The House Judiciary Committee today reported the bill to enable mortgage modification in bankruptcy to the full House after addition of a “claw back” provision. The added provision provides for a declining percentage of net sales proceeds to be paid to the crammed down lender if the house is sold during the pendency of the bankruptcy for more than the modified loan amount.
The added provision for sharing of post bankruptcy appreciation gives the afffected lender 80% of the appreciation from a sale in the first year from the effective date of the plan; 60% in the 2nd year; 40% in the 3rd year; and 20% in the 4th year.
Also added to the bill was a provision that the debtor must seek a mortgage modification directly from the lender at least 15 days before proposing a plan that modifies a mortgage. The lender presumably has an opportunity to negotiate a modification on its own terms before the bankruptcy court can impose a modification.
The last word from the banking industry was adamant opposition to judicial mortgage modification. Industry lobbyists did not, as far as I could tell, propose an alternative that might actually stop the foreclosure tsunami.