There may be some good news for struggling homeowners facing foreclosure. A few days ago, Senator Dick Durbin introduced new legislation in Congress which, if passed, will give bankruptcy judges the power to modify mortgages on residential real estate. This practice is currently prohibited by our current Bankruptcy Code. The bill is appropriately titled "Helping Families Save Their Homes In Bankruptcy Act of 2009."
Similar proposals in the past failed to get enough support to get through Congress. This time, however, with the dark cloud of a recession looming over the horizon, this new proposal seems to be on fast track and is on top of our legislators’ priority list.
Recent voluntary efforts to modify mortgages have helped stem the tide of increasing foreclosures but are not as effective as they should be. And even with the $700 billion Wall Street bailout fund (handed out to banks at taxpayers’ expense), more than 8 million homeowners are still at risk of foreclosure. This new bill costs taxpayers nothing. If passed, it will help keep families in their homes by giving bankruptcy judges the power to modify mortgage loans on a debtor’s principal residence (reduce principal amount based on the home’s current value), extend the time for repayment while reducing monthly payments to make them more affordable, waive pre-payment penalties, and adjust the interest rate on the loan.
In 2008, there were more than 1 million personal bankruptcy filings. About 60 percent of these cases included mortgage debt. Allowing debtors in bankruptcy the chance to modify their mortgage while at the same time dealing with all of their other financial issues will hopefully provide families the fresh financial start that they truly need. Currently, there are 50 million residential mortgages outstanding, totaling more than $10 trillion of debt. The proposed law would only apply to existing mortgages and require borrowers to contact their lender before rushing to the bankruptcy court.
The American Bankers Association opposes the proposed legislation and says that the proposed legislation would only make things worse by making loans more expensive and less available for everyone. Citigroup, one of the giant lenders, announced that it would support it and hopes that other banks will follow suit. While campaigning for office, then Senator Obama, promised that he would support such an amendment to the Bankruptcy Code. Well, let’s hope that he keeps his promise.
Personally, I think banks should not oppose this bill because loan modifications are essential in this market and it is what banks need to cut their losses. Most mortgages are also non-recourse, meaning that a homeowner can simply walk away with no further liability (situations vary so you need to see an attorney if you are unsure about where you stand) so the lender has more to lose in this situation. Keep in mind that nobody wins every time a house goes into foreclosure. Falling home values and the cost of putting the foreclosed home back on the market only adds to the supply of unsold homes and will simply further depress home prices. I believe it’s time for the government to step in take more drastic steps for a more immediate solution to the crisis.
For a free attorney consultation regarding how you can get out of debt with or without filing for bankruptcy, call Toll-Free 1-866-477-7772 to schedule an appointment. We have offices in Glendale, Cerritos and West Covina.
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None of the information herein is intended to give legal advice for any specific situation. Atty. Ray Bulaon has successfully helped more than 4,000 clients in finding solutions to their debt problems. To schedule a free attorney consultation, please call Ray Bulaon Law Offices at TOLL FREE 1-866-477-7772.
( Published on January 16 in Asian Journal Orange County p. A7)
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