This article by Jeffrey Solomon is reprinted from the May 2013 issue of the Broward County Bar Association Barrister
TEN REASONS WHY BANKRUPTCY MANDATORY MORTGAGE MEDIATION CAN BE SUCCESSFUL
On February 25, 2013, effective April 1, 2013, the United States Bankruptcy Court for the Southern District of Florida entered Administrative Order 13-01, “ Implementation of Loss Mitigation Mediation Program.”(LMM) Both the Debtor and the Lender can obtain an order requiring mediation. In a chapter 13 payment plan bankruptcy, LMM applies to the debtor’s home and to any investment property of under 4
units. The Order authorizes LMM in a chapter 11 only as to the debtor’s primary residence. In Chapter 7, the program only may be utilized for surrender of real property.
Consider ten reasons why the program should be successful:
1. The Orlando Division of the Bankruptcy Court in the Middle District of Florida previously adopted a mandatory mortgage mediation program with a reported success rate of 73% for 2012 and 86% for January, 2013. The success rate is based on lenders providing a proposed modified mortgage to the homeowner. Though many individuals might be unable to accept the proposed modification made by the lender, receiving a firm
offer of a modification within a reasonable time would be a great accomplishment.
2. The existence of credit card debt and a second mortgage might prevent qualification of a modification outside of bankruptcy. However, a bankruptcy eliminates the credit card debt and might enable the debtor to strip the second mortgage.
3. What happens if the first mediation does not result with a modification? If needed, the LMM program requires a second mediation within 30 days.
4. Countless homeowners have had the frustration of sending required documents to the mortgage servicers only to be told the documents could not be found. The LMM requires use of an online portal. The debtor will have proof of all uploaded documents with strict deadlines to the lender to confirm receipt and specify what additional information is required. The mediator will use the portal to facilitate the exchange of documentation. The Middle District of Florida successful program did not have the added benefit of this online portal.
5. The new program can provide individuals another chance to save their home. The LMM can be utilized in a new chapter 13 case even if the debtor received a discharge in a prior chapter 7, even if the lender previously denied a modification, and even if the debtor had defaulted under a prior modification.
6. I have been informed that typically the underwriters in the bankruptcy department for the lender are more experienced then the typical foreclosure underwriter. A more knowledgeable and experienced underwriter would be better able to understand the situation of the debtor during a mediation.
7. During bankruptcy a debtor’s chapter 13 attorney might be able to better communicate with the lender’s attorney. This might be a more subjective and anecdotal observation, but we all know how difficult it can be to speak with anyone during a state court foreclosure. Experienced debtor’s counsel typically has routine dealings with the lender’s bankruptcy counsel.
8. Debtors often need to surrender property to avoid non-dischargeable continuing obligations such as association fees. LMM might encourage lenders to accept a deed for the surrendered property.
9. The Administrative Order provides that the parties are required to participate in good faith or be subject to possible sanctions by the court.
10. The Bankruptcy Judges and the Chapter 13 trustees are strongly committed to a successful program.