Ocwen is familiar to bankruptcy attorneys because it is the name of a dark force in real estate predation.  (At the end of this post I’ll tell you an Ocwen war story from my own practice that gives a little taste of what my clients have faced with them.)  It is also a name that has been in several recent articles in the Los Angeles Times.  The articles chronicle the fall of Ocwen in California, leading up to California’s move to deport Ocwen from the Golden State.  It couldn’t happen to a more deserving entity.


I.  Insurance Fraud


I’ll start with the September 17, 2014, L.A. Times article, which is really beginning near the end of California’s Ocwen story, because one can only take just so much wallowing in a cesspool of moral and financial degradation.  In that article, E. Scott Reckard reported:

Tyesha Hansborough and her husband, Christley Paton, had paid the property insurance on their Inglewood home along with their mortgage, putting the money in escrow like most homeowners.  Trouble is, the couple said, their mortgage servicer — Ocwen Financial Corp. — didn’t pass that money on to the insurance company for this year’s premiums.  They battled unsuccessfully for months to reinstate the lapsed policy without additional costs, the couple said.  Ocwen instead imposed so-called force-placed insurance — expensive coverage that protects the lender’s interest but doesn’t shield the homeowners from loss.

Isn’t that a cute trick?  Collect insurance premiums from the homeowner and then charge them again, for Rolls-Royce priced insurance.  That’s how to turn a real profit.  Don’t waste time with honest business practices:  That’s for suckers.

Picking up on the same insurance fraud theme, in the September 21, 2014, L.A. Times Lew Sichelman reported:

Next comes Ocwen Financial Corp., which has been called on the carpet by the New York Department of Financial Services.  According to an open letter by DFS Supt. Benjamin Lawsky, Ocwen has been running a “complex arrangement” that “appears designed to funnel as much as $65 million in fees annually from already distressed homeowners” to an affiliated company for minimal work in providing force-placed insurance (coverage which, for various possible reasons, the loan service buys at the homeowner’s expense).

Sixty-five million a year is not chump change.  It turns out that insurance fraud really does pay.


II.   Backdating Foreclosure Notices


In the March 3, 2010, issue of the American Interest, Walter Russell Mead reported:  Talleyrand is reported to have said, “Treason is a matter of dates,”

. . . at the Congress of Vienna, as the powers debated the fate of the turncoat King of Saxony, [as a way of] remind[ing] the crowned heads of Europe that all of them had at one time or another worked with Napoleon.  Talleyrand himself had served the emperor as foreign minister and trusted ally before switching to the other side as Napoleon’s power waned — and his megalomania grew.

As reported by the Associated Press in the October 21, 2014, issue of the L.A. Times, Ocwen has its own twist on Talleyrand’s quip:

An investigation by [New York]’s Department of Financial Services found that Ocwen Financial Corp. inappropriately backdated foreclosure warnings and letters that rejected mortgage loan modifications, making it nearly impossible for borrowers to appeal the company’s decision.  Many borrowers who had fallen behind on loan payments also received warning letters months after the deadline for avoiding foreclosure had passed, department investigators found.  Potentially hundreds of thousands of backdated letters may have been sent to borrowers, probably causing them “significant harm,” Benjamin Lawsky, New York’s superintendent of financial services, wrote in a letter to Ocwen released Tuesday.  “Ocwen’s indifference to such a serious matter demonstrates a troubling corporate culture that disregards the needs of struggling borrowers,” Lawsky wrote in the letter to the company’s general counsel.  In a statement, Atlanta-based Ocwen blamed software errors in the company’s correspondence systems for generating improperly dated letters.  The latest claims of wrongdoing against Ocwen come less than a year after the company agreed to reduce struggling borrowers’ loan balances by $2 billion as part of a settlement with federal regulators and 49 states over foreclosures abuses.

It’s those evil computers that did it.  Yes sir, that’s the ticket.  And we never proof read the letters before sending them out because we’re just a bunch of naïfs who don’t know how this happened that we found ourselves in the position of dictating onerous terms to all those borrowers.  Plus, we reduced their balances by $2 billion because we’d never done anything wrong.


