“CHAPTER 13 CASES” – “Chapter 13 Cases” are cases filed under Chapter 13 of the United States Bankruptcy Code (hereinafter, “Chapter 13”). Chapter 13 Cases are sometimes described as “wage earner bankruptcy” cases, because they mainly are used by individuals with regular income to cure defaulted mortgage obligations for their homes. Traditionally Chapter 13 allowed up to sixty (60) months or (5) years, under a Chapter 13 plan, for debtors to catch up on their obligations and mortgage arrears. Under a traditional Chapter 13 plan, the debtor also, at same time, resumed on a going forward basis, paying their regular, monthly mortgage obligations. (Hereinafter, a “Traditional Chapter 13 Plan”). The problem with the Traditional Chapter 13 plan has been that once the debtors’s arrears exceeded a relatively low amount it was difficult for many debtors to both pay their monthly mortgage payment AND pay a monthly “catch up payment” under a chapter 13 plan, given that the plan length could not exceed 60 months. This problem had been partially overcome under Loss Mitigation Programs adopted by some of the U.S. Bankruptcy Courts (See, below). (FN #1 – For a discussion of different kinds of Chapter 13 plans, please see the Chapter 13 section of this website which is linked above).
“MORTGAGE MODIFICATION” NEGOTIATIONS AND AGREEMENTS” – “Mortgage Loan Modification Agreements” are negotiated mortgage default settlements, that modify the existing mortgage balance to incorporate the mortgage’s arrears into the loan principal balance (hereinafter, “Mortgage Modifications”). Mortgage Modifications are by far the most prevalent manner of consensually, reaching a settlement, between borrower and lender, that allows the saving of real estate, especially mortgaged homes in distress. Modification Agreements are discretionary on the part of the lender who reviews the borrower’s application for the modification in terms of available income, monthly expenses, the hardship that caused the default, the payoff amount of the loan, the amount of arrears and the value of the property. The effort to get a Modification is pursuant to an application and subject to a negotiated process involving documents, information and constant updates. (FN #2 – For a discussion of Mortgage Modification, please see the Mortgage Modification section of this website which is linked above).
“FORECLOSURE SETTLEMENT CONFERENCES” IN STATE COURT – During the last economic crisis, which resulted from excessively, aggressive mortgage lending, which eventually led to widespread foreclosure, from 2007-2010 (the “Foreclosure Crisis”), many state court systems and state legislatures, including that of the State of New York State (hereinafter “NYS”), embraced Mortgage Modifications as a potential solution. They passed laws and implemented systems, that actively encouraged settlement discussions, between the lender’s and borrower’s attorneys, at the commencement of foreclosure proceedings, under court supervision, to expedite, coax and motivate the parties to seek settlement, or loss mitigation, mainly in the form of Mortgage Modifications. In the NYS Supreme Courts, which are NYS’s lower level state courts administering foreclosure actions, these were called Mandatory Foreclosure Settlement Conferences (herein “Settlement Conferences”) and they have became institutionalized as part of the beginning of a foreclosure proceeding in NYS. Under the New York Civil Practice Laws and Rules (“NY CPLR”) Rule 3408 participation, good faith negotiations and cooperation during Settlement Conferences are statutorily required of both sides. Both the lender and the borrower are required to engage in several conferences, in State Court, where the Court supervises the parties’ efforts at potential resolution; however, the reaching of an actual agreement was not required. (FN #3- For the statutory underpinnings to Settlement Conferences in the New York State Courts, please see Rule 3408 of the NY CPLR which is linked above).
“LOSS MITIGATION PROGRAMS” IN THE U.S. BANKRUPTCY COURTS – It was during this time, and in this context that Mortgage Modifications became accepted by the judicial boards of many districts of the United States Bankruptcy Courts, including those of the Southern District of New York (hereinafter the “SDNY”) and the Eastern District of New York ( hereinafter, “EDNY”) { LINKS TO SDNY Bankruptcy Loss Mitigation Order and EDNY Bankruptcy Loss Mitigation Order implementing Loss Mitigation Programs in those districts}, as well as many other federal districts through the United States, which district by district, decided for that district, whether and how to incorporate Mortgage Modifications, and other methods of resolving mortgage arrears by consensual settlement. This system of seeking Mortgage Modifications within the Bankruptcy Courts was called “Loss Mitigation”, and the pursuit of modifications, as prevalent solutions in Chapter 13 bankruptcy cases, became not just a practical tool in the bankruptcy courts to help homeowners achieve the goals of Chapter 13, but absolutely necessary where the homeowner’s arrears exceeded a relatively small amount, where the traditional 60-month catch up plan was not sufficient. The Loss Mitigation Program in the U.S. Bankruptcy Courts was justified not just based on practical needs, but it was also arguably based on Section 105(a) of the United States Bankruptcy Code, which broadly gives general powers to the bankruptcy courts to implement the provisions of the Bankruptcy Code. (FN #4- For the judicial orders and rules forming the underpinnings to Settlement Conferences in the United States Bankruptcy Courts, please see the sample rules for the the judicial districts of the SDNY and EDNY which are linked above). (FN #5- For Section 105 of the Bankruptcy Code, which is the statutory general powers clause, used to give the U.S. Bankruptcy Courts, the authority to implement the Loss Mitigation Program; please see Section 105(a) of the U.S.Bankruptcy Code which is linked above).
