When a New York homeowner is struggling financially and facing foreclosure, they have a few options if they are seeking to retain their home. They can fight the foreclosure lawsuit in state court. They can try to obtain a loan modification in the Foreclosure Settlement Part of the Supreme Court under the supervision of a court appointed referee. They can reinstate the loan if they have the money to bring the loan current in one lump sum payment, or they can pursue remedies in the U.S. Bankruptcy Court. The filing of a bankruptcy petition will typically provide an automatic stay which will pause the foreclosure proceedings and cancel any scheduled sale date. There are two different ways a homeowner who is behind on their mortgage can retain their home in bankruptcy. First, if a homeowner has the disposable income in his or her household budget, then they can pay back their past due payments in a Chapter 13 bankruptcy payment plan over 60 months. Alternatively, they can seek loss mitigation in either Chapter 7 or Chapter 13 bankruptcy.

What Is Loss Mitigation?

The term “loss mitigation” is intended to describe the full range of solutions that may prevent either the loss of a debtor’s property to foreclosure, or increased costs to the lender, or both. The terms of a loss mitigation solution may vary in each case according to the particular needs, interests, and goals of the parties, but when a debtor is attempting to retain their property, there is one solution that debtors seek in loss mitigation: a loan modification.

If the homeowner qualifies, the mortgage lender will restructure the homeowner’s existing mortgage loan, which will bring the debtor current on the loan and end the foreclosure case against the homeowner. The modification may modify the terms of the loan in a number of different ways. However, the modification offer really depends on what modification programs are available from the mortgage provider. Some of the options include: putting the mortgage arrears on to the back of the loan while extending the term of the loan, lowering the interest rate, and putting the arrears into a balloon payment that is dues at the end of the loan term. The goal is to make the monthly payment affordable and enable the homeowner to retain the property. However, the loan modification also has to satisfy the lender’s guidelines and is in no way guaranteed, as a lender is not obligated to approve a loan modification application.

Loss Mitigation in The Bankruptcy Court

As the remnants of the foreclosure crisis that started in the mid-2000’s still winds its way through the New York Court system, an increasing number of debtors in New York City and Long Island have sought to obtain a loan modification through loss mitigation in the Bankruptcy Court. The Loss Mitigation Program was designed to function as a forum in individual bankruptcy cases for debtors and lenders to reach consensual resolution whenever a debtor’s residential property is at risk of foreclosure. The Loss Mitigation Program aims to facilitate resolution by opening the lines of communication between debtors and lenders. In the Bankruptcy Court’s Loss Mitigation Program, a federal bankruptcy judge will oversee the loan modification process. In our experience, lenders are more responsive in the Bankruptcy Court’s Loss Mitigation program than the New York State Supreme Court Foreclosure Settlement Part and borrowers often get better results.

Changes To The Loss Mitigation Program in The Eastern District Of New York

In the Bankruptcy Court of the Eastern District Of New York, Chief Judge Craig, and Judges Stong, Grossman, Lord and Scarcella all participate in the Loss Mitigation Program. Judge Trust does not participate in the program. The judges in the Eastern District of New York have begun to tighten the requirements to access the Loss Mitigation Program so as to not waste judicial resources. This started in the Central Islip Division when on December 3, 2018, Judge Grossman started requiring a motion that gauges the debtor’s likelihood of success in obtaining a loan modification be brought by the debtor in order to take part in the Loss Mitigation Program. Later, on March 4, 2019, Judge Scarcella began requiring such motions. This stricter requirement is now required in the Brooklyn Division of the Eastern District Of New York. Starting on July 1, 2019, all cases requesting loss mitigation assigned to Chief Judge Craig require the same motion that was introduced in the Central Islip Division. The specific motion requirements are as follows:

The debtor shall: (a) serve the application upon the Office of the United States Trustee, the Chapter trustee and the mortgagee, in compliance with the Court’s loss mitigation procedures, (b) provide for 17 days’ notice, and (c) obtain a hearing date via the Court’s website.

The application shall: (a) include (i) the address of the subject property, (ii) the name of the mortgagee and (iii) the last 4 digits of the loan number, (b) include sufficient information to demonstrate that the debtor has a likelihood of succeeding in loss mitigation, (c) state whether the debtor has been denied loss mitigation option(s) within the year prior to the current request, and (d) if the debtor has been denied loss mitigation option(s) within the year prior to the current request, explain what circumstances have changed since the prior denial.

A motion for relief from the automatic stay pursuant to Bankruptcy Code section 362 filed by the mortgagee shall be adjourned to the date of the hearing on the debtor’s loss mitigation motion.

The end result of these motion requirements is that a debtor who has been previously been denied for a loan modification in the year prior to the motion without any change in circumstances may be denied access the program. While the motion requirements are designed to deny access to the Loss Mitigation Program to debtors who are not likely to obtain a loan modification and are using the program to simply forestall an eventual foreclosure auction, debtors who have been improperly denied should still be allowed to participate in the program.

If you are facing foreclosure and want to find out your options, please feel free to contact the Law Offices of David I. Pankin, P.C. at 888-529-9600 or by using our easy online contact form. David I. Pankin is a Long Island bankruptcy lawyer with offices in convenient locations – Manhattan, Brooklyn and Melville.

Additional Resources

For more information about Chapter 13 Bankruptcy: https://www.debtlawyer.com/chapter-13-bankruptcy/

For more information about Loss Mitigation in the Bankruptcy Court for the Eastern District of New York: https://www.nyeb.uscourts.gov/loss-mitigation