affiliated
entity
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and any of their respective successors or assigns, as well as any current or former director,
current or former officer, and current or former employee of any of the foregoing, individually and
collectively, and shall specifically include any third-party that may purchase the servicing rights
to the Remediation Populations referenced herein through the asset sales process in the Bankruptcy
Court for the Southern District of New York in In re Ditech Holding Corporation, et al., Case No.
19-10412.
Upon execution of this MOU, the USTP will take such steps as may be reasonably
necessary to fully and finally withdraw or facilitate the dismissal with prejudice of pending
objections and other actions by the United States Trustees, including all related discovery requests,
whether formal or informal, and requests for examination under Bankruptcy Rule 2004
(collectively, “the Discovery Requests”) and subpoenas or subpoenas duces tecum (collectively,
“the Subpoenas”), directed to or filed against the Company based on the Covered Practices in the
active individual Bankruptcy Cases and contested matters set forth on Exhibit A. Nothing in this
Paragraph requires the USTP to withdraw or facilitate the dismissal of Discovery Requests and
Subpoenas to the extent that relief against another party, other than the Company, its affiliates, or
directors, employees and officers of the Company or its affiliates, is the purpose of such discovery.
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Any notification to the Company shall include counsel for the Company, Christian W. Hancock at Bradley Arant
Boult Cummings LLP.
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For the purposes of this MOU, Reverse Mortgage Solutions is not considered an affiliated entity.
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The USTP will refrain from instituting, directing or maintaining any action or participating
in any action by a third party (except that the USTP may participate in an action to the extent
ordered by a court provided that the USTP may not seek such a court order formally or informally),
against the Company, pertaining to the Company’s mortgage-related claims filed in a Borrower’s
Bankruptcy Case prior to the Effective Date of this MOU and based on the Covered Practices.
Further, except as provided in subsection (v) below, and as provided in existing protective orders
between the Parties, the USTP shall refrain from sharing information obtained via the Discovery
Requests and Subpoenas (unless required to do so under applicable law or pursuant to a court
order) in support of any action against the Company pertaining to the Company’s mortgage-related
claims filed in a Borrower’s Bankruptcy Case prior to the Effective Date of this MOU and based
on the Covered Practices.
Notwithstanding the foregoing, nothing in this MOU shall be construed as a waiver of, or
a restriction or prohibition on, the USTP’s ability following the entry of this MOU:
(i) In individual Bankruptcy Cases for Mortgage Loans in the Remediation
Populations, to seek corrective action by Ditech Financial, LLC to ensure that the remediation
required under the MOU as described in Appendices 1-3 has been provided;
(ii) Except as otherwise addressed in sub-section (i) above, in individual Bankruptcy
Cases to the extent permitted by law, to formally or informally seek corrective action (but not
fines, penalties, or sanctions), to address material inaccuracies relating to the Company’s
mortgage-related filings based on the Covered Practices; provided, however, that this provision
shall not constitute a waiver of, or restriction or prohibition on, the Company’s ability to dispute
whether the United States Trustees have authority or ability to seek such a cure.
(iii) In individual Bankruptcy Cases, to undertake any formal or informal action with
respect to any filing by the Company in a Bankruptcy Case that is not based on the Covered
Practices described herein;
(iv) To seek and obtain discovery from the Company in any Bankruptcy Case or
proceeding, including discovery based on or pertaining to the Covered Practices, as long as such
discovery is not sought for the purpose of enforcing claims or causes of action released herein;
(v) To assert defenses or claims against any other party, and the USTP shall have no
obligation to seek dismissal of any pending adversary proceedings, contested matters, appeals, and
other actions filed by the USTP against any other party in Bankruptcy Cases involving Mortgage
Loans; and
(vi) To cooperate with or provide assistance to other governmental agencies in
connection with the Covered Practices, or sharing information or discovery arising out of or
pertaining to the Covered Practices with other governmental agencies (while adhering to all
applicable protective orders between the Parties).
VII. Miscellaneous Provisions
This MOU is intended to be solely for the benefit of the Parties hereto and is not intended
to confer any benefits upon, or create any rights in favor of, any person other than the Parties
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hereto. This MOU will not bind or prejudice the rights and claims of non-Parties, including other
components of the Department of Justice, any other federal agencies, or any state, local or foreign
law enforcement or regulatory agencies, or any other authorities. Notwithstanding any other
provision of this MOU, claims with respect to any criminal liability are especially reserved and
are not released.
