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at saving their homes, Bonial said. "It's just not as effective as I think they would like it to be. I don't think that's a function of lack of participation on either side," she said. "The borrowers want it to work. The servicers want it to work. But sometimes, there just aren't solutions." Timing Loss Mit Most servicers tend to choose one of two points in the timeline of a bankruptcy case for proposing loss mitigation: immediately after the debtor files or at the first sign of payment default after a bankruptcy plan has been approved, Bonial explains. The most opportune time is right after the debtor files, according to LeAnn E. Covey, a bankruptcy attorney with John D. Clunk & Co. in Stow, Ohio. Most debtors are motivated at that point—they have an attorney, they have all of their paperwork prepared, and many are counting on a loan modification to make their plan work, Covey says. "When they're first filing, that's the time [for the servicer] to tell the borrower's attorney that a loss mitigation opportunity is available; please send in this paperwork," Covey said. "Because it's ready; it's all there. They have their pay stubs; they have their tax returns; they have all of their checking account statements in order. They have all of that information, because they have to have it to file." "A lot of debtors file bankruptcy with the intention of applying for a loan modification agreement, and their plans are just not going to work without a loan modification agreement," Covey continued. "They'll actually put in their plan that they are applying for a loan modification agreement. But even if they don't put that in their plan, that is the time." Servicers need to be careful not to solicit loss mitigation when it may appear to border on collection activities, Covey said. "That's a problem I see a lot in bankruptcy proceedings, is debtors, in Chapter 7 especially, getting very annoyed with the onslaught of loss mitigation opportunities coming to them," she said. "The courts are very debtor friendly in Ohio, so what [servicers] end up doing is paying sanctions because they're trying so hard to push the loss mitigation options and the debtors are obviously not interested," Covey said. Sometimes a servicer proposes loss mitigation very early in the bankruptcy case because a workout had been in process prior to the filing, Bonial says. An added benefit is an early resolution can help the servicer avoid some of the costs associated with bankruptcy dealings. Bonial says a lot of times the servicer's intention is to modify 54 Activist bankruptcy courts include the Southern and Eastern districts of New York, the Western District of Pennsylvania, and the Middle District of Florida. the loan at the outset in hopes that the case will be dismissed if the mortgage is the big debt the borrower is worried about. Servicers "figure if they can modify the loan and get the loan out of bankruptcy at the beginning, then overall the cost-benefit analysis works on multiple levels," she said. The servicer doesn't have as many loans in bankruptcy, and a default loan has been changed into a performing loan. But proposing loss mitigation early in the process has its drawbacks. "In my experience, that [early option] has been of limited success because the whole point of the [Chapter 13] bankruptcy is to give them five years to get current," Bonial said. "[A]s a former debtors' attorney, I can tell you that the debtors become mentally wedded to [the proposed bankruptcy] plan." At that point, she says, the possibility of foreclosure is no longer an incentive to accept the servicer's loss mitigation plan, and on top of the borrower deterrents, the debtor's attorney isn't motivated to advocate for the servicer's proposal because if it means the bankruptcy case could be dismissed altogether, the debtor's attorney might not be paid all of their fees. Bonial believes waiting for the debtor to become delinquent after the bankruptcy plan is approved is the more successful route. A Chapter 13 bankruptcy is essentially a form of loss mitigation, because it allows debtors to become current over time. Generally, the intention is to set up a five-year payment schedule that allows the debtor to continue making their current payment and pay a portion of the arrears to bring the loan current. But, according to Bonial, with most Chapter 13 bankruptcies today, the amount of arrears is so large that 60 months isn't enough time to catch up on the entire past-due balance. "They'll try. They might even be able to make a couple of months of payments, but eventually that will fail," Bonial said. "When they stumble, at that first stub of their toe, is when we've seen the most success in reaching out to them to modify the loan." Usually around month 15 to 20, they'll stumble, Bonial says, and it may be just a late payment, but it's at that point the possibility of foreclosure with a motion for relief from stay creeps back into the picture and the debtor becomes more engaged and open to the servicer's offer of loss mitigation. "So there is an incentive there for the debtor to remain engaged—to provide the information," Bonial said. "There is also an incentive on the servicer's side to turn this into a performing loan so [they] don't have all the additional cost of the foreclosure … or the motion for relief process. All of that costs money. So if we can avoid some of that by coming together and finding a modification that works for the borrower, then everybody comes out better in the end." Relating to Debtors' Counsel One obstacle that servicers often face is a debtor's attorney who isn't interested in the servicer's loss mitigation proposal, and bankruptcy courts generally forbid the servicer from communicating directly with the debtor unless the debtor's attorney has approved such interaction. Some debtor's attorneys aren't motivated to do anything beyond putting together the bankruptcy plan because that is all their fixed fees cover. A disinterested debtor's attorney is not an impossible obstacle, according to John Crandall, SVP and director of default services for Associated Bank in Wausau, Wisconsin. "It's very tough, [but] it's not a roadblock or a stumbling block," he said. Noting that the debtor's attorney is hired for the purpose of managing the borrower's Chapter 13 plan and doesn't get paid additional funds for facilitating a workout with the servicer, Crandall says typically once a bankruptcy plan has been put in place, the debtor's attorney has performed the duties covered by his or her fee and it may be necessary for the servicer to make some concessions. Crandall says most loan holders, whether a bank or investor, will broach the subject of compensation to see if they can assist with payment of attorney fees and prompt an approval from the debtor's attorney for the servicer to speak directly with their client in an active bankruptcy case. Typically this is accomplished through a stipulation in which the loan holder agrees to compensate the debtor's attorney or by directing the debtor's

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