- The Washington Times - Tuesday, September 25, 2007

ASSOCIATED PRESS

American Home Mortgage Investment Corp. bounced property tax checks for some Maryland homeowners, local and state officials said yesterday, and they have demanded an explanation from the bankrupt mortgage lender and servicer.

The Maryland Commissioner of Financial Regulation filed an inquiry with American Home Mortgage on Friday. The Melville, N.Y., company has five days to respond to the letter, said Joseph Rooney, the deputy commissioner for Maryland’s financial regulator.

Officials in New York and Washington state also are looking into bounced checks there.

Mortgage servicers typically collect property tax payments each month with a borrower’s mortgage payment.

The property taxes are placed in an escrow account and held until property tax bills are due. Because they are placed in an escrow account, funds should always be available to make the payments.

The Maryland regulator asked American Home Mortgage to explain why the initial checks failed to clear and to clarify the scope of the incident, Mr. Rooney said.

One possible explanation, he said, was that the tax payments were caught up in bankruptcy court and frozen. When a company is in bankruptcy court, its assets are frozen to protect creditors. But analysts say escrow accounts are protected from creditors, and thus should not be frozen in a bankruptcy proceeding.

Whether American Home Mortgage broke the law by bouncing checks from escrow accounts depends on how the account trusts were set up, said Ira Kharasch, a bankruptcy lawyer in the Los Angeles office of Pachulski Stang Ziehl Young Jones & Weintraub.

American Home Mortgage did not return calls seeking comment.

In Frederick County, Md., American Home Mortgage bounced two checks totaling nearly $59,000 for property taxes on 12 loans serviced by the company. Frederick County received new, certified checks Friday to cover the payments.

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