He was a little old man, standing alone before the bankruptcy judge in Oakland yesterday. The lender on his home sought the judge’s permission to foreclose on his house.
He told the judge that he had been working with the lender on a loan modification since September and had just gotten papers to complete in January. The loan modification people told him not to make any further payments until the modification went through.
Only some other department at the lender asked the judge for permission to auction off his house.
Under bankruptcy law as it is today, the judge was powerless to assist or compel a modification of the loan. That’s because a special exception for home lenders in the Bankruptcy Code enacted in 1984 prevents a judge from changing any loan secured by a family home.
President Obama is pushing the Helping Families Save Their Homes in Bankruptcy Act which would eliminate the special exception for home lenders. If it passes, the judge at yesterday’s hearing could have taken a meaningful role in solving the man’s problem within the guidelines of the new law. But not yesterday.
I have hopes of a happy ending to yesterday’s drama. The judge continued the hearing on relief from stay for 90 days (an extraordinarily long time in the circumstances) to give the parties a chance to work it out without his help.
