The federal government has from time to time examined the question of whether bankruptcy judges should be given the authority to modify mortgages as part of a bankruptcy settlement. The Helping Families Save Their Homes Act of 2009 included such a provision, but that provision was removed after a firestorm of criticism was received by Congress. So far, no legal authority for judges to cram-down mortgages in the course of a bankruptcy has been given.

Nevertheless, a report by research firm, DBRS, shows that a small number of Chapter 13 bankruptcy cases centered primarily in California, Louisiana and Texas have featured court-ordered modifications to primary home first mortgages.  Some of the loan modifications that judges have ordered have involved reductions in principal to current market value, interest rate reductions, and changes in the terms of adjustable rate loans, extension of the number of years the mortgage will run, and waiving pre-payment penalties.

Critics not only complain that these mortgage cram-downs are illegal, but that as it becomes better known that they are occurring it will encourage more people to seek bankruptcy protection.  Critics also note that when a judge modifies a principal mortgage it then becomes an unsecured debt just like for credit cards and other obligations that are supervised by the bankruptcy court in a Chapter 13 case.

It is sticky issues like this that make it necessary for investors these days to learn all of the different approaches possible in creative real estate investment.

Article Provided by REWealthCoach.com and written by Bob Massey

Troubled homeowners with a mortgage owned by Chase may qualify for some valuable benefits if they agree to a Short Sale rather than letting the home go into foreclosure. These homeowners for whom JPMorgan Chase is actually the lender, not just the servicer, may qualify for the Short Sale Outreach program where Chase will pay up to $30,000 and forgo any deficiency in exchange for the homeowner agreeing to a Short Sale. The Lender promises to deal with this sale in an expedited fashion.

The reason behind this seeming generosity is simple math: it is less expensive for the Lender to approve a Short Sale than to take a seriously delinquent mortgage all the way to foreclosure. The national average from first payment missed to foreclosure is 500 days and in states like Florida where the foreclosure cases are still log-jammed, the process takes 600 days.

The average Short Sale is discounted about 12% while the average REO loses at least 25% off market value. The losses in mortgage revenue for a foreclosure are around 50% of the money owed on the mortgage.

On the other hand, when JPMorgan Chase is just the servicer they lose the incentive to make this kind of deal because they are no longer the one taking the big losses, and they are receiving higher fees in order to service the delinquent account. The system rewards servicers more the longer the property remains delinquent.

Article Provided by REWealthCoach.com and written by Bob Massey