In re Rivera

Decision Date25 May 2006
Docket NumberNo. 01-42625(MS).,01-42625(MS).
Citation342 B.R. 435
PartiesIn re Jenny RIVERA, Debtor.
CourtU.S. Bankruptcy Court — District of New Jersey

Patrick D. Tobia, Esq., Clemente, Mueller & Tobia, PA, Morristown, NJ, for Shapiro & Diaz, LLP.

Kevin H. Marino, Esq., Marino & Associates, PC, Newark, NJ, for Rhondi Lynn Schwartz, Esq.

Peter N. Gilbreth, Esq., Morristown, NJ, for Nelson Diaz, Esq.

Vincent F. Papalia, Esq., Saiber, Schlesinger, Satz & Goldstein, LLC, Newark, NJ, for EverHome Mortgage Company f/k/a Alliance Mortgage Corp.

Michaelene Loughlin, Esq., Loughlin and Latimer, Hackensack, NJ, for Jenny Rivera.

Stephen M. Orlofsky, Esq., Blank Rome LLP, Cherry Hill, NJ, Raymond M. Patella, Esq., Blank Rome LLP, Philadelphia, PA, for First American National Default Outsourcing, LLC.

Lawrence S. Lustberg, Esq., Gibbons, DelDeo, Dolan, Griffinger & Vecchione, Newark, NJ, for Dan Schmidt.

Mark W. Catanzaro, Esq., Moorestown, NJ, for Dondrea Lomas.

Thomas C. McCoy, Esq., Woodland, McCoy & Shinn, LLC, Manahawkin, NJ, for Linda Hynes, Esq.

Marie-Ann Greenberg, Esq., Douglas J. McDonough, Esq., Fairfield, NJ, Chapter 13 Standing Trustee.

OPINION

MORRIS STERN, Bankruptcy Judge.

The court, sua sponte, ordered a secured party and its counsel to explain certain anomalies related to the execution of certifications, including a certification which would support stay relief to allow foreclosure to proceed against Jenny Rivera's residence in Lodi, New Jersey. These parties were to show cause why sanctions should not be imposed if the court's suspicions were to be borne out. In fact, the court's inquiry has exposed a long-standing and regularized practice of creating documents purported to be "certifications"; however, presigned forms were kept on file by counsel and simply, in case after case, attached to the body of dataladen mortgage default accountings, the composite being filed with the court as if they were certifications.

It is now clear that the respondent law firm, Shapiro & Diaz, LLP ("S & D"), had for an extended period engaged in the practice of preparing certifications in support of bankruptcy stay relief motions and applications, knowingly attaching presigned statements of certification. The actual signatories to the "on-file" forms were in many instances not the client-providers of the information contained in the certifications as submitted, nor did those signatories (whether or not the information providers) actually review the final form of the certifications before the documents were filed with this court. In fact, in the immediate matter which sparked the court's interest, the "signatory" (one "Amirah Shahied") had not been in the employ of anyone related to the client-secured party for over a year before the certification was filed. Moreover, in that period when no relevant client relationship existed with Amirah Shahied, her warehoused statement of certification was appended to the tail end of accountings of default in mortgage payments and filed with this court by S & D approximately 250 times.

S & D is part of a national network of law firms owned or controlled by two Illinois attorneys, Gerald M. Shapiro and David Kreisman. Shapiro and Kreisman had, until June or so of 2004, operated a mortgage loan default outsourcing service ("LOGS Financial Services, Inc."), which interfaced with either mortgage holders or other servicers to process real estate foreclosures and related bankruptcy matters. (LOGS sold its business to "FANDO"1 in or about June 2004.) Thus, in many instances S & D and other network law firms actually received (and continue to receive) data for foreclosure and bankruptcy motions or applications from such post-default servicers,2 rather than from mortgagees or primary mortgage loan servicers.

The accounting data from mortgagees' books and records is fundamental to any of their demands for post-default remedies. Secured parties must program their bookkeeping machinery to account accurately for the complexity of home mortgage variables, including not only periodic payments by mortgagors, but also such items as changes in interest rates where applicable, escrow balances, adjusted e.g., for real estate tax and casualty insurance premium payments, and allowable charges for fees and costs. Adding to the mixture is the now routine wholesale transfer of mortgage "paper," bundled as collateral for large debt security issues. National enterprises have developed to service mortgage holders' needs, these servicers often operating in tandem or tiers with subservicers such as FANDO, now specializing in post-default processing. The ostensible "mortgagee" thus changes its identity (sometimes frequently, depending on shifting service arrangements), while mortgagors remain obligated to make periodic payments. Default in payment implicates the foreclosure process, which in turn sets in motion the mortgagor-debtor's efforts to save the homestead, often by seeking recourse to Chapter 13 of the Bankruptcy Code.3 Chapter 13 plans propose to satisfy mortgage arrears (paid to a standing trustee "within" the plan), while the debtor is required to make regular post-petition mortgage payments (generally paid to the secured party directly, i.e., "outside" the plan).

