Recent Entries

Stretching Out the Loan Term: Will Lenders Be Stuck with New Terms Forever?

Published on March 5, 2009 in Bankruptcy Act 2009, Chapter 13 and Real Estate. 0 Comments

One of the key components of the “Helping Families Save Their Homes in Bankruptcy Act of 2009”, currently pending in Congress, is a provision allowing a borrower to extend the repayment period on their mortgage loan for up to 40 years.  While such a provision appears straightforward at first glance, Congress to date has failed to indicate whether a borrower will need to actually complete their Chapter 13 plan and receive a discharge in order to enjoy the benefits of the modified terms for the remainder of the loan.  In other words, what if a borrower seeks Chapter 13 relief, modifies the loan term and then has his case dismissed 6 months later for failing to stay current on plan payments?  Does this cancel the loan modification?

Another unanswered question centers on how many “bites at the apple” a borrower gets to utilize for this loan extension provision.  What if, hypothetically, a borrower with a 30 year fixed rate loan files for Chapter 13 relief, modifies the loan term out to 39 years and completes his plan in 3 years.  Then, the same borrower files a second Chapter 13 case 3 years later and attempts to recast the loan back out to 34 years? 

The answers to these questions will have dramatic effects upon the mortgage lending industry and how it assesses risk going forward for all potential borrowers.  Congress should take these issues to heart in determining the final version of the Bill, lest it create more problems for the public than it seeks to solve.

Eligibility For Relief in Chapter 13: Pre-Filing Credit Counseling May Be Waived

Published on February 20, 2009 in Chapter 13, Chapter 7 and Real Estate. 0 Comments

Section 109 of title 11, United States Code, is amended–

(2) by adding at the end of subsection (h) the following:

`(5) The requirements of paragraph (1) shall not apply in a case under chapter 13 with respect to a debtor who submits to the court a certification that the debtor has received notice that the holder of a claim secured by the debtor’s principal residence may commence a foreclosure on the debtor’s principal residence.’.

One of the hallmarks of the 2005 BAPCPA amendments is that all potential Chapter 7 and Chapter 13 debtors are required to receive credit counseling before they file for bankruptcy. Failure to do so results in an automatic dismissal of the case if they received a notice a lender may foreclose on their home.

However, with this amendment, debtors who receive a notice of foreclosure do not have to take the pre-bankruptcy credit counseling.

Issues

  • What is a “notice” that a home may be foreclosed upon?  There is no requirement in the statute that the notice be in writing.  Is a phone call a notice? The certification required by the court may be as simple as a debtor’s affidavit that a lender might commence foreclosure.
  • It is anticipated that the courts will be liberal in the interpretation of a “notice.”
  • What about states that have non-judicial foreclosures? – the letter of default may be the commencement of foreclosure.
  • The effect of this is to remove the cost of the counseling from the cost of filing bankruptcy, and eliminate a step, thereby hastening the filing of a bankruptcy case.