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]]>On the other hand, many states like Nevada and California are taking significant steps to make it harder for banks to foreclose. Nevada’s passage of Assembly Bill 284 in 2011 is seen as the reason for a severe decline in that state’s foreclosure rate. Certainly California’s elimination of “dual track” foreclosures – where lenders negotiate loan modifications while foreclosure proceedings continue – makes logical sense. How is a homeowner to reasonably plan for the future when the lender is communicating inconsistent messages at the same time? California’s new law, just signed by Governor Brown, also makes the smart move of requiring lenders to assign just one processor to a loan modification request. The frustrating runarounds Lisa Fiorilli reports are commonplace for most homeowners looking to modify their loans.
While loan modification programs seem inadequate at best, the efforts of state legislatures to slow down foreclosures don’t appear to be much better. According to a recent report from Reuters, anti-foreclosure laws may cause more harm than good: “A recent U.S. Federal Reserve study found that in states requiring a judicial review for foreclosure, delays associated with the process had no measurable long-term benefits and often prolonged the problems with the housing market.”
For its part, Congress has refused to amend the bankruptcy laws to allow the courts to modify home loans without a lender’s consent, an option that is unavailable to homeowners under present law. This refusal has certainly hurt our national recovery, preventing bankruptcy courts – the one place where troubled homeowners are most likely to seek relief – from accomplishing real good in this part of our economy.
For now, in Philadelphia, Baltimore and around the country, neither banks, consumers nor Congress are willing to take “the stronger medicine that some have urged and lenders have fought, such as pushing banks to write down the principal on underwater loans. “ Until we come to grips with the twin truths that (1) banks cannot be relied upon to provide real relief to troubled loans and (2) stalling foreclosures through well-intentioned legislation simply delays the inevitable, a real national economic recovery is still very far away.
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]]>The post California Dreaming: 3 Reasons Why Their New Foreclosure Law May Spread Across The Country appeared first on Baltimore Bankruptcy Lawyer.
]]>The law is only applicable to owner-occupied first mortgages.
Loan modifications are certainly a mixed bag. A recent TransUnion study showed that six out of 10 homeowners who received a loan modification stopped paying their mortgage again after 18 months. This study did not include statistics to address the many more homeowners who did not qualify for loan modifications. The question is: do loan modifications provide any real relief to borrowers? Perhaps the California law will finally force the mortgage industry to give meaningful focus on this process. The rest of the country will be watching.
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]]>The post Lien Stripping, Congress and the Supremes: The Glacier or the Snail? appeared first on Baltimore Bankruptcy Lawyer.
]]>In Chapter 13 the debtor could strip off that HELOC as described in this video. But in Chapter 7 most courts say no. Why? Because the US Supreme Court says so. For more details, see this article. The Supreme Court case that has caused this hardship (Dewsnup v. Timm for the legally minded) stems from 1992, more than 15 years before the current real estate and foreclosure crisis that has caused the loss of trillions of dollars of value in the residential home market.
This result makes no sense. Why should other unsecured creditors get a windfall by receiving coerced payments in Chapter 13 just because the debtors have a junior mortgage that is completely unsecured? The bankruptcy code is clear: “to the extent that a lien secures a claim against the debtor that is not an allowed secured claim (i.e., completely underwater) such lien is void.”
This result is especially wrong in light of the recent Atty. Gen. nationwide mortgage settlement which followed years of abusive foreclosure practices by the major mortgage servicers. Part of the settlement, which will be implemented in the months and years to come, is that mortgage companies need to adjust to the collapsed real estate market by writing down the principal on their loans when the property value does not support the mortgage.
The bankruptcy world should adapt to these realities and recognize that completely unsecured junior mortgages need to be stripped off in chapter 7 so that homeowners will be able to realize the appreciation in their properties and not simply pay rent or its equivalent to mortgage holders until the time comes that they are ready to abandon the home. Congress needs to amend the bankruptcy code to make clear that “void” means “void” and give homeowners real relief in chapter 7.
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