House of Representatives Fails to Pass Loan Modification Bankruptcy Legislation

Services for Real Estate Pros with Law Offices of Louis J. Esbin

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.


Lou Esbin

Law Offices of Louis J. Esbin

Certified Bankruptcy Specialist - State Bar of California.


Comments (2)

Lenn Harley
Lenn Harley,, MD & VA Homes and Real Estate - Leesburg, VA
Real Estate Broker - Virginia & Maryland

Aw, come on Louis. 

Those Congresspersons know which side of their wallet the money is in.

The banks pay them generously for their votes. 

An individual consumer hasn't a prayer with the Congress as presently constituted.  The prostitutes on The Hill know which corner the Johns with the stuffed wallets drive by.

Dec 11, 2009 08:18 PM
Louis Esbin
Law Offices of Louis J. Esbin - Santa Clarita, CA

Ah yes, Et Tu [insert elected official's name]!

And, the recent HAMP Guidelines expressly state that the filing of a bankruptcy AND failure of the judge to approve the short sale will terminate the offer.

What this means is that Realtors and bankruptcy lawyers must work together more often and more closely for the interest of the client.  If the property is short sold and there are no longer any secured contractually due payments on the home, the homeowner may not qualify for Chapter 7 and must file under Chapter 13, resulting in a 3 to 5 year repayment plan, even though they no longer have the property to save.  Very often credit card and other debt should be discharged for a fresh start, not merely the house sold.  And, the HAMP forms state that there WILL be issued a 1099c for debt forgiveness, which means that a bankruptcy MUST be considered to eliminate the possible taxable income.

Lenn,  please spread the word - HAMP may make short sales more streamlined, but the Realtor should also advise a client to seek insolvency/bankruptcy/short sale legal advice without fear of losing the sale, as a well seasoned bankruptcy attorney will know how to coordinate bankruptcy court approval of the short sale.  i have been doing such motions and getting such orders for 24 years!

Lou Esbin

Law Offices of Louis J. Esbin

Dec 13, 2009 02:50 PM