H.R. 4058 (112th): Bankruptcy Equity Act of 2012

112th Congress, 2011–2013. Text as of Feb 16, 2012 (Introduced).

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I

112th CONGRESS

2d Session

H. R. 4058

IN THE HOUSE OF REPRESENTATIVES

February 16, 2012

introduced the following bill; which was referred to the Committee on the Judiciary, and in addition to the Committees on Financial Services and Veterans’ Affairs, for a period to be subsequently determined by the Speaker, in each case for consideration of such provisions as fall within the jurisdiction of the committee concerned

A BILL

To amend title 11 of the United States Code to provide authority to modify certain mortgages on principal residences of debtors to prevent foreclosure; and for other purposes.

1.

Short title

This Act may be cited as the Bankruptcy Equity Act of 2012.

I

Amendments to Title 11 of the United States Code

101.

Eligibility for relief

Section 109 of title 11, United States Code, is amended—

(1)

by adding at the end of subsection (e) the following:

For purposes of this subsection, the computation of debts shall not include the secured or unsecured portions of—

(1)

debts secured by the debtor’s principal residence if the current value of that residence is less than the secured debt limit; or

(2)

debts secured or formerly secured by real property that was the debtor’s principal residence that was sold in foreclosure or that the debtor surrendered to the creditor if the current value of such real property is less than the secured debt limit.

; and

(2)

by adding at the end of subsection (h) the following:

(5)

The requirements of paragraph (1) shall not apply in a case under chapter 13 with respect to a debtor who submits to the court a certification that the debtor has received notice that the holder of a claim secured by the debtor's principal residence may commence a foreclosure on the debtor's principal residence.

.

102.

Authority to modify certain mortgages

Section 1322 of title 11, United States Code, is amended—

(1)

in subsection (b)—

(A)

by redesignating paragraph (11) as paragraph (12),

(B)

in paragraph (10) by striking and at the end, and

(C)

by inserting after paragraph (10) the following:

(11)

notwithstanding paragraph (2) and otherwise applicable nonbankruptcy law, with respect to a claim for a loan originated before the effective date of this paragraph and secured by a security interest in the debtor’s principal residence that is the subject of a notice that a foreclosure may be commenced with respect to such loan, modify the rights of the holder of such claim (and the rights of the holder of any claim secured by a subordinate security interest in such residence)—

(A)

by providing for payment of the amount of the allowed secured claim as determined under section 506(a)(1);

(B)

if any applicable rate of interest is adjustable under the terms of such security interest by prohibiting, reducing, or delaying adjustments to such rate of interest applicable on and after the date of filing of the plan;

(C)

by modifying the terms and conditions of such loan—

(i)

to extend the repayment period for a period that is no longer than the longer of 40 years (reduced by the period for which such loan has been outstanding) or the remaining term of such loan, beginning on the date of the order for relief under this chapter; and

(ii)

to provide for the payment of interest accruing after the date of the order for relief under this chapter at a fixed annual rate equal to the currently applicable average prime offer rate as of the date of the order for relief under this chapter, corresponding to the repayment term determined under the preceding paragraph, as published by the Federal Financial Institutions Examination Council in its table entitled Average Prime Offer Rates—Fixed, plus a reasonable premium for risk; and

(D)

by providing for payments of such modified loan directly to the holder of the claim; and

, and

(2)

by adding at the end the following:

(g)

A claim may be reduced under subsection (b)(11)(A) only on the condition that if the debtor sells the principal residence securing such claim, before receiving a discharge under this chapter and receives net proceeds from the sale of such residence, then the debtor agrees to pay to such holder—

(1)

if such residence is sold in the 1st year occurring after the effective date of the plan, 80 percent of the amount of the difference between the sales price and the amount of such claim (plus costs of sale and improvements), but not to exceed the amount of the allowed secured claim determined as if such claim had not been reduced under such subsection;

(2)

if such residence is sold in the 2d year occurring after the effective date of the plan, 60 percent of the amount of the difference between the sales price and the amount of such claim (plus costs of sale and improvements), but not to exceed the amount of the allowed secured claim determined as if such claim had not been reduced under such subsection;

(3)

if such residence is sold in the 3d year occurring after the effective date of the plan, 40 percent of the amount of the difference between the sales price and the amount of such claim (plus costs of sale and improvements), but not to exceed the amount of the allowed secured claim determined as if such claim had not been reduced under such subsection; and

(4)

if such residence is sold in the 4th year occurring after the effective date of the plan, 20 percent of the amount of the difference between the sales price and the amount of such claim (plus costs of sale and improvements), but not to exceed the amount of the allowed secured claim determined as if such claim had not been reduced under such subsection.

