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Currently, mortgage modifications are negotiated between the lender and borrower outside the state or federal court systems.   Representative Conyers from Michigan, has proposed a Bankruptcy Mortgage Modification Amendment as part of the Wall Street Reform and Consumer Protection Act (H.R. 4173).

The Bankruptcy Mortgage Modification Amendment seeks to allow Bankruptcy Judges to modify the first mortgage on the bankruptcy filing party’s primary residence in Chapter 13 Bankruptcy.

This would be a great help to homeowners.  Currently mortgage modifications lower interest rates, spread arrearages through the duration of the loan and may lower the principal balance through federal assistance programs and/or private negotiations with the mortgage lender.  However, the new bill would allow the homeowner to modify their mortgage based on the current value of their home.  Therefore, if the current value of the home is $125,000.00 and the current mortgage is $175,000.00, the proposed legislation would allow the mortgage amount to be crammed down to the value of the home, in this example $125,000.00, leading to a substantial savings for many homeowners.  In Chapter 13 Bankruptcy, the $50,000.00 crammed down would be deemed unsecured debt and the Petitioner would pay only a small percentage of the forgiven debt.   With a lower payment and a mortgage based on fair market value of the property, homeowners would be more inclined to pay for and afford their mortgages on an ongoing monthly basis.

Such legislation is not new and has been discussed since in or about, 2007. However, the resurgence in the legislation has been fueled by the less than anticipated success of the current mortgage modification system’s ability to grant homeowners help in a timely and ongoing manner.

If there are any general questions or topics you would like to read about relating to bankruptcy law in the Philadelphia, Pennsylvania region, you may contact the Philadelphia Bankruptcy Lawyers at Sadek Law Offices, LLC at 215-545-0008 or email [email protected]. Thank you.