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Senate Judiciary Committee Considers Mandating Foreclosure Mediation in Bankruptcy

February 7, 2011

Our San Bernardino individual bankruptcy lawyers were interested to see that Congress is now considering addressing the wave of foreclosures through the bankruptcy system. HousingWire reported Feb. 1 on a hearing of the Senate Judiciary Committee, which is considering legislation that would give bankruptcy judges the power to order foreclosure mediation. The proposal is not a new proposal to allow "cramdowns," which would give bankruptcy judges the power to modify loans directly. Rather, judges would be able to order both the homeowner and the lender to the mediation table. Sen. Sheldon Whitehouse, chair of the hearing, said the program would give borrowers access to an accountable decision-maker, which is typically unavailable in loan workouts.

Whitehouse pointed out that the Obama administration's HAMP loan modification program has not helped nearly as many homeowners as predicted, in part because compliance is entirely voluntary. Rather than relying on banks to police themselves - a potential conflict of interests - the new proposal would give bankruptcy judges the power to order mediation. It is modeled after foreclosure mediation programs in Rhode Island, New York, Florida and Vermont, as well as several major cities. A New York bankruptcy court judge testified that about half of the foreclosure mediations in his court end in loan modifications. Lenders tend to like the results, he said, because participating clears them of liability in lawsuits. Critics said the program could increase the backlog of foreclosures in hard-hit states, and possibly delay recovery in the housing market.

As Santa Ana personal bankruptcy attorneys, we aren't sure the connection is that strong. But even if it is, we think protecting consumers from overreaching by lenders is more important. As Whitehouse and his witnesses noted at the hearing, lenders haven't been willing or able to consider loan modifications efficiently. This plunges homeowners into a bureaucratic nightmare that sometimes ends in unnecessary foreclosures. If half of the New York bankruptcy judge's cases end in a loan modification, it's worth asking why it took bankruptcy to get there. And if you need more evidence that lenders can make serious mistakes, consider "robo-signing," which has courts around the U.S. scrambling to ensure that banks can prove they even have the right to foreclose. Under these circumstances, the foreclosure mediation plan seems modest and reasonable.

Howard Law PC represents Californians who are deep in debt, including mortgage debt, and considering bankruptcy as a way to handle it. Bankruptcy is a serious decision, and while it's survivable, it's not suitable for every homeowner with mortgage troubles. That's why our Torrance consumer bankruptcy lawyers start each case by sitting down and examining the client's assets and debts thoroughly. If you're not a good candidate for bankruptcy, we can offer alternatives including a loan modification lawsuit or, when appropriate, a lawsuit over predatory lending. If clients do decide to pursue bankruptcy, we work with them to structure the bankruptcy to give them the best possible chance of holding on to their homes and restructuring their financial lives in the future.

If you feel like you're drowning in debt and you don't know how to climb out, you should call Howard Law to see how we can help. To set up a free, confidential case evaluation, send us a message online or call us toll-free at 1-800-872-5925.