“In my mind, there was a stigma attached to bankruptcy. Bankruptcy meant weakness, failure . . . that you weren’t able to take care of yourself and your family on your own, as a man,” Jose Miranda told us.
In 1968, a teen-aged Jose volunteered to join the United States military and was soon fighting for his country in Vietnam. After the war, Jose returned home to New York City to start a family and serve in the NYPD. Twelve years into his law enforcement career, Jose’s legs were injured so badly in an accident that it took him a year to relearn how to walk. The last words anyone should use to describe Jose Miranda are “weak” or “failure.”
The story of financial hardship that befell Jose and his wife, Conchetta, is all too common. In 2005, the Mirandas sold their house in New York and purchased a home in Orlando, Florida, so that they could be near Jose’s ailing parents. The Mirandas lived on pensions from Jose’s service and Conchetta’s career as a schoolteacher.
After Joe’s father passed away, his mother continued to need support. Jose had medical expenses of his own — his heart requires frequent checkups due to damage from Agent Orange exposure. The medical bills piled up, and Jose took out a second mortgage to stay afloat. Finally, with the housing market crash in 2008, the Mirandas went from having an equity cushion when they bought their house to being underwater two years later.
After struggling financially for a couple years, the Miranda’s homeowner’s association (HOA) filed a foreclosure action against them for unpaid dues. “I didn’t even know that an HOA could foreclose on you. I just knew I had to pay the bank or we’d lose our home,” Mr. Miranda told us.
Out of options, Jose swallowed his pride and began researching bankruptcy. Initially, what he discovered about the process only reinforced the stigma he held in his mind. Jose had testified dozens of times in criminal proceedings before judges in New York City, helping put felons behind bars, but he felt utterly unprepared for the bankruptcy process. “Nothing I had done before was like bankruptcy court. It was overwhelming, and hard to understand.”
Eventually, the Mirandas found Robert Branson, a bankruptcy attorney at Branson Law and Tammy Branson, a senior paralegal. They told him that finding a way to save their home was their first concern. Mr. Branson counseled them that chapter 13 Mortgage Modification Mediation (MMM), a new program in the Middle District of Florida (M.D. Fla.), could provide a solution to their problems.
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State foreclosure processes are notoriously messy. They can drag on for a year or more, a family in hard times has to move, and a lender often doesn’t recoup their loan balance or legal fees from the foreclosure sale. “Lenders do not want to take the home back. . . . They’re not in the business of selling homes. Most debtors file for chapter 13 relief to save their homes from foreclosure,” said Wayne Spivak, a staff attorney to chapter 13 Trustee Laurie Weatherford in M.D. Fla.
To address the needs of both debtors and creditors, M.D. Fla. began an MMM program in April 2010, through a standing administrative order of the court. It works like this:
1. A debtor has 90 days to file a request for mediation after the filing of a chapter 13 case.
2. The bankruptcy court enters an order approving the debtor’s request, and the parties have 14 days after entry of the order to select a mediator.
3. The parties communicate, share documents, and mediate online through a web-based portal.
4. The success or failure of the mediation must be promptly reported to the Court.
5. If the parties agree on a modification, the debtor must file a motion with the court to approve the agreed modification and all relevant terms.
During the mediation, debtors provide adequate protection payments to lenders equal to the lesser of (a) 31% of their gross disposable income, or (b) the normal contractual mortgage payment. These requirements encourage creditors to engage in the process without fear that it is being used merely to stall foreclosure. According to Ms. Branson, “the average length of time to complete mortgage mediation is 90 days.”
MMM works in Florida because the program removes barriers which can inhibit an open dialogue. In support, Mr. Spivak said, “the web-based portal not only keeps the lines of communication open but also saves time, money and resources by allowing the participants to work remotely.” The portal is essential to the success of the MMM program not only because it provides consistency, but because it obviates travel expenses that often swallow whatever value could be created by a mortgage modification.
The MMM program has something for everyone. Debtors who file a chapter 13 know that mortgage holders will mediate in good faith. Lenders know that the MMM is done remotely and, therefore, at minimum of time and cost. Perhaps most importantly, the same debtors’ attorneys, mediators and creditors’ attorneys work with each other on case after case, developing a trust, rapport and consistency that is less likely to exist in districts without MMM.
During the first year of M.D. Fla.’s MMM program, a total of 60 loans were modified. Six years later, in 2015, 684 loans were modified. Since the inception of the MMM program, a total of 3,116 loans have been modified. So far in 2016, 65% of all chapter 13 filings include a request for MMM, and two-thirds of cases that are mediated result in a successful modification.
“Unlike foreclosure, the goal in mortgage modification mediation is to negotiate an affordable payment that debtors and lenders can both live with,” Mr. Spivak said. The lenders benefit when their non-performing loan begins performing. Debtors benefit by retaining their homes with an affordable payment. Unsecured creditors benefit from an increased dividend. Finally, the financial system benefits by returning more people to functioning participants in the economy.
“A mortgage modification mediation offers a structured environment in which the debtor and creditor work together, with the assistance of a mediator, to determine if the debtor qualifies for a loan modification, or any other home retention options,” according to S.D. Ohio chapter 13 Trustee Faye English, explaining why she hopes her district adopts an MMM program.
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The Mirandas would have been unlikely to save their home in a chapter 13 plan without a significant modification to their mortgage. In other jurisdictions, Miranda’s options for chapter 13 may have been limited to a plan that surrendered their house, or discussions with customer service representatives who lack authority to negotiate a modification. For the many prospective debtors, filing bankruptcy is simply not worth it if they are going to lose their home.
Through MMM, Mr. Branson was able to secure a modification for the Mirandas, reducing their monthly payment from $1,950 to $950, and getting their plan confirmed. The Mirandas completed their plan on February 2, 2016, and received their discharge.
We asked Mr. Miranda if he still believed there was a stigma attached to bankruptcy, and he told us, “No, not at all. Because I realized that there is no shame in it, because if you file a chapter 13, you still have to do the work, you still have to walk on your own. What I needed was a bridge . . . someone to help build me a bridge, then I could go across it.”