Yesterday I attended the annual seminar sponsored by Central Florida Bankruptcy Law Association. A panel of mediators discussed their experiences with the new mortgage modification program in the Orlando division of the bankruptcy court. Their impression was that lenders are taking the program seriously and offering genuine modification arrangements that were useful to Chapter 13 filers. One mediator mentioned that they had not seen nor heard of a single case of principle reduction in any mortgage modification. More likely are modifications offering reduction in interest rates, extension of the term, and amortizing arrears over the life of the loan.
An underwater mortgage is a serious a problem for many Orlando homeowners. Earlier this summer, the Orlando Sentinel reported that Orlando was number 3 in the nation, and number 1 in Florida for the number of homes that an underwater mortgage – the loan balance was more than the value of the house. Many bankruptcy attorneys in Orlando have been trying to help their clients with an underwater mortgage with a procedure known as “lien stripping,” which is a form of legal surgery to remove a second mortgage lien from a homeowner’s property. Bankruptcy attorneys have used the lien stripping procedure for their clients who chose a chapter 13 bankruptcy to keep their homes with a three or five year payment plan. What has been in dispute is whether lien stripping can be performed in a chapter 7 bankruptcy.