This MOU sets forth all the terms of the understanding between the Parties relating to the
subject matter reflected herein and may not be modified except in writing executed and delivered
by the Parties hereto.
If the USTP believes that there has been a failure by the Company to perform in a timely
manner any act required by this MOU, or otherwise to act in conformance with any provision
thereof, the USTP will notify the Company in writing. In individual Bankruptcy Cases (other than
Bankruptcy Cases where an assignment, transfer of claim, or other documentation has been filed
pursuant to Bankruptcy Rule 3001(e) to indicate termination of Ditech Financial LLC’s servicing
of the Mortgage Loan), the USTP will first seek any such corrective action from Ditech Financial
LLC if the USTP is aware that the Mortgage Loan subject to inquiry is in the Remediation
Populations and the action relates to the Covered Practices; if such corrective action must be sought
from the purchaser of the servicing rights to the Remediation Populations, the USTP will provide
contemporary notice of such requests to Ditech Financial LLC or its resulting bankruptcy
estate. The parties shall endeavor in good faith to resolve any disputes regarding interpretation of,
or compliance with this MOU prior to initiating any action. In the event the parties are unable to
resolve any dispute, the Parties each reserve all rights to take whatever action they deem
appropriate in any appropriate forum.
The Company recognizes that the USTP is entering into this MOU in reliance on the
material accuracy and material completeness of the factual representations set forth herein and that
in the event of fraud or misrepresentation of material facts the USTP reserves all rights to take
whatever action it deems appropriate in any appropriate forum.
Nothing in this MOU shall relieve the Company (including all entities defined as the
“Company” in Section VI) of its obligation to comply with applicable state and federal laws. To
the extent any provision contained herein is determined to be invalid or unenforceable under
applicable law, such provisions shall be limited or eliminated only to the minimum extent
necessary so that this MOU shall otherwise remain in full force.
This MOU may be executed in one or more counterparts, each of which, when so executed,
shall be deemed to be an original and all of which shall constitute one and the same agreement.
The undersigned agree to the terms of this Memorandum of Understanding.
J_o�
-
Seen and agreed to:
DITECH FINANCIAL LLC
EXECUTIVE OFFICE FOR UNITED STATES TRUSTEES
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APPENDICES
The Company developed the populations and implemented the remediation approaches
discussed herein as required under the MOU. The below descriptions set forth the steps taken to
identify the remediation populations and complete the remediation required by the MOU. As set
forth in the appendices below, the Company represents that it has accurately identified the
populations and completed the remediation required under the MOU.
Appendix 1 – LMA Remediation Population & Remediation
1. To determine the population eligible for LMA Remediation, the Company
identified Mortgage Loans that have been or are serviced by the Company and where:
a. One or more of the Borrowers entered into a Loan Modification at some point
between December 1, 2011 and September 30, 2015;
b. At the time the Loan Modification was completed, one or more of the
Borrowers was a debtor in a Bankruptcy Case;
c. A court order approving the Loan Modification was not entered prior to the first
payment due date of the Loan Modification; and
d. At the time of the LMA Review and/or LMA Remediation implementation:
i. The Borrower’s Bankruptcy Case had not been dismissed or converted to
another chapter;
ii. The Company had not received relief from the automatic stay; and
iii. The Mortgage Loan had not been resolved,
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paid in full or charged off on
the Company’s system of record.
This population is the “LMA Remediation Population.”
2. The Company has remediated the LMA Remediation Population as described
below:
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a. Notice of Post-Petition Payments: If the post-petition monthly payments due
on the system of record for a particular Mortgage Loan were greater than the
post-petition monthly payments noticed to the bankruptcy court in accordance
with Bankruptcy Rules 3001, 3002 and 3002.1 at any time between the petition
date and the earlier of: i) the LMA Review completion or ii) the date of
Borrower’s discharge, the Company credited the Borrower’s account with the
difference between the funds due and the funds noticed for the applicable time
period.
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Resolved means the Company’s servicing of the Mortgage Loan ended via foreclosure sale, short sale, deed in lieu
of foreclosure, or other similar event.
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Variations in the remediation process have occurred on certain Mortgage Loans due to the passage of time,
refinement of the remediation process, specific borrower request or litigation, separate USTP stipulation requests, and
other similar factors. In addition, Mortgage Loans for which servicing transferred prior to the LMA Review
implementation may receive a check in the amount of the remediation, instead of an account adjustment.
