Judge Rejects Countrywide Settlement

A federal bankruptcy judge has rejected a settlement involving Countrywide Financial, saying he wasn't convinced it was fair to nearly 300 borrowers allegedly hurt by the mortgage lender's abusive practices.


The settlement calls for Countrywide, acquired by Bank of America last month, to pay $325,000 to the Chapter 13 bankruptcy trustee in Pittsburgh, Ronda Winnecour, to cover costs and settle litigation in 293 separate cases.

In her complaint, Winnecour alleged that in dealing with the borrowers, Countrywide made inaccurate claims, filed unnecessary court papers and demanded improper fees and charges. She also accused it of losing or destroying more than $500,000 in checks paid by homeowners in foreclosure.

In an order dated Thursday, Judge Thomas Agresti of the U.S. Bankruptcy Court in Pittsburgh said the settlement failed to address many issues.

Despite praising Countrywide and the trustee for addressing "potentially intractable dispute," Agresti said the parties were only "agreeing to agree" on how to help the borrowers, and said he found "no real impetus" to complete the process.

"While there definitely appears to be good intention in this regard, the court is concerned that the essential substance of the settlement agreement leaves too much open to future contingencies," Agresti wrote in his 13-page order. In a footnote, he added, "The court is not comfortable."

Agresti also was not convinced the entire $325,000 payment should go to the trustee, noting that Winnecour once proposed that one-third of any such payment go to the borrowers' lawyers.

"Perhaps there is a justifiable reason for such a one-sided allocation," but the evidence "is not sufficient," he wrote.

Agresti said he might eventually approve a settlement, saying the proposed pact had "praiseworthy features," such as provisions to improve communications and documentation.

The judge ordered both sides to address his concerns, and scheduled an Oct. 2 status conference.

Bank of America and lawyers for Countrywide and the trustee did not immediately return calls seeking comment. The Office of the U.S. Trustee is an arm of the U.S. Justice Department that oversees the bankruptcy process.

Countrywide was based in Calabasas, California, and Bank of America is based in Charlotte, North Carolina.

The Justice Department has sued Countrywide in Florida, Georgia and Ohio, alleging abuse or mismanagement in bankruptcy and foreclosure processes. Countrywide is also under investigation by the FBI, authorities have said.

Agresti's order did not address criticism of a clause in the settlement that the Justice Department said could impede regulatory investigations of Countrywide.