(h)

With respect to a claim of the kind described in subsection (b)(11), the plan may not contain a modification under the authority of subsection (b)(11)—

(1)

in a case commenced under this chapter after the expiration of the 15-day period beginning on the effective date of this subsection, unless—

(A)

the debtor certifies that the debtor attempted, not less than 15 days before the commencement of the case, to contact the holder of such claim (or the entity collecting payments on behalf of such holder) regarding modification of the loan that is the subject of such claim; or

(B)

a foreclosure sale is scheduled to occur on a date in the 30-day period beginning on the date the case is commenced; and

(2)

in any other case pending under this chapter, unless the debtor certifies that the debtor attempted to contact the holder of such claim (or the entity collecting payments on behalf of such holder) regarding modification of the loan that is the subject of such claim, before—

(A)

filing a plan under section 1321 that contains a modification under the authority of subsection (b)(11); or

(B)

modifying a plan under section 1323 or 1329 to contain a modification under the authority of subsection (b)(11).

.

103.

Combating excessive fees

Section 1322(c) of title 11, the United States Code, is amended—

(1)

in paragraph (1) by striking and at the end,

(2)

in paragraph (2) by striking the period at the end and inserting a semicolon, and

(3)

by adding at the end the following:

(3)

the debtor, the debtor’s property, and property of the estate are not liable for a fee, cost, or charge that is incurred while the case is pending and arises from a debt that is secured by the debtor’s principal residence except to the extent that—

(A)

the holder of the claim for such debt files with the court (annually or, in order to permit filing consistent with clause (ii), at such more frequent periodicity as the court determines necessary) notice of such fee, cost, or charge before the earlier of—

(i)

1 year after such fee, cost, or charge is incurred; or

(ii)

60 days before the closing of the case; and

(B)

such fee, cost, or charge—

(i)

is lawful under applicable nonbankruptcy law, reasonable, and provided for in the applicable security agreement; and

(ii)

is secured by property the value of which is greater than the amount of such claim, including such fee, cost, or charge;

(4)

the failure of a party to give notice described in paragraph (3) shall be deemed a waiver of any claim for fees, costs, or charges described in paragraph (3) for all purposes, and any attempt to collect such fees, costs, or charges shall constitute a violation of section 524(a)(2) or, if the violation occurs before the date of discharge, of section 362(a); and

(5)

a plan may provide for the waiver of any prepayment penalty on a claim secured by the debtor’s principal residence.

.

104.

Confirmation of plan

Section 1325(a) of title 11, the United States Code, is amended—

(1)

in paragraph (8) by striking and at the end,

(2)

in paragraph (9) by striking the period at the end and inserting a semicolon, and

(3)

by inserting after paragraph (9) the following:

(10)

notwithstanding subclause (I) of paragraph (5)(B)(i), the plan provides that the holder of a claim whose rights are modified pursuant to section 1322(b)(11) retain the lien until the later of—

(A)

the payment of such holder’s allowed secured claim; or

(B)

discharge under section 1328; and

(11)

the plan modifies a claim in accordance with section 1322(b)(11), and the court finds that such modification is in good faith.

.

105.

Discharge

Section 1328 of title 11, the United States Code, is amended—

(1)

in subsection (a)—

(A)

by inserting (other than payments to holders of claims whose rights are modified under section 1322(b)(11) after paid the 1st place it appears, and

(B)

in paragraph (1) by inserting or, to the extent of the unpaid portion of an allowed secured claim, provided for in section 1322(b)(11) after 1322(b)(5), and

(2)

in subsection (c)(1) by inserting or, to the extent of the unpaid portion of an allowed secured claim, provided for in section 1322(b)(11) after 1322(b)(5).