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b. Overpayments in Discharged Bankruptcy Cases:
i. Post-Petition Payments. If the funds disbursed by the Chapter 13 Trustee
or the Borrower were greater than the post-petition monthly payments due
on the system of record for a particular Mortgage Loan at any time between
the Petition Date and the date of Borrower’s discharge, the Company
identified the difference between the funds disbursed and the funds due for
that time period as a potential overpayment to be refunded. However, in
Bankruptcy Cases where the Borrower has already received the benefit of
the overpayment and issuing a refund would cause Borrower’s account to
become delinquent or more delinquent, a Borrower may be advised that the
funds will remain on the account and will not be issued to him or her
because refunding this amount would cause their account to become
delinquent or more delinquent.
ii. Arrearage payments. If the Company (a) received any arrearage payments
greater than the amount properly noticed or (b) capitalized arrearage
amounts into the Loan Modification, and then applied the overpayment to
the account after the implementation of the Loan Modification on the
system of record (and such payments were not previously refunded), the
Company identified the arrearage payments applied to the account after the
implementation of the Loan Modification as a potential overpayment to be
refunded. However, in Bankruptcy Cases where the Borrower has already
received the benefit of the overpayment and issuing a refund would cause
Borrower’s account to become delinquent or more delinquent, a Borrower
may be advised that the funds will remain on the account and will not be
issued to him or her because refunding this amount would cause his or her
account to become delinquent or more delinquent.
iii. Refund Threshold. Excluding post-petition overpayments made by the
Borrower, if the sum of any overpayments identified in Paragraphs 2(b) (i)
and (ii) above are greater than or equal to $5,500, the Company contacted
the Chapter 13 Trustee in the Bankruptcy Case to confirm whether the
overpayment should be sent to the Chapter 13 Trustee and if so, whether the
Company should file a motion to reopen the Bankruptcy Case.
1. If the Chapter 13 Trustee requested that the funds be sent to them,
the Company issued a refund in the amount of the overpayment to
the Chapter 13 Trustee and if requested, filed a motion to reopen the
Bankruptcy Case.
2. If the Chapter 13 Trustee disclaimed or failed to claim the
overpayment within a reasonable time period, the Company issued
any refund to the Borrower to the extent that it would not cause his
or her account to become delinquent or more delinquent.
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c. Overpayments in Active Bankruptcy Cases:
i. Post-Petition Payments. If the funds disbursed by the Chapter 13 Trustee
or the Borrower were greater than the post-petition monthly payments due
on the system of record for a particular Mortgage Loan at any time between
the Petition Date until the LMA Review completion,
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the Company
identified the difference between the funds disbursed and the funds due for
that time period to the Chapter 13 Trustee as a potential overpayment to be
refunded.
1. In Bankruptcy Cases where the Chapter 13 Trustee is making post-
petition payments to the Company, the Company issued a refund in
the amount of the overpayment to the Chapter 13 Trustee.
2. In Bankruptcy Cases where the Borrower is making post-petition
payments directly to the Company and issuing a refund would cause
Borrower’s account to become delinquent or more delinquent, a
Borrower may be advised that the funds will remain on the account
and will not be issued to him or her because refunding this amount
would cause their account to become delinquent or more delinquent.
ii. Arrearage payments. If the Company (a) received any arrearage payments
greater than the amount properly noticed or (b) capitalized arrearage
amounts into the Loan Modification, and then applied the overpayment to
the account after the implementation of the Loan Modification on the
system of record (and such payments were not previously refunded), the
Company refunded the arrearage payments applied to the account after the
implementation of the Loan Modification to the Chapter 13 Trustee.
d. Post-Modification Fees and Costs: If, after the implementation of a Loan
Modification, the Company (i) failed to notice fees and/or costs assessed to the
Borrower’s account to the bankruptcy court or (ii) fees and/or costs assessed to
Borrower’s account were higher than the amount noticed to the bankruptcy
court, the Company credited Borrower’s account with the difference between
the amount assessed and the amount noticed.
e. Capitalization Remediation: The Company also reviewed Mortgage Loans
that met all of the criteria set forth in Paragraphs (1) (a), (b) and (d) and for
which bankruptcy court order approving the Loan Modification was entered
prior to the first payment due date of the Loan Modification to determine if any
fees/costs capitalized were unnoticed to the bankruptcy courts. If any fees or
costs capitalized during that Loan Modification were not timely noticed to the
bankruptcy court by either the Company or a prior servicer, the Company
9
Mortgage Loans may have received additional remediation post-LMA Review completion via court order,
stipulation, or Reconciliation.
