There are nine changes in the Bankruptcy code under the CAA, which extends additional support from the federal government both individual and business debts due to the COVID pandemic. Of these nine bankruptcy changes only three directly affect the residential mortgage industry. These are:
1. Chapter 13 only – Order of discharge entered albeit mortgage debt still in default. Even when the debtor has not cured the mortgage debt under chapter 13, a discharge order may be entered where 2 requirements are satisfied:
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- Debtor is behind three months or less in the mortgage payments due on or after March 13, 2020,
- Due to financial hardship caused by the COVID-19 pandemic. This provision sunset on Dec. 27, 2021.
Attorney Recommendation: In order to enter a discharge of this nature in a chapter 13:
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Procedural Occurrence
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Recommendation
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| The Trustee may still file a notice of final cure |
File Disagreed Response NFC form and preserve rights |
| Either the trustee or the debtor will have to file a motion to enter the discharge albeit the mortgage default |
File a response stating:
Default date, Amount of delinquency.
Whether there is equity.
Did debtor establish that the missed payments were directly or indirectly caused by a COVID-19-related hardship
Limited objection to discharge conditioned on clarifying that the mortgage debt is not being discharged. Debtor is only eligible to receive a discharge on other debts despite not making all mortgage payments due under the confirmed plan.
As it is not cured, and direct payment of the mortgage arrears then this entitles the lender to retain in personam liability. Ask to retain in personam liability.
Hold acting on default remedies and FCL where loss mitigation (forbearance/modification review) is sought.
Relief from stay granted upon discharge order entered.
Advise in the written response of a deadline to cure. |
| Motion to deem mortgage current may be filed by error or procedures |
Oppose. |
PROCESS: RECOMMENDED: Discharge – mortgage not cured
- Referred to Attorney
- Received by Attorney
- Acknowledgement and Review
- Payment History Needed
- Response uploaded for client approval
- Client approval complete
- Response filed with Court
2. ALL BK chapters – No discrimination against a debtor that applies for forbearance under sections 4022-24 of the CARES Act (pertaining to mortgage payment forbearances and the moratorium on evictions and foreclosures) due to a prior or present BK filing. A person may not be denied relief because of a bankruptcy filing. This provision sunsets on Dec. 27, 2021.
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Attorney Recommendation
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| Document and disclose the reasons for denying forbearance. i.e., income from employment which may include obtaining and reviewing YTD paystubs, debt ratio and value of the collateral based on market fluctuations and justified by a business judgment call..
Send letter of denial or acceptance and notify the court. |
| Discrimination on a forbearance application on the basis of a bankruptcy filing will be analyzed a) as bad faith (a factor to considered in loss mitigation reviews), AND b) against the law (illegal).
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| This is a protected class for the next year. This amendment could bring serious liability and CFPB sanction implications. |
PROCESS RECOMMENDED – Forbearance Pandemic Response – Denial Letter
- Add no- discriminatory statement to letter – to this effect “In accordance with section 525 of the Bankruptcy Code, __________ does not and shall not discriminate against applicants seeking a forbearance under sections 4022-24 of the CARES Act based solely because such debtor or bankrupt is or has been a debtor under the Bankruptcy Act.”
- Disclose factors used to determined denial letter. The recommendation to deny forbearance must be based on the debtor’s finances and justified as a business judgment call.
- Examples of form of discrimination:
- Refuse to extend forbearance or use different standards in determining whether to extend forbearance;
- Fail to provide information or services or provide different information or services regarding any aspect of the lending process, including forbearance availability, application procedures, or lending standards;
- Discourage or selectively encourage applicants with respect to inquiries about or applications for forbearance;
- Use different standards to evaluate collateral;
- Treat a borrower differently in servicing a loan or invoking default remedies; or
- i.e., Two BK forbearance applicants were told that it would take several days/months and require the payment of an application fee to determine whether they would qualify for a home forbearnce. In contrast, the representative of ____________ takes financial information immediately from a non BK applicant (debtor’s cousin J) and determined whether they qualified in minutes, without a fee being paid. The lender’s differential treatment violated this new law.
3. A. All chapters – A Supplemental POC is permitted to be filed post bar date listing the amount of CARES forbearance due within 4 months (120 days) of the forbearance due.
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Attorney Recommendation
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| Add a process: Supp. POC – Pandemic Response Forbearance Due. |
PROCESS RECOMMENDED:
- Refer to Attorney
- Received by Attorney
- Attorney Review payment history or spreadsheet with forbearance [partial] payments made; offer letter and acceptance where notice of forbearance not filed with Court
- Drop down with Date when the forbearance began and ended
- Due Date (120 days after last forbearance due)
- Upload for Client Approval
- Client Approval Complete
- Supp POC filed with Court
B. If the debtor fails to modify his plan to address the forbearance payment plan, the bankruptcy court (on its own motion), the U.S. Trustee’s office, the Chapter 13 trustee and/or creditor may move for such a modification. These changes sunset in on December 27, 2021.
Attorney Recommendation – File motion to compel modification of the plan pursuant to the sec 501 of the Code as amended by CAA and in conformity of the timely filed Supp POC.
PROCESS RECOMMENDED: Refer Motion to Compel Modification of the plan if a motion to modify has not been filed within 14 days of the Supp POC filed.
Lastly – Note that modifications and plan extensions of 87 months for chapter 13 debtors continue until March 27 2021with regards to confirmed plans.
