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Philadelphia Residential Mortgage Foreclosure

Diversion ProgramPhiladelphia VIP

Negotiation Training for Pro Bono Counsel

May 11, 2011

Trainers:

Maisha Elonai, Esq. Michelle BrixIndependence Fellow Senior Housing CounselorPhiladelphia VIP Center in the Park

Andrea Saah, Esq. Alfonso Madrid, Esq.LawWorks Senior Staff Attorney PrincipalPhiladelphia VIP Law Offices of Alfonso

Madrid

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Foreclosure Nationally 1 of every 11 residential mortgages in U.S. is

more than 30 days delinquent but not yet in foreclosure

1 in 21 residential mortgages is in foreclosure – over half of those being subprime fixed or adjustable rate mortgages

More than two-thirds of mortgages are in default due to unemployment or underemployment

In Pennsylvania, foreclosures are concentrated in modest and low income communities

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Reasons for Default(based on currently open, reported cases referred to VIP attorneys)

Unemployment: 48% Illness of homeowner or family: 23% Combination illness/unemployment: 16% Divorce: 8% Other: 5%

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Demographics of VIP-Assisted Clients(for all households assisted by VIP at court or in ongoing representation = 1,744 as of April 2011)

63% are female 58% have children in the household (more than

2,000 to date) 21% are single caregivers with children 10% are seniors Mean client age = 37 years

63% African-American 24% Caucasian 9% Hispanic 2% Asian 2% Other

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Foreclosure Process in Pennsylvania Foreclosure in PA is a judicial process – the

lender must commence an action in court in order to be able to foreclose on and sell the property ► See p.4 for a foreclosure process timeline

Homeowner receives notice before the complaint is filed, before judgment is entered, and before the sheriff’s sale can occur► See p.5 for sample notices

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Relevant Statutes and Rules An action of mortgage foreclosure is governed by

PA Rules of Civil Procedure 1019, 1024, 1028, 1141-1150

Act 91 created HEMAP, the Homeowners Emergency Mortgage Assistance Program►“Act 91 Notice” is sent to homeowner prior to commencement of mortgage foreclosure action; provides HEMAP information to the homeowner

Act 6 governs mortgage foreclosure procedure in PA► “Act 6 Notice” is a Notice of Intent to Foreclose

See Appendix pp.57-64 for text of relevant rules and statutes.

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Diversion Program Residential Mortgage Foreclosure Diversion Pilot

Program established by Joint General Court Reg. No. 2008-1, 4/16/08; reauthorized by court order on 12/16/09

Provides an opportunity for homeowners and lenders to avoid foreclosure by resolving the dispute through a negotiated agreement under court supervision

Covers all mortgage foreclosure cases involving owner-occupied residential properties in Philadelphia

Owner-occupied residential properties cannot proceed to judgment or to sale unless a conciliation conference (CC) is held under court supervision

Every Thursday in Courtroom 676, at 9am and 1pm, 100 - 125 cases/session

► See Appendix p.65 for data on cases in the program

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Foreclosure Process BEFORE Diversion Program

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Foreclosure Process WITH Diversion Program

Notification of Conciliation

Conference Date

Homeowner calls Hotline

Referral to Housing Counselor

Homeowner, Housing Counselor meet

Loan workout proposal submitted

Conciliation Conference: VIP Attorney

assigned All parties negotiateNegotiatio

nUnsuccess

ful

Negotiation

Successful

Workout AgreementReviewed/

Signed

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How Process (Ideally) Works Homeowner receives Act 91/Act 6 notice with HEMAP information

and information about housing counseling agencies

Plaintiff files complaint Homeowner (HO) receives letter with conciliation conference (CC)

date and Save Your Home Philly hotline number (215-334-HOME) with the complaint

HO calls hotline for appointment with a Housing Counseling (HC) agency

OR HO calls agency as result of Office of Housing and Community Development outreach or referral by a lender

HC submits loan workout proposal to plaintiff at least 10 days before the conference

At CC, lender’s counsel, HC and HO discuss foreclosure alternatives, hopefully with VIP volunteer’s assistance

OR If financial proposal was not submitted prior to 1st CC but HO appears for the CC, a 2nd CC is scheduled automatically 35 days hence, and the financial proposal must be submitted no later than 14 days prior to the 2nd conference

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Housing Counseling Agencies City Office of Housing and Community Development

(OHCD) has invested $4.3 million a year for the past 20 years in free first-time homebuyers counseling for Philadelphia residents – began providing mortgage foreclosure prevention counseling in 2008

31 housing counseling agencies in Philadelphia have contracts with OHCD

Agencies typically have 1-6 counselors

In most agencies, the counselor who prepares the homeowner’s loan workout application is also present at the CC; in a few agencies, the counselor representing the HO at the CC is not the counselor who met with homeowner and prepared the proposal

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What Happens at Conference?