The Settlement Conference system in the NYS Supreme Courts, administering foreclosure litigation, like the Loss Mitigation system in the SDNY and EDNY Bankruptcy Courts administering Chapter 13 cases, became part of the institutional fabric of the administration of the endless stream of cases that came before these courts seeking solutions for residential properties in distress. Often the parties before the courts are highly sympathetic middle class, working persons going through hard times struggling to keep their family homes and their lives intact.
The NYS Supreme Court Settlement Conferences occur mainly in the beginning of the foreclosure cycle, and have become opportunities to save homes at the start of foreclosure litigation, shortly after the “pleadings stage” — the lender’s Complaint and the borrower’s Answer — and prior to the foreclosure action going into a more serious litigation mode in terms of discovery and motion practice. The U.S. Bankruptcy Court Loss Mitigation conferences and efforts in the bankruptcy courts to modify the distressed mortgage loans, usually came more at the middle or end of the foreclosure cycle, when, and if, the homeowners realized that they needed more serious methods to save their property. Both court systems – the NYS Supreme Court system and US Bankruptcy Court system — are credited with encouraging Mortgage Modifications that have saved many family homes in the lower NYS area. Both systems had become necessary to achieve those goals. There is no question that both of these programs — in the NYS Supreme Court and in the SDNY and EDNY Bankruptcy courts — have been successful in easing the economic woes and mortgage arrears, for homeowners with distressed mortgages in foreclosure.
The NYS Supreme Court Settlement Conference system which is supported statutorily, by NYS laws, has become a permanent and important part of administering foreclosure cases, even as we distance ourselves from the Foreclosure Crisis of 2007-2010. However, the US Bankruptcy Court, Loss Mitigation Conferences for the bankruptcy courts that voted to incorporate them, were never “baked in” statutorily and as judicial creations they were more fragile, inconsistent and subject to changes in opinion, as to the law and perceptions of economic need and program efficiency. During the time the Loss Mitigation system has been in place in the EDNY US Bankruptcy courts, methods were implemented to give the Bankruptcy Courts more authority to curtail cases that were not good candidates for Loss Mitigation and to allow the Court to prevent prejudice to the secured creditor during the borrower’s efforts. These methods included, required expedited motions by the debtor to allow Loss Mitigation, which required Court approval; this change gave the Bankruptcy Court the authority to give approval to only cases with an economic possibility of modification. In addition to such motions, the Bankruptcy Courts required regular Loss Mitigation status conferences in each case to evaluate on an ongoing basis, the Loss Mitigation progress/prospects. Another change, that gave rights to the Lender, were case holdings that allowed mortgage holders to request “adequate protection”; “adequate protection” required that the Chapter 13 payments under the plan made by the homeowner go to the lender, rather than to the Chapter 13 trustee, so that if the loss mitigation was not successful, the lender would have been partially paid during the borrow’s attempt. Otherwise, if the case was dismissed, the Chapter 13 Trustee would refund 90% of the Debtor’s payments. Lastly, there were decisions that gave the Bankruptcy Courts the ability to sanction for non-cooperation and “bad faith” in the Loss Mitigation process. These added procedures were intended improve the fairness and efficiency of Loss Mitigation by curtailing what was perceived to be issues potentially hindering the Loss Mitigation Program, such as potentially ineffectual efforts and delay by an underfunded Borrower who is not a good candidate for Loss Mitigation, potential lack of cooperation by the Lender, and/or potential economic prejudice to the Lender, as the Borrower’s Loss Mitigation efforts took time and cost from the the Lender.
Although, the US Bankruptcy Court Loss Mitigation system was never seriously challenged legally, in the EDNY, recently some of its original Bankruptcy Judge supporters raised questions to its legal underpinnings, costs and results which caused them to opt out of the Loss Mitigation system. {LINK TO JUDGE GROSSMAN’S RECENT DECISION}. At this time in NYS many of the foreclosure cases that are remaining from the Foreclosure Crisis did not yet go to a foreclosure sale as some of the same homeowners are still struggling, sometimes successfully, to save their homes. Some eventually obtain modifications, some find other settlement or sale solutions and some prevail with foreclosure defense. However, looming on the horizon is a potentially new foreclosure crisis, the one that may result from the economic fallout from the 2020- 2023 Covid—19 Pandemic. The question is, whether at this time the Loss Mitigation system in the US Bankruptcy Courts should be strengthened, to give relief to homeowners in distress, due to the Pandemic and a rapidly changing economy, that is leaving many middle class families behind financially. Or, is there merit to what some of the Loss Mitigation Program critics state, that after many years of effort, the Program is not sufficiently grounded in law, economics, reality or good policy, to justify its high costs, time and inconsistent results.
