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Home Foreclosures: 10.8.2.5 Redemption or Purchase by Group of Tenants

In certain states, tenants also have the right to redeem the property by paying the mortgage debt prior to the foreclosure or by paying the foreclosure sale price after the sale when state law provides a statutory right of redemption.712 While this right may appear at first to be of little value to most tenants, a group of tenants working together with a community group or government housing agency may be able to use the redemption right as a means to obtain mortgage financing to purchase the property.

Home Foreclosures: 10.8.3 Rights of Tenants If Their Landlord Files Bankruptcy

In many cases involving foreclosure on a landlord, the landlord files bankruptcy in an effort to retain the property. Most such cases are filed under chapter 7 or 11. Residential property may be transferred away from the current landlord during or immediately after the bankruptcy process. In some situations, the transfer will be voluntary and in others required by the court.

Home Foreclosures: 5.5.2.6 The Consequences of Noncompliance

Most courts require strict compliance with statutory and contractual requirements for notices that must precede a foreclosure.249 This is particularly true for non-judicial foreclosures, where the lack of oversight heightens the importance of all procedural protections available to borrowers.250 Lack of compliance with notice requirements can be a basis to enjoin a pending non-judicial sale or prevent entry of a judgment of foreclosure.251 When ser

Home Foreclosures: 8.2.2.1 Overview

Mortgage loans typically involve a thick stack of paperwork. Some of these documents are required by federal or state law. Others are used because of industry custom or lender practice. Some documents, such as a pooling and servicing agreement or an assignment, may be generated after the loan closing as the loan travels through the secondary mortgage market. Mortgage servicers also generate records, such as payment histories and escrow account information, which may be relevant to a homeowner’s claims.

Home Foreclosures: 8.2.5.2 Payment History

A complete life-of-the-loan payment history should be obtained from the current servicer. The payment history should provide a complete breakdown of all transactions from the date of the original loan closing to the present. The payment history should show each payment received as well as how that payment was credited.

Home Foreclosures: 8.2.5.3a Periodic Statements

For closed-end loans, servicers are required to send periodic statements to borrowers on residential mortgage loans unless an exemption applies.40 Exemptions to the periodic statement rule apply to reverse mortgages, timeshare plans, and if the servicer provides the consumer with a coupon book that provides specific information about the loan, a practice not much used anymore.41 Small servicers, as defined an

Home Foreclosures: 8.2.5.6a Bankruptcy Notices

If the borrower filed a chapter 13 bankruptcy case to cure a mortgage default after December 1, 2011, Bankruptcy Rules 3001 and 3002.1 require the servicer to disclose prepetition default fees and arrearage amounts on the initial proof of claim, send notices of any mortgage payment changes, send notices of any fees and expenses that are charged to the borrower’s account during the case, and file a response at the end of the case indicating whether the borrower has fully cured the default.53

Home Foreclosures: 8.2.7.6 Rating Agencies

Credit rating agencies provide opinions on the creditworthiness of particular companies, securities, or obligations. The growth of complex financial products in the mortgage market has meant that the rating agencies play a bigger role in this sector. As a result, the agencies collect a tremendous amount of data related to lenders, servicers, insurers, and other parties involved in mortgage transactions. This data includes both financial and operational information.

Home Foreclosures: 9.3.7.9 Stays Pending Appeal

It is important to remember that once the automatic stay is terminated by order of the court or otherwise, if an appeal is contemplated, it may be essential to obtain a stay pending appeal.

Home Foreclosures: 9.4.1 Generally

At some point after default, some homeowners resolve their financial problems and are able to resume making their monthly mortgage payments. Others may be able to reprioritize their debts and ongoing expenses in order to free up sufficient funds to make payments. However, a big hurdle for low- and moderate-income homeowners is that most cannot afford to pay their accumulated mortgage arrears in a lump sum.

Home Foreclosures: 9.4.2.3 Cure Rights When the Sale Process Is Not Yet Completed Under State Law

Some courts have found that a debtor retains an interest in foreclosed property under state law until the appropriate person (in most states, the mortgage holder, the trustee, the sheriff or another public official) executes a deed to the foreclosure sale purchaser (or similar memorandum that satisfies the statute of frauds),283 and the consideration (purchase price) has been paid,284 or the sale has not been confirmed by the court when confirmation is required.

Home Foreclosures: 9.6.5 Short-Term and Reverse Mortgages

Section 1322(c)(2) provides that, notwithstanding section 1322(b)(2), in a case in which the last payment on the original payment schedule for a claim secured only by a mortgage on the debtor’s principal residence is due before the due date of the final plan payment, the plan may modify the creditor’s rights pursuant to Code section 1325(a)(5).

Home Foreclosures: 15.3.3.4.4 Using bankruptcy to prevent foreclosure

After the death of the homeowner, heirs may want to keep the home, but may not have sufficient cash on hand, or qualify for a refinance, to pay the large lump sum payment due, even within six months of the homeowner’s death.184 For homes with little to no equity remaining, refinancing in a tight credit market may be impossible. Similarly, in a soft real estate market, heirs may have difficulty selling the property within the six-month window, or additional time as approved by HUD (up to a year with two possible ninety-day extensions).

Home Foreclosures: 9.4.1b Debtor May Cure Even If No Personal Liability

An owner that is not personally liable on the loan note generally has the right to cure a default on the property under section 1322(b)(5). This is because the creditor continues to have a claim, and a “claim against the debtor” is defined to include a claim against property of the debtor.266 This issue arises when property is transferred from the person who obtained the mortgage to another person that files bankruptcy.

Home Foreclosures: 9.4.2.2 Postforeclosure Sale Rights of Redemption

Courts had held in cases decided before the 1994 enactment of section 1322(c)(1) that a debtor may cure a default or pay off the balance owed on a mortgage in bankruptcy even after a completed foreclosure auction, when there is a state law unexpired right of redemption.276 Under those precedents, state law postforeclosure redemption rights come into the debtors’ bankruptcy estate.

Home Foreclosures: 9.4.3 Effect of a Cure

The effect of a cure under section 1322(b)(5) is to nullify all consequences of the default.294 Thus, in the case of a long-term mortgage, the debtor would normally be returned to the original amortization schedule once the default has been cured.295 In fact, once the plan is confirmed, the debtor’s ongoing mortgage payments should be applied from the petition date in accordance with the original loan amortization as if no default exists, with all prepetition arrears being paid separately under

Home Foreclosures: 9.4.5 Payment of Interest on the Arrears

Another important question is whether additional interest must be computed during the bankruptcy case on the unpaid portion of the arrears. As the bulk of the arrears is usually accumulated interest, the question in large part amounts to whether a debtor is required to pay interest on unpaid interest claims.

Home Foreclosures: 9.4.6.3 Application of Rule 3002.1

When Rule 3002.1 first went into effect on December 1, 2011, it applied only to claims that were (1) secured by the debtor’s principal residence and (2) provided for under section 1322(b)(5) in the debtor’s plan.

Home Foreclosures: 9.4.6.4 Notice of Payment Change—Rule 3002.1(b)(1)

Bankruptcy Rule 3002.1(b)(1) requires the mortgage creditor to file and serve on the debtor, debtor’s counsel, and the trustee “a notice of any change in the payment amount, including any change that results from an interest rate or escrow account adjustment, no later than 21 days before a payment in the new amount is due.”359 Notice must be given on Official Form 410S-1 (Supplement 1), the Notice of Mortgage Payment Change.360 The form shall be filed as a supplement to the creditor’s proof of c