The Orlando bankruptcy court is preparing to adopt a rule providing for mandatory bankruptcy mediation between homeowners and their mortgage companies to facilitate mortgage modification. Congress rejected a change in the bankruptcy code that would have empowered Chapter 13 debtors to force reduction in their first mortgage principal to their residence’s current fair market value.
This proposed procedural rule will not circumvent the bankruptcy code law and will not force reduction of first mortgage principal. What the Orlando local rule will do is enable Chapter 13 debtors by motion filed with the Orlando bankruptcy court to compel a bank representative with full authority to modify their mortgage to meet with the debtor and an independent mediator to negotiate in good faith a possible modification of the debtor’s first mortgage terms. This bankruptcy rule should make Chapter 13 bankruptcy attractive to homeowners who want to save their homes provided they can obtain a reasonable modification of their mortgage.
The Florida Supreme Court is requiring mediation in state court foreclosure cases. This state court rule is helpful, but the bankruptcy court rule could be better for homeowners. In state court procedures the homeowner has to be in a foreclosure case before having the opportunity to mediate with a bank agent with full authority. The homeowner first has to stop paying the mortgage for at least three months, wait for the bank to file a foreclosure lawsuit, hire a civil attorney to answer the lawsuit, proceed for several months in civil litigation, and then at some point, arrange for a court ordered mediation.
Chapter 13 mediation should be faster and more definitive. A debtor probably can get an order requiring mediation with their mortgage lender very soon after filing a Chapter 13 bankruptcy petition. The borrower/debtor will not have to miss several mortgage payments and fall farther behind on their mortgage. The bankruptcy rule probably will permit a court order adopting any mediated mortgage modification which order can be recorded in the public real estate records.
I will report on the details of the Chapter 13 mortgage mediation as they become available. However, the bankruptcy procedure may provide homeowners more negotiating power and a much quicker resolution of mortgage problems.
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