DS News - Digital Archives

some may reach out to the borrower���s attorney where represented by counsel, Ford says. In some jurisdictions, the debtor���s attorney may have to grant the servicer and servicer���s counsel the authority to contact and communicate with the borrower. Other districts and judges insist the debtor be the one to initiate talks with their mortgage servicer about a loan modification or other loss mitigation strategy. Where they can, though, servicers for the most part are proactively reaching out to gauge a borrower���s interest in pursuing a loan modification or other form of mortgage relief. Steven G. Powrozek, Esq., supervising bankruptcy attorney at Shapiro, Fishman & Gach��, LLP, in Tampa, says motions enabling servicers and borrowers to pursue a workout option for the mortgage are routinely granted in Florida. Catalysts for Cooperation Those working with bankrupt homeowners on a day-to-day basis point to several key market developments that have served as catalysts for mortgage loss mitigation in bankruptcy. The administration���s Home Affordable Modification Program (HAMP) had a big role in yoking bankruptcy and loss mitigation, according to West. Under HAMP, any borrower with an open Chapter 7 or Chapter 13 bankruptcy filing must be considered for a HAMP mod if the request is made to the servicer by the borrower, bankruptcy trustee, or debtor���s counsel. Powrozek says the National Mortgage Settlement struck between federal officials, 49 state attorneys general, and the nation���s largest mortgage servicers has also noticeably prompted servicers to extend relief to struggling homeowners, including those in bankruptcy. ���All these things factored in have really assisted debtors,��� Powrozek said. ���There are a lot of opportunities for assistance in Chapter 13s.��� 50 One Code, 94 Districts Still, the ease with which servicers and their counsel can engage borrowers in bankruptcy varies from jurisdiction to jurisdiction. The courts operate under one bankruptcy code���one code written into federal law and applicable coast to coast. But even with one set of tenets governing bankruptcy law, creditors��� attorneys say each district applies the law differently, and there are 94 diverse districts across the country. Michael J. McCormick, Esq., is managing partner of the bankruptcy department at McCalla Raymer, LLC. McCormick is based in Roswell, Georgia, but is admitted to practice throughout a number of Southern states, including Alabama, Arkansas, Georgia, Kansas, Missouri, Mississippi, and Tennessee. Throughout his extensive service area, McCormick says there���s one particular judge who will slap servicers and their representing attorneys with a hefty fine if it���s discovered the servicer, as a creditor, has had any contact at all with the consumer, regardless of the purpose behind that communication. For the most part, however, servicers are finding the bankruptcy courts to be quite tolerable of actions aimed at benefitting and emboldening consumers. Leslie Mann, bankruptcy attorney with Mackie Wolf Zientz & Mann, P.C., represents creditors in the state of Arkansas, and she says judges there have been very receptive of efforts to try and work out more sustainable payments on the borrower���s behalf. ���We have found it to be quite easy to engage borrowers in loss mitigation,��� Mann said. The structure of bankruptcy often even lends itself to more productive talks between servicers, borrowers, and both parties��� counsel, according to Mann. ���Sometimes the debtor���s attorney can walk the borrower through it, and they���re able to help the borrower with the paperwork and help them understand if they will qualify, perhaps alert the borrower of new workout options as they become available or if there is an in-house program that would be a good fit. Powrozek agrees that quite often, the bankruptcy itself can facilitate a smoother, more streamlined loan modification process simply because a bankruptcy filing forces the debtor to get all their finances in order. Laurie Weatherford, Chapter 13 trustee for the Orlando division of the middle district of Florida, says the biggest headache of bankruptcy and loss mitigation proceedings ���is by far the paperwork.��� But in Florida, Weatherford and her colleagues follow procedures that unexpectedly simplify and expedite the loan modification or workout process. McCormick notes that the back-and-forth between the servicer, the borrower, and their attorneys is ���probably the biggest problem��� in loss mitigation, whether the borrower is in bankruptcy or not. Servicers are having their attorneys reach out to borrowers much more often and much earlier, according to Mann, sometimes even during the bankruptcy plan review process, and at that time, explore negotiating another option such as a loan mod. ���Last week we had a debtor���s attorney file a motion to require the creditor to participate in a mediation program,��� Mann said. ���Our judges and trustees really encourage us to work with borrowers.��� Since not all districts are uniform in terms of the need for trustee review, court approval, or possibly the need for a modified plan, Ford says lenders and servicers are not always clear as to what requirements are necessary case-to-case. ���The lack of a uniform process in bankruptcy is, therefore, a significant challenge,��� Ford said. Powrozek agrees. ���It does seem like we need some type of uniformity,��� he said. ���It just wasn���t ever contemplated in the code.��� Mediation in the Courts The flexibility afforded individual districts, however, makes it possible for judges and trustees to tailor procedures and stipulations by district to better fit local conditions and accommodate specific challenges or issues. In the Orlando division of the middle district of Florida, creditors��� attorneys, trustees, and debtors all laud the creditor-debtor mediation program instituted by the bankruptcy court, which was initiated when a district chief judge asked Weatherford, in her trustee role, to meet with debtors, debtors��� counsel, and creditors��� attorneys to develop an actionable proposal for implementing court-ordered programs designed to resolve mortgage delinquency issues in bankruptcy.

• Cover