Mr. Speaker, I submit the following: Summary The ``Home Foreclosure Reduction Act of 2015'' would permit a bankruptcy judge, with respect to certain home mortgages, to reduce the principal amount of…
Mr. Speaker, I submit the following:
Summary
The ``Home Foreclosure Reduction Act of 2015'' would permit
a bankruptcy judge, with respect to certain home mortgages,
to reduce the principal amount of such mortgages to the fair
market value of the homes securing such indebtedness. My
legislation will encourage homeowners to make their mortgage
payments and help stem the endless cycle of foreclosures that
further depresses home values. It also would authorize the
mortgage's repayment period to be extended so that monthly
mortgage payments are more affordable. In addition, the bill
would allow exorbitant mortgage interest rates to be reduced
to a level that will keep the mortgage affordable over the
long-term. And, it would authorize the waiver of prepayment
penalties and excessive fees. Further, the bill would
eliminate hidden fees and unauthorized costs.
This bill addresses a fundamental problem: homeowners in
financial distress simply lack the leverage to make mortgage
lenders and servicers engage in meaningful settlement
negotiations, even when in the interest of all parties. My
legislation would empower a homeowner, under certain
circumstances, to force his or her lender to modify the terms
of the mortgage by allowing the principal amount of the
mortgage to be reduced to the home's fair market value. And,
the implementation of this measure will not cost taxpayers a
single penny.
The ``Home Foreclosure Reduction Act of 2015'' is identical
to H.R. 101 (introduced in the 113th Congress) and H.R. 1587
(introduced in the 112th Congress). It contains similar
provisions included in H.R. 1106, which the House passed
nearly six years ago. Unfortunately, those provisions were
removed in the Senate and not included in the final version
of the bill that was subsequently enacted into law.
Section-by-Section Explanation of Provisions
Section 1. Short Title. Section 1 sets forth the short
title of this Act as the ``Home Foreclosure Reduction Act of
2015.''
Section 2. Definition. Bankruptcy Code section 101 defines
various terms. Section 2 amends this provision to add a
definition of ``qualified loan modification,'' which is
defined as a loan modification agreement made in accordance
with the guidelines of the Obama Administration's Homeowner
Affordability and Stability Plan, as implemented on March 4,
2009 with respect to a loan secured by a senior security
interest in the debtor's principal residence. To qualify as
such, the agreement must reduce the debtor's mortgage payment
(including principal and interest) and payments for various
other specified expenses (i.e., real estate taxes, hazard
insurance, mortgage insurance premium, homeowners'
association dues, ground rent, and special assessments) to a
percentage of the debtor's income in accordance with such
guidelines. The payment may not include any period of
negative amortization and it must fully amortize the
outstanding mortgage principal. In addition, the agreement
must not require the debtor to pay any fees or charges to
obtain the modification. Further, the agreement must permit
the debtor to continue to make these payments as if he or she
had not filed for bankruptcy relief.
Section 3. Eligibility for Relief. Section 3 amends
Bankruptcy Code section 109, which specifies the eligibility
criteria for filing for bankruptcy relief, in two respects.
First, it amends Bankruptcy Code section 109(e), which sets
forth secured and unsecured debt limits to establish a
debtor's eligibility for relief under chapter 13. Section 3
amends this provision to provide that the computation of
debts does not include the secured or unsecured portions of
debts secured by the debtor's principal residence, under
certain circumstances. The exception applies if the value of
the debtor's principal residence as of the date of the order
for relief under chapter 13 is less than the applicable
maximum amount of the secured debt limit specified in section
109(e). Alternatively, the exception applies if the debtor's
principal residence was sold in foreclosure or the debtor
surrendered such residence to the creditor and the value of
such residence as of the date of the order for relief under
chapter 13 is less than the secured debt limit specified in
section 109(e). This amendment is not intended to create
personal liability on a debt if there would not otherwise be
personal liability on such debt.
Second, section 3 amends Bankruptcy Code section 109(h),
which requires a debtor to receive credit counseling within
the 180-day period prior to filing for bankruptcy relief,
with limited exception. Section 3 amends this provision to
allow a chapter 13 debtor to satisfy this requirement within
30 days after filing for bankruptcy relief if he or she
submits to the court a certification that the debtor has
received notice that the holder of a claim secured by the
debtor's principal residence may commence a foreclosure
proceeding.