Loss Mitigation | Southern District of New York | United States Bankruptcy Court
https://www.nysb.uscourts.gov/loss-mitigation
Scholarship Essay Sources // Please Print // Include With Sources
https://www.nysb.uscourts.gov/sites/default/files/LossMitigationProcedures.pdf
Scholarship Essay // Loss Mitigation Order
https://www.nysb.uscourts.gov/sites/default/files/LossMitigationOrder.pdf
Scholarship Essay // SDNY District Court Affirming Sanctions
http://www.ncbrc.org/wp-content/uploads/Hosking-SD-NY-opinion.pdf
Scholarship Essay // Forms for Loss Mitigation
http://www.bankruptcymortgageproject.org/dmdocuments/lf_loss_mitigation_forms.pdf
Bankruptcy Court in Eastern District of New York Adopts Loss Mitigation Program
https://www.weltman.com/publication-bankruptcy-court-in-eastern-district-of-new-york-adopts-loss-mitigation-program
Rule 9019-2 | Southern District of New York | United States Bankruptcy Court
https://www.nysb.uscourts.gov/rule-9019-2
In re Sosa, 443 B.R. 263 | Casetext Search + Citator
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Onewest Bank, FSB v Colace :: 2015 :: New York Appellate Division, Second Department Decisions :: New York Case Law :: New York Law :: US Law :: Justia
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Scholarship Essay // NDNY How To On Loss Mitigation
https://nysba.org/NYSBA/Coursebooks/Fall%202013%20CLE%20Coursebooks/Basics%20of%20Bankruptcy%20Practice%202013/Loss_Mitigation_Program_Handout.pdf
Scholarship // status of foreclosure cases in NYS in 2022
https://www.nycourts.gov/legacyPDFS/publications/pdfs/ForeclosureAnnualReport2022.pdf
Scholarship // How to avoid home foreclosure in New York
https://spectrumlocalnews.com/nys/central-ny/news/2023/06/05/how-to-avoid-home-foreclosure-in-new-york
ord_676-with-procedures
https://www.nyeb.uscourts.gov/sites/nyeb/files/ord_676-with-procedures.pdf
Bankruptcy Court in Eastern District of New York Adopts Loss Mitigation Program
https://www.weltman.com/publication-bankruptcy-court-in-eastern-district-of-new-york-adopts-loss-mitigation-program
Loss Mitigation and Mortgage Modification in Bankruptcy Courts – YouTube
https://www.youtube.com/watch?v=4GFZSXUAn-0
https://m.youtube.com/watch?v=4GFZSXUAn-0
Bankruptcy Courts Respond to Foreclosure Crisis with Loss-Mitigation Programs – ProQuest
https://www.proquest.com/openview/4c0f654faca9ec250567d233d538e9aa/1?pq-origsite=gscholar&cbl=33486
Loss Mitigation in Bankruptcy Court | Long Island Bankruptcy & Foreclosure | Law Firm
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Bankruptcy Court Grants Secured Lender’s Motion
https://www.bhpp.com/bankruptcy-court-grants-secured-lenders-motion-for-adequate-protection-payments-during-time-when-the-parties-participated-in-the-courts-loss-mitigation-program/
CHRG-111shrg65122
https://www.congress.gov/111/chrg/CHRG-111shrg65122/CHRG-111shrg65122.pdf
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Long Island Bankruptcy Cases May Undergo Radical Changes – Law Office of Scott J Goldstein LLC
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Changes To The Loss Mitigation Program In The Eastern District Of New York
https://www.debtlawyer.com/changes-to-the-loss-mitigation-program-in-the-eastern-district-of-new-york/
New York bankruptcy judge rules no adequate protection available to lender in Chapter 13 case prior to lender’s filed motion seeking adequate protection payments | Curran Antonelli, LLP
https://curranantonelli.com/bankruptcy-attorney-litigation-attorney/new-york-bankruptcy-judge-rules-no-adequate-protection-available-to-lender-in-chapter-13-case-prior-to-lenders-filed-motion-seeking-adequate-protection-payments/
Loss Mitigation – Jacoby & Jacoby
https://longislandbankruptcycenter.com/loss-mitigation/
https://longislandbankruptcycenter.com/loss-mitigation/amp/
Settlement Conferences | Department of Financial Services
https://www.dfs.ny.gov/consumers/help_for_homeowners/settlement_conferences
NYS Open Legislation | NYSenate.gov
https://www.nysenate.gov/legislation/laws/CVP/3408
Second Department Remands For Hearing on Whether Lender Negotiated in Bad Faith During Mandatory CPLR 3408 Foreclosure Settlement Conference
https://fhnylaw.com/second-department-remands-for-hearing-on-whether-lender-negotiated-in-bad-faith-during-mandatory-cplr-3408-foreclosure-settlement-conference/
Loss Mitigation: How Borrower Bankruptcies Impact Lenders – New York, NY Business Lawyer | Weltman & Moskowitz, LLP
https://www.weltmosk.com/post-detail.php?id=11113