Loan modifications generally take three forms in New York:
HAMP (government sponsored) or In-House Modifications
Mortgage lenders and servicers all have procedures in place to assist homeowners
at risk of default or
foreclosure. They will make the process difficult, frustrating and seemingly never-ending,
but they do actually modify a fair number of mortgages for qualifying
homeowners ("qualifying" meaning that they have some income,
but not too much). On the other hand, mortgage holders also deny modifications;
sometimes for fabricated reasons, and other times because a modification
does not benefit the investor. Foreclosures often ensue at this stage.
In New York, however, this is also where things get more interesting.
Foreclosures in New York
New York has adopted an exciting (at least for some of us) program in the
residential foreclosure part of the New York Supreme Court (where all
residential foreclosure take place), called the Foreclosure Conference
Part (PC Part). It is a mandatory, court-sponsored mediation in front
of a Court-appointed referee. The goal of the PC Part is to work towards
a loan modification. While often this process becomes a second go-around
using the same information already submitted to the bank privately, there
are distinctions. For example, there is typically less funny-business
between the parties. The bank cannot move forward with their foreclosure
action until the matter is "released" from this PC Part and
returned to the standard "IAS" part of the Court. For this to
happen, the referee must consent. From a practical standpoint, the PC
Part can also buy the homeowner some time while the loan modification
is negotiated. Time to build up money with which to reinstate the loan;
time to prepare to move to a new residence; and time to determine whether
or not to file for Bankruptcy protection.
Loss Mitigation in Bankruptcy
Another feature available in most New York federal courts is "loss mitigation," which is a fancy term for a loan modification (among other foreclosure alternatives). Loss mitigation can be requested as part of a Chapter 13, or, less commonly, Chapter 7 bankruptcy filing. As in state court, one benefit is that the bank is now in front of the Court. While the Court is unable to compel a mortgage holder to modify a mortgage, the Court's presence tends to have more sway than an individual homeowner's pleas for mercy. Additionally, if the mortgage holder does offer a modification, the terms receive the Court's stamp of approval (known as "So Ordered"). This precludes the occasional mortgage-holder-practice of reneging on or "forgetting" about a previously offered modification.
In addition, whether or not a modification is offered through bankruptcy loss-mitigation, a debtor who has sought bankruptcy protection under Chapter 13 also has the right to pay any outstanding (pre-petition) balance over a 5-year period; the bank has no right to foreclosure during this period, provided that the monthly mortgage payments and the filer's Chapter 13 plan payments are made.