Courtroom 676 City Hall Homeowners check in at sign-in table and then at

Housing Counselor table – if they do not have a Housing Counselor, they are assigned to one then

If HO and HC determine there is a need for pro bono attorney, client comes to VIP table

Volunteer paralegals conduct client intake See pp.11-12 for intake form

VIP staff member assigns client to volunteer attorney – provides information on client and case and makes introductions►PA RPC 6.5 – rule regarding conflicts of interest in

provision of short-term, limited legal services

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VIP Eligibility Requirements Eligibility for continued representation – eligible

clients receive priority and may be represented beyond conference date At or below 200% federal poverty level for size of

household (see Appendix p.66) Cannot own more than one residential property Must be living in (or want to live in) and want to keep

the home, but need not be on the deed – differs from diversion program guidelines, which require that property be owner-occupied

Ineligible clients may receive representation on day of conference only, will have to come back to VIP table at future conference dates Continuing representation for income-ineligible HOs

is not covered by VIP malpractice insurance

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Initial Tasks for Volunteer Attorney Sign non-solicitation agreement and give to VIP

(at 1st conciliation conference only) (p.14) Obtain client’s signature on representation

agreement (p.15) Obtain client’s signature on authorization to

speak to third parties (p.16) Look for potential title problems (HO not on

deed or mortgage) ► Alert VIP immediately! Discuss status of case w/HC and HO, obtain

copy of budget info and loan workout proposal if one has been submitted to the lender

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Resources at the CC Foreclosure complaint – ask HC, client, lender’s

attorney Mortgage/deed – ask VIP staff or PLA attorney Court file – docket record can be requested

from VIP staff or court staff by providing client’s call list number

VIP staff – provide assistance throughout, review orders, have binder with foreclosure mitigation program guidelines

PLA attorney – reviews orders when requested, gives advice to HCs and VIP attorneys, can look up docket and mortgages/deeds

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Client Communication Clients are frightened about the prospect of losing

their home and intimidated by the legal process Some clients cannot read well or comprehend the

documents they have received Clients often have other problems in their lives: illness,

disability, unemployment, abuse, separation/divorce For all clients, VIP intake is a place to tell their story to

someone who is sympathetic

► Clients may become emotional – reassure them calmly and let them know you will do your best to help them

► Clients may go into great detail – keep them focused on the details YOU need to know, be firm but polite

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Case Analysis Examine relevant issues (verify answers with the

housing counselor): Were the notice of intent to foreclose (Act 91 or 6

notice) and the complaint served upon the homeowner more than 10 days prior to the CC? ► If not, alert court staff – plaintiff must serve homeowner and file affidavit of service; new conciliation conference will be scheduled

Why did client become delinquent on the loan (short-term or long-term problem)?

How much is owed in arrears and in total? Is the case pre- or post-judgment?

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Case Analysis (continued) Who pays the property taxes and homeowner’s

insurance? Is there a second or third mortgage on the property? Are there other liens on the property? Other debt? How often has client come back for a conference?

Why? Has client been setting aside funds for mortgage

payments? If not, why not?

► Use Mortgage Foreclosure Issue Spotting Guide and Evaluating a Mortgage Foreclosure Diversion Case to evaluate homeowner’s optionsSee Appendix pp.67-77

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Conference Tasks for Attorney Reach agreement with opposing counsel re.

postponement of entry of judgment (or of sheriff’s sale) – if HO comes to 1st CC, a 2nd CC is granted 35 days hence and default judgment is postponed to no sooner than the day after the 2nd CC

Review the court order completed by lender’s attorney for accuracy and specificity BEFORE it is submitted Use correct “Day Forward” (action filed in or after

September 2008) or “Day Back” (action filed before September 2008) order See pp. 24-26 for orders

Order should include date of next conciliation conference; entry of judgment should be postponed to day AFTER next conference

