Mortgage modification in Orlando’s Chapter 13 Bankruptcy Court

Mortgage modification was first introduced by the Obama administration as a solution to mortgage crisis in 2008.  Since that time, the program has been criticized as a failure, due probably in part to the fact that banks are not required by law to actually grant a modification, and because there is no legal enforcement mechanism to penalize banks who fail to follow the program’s guidelines.  Now, a new program in Orlando offers a ray of light to homeowners who use chapter 13 of the bankruptcy code to help save their home and manage debt.

Last week, I attended a seminar presented by the office of the local chapter 13 bankruptcy trustee.  It was a day long seminar, that included a variety of speakers who educated local bankruptcy lawyers about this program, which has been in effect for over a year now.  They are reporting that approximately 2/3’s of the homeowners who are participating in the program are obtaining loan modifications.  Some homeowners are even obtaining principle reductions in their mortgages.

One of our bankrutpcy judges spoke and reported that this program is the only one of its kind currently in effect in United States bankruptcy courts.  Other bankrutpcy judges and trustees offices are expressing interest in adopting the program for their bankrutpcy courts.  Orlando appears to be blazing a trail in helping homeowners gain the benefits of mortgage modification.

One surprising fact:  the modification program is, for the most part, centered around the same program that has been criticized as a failure: the Obama adminstration’s HAMP (Home Affordable Mortgage Program) program.  However, the success of this program in Orlando’s chapter 13 bankrutpcy court is in sharp contract to the experience that homeowners have had in state court, where banks are foreclosing on their homes.  In these courts, homeowners are recieving modifications in less than 10% of the cases. It is not clear why the program is so much more successful in chapter 13 bankruptcy court, even though the program guidelines are the same.  Some explanations might include: the ability of a homeowner to “strip” a second mortgage lien; or, that fact that homeowners in chapter 13 bankruptcies are eliminating and managing credit card and other forms of debt, which makes it easier to afford a mortgage payment.  My belief is that while these factors certainly contribute, there is another factor that distinguishes this program:  the bankruptcy judges are offering strong oversight of the bank’s behaviour and are enforcing their obligations to participate in the process, even though they may be unable to force banks to follow the actual program guidelines.  It seems that when the bank employees are forced to carefully consider applications for modification and review all of the pertinent paperwork, there is a stronger chance of a modification being granted.

My office is assisting homeowners save their homes in Chapter 13 bankruptcy.  The modification program here in Orlando now offers homeowners another tool for keeping their homes, and getting control over their creditors and their debt.  If you are a homeowner and struggling to keep your home, call my office today for a free consultation to discuss your options.

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