Senate Panel Advances Bankruptcy Foreclosure Mediation Bill

The ""Senate Judiciary Committee"":http://judiciary.senate.gov/ on Thursday approved legislation that would give bankruptcy courts the authority to order face-to-face meetings between homeowners and their lenders for foreclosure mediation.

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The Limiting Investor and Homeowner Loss in Foreclosure Act (S. 222) passed the committee with a 10 to 8 vote, clearing the way for it to move on to the full Senate.

The legislation would not give bankruptcy judges the power to modify mortgages or slice off a portion of the principal like the controversial bankruptcy cramdown proposals that have repeatedly failed in Congress.

Instead, it would give bankruptcy judges a mechanism for opening up the lines of communication between homeowners and creditors in order to explore work out options and optimally, avert a foreclosure action.

Sen. Sheldon Whitehouse (D-Rhode Island) authored the bill. His proposal is modeled after a program in his home state.

“Too many families…have been hurt by a broken foreclosure system fraught with long waits on the phone, lost paperwork, and an inability to speak with someone who’ll give their last name or make a decision,” Whitehouse said.

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“By bringing together homeowners and mortgage servicers for a face to face negotiation, the Rhode Island bankruptcy court’s foreclosure mediation program helps streamline that process and has already saved at least 120 homes,” he noted.

Bankruptcy courts in Rhode Island began offering pre-trial foreclosure mediations in 2009. While no settlement is required, the program brings together the homeowner and their mortgage company for a “good faith negotiation,” Whitehouse explained.

The Rhode Island program, though, has not been without discord. Last year, Deutsche Bank challenged the legal authority of the state’s bankruptcy court to run such a program. Deutsche Bank lost its case earlier this year, but Whitehouse says the prospect of future appeals and ongoing litigation continue to threaten the mediation program.

The senator says his bill will clarify the law to specifically authorize bankruptcy court mortgage mediations and would encourage other districts around the country to adopt similar programs.

“This program will not prevent all foreclosures, but it can at least ensure that the big banks and mortgage servicers, whose practices contributed so much to the nationwide housing crisis, are giving families a fair chance to stay in their homes,” Whitehouse said.

Across the way on Capitol Hill, the House Financial Services Committee is considering its ""own foreclosure mediation bill"":http://dsnews.comarticles/congressman-introduces-bill-to-prevent-foreclosures-in-memphis-2011-03-22, although not in the context of bankruptcy proceedings.

The Preventing Homeowners from Foreclosure Act of 2011 (H.R. 1131), authored by Rep. Steve Cohen (D-Tennessee), would establish a grant program to provide federal funding for state and local governments to establish foreclosure mediation programs in their communities.