Pending Legislation - the "Helping Families Save their Homes in Bankruptcy Act of 2009"
The main provisions of the "The Helping Families Save their Homes in Bankruptcy Act of 2009" allow a judge in certain Chapter 13 bankruptcy proceedings to "write down" the principal of a mortgage to the current value of the home.
This would provide substantial relief to those who find themselves substantially "underwater" with their mortgage -- in other words, they owe a mortgage that is substantially greater than the present value of the house.
Individuals in this situation can truly find themselves in a financial bind especially if they need to sell the house. While lenders are sometimes willing to entertain a "short sale," there is still the possibility that the selling homeowner could face a substantial post-sale deficiency or, even if the deficiency is forgiven, they could face a substantial tax bill from the "income" derived from the debt forgiveness.
The ability to write down these mortgages in bankruptcy could help many homeowners who find themselves in this"underwater" situation, between the proverbial rock and the hard place. The mortgage industry has mounted an intense lobbying effort in opposition to the bill. The lender opposition to the bill is especially perplexing, however, when one considers that the lender, should it foreclose and evict the family from its home, could still only sell the property for what it is currently worth.
This legislation is still pending, so check back for updates.
For a more detailed description of the specific provision of the bill and the full text, click here.