New Jersey Bankruptcy/Foreclosure Loss Mitigation Program
New Jersey's new bankruptcy program helps lenders and homeowners negotiate loan modifications and other foreclosure avoidance solutions during bankruptcy.
In 2011, the United States Bankruptcy Court for the District of New Jersey unveiled a program to oversee and facilitate mortgage loan modifications and other loss mitigation options in foreclosure while a homeowner is in bankruptcy. This program is called the bankruptcy court loss mitigation program.
If someone in bankruptcy is applying for a mortgage loan modification or other type of foreclosure loss mitigation, this program:
- requires the mortgage lender to designate a single contact person to handle the loan modification request
- sets out a timetable for the exchange of documents between the homeowner and the mortgage lender, and
- sets a deadline for the mortgage company to respond to the requests for information.
However, the most important aspect of the program is that it allows both the debtor/homeowner and the mortgage lender to request a settlement and status conferences with the bankruptcy court judge if loss mitigation procedures are not followed or if the parties need guidance during the loss mitigation process.
To learn more about the bankruptcy court loss mitigation program and procedures, read on.
(If you are facing foreclosure in New Jersey, you can learn about other loss mitigation options in Nolo's New Jersey Foreclosure Law Center.)
What Is the Purpose of the Bankruptcy Court Loss Mitigation Program?
The primary purpose of the bankruptcy court loss mitigation program is to open and maintain the lines of communication between the homeowner and the mortgage lender. The program encourages the parties to work out a feasible and mutually beneficial agreement to avoid foreclosure and offers the oversight and assistance of the bankruptcy court if there is a breakdown in communication.
What Is Loss Mitigation?
The term "loss mitigation" includes a full range of options including, loan modification, refinance, forbearance, short sale, or surrender of the property in full satisfaction of the loan. Determining which loss mitigation option a debtor/homeowner should choose will depend upon the particular needs and goals of the homeowner.
Who Is Eligible to Participate in the Bankruptcy Court Loss Mitigation Program?
Below are the eligibility requirements to participate in the bankruptcy court loss mitigation program.
Debtor. You must be an individual debtor in a Chapter 7, 11, 12, or 13 case
Property. The real property must be used as the debtor's primary residence and the debtor must hold an interest in the property
Loan. The loan can be any mortgage, lien, or an extension of money even if it was:
- subprime or non-traditional
- in foreclosure prior to the bankruptcy
- a first or junior mortgage, or
- "pooled" "securitized", or assigned.
Creditor. Any mortgage holder, assignee, servicer or trustee of an eligible loan can participate in the loss mitigation program
How to Apply for Loss Mitigation in Bankruptcy
Either the homeowner or the lender can request participation in the bankruptcy court's loss mitigation program.
How Homeowners Can Apply
A debtor/homeowner who wants loss mitigation must file and serve on the lender a Notice of Request for Loss Mitigation and a loss mitigation order, along with a Certificate of Service at least three days before the first date scheduled for the homeowner's Meeting of Creditors. The debtor/homeowner must make adequate protection payments to the lender that are least 60% of the monthly principal and interest payment, plus 100% of all required escrow payments to cover insurance and property taxes, if applicable. The creditor will have 14 days to object to this proposed amount of adequate protection.
How Lenders Can Apply
A creditor who wants to begin the loss mitigation program must file and serve on the debtor/homeowner a Notice of Request for Loss Mitigation and a Loss Mitigation Order. The debtor/homeowner will have 14 days to object.
Types of Objections to Participation in the Program
Some of the objections that could be raised include: the loss mitigation has been filed in bad faith or prior requests for loss mitigation have been made and denied.
If no objections are filed, the bankruptcy court judge will enter a loss mitigation order.
How Do the Parties Negotiate?
After the court enters the loss mitigation order, the parties will have 90 days to negotiate in an effort to reach an agreement. If the parties consent, they can also extend this period in order to have more time to negotiate.
At any time during the loss mitigation process, the parties may request a settlement conference or status conference with the bankruptcy court judge. The parties can do this by contacting the judge's chambers directly and requesting a conference to review any issues that have arisen.
During this process, the parties must comply with the following deadlines:
Designation of contact person. All parties must designate a contact person within 14 days of the entry of the order. Seven days after that, the lender must contact the debtor/homeowner to begin discussions and prepare to participate in the loss mitigation process. During this initial period, the parties should agree upon: the time, place, and method for conducting the loss mitigation sessions and the type of loss mitigation solutions that each party is considering (for example, loan modification, short sale, etc).
Request for information. Each party may submit a requests for information to the other party within 14 days of the entry of the order.
Responses to request for information. Responses to request for information must be provided within 21 days from the receipt of the request for information.
Status report. The debtor/homeowner is responsible for submitting a status report within 60 days from the entry of the order, but must do so on notice to and in cooperation with the creditor.
Termination of loss mitigation. The loss mitigation process shall terminate 90 days from the date of the entry of the order, unless the parties consent to an extension of the loss mitigation period. A party may file a request for an extension. If the other party wants to object, it will only have three days from receipt of the request seeking an extension in which to do so.
Final report: Within 14 days from termination of the loss mitigation period, the debtor/homeowner will be responsible for submitting the Loss Mitigation Final Report, but must do so with notice to and in cooperation with the creditor. The Loss Mitigation Final Report must include:
- the outcome of the loss mitigation process, and
- the terms of any loss mitigation agreement reached between the parties.
All agreements reached during loss mitigation must be approved by the bankruptcy court judge.
For more information about the Loss Mitigation Program offered through the United States Bankruptcy Court, District of New Jersey, please visit, www.njb.uscourts.gov.
Learn more about how bankruptcy can help with foreclosure.