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If No Agreement with Lender’s Counsel If counsel states that s/he does not have

authority to postpone entry of default judgment or to grant another conciliation conference, ask court staff for a JPT conference

►JPT can recommend that judge order a postponement “over counsel’s objection”

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Judge Pro Tem (JPT) Experienced attorney Must participate in training Acts as a mediator – does not address issues that

must be litigated (e.g., lack of standing, predatory lending)

Makes recommendations to Judge Rizzo Often keeps case once involved – always ask for

the JPT’s contact info► Obtain copy of JPT order (p.27)

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Process Problems Lender’s counsel unable to reach plaintiff’s representative to

obtain response: ► Court will not permit sheriff sale or entry of default judgment

without a response from lender; another conference will be scheduled

Lender refuses to provide answer or cannot be reached during multiple conferences: ► Court can order lender’s representative with authority to

negotiate to appear in person or be present by telephone during next conference – notify Judge Rizzo’s Court Administrator if lender’s response is lagging despite multiple (more than 3) conferences

Lender refuses to negotiate:► Examine whether retention of home is truly affordable

for client If NO, evaluate other options If YES, ask court for a conference with JPT or the judge

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Concluding the Conference Obtain copies of unsigned court order and checklist

of documents HO must submit to lender’s counsel for VIP, the client, and housing counselor See p.17 for document checklist

Complete status form for VIP and return to VIP staff person (pp.18-19)

Exchange contact info with all parties if continuing the representation – client, HC, lender’s counsel, JPT

Confirm with HC and HO that communications will go to lender’s counsel; ask lender’s counsel if documents should also be sent to lender directlySee Appendix p.78 for lenders’ counsel contact list

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If Attorney Keeps the CaseOnce the case clears the attorney’s conflicts check, VIP

will send the case file to the attorney:

Conference intake form, order and other documents Philadelphia Legal Assistance intake form Foreclosure docket Recorded deed & mortgage history Property tax information Copies of relevant deed(s), mortgage(s), assignments Formal referral letters to attorney and client, with copy

to HC

► Volunteer attorney is covered under VIP’s malpractice insurance for ongoing assistance to eligible clients only – if the client’s income increases during the continued representation and volunteer is aware of the increase, contact VIP to determine client’s income eligibility status

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If Attorney Keeps the Case – continuedDocuments lender’s counsel should be able to

provide without formal document discovery: Mortgage, possibly a title report Itemized list of arrearages, fees and costs, reinstatement

amount and pay-off amount Payment history (client should request from lender if lender’s

counsel does not have a copy)

Documents lender’s counsel is not likely to provide without litigation or RESPA request (“discoverable documents”):

Loan application Loan closing documents (incl. HUD-1 settlement statement) Loan note

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Communication is Key Communicate proactively communicate with client, HC,

lender’s attorney and court staff to ensure that process moves forward

You are not “attorney of record” – must follow up regularly with lender’s counsel to obtain response and/or copies of any documents (cc: Judge’s clerk on email if lender’s counsel does not respond)

Insist that client notify you of all documents received in reference to the foreclosure

VIP emails status update request to you 1 month after referral and every 3 months thereafter until case closes

► VIP staff always available to answer questions and provide support

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Finalizing Negotiated Settlement Request that both client and you receive copy

of the written agreement – participation in CC does not mean you are attorney of record

Remind client to contact you immediately upon receipt of any document

Review agreement to determine if terms are those negotiated at CC – they often differ!

Get confirmation from lender’s counsel (confirm on case docket record) that praecipe to vacate judgment and/or stay the sale and dismiss without prejudice was filed

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Closing the Case Once case is resolved, attorney should send client

a termination letter and send VIP a brief closing report with details of outcome

Required information Copy of termination letter sent to client Terms of loan prior to negotiation Type of outcome (retention or non-retention) and details of the

resolution

Optional information Copies of any submissions made to the court that might be

useful to other volunteers (VIP will redact any personal info) Comments about your mentor (if you worked with one) Comments about the housing counselor on the case Comments/documentation regarding any rescue scams Comments about your experience working with VIP

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Lender, Servicer, Trustee Mortgage originator (issuer/initial lender): Usually a

bank, thrift company, or mortgage banker that then sells the loan, which usually ends up in a pool of mortgages backing a security purchased by investors