106.

Effective date; application of amendments

(a)

Effective date

Except as provided in subsection (b), this title and the amendments made by this title shall take effect on the date of the enactment of this Act.

(b)

Application of amendments

(1)

In general

Except as provided in paragraph (2), the amendments made by this title shall apply with respect to cases commenced under title 11 of the United States Code before, on, or after the date of the enactment of this Act.

(2)

Limitation

Paragraph (1) shall not apply with respect to cases closed under title 11 of the United States Code as of the date of the enactment of this Act that are neither pending on appeal in, nor appealable to, any court of the United States.

II

Related Mortgage Modification Provisions

201.

Adjustments as a result of modification in bankruptcy of housing loans guaranteed by the Department of Veterans Affairs

(a)

In general

Section 3732 of title 38, United States Code, is amended—

(1)

in subsection (a)—

(A)

by redesignating paragraph (2) as subparagraph (A) of paragraph (2), and

(2)

by inserting after subparagraph (A) the following new subparagraph:

(B)

In the event that a housing loan guaranteed under this chapter is modified under the authority provided under section 1322(b) of title 11, United States Code, the Secretary may pay the holder of the obligation the unpaid balance of the obligation due as of the date of the filing of the petition under title 11, United States Code, plus accrued interest, but only upon the assignment, transfer, and delivery to the Secretary (in a form and manner satisfactory to the Secretary) of all rights, interest, claims, evidence, and records with respect to the housing loan.

.

(b)

Maturity of housing loans

Paragraph (1) of section (d) of section 3703 of title 38, United States Code, is amended by inserting at the time of origination after loan.

(c)

Implementation

The Secretary of Veterans Affairs may implement the amendments made by this section through notice, procedure notice, or administrative notice.

202.

Payment of FHA mortgage insurance benefits

(a)

In general

Subsection (a) of section 204 of the National Housing Act (12 U.S.C. 1710(a)) is amended—

(1)

in paragraph (1), by adding at the end the following new subparagraph:

(E)

Modification of mortgage in bankruptcy

(i)

Authority

If an order is entered under the authority provided under section 1322(b) of title 11, United States Code, that (a) determines the amount of an allowed secured claim under a mortgage in accordance with section 506(a)(1) of title 11, United States Code, and the amount of such allowed secured claim is less than the amount due under the mortgage as of the date of the filing of the petition under title 11, United States Code, or (b) reduces the interest to be paid under a mortgage in accordance with section 1325 of such title, the Secretary may pay insurance benefits for the mortgage as follows:

(I)

Full payment and assignment

The Secretary may pay the insurance benefits for the mortgage, but only upon the assignment, transfer, and delivery to the Secretary of all rights, interest, claims, evidence, and records with respect to the mortgage specified in clauses (i) through (iv) of paragraph (1)(A). The insurance benefits shall be paid in the amount equal to the original principal obligation of the mortgage (with such additions and deductions as the Secretary determines are appropriate) which was unpaid upon the date of the filing of by the mortgagor of the petition under title 11 of the United States Code. Nothing in this Act may be construed to prevent the Secretary from providing insurance under this title for a mortgage that has previously been assigned to the Secretary under this subclause. The decision of whether to utilize the authority under this subclause for payment and assignment shall be at the election of the mortgagee, subject to such terms and conditions as the Secretary may establish.

(II)

Assignment of unsecured claim

The Secretary may make a partial payment of the insurance benefits for any unsecured claim under the mortgage, but only upon the assignment to the Secretary of any unsecured claim of the mortgagee against the mortgagor or others arising out of such order. Such assignment shall be deemed valid irrespective of whether such claim has been or will be discharged under title 11 of the United States Code. The insurance benefits shall be paid in the amount specified in subclause (I) of this clause, as such amount is reduced by the amount of the allowed secured claim. Such allowed secured claim shall continue to be insured under section 203.

(III)

Interest payments

The Secretary may make periodic payments, or a one-time payment, of insurance benefits for interest payments that are reduced pursuant to such order, as determined by the Secretary, but only upon assignment to the Secretary of all rights and interest related to such payments.

