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Bankruptcy Mortgage Modification Getting More Attention

posted by Bob Lawless

You know the steam is starting to pick up for the horses to close the barn door before the barn burns done while we're counting our chickens when .... let me try that again.

Bankruptcy mortgage modification is moving beyond the specialty blogs such as this. David Abromowitz over at The Huffington Post has a post up advocating passage of a bankruptcy mortgage modification bill. I'm hoping the fact that the bill is getting broader attention means the train is about to sail.


I'm absolutely astonished that this fraud-ridden industry (mortgage lending) which caused this entire mess in the first place has succeeded in watering down the bill even further. I'm also shocked that anyone on either side of the debate would want judges to have to review such questions as whether or not the lender offered a "qualified" modification proposal before the debtor filed. I thought banks and lenders disliked litigation, but their rewrite of HR 1106 is virtually begging for more lengthy hearings and expert witness costs.

This is a specialty blog? I thought everyone read this blog. Lol (Train...sail)

That is a Bankruptcy Judges J.O.B. Their all about weighing the equities. You can say that it is their "stock and trade". They were born for this stuff. Common! Bankruptcy Judges do it all the TIME in biz 11s. Why give Bankruptcy Judges the power to do their job properly is a really silly question to me. Where be ran into trouble and prolonged litigation in Bankruptcy is when we (not me or you but the Bush agenda) striped away Bankruptcy Judges power to "weigh the equities".

A simple (and free) pull of the Counties appraisal will go a long way. Zillow is free also. (Based on experience) I really can't see it as a lengthy and "overly" expensive process. Where I think you will be getting (some) of that, is where home values have decreased the most. By no means will this be an "every district" deal. By then there would be(and are currently available) databases of the areas home values. You will see (and rightfully so) the litigation you speak of on the no money down exotic home loans in those areas I pointed to above.

OK Ok, I miss read your post Arnie. My bad. I get what you said now. That's what I get for doing 3 things at the same time. So I guess my comment was not directed at you. But there has been that debate. Whether or not Judges should be given "more power".

A link to the proposed revision to Amendment #1 from the house report:


Thanx AMC. Ya, I see now what you were talking about Arnie! I have to agree. They changed the clawback percentages also. Awe Shit! Another "good faith" test??? Give me a freggin break! What happened to 40 years?

New York Times article on the current status of the legislation:


March 5, 2009

House to Try Again to Let Judges Alter Mortgages


WASHINGTON — After a brief revolt, the House is scheduled to vote Thursday on a measure that would allow bankruptcy judges to change mortgage terms to help homeowners avoid foreclosure, granting new authority some lawmakers say is central to easing the housing crisis.

The Democratic leadership said it was confident it now has the support to pass the measure, which stalled last week, because of changes won by Democrats who said they feared that homeowners might use bankruptcy to win reductions in mortgages they could still afford. The Senate, where backers of the bill have faced stiff resistance, could consider its own version later this month.


One in 8 US households late paying or in foreclosure

Thu Mar 5, 2009 10:46am EST

By Lynn Adler

NEW YORK, March 5 (Reuters) - About one in every eight U.S. households, a record share, ended 2008 behind on their mortgage payments or in the foreclosure process as job losses intensified a housing crisis spawned by lax lending practices, the Mortgage Bankers Association said on Thursday.

With unemployment at a 16-1/2-year high and rising, more borrowers will be late paying or fall into foreclosure this year, said the group's chief economist Jay Brinkmann.

"While California, Florida, Nevada, Arizona and Michigan continue to dominate the delinquency numbers, some of the sharpest increases we saw last quarter in loans 90 days or more delinquent were in Louisiana, New York, Georgia, Texas and Mississippi, signs of the spreading impact of the recession," he said.

From McClatchy -


Lenders were asked to help — now, they may be forced to

* * * * * * * *

For months, banks have been encouraged to offer voluntary loan modifications on mortgages, but the results have been slight. The bill's supporters say the bankruptcy provision will coerce lenders to make loan adjustments on their own - or else face a forced cramdown from a bankruptcy judge.

"The voluntary modifications are just not happening," said Meredith Ezzell, chairwoman of the N.C. state chapter of bankruptcy attorneys. "And if (Congress) puts this in place, they will start happening. This is really the stick that we can hold over their head."

Miller, a Democrat and the architect of the measure, said that's why the banks are opposed to it.

"This doesn't beg them to do the right thing," he said. "It doesn't bribe them to do the right thing. It makes them do the right thing."

I suppose I should have included the comment in the above article by Mr. Lawless, who apparently doesn't know he's supposed to start the phrase with "Bah!":

"The problem with cram-down mortgages is that they make mortgages more expensive for future homebuyers," U.S. Rep. Sue Myrick, a Charlotte Republican, said in a statement. "We can't give judges the ability to tell homebuyers that they don't have to pay back the entire amount of their home loan and expect lenders to have any confidence in those they lend to."

Supporters say that isn't true.

"Humbug," said Robert Lawless, a law professor at the University of Illinois who tracks bankruptcy issues. He said banks want to preserve their leverage over the payback of bad mortgages.

"It's easy to scare people that changes are going to lead to big problems," Lawless said.

When I was asked that question by the reporter, let's just say that a lot of words occurred to me but "humbug" was the first one that was appropriate for a family newspaper.

I don't know if anyone reads these comments a month and a half after the original post, but I'm curious where this legislation stands today. Does anyone have any updates.

BTW - I'm a new bankruptcy attorney, and I would like to thank the professors for writing this blog. It makes me feel like I'm back in law school, in the very best possible way.

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  • As a public service, the University of Illinois College of Law operates Bankr-L, an e-mail list on which bankruptcy professionals can exchange information. Bankr-L is administered by one of the Credit Slips bloggers, Professor Robert M. Lawless of the University of Illinois. Although Bankr-L is a free service, membership is limited only to persons with a professional connection to the bankruptcy field (e.g., lawyer, accountant, academic, judge). To request a subscription on Bankr-L, click here to visit the page for the list and then click on the link for "Subscribe." After completing the information there, please also send an e-mail to Professor Lawless (rlawless@illinois.edu) with a short description of your professional connection to bankruptcy. A link to a URL with a professional bio or other identifying information would be great.


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