Wiping out a mortgage entirely in Chapter 13 bankruptcy? I’d never seen it happen before. That is, until a few weeks ago when I got Judge Robert D. Drain of the U.S. Bankruptcy Court, Southern District of New York to rule that a mortgage loan and arrears should be wiped out in a Chapter 13 Bankruptcy case in White Plains.
You can read some of the coverage of the case in the New York Times by clicking here.
The Chapter 13 bankruptcy was filed to stop a foreclosure and attempt to have the mortgage modified. When a lender wants to get paid through the bankruptcy, it is required to file a proof of claim and attach to that claim all documentation required to prove that in fact the lender is the real owner of the loan and that it has its documents all in order.
If A Mortgage Lender Wants To Get Paid, They Must Prove They Own The Mortgage And Hold The Note
The lender in the White Plains Chapter 13 bankruptcy case (PHH Mortgage) could not prove that they were the owner of the mortgage. We get them every chance to prove that they owned the loan – in fact, we did everything we could short of begging for documents. At every turn, however, the lawyers dug themselves into a deeper hole.
The case is far from over, and the lender appears to be appealing the court decision. However, as it now stands, the lender has no claim in the bankruptcy court and the time in which a lender can file a claim has expired. In other words, PHH Mortgage will never collect a dime from my client through bankruptcy court.
This does not necessarily mean that my client has a house for free. There are numerous legal barriers left in this case. It certainly does mean that the lender has a huge problem.
For those of you who have mortgages, mortgage arrears, perhaps a subprime mortgage with high interest rates, a house which is worth less than you owe, there is hope. Bankruptcy attorneys must take a good, long and hard look at any mortgage in the bankruptcy setting or in the state foreclosure setting to:
- MAKE SURE THE BANK HAS THE RIGHT DOCUMENTS (they seldom do in my opinion)
- STOP THE COURTS FROM RUBBER-STAMPING EVERY BANK’S CLAIM IN BANKRUPTCY COURT OR IN STATE FORECLOSURE COURT.
This is often easier said than done. First, studies have shown that almost 98% of claims by creditors in bankruptcy are NOT SCRUTINIZED. That means under the current rules, that the claim is considered good regardless of lack or proof or phoney documentation UNLESS BROUGHT TO THE ATTENTION OF THE JUDGE.
It is up to you and your bankruptcy lawyer to closely review all claims in bankruptcy court or foreclosure court. From there, you can start to put together a plan to protect your rights.
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