The simple answer is no. At this time only your second mortgage can be crammed down. There has been talk of various bills, but none of been passed by law makers due to fierce opposition and lobbying by the banking industry.
The cramdown bill that has not passed, or formally, the Helping Families Save Their Home Act, was created to alleviate the problems that many people now have in paying their mortgages. With this proposed bill, bankruptcy judges can restructure home loans in many ways. Oftentimes, the interest rates for the mortgage are reduced, the loan terms are lengthened, or the principal due payments are cut.
The main residence’s exemption stated in contemporary bankruptcy law gave judges much room to change, or cram down, some mortgage loans. The order explicitly omits debts held by an interest in the borrower’s primary residence, thus letting bankruptcy judges adjust mortgages on various types of non-owner property.
These occupied properties comprise farmsteads, rental homes, and vacation properties. In some cases, a succeeding mortgage on a bankrupt borrower’s main home may be modified due to the aforementioned decree. It may be due to the house’s value declining to lower than the amount the primary mortgage secures. Here, bankruptcy judges may rule that the subsequent mortgage is not secured by equity in the home any longer and the loan may be amended during the bankruptcy proceedings.
Current law, however, still dictates that a property owner who files bankruptcy and has a pending first mortgage on the primary residence has two choices: he or she could either pay for all overdue and/or current mortgage payments, or relinquish the property through foreclosure proceedings.
The Helping Families Save Their Home Act if passed, serves to allow a delinquent borrower another option. This alternative gives the debtor the ability to collaborate with bankruptcy judges and restructure their loan payment terms. This may give the borrower a lower debt load, while allowing him or her to retain the property.
Various bankruptcy bills have been introduced in Washington since the foreclosure crisis started in 2007. However, they have had strict opposition from the banking industry who has been successful in blocking any meaningful attempts to help borrowers through the courts with their mortgages.
The proposed act would give bankruptcy judges free rein, in that there is no specific formula to follow in terms of mortgage modification. Each case will be treated distinctly, and loan amendments will be made depending on the special merits of each case. The cramdown bill, however, still necessitates that homeowners make an effort in good faith to comply with the amended payment structure after modifying the mortgage with the lender, even before raising an appeal in bankruptcy court.
Will homeowners ever get a chance to have true legal representation or fair hearing to mediate the foreclosure process?