I’ve posted before about mortgage mediation program in Chapter 13 bankruptcy initiated by the Orlando Division of Florida’s bankruptcy courtsThe program is now in place; the bankruptcy court has issued a standard order to be issued upon request by Chapter 13 debtors requiring mediation with their mortgage lenders.
This past week I had my first experience where a client is filing bankruptcy in order to take advantage of the Chapter 13 mortgage mediation program. This debtor has about $35,000 of credit card debt and an upside down house with two mortgages. He could “strip” his second mortgage in Chapter 13, but even then, he cannot afford the first mortgage payments given his current household income. He qualifies for Chapter 7 bankruptcy which would enable him to wipe out all debts and surrender the house, but he really wants to stay in his house. After considering his bankruptcy options, he has decided to file Chapter 13 bankruptcy and seek mortgage mediation as soon as possible.
This client believes that if he just talk to a mortgage company representative he can work out a modified payment. If mediation reduces his first mortgage payment he can use the Chapter 13 plan to strip his second mortgage and pay part of his credit card debts. If the mediation is not successful this bankruptcy debtor has the option convert to a Chapter 7 bankruptcy and walk away from both mortgages; the Chapter 7 option may motivate the mortgage lenders to be more flexible.
I explained to this client that he can also mediate with his lender in a state court foreclosure proceeding. Florida state courts require mediation during contested foreclosures. The disadvantage of this option is that my client would have to let his house go into default for at least three months before foreclosure would begin, he would have to hire an attorney to defend the foreclosure, and it would be several months after the foreclosure is filed before mediation would be scheduled. In Chapter 13 bankruptcy, mediation will be ordered soon after the case if filed.
Chapter 13 mortgage mediation requires that debtors contribute 31% of their net income to a modified mortgage payment. Also, “mediation” is not the same as “modification.” Chapter 13 bankruptcy cannot force your lender to modify or reduce your mortgage, but it can facilitate discussions with the lender to see if a modification is feasible.
You are absolutely right Jon. I am quite hopeful this new mediation program along with revised HAMP regulations will enable many homeowners to stay in their homes!
You can choose to file bankruptcy under the chapter 7 or chapter 13. Chapter 7 bankruptcy is chosen when you wish to pay off all your debts. This may be followed by selling your home or car.
In chapter 13 of bankruptcy you get a choice to repay over a long scheduled time for all your debts.
You get access to housing counselors, attorneys and court-trained mediators who work to try to resolve foreclosure actions by proposing work-out and payment arrangements that accommodate your circumstances and and your lender’s.
is this new mediation program also applies to investment properties that are also upside down ?
This is not done in every State. Kudos to the Florida Bankruptcy Judges who are innovative and dedicated to helping Florida residents. What helps the debtor, helps the community, helps the mortgage industry, and the real estate market, and on and on.
what gurantee do you hav that the bank will assist you with the modification of your morgage,and do have to have a lawyer to represent you?
I attended a conference at the Florida Bar Convention last summer. There were Judges on the panel from all Florida Districts, and they seemed quite serious about 1) requring mortgage loan mods in chapter 13, 2) requiring a mortgagee to send a rep who has the authority to modify a mortgage, 3) do you know of any attorney who has successfully filed this motion, mediated and reduced the mortgage balance on a first mortgage in SDFL??
Mary Stockman, Esq.
mestockman@yahoo.com
561-401-5898
Re: John
The client could not strip the 2nd mortgage in a chapter 7. Assuming the client is current on their mortgages, he could keep his house in a 7. The writer stated that the client couldn’t afford payments on the first alone, so my assumption is that while the client is current on both mortgages that won’t be the case for long.
Why can’t this client go Chapter 7 and still keep his home and the associated first? I thought that was one of the benefits to a BK in Florida?