Foreclosure Negotiations – A Dead End?

At Clark & Washington, we encourage our clients to explore non-bankruptcy alternatives.  Although bankruptcy representation is what we do, the attorneys and staff of our firm strongly believe that bankruptcy is a last resort.

We regularly get questions about “mortgage workouts” and other non-bankruptcy strategies that can be used to stop or slow down the foreclosure process.   As you may know, about a year ago, there was a bill introduced in Congress that would have permitted bankruptcy judges to modify the terms of a mortgage.   Many homeowners and consumer advocates supported this proposed law because it would have allowed a judge to address a growing problem that we see in central Florida – situations where house values have fallen and homeowners owe tens of thousands more than what their houses are worth.

Under this proposed law, a judge could reduce the mortgage balance to a number approximating the value of the house and, in some cases, reduce the monthly mortgage payment as well.

Needless to say, the mortgage lending industry fought this proposed law with all of the lobbying force they could muster.  After several months of back and forth, this bankruptcy mortgage modification bill was scrapped.   Now, as Paul Harvey used to say, here is the “rest of the story.”

When the bankruptcy mortgage modification bill was introduced, several of the large mortgage lending banks announced plans to empower customer service representatives to enter into voluntary loan modification agreements.  With these new voluntary programs in force, there would be no need to give bankruptcy judges the power to modify the terms of mortgages without the lender’s agreement.  Voluntary mortgage modifications were also supposed to increase under the federal governments HAMP (Home Affordable Mortgage Program) guidelines.

In reality, all of these voluntary mortgage modification programs have done very little good and have not reduced the number of foreclosures.  Lenders have shown very little willingness to change the terms of loans or to engage in any sort of meaningful workout.