Servicer: The company that collects monthly payments from the borrower and passes them to the lender or the investors in the mortgage pool

Trustee: Institution that manages the mortgages held in mortgage-backed securities for the investors

►Servicer or trustee is generally the plaintiff

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Loan Insurers/GuarantorsInstitutions that guarantee the loan against default;

may also hold the loan or the mortgage-backed security

Fannie Mae - Federal National Mortgage Association

Freddie Mac - Federal Home Loan Mortgage Corporation

FHA - Federal Housing Administration VA - Veteran’s Administration

► If the loan falls into one of these categories, this may increase workout options available to the homeowner – check with the HC or VIP staff

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Loan Types FHA (federally insured) loans – require payment

of mortgage insurance by homeowner Conventional prime (for homeowners with good

credit and lower LTV ratio) Fixed or adjustable interest rate

Conventional subprime (for homeowners with poorer credit and higher LTV ratio) Some fixed Of late, almost always adjustable

Predatory loans: bait and switch tactics, solicited by lender, settlement in HO’s house, required disclosures often missing

► Alert VIP if you suspect a predatory loan!

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Meeting with Housing Counselor

Face-to-face meeting with homeowner Counselor gathers information about

Homeowner’s financial situation Type of Mortgage (FHA, Conventional, VA, etc.) Hardship, circumstances surrounding delinquency

Counselor completes necessary forms, including those required by specific lender

Counselor submits applications to emergency mortgage loan assistance programs if HO is eligible

Forms are sent to lender’s counsel and possibly also to lender

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Counseling SessionUsual

Documents: Authorization to talk

to servicer on client’s behalf

Income Verification Bank Statements Utility bills Explanation of

hardship Documents requested

by lender’s counselSee p.17 for list

Making Home Affordable Request for

Modification and Affidavit See Appendix pp.80-82

Form 4506-T See Appendix pp.83-84

Income verification Residency verification

(credit report or utility bill)

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Challenges Proposal not submitted at least 10 days

before 1st conference or 14 days before 2nd conference

Missing or incomplete documentation by HOHomeowners don’t have documents availableClients are difficult to reachConference may need to be postponed while

more documentation is gatheredConstantly changing program- or lender–

specific forms and requirements

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Determining Options – Basic Outline

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Retention Options Refinance State and local payment assistance programs:

in U.S. ► Emergency Homeowners Loan Program (EHLP) in PA ► Homeowners Emergency Mortgage Assistance

Program (HEMAP) in Philadelphia ► Philadelphia Housing Retention Program

Loan Repayment Forbearance Loan Modification Partial Claim (for mortgages with mortgage

insurance) Reverse Equity Mortgage (used by senior

homeowners age 62+ to convert the equity in their home into a loan – not used often, contact VIP for more information)

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FHA-Specific Retention Options Lender must evaluate HO’s eligibility for these

options in specific sequence►Lenders often don’t follow FHA guidelines, so housing

counselors and attorneys with a client with an FHA loan must push lender to ensure consideration of all options (see Appendix p.79)

Repayment Plan Special Forbearance Loan Modification Partial Claim FHA-HAMP►In PA, failure to consider HO for all options is an equitable

defense and may provide HO with leverage in negotiations

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Refinancing A new loan that pays off the delinquent mortgage in

full or in part (lender must agree to a “short pay” if refinance is less than what is owed) and results in satisfaction of the mortgage ►Homeowner in default is unlikely to be approved for a

refinance other than through a public (state or federal) program

In PA : Homeowners’ Equity Recovery Opportunity (HERO) has been phased out; no replacement

Federal: Home Affordable Refinance Program (HARP) – not relevant to homeowners in the diversion program because they are already delinquent and therefore ineligible for HARP

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Payment Assistance - HEMAPHomeowners Emergency Mortgage Assistance Program

PA program for conventional loans (not FHA loans) Loan for homeowners who became delinquent

through no fault of their own: death, unemployment, disability, etc. and have reasonable expectation of resuming employment and mortgage payments

HEMAP can provide a one-time lump sum payment to cover arrears or can provide monthly assistance for up to 36 months

Homeowner must begin repayment of HEMAP loan immediately; repayment plan will be based on affordability (min. $25 per month) – interest rate for HEMAP loans given in 2011 is 5.25%

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HEMAP (continued) If homeowner applies for HEMAP within 30 days of

receiving Act 91 notice, lender cannot continue with foreclosure until PA Housing Finance Authority has made a determination

Homeowner must apply through a housing counseling agency

If denied for HEMAP, homeowner can appeal If homeowner comes to conciliation conference and

realizes that s/he can apply for HEMAP, can still apply, but the application will not stall the foreclosure proceedings

NOTE: Funding for this program may be eliminated in the 2011/2012 state budget – the program may not exist after June 30, 2011.