Section 4. Prohibiting Claims Arising from Violations of
the Truth in Lending Act. Under the Truth in Lending Act, a
mortgagor has a right of rescission with respect to a
mortgage secured by his or her residence, under certain
circumstances. Bankruptcy Code section 502(b) enumerates
various claims of creditors that are not entitled to payment
in a bankruptcy case, subject to certain exceptions. Section
4 amends Bankruptcy Code section 502(b) to provide that a
claim for a loan secured by a security interest in the
debtor's principal residence is not entitled to payment in a
bankruptcy case to the extent that such claim is subject to a
remedy for rescission under the Truth in Lending Act,
notwithstanding the prior entry of a foreclosure judgment. In
addition, section 4 specifies that nothing in this provision
may be construed to modify, impair, or supersede any other
right of the debtor.
Section 5. Authority to Modify Certain Mortgages. Under
Bankruptcy Code section 1322(b)(2), a chapter 13 plan may not
modify the terms of a mortgage secured solely by real
property that is the debtor's principal residence. Section 5
amends Bankruptcy Code section 1322(b) to create a limited
exception to this prohibition. As amended, the exception only
applies to a mortgage that: (1) originated before the
effective date of this amendment; and (2) is the subject of a
notice that a foreclosure may be (or has been) commenced with
respect to such mortgage.
In addition, the debtor must certify pursuant to new
section 1322(h) that he or she contacted--not less than 30
days before filing for bankruptcy relief--the mortgagee (or
the entity collecting payments on behalf of such mortgagee)
regarding modification of the mortgage. The debtor must also
certify that he or she provided the mortgagee (or the entity
collecting payments on behalf of such mortgagee) a written
statement of the debtor's current income, expenses, and debt
in a format that substantially conforms with the schedules
required under Bankruptcy Code section 521 or with such other
form as promulgated by the Judicial Conference of the United
States. Further, the certification must include a statement
that the debtor considered any qualified loan modification
offered to the debtor by the mortgagee (or the entity
collecting payments on behalf of such holder). This
requirement does not apply if the foreclosure sale is
scheduled to
occur within 30 days of the date on which the debtor files
for bankruptcy relief. If the chapter 13 case is pending at
the time new section 1322(h) becomes effective, then the
debtor must certify that he or she attempted to contact the
mortgagee (or the entity collecting payments on behalf of
such mortgagee) regarding modification of the mortgage before
either: (1) filing a plan under Bankruptcy Code section 1321
that contains a modification pursuant to new section
1322(b)(11); or (2) modifying a plan under Bankruptcy Code
section 1323 or section 1329 to contain a modification
pursuant to new section 1322(b)(11).
Under new section 1322(b)(11), the debtor may propose a
plan modifying the rights of the mortgagee (and the rights of
the holder of any claim secured by a subordinate security
interest in such residence) in several respects. It is
important to note that the intent of new section 1322(b)(11)
is permissive. Accordingly, a chapter 13 may propose a plan
that proposes any or all types of modification authorized
under section 1322(b)(11).
First, the plan may provide for payment of the amount of
the allowed secured claim as determined under section
506(a)(1). In making such determination, the court, pursuant
to new section 1322(i), must use the fair arket value of the
property at the date that such value is determined. If the
issue of value is contested, the court must determine such
value in accordance with the appraisal rules used by the
Federal Housing Administration.
Second, the plan may prohibit, reduce, or delay any
adjustable interest rate applicable on, and after, the date
of the filing of the plan.
Third, it may extend the repayment period of the mortgage
for a period that is not longer than the longer of 40 years
(reduced by the period for which the mortgage has been
outstanding) or the remaining term of the mortgage beginning
on the date of the order for relief under chapter 13.
Fourth, the plan may provide for the payment of interest at
a fixed annual rate equal to the applicable average prime
offer rate as of the date of the order for relief under
chapter 13, as determined pursuant to certain specified
criteria. The rate must correspond to the repayment term
determined under new section 1322(b)(11)(C)(i) as published
by the Federal Financial Institutions Examination Council in
its table entitled, ``Average Prime Offer Rates--Fixed.''
In addition, the rate must include a reasonable premium
for risk.
Fifth, the plan, pursuant to new section 1322(b)(11)(D),
may provide for payments of such modified mortgage directly
to the holder of the claim or, at the discretion of the
court, through the chapter 13 trustee during the term of the
plan. The reference in new section 1322(b)(11)(D) to ``holder
of the claim'' is intended to include a servicer of such
mortgage for such holder. It is anticipated that the court,
in exercising its discretion with respect to allowing the
debtor to make payments directly to the mortgagee or by
requiring payments to be made through the chapter 13 trustee,
will take into consideration the debtor's ability to pay the
trustee's fees on payments disbursed through the trustee.
