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» VISIT US ONLINE @ DSNEWS.COM COVER STORY INDUSTRY INSIGHT INDUSTRY INSIGHTS B When handling loss mitigation plans in Chapter 13 bankruptcy cases, servicers should keep in mind that the federal court districts generally fall into two camps: the bankruptcy courts that have taken a more activist approach to loss mitigation and those that haven't. Activists vs. Non-Activists the debtor, whom is allowed to request loss mitigation even when the servicer believes the debtor isn't eligible, Bonial says. These courts are very involved in how borrowers and their attorneys communicate with lenders and their attorneys and vice versa—they want to make sure the communications occur on a regular basis and that they are reported to the court. "They have gone almost into a micromanagement sort of a position on loss mitigation in bankruptcy," Bonial said. In the four activist districts, debtors can request loss mitigation on loans the servicer has already reviewed and determined ineligible for loss mit because the borrower's income isn't high enough or other mitigating factors. "You might have told them 'no' 25 times, and they can come into court and force you to go through that process all over again," Bonial said. The servicer then has to go through the court-mandated and courtmonitored process, including the hiring of an attorney, utilizing court-approved software, providing status reports, and justifying the "no" decision to the court. As expensive as it is to service a loan in bankruptcy, it's five times more expensive to service a loan in one of those bankruptcy courts, in part because the servicer must dedicate an attorney to shepherd the loan for however long the process takes, Bonial says. In other jurisdictions, the servicer chooses which borrowers to offer loss mitigation options to based on defined loan characteristics that make sense and as a result, chances of success are relatively good. The Middle District of Florida has put a courtmandated mediation program in place, and of the 30 or so mediation cases Bonial's firm has handled in that jurisdiction, only two loan modifications resulted because the vast majority of the borrowers didn't qualify. With mediation and debtor-initiated loss mitigation, the activist courts are trying to ensure both sides come together and that everybody has had a fair shot BEST PRACTICES POINT— COUNTERPOINT REGIONAL SPOTLIGHT Activist bankruptcy courts include the Southern and Eastern districts of New York, the Western District of Pennsylvania, and the Middle District of Florida. Judges in these jurisdictions "are extremely interested in playing an active role," according to Hilary B. Bonial, a creditors' rights attorney with Buckley Madole, P.C., in Dallas. In these Northeastern and Florida districts, "the amount of oversight by the court is incredible," Bonial said, and their activism includes requiring communication between servicers and debtors to explore loss mitigation options. "With the exception of those particular jurisdictions, the bankruptcy courts in general have been rather agnostic toward loss mitigation," said Bonial, whose firm represents mortgage servicers in bankruptcy cases nationwide. "The majority of courts are really not interested [in overseeing loss mitigation]. They see it as something to be worked out between the borrower and the lender, not having the bankruptcy court as an intermediary." The non-activist bankruptcy courts want to be notified of any modification that may be in the works so that they can approve it, and they want to make sure proofs of claim and the debtor's plan are amended appropriately and that the borrower is making the right payments, she explained. Non-activist judges don't want to monitor or force communication between parties, but with prior permission from the debtor's attorney, the servicer is able to communicate directly with the debtor. The courts in the activist camp are less driven by what the servicer wants to accomplish and more by THE BIG PICTURE ankruptcy court presents a considerable cost for servicers in pursuing loss mitigation, but a Chapter 13 filing can also represent a loss mit opportunity in many cases, according to experts practicing in the bankruptcy domain. 53

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