Although the House of Representatives passed legislation earlier in 2009 to allow Bankruptcy Judges to modify loans secured only by a debtor's principal residence, 50 Democrats reversed themselves and rejected similar legislation recently introduced into the House. When questioned, some stated with passage of sweeping banking reform earlier in the day they could not vote against the banking industry twice in one day.
This vote was taken notwithstanding Congressional reports that evidence the banking industry is not modifying loans to preserve home ownership. And, when there is closer scrutiny of loans modified, research points to the inevitable default on such modifications. Further, most loan modifications, not being a modification of principal balances, results in a balloon due upon sale or refinancing. Are we a society of homeowners or home renters? And, one of my family law colleagues reports a brisk business of new clients, each of which coincidentally is also a bankruptcy client.
The real estate industry needs to come around to better understand that bankruptcy reform to allow judges to modify home loans will preserve home ownership and therefore home sales, while bank controlled modifications will do nothing more than create indentured servitude and a society of home renters; never being able to pay off their home loans.
Law Offices of Louis J. Esbin
Certified Bankruptcy Specialist - State Bar of California.