Legally reviewed by Allen A. Kolber, Esq. - The Law Offices of Allen A. Kolber, Esq., P.C.
Key Takeaways
- Co-op shareholders qualify for the program, not just owners of real property.
- While loss mitigation is pending, your lender cannot move to lift the automatic stay.
- In a Chapter 7 case, entering the program delays your discharge until it ends.
- You do not have to dismiss your bankruptcy to accept a settlement.
When people struggle with their finances, it can lead to difficult times for individuals and their families. Sometimes, poor financial situations may result in filing for bankruptcy to stop the foreclosure of their home. Having a home is extremely important for a family, so there are ways for people to seek help during this time of need. The Loss Mitigation Program is offered by the Bankruptcy Court in order to help individuals find a solution to their financial problems. It is possible for loss mitigation to save a home from foreclosure and erase certain costs that a debtor may have been required to pay. It is crucial to have an experienced attorney at your side through matters such as these.
What Is the Loss Mitigation Program?
Finances can sometimes become very overwhelming. They have the potential to consume people and make it difficult for them to get back on their feet during difficult times. Because of this, the Bankruptcy Court offers options to assist people in finding options. The Loss Mitigation Program allows debtors and lenders to work together in order to reach an agreement that can save the debtor’s house from foreclosure. When this happens, the Bankruptcy Court will watch over the process and step in when they need to.
The program allows a homeowner to apply for a loan modification, which requires the bank to review their finances. This requires the homeowner to provide the bank with:
- Financial statements or profit & loss statements
- Personal bank statements
- Paystubs from wage earners in the family
- Tax returns
- A current utility bill to prove residency
- A hardship letter
After this, the bank may determine whether or not the homeowner is eligible for a government or bank loan modification, a loan refinance, short sale, forbearance, surrender of property, or a combination of these options. It is important to note that banks will not approve an application for a loan modification if they believe the debtor does not have an income sufficient to meet monthly mortgage payments.
Am I Eligible?
Debtors that file for Chapter 7, 11, 12, or 13 bankruptcy may participate in the Loss Mitigation Program so that they may work towards a resolution. Individuals are eligible to join the program if they hold an interest in real property or in a cooperative apartment serving as their principal residence. The co-op point is especially important in New York, where many residents own shares in a building rather than the property itself, and the program rules handle both the same way. The loan itself may be a first or junior mortgage. Additionally, it does not matter if the property was already in foreclosure before you filed or has since been sold to a servicer.
How Does the Program Actually Run?
Loss mitigation may be requested at any point before a discharge is entered, and it does not have to be you who makes the request:
- A Chapter 13 debtor may flag it in the plan itself
- Any debtor can submit a separate request
- A creditor may request it
- The court can order it at its own discretion
When you request the Loss Mitigation program, your lender has fourteen days to object. On the other hand, when a lender requests it, you only have seven days to object. If nobody objects, the court will enter the order.
You can even make this request at the hearing on a motion to lift the stay, which is typically exactly when this matters most.
The First Conversation Determines the Schedule
Once the order is entered, the parties hold an initial call to agree what solutions are on the table and how documents will be exchanged, including the date your paperwork is due back. Your lender then has seven days to serve its information request, and you have 14 days to respond. Either side may also ask the court to appoint a mediator from its own register.
The Court Keeps Watch, and May Extend the Clock
You will be required to submit written status reports that inform the court:
- If the sessions have happened
- If anything was resolved
- If more sessions would help
Any party may request a status or settlement conference at any point, and either side may request that the mitigation period be extended. Whoever attends must have the full authority to settle.
What Does a Loss Mitigation Order Actually Do?
Getting into the Loss Mitigation program is not simply a scheduling matter. Once the court enters a Loss Mitigation Order, several things will change in your case simultaneously, and two of them are the reason the program is worth considering.
Your Lender Cannot Move to Lift the Automatic Stay
While loss mitigation is pending, a creditor cannot pursue a motion for relief from the automatic stay, except when it is necessary to prevent irreparable injury. If your lender filed one before the order was entered, that motion will be adjourned until after loss mitigation ends. This ultimately provides you with room to negotiate, rather than racing a foreclosure.
In a Chapter 7 Case, Your Discharge Waits
One important matter that often goes unmentioned is that entering Loss Mitigation during a Chapter 7 case will defer the entry of your discharge order until the day after loss mitigation is formally terminated. The deadline for creditors to object to the discharge will not be extended, but your financial fresh start will arrive later than it otherwise would.
What You Say Cannot Be Used Against You
Communications and information exchanged during the loss mitigation process are generally inadmissible in any later proceeding. Both sides are also required to negotiate in good faith, and a party that does not may be subject to sanctions.
Do I Have to Dismiss My Bankruptcy to Accept a Settlement?
No, and the rules of the Loss Mitigation program mention this aspect twice. You are not required to ask for dismissal of your case in order to accept a resolution reached during loss mitigation, and you should not be pressured into it. In fact, the parties are supposed to bring the agreement to the court for approval, which is what makes it enforceable. If you are unrepresented, the court will hold a hearing, and you must appear in person before any settlement is approved.
Contact Our Experienced New York Bankruptcy Firm Today
If you are facing bankruptcy and wish to apply for the Loss Mitigation Program, the team at the Law Offices of Allen A. Kolber, Esq. is ready to help you. Our firm understands that bankruptcy, loan modifications, and loan mitigation can be incredibly overwhelming, which is why we are here to assist you every step of the way. Contact us today to learn more about your options.
