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Citibank supports Senate Bill 61 to allow Loan Modifications to Home Mortgages

Posted by David Leibowitz on January 9th, 2009 in Chapter 13, Foreclosure - Saving Your Home, Uncategorized, , ,

Senate Bill 61, introduced by Dick Durbin (D. IL), is entitled Helping Families Save their Homes.  This bill, if enacted, would allow borrowers to use chapter 13 to modify their mortgages, even if they couldn’t cut a deal with their lender outside of bankruptcy.  Mortgages could be marked down to the present value of the house.  The rest of the loan would be paid under a chapter 13 plan over a period of five years – and not necessarily at 100% either.  Interest rates could be cut.  Prepayment penalties would be out.  Consumer protection claims would be preserved.  No more flim-flam junk charges on mortgages would be allowed either.

Sounds good?  Well not to most mortgage lenders.  They are geared up to fight this tooth and nail.  The American Bankers Association still opposes using Chapter 13 to modify home loans.

BUT –  In a stunning turn of events, Citibank now supports this legislation.  How did this happen?  Here’s the deal.  The new law would apply only to mortgages in existence at the time the legislation was passed.  And the borrower would have to first show that he or she tried to get a loan modification before going into chapter 13 bankruptcy.  There are other points too – but these are the main ones.

Remember, making laws in Congress is a lot like making sausage – the end product may taste good but the manufacturing process isn’t pretty.  Stand by – we’ll keep you informed.


Congress responding to foreclosure – Loan Modifications in Chapter 13

Posted by David Leibowitz on January 6th, 2009 in Bankruptcy, Chapter 13, Foreclosure - Saving Your Home, , , ,

Too many homeowners are facing foreclosure in Illinois and Wisconsin.  Chapter 7 bankruptcy won’t help you save your home if you can’t keep up your mortgage payments.  Even Chapter 13 wage earner plans are not so great, especially if your house is worth much less than what you owe.  But help is on the way.  Congress is planning to amend chapter 13 of the Bankruptcy Code.  And President-Elect Obama supports this legislation.  This change will allow a homeowner to lower the amount due on your home mortgage to no more than the current value of your home.  Any excess would be treated as an unsecured claim.  

What does this mean?  Suppose you have a house worth $200,000 today with a $150,000 first mortgage and a $100,000 second mortgage.  As things stand now, in a Chapter 13 bankruptcy case, you’d have to pay the entire $150,000 first mortgage and the entire $100,000 second mortgage plus any arrearages to keep your house.  You couldn’t do anything about the interest rates either.

Under the proposed law, you could reduce the second mortgage to $50,000.  You might be able to reduce the interest rates on both mortgages.  And the remaining $50,000 unsecured balance could be paid off under your chapter 13 plan over a period of up to 5 years.  You probably would not have to pay the whole $50,000, but perhaps only a small percentage.

This is a very important change in the law.  It would treat you just like any other property owner.  So PLEASE, contact your Congressman and Senators TODAY.  Tell them you want Chapter 13 amended to protect you and thousands of American homeowners just like you.


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