U.S. High Court Seeks Solicitor General's Comments on Bankruptcy Conflict

U.S. High Court Seeks Solicitor General's Comments on Bankruptcy Conflict

WASHINGTON, D.C. - (Mealey's) The U.S. Supreme Court on June 20 asked the U.S. solicitor general for comment on a bankruptcy case in which the Bankruptcy Code and the Real Estate Settlement Procedures Act (RESPA) are in conflict as it relates to a lender's right to require debtors to deposit additional funds into escrow after they have filed for Chapter 13 bankruptcy (Countrywide Home Loans Inc. v. Francisco Rodriguez, et al. No. 10-1285, U.S. Sup.).

Francisco and Anna Rodriguez filed for Chapter 13 bankruptcy and contended that their lender, Countrywide Home Loans Inc., violated the automatic stay by requiring them to deposit additional money into their escrow account when those funds were needed to cover the debtors' anticipated post-petition taxes, insurance and other escrow obligations.

Countrywide sought the funds because prior to filing for bankruptcy, the Rodriguezes had missed eight consecutive mortgage payments.

A majority of the Third Circuit U.S. Court of Appeals ruled that Countrywide violated the automatic stay pursuant to 11 U.S. Code Section 362 when it exercised its rights under RESPA to reanalyze the debtors' escrow account to determine how much money the couple needed to deposit in order to cover post-petition taxes, insurance and other obligations.

Countrywide appealed the Third Circuit's ruling, alleging that there is "an important, recurring and industry-wide issue" for companies servicing residential mortgages and could affect more than 300,000 Chapter 13 cases each year.

Moreover, the lender contends that review by the U.S. Supreme Court is needed because the Third Circuit's decision is in "direct conflict" with precedent from other circuit courts.

[Editor's Note:  Full coverage will be in the July 6 issue.  In the meantime, the order is available at www.mealeysonline.com or by calling the Customer Support Department at 1-800-833-9844.  Document #80-110706-012X.  For all of your legal news needs, please visit www.lexisnexis.com/mealeys.]

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For more information, call editor James Cordrey at 215-988-7724, or e-mail him at james.cordrey@lexisnexis.com.