Mortgage Modifications in Bankruptcy – Taking Matters Into Our Own Hands

17 Oct Mortgage Modifications in Bankruptcy – Taking Matters Into Our Own Hands

Is there any wonder there is so much discontent in this country? Nationwide, HAMP has been nothing less than a dismal failure for struggling homeowners trying to get some kind of return on the hundreds of billions of dollars dolled out to Wall Street in taxpayer TARP bailout, and our inept Congress has done virtually nothing to address the inequity or force the banks to make good on their promise to help the Middle Class. And now banks are tearing down houses they wanted so badly, they committed fraud to get them.

One thing is certain. The Middle Class is mostly on its own. However, something special is happening in Orlando that should be happening everywhere, and I’m not talking about magical theme parks. I’m referring to the Orlando Division’s innovative program to modify mortgages in bankruptcy. With the crucial support of her bankruptcy judges, Orlando’s Chapter 13 Trustee, Laurie K. Weatherford, is spearheading the Bankruptcy Mortgage Modification Mediation Program, which has boasted a mind-blowing 75% success rate. I spoke with one Orlando lawyer who claims his personal success rate is 90% with 18% of his clients receiving principal reductions.

HAMP is scheduled to terminate at the end of 2012, but it would almost certainly be extended if it were as effective everywhere as it is in Central Florida. Maybe Orlando IS a magical land where imagineering makes dreams come true. Can you imagineer where this slumping housing market would be if HAMP were this effective nationwide? Even a successful HAMP cannot cure the economy, but it may keep us from sliding into a second recession that Goldman Sachs suggests is a 40% probability.

However, as anyone who has attempted mortgage modification knows, there is complete lack of communication by the servicers. I have literally heard hundreds of stories of homeowners fulfilling every request of the servicers in vain. Despite many hours on the phone and despite submitting the same information multiple times, homeowners are usually told they do not qualify or that their application was incomplete.

So, why does HAMP work so much better IN bankruptcy? While bankruptcy judges cannot force lenders to modify mortgage, they can force them to mediate in good faith. As a result and under a fear of possible court sanctions, there is a heightened level of communication between debtors and mortgage servicers. Additionally, creditor lawyers tend to be more experienced and less adversarial than their state foreclosure counterparts. Finally, once a mortgage modification is accepted, it is ratified by the court, making it difficult for the lender to back out of the deal.

In short, bankruptcy seems to push the debtor’s loan modification to the top of the stack, making it a priority for the mortgage company – sort of like a theme park Express Pass that let’s you skip the long line. The loan modification process is, on average, three times faster in a Chapter 13 bankruptcy than outside of it.

The Tampa Division isn’t wasting any time injecting Ms. Weatherford’s system into it’s collapsing housing market, and I am hoping Jacksonville will soon follow Orlando’s lead. In a couple of weeks, I will be speaking on this topic at the upcoming Jacksonville Bankruptcy Bar Association Annual Bankruptcy Seminar, and hopefully, Jacksonville’s bankruptcy lawyers can generate enough momentum to implement our own mortgage modification magic on Florida’s First Coast.

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Chip Parker is the managing partner of Parker & DuFresne, P.A., where he represents Northeast Florida businesses and consumers facing bankruptcy, and homeowners facing foreclosure. His firm files more homeowners in the Mortgage Modification Mediation Program than any other law firm in Northeast Florida. Parker is the recipient of Jacksonville Area Legal Aid's prestigious Award for Outstanding Pro Bono Service. Mr. Parker is an active member of the National Association of Consumer Bankruptcy Attorneys and National Association of Consumer Advocates.
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