Bankruptcy Courts Address Foreclosure Crisis with Loss-Mitigation Programs
Bankruptcy Courts Address Foreclosure Crisis with Loss-Mitigation Programs
Contact: John Hartgen
703-894-5935
[email protected]
BANKRUPTCY COURTS ADDRESS FORECLOSURE CRISIS WITH LOSS-MITIGATION PROGRAMS
March 4, 2011, Alexandria, Va. — An analysis in
the March issue of the ABI Journal found that several
bankruptcy courts are dealing with the foreclosure crisis through the
adoption of loss-mitigation programs (LMPs). As Congress examines a
possible repeal of the Home Affordable Modification Program (HAMP) due
to ineffectiveness in modifying mortgages, John Rao of
the National Consumer Law Center Inc. in Boston writes that several
bankruptcy courts have provided a useful solution through the adoption
of LMPs. “Bankruptcy courts can play an important role in avoiding
unnecessary foreclosures and facilitating mortgage modifications through
implementation of LMPs,” Rao wrote.
As struggling homeowners seeking HAMP modifications have experienced
lengthy delays and frustrating documentation issues, Rao found that
bankruptcy court loss-mitigation programs inject additional layers of
supervision, accountability and timelines for debtors seeking
modifications. LMPs adopted in bankruptcy courts in the Southern
District of New York, Rhode Island and Vermont designate loss-mitigation
periods and require dates for the filing of status and final reports.
Servicers who wish to terminate negotiations must state the reasons in a
filing with the court, providing basic due process for homeowners. Rao
cites that one of HAMP’s major weaknesses is that
“homeowners are often never told the reason their modification
requests have been denied.”
While foreclosure proceedings must be stopped for homeowners found
eligible to receive HAMP loan modifications, HAMP does not provide the
same protection for homeowners while their applications are under
consideration. “Bankruptcy court mediation programs can fulfill a
much-needed role in ensuring that foreclosures do not proceed without
consideration of alternatives if requested by the parties,” Rao
wrote. The automatic stay will protect the debtor who has filed a
loss-mitigation request at least until the settlement negotiations can
be concluded. The compounding issues of second mortgages for struggling
homeowners are also solved by the LMP process because all of the liens
on a property can be provided for in a debtor’s chapter 13
plan.
Rao found that the results of bankruptcy court LMPs have been promising
thus far; approximately 35 percent have resulted in successful approved
loan modifications in Rhode Island and New York for cases in which
loss-mitigation requests were filed from Nov. 1, 2009, through Dec. 31,
2010. “The number of modifications attained should not be the only
goal of the LMPs,” Rao wrote. “Providing for a fair and
transparent process, judicial efficiency and speedy outcomes are other
measures of success.”
To obtain a copy of “Bankruptcy Courts Respond to Foreclosure
Crisis with Loss-Mitigation Programs,” published in the March
edition of the ABI Journal, please contact John Hartgen at
703-894-5935 or via email at [email protected].
###
ABI is the largest multi-disciplinary, nonpartisan organization
dedicated to research and education on matters related to insolvency.
ABI was founded in 1982 to provide Congress and the public with unbiased
analysis of bankruptcy issues. The ABI membership includes nearly 13,000
attorneys, accountants, bankers, judges, professors, lenders, turnaround
specialists and other bankruptcy professionals, providing a forum for
the exchange of ideas and information. For additional information on
ABI, visit www.abiworld.org. For
additional conference information, visit http://www.abiworld.org/conferences.html.