Gillman & Gillman | Experienced New Jersey Bankruptcy Lawyers » News & Information

Loan Modifications and Foreclosure

Justin Gillman — Mon, 20 Jul 2009 13:40:02 +0000

In the continuing series in the New York Times on loan modifications and the foreclosure crisis, the reporter details the strange and disturbing links between the mortgage brokers who were involved in brokering the sub-prime mortgages which have threatened foreclosure of many New Jersey homeowners and the “loan modification” companies who now promise to negotiate better payments or avoid the loss of the same homes in foreclosure.

See the article at: http://www.nytimes.com/2009/07/20/business/20modify.html?_r=1&hp

News: New York Times Article Highlights Problems of Foreclosure and Loan Modification

Justin Gillman — Mon, 29 Jun 2009 15:02:41 +0000

An article in the New York Times published on June 29, 2009, highlights the confusion, difficulty and frustrations in attempting to modify your mortgage and avoid the loss of your home in a foreclosure. See the article at http://www.nytimes.com/2009/06/29/business/29loanmod.html?ref=us.

Update on New Jersey Foreclosure Mediation and Bankruptcy Debtors

Justin Gillman — Mon, 15 Jun 2009 15:52:03 +0000

The New Jersey Bankruptcy Court issued the following press release regarding the New Jersey Foreclosure Mediation Program and Bankruptcy Debtors. The information may also be viewed at http://www.njb.uscourts.gov/notice/2009_02_04_foreclosure.pdf.

Information for Bankruptcy Debtors and Others Concerning The New Jersey Judiciary Foreclosure Mediation Program

The New Jersey Judiciary Foreclosure Mediation Program is a new state supported program that combines the efforts of the State Judiciary, the Office of the Attorney General, the Housing Mortgage Finance Agency in the Department of Community Affairs, the Public Advocate, the Department of Banking and Insurance, and Legal Services of New Jersey. The Program seeks to resolve the growing number of foreclosure actions in the state by encouraging work-out and payment arrangements between distressed borrowers and lenders.

Application may be made at any time after a foreclosure complaint has been filed up to the time of the sheriff’s sale by homeowners who have filed an answer and are contesting the foreclosure, as well as by homeowners who failed to appear and whose cases are currently uncontested. A request for mediation does not prevent the lender from continuing to seek a foreclosure judgment and writ, but it will stay the sheriff’s sale while mediation is pending, if the homeowner files a successful motion in state court seeking a stay.

The filing of a bankruptcy case is not a bar to acceptance in this program, whether the case is actively pending, the debtor has received a discharge, or the case has been dismissed. Effective May 18, 2009 the Bankruptcy Court for the District of New Jersey has entered a General Order Clarifying that Participation in the New Jersey Judiciary Foreclosure Mediation Program Does Not Violate the Automatic Stay. Per the terms of this General Order, participation by debtors and mortgagees in the Foreclosure Mediation Program does not violate the automatic stay of actions or proceedings against the debtor under 11 U.S.C. § 362(a) in any way. The parties are not required to obtain relief from the automatic stay in order to participate in the Foreclosure Mediation Program.

Interested parties should reference the General Order and its governing provisions in full concerning the rights of Bankruptcy Debtors and Mortgagees who choose to participate in the New Jersey Judiciary Foreclosure Mediation Program. It is also important to note that Debtors who choose to participate under the terms of this General Order must meet all of the qualifications for the Program.

To qualify for the free mediation program,

! The applicant must be the owner-occupant of a 1-3 family residential property;

! The property must be his/her primary residence;

! The applicant must be the borrower and the lender must be foreclosing on its mortgage loan.

The mediation proceedings will be held at the courthouse in the county of venue and the mediator’s services are free.

Certain homeowners may also qualify for free foreclosure prevention housing counseling provided by counselors certified by the Department of Housing & Urban Development (HUD) and the New Jersey Housing & Mortgage Finance Agency (NJHMFA).

For more information, please call the Foreclosure Mediation Hotline at 1-888-989-5277. Operating hours are 8:00am to 6:00pm on Monday through Friday.

Additional information is also available online at:

www.nj.gov/foreclosuremediation

www.judiciary.state.nj.us/civil/foreclosure/mediation.html

Senate considering credit card reform bill to protect consumers from abusive credit card interest rate hikes and other practices this week

Justin Gillman — Wed, 13 May 2009 18:17:39 +0000

The U.S. Senate is considering a credit card reform bill this week which is intended to protect consumers from retroactive rate hikes, which would not be regulated under new rules issued by the Federal Reserve, and other abusive, confusing, and deceptive practices employed by credit card companies.

Among other provisions, the Credit Card Accountability, Responsibility, and Disclosure Act would:
· Protect consumers from arbitrary interest rate, fee and finance charge increases and prohibit universal default on existing balances
· Prohibit interest charges on paid-off balances from previous billing cycle (also known as a double-cycle billing ban)
· Require payments to be applied first to the credit card balance with the highest interest rate
· Protect students and other young consumers from aggressive credit card solicitations
· Ensure that payments are fairly allocated to the account with the highest interest rate first
· Require greater disclosure of rates, terms and billing details by credit card companies
· Establish tougher penalties for companies that violate the law

Often, our clients who are considering Chapter 7 or Chapter 13 bankruptcy due to credit card debt are unaware of the total amount of their debt due to the fact that there have been so many changes in the terms of their card agreements. Especially in Chapter 13 bankruptcy cases where debtors may be required to repay a portion or all of their credit card debt, the amount of their debt is important.

