Judge: Countrywide’s Foreclosure Errors Weren’t “Bad Faith”

In a ruling industry insiders said was expected, a judge in a federal bankruptcy court in Houston said that Countrywide and its attorneys wouldn’t face sanctions for improperly attempting to foreclose on borrowers recently discharged from bankruptcy and current on their loans.

The Wall Street Journal reported yesterday that Judge Jeff Bohm would not punish the nation’s largest lender or its associated counsel, on the grounds that he was “unable to say their conduct transcended from merely negligent bungling to full-blown bad faith.”

The Texas case was a putative class-action suit filed last month by five borrowers in Brownsville, who claimed the lender lacked sufficient “policies and procedures” to account for borrower payments. (See earlier coverage here).

The WSJ published a full statement by the lender, released after the court’s ruling, which said that “on occasion employees in Countrywide’s bankruptcy servicing department or attorneys acting on the company’s behalf make individual errors.” Countrywide also said it is working to improve its policies and procedures, and that it has beefed up staff in its foreclosure and bankruptcy processing units as a result.

While the judge did not sanction the nation’s largest lender, he did go so far as to suggest the company and its legal counsel “showed a disregard” for legal process.

Disclosure: The author held no positions in CFC when this story was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.