R. I. Senator Says Bankruptcy Court is the Place to Force Lenders to Mediate with Homeowners

The practice of some bankruptcy courts to pressure lenders and borrowers to enter into mediation over mortgage debts drew scrutiny Tuesday during a Senate Judiciary Committee hearing, as foreclosures in the nation are expected to top 13 million through 2012.

Sen. Sheldon Whitehouse (D., R.I.), who chairs a Senate administrative oversight and courts subcommittee, introduced a bill last that would allow troubled borrowers to enter into court mandated and court supervised talks with lenders.  The Senator said bankruptcy court mediation programs can help frustrated homeowners get answers to their modification requests. One provision of the bill provides that an individual with full settlement authority for the bank and open to good-faith negotiations must show up for the mediation proceeding.

Is it coincidence that Rhode Island Bankruptcy Courts has one of the only a handful of Loss Mitigation Programs in the country that exist in the Bankruptcy Court?   

The Loss Mitigation Program in the Rhode Island Bankruptcy court has been successful in providing a uniform, comprehensive, court-supervised program for facilitating consensual resolutions of residential real property at risk of loss to foreclosure for individual debtors in bankruptcy. This program is patterned closely on a similar program in place at the United States Bankruptcy Court for the Southern District of New York.

This loss mitigation program avoids and reduces unnecessary bankruptcy litigation and cost to debtors and secured creditors, while enabling debtors to reorganize and address their debt and asset structure under the Bankruptcy Code. The need for such a program is evident in light of the various government sponsored loss mitigation programs (Making Homes Affordable) that have been largely unsuccessful in meeting even their own expectations to help homeowners get back on track while remaining in their homes.