O. Max Gardner’s Solution

Max Gardner’s Proposed Solution to the Mortgage Mess

Written on October 20, 2010
1. We need a National Judicial Foreclosure Act. I think Congress has the constitutional authority under the Commerce Clause to enact such legislation. The statue would have strict standing rules as required by Federal Law and would require the Trustee for the Trust to prove up ownership of the note in a RMBS structure by evidence of a timely and unbroken chain of transfers and assignments to the Trust. The homeowner would have the right to assert any and all legitimate affirmative defenses and counterclaims. Mandatory pre-trial attempts to resolve the case would be part of the statute. This would not be binding arbitration but binding good faith attempts to modify the mortgage loan with a representative of the servicer/ trust present with authority to modify.

2. The REMIC tax law would be amended to allow for mortgage modifications under the Federal Foreclosure Statute without a violation of any REMIC Tax Rules.

3. The HAMP program would be expanded to include all mortgages of any amount securitized in the secondary market. The obligations of the servicers would be specified by statute including a cause of action by the debtor for breach of the HAMP obligations and the duty of good faith and fair dealing with the right to statutory damages, legal fees and the right of the Court to determine the nature and extent of the modification.

4. The dollar limits for Chapter 13 eligibility should be increased to $3.5 million and both secured and unsecured debt in any amount could be combined to reach this maximum dollar amount The amount would be index to inflation and would be subject to an annual increase.

5. Chapter 13 should be amended to allow the modification of first mortgage loans on residential real estate with the debtor being permitted to write down the secured claim to the current FMV, to reduce the interest rate to the Till Rate (Prime plus 1%), to cure all arrears by the restructure, to extend the term up to 30 years, etc.

6. Congress should also enact as part of the Chapter 13 reform the attached Proposed Bankruptcy Rule 3002.1 that has been proposed by the Judicial Conference.

– O. Max Gardner III


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