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Detroit Bankruptcy Court Aids Wayne County Homeowners

In our December 8, 2014 Newsletter, we discussed the possibility that the U.S. Supreme Court would come to the aid of Wayne County Homeowners and permit the "strip off" of a second mortgage. What is not widely known is that the Bankruptcy Court for the Eastern District of Michigan has taken the lead in helping homeowners to obtain loan modifications. The loan modification process currently takes place only when the homeowner files a chapter 13 bankruptcy. The loan modification process is not dependent on whether the homeowner is behind in payments on the mortgage. It does not matter whether there has been a prior request for modification. It does not matter if there was a prior rejection to a request or whether there is an ongoing request already in process.

Although there is currently no Michigan law that requires a mortgage lender to give a loan modification, the Bankruptcy Court has created a process by which the mortgage lender must consider a request for a home loan modification. The process created in the Bankruptcy Court requires that a mortgage lender review a homeowner's application for a home loan modification and sets deadlines for both the homeowner and mortgage lender to comply with. The request for the loan modification review is only available for a homeowner's primary residence and, therefore, would exclude vacation, rental and business properties. It is also only available to individuals whose household income will allow the homeowner to contribute to the modified mortgage debt. Of course, the client might not know whether the income is sufficient until the payment amount under the loan modification is known. The client's income, therefore, has to be more probable than not to support whatever the modified mortgage debt may be.

Once the Order Granting Debtor's Motion Requesting Mortgage Modification Review is entered, the mortgage lender must supply the homeowner with a loan modification package. The homeowner must thereafter give the mortgage lender a fully completed loan modification package with all timely supporting documents. After the review by the mortgage lender, the homeowner must provide the mortgage lender any additional financial records required within 10 days. The mortgage lender is required to designate a point of contact for the modification as the frequent complaint by homeowners is that they do not know who they are dealing with. The Court also requires status conferences to monitor the progress of the process.

Many Michigan homeowners have been advised by persons, who purport to be "in the know", to purposely fall behind in their mortgage payments in order to be eligible for a loan modification. While the mortgage lender delays consideration of their loan modification request, homeowners may find themselves behind in payments with the mortgage lender. Meanwhile, attorneys for the servicing agent of the mortgage lender are threatening foreclosure. Understandably, homeowners can get confused when the mortgage lender is doing one thing and the servicing agent another. The automatic stay of the bankruptcy court can prevent the foreclosure from happening provided the homeowner files the bankruptcy case before the foreclosure sale occurs. The loan modification can then proceed in bankruptcy without fear that a foreclosure will occur. The loan modification will, in most cases, cause any arrearage to be added to the principal balance and thus eliminate the default in the mortgage payments.

Homeowners frequently feel that their mortgage balance should be reduced because they have lost a significant amount of equity in their home. However, loan modifications almost never involve a reduction in the principal balance of the mortgage. A loan modification may involve extending the loan due date and/or reducing the loan's interest rate to lower the payment. A reduction in the principal balance of a mortgage will only occur if a home is severely depressed and that is usually paid in a lump sum and not over time. This writer has seen many successful mortgage loan modifications in a chapter 13 bankruptcy case which have resulted in homeowners keeping their homes while reducing other financial obligations.

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    Posted by MaryDecember 11, 2015

    "I am overwhelmed by your response to my call, even 10 years after my bankruptcy was discharged. You have more knowledge and expertise than I could have imagined. Because of you, my fears have been put to rest. For that, I'm so very grateful. Thank you many times over. "

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    "... I was extremely impressed with Charles' understanding of the bankruptcy laws to the extent that I felt certain that my best interests were always at the forefront. "

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    Posted by MarleneJanuary 8, 2014

    He helped me thru my 1st bankruptcy and now the second. I had no idea what to expect , but they kept me informed and answered all my questions. Mr. Schneider is the most experienced and knowledgeable lawyer I have ever met. If you have to file call this attorney first!

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