Remove That Mortgage Entirely: Yes, We Can
By L. Jed Berliner, Western & Central Massachusetts Bankruptcy Attorney on Jan 8, 2009 in Bankruptcy Cases & Legislation, Bankruptcy Practice and Procedure, Benefits of Bankruptcy, Chapter 13 Bankruptcy
You should soon be able to get rid of your mortgage altogether, based on a really sweet spot of the newly proposed Helping Families Save Their Homes in Bankruptcy Act of 2009 which is fast-tracked for a 01/21/09 enactment and retroactive applicability.
A mortgage can be canceled if the closing documents are incomplete. See “Cancel That Mortgage: Why Bankruptcy?” and “Remove That Mortgage !!“ Courts vigorously disagree over what the remaining obligation is after a mortgage is canceled by a Chapter 13 debtor. That obligation can be to pay the remaining principal debt, after credit for all payments made including closing costs and interest, or it can be merely to pay a Chapter 13 unsecured creditor dividend – which can be quite minimal.
Section 3 of the proposed bill goes even farther than the two judicial positions. It will completely disallow a claim based on any mortgage which violated any consumer protection law, including Truth in Lending, RESPA, or a state law, and notwithstanding any foreclosure judgment. There will be no remaining principal to pay. There will be no Chapter 13 dividend to pay on the canceled mortgage. (One hour after posting, a proposed compromise was announced which will reduced this feature to mortgages having violated TILA only and not other consumer protection laws).
A disallowed claim based on a mortgage makes the entire mortgage void: “The Debtor’s objection to the secured claim of Portfolio must therefore be sustained, the claim disallowed, and, in accordance with 11 U.S.C. §506(d), the mortgage declared void.” In re Long, 353 B.R. 1, 17 (Page 27 of the court’s original memorandum).
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