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Couple looking doubtful

It is a new concept to combine bankruptcy and mediation. It might be something to consider.

There are benefits to conducting mediation in conjunction with a bankruptcy proceeding as other bankruptcy strategies for dealing with liens can be used at the same time. These include lien stripping to eliminate second mortgages or homeowners association liens and cram down to reduce mortgages on an investment property. There is also an advantage in that bankruptcy generally discharges any personal obligation on the debt underlying the mortgage. If the property is returned to the lender, the lender cannot obtain a deficiency judgment against you personally for any amounts that they were not able to recover from the sale of the property. This can encourage the lender to more seriously consider principal reduction where the amount of the mortgage exceeds the value of the property. Other unsecured debt may also be discharged in full or part, making the modification payments more affordable.

How Mortgage Mediation Works in Bankruptcy Court

After filing for bankruptcy, you can request mortgage mediation for the purpose of modifying your mortgage (including obtaining a reduction in principal) or to negotiate a surrender of the property if you do not wish to keep it. You and the bank will choose the mediator from a list of independently certified mediators on file with the Court and all application documents will be uploaded to an internet document portal.
The document portal is designed to avoid disputes over whether documents were provided. Documents in the portal will be immediately available for review by the mediator, the mortgage holder or servicer, and the debtor’s attorney. Documents can be added or updated at any time. They will not be viewable by the general public or by creditors in your bankruptcy case other than the mortgage holder you are mediating with.

While a Chapter 13 case is pending mediation, you will be required to make adequate protection payments to the bankruptcy trustee as part of your proposed Chapter 13 plan. The payments will generally track the general HAMP requirements and will likely be an amount equal to 31% of your gross monthly income. Each party will be required to pay a $300 mediator cost prior to the scheduling of the mediation. The attorney’s fee for the mediation is capped by the Court and is paid through your Chapter 13 plan. It is anticipated that the additional attorney fees will add approximately $50 per month to your Chapter 13 plan payments.

The mediation will take place with the mediator acting as a facilitator to assist with the modification process. Modifications may include traditional HAMP modifications, other government programs (excluding Florida’s Hardest Hit), or in-house modifications. Modifications can include extension of the loan term, principal reductions, and interest rate reductions. If you chose not to modify, the mediation can also be used to negotiate the terms of the surrender of the property, including occupancy time, deeds in lieu, short sales, and cash for keys.

Carolyn Secor P.A. focuses its practice in the areas of Bankruptcy and Foreclosure Defense in Clearwater, Florida. For more information, go to our web site or call 727-335-7151.