Recent Entries

Possible Compromise This Week on Bankruptcy Cramdown Legislation

Published on April 21, 2009 in Chapter 13 and Real Estate. 0 Comments

While the House passed a bill permitting mortgage cramdowns, the Senate has yet to do so.  However, it hopes to have a compromise in place this week.  Senate Majority Whip Dick Durbin (D-Ill) met with banks, credit unions, and consumer groups to negotiate terms for the Senate bill.

Details are sketchy, but it appears that the terms would further limit the pool of borrowers who may be permitted to reduce the principal balance on mortgages in bankruptcy.  If a lender offers a refinance that reduces the interest rate through the current Obama plan, a borrower may not be permitted to reduce the principal balance in a Chapter 13 plan.  This is obviously an incentive for lenders to offer refinancing to certain borrowers in an attempt to avoid a reduction of the principal balance by a bankruptcy judge.

“At-risk low income borrowers” and those who spend less than 31% of their income on home mortgage payments would be ineligible as well for principal write-downs.  The program would apply only to loans originated before 2009, and would end in 2014, thus limiting bankruptcy cram downs to approximately five years from enactment of any bill.

WWR will continue to keep you informed as this Senate bill takes form.

Foreclosure Rates Rise To Their Highest Levels In First Quarter of 2009

Published on April 20, 2009 in Real Estate. 0 Comments

On Thursday April 16, 2009 RealtyTrac reported that foreclosure rates in March 2009 increased by 17% from February.  The increase came as many mortgage lenders ended temporary moratoriums imposed on the filing of foreclosures.  The March and first quarter totals also jumped 24% from a year ago and were the highest since RealtyTrac began reporting foreclosure rates.  In the first 3 months of the year, 1 out of every 159 U.S. Households received a foreclosure filing, which includes a notice of default, auction sale or bank repossession.  Filings were reported on over 803,000 properties in the first quarter of 2009.  The states with the highest percentage of foreclosure filing were: California, Florida, Nevada, Arizona, and Illinois.  Those 5 states accounted for nearly 60% of the U.S. foreclosure activity.  Ohio still ranks in the top 10 for the states with the most foreclosure filings.

It seems that Congressional programs aimed at limiting the number of foreclosures have had little affect on lowering the rate of foreclosures.  However, it may yet be too early to see results from these recently passed Congressional programs.  In this market, lenders should continue to work with borrowers to modify loans for homeowners who are able to continue making payments.  Working directly with borrowers is the most cost effective and efficient way to limit the damage of the worst housing market since the Great Depression.

Bankruptcy Cramdown Legislation On Shaky Ground

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

The Senate may leave the proposed cramdown legislation behind as it considers other remedies for the housing and mortgage meltdown.

The legislation would allow bankruptcy judges to modify certain home mortgage loans by reducing the principal, the payments, and/or the interest rates.  The lending community has fiercely opposed it, and some lawmakers on both sides of the aisle are reconsidering their support of the bill. 

Senate Majority Leader Harry Reid has indicated that he is willing to drop the cramdown provisions to focus on other housing measures such as creating new financial regulations and increasing measures to battle mortgage fraud.  The Senate will reconvene on April 20, but it is doubtful that the bankruptcy cramdown legislation will be a priority.

Document Challenges To Motions For Relief From Stay In Chicago

Published on April 9, 2009 in Chapter 13, Chapter 7 and Motion. 0 Comments

There are ten bankruptcy judges in the Northern District of Illinois (Chicago).  Only one of these judges, Judge Schmetterer, has a standing order requiring supporting documents be filed with motions for relief.

Copies of the note and security interest must be filed as exhibits to the motion.  If the collateral is real estate, a recorded copy of the mortgage is required.  If it is a vehicle, the title is required, and if equipment, the UCC statement must be attached. None of the judges at this point require recorded assignments that show the moving party is the true party in interest, but Judge Schmetterer does require the relationship between the moving party and the original creditor be explained in the motion.

While vehicle titles and UCC statements are rarely challenged, debtor’s attorneys are increasingly asking for recorded documents and assignments or servicing agreements to prove that the moving party is the true party in interest.  This trend has been driven somewhat by activist attorneys, but perhaps as much or more so by debtors who have been paying attention to the media and surfing the net on the troubles some mortgage holders may have in proving they are the real party in interest.

It is always the best practice to send your attorney the note and/or security agreement, evidence of security, and any assignments or documents showing a servicing agreement. However, not every loan is equipped with a perfect portfolio of documents.  This is a problem only when the court requires them or debtors demand them.  In these cases, your WWR attorney will work with you to overcome or satisfy the debtors’ demands.

Unintended Consequences: Bankruptcy Cram Down May Actually Case Decrease in Bankruptcy Filings

Published on April 8, 2009 in Bankruptcy Act 2009, Chapter 13 and Real Estate. 0 Comments

With the proposed amendments to the Bankruptcy Code placed on temporary hold by Congress until at least late April, it seems appropriate to take a step back and examine the possible unintended consequences of the passage of such a law.

While providing troubled borrowers with an effective tool to rework their mortgage terms under the protection of the Bankruptcy Code, is it possible that the mere threat of such a modification by a borrower could lead an increasing number of lenders to agree to rework the loan terms outside of the bankruptcy process?

Debtor’s counsel have always operated with the knowledge that, while they have the ability to tie up a pending foreclosure for months or even years by aggressively opposing the case, the reality has always been that mortgage lenders held the upper hand once a Chapter 13 bankruptcy was filed. A borrower could not alter the terms of the loan, but could only seek breathing room to bring delinquent payments current.

If the proposed amendments become a reality, the leverage will clearly shift into the borrower’s favor, which may lead more and more lenders to seek a negotiated modification prior to bankruptcy, saving both sides from litigating over valuation of the home and risking assessment prior to plan confirmation.  The end result could be a decrease in Chapter 13 filings within the pool of borrowers who, but for their mortgage delinquency, might not be in financial difficulty.

Of course, the flip side to this argument would be that with all the economic indicators clearly showing a downturn, the actual number of borrowers whose only financial difficulty consists of their mortgage, is likely becoming smaller and smaller each month.  Therefore, it is likely that even with the offer of a voluntary loan modification by the lender, the vast majority of borrowers will still seek bankruptcy relief.