Nevada Senator Harry Reid joined Senate Democrats on February 13th in announcing a package of legislation intended to address the national housing crisis and help Americans avoid foreclosure.  According to Senator Reid, "The Foreclosure Prevention Act of 2008 will keep families facing foreclosure in their homes, help other families avoid foreclosures in the future, and help communities already harmed by foreclosure to recover."

The act has several provisions dramatically affecting the treatment of the debtor's residence in a Chapter 13 bankruptcy. Under the current law, the residential mortgage must be paid in full by making future payments as required by the note and getting caught up gradually on any pre-petition arrears. Under the proposed legislation, the bankruptcy court could modify the residential mortgage if  "the debtor has insufficient . . . income to retain possession of the residence by curing a default and maintaining payments while the case is pending." If the loan is then modifiable, the term may be extended to a period not to exceed 30 years from the date of filing of the bankruptcy and the interest rate could be fixed to the rate for the annual yield for conventional mortgages most recently published by the Federal Reserve.

Other provisions in the proposed legislation include:

• Increase pre-foreclosure counseling funds ($200 million)
   
• Allow Housing Finance Agencies (HFAs) to Issue Bonds for Refinancing (increase current cap by $10 billion) 
  
  
• Allow localities with the highest foreclosure numbers and rates access to Community Development Block Grant funds to use toward purchasing these properties, rehabilitate them if necessary and rent or re-sell them 
  
  
• The Truth-in-Lending Act would be amended to require new loan disclosures be given to homebuyers not only when they apply for a home purchase loan, but also when they refinance their home.  The measure would require: (i) firm disclosure of the terms of the mortgage loan within three days of application (and not later than seven days before closing); and (ii) the maximum loan payment be disclosed, not only at application, but also seven days before closing.  Finally, this provision would clarify that lenders are subject to statutory damages for violations of Truth-in-Lending disclosure provisions and increase the damages for mortgage violations from $2,000 to $5,000 per violation.

Client Advisory is published by Weltman, Weinberg & Reis Co., L.P.A., an organization providing comprehensive creditor representation.  The information contained in this advisory is a summary of legal information and is not intended to constitute legal advice on specific matters or create an attorney-client relationship.  Contact any of our offices or visit our website at realestatedefaultgroup.com for more real estate related information, company facts and attorney profiles. (c)2008