Accounting for post-petition mortgage payments then becomes another layer in secured parties' programming matrices. Debtors, obviously hard-pressed financially and frequently disorganized in their bookkeeping, undertake plan payments which could stretch out for up to sixty months. Post-petition (indeed, often after Chapter 13 plan confirmation) defaults are bound to develop. Bargains are then struck which give the debtors yet another chance to save their homes, though default provisions are "tightened." The frequently used "cure" order grants a secured party the right to future stay relief on an ex parte (but noticed) application of counsel, accompanied by a certification accounting for the latest default.4 The required "certification," in form and nomenclature, is derived from the New Jersey practice (see New Jersey Rules of Court 1:4-4(b)), "Certifications in Lieu of Oath," and is the equivalent of the 28 U.S.C. § 1746 "Unsworn Declaration."

Of course, at any point in Chapter 13 cases disputes can arise between secured parties and debtors over mortgage payments — frequently with debtors swearing payments were made and secured parties swearing payments were not received. Disputes centering on post-petition payment histories are particularly nettlesome. These payment histories — detailing not simply the "regular" mortgage payment credits but also adjusting for direct cure payments and frequently bargained for add-ons to plan payments (plan payments thus including the initial prepetition arrears amount plus the later-accruing post-petition arrears), as well as escrow and other suspense account accounting — are often the bane of a bankruptcy judge's existence on a busy "Chapter 13 day." Anyone who has experienced such accounting conflicts knows the hell of bookkeeping intricacies.

From the court's perspective, the stay relief process involves a high volume of motions and applications, is fast paced, and is best managed by an electronic filing system which has come of age in bankruptcy. Yet, notwithstanding the volume, pace and, electronic systemizing of stay relief motions and applications, this court must remain mindful of the serious stakes — most often it is the family homestead that is in, jeopardy.5 Mortgage funding markets should not be roiled by unreasonable impediments to post-default remedies. However, both the data supplied and the verification processes employed by those who would foreclose on residences must be above reproach.

In the immediate case (and in many cases participated in, by S & D, FANDO and its predecessor, LOGS, and other mortgage holders and servicers), there were serious flaws in those processes.

Ms. Rivera's Chapter 13 Case.

On November 16, 2001 Jenny Rivera (the "Debtor"), through her counsel, Michaelene Loughlin, Esq., filed a bankruptcy petition and plan pursuant to Chapter 13 of the Bankruptcy Code. The Debtor listed herself as joint owner with a one-half interest in her Lodi residence. She assigned a value of $82,500, apparently to her interest, with the entire property encumbered by a mortgage of $133,781 to Alliance Mortgage.6 In her plan the Debtor acknowledged $16,000 in prepetition arrears due on the mortgage.

On October 11, 2002 the mortgagee, through S & D, moved for relief from the bankruptcy stay to pursue foreclosure (Docket entry 9). It was contended that the Debtor had failed to make post-petition payments to the mortgagee for May 2002 and thereafter in the amount of $1,476.26 per month. The text of the supporting certification indicated that a final judgment of foreclosure had been entered against the property on an unstated date. Hearing on the motion was scheduled for November 25, 2002, but was adjourned a number of times. Meanwhile, the Debtor's plan was confirmed by order of November 21, 2002. That order acknowledged the Debtor's payments to the trustee ("inside" the plan) over the first eleven months of the plan, required additional trustee payments for the remaining forty-nine months of the plan, and provided for the ultimate cure of the $16,000 mortgage arrearage and a dividend of $3,398 to general unsecured creditors. Nevertheless, at a hearing on February 11, 2003, the court granted the mortgagee's motion for relief from the stay based upon Ms. Rivera's default in payment "outside" the plan.

The Debtor then moved to have the stay reimposed; included as a basis for the motion was Ms. Rivera's allegation that some payments were made by her but returned by the mortgagee, while other payments were automatically deducted from her bank account and, she presumed, tendered by her bank to the mortgagee. After considerable delay, the Debtor and...

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