In this New York Times article, Gretchen Morgenson reports on the bankruptcy courts’ increasing scrutiny of mortgage terms, in particular of improper fees and mathematical errors by which lenders can skim millions from America’s homeowners. According to the article, the problem is significant enough that the Chapter 13 trustee in Pittsburgh has requested that the Bankruptcy Court sanction Countrywide, a large loan servicer, for losing or destroying homeowners’ mortgage payments. Additionally, the Department of Justice’s bankruptcy office, the Office of the United States Trustee, has announced that it plans to become involved with lenders that file false claims in bankruptcy, require unreasonable fees, or fail to recognize debtors’ right to handle the debt through bankruptcy.

Who are Trustees? The Trustee program is part of the Department of Justice. Trustees watch over the bankruptcy process to maintain its integrity, and can move for the court to sanction or dismiss debtors and creditors who are not being truthful or are otherwise misusing the bankruptcy process. Trustees also supervise the payments from the debtor to the creditors as ordered by the court. Because trustees have so much power, both debtors and creditors try to keep them happy. Seeing a few trustees step up to discipline mortgage lenders and servicers is a heartening development.

Other recent examples [PDF] of activism by Trustees include an action in Pennsylvania against a firm that promised to save homes from foreclosure, but actually provided almost no services in exchange for its fees. In Texas, a Trustee is moving against a large mortgage servicer. Trustee involvement has already led to a $75,000 sanction against the mortgage servicer’s law firm for making inaccurate representations to the court.

We’ll be watching carefully for more reports of Trustee involvement, especially against the larger refinancing corporations.