CONGRESS passed the "Cram down" bill last Thursday. This is the much awaited legislative portion of the Obama plan that would amend bankruptcy law to empower bankruptcy judges to modify mortgages by cutting the balance on trust deeds to equal the current fair market value of the residence, extend the payment period of the mortgage, reduce mortgage payment and reduce mortgage interest. Presumably, this would be done in a chapter 13, not a chapter 7. This is an effective alternative to loan modification negotiations, which is purely voluntary on the part of creditors. Homeowners are presently at the mercy of creditors when they want their mortgages modified.
Creditors can pick and choose which loans they want to modify even if the bank has received bail out funds from the Federal government through TARP. Nationally, half of homeowners who apply for loan modifications are able to obtain some reduced payment while the other half actually end up with higher mortgage payments through current loan modification practice. The fact that the mortgage is owned by several hundred creditors since the security has been diced up and sold to many investors has made getting a consensus a nightmare. Further, the latest program of the administration, offers refinancing of under water loans if the balance of the mortgage does not exceed 105% of current fair market value of the residence. In California, practically all of the residences bought with zero down 80/20 loans in the last 4 years, which are under water, do not qualify for refinancing under this guideline. Many property values here have suffered 30% to 40% price reductions.
Governor Swarzenneger signed a bill into law two weeks ago giving temporary relief to homeowners facing foreclosure. This is not a permanent solution but it helps. The law freezes foreclosures for 90 days and requires creditors to work out a meaningful loan modification with homeowners to allow them to make affordable payments before they can proceed with foreclosure. It is interesting to note how creditors will prove that a meaningful loan modification has been attempted. I guess creditors will resort to affidavits stating that they have tried to contact homeowners to negotiate a loan modification plan but has not been successful in contacting homeowner to satisfy the requirement of proving the attempt before foreclosure can start, while homeowner will argue that no attempt by creditor has been made, to delay the foreclosure further. No doubt this is a political ploy to show the public that the government does not want homeowners to lose their houses. It is a sad fact that many citizens are actually losing their jobs or have to accept reductions in income to keep their jobs. Faced with an ever deepening recession on one hand, and a banking sector that is falling apart, many homeowners actually cannot afford to make payments on a house. But in the meantime, homeowners facing foreclosure are well advised to stay put in their houses. With so many laws coming out to help homeowners keep their houses, I would not be surprised if homeowners are eventually able to keep their houses for free without making any payments. At that time, we would have made the complete transition from a democracy to communism where the government can require the rich to give all their money to the poor. This is really what’s going on with all the foreclosure prevention laws. The money of creditors is being given to the homeowners who cannot afford to keep the houses.
The Senate is expected to provide their own version of the "Cram down" bill soon possibly next month. The final version to be presented to the president could be signed into law as early as April. This means that by May or June debtors can file chapter 13 to have their mortgages modified by force and have their loan balances reduced to the current fair market value of their residences.
If you need debt relief, contact my office. I will analyze your case personally.
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Lawrence Bautista Yang specializes in bankruptcy, business, real estate and civil litigation and has successfully represented more than five thousand clients in California. Please call Angie, Barbara or Jess at (626) 284-1142 for an appointment at 1000 S. Fremont Ave., Bldg. A-1 Suite 1125 Unit 58, Alhambra, CA 91803
( Published on March 14, 2009 in Asian Journal Los Angeles p. C4 )
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