Proposal Renewed to Modify Mortgages in Bankruptcy

08 Dec Proposal Renewed to Modify Mortgages in Bankruptcy

Tomorrow, the House of Representatives is scheduled to take up the appropriately named Wall Street Reform and Consumer Protection Act (H.B. 4173).  Of keen interest to us on Bankruptcy Law Network is a provision allowing for the judicial modification of mortgages in bankruptcy.  This provision had previously passed the House (H.B. 1106) but stalled in the Senate.

As previously posted on this blog on several occasions and in other media outlets, this is important legislation.  We have addressed the importance of judicial modification of mortgages on numerous occasions on this blog.  If passed by both the House and the Senate, H.B. 4173 will give bankruptcy judges the ability to modify mortgages in certain situations which will allow more people to stay in their homes!  As reported by the Center for Responsible Lending, over 46,000 foreclosure cases are filed per week as the foreclosure epidemic continues.  Click here for a count in your state.

Foreclosures affect us all.  Apart from the human tragedy, foreclosures result in declining property values, declining tax revenues and health and safety issues because of vacant properties.  Eminent economists including the Chairman of the Federal Reserve Board agree that until the housing crisis is stabilized, the recession will continue.  This legislation will help stabilize the housing market by stemming the tide of foreclosures.

As for the voluntary loan modification programs, from my experience and those of my colleagues, it is not positive.  While some modifications are being made, they are often too few and too little to be of any lasting good.  Lenders consider modifications but rarely follow through with any meaningful modifications because the debtors lack real leverage.  In a business context 18 months ago, Chrysler reached a deal with its largest lenders to reduce its debt from $6.9 billion to $2 billion dollars, a 71% reduction in debt.  Why would Chrysler’s lenders do this?  Because of the threat of bankruptcy and the prospect of receiving even less than what was being proposed.  If consumer debtors do not have that comparable leverage, then the mortgage servicers have little incentive to voluntarily modify mortgages.

Finally, billions of dollars have been thrown at the lending industry to shore up their balance sheets.  Yet, if one piece of legislation is proposed to help ordinary folks stay in their home, they fight tooth and nail to stop it.  H.B. 4173 aims to help ordinary folks stay in their homes and it will not cost any tax dollars.  That’s right, no tax dollars.

You can help by e-mailing your representative now!  Follow this link to your representative’s webpage and tell him to support H.B. 4173 and the judicial modification of mortgages.

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Adrian Lapas, Esq.

I've been practicing bankruptcy law in North Carolina since 1993, and am certified as a specialist in consumer bankruptcy law by the North Carolina State Bar.

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