Judge rejects Countrywide settlement

Judge Thomas Agresti of the U.S. Bankruptcy Court in Pittsburgh on Tuesday dismissed the company's request to settle a dispute with Sharon Diane Hill, a Pittsburgh area woman who was threatened with foreclosure by the country's largest home lender. Agresti said he wanted more information about the alleged false documents.

Hill was up to date on her payments, yet Countrywide threatened to take her home if she didn't pay thousands more in fees, according to court documents. It later backed off, and offered to pay her lawyers. But Hill said her credit was permanently marred by the unjustified foreclosure attempt.

Details of the settlement proposal were filed under seal, which Agresti said was unjustified. He also said the settlement documents were deficient because they failed to reveal what Hill's lawyers found out about the alleged fabricated evidence.

Agresti said the settlement proposal "fails to sufficiently apprise the court of the results of the discovery that has been conducted to date into the 'recreated letters' that came to light at the hearing held on Dec. 20, 2007."

Countrywide, to demonstrate that Hill had been late on her mortgage payments, sent letters to her attorney that were dated Sept. 22, 2003, Oct. 25, 2004, and March 29, 2007. The letters referred to changes in escrow requirements that showed she was delinquent on her loans.

But the attorney said he never received the letters, and was able to show in court that the letters were phony. Countrywide later said one of its technicians "recreated" them electronically. Bankruptcy court officials demanded a full investigation, and Agresti authorized it.

On Tuesday, Agresti said he would not approve a settlement until he got to the bottom of Countrywide's suspected forgeries. He said he was concerned about "the potential effect that a settlement in this case may have in other cases involving Countrywide."

A spokesman for Countrywide didn't respond to a request to comment.

In courts across the country, Countrywide faces allegations that it systematically abuses bankrupt homeowners and bankruptcy tribunals with fraudulent filings and inflated fees.