New section 1322(g) provides that a claim may be reduced
under new section 1322(b)(11)(A) only on the condition that
the debtor agrees to pay the mortgagee a stated portion of
the net proceeds of sale should the home be sold before the
completion of all payments under the chapter 13 plan or
before the debtor receives a discharge under section 1328(b).
The debtor must pay these proceeds to the mortgagee within 15
days of when the debtor receives the net sales proceeds.
If the residence is sold in the first year following the
effective date of the chapter 13 plan, the mortgagee is to
receive 90 percent of the difference between the sales price
and the amount of the claim as originally determined under
section 1322(b)(11) (plus costs of sale and improvements),
but not to exceed the unpaid amount of the allowed secured
claim determined as if such claim had not been reduced under
new section 1322(b)(11)(A). If the residence is sold in the
second year following the effective date of the chapter 13
plan, then the applicable percentage is 70 percent. If the
residence is sold in the third year following the effective
date of the chapter 13 plan, then the applicable percentage
is 50 percent. If the residence is sold in the fourth year
following the effective date of the chapter 13 plan, then the
applicable percentage is 30 percent. If the residence is sold
in the fifth year following the effective date of the chapter
13 plan, then the applicable percentage is ten percent. It is
the intent of this provision that if the unsecured portion of
the mortgagee's claim is partially paid under this provision
it should be reconsidered under 502(j) and reduced
accordingly.
Section 6. Combating Excessive Fees. Section 6 amends
Bankruptcy Code section 1322(c) to provide that the debtor,
the debtor's property, and property of the bankruptcy estate
are not liable for a fee, cost, or charge that is incurred
while the chapter 13 case is pending and that arises from a
claim for debt secured by the debtor's principal residence,
unless the holder of the claim complies with certain
requirements. It is the intent of this provision that its
reference to a fee, cost, or charge includes an increase in
any applicable rate of interest for such claim. It also
applies to a change in escrow account payments.
To ensure such fee, cost, or charge is allowed, the
claimant must comply with certain requirements. First, the
claimant must file with the court and serve on the chapter 13
trustee, the debtor, and the debtor's attorney an annual
notice of such fee, cost, or charge (or on a more frequent
basis as the court determines) before the earlier of either:
one year of when such fee, cost, or charge was incurred, or
60 days before the case is closed. Second, the fee, cost, or
charge must be lawful under applicable nonbankruptcy law,
reasonable, and provided for in the applicable security
agreement. Third, the value of the debtor's principal
residence must be greater than the amount of such claim,
including such fee, cost or charge.
If the holder fails to give the required notice, such
failure is deemed to be a waiver of any claim for such fees,
costs, or charges for all purposes. Any attempt to collect
such fees, costs, or charges constitutes a violation of the
Bankruptcy Code's discharge injunction under section
524(a)(2) or the automatic stay under section 362(a),
whichever is applicable.
Section 6 further provides that a chapter 13 plan may waive
any prepayment penalty on a claim secured by the debtor's
principal residence.
Section 7. Confirmation of Plan. Bankruptcy Code section
1325 sets forth the criteria for confirmation of a chapter 13
plan. Section 7 amends section 1325(a)(5) (which specifies
the mandatory treatment that an allowed secured claim
provided for under the plan must receive) to provide an
exception for a claim modified under new section 1322(b)(11).
The amendment also clarifies that payments under a plan that
includes a modification of a claim under new section
1322(b)(11) must be in equal monthly amounts pursuant to
section 1325(a)(5)(B)(iii)(I).
In addition, section 7 specifies certain protections for a
creditor whose rights are modified under new section
1322(b)(11). As a condition of confirmation, new section
1325(a)(10) requires a plan to provide that the creditor must
retain its lien until the later of when: (1) the holder's
allowed secured claim (as modified) is paid; (2) the debtor
completes all payments under the chapter 13 plan; or (3) if
applicable, the debtor receives a discharge under section
1328(b).
Section 7 also provides standards for confirming a chapter
13 plan that modifies a claim pursuant to new section
1322(b)(11). First, the debtor cannot have been convicted of
obtaining by actual fraud the extension, renewal, or
refinancing of credit that gives rise to such modified claim.
Second, the modification must be in good faith. Lack of good
faith exists if the debtor has no need for relief under this
provision because the debtor can pay all of his or her debts
and any future payment increases on such debts without
difficulty for the foreseeable future, including the positive
amortization of mortgage debt. In determining whether a
modification under section 1322(b)(11) that reduces the
principal amount of the loan is made in good faith, the court
must consider whether the holder of the claim (or the entity
collecting payments on behalf of such holder) has offered the
debtor a qualified loan modification that would enable the
debtor to pay such debts and such loan without reducing the
principal amount of the mortgage.
