The federal government provided new Home Affordable Modification Program (HAMP) outreach and communication guidelines for foreclosure actions while evaluating the borrower. These guidelines provide additional protection for delinquent borrowers who have filed bankruptcy but would otherwise be eligible for HAMP benefits. Some key highlights from the directive include:
- The servicer must evaluate the borrower’s eligibility under HAMP and determine ineligibility before referring the borrower to foreclosure (or make “reasonable solicitation efforts”).
- If foreclosure activity has already been initiated, the foreclosure sale cannot occur until after the servicer determines if the borrower is ineligible under HAMP (or makes “reasonable solicitation efforts”).
- The servicer must give the borrower 30 days to respond to HAMP “Non-Approval Notices” in certain circumstances before conducting the foreclosure sale.
- The servicer must provide, in writing, to the foreclosure attorney certification that the borrower is ineligible for HAMP before conducting the foreclosure sale.
- A borrower in active Chapter 7 or Chapter 13 bankruptcy or the borrower’s attorney or bankruptcy trustee can request the servicer to consider the borrower under HAMP. The servicer can no longer decline the borrower as a “proper exercise of discretion.”
- If the borrower has been approved on a trial loan modification and files a Chapter 7 or Chapter 13, the servicer may not deny the borrower a permanent modification simply for filing bankruptcy.
- If a delinquent borrower has a discharged Chapter 7 and chooses not to reaffirm, the first lien mortgage debt is still eligible under HAMP with the following provision added to the permanent modification agreement: “I was discharged in a Chapter 7 bankruptcy proceeding subsequent to the execution of the loan documents. Based on this representation, the lender agrees that I will not have personal liability on the debt pursuant to this Agreement.”
Homeowners struggling to make mortgage payments or feeling their lender or servicer has not worked with them on a loan modification should call a bankruptcy attorney. For a copy of the full disclosure, see Supplemental Directive 10-02.