Bankruptcy Mortgage Modification Must be Simple, Efficient and Predictable

23 Feb Bankruptcy Mortgage Modification Must be Simple, Efficient and Predictable

CopngressLegislation being considered in Congress, S. 61 in the Senate and H.R. 200 in the House, are typical examples of good ideas which leave out all the details. It is very important that Congress allow mortgages to be modified in Chapter 13. People need this. It has been reported that 10% of American homeowners stand to lose their homes in foreclosure during the present economic crisis. This is intolerable.

It’s going to be tough to get this bill through Congress. Powerful banks, mortgage lenders and other financial interests will oppose it. And these interests have the ear of many in Congress.

But as they say, the devil is in the details. Here are a few details which need to be put into the law:

  • A fast and efficient way to value real estate for purposes of mortgage modification. Homeowners can’t afford time consuming and expensive valuation hearings in bankruptcy court.
  • The interest rate to which mortgages will be adjusted should be mechanical, for example, no more than 1% more than the Federal Reserve Board published rates
  • It should be made clear that any threat of foreclosure, whether oral or in writing, by the lender is sufficient to allow a homeowner to get help in chapter 13.
  • Instead of requiring homeowners to seek modification prior to filing chapter 13, the law should provide that the lenders have the opportunity to prevent the mortgage from being modified by voluntarily offering a mortgage modification within specified standards.
  • Good faith efforts to modify mortgages should be required for borrowers to get a court-imposed modification and for lenders to get permission to continue to foreclose outside of bankruptcy court.

Bankruptcy filings are up 30-50% from last year and it’s getting worse. We need fast, efficient, predictable ways of helping homeowners deal with mortgage foreclosure. Let’s make it simple, fast, efficient and predictable.

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Jay S. Fleischman is a bankruptcy lawyer with offices in Los Angeles and New York. He can often be found on Google+ and Twitter, where he shares information about consumer protection issues and personal finance.
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