Friday,April 29, 2011
Bankruptcy Courts Offer Loss-Mitigation Programs
Bankruptcy courts in three Northeastern states are offering loss-mitigation programs as a way to deal with a rising tide of residential foreclosure cases that are filling their dockets. In two states, nearly 35 percent of the court's loan-modification programs, or LMPs, have been approved.
"Bankruptcy courts can play an important role in avoiding unnecessary foreclosures and facilitating mortgage modifications through the implementation of LMPs," John Rao of the National Consumer Law Center Inc. in Boston in wrote in the March issue of the ABI Journal.
The programs, available in the Southern District of New York, Rhode Island and Vermont, are seen as a solution to the ineffectiveness seen within the federal Home Affordable Modification, or HAMP, program, which faces a possible repeal in Congress. The LMPs, which establish loss-mitigation periods and dates for the filing of the status and final reports, allow for mortgage servicers to terminate negotiations, provided homeowners are given due process.
"Bankruptcy court mediation programs can fulfill a much-needed role in ensuring that foreclosures do not proceed without consideration of alternatives if requested by the parties," Rao wrote.
One of the federal program's significant issues, Rao says, was homeowners were seldom given a reason for a rejection. Though foreclosure proceedings against homeowners must halt upon their acceptance into a HAMP loan-modification agreement, those still under consideration for the program aren't afforded the same protection.
In loss-mitigation requests filed from Nov. 1, 2009, to Dec. 31, 2010 in New York and Rhode Island, nearly 35 percent of the cases resulted in successful loan modification for the homeowners.
"The number of modifications attained should not be the only goal of the LMPs. Providing for a fair and transparent process, judicial efficiency and speedy outcomes are other measures of success," Rao wrote.