J Thomas Black
Board Certified, Consumer Bankruptcy Law- Texas Board of Legal Specialization

I'm sitting here in my law office in Houston today during the holidays, fielding calls from mortgage company attorneys, calling about wanting to foreclose on my clients' homes. My clients are in bankruptcy cases, but they've fallen behind on their mortgage payments, while they are in bankruptcy cases.

It seems like in prior years, the mortgage companies would give debtors a break, and not seek to foreclose during the holidays. But no such break this year. With record numbers of foreclosures, people out of work, and the economy in shambles, I can't imagine what they are going to do with all these houses. The one good thing on the horizon, at least for people that have Adjustable Rate Mortgages (ARMs), is that with the new administration in Washington, there may be a change in bankruptcy law that allows debtors (people in bankruptcy) to change the terms of their mortgages.

Many people in recent years took out (or were suckered into) so-called "predatory" mortgages, that increased the monthly mortgage payments greatly, after two years of artifically low payments. If this change in the law were to happen, they would be able to file Chapter 13 bankruptcy, and as part of the plan, change their mortgage permanently to a lower fixed interest rate mortgage.

The new law may even let them reduce the principal of the loan, down to the value of the house, if it is lower. I'm part of a national group that will be going to Washington DC in February to help convince Congress that this would be a good thing to do. It only makes sense. It may not stop the majority of the foreclosures that are likely to happen in the next few years due to the improvident lending that has taken place, but it could help stop quite a few. And keep many thousands and thousands of families in their homes, that would otherwise lose them. And it could help keep home prices stable. And it would be at no taxpayer expense, as the bankruptcy courts are already there, already operating, and do not need any additional funds to make this happen.

The ones that would pay, that would take a loss, would be the investors that allowed this housing "bubble" to happen, that funded these toxic mortgages. Frankly, they are going to have a much larger loss, if a foreclosure happens. I think the new "mortgage modification" bill makes sense. What do you think?

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