An Overview of the BBA’s Modification, Loss Mitigation & Other Means to Prevent Foreclosure CLE

By Courtney L. Benson, Goodwin Procter LLP

On April 24, 2013, the Consumer Bankruptcy Committee of the BBA’s Bankruptcy Section and the Consumer Finance Committee of the Financial Services and Bankruptcy Sections co-sponsored the Modification, Loss Mitigation & Other Means to Prevent Foreclosure CLE at the BBA.  Ann Brennan, Co-Chair of the Bankruptcy Education Committee, moderated the CLE.  Panelists included Virginia Pratt of the Ecumenical Social Action Committee, Adelina Janiak of Neighborhood Legal Services, Kate Nicholson of Parker & Associates, Claire Masinton, Special Counsel to the Attorney General’s HomeCorp., Todd Kaplan of Greater Boston Legal Services, Courtney Benson of Goodwin Procter LLP and Matthew Kane of Bulkley, Richardson and Gelinas LLP.

The timing of the CLE was relevant due to recent developments in both Massachusetts and federal law surrounding foreclosures and loan modifications.  Virginia Pratt discussed the pertinent topic of the process by which mortgagors can apply for modifications of their mortgage loans as a means to possibly prevent a foreclosure.  Ms. Pratt provided practical advice, cautioning that the loan modification application process can be lengthy, and that loan servicers can require extensive documented verification of income and other supporting data. 

Adelina Janiak focused on the use and impact of Qualified Written Requests (“QWRs”) sent pursuant to the Real Estate Settlement Procedures Act,  12 U.S.C. §§ 2601-2617.  Pursuant to § 2605(e)(1)(A), the purpose of a QWR is to permit mortgagors, or their agents, to obtain servicing-related information related to their mortgage loan.  Ms. Janiak warned that to qualify as a QWR, § 2605(f)(1)(B) requires that the mortgagor send written correspondence clearly identifying the loan at issue and a substantive explanation of why the mortgagor believes there is a servicing error.  Sending a note “on a payment coupon or other payment medium supplied by the servicer” does not qualify as a QWR under § 2605(f)(1)(B).  She explained that § 2605(e)(2) requires the servicer to respond to the QWR by correcting the alleged account error, if an error was in fact made, and providing the mortgagor with a written explanation of the investigation it undertook.

Kate Nicholson focused on the interaction between a mortgagor filing for bankruptcy and applying for a loan modification.  Ms. Nicholson discussed the benefits of filing for protection under Chapter 13 of the U.S. Bankruptcy Code versus applying for a loan modification.  She advised that mortgagors consider factors including the date of any foreclosure sale, the amount of equity in the property, the mortgagor’s ability to make regular payments, the status of any current loan modification application, the client’s end goal and the achievability of a Chapter 13 plan when deciding whether to file a Chapter 13 bankruptcy.  Ms. Nicholson also discussed the possibility of amending a Chapter 13 plan to include post-petition mortgage arrears over a lender’s objection.

Claire Masinton delved into Massachusetts’s Act Preventing Unlawful and Unnecessary Foreclosures, which passed in August 2012.  Ms. Masinton concentrated on G.L. c. 244, § 35B(c)’s requirement that creditors must send notice to mortgagors of “certain mortgage loans,” a statutorily defined term, that they have a right to pursue a loan modification.  Under G.L. c. 244, § 35B(b), creditors are also prevented from publishing a notice of foreclosure sale with respect to these “certain mortgage loans” without first making a reasonable and good faith effort to avoid foreclosure proceedings. 

Todd Kaplan addressed how to effectively assist debtors after a Chapter 7 discharge, and how to assist in situations in which a debtor is not on the underlying promissory note.  Mr. Kaplan discussed the scenario of proposing a Chapter 13 plan that addresses current arrearages and payments when a client is not on the note.  Mr. Kaplan referenced a successful outcome for a Greater Boston Legal Services client in which a debtor who was not on the note filed a Chapter 13 bankruptcy and was subsequently offered a permanent loan modification.  He advised that debtors and their counsel must be proactive after filing a Chapter 13 plan by contacting the lender or servicer to discuss possible loan modification options.

Courtney Benson and Matthew Kane provided insight from the lenders’ and servicers’ perspectives on topics including loan modifications and post-foreclosure mortgage litigation.  Ms. Benson discussed the process of applying for a loan modification under the U.S. Treasury’s Home Affordable Modification Program (“HAMP”) and the litigation theories advanced involving HAMP.  Ms. Benson also provided practical advice and emphasized that defaulted mortgagors who have stopped making payments on the loan should escrow their payments if their goal is to obtain a loan modification or other relief.

Mr. Kane discussed post-foreclosure mortgage litigation, highlighting summary process actions.  Mr. Kane discussed the elements, and sufficiency thereof, that plaintiffs in summary process actions must establish to demonstrate proof of title.  He also addressed the ensuing challenges to title raised by defendants and the fact that the only available challenge to a defendant in a summary process action is a title challenge.

The CLE provided cohesive, relevant advice, applicable to bankruptcy and financial service industry attorneys alike.