For many, if not most of us, our homes are our biggest assets. The inverse of this is also true – our mortgages are often our biggest liabilities.
It makes sense, then, that in Chapter 13 consumer bankruptcies, a debtor’s mortgage can have a major impact on the success (or lack thereof) of a plan. For some, the advantages provided to a Chapter 13 debtor are not enough, and meeting the terms of the mortgage itself is untenable. What is a debtor to do?
A number of bankruptcy courts throughout the country have created a program around one commonsense answer: mortgage modification mediation (called ‘MMM’ for short). This program creates a set of procedures for qualifying debtors to begin a mediation process with their mortgage lenders for loan modification. The lender can also initiate the mediation. Neither party is obligated to reach an agreement – all that’s required is good faith negotiation.
Now, renegotiation of the terms of a mortgage (‘mortgage modification’) is nothing new. But for many, mortgage modification through procedures established by a lender can be arduous and painful in the best of times – for both sides. The MMM program seeks to ease this process for debtor and lender alike.
While each court has adopted slightly different procedures for its MMM program, the basics are the same:
–First, either the Chapter 13 debtor or the lender petitions the court for MMM. Each district I’ve found that’s adopted such a program requires debtors to dedicate 31% of their gross income to a modified mortgage (or, for some, 75%-100% of the current monthly mortgage payment).
–Second, if and when the motion is approved, each party pays an amount (typically between $200-$400) for the mediation fees, and agrees to split any additional costs evenly.
–Finally, a successful modification agreement is then approved by the court.
That’s it! In the words of the United States Bankruptcy Court for the Northern District of Florida:
The [MMM] program is streamlined to reduce costs, save considerable time, and make it easier for the parties to facilitate a loan modification.
While these courts have taken a bold step to encouraging the efficient and mutually beneficial resolution of Chapter 13 mortgage modifications, both debtors and lenders can take a leaf from these courts’ books by encouraging voluntary mortgage modification mediation in Chapter 13 bankruptcies.
Adopting the MMM program should be considered by every jurisdiction that doesn’t already have it.