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Mortgage Modification Mediation for Chapter 13 Filers

Micheal Li, Esq.      Effective January 2015 Foreclosure Mediation is coming to bankruptcy court for Chapter 13 filers! The program known as Mortgage Modification Mediation (“MMM”) was recently adopted under Administrative Order 2014-08, promulgated pursuant to the bankruptcy court’s equitable power under Section 105(a) of the Bankruptcy Code on November 6, 2014.

Like its counterpart at the state level, it is designed to address the foreclosure crisis that continues to plague homeowners in the valley and across the Silver State, and to help keep families in their homes. Homeowners in bankruptcy face many challenges in the post-BAPCPA era attempting to restructure debts associated with their principal residence.  Even when their efforts prove successful, the fees and costs incurred on their road to victory may well lead to financial distress of a different source.

Aside from the immediate cost-savings of mediation, such mandatory dispute resolution tools, especially when utilized with the rights and powers offered under the Bankruptcy Code, generates greater incentives and opportunities for creative resolutions between debtor and secured creditors.  For debtors, bankruptcy offers a breathing spell from creditor harassment to calm emotions and take a more objective, less myopic approach to one’s financial problems.  For creditors, bankruptcy offers the a “class-action” type of proceeding to resolve priority and subordination issues at minimal transaction costs.  Finally, let’s not forget that Chapter 13 also comes pre-equipped with a set of lien modification provisions that provides greater flexibility for homeowners seeking to work with their senior lender.

Under the current order, cases filed in Las Vegas after January 1, 2015 shall be automatically assigned to the MMM program. For pending cases filed in Las Vegas prior to January 1, 2015, debtor may request participation in the program by motion and appropriate notice to affected secured creditors.  Creditors will then have an opportunity to oppose the request, in which case, a hearing will be held.

More importantly, the current order appears to contemplate recovery of fees and costs for participation in the MMM program. As with standard fee applications submitted in the underlying bankruptcy case, attorneys will be expected to prepare and file applications and proposed orders to recover fees and costs associated with representation of the debtor in MMM proceedings. However, such applications may be made and granted without a hearing, and allowed obligations are satisfied by conduit payments, akin to payments made under confirmed plans to secured allowed claimants.

The court is currently working on procedural rules and forms associated with the MMM program.  For more information and updates regarding the program, please contact Michael Li, Esq.

-Michael Li, Esq.

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