What happens when you take a homeowner who defaults on their mortgage into bankruptcy to stop the foreclosure sale? You get a situation that is disease ridden with errors. Katie Porter (@MsKatiePorter) recently wrote about this over at Credit Slips (@CreditSlips) in her article, What do bankruptcy mortgage servicing and Ebola have in common? where she explains that at least you can only get Ebola once, unlike the recurring problems with mortgage servicing in bankruptcy. Here’s why.
The moment a bankruptcy case is filed, the mortgage is deemed current. This should mean that the foreclosure sale is removed from the sale trustee’s website so that the consumer stops receiving the ridiculous amount of mail solicitations warning of the sale of their. More importantly, the mortgage servicer must stop adding late fees, inspection fees and other costs to the mortgage statement after the bankruptcy case is filed.
The amount of money owed to the lender that is equal all the payments missed by the homeowner, are put into a court approved plan payment under Chapter 13 of the Bankruptcy Code. This allows the homeowner up to five (5) years to get current on their mortgage and save their home from foreclosure. These ‘plan’ payments are in addition to the homeowner beginning to make their regular mortgage payments directly to the lender. The problem is that the servicers continue to hold the mortgage in default in their system and continue to add fees and costs during bankruptcy. Here is how we fix this.
Here in the Central District, near the end of a client’s Chapter 13 case, we can ask the Court to deem the client’s mortgage as CURRENT UPON DISCHARGE. This means that if the court approves this request, the client’s mortgage is current once their case is completed. Afterwards, if the client sees any fees and/or costs that are added to their loan after bankruptcy, the servicer is violating a court order that is enforceable.
***Disclaimer: This only applies to Chapter 13 cases***