Written By: Alan S. Wolf
On December 1, 2011 new bankruptcy rules went into effect that significantly increased the cost and liability of servicing loans in bankruptcy. Despite many months of preparation, the industry is still grappling with the nuances of these new rules.
Unfortunately, there is no rest for the weary- fresh on the heels of these new rules is yet another set of proposed rule changes that could go into effect as early as December, 2014. Those proposed changes can be found here.
One of the most alarming features of these new proposed bankruptcy rules is the proposed change in the time frame for filing a proof of claim. Under current rule 3002, in a Chapter 7, 12 and 13 case a mortgage servicer must file a proof of claim not later than 90 days after the first date set for the meeting of creditors called under §341(a) of the Code. The first meeting of creditors generally occurs about 30 days into the case. Accordingly, in most jurisdictions a mortgage servicer has about 120 days to file a proof of claim.
Under the proposed new rules, the time to file a proof of claim is slashed in half to a mere 60 days after the filing of the bankruptcy petition. This proposed drastic reduction in time frame is based upon the false premise that the claim bar date must be set so that it is prior to plan confirmation. It’s a false premise because for over 30 years the bankruptcy courts have lived with the claim bar date being after the confirmation hearing date, with no ill effect.
The mortgage industry’s outcry over the proposed reduction in time frame for the filing of the proof of claim (mostly led by the USFN) resulted in a bone thrown to the industry. Under the most current version of the proposed rules, the proof of claim must still be filed within 60 days of the petition date but it need only contain the arrearage information as required by Rule 3001(c)(2)(C). The documentation required by Rule 3001(c)(1) and (d) (e.g., underlying mortgage documentation and evidence that the security interest has been perfected) can be filed in a supplement not later than 120 days after the petition date.
Although the proposed rules must jump through a number of hoops prior to passage, it is very likely that in December 2014 the industry will be required to file proofs of claim in half the time of the current standard. It will take time for servicers to change their internal procedures to meet this new 60 day deadline. It is highly recommended that servicers begin now to make those internal changes.