According to court documents in a bankruptcy case in Houston, Countrywide didn't properly credit a borrower's payments made during bankruptcy but instead applied them to prebankruptcy debt, which isn't allowed. In the same case, involving a debtor named William Allen Parsley, Countrywide represented to the court that Mr. Parsley owed fees that turned out to be unsubstantiated and in error. These included an improper $450 fee and a $65 unsubstantiated fee.
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In Miami, Bankruptcy Judge A. Jay Cristol last month approved a U.S. trustee's requests to subpoena and depose Countrywide to obtain information about how it made mistakes in a case. Initially, the company claimed in court that the borrower would need to pay $4,800 a month for a mortgage during bankruptcy. But after the borrower objected, Countrywide said it had erred and reduced its claim to about $2,400 a month. In a hearing in December, Judge Cristol said Countrywide had been found "with its hand in the cookie jar."
Countrywide has said it was investigating what happened in the case.
Bankruptcy litigation is among a list of potential legal liabilities Bank of America may inherit from the company if the planned acquisition, announced last week, is completed. These include inquiries from the Securities and Exchange Commission and several state attorneys general, as well as shareholder lawsuits tied to Countrywide's financial decline and other class-action and individual suits brought by borrowers for alleged abuses by the company. In some cases Countrywide has denied allegations and in some it hasn't yet answered allegations; in others it has said it is cooperating with authorities.
Last week, Bank of America's chief executive, Kenneth D. Lewis, said his company had taken into consideration lawsuits and "the negative publicity that Countrywide had" in concluding that ultimately the purchase would be a good deal for shareholders. A Bank of America spokesman said yesterday the company "evaluated current and potential claims against Countrywide and that's reflected in the purchase price we agreed to pay."
There have been several other stories in the financial press about Countrywide's "lax" lending plans. Countrywide is a lawsuit waiting to happen and Bank of America is buying the company? And the CEO says they have performed due diligence on the potential problems? Bullshit. No one buys a walking lawsuit which Countrywide is. Potential suitors would walk away from this deal in a new Yorkk Minute. No company would walk face first into this kind of legal meat grinder unless 1.) they were getting something really good (which B of A isn't) or, they were forced.
