Editorial: What a raw deal

Saturday, Nov. 10, 2007 | 7:58 a.m.

Homeowners in serious financial straits can file for protection under Chapter 13 of the federal bankruptcy law so they may keep their homes and put creditors on hold while they devise a plan for repaying their debts.

But financial experts say some homeowners who have defaulted on their mortgages and filed for Chapter 13 protection are losing their homes in foreclosure anyway because loan collection companies tack on numerous fees or fail to accurately calculate how much money the homeowner owes.

The U.S. trustee's office, which handles bankruptcy issues for the Justice Department, is looking into allegations that mortgage service companies have been demanding inaccurate payoff amounts or unreasonably high fees from homeowners even after their bankruptcy cases have been discharged.

Katherine Porter, a University of Iowa associate law professor who presented an analysis of more than 1,700 consumer bankruptcy cases to the trustee office, recently told The New York Times that most overcharges are about $200.

But in one case, a lender claimed the borrower owed more than $1 million when the actual balance was about $60,000, Porter said. And in Louisiana, a bank has been accused of adding about $24,000 in excess fees and charges to a borrower's debt.

In 40 percent of the cases Porter studied, such fees and charges were not included in the claims listed in consumers' Chapter 13 bankruptcy settlement documents, as required by law, the Times reports.

Trustee investigators said last month they are cracking down on mortgage service companies that assess outrageous fees or fail to accurately account for how much a borrower owes.

We hope federal investigators are aggressively pursuing those who engage in such practices.

It is bad enough that financial experts are predicting at least 2 million families will lose their homes in foreclosure proceedings before the current mortgage crisis ends. It is reprehensible that any one of those families would lose a home because lenders failed to keep accurate records or have tacked on questionable fees.