(ii)

Delivery of evidence of entry of order

Notwithstanding any other provision of this paragraph, no insurance benefits may be paid pursuant to this subparagraph for a mortgage before delivery to the Secretary of evidence of the entry of the order issued pursuant to title 11, United States Code, in a form satisfactory to the Secretary.

;

(2)

in paragraph (5), in the matter preceding subparagraph (A), by inserting after section 520, and the following: , except as provided in paragraph (1)(E),; and

(3)

by adding at the end the following new paragraph:

(10)

Loan modification program

(A)

Authority

The Secretary may carry out a program solely to encourage loan modifications for eligible delinquent mortgages through the payment of insurance benefits and assignment of the mortgage to the Secretary and the subsequent modification of the terms of the mortgage according to a loan modification approved by the mortgagee.

(B)

Payment of benefits and assignment

Under the program under this paragraph, the Secretary may pay insurance benefits for a mortgage, in the amount determined in accordance with paragraph (5)(A), without reduction for any amounts modified, but only upon the assignment, transfer, and delivery to the Secretary of all rights, interest, claims, evidence, and records with respect to the mortgage specified in clauses (i) through (iv) of paragraph (1)(A).

(C)

Disposition

After modification of a mortgage pursuant to this paragraph, the Secretary may provide insurance under this title for the mortgage. The Secretary may subsequently—

(i)

re-assign the mortgage to the mortgagee under terms and conditions as are agreed to by the mortgagee and the Secretary;

(ii)

act as a Government National Mortgage Association issuer, or contract with an entity for such purpose, in order to pool the mortgage into a Government National Mortgage Association security; or

(iii)

re-sell the mortgage in accordance with any program that has been established for purchase by the Federal Government of mortgages insured under this title, and the Secretary may coordinate standards for interest rate reductions available for loan modification with interest rates established for such purchase.

(D)

Loan servicing

In carrying out the program under this section, the Secretary may require the existing servicer of a mortgage assigned to the Secretary under the program to continue servicing the mortgage as an agent of the Secretary during the period that the Secretary acquires and holds the mortgage for the purpose of modifying the terms of the mortgage. If the mortgage is resold pursuant to subparagraph (C)(iii), the Secretary may provide for the existing servicer to continue to service the mortgage or may engage another entity to service the mortgage.

.

(b)

Amendment to partial claim authority

Paragraph (1) of section 230(b) of the National Housing Act (12 U.S.C. 1715u(b)(1)) is amended by striking 12 of the monthly mortgage payments and inserting 30 percent of the unpaid principal balance of the mortgage.

(c)

Implementation

The Secretary of Housing and Urban Development may implement the amendments made by this section through notice or mortgagee letter.

203.

Adjustments as result of modification of rural single family housing loans in bankruptcy

(a)

Guaranteed rural housing loans

Subsection (h) of section 502 of the Housing Act of 1949 (42 U.S.C. 1472(h)) is amended—

(1)

in paragraph (7)—

(A)

in subparagraph (A), by inserting before the period at the end the following: , unless the maturity date of the loan is modified in a bankruptcy proceeding or at the discretion of the Secretary; and

(B)

in subparagraph (B), by inserting before the semicolon the following: , unless such rate is modified in a bankruptcy proceeding;

(2)

by redesignating paragraphs (13) and (14) as paragraphs (14) and (15), respectively; and

(3)

by inserting after paragraph (12) the following new paragraph:

(13)

Payment of guarantee

In addition to all other authorities to pay a guarantee claim, the Secretary may also pay the guaranteed portion of any losses incurred by the holder of a note or the servicer resulting from a modification of a note by a bankruptcy proceeding.

.

(b)

Insured rural housing loans

Subsection (j) of section 517 of the Housing Act of 1949 (42 U.S.C. 1487(j)) is amended—

(1)

by redesignating paragraphs (2) through (7) as paragraphs (3) through (8), respectively; and

(2)

by inserting after paragraph (1) the following new paragraph:

(2)

to pay for losses incurred by holders or servicers in the event of a modification pursuant to a bankruptcy proceeding;

.

(c)

Implementation

The Secretary of Agriculture may implement the amendments made by this section through notice, procedure notice, or administrative notice.