PROOF OF CLAIM ANALYSIS

A proof of claim is a written statement setting out a creditor's claim and asserting its right to receive a distribution from the bankruptcy estate. It must “conform substantially” to Official Bankruptcy Form B410, or in the case of a Mortgage Proof of Claim Attachment to Official Bankruptcy Form B410A.[1] The purpose of a proof of claim is to give notice of the claim to the court, the debtor, the trustee, and other creditors.

A properly prepared proof of claim is prima facie evidence of the validity and amount of the claim (Fed. R. Bankr. P. 3001(f)) and is deemed allowed, unless a party in interest (such as the debtor) objects pursuant to § 502(a), Bankruptcy Code. This means that any distribution of the debtor's assets made on account of a claim is based on the filed proof of claim if it is not challenged (or survives a challenge).

The filing of an objection to a mortgage proof of claim must be timely made and, ideally, it will be filed prior to the Bankruptcy Court’s confirmation of the debtor’s plan of reorganization.

MPA’s Proof of Claim Analysis begins with our Financial Forensics Examination which allows us to analyze the entire transaction history up to the date when the bankruptcy was filed. We then analyze whether the proof of claim submitted by the creditor is accurate or inflated due to the servicer’s failure to properly apply the debtor’s payments according to the terms of the note; to manage the escrow account appropriately; or because it assessed improper fees and costs.

Our Proof of Claim Analysis ensures the accuracy of the arrearages that should be incorporated into the plan of reorganization. It also establishes a baseline against which to measure future violations of the automatic stay; the imposition of unapproved fees and costs; improper motions for relief from the automatic stay, etc.

In addition to ensuring the accuracy of the debtor’s mortgage loan account balances, our Proof of Claim Analysis may reveal hidden claims that should be preserved on the debtor’s asset schedule such as for:

• Breach of Contract
• Negligence
• Predatory lending
• Manufactured default
• Conversion of funds
• Bait and switch schemes
• Fraud
• Truth in Lending Act violations
• Real Estate Settlement Procedures Act violations
• Fair Debt Collection Practices Act violations
• Fair Credit Reporting Act violations
• Unfair and Deceptive Acts and Practices

Bankruptcy attorneys who specialize in the prosecution of consumer protection statutes as noted above can recover actual damages, statutory damages, punitive damages (FCRA), and legal fees. MPA frequently provides expert services to bankruptcy attorneys who litigate claims in adversary proceedings.

CASE STUDY – Affidavit in Support of Debtor’s Opposition to Creditor’s Proof of Claim

In October 2021, a Massachusetts LLC, engaged McDonnell Property Analytics to conduct a Proof of Claim Analysis and to submit an Expert Affidavit in Support of Debtor’s Opposition to Creditor’s Proof of Claim. Our expert, Marie McDonnell, performed a Financial Forensics Examination and authored the Expert Affidavit. Her findings are summarized below:

After undertaking an intensive examination of the subject transaction; reviewing the Mortgage Loan origination file including the HUD-1 Settlement Statement, Loan Agreement, Promissory Note, Mortgage, Guaranty, etc.; analyzing the Servicer’s partial transaction history, monthly statements, payoff quotes, etc.; reviewing the Debtor’s bankruptcy filings, Court Orders, and the commercial Creditor’s Proof of Claim (#3.1), I find as follows:

1. After analyzing the Creditor’s interest calculation methodology, I concluded that the Debtor, the Debtor’s Attorney, Accountant, and the Court would not be able to determine if the Servicer faithfully complied with the terms of the Note and whether its accounting records are true and accurate. This is so because:
   • The interest calculation methodology does not follow the terms of the Note;
   • The Servicer maintained an interest reserve account and controlled the timing and application of interest payments which were inconsistent and erratic;
   • The Servicer employed the use of hidden accounts that were not disclosed to the Borrower nor visible in the transaction history;
   • The Servicer manually altered its accounting records;
   • The Servicer imposed interest-bearing fees and costs that were not accounted for in the transaction history or monthly billing statements; and
   • This lack of transparency makes the situation ripe for fraud; it creates the perfect opportunity for an embezzlement scheme and, indeed, I identified $20,659.07 in “Missing Money” which appears to have been converted by the Servicer in May of 2019.
2. The Creditor’s Proof of Claim is erroneous because:
   • The Principal is overstated by $20,659.07 in “Missing Money;”
   • The Interest is overstated by at least $5,563.81 plus interest that was charged on $20,659.07 that the Debtor never received; and
   • Late Charges of $27,702.90 were improperly assessed.
3. On May 10, 2019, the Servicer advanced $20,000.00; it did not wire any of those funds to the Debtor as can be seen in its Excel spreadsheet loan history.
4. On May 24, 2019, the Servicer advanced $30,000.00 from which it wired $16,172.16 to the Debtor; the difference of $13,827.84 remains missing and unaccounted for.
5. The per diem interest for the month of April was $439.04. The accrued interest for the previous 30 days due on May 1, 2019, should be $13,171.21; however, the Servicer charged and collected $13,936.87. The difference of $765.66 constitutes an overcharge that I track in the Missing Money column.
6. From the $50,000.00 that the Servicer advanced in May, $16,172.16 was wired to the Debtor and $13,936.87 was applied to interest. The difference of $19,890.97 remains missing and unaccounted for.
7. Due to the Servicer’s misappropriation of funds, a total of $20,659.07, plus interest accruing thereon, constitutes actual damages.
8. Beginning May 7, 2020, and on the 7^th day of each month thereafter, The Servicer imposed a late charge of $2,770.29, which was improper. Once a loan has been accelerated, monthly payments are no longer due; therefore, there should be no late charges imposed for untimely payments. The Creditor was adequately compensated by imposing the default rate of interest. Adding late fees as well may constitute a breach the contract; in addition, the Court may also find that doing so is usurious.

[1] See Official Form B410A at: https://www.uscourts.gov/sites/default/files/form_b410a_0.pdf.