DSNews delivers stories, ideas, links, companies, people, events, and videos impacting the mortgage default servicing industry.
Issue link: http://digital.dsnews.com/i/112425
�� VISIT US ONLINE @ DSNEWS.COM COVER STORY COVER STORY BEST PRACTICES INDUSTRY INSIGHT Bankruptcy isn���t the waiting game it used to be���government programs and settlement terms put homeowners and servicers on the same side of structured progress. S ince 2007, bankruptcy filings soared as the economic crisis took its toll on Americans from all walks of life. Filings declined slightly in 2011, after three years of ���substantial increases,��� according to figures from the United States Trustee Program. More than 1.4 million POINT��� COUNTERPOINT bankruptcy cases were filed in fiscal year 2011���a figure that represents an 8 percent decline from the previous year. The latest figures from the Administrative Office of the U.S. Courts show bankruptcy cases filed in federal courts for the 12-month period ending June 30, 2012, totaled 1.3 million. For a good many years, the automatic stay was a sticking point for loss mitigation in bankruptcy, explains Dan West, shareholder and managing attorney of the St. Louis operations and bankruptcy practice for South & Associates, P.C., in Missouri. An automatic stay essentially stopped any and all communication between the servicer and borrower, according to West. Any contact made with a borrower who���d filed for bankruptcy strictly could not be an effort to collect a debt, and a loan modification, in essence, is a resolution intended to get a revenue stream flowing again from the borrower. As such, West says the offer of a loan modification was considered an attempt to collect. All communication with the borrower���even when it involved an offer or concession on the part of the creditor that favored the borrower���had to go through a trustee. And lawyers for creditors say for many years, trustees really had no motivation to facilitate a loan workout structured outside the realm of the bankruptcy court���the mortgage and home were already taken into account within the consumer���s carefully coordinated bankruptcy plan. This was a ���big roadblock,��� according to West. Nowadays, however, West says bankruptcy is not a substantial obstacle to loss mitigation. ���Bankruptcy in and of itself is loss mitigation,��� West said. ���There���s a general sense that if a borrower is interested in a loan mod, you can get it done. There are some hurdles to clear, but if there���s a will, there���s a way. It can be done.��� West says bankruptcy has little effect on the servicer���s success rate in getting the borrower into a modified loan. The time frame for completing a loan mod resolution is relatively similar for cases in the bankruptcy courts and those that aren���t subject to the legal steps of a Chapter 13 filing. The issues and challenges are the same as with regular loan mods as well, West contends. In his assessment, the biggest obstacle to a successful loan mod is making sure the borrower has provided the right information and documentation needed by the lender to decision the mod. Extending a Hand Servicers in general are reaching out to borrowers, even in bankruptcy, according to Marcy Ford, partner and chair of the executive committee at Trott & Trott, P.C., in Michigan. Bankruptcy���s automatic stay, however, does induce some servicers to tread carefully. There���s a handful of servicers that demand a ���relief of stay��� before they will open up the lines of communication with a borrower in bankruptcy, while 49