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Payment Assistance – EHLPEmergency Homeowners Loan Program (ntl. version

of HEMAP) Administered by PA Housing Finance Authority in

PA - state received $105 million that must be spent by 9/30/2011; operational since 4/1/2011

HO’s income must have declined by at least 15% because of unintentional unemployment, underemployment or medical problems

HO must have reasonable prospect of resuming mortgage payments within 2 years of receiving assistance

HO must be at least 3 months behind on payments and have received notice of foreclosure

Must be 1-4 unit property and HO’s principal residence

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EHLP continued All first mortgages may be eligible, including FHA

and VA loans HO must pay 31% of gross income towards

mortgage payments, but no less than $25/month Maximum loan amount is $50,000 – includes

arrears and then monthly mortgage payments above the amount contributed by the homeowner for up to 24 months

After last payment is made, money advanced becomes a declining balance, 0% interest loan – will be forgiven over five years if homeowner remains current on mortgage and remains in home for five years

Application does not stall foreclosure process; no appeals process

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Philadelphia Housing Retention Program Grant program initially to prevent homelessness,

now also available to homeowners facing foreclosure

Can provide $1,500 - $2,500 grant to be used towards delinquency, but only if HO will then be current on the mortgage

Apply through one of specified counseling agencies Income eligibility guidelines must be met Proof of delinquency required Program shuts down when funds are expended

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Repayment Plan Simplest work-out

option Written agreement

where borrower agrees to cure the delinquency by adding additional amount to regular monthly mortgage payments until current

3 -12 months Must be in writing

When to use: Financial crisis has

been resolved Unemployed but

found work Temporary disability

Issues: Must have income to

make higher payment Often difficult to

complete without significant surplus

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Forbearance Plan Agreement to

suspend or reduce normal monthly payments for a fixed period of time

At end of forbearance period, borrower must cure default through lump sum payment or long-term repayment plan

Viable option when:

Cause of the default is specific and temporary

There is reasonable evidence that the borrower will be able to resume making payments by a certain date and will have surplus income to support a repayment plan

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Loan Modification Written agreement

that permanently changes one of more of original terms: Interest rate Term Unpaid principal

balance

►Results in permanent change in the mortgage payment

When to use: Change to terms would

reduce payment amount Failure to modify would

result in foreclosure Only way to make

payments affordable Issues:

Paperwork More work for servicer Extreme delinquency

may prevent lender’s cooperation or may result in higher, not lower payments

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Steps for Affordable Loan Modification Interest rate reduction, preferably permanent Capitalization of arrears Principal reduction (rare) Extension of mortgage term Extension of amortization period Fees/costs reduction:

Easier to do before judgment than after judgment – saves about $2,000

Inspection/appraisal Late charges Attorney’s fees (ask for itemization - often excessive)

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Home Affordable Modification Program

HAMP: for any eligible homeowner

whose servicer participates in the program or

who has a loan owned or guaranteed by Fannie Mae/Freddie Mac

FHA and VA versions

For more information:www.makinghomeaffordable.govwww.hmpadmin.com/portal/programswww.fanniemae.com/loanlookupwww.freddiemac.com/mymortgage

Eligibility Current monthly payments

(PITI) are greater than 31% of gross monthly income

Property was purchased before January 2009

Primary residence Mortgage equal to or less

than $729,750 (for one-unit property)

Projected income to lender from modified loan would exceed projected income from foreclosure sale

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Lender Programs Many lenders/servicers have their own in-house

loss mitigation programs, which are in constant flux – housing counselor will submit application for non-HAMP modification or other loan workout

VIP provides a binder at the conferences with information on federal, state, city and individual lender programs

Links to lender-specific programs:

www.consumerlaw.org/issues/financial_distress/loan_modification.shtmlwww.palegalaid.net

