Loss Mitigation within the Bankruptcy context

A few Bankruptcy Courts offer a program known as Loss Mitigation. The U.S. Bankruptcy Court for the Western District of Pennsylvania is unique in that it does participate in this program. This program is designed to assist people that are delinquent on their mortgage and in danger of losing their home through foreclosure. Its' purpose is to bring the lender and the debtor together to resolve the delinquency and hopefully enter into a loan modification agreement. In order to be eligible to participate in this program, the real property must be used as the debtor's principal residence, in which he or she holds an interest. The program is available to a debtor, who is in either a Chapter 7 Bankruptcy or a Chapter 13 Bankruptcy.

To start participation in the program, it is necessary to file a motion or a Notice of Request for Loss Mitigation. This motion may be filed anytime after the filing of the bankruptcy and until 30 days after the first scheduled meeting of creditors. One of the provisions that a debtor should place in his or her motion is a statement indicating that mortgage payments will be made that are at least 60% of the monthly principal and interest payments plus 100% of any escrow payments. There are times when a person is late in filing their request to participate or may not even decide until later that they want to beome involved in the program. It is possible to make a late filing for such participation. However, the Court generally will not grant a late filed request unless a person can show cause or exigent circumstances. In any event, if the lender consents to the debtor's late request, then a late request will generally be granted. 

There are many deadlines to meet throughout the court process. In order to proceed through the process smoothly, the court wants a person to be ready. Therefore, there are certain items that need to be completed in advance prior to filing any motion. During this process a person utilizes what is known as the Portal or the Default Mitigation Management website. This website will allow you to download many of the documents that you need to complete, and any communications between the lender and the debtor are to be exclusively through the Portal. After a person has performed all the requirements of due diligence and prepared all of the documention, then a certification of eligibility and readiness and a proposed Order must be attached to the Motion or Notice of Request for Loss Mitigation. Once the motion has been filed, it is then necessary to serve it on all creditors who have liens on the property. This would basically mean any mortgage, lien or extension of money or credit that is secured against the property. The creditor now has 14 days from the service of the Motion to object. If there is no objection filed, then the Court will enter the Loss Mitigation Order. A person is now ready to proceed through the program. The creditor must register and post its' "Core LMP Package", which includes all forms and supporting documentation that it requires to reach a modification agreement on the Portal within 14 days of the entry of the Loss Mitigation Order.   

The debtor has now gained entry or participation into the Loss Mitigation Program. In order to be successful, it is necessary that the debtor diligently meets all deadlines. The debtor must upload and submit through the Portal the completed "Core LMP Package" within 7 days after the later of the entry of the Loss Mitigation Order or the registration of the creditor on the Portal. The creditor must acknowledge the receipt of the debtor's submission of the "Core LMP Package" within 14 days of its submission. The creditor is further required to inform the debtor of any additional or missing documentation that is required to allow it to peform a proper assessment. The debtor is required to file and serve a "LMP Status Report" within 60 days after the entry of the Loss Mitigation Order. Sometimes a debtor may decide that they no longer wish to participate in the "LMP process". In that instance, the debtor is required to file a Motion to Terminate the Loss Mitigation Program. Upon the conclusion of the Loss Mitigation period, the debtor shall file and serve a "LMP Final Report" within 7 days of the expiration of that time period. It should be pointed out that this report is required to be filed even if your case was dismissed or converted. Even if your bankruptcy case gets dismissed, if you were able to reach a loan modification agreement, that agreement would still stand.

Near the conclusion of the Loss Mitigation Period, the debtor and the lender may enter into a loan modification agreement. Prior to finalizing any agreement, the lender oftentimes wants to enter into any agreement first on a trial or interim basis. This is for the debtor to show good faith and to show his or her ability to pay the agreed upon mortgage payment normally over a three month period. Should the debtor satisfy his or her obligation by making all payments, then the creditor shall extend an offer for a final loan modification within 14 days of the last interim trial modification payment. The debtor is required to file a proposed order to approve the interim trial loan modification at least 14 days before the first loan modification payment is due. Assuming the debtor is in a Chapter 13 Bankruptcy, then the proposed order must be filed at least 14 days prior to the Chapter 13 Trustee's distribution date. This date is normally during the last full week of the month. Once the Order is signed the Chapter 13 Trustee must be immediately served to effectuate any distribution.

The Loss Mitigation Period is for a total of 120 days, unless the Court extends it for cuase. Sometimes the lender and the debtor have not quite reached an agreement, but are close to being able to finalize a loan modification. In that instance, the debtor must file a Motion for Extension prior to the expiration of the time period. The Court will generally grant the extension and extend the Loss Mitigation Period for another 30 days. There may be situations were you may want to have it extended again. Be sure and file the Motion before the expiration period because once the Loss Mitigation Period has terminated there is no guarantee that it will be extended. The creditor or lender must file any objetion to the request to extend the Loss Mitigation Period within 7 business days from the service of the motion.

The ultimate goal of entering into the Loss Mitigation Program is to enter into a loan mofication agreement with respect to your current mortgage.  There are certain federal guidelines that the lenders must follow in order to modify a mortgage. Oftentimes, the agreement may include lowering your mortgage payment and placing any mortgage arrears at the back of your mortgage. Once an agreement has been reached, it is necessary to have such agreement approved by the Court. The debtor is required to file a Motion to Authorize the Loan Modification. Assuming the Court approves the loan modification and the debtor is in a Chapter 13 Bankruptcy, then an amended plan shall be filed within 14 days of the entry of the Order approving the loan modification should the loan modification impact the existing Chapter 13 Plan. However, if only the mortgage payment amount changes, then there is no need to file an amended plan. If there has been a significant change in the debtor's expenses as a result of the loan modification, then the debtor shall file an amended Schedule I and J within 14 days of the entry of the Order approving the loan modification.

If you find yourself in a similar situation and you feel that the Loss Mitigation Program might help you or you simply have additional questions about filing bankruptcy, then call Pittsburgh Bankruptcy Attorney Rodney D. Shepherd at 412 471-9670 or complete our online contact information form. Our office will immediately contact you and schedule a free consultation.