Guidelines re: Residential Loan Modifications on Relief From Stay Motions and in Chapter 11 and Chapter 13 Plans
UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
GUIDELINES REGARDING RESIDENTIAL LOAN
MODIFICATIONS ON RELIEF FROM STAY MOTIONS
AND IN CHAPTER 11 AND CHAPTER 13 PLANS
(San Francisco and San Jose Divisions)
|The court has numerous Chapter 11 and 13 cases in which
creditors holding first lien mortgage loans secured by borroweroccupied
principal residences file motions for relief from stay
and/or debtors have filed or will file applications to modify
the terms of such home mortgage loans. Debtors in Chapter 7
frequently appeal to the court for extension of the automatic
stay while they seek loan modifications without appreciating
that the court can afford them little relief if the trustee does
not oppose relief from stay.
|The following are guidelines that are applicable to
creditors filing such motions for relief from stay and for
debtors who hope to modify their principal residence first lien
mortgage loans by agreement with their first lien mortgage
lender.1 They do not apply to non-consensual modifications of secured creditors' liens.
|NOTE: CREDITORS ARE NOT VIOLATING THE AUTOMATIC STAY WHEN THEY
ARE NEGOTIATING LOAN MODIFICATIONS WITH DEBTORS IN BANKRUPTCY.
Motions for Relief from Stay (Chapter 11 or 13)
1. Creditors must state on the cover sheet accompanying their
motion whether or not debtor(s) have requested a loan
modification prior to bankruptcy and/or prior to the date the
motion is filed.
2. If debtor(s) have made such a request, the creditor must
also indicate on the cover sheet the status of the request (e.g.
request pending, no decision yet; modification in trial period;
denied in writing (attaching a copy of the denial),etc.).
3. If debtor(s) have not made a request for a loan modification
prior to the date of filing the motion for relief from stay, but
intend to do so, or have done so after that date and the
creditor has not so indicated in its motion for relief from
stay, then they should advise the court accordingly at the
hearing on the motion for relief from stay. As one form of
adequate protection, the court may set a deadline for the
debtor(s) to file and serve on the creditor (and in Chapter 13,
on the trustee) a declaration stating under penalty of perjury:(1) the date of such a request and to whom it was sent
(attaching a true copy of any transmittal letter or cover sheet,
without exhibits); (2) if known, the status of the request
(e.g., request pending but no decision yet; modification in
trial period; denied in writing, etc.); and (3) the amount that
is 31% of the debtor(s)' monthly gross income as shown on
4. As additional adequate protection of the creditor's interest
in the debtor(s)' principal residence pending consideration of
the loan modification request by the creditor, the court will
set an appropriate monthly payment amount, and in doing so may
consider as adequate a monthly amount that is 31% of the
debtor(s)' monthly gross income, with payments beginning in the
month that follows the first hearing on the motion for relief
from stay or at the end of the contractual grace period in the
month that follows after the motion was filed.
5. The court's adequate protection order will normally provide
that if the creditor in its sole discretion denies the loan
modification request in writing provided to debtor(s) and
counsel, if any, either (1) the adequate protection payments
will revert to the amount provided in the loan documents in the
next calendar month after the denial or (2) the creditor will be
permitted to restore the matter to calendar on ten (10) days notice.
|Motions for Relief from Stay (Chapter 7)
6. Chapter 7 does not provide a debtor rights greater than those
available under non-bankruptcy law to cure a default on secured
debt or otherwise to modify the terms of secured debt. Chapter
7 offers debtor only a discharge of unsecured debt.
Accordingly, the court will almost always grant relief from stay
to the holder of secured debt in a chapter 7 case unless the
trustee objects on some basis, such as that the collateral
should be sold by trustee for the benefit of all creditors.
Because Chapter 7 does not permit the debtor to alter the terms
of secured debt without the consent of the lender, and because
none of the loan modification programs currently in effect give
the debtor any legal right to have a loan modified, the court
will normally not deny or delay relief from stay in a chapter 7
case on the basis that a loan modification application is
|Chapter 11 and 13 Plans
7. If the debtor(s)' Chapter 13 plan is premised upon a
modification of a first mortgage loan secured by the principal
residence, no later than the §341 meeting of creditors debtor(s)
must file and serve on the Chapter 13 trustee a declaration stating under penalty of perjury: (1) the date of such a
request, to whom it was sent (attaching a true copy of any
transmittal letter or cover sheet, without exhibits); (2) if
known, the status of the request (e.g., request pending but no
decision yet; modification in trial period; denied in writing,
etc.); and (3) the present (unmodified) balances and total
monthly payments on all claims secured by the debtor(s)'
8. For a Chapter 11 plan premised upon a modification of a
first mortgage loan secured by the debtor(s)' principal
residence, the same information required in ¶ 7 for a Chapter 13
case should be included in the debtor(s)' disclosure statement.
9. No plan referred to in ¶¶ 7 and 8 that proposes the loan
modification payment terms for treatment of the first lien
mortgage creditor's claim will be confirmed until the
modification has been approved by the first mortgage lender,
with proof of such approval provided to the Chapter 13 trustee,
where applicable, or to the court in a Chapter 11 case.
10. Notwithstanding paragraph 9, the court may confirm a plan
while a loan modification request is pending, if the language of
the plan provides clearly that plan payment terms in conformity
with a not-yet-approved loan modification request shall by the
terms of the plan itself revert to the terms provided in the operative loan documents if the loan modification request is
denied. If a loan modification request remains pending when all
other plan payments have been made, the case may be closed
without a discharge.
|1While many loan modifications are under the Home Affordable
Modification Program (HAMP), these guidelines apply to any
program available to debtors seeking relief on their first lien
mortgage loans. Under HAMP, eligible loans must have been
originated prior to January 1, 2009, on which the unpaid principal balances do not exceed $729,750 for a single unit
dwelling, $934,200 for 2 units, $1,129,250 for 3 units, and
$1,403,400 for 4 units.
SF & SJ Loan Modification
Guidelines - Effective
December 1, 2010