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Partial Claim Available primarily in the context of FHA and VA

mortgages: Insurer pays the lender the amount of the arrearage

(“partial claim”) to bring the homeowner current on the mortgage; amount paid becomes a loan the homeowner must repay over time

Borrower may not be more than 12 months in arrears when application is made – sometimes can pay down arrears to reach the 12-month limit

Can use partial claim for up to 12 months of payments in total (could be 3 partial claims for 4 months of payments each)

VA uses the term “refunding” rather than “partial claim” NOTE: Loans with private mortgage insurance (PMI) may

also have this option

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Non-Retention Options Straight sale (if HO has equity in home) “Short” sale (home’s value < mortgage debt) Mortgage assumption by qualified prospective

buyer (e.g., HO’s family member) Deed in lieu of foreclosure/no delinquency Sheriff’s Sale – takes about 3 months from entry of

judgment to date of sale (1st Tuesday of the month); after the sale, new owner must file action in ejectment – takes about 8 weeks before Sheriff evicts

Additional assistance to homeowner: “Cash for Keys” Local and state housing resource referrals

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Straight SaleLender allows homeowner to sell property

on the market Good option if homeowner cannot afford to

keep the property but has equity in the property – allows homeowner to retain that equity Lender requires a valid listing agreement with

a real estate agency Need enough time to complete sale

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Short Sale Lender allows homeowner to sell property

at a loss Good option when situation is incurable and

client has no equity A deficiency judgment may follow a short sale –

you should request that lender waive the deficiency judgment

Potential tax issues – forgiven debt may be considered taxable income to homeowner

Must be arms-length transaction – homeowner cannot receive any of sales proceeds

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Deed in Lieu (of Foreclosure) Borrower voluntarily conveys title to lender

in exchange for discharge of remaining debt Good option when other options have been

exhausted Lender may require property to be listed for sale

for at least 90 days before accepting deed in lieu No other liens on property, or liens must be

cleared before lender approves Requires lender/investor approval

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Sheriff’s Sale Might be the only option if homeowner has

little or no income and lender refuses deed in lieu – but may affect HO’s ability to find rental housing Sale usually occurs 2-4 months after entry of

default judgment – on 1st Tuesday of the month Homeowner has right to “cure” the loan (pay off

all the arrears and reinstate the loan) up to one hour before the sale

Purchaser (or lender, if property is retained) must file an action in ejectment to evict the homeowner – process takes 6-8 weeks after action is started if homeowner does not defend

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“Graceful Exit”/Cash for Keys Borrower agrees to leave property on a certain

date and in ‘broom-swept’ clean condition in exchange for cash payment

Good option when default is incurable and sheriff’s sale goes forward – saves new owner the cost of an action in ejectment Can negotiate more time before homeowner

must leave the property Homeowner receives funds to help with

transition Housing counselors can help HO find other

housing and sources of rent assistance

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Bankruptcy as an Option Two types of personal bankruptcy filings:

Chapter 7 – assets of a debtor are liquidated by a trustee who pays off creditors with proceeds on a pro rata basis; purpose is to discharge personal liabilities of debtor; liens on the property cannot be discharged

Chapter 13 – used by a debtor with regular income to reorganize debt; trustee collects payments and distributes them to creditors over a period of time (5 years max); at end of payment period, most unpaid debts are discharged

5858

Chapter 13 Bankruptcy and Foreclosure Gives HO a chance to repay the mortgage

arrears over time if lender won’t otherwise agree to a repayment plan HO must be able to make regular mortgage

payments and additional monthly payments to pay off arrears in 5 years

Provides a centralized, timelier forum to litigate claims against the lender or servicer Useful in reducing the arrearage claim or

negotiating a modification

5959

Chapter 13 Bankruptcy Terms Automatic Stay: injunction that springs into

existence upon filing of bankruptcy petition Freezes foreclosure proceedings and prevents sheriff’s

sale (with notice to sheriff and creditor prior to sale) If there are prior bankruptcies, stay may be limited or

not granted at all Bankruptcy Estate: includes all property rights of

the debtor Property owned by H/W as tenants by the entirety is

immune to a creditor of just one spouse Discharge: absolves debtor of personal liability

on most debts (except alimony, child support, taxes, student loans)

6060

Chapter 13 Process and Timeline Before bankruptcy can be filed, debtor must

complete on-line, telephone or in-person credit counseling course

3-page petition and certification of credit counseling are all that need to be filed in an emergency, supporting documentation must be filed soon after

