Loss Mitigation Program in Chapter 13
The Loss Mitigation Program, which began in August 2012, provides a borrower/homeowner an opportunity to be reviewed for a loan modification under the eyes of the court. Again, the oversight by the bankruptcy court provides the borrower a fair shot at a modification because the lender cannot simply push paper around and claim that they are missing documents and requite further information, all the while the homeowner is falling further and further into default and closer and closer to foreclosure.
The filing of the bankruptcy immediately results in the imposition of the automatic stay, which will stop any foreclosure process dead in its track up to and including the day of a scheduled sheriff sale. The loss mitigation program sets a ninety-day period for the process to take place, which has proven to be woefully inadequate, but an application to extend the loss mitigation program is routinely granted, allowing an additional ninety days for review. The lender must designate a contact person and there is always legal representation of this service, so failure to meet the requirements is not an option.
During the loss mitigation program, the debtor/borrower is required to make an "adequate protection payment” to the mortgage company, albeit at a reduced amount equal to 60 percent of the contracted principal and interest, plus 100 percent of taxes and homeowner's insurance. This typically results in approximately a $500 to $800 per month savings to the homeowner during the loss mitigation program. Again, during this period the bank cannot move one step forward in the foreclosure process, if one has started. Once the review is complete, the lender will either approve or deny the borrower, at which point the bankruptcy plan will be modified and the mortgage will be taken out of the, plan and serviced as a current, loan, or in the event that the debtor/borrower is denied, we alter our plans for keeping the home and either convert to a Chapter 7 or focus on how long my client(s) can stay in the home to save enough money for when they have to move.
Whether I recommend mediation, Chapter 7 or Chao 13 for trying to save your home depends on a number if factors—the client's long-term goal for the proper, (live forever, need five years, do not care) is paramount, I also consider the stage of foreclosure process. the servicer, the employment status of the borrowers, and current income. Sometimes, a two-step approach is called for, requiring a Chapter 7 fist and then either Chapter 13 or meditation to focus on the mortgage.