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Senator Plans Bill to Expressly Allow Bankruptcy Judges to Order Foreclosure Meetings

December 20, 2010

Our Ontario consumer bankruptcy lawyers were interested to see a proposed bill that could change how bankruptcy judges handle foreclosures. As MarketWatch reported Dec. 15, Sen. Sheldon Whitehouse, a Democrat from Rhode Island, plans to introduce legislation making it clear that bankruptcy judges may require good-faith loan modification negotiations. This concern stems from an actual incident in Rhode Island, where two banks have recently challenged the local bankruptcy court's loss mitigation program. Whitehouse testified in favor of his proposal at a hearing the House Judiciary Committee called to investigate multiple paperwork problems in the foreclosure system, including the recently unveiled practice of fraudulent "robo-signing" and ongoing accusations that lenders don't give loan modification requests a fair hearing.

The loss mitigation program in Rhode Island is also used by bankruptcy courts in Florida, New York and Vermont. In Rhode Island, the program allows bankruptcy judges to require lenders, borrowers and their attorneys to negotiate in good faith. They are not required to agree to a loan modification and the court does not dictate the terms. Nonetheless, lenders in two bankruptcy cases are challenging the program, arguing that the court has no standing to order the loss mitigation program. Whitehouse said he was concerned that this challenge, heard in late November, would discourage other courts from setting up similar programs. He said forcing both sides to the negotiating table helps avoid an expensive foreclosure that ultimately benefits neither side.

Our Chino Hills personal bankruptcy attorneys strongly agree. Throughout the housing crisis, we've watched lenders foreclose on people who are willing to pay and in many cases able, as long as the rate is adjusted slightly. However, over and over, we've seen lenders turn down chances to guarantee years of payments from borrowers in exchange for a slight reduction in their monthly payments. The result is foolish -- fewer profits for the lender and a lost home for the borrower. The loss mitigation program, which requires both sides to make a good-faith effort to come to an agreement, is one way to address the problem within the context of bankruptcy. If these programs are successful in the states where they're being used, we hope Whitehouse's bill becomes law and other jurisdictions take notice.

At Howard Law PC, we've watched the housing crisis since the beginning in our capacity as foreclosure attorneys. In that time, we've come to believe that loan servicers aren't just disorganized or overly bureaucratic -- they are intentionally set up to force as many people as possible into foreclosure. Often, this is achieved by granting a trial modification or stretching out requests for a loan modification for months and months. When it's time to make the trial permanent, the servicer declines, then demands the full unpaid balance and penalties instantly. This allows the lender to make a short-term profit off fines and fees, but it's deceitful and may violate the borrower's rights. Our Cypress consumer bankruptcy lawyers fight to get fair consideration for our clients' loan modifications, through the bankruptcy courts or by suing the lender directly.

Howard Law offers free, confidential case evaluations, so you can tell us about your situation without any risk or obligation. To learn more, call us toll-free at 1-800-872-5925 or send us an email today.