15
reduced the principal balance of the Mortgage Loan or refunded the amount of
the unnoticed fees or costs, as appropriate.
f. In certain circumstances where the account service transferred before LMA
Remediation was implemented, the Company issued a refund check instead of
processing a credit for the remediation amount as outlined above.
16
Appendix 2 – Escrow Population & Remediation
1. The Company has identified the relevant population of Mortgage Loans as those
that have been or are serviced by the Company and:
a. Which were in a Bankruptcy Case any time after December 1, 2011;
b. Which had an open and Active Escrow Account
10
at a time that was both i) after
December 1, 2011 and ii) during a period the Mortgage Loan was in an active
Bankruptcy Case;
c. Where the Mortgage Loan had at least one period, longer than 12 months,
between i) the later of the bankruptcy Petition Date, the date the Company
acquired the Mortgage Loan, the escrow account open date, or December 1,
2011 (the “Evaluation Begin Date”) and ii) the earlier of the bankruptcy
disposition date or September 30, 2016, (the “Evaluation End Date”),
11
where
it was in active bankruptcy and had no escrow analysis (the entire period
identified as the “Evaluation Period”);
d. Where the borrower did not surrender their property or cram down their loan
during the Subject Bankruptcy Case;
12
e. Where there was no order granting relief from the automatic stay related to the
Borrower’s Mortgage Loan;
f. Where the Borrower was discharged from his or her Bankruptcy Case, the
Borrower has not filed a subsequent Bankruptcy Case, and the Mortgage Loan
account is less than 180 days delinquent at the time of evaluation for
remediation;
g. Which are not in foreclosure at time of evaluation for remediation;
h. Which had an escrow analysis delayed more than four months during the
Evaluation Period;
i. Which, at the time of evaluation for remediation, had not been resolved,
13
paid
in full, or charged off on the Company’s system of record; and
j. Where, at the time of remediation, the Subject Bankruptcy Case had not been
dismissed.
10
“Active Escrow Account” means an account where the Company’s system of record indicated an amount greater
than zero due monthly from the borrower for escrow, and from which the Company disbursed funds to pay taxes
and/or insurance premiums on behalf of the borrower.
11
The Escrow Remediation Population was determined in September 2016. In 2018, following numerous discussions
with the EOUST, the Company reviewed all Mortgage Loans that had been excluded from the population solely due
to the September 2016 Evaluation End Date, re-reviewed those loans through present day, and returned a subset of
Mortgage Loans to the Escrow Remediation Population because they evidenced a period without escrow analyses.
12
“Subject Bankruptcy Case” means the bankruptcy case during which the Company did not run annual escrow
analyses. The Borrower may have filed for bankruptcy relief at a later time during which the Company did run annual
escrow analyses. This would not remove the Borrower from the Escrow Remediation Population.
13
“Resolved” could mean the Company’s servicing of the Mortgage Loan ended via service transfer prior to the time
period that the population was identified, foreclosure sale, short sale, or deed in lieu of foreclosure.
17
2. This population is the “Escrow Remediation Population.”
3. The Company has remediated the Escrow Remediation Population in varying
forms. Mortgage Loans with a Chapter 13 discharge received Variance Determination, as detailed
herein. Mortgage Loans still in an active Bankruptcy Case had the existing shortage, if any,
waived.
4. Variance Determination: The Company first determined if each Mortgage Loans
in the Escrow Remediation Population reflects a “Negative Variance,” meaning the amounts
disbursed from the escrow account exceed the sum of amounts billed for escrow during each
Calculation Period, as detailed below.
14
a. If the Evaluation Begin Date is the date of service transfer:
i. The Calculation Begin Date was three (3) months after the date of service
transfer if no escrow analysis occurred in the first three (3) months after
the date of service transfer; or
ii. The Calculation Begin Date was twelve (12) months after an escrow
analysis if such escrow analysis occurred in the first three (3) months after
the date of service transfer. Any additional escrow analyses that are within
twelve (12) months of the prior escrow analyses will continue to extend
the Calculation Begin Date by twelve (12) months.
b. If the Evaluation Begin Date is not the date of service transfer:
i. The Calculation Begin Date was twelve (12) months after the Evaluation
Begin Date if no escrow analysis occurred in the first twelve (12) months
after the Evaluation Begin date; or
ii. The Calculation Begin Date was twelve (12) months after the first escrow
analysis following the Evaluation Begin Date where another escrow
analysis was not present within those twelve (12) months. Any additional
escrow analyses that are within twelve (12) months of the prior escrow
analyses will continue to extend the Calculation Begin Date by twelve
(12) months.
c. The Calculation End Date will be the earliest of: i) an escrow analysis date; ii)
the date the escrow account was closed; or iii) the date the calculation is
performed. If a Negative Variance is present, the Company has or will credit
the borrower’s escrow account with the full Negative Variance.
