The U.S. bankruptcy trustees have initiated a developmental program. The program could drastically quicken the sale process of homes by Fannie Mae, Freddie Mac, and other major lenders. Instead of allowing properties to sit on the sidelines while the bankruptcy process plays out, the program would cut years off the sale of said properties and received compensation from sold properties to repay unsecured lenders.
The concept is to keep the property in bankruptcy court and to sell it from there. The state court would take weeks instead of months to short sell a property and compensate unsecured lenders. During the recession, when most mortgages were well underwater and the home values hit rock bottom. Moreover, borrowers began looking for a new start and financial freedom. This caused bankruptcy filings to grow rapidly.
Many of the bankruptcies, especially personal Chapter 7 bankruptcies, are filed the day before the bank forecloses on the property. This is a strategic move that prevents the bank or plaintiff from reclaiming the property while the legal process unfolds. The tactic is costing lenders, who are already dealing with missing loan payments, even more money. This is because their attorneys now have to file for relief of the bankruptcy automatic stay in order to keep the ball rolling. Additionally, they have to move the case to state court so they can complete the foreclosure.
Lawyers have created a new business due to the increase in foreclosures. They are looking to delay the foreclosure process on behalf of the borrower for as long as possible. Then, they will file for bankruptcy once that deferment is inevitable. The program would put a stop to this by preventing the homeowner from staying in the property for years. Or, by preventing the second owner from collecting the rent without providing payments to their lender for the mortgage.
One attorney stated that this is an idea whose implementation should have happened years ago; it would assist the economy in Florida by providing more real estate to a hungry market. By clearing up all title issues, resolving them of all liens and tax liabilities, the properties would be able to be put up for short sale a lot faster. In the end, the trustees are looking to attain the most amount of money possible for the unsecured lenders.
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