As doctors and pharmaceutical companies well know, even medicines that are very effective in helping many patients, don’t work for every patient. The National Institute of Health tells us many people who lose weight gain it back within the next few years, and a study done at the University of Iowa College of Law found that, one year after filing bankruptcy, some debtors were once again struggling financially.
Now a recent study by the Office of the Comptroller of the Currency found that more than half of homeowners whose lenders had modified their troubled mortgages had missed at least one payment by the time six months had passed since the modification. John Dugan, Comptroller, whose office regulates mortgage lenders says this recidivism rate indicates there are deeper problems that will need to be addressed as our new administrations attempts to deal with the housing crisis.
As a bankruptcy attorney in Indiana, I’ve dealt with tens of thousands of bankruptcy client situations over a period of almost twenty five years. One of the questions I’m often asked, both by the clients themselves and by the attorneys in bankruptcy classes I teach, is whether bankruptcy always involves foreclosure, and whether foreclosure can help avoid bankruptcy. My answer to each of those questions can be summarized in two words: “It depends”.
Certainly every effort needs to be made (both for the sake of homeowners whose family circumstances make it important for them to try to stay in their homes, a well as to avoid further erosion of prices in housing markets) for lenders and borrowers to work out settlements and avoid foreclosure where possible.
On the other hand, each client’s situation is different, and the best plan for some clients might involve a Deed In Lieu Of Foreclosure or Short Sale strategy rather than a modification of the mortgage itself.
What my experience has taught me is that sometimes even the “best” and well-thought-out remedies just are not the right thing for certain client situations. I would not presume to offer advice to the Comptroller of the Currency. The thought I want to share with my blog readers, though, is that efforts should continue to rework mortgages and effect compromises wherever possible.
My own theory is that a large part of the reason lenders’ remedies weren’t effective is that they weren’t begun early enough. When clients come to see me (or seek professional help in general) at the first signs of financial distress, the more options are available, and the more likely it is that the remedy will work!
Foreclosures and bankruptcy are truly two examples of the old saying, “A stitch in time saves nine.” In this case, a stitch in time could very well save homes!