The House of Representatives delayed a vote Feb. 26 on important changes to bankruptcy law that could help hundreds of thousands of Americans stay out of foreclosure. According to the Los Angele s Times, the House may vote next week on a bill that would, if signed into law, allow bankruptcy judges to reduce the principal owed by homeowners involved in a bankruptcy, which is commonly referred to as a "cram down." Bankruptcy judges currently have this power for other debts, including mortgages on second homes, but not for primary home mortgages. The bill also includes a "safe harbor" provisions for mortgage servicers who are afraid they will be sued if they alter the terms of a securitized mortgage.
Lenders are decrying this legislation because it will give bankruptcy judges the ability to wipe out some of their profits with the stroke of a pen. But as Chino Hills mortgage loan modification attorneys, we believe it could actually save both lenders and homeowners substantial money by giving lenders an incentive to renegotiate loans that are no longer realistic. Many homeowners who have taken on "subprime" loans -- or who are victims of bad economic circumstances like a layoff -- would like to change the terms of their loan so that they can continue making payments and avoid foreclosure. Lenders may be interested too.
However, mortgage servicers often refuse to talk, in part because it's cheaper for them to foreclose than to negotiate, and in part because many mortgages are now securities that are partly owned by investors who could sue them if they hurt the investment. This bill solves that problem in two ways. One is the safe harbor provision, which simply takes away the threat of a lawsuit. The other is the threat that a bankruptcy judge will cram down the mortgage. As reluctant as a mortgage servicer may be to talk about changing a loan, it still has power to control those changes when negotiating outside of court. Once the homeowner is forced into bankruptcy, servicers lose that control and may lose even more money than they would have if they had negotiated with homeowners a few months ago.
Howard Law LLP has an active practice in mortgage loan modification -- helping homeowners negotiate with their banks for changes in their loans. Our Tustin mortgage loan modification lawyers have successfully helped many homeowners stay out of foreclosure and bankruptcy by changing the length of their loans, their interest rates and sometimes even the principal. The cram down provision could help us save even more homes by giving mortgage servicers a way to avoid lawsuits as well as a clear ultimatum: Negotiate now or risk having your control taken away later.
If you're one of the thousands in Southern California who could benefit from the cram down legislation and you need help negotiating with your lender, Howard Law can help. To set up a free, confidential consultation with our Orange County mortgage loan modification lawyers, please contact us through our Web site or call us at 1-800-872-5925.