Real-Mortgage-Foreclosure Relief in 2009

By Christopher H. McCormick, Esq.
December 23, 2008

There is a very good chance that with a new Democratic President and Congress there will be bankruptcy reform that will benefit distressed homeowners in 2009. Mortgage lenders are not voluntarily modifying mortgages in any significant way to stop the surge of foreclosures in this country. Federal and State “band-aid” mortgage relief programs hastily enacted within the past year have been equally ineffective. Legislation that has been pending in Congress to provide Chapter 13 bankruptcy debtors the ability to modify their residential mortgages is gaining momentum as a viable way for homeowners to save their homes across this nation.

Chapter 13 Bankruptcy allows debtors to stop all foreclosure and collection actions and pay back due mortgage debt with a 3 to 5 year payment plan. Chapter 13 plans also provide for payment of 0% to 100% of debtors’ unsecured debt, i.e. credit card, personal loans etc., dependent on their income. The current Bankruptcy Code does not allow homeowners to modify residential mortgages to the extent necessary to provide the relief needed to solve the current housing crisis. The pending legislation would amend the Bankruptcy Code to give bankruptcy judges the authority to confirm Chapter 13 plans that modify mortgages by reducing the principal due based on current market values of debtors’ homes and reducing interest rates. These plans would result in more reasonable monthly mortgage payments and eliminate mortgage debts in excess of home values. The confirmation of these Chapter 13 plans will not require mortgage lender approval, which is the major reason why there has not been any significant voluntary modification of distressed mortgages in this country.

Mortgage lenders will continue to fight this legislation with a myriad claims that it will hurt not help our economy and their ability to lend in the future. These arguments are clearly misplaced. If this legislation is passed in 2009 there will be a remedy available to millions of American homeowners that they can use to modify their mortgage debt as well as resolve their unsecured debt problems. Keeping these homeowners in their homes with affordable monthly mortgage payments will not only benefit them, but our entire economy. I encourage anyone who reads this article to contact his or her Congressperson and Senator to support this legislation. If you are a homeowner who needs foreclosure relief please feel free to contact me to discuss your situation to plan for the best course of action to save your home.