Obama Administration Takes a Bold Step in Assisting Foreclosure Victims

March 16th, 2009 | Tags: Foreclosure Victims

With foreclosures continuing at an increased pace the Obama administration is taking bold steps in assisting foreclosure victims. The House has okayed a measure that will allow homeowners in mortgage debts to seek reduction of monthly payments by bankruptcy filing. The law was passed on Thursday 5th March but it is has not yet been finalized. Some changed will be effected.

Any homeowner showing that the person cannot afford the running mortgage will be eligible for the plan. But an attempt has to be made by the borrower to negotiate terms with the lender before filing bankruptcy. It has to be proved that the attempt has been made to contact the lender. Analysts opine that this move will benefit 350,000 homeowners over the next decade. The senators are seeking more limitations on the law narrowing down the eligibility to certain types and size of the loans.

Before filing the bankruptcy the borrower would have to contact the loan servicer asking for alterations in the terms of the loans. The borrower would also have to give details about his income, expenses as well as debts.

The borrower will be expected to give the servicer 30 days time to respond to their efforts at contacting them. Then only can they can proceed to file bankruptcy (Chapter 13). They can file bankruptcy even after the lender offers a workout plan but the judge would have to decide if the handshake offering was reasonable or not. The new deal is supposed to bring down the mortgage payment to a third of the gross income of the borrower.

Under the current law the bankruptcy judges do not have the right to alter the terms of the mortgage contract or any other type of loan – education, cars, vacation property etc.

The new measure does not prohibit assistance to those borrowers who were granted loans without submitting income proof and other relevant important documents. But this time the borrower would have to give the court a plan of “good faith” that would include the correct documents relevant to repayment of the loan.

If the borrower sells the house immediately after the completion of the bankruptcy case the lender would get a good share from the proceeds of the sale. The mortgage company would get 90% if the property was sold within a year of the bankruptcy case. With each passing year the proportion would decline – 70% after second year and 50% after third year. From the 5th year onwards it would be 5%.