Judges Know How to Value Mortgages


Last week, the House of Representatives passed H.R. 1106 (Helping Families Save Their Homes in Bankruptcy Act 2009). Now, the fight begins in the Senate, and it looks like the gloves are going to come off for this fight. Opponents of the bill have been lobbying Congress very hard, and the tsunami of lobbyists converging on the Senators seems to be growing daily. The arguments against the bill have been gutted. So, it appears any vote will be along party lines.

Interestingly, Bankruptcy Judges are now speaking out about the bill for two reasons: First, the Bankruptcy Judges want to dispell the myth about how these mortgages are really going to be valued, and second, the Bankruptcy Judge know that once they start valuing the banks mortgage portfolios, the banks will have to start writing down their portfolios.The banking industry would like for you to believe that the Judge will have discretion over the valuation process. Well, nothing can be further from the truth. Bankruptcy Judges do not just bang their magic gavel and a number appears out of the air. Bankruptcy Judges conduct evidentiary hearings all the time to value items of personal property and sometimes real property. The Judge doesn’t just make a decision. The parties have to call witnesses (appraisers, real estate agents, and fact witnesses), put forth evidence, and, in reality have a mini trial on the issue. Once the parties have had an opportunity to put on their evidence, the Judge will consider the arguments, law and facts, and he or she will render a ruling on the issue.

The mortgage companies control the modification process right now, and they are failing miserably. Many foreclosures could have been avoided if the government would have acted sooner to modify mortgages, like in 2007 or 2008. The resistance to the bill stems from the fact that the mortgage industry is afraid to allow a neutral third party to control the process of modification. Simply put, once they lose control of the process and the leverage that they once maintained over the process, they will have no alternative but to value the real estate at the current value.

Read the full article at: Bankruptcy Law Network

Date published: Mar 11, 2009


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