Bankruptcy may provide debtors in Chapter 13 bankruptcy cases the opportunity to litigate with their creditors regarding the amount of debt owed. As with all legal matters, it is important for anyone considering these choices to consult with an experienced attorney about the specific circumstances in their case.

A position paper prepared by the National Consumer Law Association may be found at http://www.nclc.org/issues/credit_cards/content/30DaysLate_Analysis042709.pdf

You may also review a full summary of the bill at http://banking.senate.gov/public/_files/051109_CARDActSummary.pdf

Senate Defeat of Legislation to Amend Chapter 13 of the Bankruptcy Code to Allow Modification of Mortgages On Debtors Principal Residence.

Allen Gillman — Mon, 11 May 2009 19:22:44 +0000

Senators have defeated an amendment offered by Senator Dick Durbin (D-IL) to the Helping Families Save Their Homes Act (S. 896) by a vote of 45 to 51 which would have amended Sec. 1322(b)(2) of the United States Bankruptcy Code and allowed, subject to certain conditions, the amendment of a mortgage secured by the debtors personal residence.

Question: Does the defeat the Chapter 13 mortgage modification legislation prevent all modification of mortgages secured by a debtors principal residence.

Chapter 13 Bankruptcy may still allow some homeowners to eliminate second mortgages on their homes if the amount of the first mortgage is equal to or exceeds the value of the home and owners of multi- family homes in which they reside may be able to modify their mortgages.

Chapter 13 permits a debtor to “modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor’s principal residence. 11 U.S.C. Sec. 1322(b)(2) What this means is that even if a mortgage on a debtor principal residence far exceeds the value of the property, a Chapter 13 Plan cannot reduce the amount of the mortgage or the interest rate on the mortgage. The purpose of Sec. 1322(b)(2) is “to encourage the flow of capital into the home lending market” by affording anti-modification protection to home mortgage lenders. Nobelman v. Am. Sav. Bank, 508 U.S. 324, 331, 113 S. Ct. 2106, 124 L. Ed. 2d 228 (1993) (Stevens, J., concurring)

The real estate bubble which caused home prices to rise levels far beyond the means of many if not most home buyers was fueled by ‘creative financing’. In addition to outright fraud, an example of such financing was 80-20 financing which required no down payment. Instead home buyers financed their home purchase by taking out both and first and second mortgage at the time of purchase. Another example were the so-called ” payment – option arms which allowed home buyers to pay less than the interest on their mortgages with the result that the principle balance on these mortgages increased each month.

As a result of the bursting of the bubble many homes are now worth substantially less the the mortgage or mortgages on them. The defeated legislation would have allowed bankruptcy judges – subject to certain conditions – to reduce the both the amount of the mortgage and to the interest rate on the mortgage. Bankruptcy law currently bars modifications on primary residences, while allowing modifications for vacation homes, family farms, and yachts. The amendment would have permitted bankruptcy courts to restructure the debt on home mortgages by reducing the principal owed, extending the repayment period, and reducing interest rates. Under the bill, eligibility would have been limited to homeowners with mortgages originated before 2009, worth less than $625,000, 60 days delinquent, and subject to a notice that a foreclosure may be commenced.

Although the defeat of the legislation does not remove the bar to modification on primary residences by a Chapter 13 Plan, the majority of courts have held that a second mortgage which is completely unsecured my be ‘stripped off’ the primary residence. For example a homeowner who purchased home for $400.000.00 using by financing it with an $320,000.00 first mortgage and a $80,000.00 second mortgage may be able to treat the second mortgage as unsecured and discharge the debt in a Chapter 13 Bankruptcy Case if the value of the home has declined to no more than $320,000.00.

Bankruptcy Courts in Chapter 13 Bankruptcy cases have also held that if a mortgage on the debtors primary residence is secured by additional collateral it may be modified. In one case, a mortgage on a two family home was secured by the debtors residence and the rent from the second apartment and the Court allowed the modification of the mortgage.

It should be noted that these cases relate only to Chapter 13 bankruptcy cases. The ability to ‘strip off’ or ‘cram down’ a wholly unsecured second mortgage is not available in a Chapter 7 bankruptcy case. Debtors in Chapter 11 Bankruptcy cases have similar abilities to modify the rights of secured creditors as is discussed above.

Caution: Whether or Not a Chapter 13 Bankruptcy Petition Can Enable a Homeowner to Modify a First Mortgage or Discharge a Second Mortgage Can Only Be Determined After a Careful Analysis of a Debtor Economic Circumstance and a Professional Valuation of the Debtor Home.

Those experiencing difficulties making their mortgage payments should also carefully review the remedial programs being implemented by the Federal Government http://makinghomeaffordable.gov/modification_eligibility.html