§ 57.10 — Negotiating for a Home Mortgage Holder
Revised: April 30, 2004
Claims secured only by a lien on the debtor’s residence are entitled to special treatment in Chapter 13 cases.1 If the debtor desires to keep the house, typically the plan will propose to cure the default under the mortgage (if any) and maintain contract payments during the life of the plan.2 Creditor’s counsel should review the terms of the mortgage and insist that the precise monthly payment, escrow amounts and the like be acknowledged in the plan. If there is an arrearage at the filing, counsel should negotiate for the curing of that default separate from the regular monthly payments. The Code requires that an arrearage be cured within a reasonable time; there is great local variation on how long is reasonable.3 Counsel must know the local culture. If the usual rule in the district is a maximum of 18 months to cure a mortgage arrearage, counsel can negotiate for that position without litigation. That negotiation should include a discussion of interest on the arrearage, attorneys’ fees, late charges and other costs provided in the mortgage instrument.4 If the mortgage holder is oversecured, the creditor’s right to interest, attorneys’ fees and other contract costs has additional statutory support.5
When there is an arrearage, the mortgage holder should clearly indicate the amount of the arrearage on the proof of claim. This is easier said than done. These days, most home mortgages have been sold or repackaged for servicing several times before the claim finds its way to a Chapter 13 case. The latest mortgage servicer is unlikely to be able to quickly and accurately provide a statement of arrearages. The arrearage showing on the servicer’s books typically includes charges that are not allowable in bankruptcy. Counsel has to massage the information available from the servicer to determine an arrearage amount that the mortgage holder and the debtor can both live with.
1 See § 118.1 [ Most Home Mortgages Cannot Be Modified: § 1322(b)(2) and Nobelman ] § 79.1 Most Home Mortgages Cannot Be Modified: § 1322(b)(2) and Nobelman.
2 See 11 U.S.C. § 1322(b)(5). See § 129.1 [ Overview: General Rules for Saving Debtor’s Home ] § 81.1 Overview: General Rules for Saving Debtor’s Home.
3 See § 133.1 [ Reasonable Time to Cure Defaults ] § 82.4 Reasonable Time to Cure Defaults.
4 See § 83.1 In General: Rake and Contracts before October 22, 1994, § 83.2 Section 1322(e): Contracts after October 22, 1994, § 83.3 Rate of Interest to Cure Default: Contracts before October 22, 1994, § 83.4 Rate of Interest to Cure Default: Contracts after October 22, 1994, § 83.5 Undersecured Mortgage and Interest to Cure Default and § 83.6 Late Charges, Attorneys' Fees, Costs and Other Charges.
5 See § 116.1 [ Oversecured Claim Holders ] § 78.5 Oversecured Claim Holders.