Mortgage Modification Mediation in Chapter 13

There are several considerations to look at when deciding whether MMM is worth moving forward with. Essentially, if you can’t afford to pay and cure your arrearages through a Chapter 13 plan, then MMM may work.

The MMM is available for any type of property, home or investment. Through MMM, Debtors can modify Fannie Mae or Freddie Mac loans, FHA loans (Federal Housing Administration loans), SBA loans, and private loans.

There is no guarantee that the MMM will result in a modification. The parties to the modification (the debtor and the lender) are not required to reach an agreement. They are merely required to get to the table and negotiate in good faith.

To participate in MMM, until the mortgage is modified, for homestead mortgages, the debtor has provided adequate protection payments in the amount of 31% of his/her gross income toward a modified mortgage payment or a current contractual mortgage payment if it’s less. The 31% includes principal and interest, property taxes, HOA or COA, homeowners’ insurance. The mortgage insurance is not included in the 31%.

For non-homestead mortgages (rental properties), the debtor has to pay 75% of the gross rental income generated from the property as adequate protection payments.

Both Fannie May and Freddie Mac offer loan look up tool on their websites.

Participation in the MMM is optional and is not included in the base attorney fee. In Chapter 13, the court-approved attorney fees for MMM are $1,800, or $2,500 for complex modifications. The MMM attorney fees can be paid through the plan monthly payments over 3-5 years. There is also a mediator fee of approximately $500, which is split between the mortgage lender and the borrower. There is also a $60 fee to use the MMM portal.

You can modify mortgages outside of bankruptcy. Many lenders offer modification programs. However, in bankruptcy, the modification process is court ordered once you request it, and it requires good faith in negotiations. You also mediate with higher level people (the underwriters), not the customer service, and all parties use a portal to communicate and submit documents, which streamlines the process and avoids endless back-and-forth communications over missing documents. Overall, modification in bankruptcy is a more efficient and expedited process and more likely to result in successful modification.

Debtors have 90 days from the filing of the Chapter 13 bankruptcy petition or conversion from Chapter 7 to Chapter 13 to file a motion for referral to MMM. Once the order referring the case to mediation is entered, the debtor will get the access to the Portal within 7 days and can submit the application for modification with all required documents. Once the application package has been submitted, MMM can be scheduled in 30-45 days. The debtor may receive a decision prior to MMM. If the debtor receives a denial, it can be reviewed at the mediation for reconsideration. Additional work may be needed after mediation. If the modification is agreed to at mediation, the debtor will file a motion to get an order approving it. So, on average, it may take 2-3 months to complete the process once MMM is ordered.

Each lender has their application package. However, most lenders use Form 710 application for mortgage assistance based on hardship. In addition to the application, the debtor will need to submit a hardship letter, bank statements, tax returns, utility bills, pay advices for 30 days, and IRS form 4506-T to verify tax returns. Additional documents may be requested on a case-by-case basis.