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Mortgage Servicing and Loan Modifications: 11.6 Bond Requirements

The Federal Rules of Civil Procedure and many state rules of civil procedure permit courts to issue preliminary injunctions or temporary restraining orders only if the movant gives security in an amount the court considers proper.406 Federal Rule of Civil Procedure 65(c) allows a court to grant preliminary injunctive relief “only if the movant gives security in an amount that the court considers proper to pay the costs and damages sustained by any party found to have been wrong

Mortgage Servicing and Loan Modifications: 11.7.1 Introduction

A number of doctrines may limit the ability of federal courts to decide or revisit certain matters. In particular, the homeowner’s ability to challenge a mortgage transaction or foreclosure in federal court is complicated when there is a related state court proceeding. These issues may arise when the homeowner files an action in federal court to rescind or challenge a mortgage transaction and there is a threatened, pending, or concluded action in state court to foreclose on the home or to evict the homeowner.

Mortgage Servicing and Loan Modifications: 11.8 The Merrill Doctrine

Special issues arise when a servicer acts on behalf of a loan owner that is a federal governmental entity. Most often, this occurs when one of the GSEs, such as Fannie Mae or Freddie Mac, owns the borrower’s mortgage loan. In these situations, a court-created rule known as the Merrill doctrine may limit application of otherwise controlling agency principles.

Home Foreclosures: 8.1 Introduction

This chapter provides general guidance on litigating foreclosure and mortgage servicing related claims and defenses. The chapter is intended to be used in conjunction with all the chapters in this treatise, which discuss substantive and procedural defenses to foreclosures.

Mortgage Servicing and Loan Modifications: 11.2.2.1 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.

Student Loan Law: 8.6.3.1 Statute of Limitations Generally Eliminated

The Higher Education Technical Amendments of 1991, which made technical amendments to the Higher Education Act (HEA), eliminated all statutes of limitation for any collection action by a school, guaranty agency, or the United States under a federal loan program.289 The provision eliminating the statute of limitations for collections refers to both loans and grant overpayments.290 These amendments also eliminated all limitation periods for tax intercepts, wage garnishments, and other collecti

Home Foreclosures: 12.1.1 Introduction

Most of the basic principles that apply when a lender forecloses upon a first mortgage also control when the foreclosure involves a second mortgage. However, second mortgage foreclosures present distinct issues that advocates must be prepared to address. The following two sections of this chapter review general rules that apply in two distinct scenarios. The first considers the impact of foreclosure of a senior mortgage when the same property secures one or more junior mortgages.

Home Foreclosures: 9.6.3 Manufactured Home Loans

If the creditor’s claim is not secured solely by a security interest in “real property” that is the debtor’s principal residence, the secured loan may be modified. Before the 2005 Code amendments, it was clear that a lien secured by real estate upon which a manufactured home was situated, or a lien secured by the manufactured home itself, were not secured solely by real property that was the debtor’s principal residence and could be stripped-off if the manufactured home was treated as personalty under state law.495

Home Foreclosures: 9.6.4 Mortgages with Additional Security

A claim that is not secured “only” by the debtor’s principal residence, such as when additional security is provided, may be modified. The 2005 Act attempts to limit modification on these grounds by adding a definition of “debtor’s principal residence” as a residential structure which includes “incidental property.”499 A separate definition of “incidental property” is also added by the 2005 Act, which refers to property rights going beyond ownership of the structure. The term “incidental property” is specifically defined to mean:

Home Foreclosures: 9.8 Avoiding Judicial Liens—Section 522(f)(1)

In bankruptcy, the debtor may “avoid” (i.e., nullify) many types of prebankruptcy transfers of exempt property.525 The power to avoid transfers is expansive, due, in part, to the broad definition of the word “transfer” in the Code.526 The debtor, with some limitations, may invalidate numerous types of transfers, and recover valuable interests in property, as long as the interest in the property can be claimed as exempt.527 Exemptions may be establi

Home Foreclosures: 9.9.1 Requirements of Section 521(a)(2)

Section 521(a)(2)539 requires the debtor to file a statement of intentions with respect to property securing consumer debts. The debtor need not state all of their plans regarding the property on this statement (e.g., lien avoidance, continuing payments in accordance with 11 U.S.C. § 524(j), etc.). All that is required is a declaration that the debtor intends to retain or to surrender the collateral, and, if applicable, to claim it as exempt, to redeem it, to reaffirm the secured debt, or assume an unexpired lease on the property.

Home Foreclosures: 9.10 Sale of Property

In some cases, homeowners may have no choice but to sell their home on which mortgage payments are no longer possible. Typically, the price at a private market sale is much higher than the price obtained at foreclosure. This means that the homeowner can preserve more equity.

Home Foreclosures: 9.11.1 Overview

Filing a bankruptcy that does not fully address a mortgage delinquency may impact future legal proceedings and negotiated agreements seeking to avoid foreclosure. Even when the bankruptcy does nothing more than create temporary delay, either because the mortgage holder gets relief from the stay or the case is completed without resolving the delinquency,578 it may nevertheless have an impact on future efforts to prevent foreclosure.

Home Foreclosures: 9.11.2.1 Effect of Prior Discharge

A completed chapter 7 bankruptcy case, and a completed chapter 13 case in which the debtor’s plan did not provide for the curing of a mortgage default under section 1322(b)(5), normally discharges a borrowers’ personal liability to pay a loan.579 While the mortgage lien remains in place, some mortgage holders and servicers are wary of negotiating a workout agreement following a bankruptcy discharge.

Home Foreclosures: 9.2.1.1 General

Bankruptcy law provides for two main types of consumer cases: chapter 7 and chapter 13. Both types are generally effective at stopping a pending foreclosure action. Similarly, debtors may seek to void certain property transfers under both chapters. However, if an outstanding mortgage on the homeowner’s property is in default, chapter 13 will frequently be the better choice.

Home Foreclosures: 9.2.1.2 Chapter 7 (Straight Bankruptcy)

In bankruptcy cases under chapter 7, the debtors file a petition asking the court to discharge their debts. The basic idea in a chapter 7 bankruptcy is to wipe out (discharge) debts in exchange for giving up property, except for “exempt” property that the law allows the debtor to keep. In most consumer cases, all of the debtor’s property will be exempt. But property that is not exempt may be sold, with the money distributed to creditors.

Home Foreclosures: 9.2.1.3 Chapter 13 (Reorganization)

In chapter 13 cases, the debtor must file a “plan” showing how they will pay off past-due and current debts over a period of up to five years. The most important fact about chapter 13 bankruptcy for homeowners facing foreclosure is that it allows debtors to cure defaults on secured loans such as home mortgages.16 In most cases, payments to the mortgage holder will be at least as much as the regular monthly payments, with some additional payment to get caught up on the delinquent amount.

Home Foreclosures: 9.2.2 Gathering the Necessary Information

While the primary purpose in filing for bankruptcy may be to stop a home foreclosure, homeowners will be required to complete a significant amount of paperwork detailing their financial situation. Homeowners must provide the attorney with the information necessary to accurately prepare the bankruptcy petition and schedules.18 The attorney will need to obtain a complete list of creditors and current addresses, account numbers, and balances owed for each debt.