Loss Mitigation is a process available in the Bankruptcy Court of the Southern District of New York to attempt to help bankruptcy Debtors save their home from foreclosure by finding a solution for their mortgage arrears. The Loss Mitigation process occurs in conjunction with or during the bankruptcy petition filing and is for the purpose of trying to find an amicable solution between the Debtor and the mortgage lender(s) when one falls behind on their mortgage.
What is Loss Mitigation and How Can I Try to Save My Home? – Navigating the Financial Storm: A Beacon of Hope with Dena Ghobashy, Esq. – Presented by The Law Office of Dena Ghobashy, PLLC
The result(s) of the Loss Mitigation process may include short sale, loan modification agreement, quick claim deed, etc. The Loss Mitigation process in Bankruptcy Court is structured with local court rules that both parties must follow to stay in communication, make sure the process is flowing, and provide status updates and/or a reached settlement to the Bankruptcy Court Judge. The mortgage lender does not have to offer an option to the Debtor, and the Debtor does not have to accept a given offer from the lender, upon completion of the Loss Mitigation process. Loss Mitigation in Bankruptcy Court may provide a structured and informative process to try to achieve the best possible outcome for a Debtor in conjunction with their bankruptcy petition filing.
In some instances, if a Debtor does not qualify for, or agree to, a solution upon completion of the loss mitigation process, the Debtor may be able to pay off the mortgage arrears accumulated prior to filing bankruptcy through their Chapter 13 plan over the course of up to 5 years. For example, Debtor A properly filed a Chapter 13 petition and Chapter 13 plan and requested Loss Mitigation with the Bankruptcy Court. Debtor A has $15,000.00 in mortgage arrears on the property that they own and use as their primary residence and has followed the Loss Mitigation rules and procedure. The mortgage lender did not offer Debtor A any option or resolution to keep their home. If Debtor A has enough disposable income, they can pay the $15,000.00 in pre-petition mortgage arrears over the course of the maximum five years under the Chapter 13 plan.
Loss mitigation has certain rules to qualify for the process. For example, the property that is the subject of the loss mitigation process must be the Debtor’s real property where they reside as their domicile. Thus, loss mitigation in Bankruptcy Court may not be appropriate where a Debtor is trying to save their investment property or rental property where they do not reside. Loss mitigation may be requested at the start of the bankruptcy filing, or during the court of the bankruptcy. Loss mitigation may be requested not only for the principal mortgage on one’s real property, but for secondary liens as well.
A factor to consider in requesting Loss Mitigation with higher mortgage interest rates in the current financial climate, at roughly 6%, is that the possibility of the Debtor being offered an option by the lender to keep their home, such as through a loan modification agreement, may be less. With the current higher mortgage interest rates, it is not as feasible to offer a lower monthly mortgage payment with a higher interest rate than before, especially where one has fallen behind on tens or hundreds of thousands of dollars in mortgage arrears. Even with the possibility of a lender offering a loan modification to a Debtor with a lower monthly mortgage payment at the higher interest rate, a balloon payment, or certain amount of the loan, may then become due at the end of the loan term, which some may find unrealistic or impossible to later pay.
Author’s Bio
Dena Ghobashy is an attorney admitted in the Southern District of New York, practicing out of Poughkeepsie, New York. She has been practicing in the areas of bankruptcy and immigration for approximately 11 years. Upon graduating from Pace University for undergraduate studies, and the University of Illinois College of Law for a Juris Doctor, she was an Associate for one of DLA Piper’s international offices prior to starting her own office in Poughkeepsie, NY in 2014. In her spare time, she volunteers to coach basketball and soccer, and enjoys giving back to the community.
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