III.  Who Really Cares About Compliance Reporting?


On December 16, 2014 ― Beethoven’s birthday ― Bloomberg reported in the L.A. Times:

A federal monitor is investigating whether Ocwen Financial Corp. is treating borrowers fairly after a whistleblower said the company may have improperly influenced which mortgages were picked for a compliance review.  Joseph Smith, who is overseeing a 2012 settlement with five lenders over flawed foreclosures, said in a report Tuesday that he hired an outside accountant to review Ocwen’s loan servicing after becoming convinced the company’s self-reporting was unreliable.  State attorneys general monitoring the accord also said they are investigating whether Ocwen provided false or misleading information in its compliance reporting.

Picky, picky, picky.  It’s hard getting accurate information to put into a compliance report when you’re busy counting all that money coming in from the insurance scam, and backdating foreclosure notices.  And after all, does anyone actually read those silly compliance reports?


IV.  Here’s Your Hat, What’s Your Hurry?


With all of this as backdrop, California wants to break up with Ocwen.  And California is telling Ocwen, “It’s not me, it’s you.”  In the January 12, 2015, issue of the L.A. Times E. Scott Reckard reported:

The state is seeking to suspend the mortgage license of Ocwen Financial Corp., saying the payment collection firm has failed to turn over documentation showing that it complies with California laws protecting homeowners.  The action is the latest against one of the nation’s biggest mortgage servicers and raises the level of concern over continuing problems in billing and collecting monthly payments from borrowers, especially those having financial problems.  Investigations have cropped up nationwide into Ocwen and other nonbank servicing firms that have acquired mortgage billing portfolios from major banks, which previously faced state and federal probes.  . . .  California’s action accuses Ocwen of defying requests for information by the California Department of Business Oversight, which licenses nonbank mortgage lenders and providers of collection and foreclosure services.  . . .  Ocwen, whose shares have fallen nearly 80% since hitting a high 15 months ago, said it is “working constructively” to meet the department’s demands and is “focused on the continued improvement of our processes and procedures.  Under the oversight of our newly hired chief risk officer, we are cooperating fully with the [state agency] and recently provided what we believe to be accurate and complete information,” the company said.

Oh well, parting is such sweet joy when it comes to Ocwen.


V.  My Ocwen War Story


A few years ago, I had a client for whom I filed Chapter 13 papers, who had a second mortgage with Litton.  Prior to filing the papers, Litton issued a Form 1099-C, which meant that Litton had written off the debt, and was getting the tax benefit of the write-off.  Ocwen bought Litton before I filed my client’s bankruptcy papers.  Ocwen filed a proof of claim in the case, so it could be paid through the Chapter 13 plan.

I contacted Ocwen and asked them to withdraw the claim because they were enjoying the tax benefit of the write-off.  I argued that if they were paid through the plan and simultaneously got the tax benefit of the written-off debt, they would be guilty of tax fraud.  They refused to comply with my request.

My client was seriously underwater ― so much so that even if the second mortgage were still legitimate, it would have been wholly unsecured.  Therefore, I filed a motion to avoid the lien pursuant to 11 U.S.C. § 506 and In re Zimmer, 313 F. 3d 1220 (9th Cir. 2002).  In the motion I asked the judge to strip off the mortgage immediately, rather than upon completion of the five-year plan, and attached a copy of the 1099-C as an exhibit.  I also objected to the proof of claim, and sought sanctions under Fed. R. Bankr. Proc. 9011 because the claim was clearly frivolous.  The judge granted my motion to avoid the lien and denied Ocwen’s proof of claim, which showed that Ocwen was in the wrong.

In sum, because of Ocwen’s attempt to double-dip, I had to do a lot of unnecessary work.  I will therefore cry no crocodile tears over Ocwen’s forced departure from California.


 Image courtesy of Flickr (Licensed) by JacobRuff