Pilot program-In Rhode Island bankruptcy judges could be allowed to modify mortgages in bankruptcy court.
November 3, 2010 Leave a comment
According to Fox business there is a pilot program in Rhode Island that will allow judges to write down mortgages in bankruptcy presumably for to the current value of the home. Senator Whitehouse of Rhode Island has been active in the mortgage and foreclosure crisis for some time and he is apparently asking for this to be passed in the lame duck session of Congress.
Mortgage reductions in bankruptcy court have been asked for some time but the have never been passed. Bankruptcy judges currently can “strip” a second mortgage in chapter 13 bankruptcies if they are totally unsecured but first mortgages can not be written down to the value of the home as of yet. Many say that this should not happen as it is unfair to some and because it would put a great burden on the banks.
I can find no confirmation of this other than Fox Business but apparently there is a pilot program active in Rhode Island to write down these first mortgages. This would mean a huge reduction in both the principal and the mortgage payment for many people. If this was to be put in place nationally it would solve the foreclosure crisis. If people could write down their loans to the value of their houses many people could probably stay in them.
I know it would help many of my clients tremendously. Most people who are in foreclosure are upside down in their mortgages meaning that the homes are worth far less than what they owe on them. If we could correct this imbalance then it would allow a large number of homeowners to stay on their homes.
It seems that with the continuing mortgage crisis and the robo-signing bank scandals the idea of allowing mortgage write downs is becoming more popular. In addition foreclosures are rising rapidly. According to Fox (as reported by Realtytrac) foreclosures are up 76% in Seattle, 35% in Chicago, 26% in Houston and 23% in Detroit.
With all of these foreclosures there is increasing political pressure to do something to call a halt to it. A foreclosure moratorium has been called for but a mortgage write down in a bankruptcy would be a better and more permanent solution. I believe that the banks are now in public disfavor and they can do less and less top stop this from happening.
If you need any help with your bankruptcy or foreclosure please visit my website at www.farquharlaw.com. I am a bankruptcy attorney practicing bankruptcy law in San Diego.