As proposed legislation winds its way through Congress, it would appear to be inevitable that mortgage lenders can expect to see a viable law within the next 90 days that will dramatically alter the manner in which mortgage loans are treated in bankruptcy.  While attempting to amend the Bankruptcy Code to enable borrowers to reduce home mortgage balances down to the current value of the real estate, Congress has left key questions unanswered for the mortgage industry.

Of particular concern, Congress has failed to adequately detail the actual manner by which mortgage loans will be modified under the new law.  Will borrowers and lenders be required to execute a modified loan or Promissory Note?  What about the underlying mortgage deed?  Or, will Congress leave this important alteration of terms up to the borrower to include as part of their Chapter 13 plan?

The manner in which Congress and the Courts determine the way in which these amended loans are memorialized in bankruptcy will reverberate throughout the mortgage industry for years to come, as parties on both sides will be forced to rely upon such documents for the remaining term of the loan and will look to such documents for their respective rights and obligations.