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Tuesday, June 22, 2010

Mortgage Cramdowns

In Minnesota the bankruptcy court has a history of not allowing cramdowns on mortgages that are totally unsecured by any value in the property. I think that's wrong...but until the 8th circuit or a higher court takes a case up and decides otherwise that is the way it is. I read a post the other day on http://www.redstate.com/ ,a conservative Blog and News site that was written by Michele Bachmann, a republican Congresswoman from Minnesota who gained her fame by planting a big kiss on then President Bush on national television. The post was in regard to a recently proposed Cramdown Housing bill that proposes to allow bankruptcy judges to cramdown mortgages where and when appropriate wherein she argues against it with a number of points...some of them valid and some of them thought provoking....others the typical nonsense that conservatives throw out there. I invite you to visit and read it.

My thoughts are this; First...if the finance industry who has the majority of the members of the house and senate in their collective pockets would be willing to work with people in good faith to modify all of these toxic mortgages that they wrote for people in the first place then this kind of legislation, however flawed, wouldn't need to be written or proposed in the first place. Second, she also makes a comment about how people would run to the bankruptcy instead of working out loan modifications. My practice is entirely composed of filing Chapter 7 & Chapter 13 cases for people all day...every day. I can tell you with the utmost sincerity not a single one relishes the fact that they are in my office signing a bankruptcy petition and they would have dearly loved to work out some kind of modification on their home loans (which for many is the principle factor that drove them to my office...they can't afford their mortgages). For a large number of them a modification of their mortgage with a lender that was willing to work out reasonable terms with the new realities of the marketplace as it concerns real estate would have kept them out of bankruptcy. Every day I have consultations with people who say they've tried for months on end to work something out with their mortgage company and they simply get the run around or empty promises that never come to fruition. Thirdly, I take exception to the comment she makes about the need for requiring some proof that the borrower was truthful when he applied for the mortgage.....is she serious....isn't this America? Aren't we innocent until proven guilty? Is the presumption that people lie.....especially when they were supposedly "vetted" by whoever gave them the mortgage in the first place? I think the critters are already out of the barn door on that one...too late to come back and complain that you weren't vigilant enough when you underwrote the loan...that's the lender's fault not the borrowers. I'm not saying that fraud isn't fraud and that it should be rewarded but I am saying that a presumption that borrowers acted fraudulently and they should have the burden to prove otherwise is a crock of horse manure.

For good and sound advice about bankruptcy please visit our web site at http://www.kingsburylawoffice.com/. All manner of Chapter 7 and Chapter 13 bankruptcy cases in the state of Minnesota.

David Kingsbury
Bankruptcy Lawyer

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