Hyde Park Seminar – Bankruptcy Judges Discussed Loan Modification and Foreclosure Crisis
On 9/11/09, I attended the annual bankrutpcy seminar at the FDR Library in Hyde Park New York. A panel of local Bankruptcy Judges discussed many issues that affect my firm’s clients, including loan modification, foreclosure and Chapter 13 bankruptcy. All of these are topics I have written about many times before – readers may want to use the Find It function to search this blog for prior posts.
Bankruptcy Judges Drain (SDNY – Westchester), Glenn (SDNY – Manhattan), Morris (SDNY – Poughkeepsie) and Cygonowski (formerly EDNY – Central Islip) all spoke.
One of the topics discussed was the relatively new loan modification program that is now part of the Southern District Bankruptcy Court’s Chapter 13 program. They call it loss mitigation. Under that program, a debtor can elect in the plan to seek loss mitigation which can be ordered by the court. Practically, this only means that the lender will speak to the debtor/homeowner. The Court itself has no power to adjust a residential first mortgage (it can only adjust an unsecured second mortgage – see my prior posts on lien stripping). But, at least this permits a debtor to obtain the benefit of the automatic stay protection which stops foreclosure, to possibly save thousands of dollars by paying unsecured debts like credit cards pennies on the dollar (if the debtor qualifies for this), and to also have a forum in which to engage the lender’s representatives in a negotiation. Having an attorney on the other side of the table makes it much easier to communicate during the loan mod process. It has been my firm’s experience in non-bankruptcy loan mods that lenders reps often “lose” key documents, misunderstand them, or simply give us or our clients false or incorrect information. The process can be cumbersome and it is a minefield for the pro se homeowner. All of these are key reasons why a homeowner has a better chance of success with an attorney.
For some reason, the loss mitigation program does not seem to be available in the Eastern District of NY so that homeowners in Queens, Brooklym, Staten Island and Long Island will not be able to seek a loan mod during a Chapter 13 case. Many of these clients will be better off trying to modify first (time permitting) and to then possibly file Chapter 13 to resolve unsecured debt or as a fall-back strategy in case the loan mod is denied. Even in cases of denial, however, whenever possible, we often try to resubmit the loan mod with changes to reflect the lenders wishes – ie to show increased income. For example, some of our clients may be able to show additional income by renting part of the home or working a second job – if keeping the home matters to them.
Another new trend that was discussed at the Hyde Park conference was that debtors are now filing Chapter 13 plans that propose to surrender their property in full satisfaction of their debts. This can help the homeowner resolve debts while eliminating mortgage debt. I will blog on this in the future. If you are a homeowner who needs help with matters like this, please call or email us to set up a free consult by phone.