WHAT: Bankruptcy attorney Chip Parker will join The Honorable Paul M. Glenn, Bankruptcy Judge, and theChapter 13 Bankruptcy Trustee Douglas Neway to discuss the bankruptcy court's new Bankruptcy Residential Mortgage Mediation Program.
WHEN: January 5, 2012 at 9:00 a.m. EST
WHERE: WJCT 89.9 FM or listen live on the internet
DESCRIPION: Earlier this month, the Florida Supreme Court announced that the mandatory State Court Residential Mortgage Foreclosure Mediation Program will cease. This comes as no surprise to the lawyers involved in defending foreclosures in Florida.
Mediation is usually a great way for a plaintiff and defendant to sit down with a neutral arbiter to hash out their differences and come to a resolution that is usually better than continued litigation. Mediation is successful in all types of disputes including personal injury cases, contract disputes and even divorces. However, in these cases, circuit court judges will readily punish a party who fails to attend mediation or who attends but fails to comply with the mediation order.
The RMFM Program was a dismal failure because it had no teeth, and judges were reluctant to punish the mortgage companies for failing to mediate in good faith. In short, the RMFM was a complete waste of time, not because mediation is a bad idea but because most state court judges were not behind the effort.
This past summer, the Bankruptcy Court in the Orlando Division of the Middle District of Florida implemented its own version of the failed RMFM, but unlike the state court version, it has seen a much higher success rate. One Orlando debtor attorney even boasts a 90% success rate, with 18% of his modifications involving principal reduction.
What is the Bankruptcy Court doing differently? Quite simply, it is forcing the mortgage industry to do what it was required to do as a condition to receiving hundreds of billions (not to mention U.S. Treasury's $7 trillion secret loan program ) of taxpayer bailout money, including the government takeover of Fannie Mae and Freddie Mac.
Those mortgage companies and banks who took TARP funds are required to extend a HAMP modification to any homeowner who qualifies. Basically, if a homeowner is unable to currently pay his mortgage, HAMP allows the homeowner to pay 31% of gross monthly income as their new mortgage payment (principal, interest, taxes, insurance and association fees) if the homeowner can demonstrate that he can pay all other existing expenses with the remaining 69% of gross.
New terms will be calculated to make the new mortgage payment sufficient to pay off the loan. That amount must be enough to pay off your mortgage. The mortgage servicer can lower the interest rate, stretch out the mortgage and even add a balloon payment in order to make it work. In some circumstances, the mod may make sense, or there may be too much negative equity in the home to justify walking away or fighting the foreclosure in state court.
Does the bankruptcy mediation program guarantee a residential loan modification? No, but it does make it much harder for a mortgage servicer to reject a modification because of the stringent requirement to act in good faith. For instance, if a servicer rejects a HAMP application, it will have to explain why. Often, a rejection is based upon a miscalculation, and in mediation, the debtor's attorney can demand that the servicer's representative explain his calculations. Often, the mistakes are found and corrected, resulting in HAMP acceptance rather than rejection.
Mortgage modification isn't for everyone, and bankruptcy isn't for everyone. However, the bankruptcy mortgage mediation program is another option for homeowners facing foreclosure.
For more information on bankruptcy matters please, call our office for an appointment at 305-548-5020.
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