5. Shortage Determination: For Mortgage Loans in an active Bankruptcy Case at the
time of Escrow Remediation, the Company ran a pro forma to determine the likely outcome of an
escrow analysis. If that pro forma evidenced a shortage, the amount of the shortage reflected on
the pro forma was credited to the Borrower’s escrow account.
6. Escrow Analysis: If the Borrower had an open escrow account at the time of
Escrow Remediation, an escrow analysis was prepared and provided to the Borrower after any
14
There can be multiple calculation periods for an individual loan if an escrow analysis was run during the Escrow
Remediation Calculation period.
18
credits due via the Shortage Determination or Variance Determination were made to the escrow
account.
7. Escrow PCNs: For those Mortgage Loans in the Escrow Remediation Population
that were still in active Bankruptcy Case at the time of Escrow Remediation, the Company filed a
PCN based on any payment change arising from the escrow analysis.
8. Escrow Credit Letters: If the Borrower received a credit for Negative Variance
pursuant to Paragraph 4 above, the Company provided written notice of such credit to the
Borrower.
19
Appendix 3 –Advances Population & Remediation
1. The Company has or is remediating two (2) populations of Mortgage Loans
collectively described as the “Unnoticed Advances Remediation Population”. The Company has
identified the relevant loans as those Mortgage Loans that have been or are serviced by the
Company:
a. Where (i) the Borrower has had two Bankruptcy Cases (the first resulting in a
discharge and the second is active at the time of review) and (ii) a POC was
filed in the second Bankruptcy Case that included Unnoticed Advances
remaining from the Borrower’s first Bankruptcy Case; and
b. Where the Borrower has obtained a discharge in a Bankruptcy Case and
Advances were assessed but not appropriately and timely noticed during that
Bankruptcy Case.
15
2. For the Unnoticed Advances Remediation Population identified above, the
Company will waive or credit, as appropriate, any Unnoticed Advance.
3. For those where the Borrower has filed a second Bankruptcy Case, in addition to
waiving any Unnoticed Advance, the Company will file an APOC in Bankruptcy Cases that are
active and where a POC has already been filed.
15
Any Mortgage Loans subject to a Chapter 13 plan where the entirety of the debt is paid through the Chapter 13 plan
are excluded from the population.
20
EXHIBIT A – USTP ACTIONS
Active:
Grappone Vermont (D. Vt. 14-10192)
Mischle (Consol. Proc.) Michigan (E.D. Mich. 14-40885)
Painter Georgia (N.D. Ga. 14-42520)
Smith Michigan (E.D. Mich. 12-51589)
Stokes Mississippi (N.D. Miss. 15-13669)
Closed:
16
Brewster Georgia (N.D. Ga. 14-10959)
Falanga Pennsylvania (W.D. Pa. 13-20589)
Gebhardt v. Ditech (Misc. Proc.) Georgia (N.D. Ga. 16-00503)
Hendrian Michigan (E.D. Mich. 09-79352)
Hendrickson Virginia (W.D. Va. 12-71901)
Lee Georgia (N.D. Ga. 15-55522)
Marshall Pennsylvania (W.D. Pa. 13-70542)
Moore Michigan (E.D. Mich. 08-33980)
Pearson Georgia (N.D. Ga. 12-62207)
Prior Vermont (D. Vt. 11-10139)
Jacobs Illinois (N.D. Il. 17-08845)
Ramos California (C.D. Cal. 14-11489)
Ross Nevada (D. Nev. 13-14261)
Smith Pennsylvania (W.D. Pa. 10-26668)
Toby Georgia (N.D. Ga. 15-58661)
Ware Indiana (S.D. Ind. 11-06511)
Young Virginia (W.D. Va. 11-71432)
16
The USTP will not seek to reopen closed Bankruptcy Cases to withdraw objections or discovery requests.
