06 Mar Bankruptcy Cramdown Bill Approved in the House of Representatives
Last night, the House of Representatives passed the Bankruptcy Cramdown Bill by a vote of 234 – 191. The Bill is also known as H.R. 1106. This is great news to people living in high foreclosure states like California and Florida. H.R. 1106, if passed in its present form, will allow Bankruptcy Judges to cramdown first mortgage principal balances on primary residences.
In Florida, a significant number of homes are severly underwater (i.e. individual owe quite a bit more than the house is worth), and the recent Housing Assistance Plan did nothing for individuals with this type of problem. Therefore the housing problem will only continue to grow.
Unless you are new to the Bankruptcy Law Network, or you have just wandered onto the site, you know that this bill is revolutionary in that it allows Judges the ability to modify mortgage terms to help homeowners avoid foreclosure.
Of course, as with any bill that goes through Congress, there were some amendments tacked onto it. The first is that the homeowner must try to negotiate a voluntary loan modification with their lender. This is just plain silly in my opinion. I speak with homeowners each and every day that have tried to modify their mortgages with their lenders. They go around and around and around, only to be told no. So, the homeowner contacts the lender and requests a modification, then the homeowner is told to submit a bunch of paperwork. I can see this provion being severely abused by the mortgage servicers and lenders. They will keep people on endless hold, never giving them a yes or a no, and pursuing foreclosure at the same time to run up their fees and costs. Hopefully, the fees and costs are dischargeable.
Another amendment, that sounds quite a bit like the last amendment, is that the Bankruptcy Judges will have to verify that a homeowner actually sought a modification before entering the bankruptcy process. I guess that we will have to everything by certified mail, return receipt requested.
Bankruptcy Judges would also have to perform a balancing test between a person’s income against the monthly payments before deciding whether an interest rate reduction is feasible.
Bankruptcy Judges would also have to use Federally approved appraisal guidelines to determine a home’s value.
I’m sure quite a bit more will be coming out in the not to distant future, so stay tuned to Bankruptcy Law Network.
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