Section 7 further amends section 1325 to add a new
provision. New section 1325(d) authorizes the court, on
request of the debtor or the mortgage holder, to confirm a
plan proposing to reduce the interest rate lower than that
specified in new section 1322(b)(11)(C)(ii), provided:
(1) the modification does not reduce the mortgage
principal; (2) the total mortgage payment is reduced through
interest rate reduction to the percentage of the debtor's
income that is the standard for a modification in accordance
with the Obama Administration's Homeowner Affordability and
Stability Plan, as implemented on March 4, 2009; (3) the
court determines that the debtor can afford such modification
in light of the debtor's financial situation, after allowance
of expense amounts that would be permitted for a debtor
subject to section 1325(b)(3), regardless of whether the
debtor is otherwise subject to such paragraph, and taking
into account additional debts and fees that are to be paid in
chapter 13 and thereafter; and (4) the debtor is able to
prevent foreclosure and pay a fully amortizing 30-year loan
at such reduced interest rate without such reduction in
principal. If the mortgage holder accepts a debtor's proposed
modification under this provision, the plan's treatment is
deemed to satisfy the requirements of section 1325(a)(5)(A)
and the proposal should not be rejected by the court.
Section 8. Discharge. Bankruptcy Code section 1328 sets
forth the requirements by which a chapter 13 debtor may
obtain a discharge and the scope of such discharge. Section 8
amends section 1328(a) to clarify that the unpaid portion of
an allowed secured claim modified under new section
1322(b)(11) is not discharged. This provision is not intended
to create a claim for a deficiency where such a claim would
not otherwise exist.
Section 9. Standing Trustee Fees. Section 9(a) amends 28
U.S.C. Sec. 586(e)(1)(B)(i) to provide that a chapter 13
trustee may receive a commission set by the Attorney General
of no more than four percent on payments made under a chapter
13 plan and disbursed by the chapter 13 trustee to a creditor
whose claim was modified under Bankruptcy Code section
1322(b)(11), unless the bankruptcy court waives such fees
based on a determination that the debtor has income less than
150 percent of the official poverty line applicable to the
size of the debtor's family and payment
of such fees would render the debtor's plan infeasible.
With respect to districts not under the United States
trustee system, section 9(b) makes a conforming revision to
section 302(d)(3) of the Bankruptcy Judges, United States
Trustees, and Family Farmer Bankruptcy Act of 1986.
Section 10. Effective Date; Application of Amendments.
Section 10(a) provides that this measure and the amendments
made by it, except as provided in subsection (b), take effect
on the Act's date of enactment.
Section 10(b)(1) provides, except as provided in paragraph
(2), that the amendments made by this measure apply to cases
commenced under title 11 of the United States Code before,
on, or after the Act's date of enactment. Section 10(b)(2)
specifies that paragraph (1) does not apply with respect to
cases that are closed under the Bankruptcy Code as of the
date of the enactment of this Act.
Section 11. GAO Study. Section 11 requires the Government
Accountability Office to complete a study and to submit a
report to the House and Senate Judiciary Committees within
two years from the enactment of this Act. The report must
contain the results of the study of: (1) the number of
debtors who filed cases under chapter 13, during the one-year
period beginning on the date of the enactment of this Act for
the purpose of restructuring their principal residence
mortgages; (2) the number of mortgages restructured under
this Act that subsequently resulted in default and
foreclosure; (3) a comparison between the effectiveness of
mortgages restructured under programs outside of bankruptcy,
such as Hope Now and Hope for Homeowners, and mortgages
restructured under this Act; (4) the number of appeals in
cases where mortgages were restructured under this Act; (5)
the number of such appeals where the bankruptcy court's
decision was overturned; and (6) the number of bankruptcy
judges disciplined as a result of actions taken to
restructure mortgages under this Act. In addition, the report
must include a recommendation as to whether such amendments
should be amended to include a sunset clause.
Section 12. Report to Congress. Not later than 18 months
after the date of enactment of this Act, the Government
Accountability Office, in consultation with the Federal
Housing Administration, must submit to Congress a report
containing: (1) a comprehensive review of the effects of the
Act's amendments on bankruptcy courts; (2) a survey of
whether the types of homeowners eligible for the program
should be limited; and (3) a recommendation on whether such
amendments should remain in effect.