Meeting of creditors: 45-60 days post-petition; usually only debtor attends; payment plan is reviewed by trustee for feasibility

Discharge entered after all plan payments are completed, generally 3 to 5 years post-petition

After discharge, automatic stay ends, but discharge protects debtor from creditors’ continued attempts to collect discharged debts

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Disadvantages of Bankruptcy Costs

Basic bankruptcy without additional services Chapter 7: $1,000-$1,500 Chapter 13: $3,000-$3,500

Filing fees: minimum of $300 Interest accruing over payment period Creditors’ reasonable attorneys’ fees and costs Trustee’s commission: when mortgage

repayment is involved, 10% of arrears May make it more difficult to negotiate a

loan modification with lender

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Bankruptcy and the Diversion Program When is bankruptcy a viable option for a

homeowner in the diversion program? HO has significant unsecured debt that may

be dischargeable in bankruptcy, and the high debt-to-income ratio makes HO ineligible for a loan modification

Value of home is less than total mortgage debt because of 2nd or 3rd mortgages; secondary loans need to be reduced or eliminated

HO has consumer debt judgments which may be liens against the home

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Bankruptcy and the Diversion Program

Lender offers only a short repayment plan that HO cannot afford

HO has equity in the property and lender will not give HO time to sell the property (should take this to a JPT before considering bankruptcy)

Lender will not offer repayment plan/loan modification because HO not on the note, but HO has an interest in the property by inheritance or by co-signing for a loan► Common situation in diversion program!

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Outcomes of VIP-Assisted Cases(Data from loan modifications in cases closed 10/2008 – 9/2009)

Average mortgage payment (mean) Prior to VIP assistance: ~ $750/month After VIP assistance: ~ $560/month

Average interest rate range (mode) Prior to VIP assistance: 7 – 9% After VIP assistance: 5 - 7%

►See Appendix p.85 for sample loan workouts

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Outcomes of VIP-Assisted Cases(Data from 438 continued representation cases closed 6/2008 – 4/2011)

Retention Options

3 refinance (1%) 8 HEMAP loans (3%) 24 repayment plans (10%) 14 forbearance plans (6%) 185 loan modifications

(73%) 2 partial claims, 1 reverse

mortgage (1%) 16 bankruptcies (6%)

TOTAL: 253 homes saved

Non-Retention Options 3 market sales (4%) 10 short sales (13%) 1 deed in lieu (1%) 65 sheriff’s sales (82%)

TOTAL: 79 homes

NOTE: 8 homes sold at sheriff’s sales received Cash for Keys

Unreported Outcomes(no information available)

TOTAL: 106 homes

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Impact of VIP Attorney Assistance

Ongoing legal representation increases homeowner’s likelihood of retaining home from 29% (for all homeowners participating in diversion

program) (see Appendix p.65 for data) to 76% (VIP clients with ongoing representation for whom

outcome has been reported)

Average time spent on a case: 7.5 hours over 3 - 5 months

Pro bono hours donated by VIP volunteer attorneys to program: For continued representation cases June 2008 – October 2010: 4,342 At conciliation conferences June 2008 – October 2010: 3,088 Monetary value of pro bono service (at $200/hr): $1,486,000

► Of 438 ongoing representation cases that closed between June 2008 and April 2011, 253 homes were saved!

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Requirements for Attorney Participation Must attend VIP training, 3 free CLE credits for representing

clients at 3 separate conferences OR representing 2 clients beyond the initial conference

Volunteers encouraged to keep clients – much higher likelihood of positive outcome!

Per Rule 6.5 of the PA Rules of Professional Responsibility, no need for conflict waivers for participation at conferences

To continue to work with client after the conference, must clear conflicts with firm

Scheduling issues:

► To reschedule “day-of” participation in a court conference session, contact VIP program administrator► To reschedule a conciliation conference during ongoing representation of a client, contact opposing counsel

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Additional Resources Philadelphia VIP website: www.phillyvip.org National Consumer Law Center:

www.consumerlaw.org/issues/homeownership PA Legal Aid Network: www.palegalaid.net Federal program info and updates:

www.makinghomeaffordable.govwww.hmpadmin.comwww.fanniemae.com/loanlookupwww.freddiemac.com/mymortgagehttp://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/nsc/lmmltrs