In the wake of the financial crisis of 2008, many homeowners found themselves in dire straits with respect to their residential mortgage loans, and some sought protection in bankruptcy. Even with the ability to cure mortgage payment defaults within a reasonable time,  some debtors still lacked the financial ability to maintain their non-modifiable mortgage payments  while also making the other payments required under the Bankruptcy Code. In response, bankruptcy courts in numerous jurisdictions have implemented loss-mitigation procedures in an attempt to bring debtors and mortgage creditors to the negotiating table. In essence, while the courts cannot in most instances require a mortgage creditor to modify loan terms, they can require good-faith negotiations regarding potential loss-mitigation options. Likewise, the Consumer Financial Protection Bureau (CFPB) has implemented rules requiring mortgage creditors to promptly process requests for loss-mitigation assistance, regardless of bankruptcy status. Mortgage creditors must carefully navigate these parallel loss-mitigation requirements.
This article first appeared in American Bankruptcy Institute on February 4, 2016. (login required)