The Margaret Thomas Case By: Michael McCormick

Dec 21, 2020

Michael McCormick, Senior Partner Bankruptcy,

Federal Rule of Bankruptcy Procedure 3001 (herein, “Rule 3001”), sets out the requirements for filing a proof of claim in a bankruptcy case. One of the requirements under the Rule is that in the case of a residential mortgage, if there is an escrow account, the mortgage servicer is required to perform an escrow analysis as of the date the bankruptcy case was filed and attach a copy of that escrow analysis to the proof of claim.1

Although the case law on the subject is sparse, it is well settled, especially after the adoption of Official Forms 410 and 410A in 2015, that the projected escrow shortage at the time a bankruptcy case is filed is to be placed into the proof of claim (i.e., the arrears).2 The instructions to Official Form 410A provide that the escrow shortage is to be listed on the “Projected” Escrow Shortage line in Part 3. Specifically, the instructions provide:

“Insert any escrow deficiency for funds advanced. This amount should be the same as the amount of escrow deficiency stated in Part 2.

Insert the Projected escrow shortage as of the date the bankruptcy petition was filed. (emphasis added). The projected escrow shortage is the amount the claimant asserts

1 In his expert witness report (Doc. No. 41-1) filed in In re Benner, Case 15-31477-hcd (Bankr. N.D. Ill. 08/11/2017)(herein, “the Benner Report”), John Rao, consumer attorney and former member of the Judicial Conference Advisory Committee on Bankruptcy Rules, discussed the requirement for servicers to perform an escrow analysis when the bankruptcy case is filed:

“…the escrow account analysis should have been prepared as of the petition date, showing the amount of the first post-petition payment due. . .[t]his method of determining a new escrow computation year has become the industry standard practice since Bankruptcy Rule 3001(c)(2)(C) went into effect on December 1, 2011.”

2 See, e.g., Campbell v. Countrywide Home Loans, Inc., 545 F.23d 348 (5th Cir. 2008); In re Rodriguez, 629 F.3d 136, 138-139 (3d Cir. 2010)(The principle of protecting a bankruptcy debtor from all efforts to collect pre-petition claims outside of the Chapter 13 structure takes precedence over a creditor’s rights under RESPA to recalculate escrow payments); JPMorgan Chase Bank, Nat’l Ass’n v. Deguiseppi, 2019 U.S. Dist. LEXIS 66125, 2019 WL 1724629 (C.D. Ill. 2019)(The Court concludes projected escrow shortages may constitute prepetition claims).

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