Loss Mitigation in Bankruptcy, New York

The following NY Bankruptcy Districts participate in Loss Mitigation programs:

• SDNY – link to loss mitigation program information: https://www.nysb.uscourts.gov/sites/default/files/LossMitigationProcedures.pdf
• EDNY (only Brooklyn division Judges participate) – link to loss mitigation programinformation: https://www.nyeb.uscourts.gov/sites/nyeb/files/general-ordes/ord_744.pdf
• NDNY – link to loss mitigation program information: https://www.nynb.uscourts.gov/sites/nynb/files/LBR_GenOrders/Loss%20Mitigation%20Program%20Procedures%20Revised%2003-01-2021.pdf

If applicable, is the mediation program voluntary or mandatory? The mediation programs are deemed voluntary but once loss mitigation is ordered in the case even over objection of a creditor, it is mandatory to participate in good faith.

Is relief from the automatic stay required to negotiate a loan modification in bankruptcy? Stay relief is not required to negotiate a loan modification but, Court approval of the modification is required.

If a loan modification is entered into while in bankruptcy, the following steps must be taken per district to have it approved:

• Northern District – if modification was obtained through use of the Court’s loss Mitigation Program the approval of the modification is obtained via a Stipulation and Order Authorizing Parties to Enter Into Loan Modification and Directing Treatment of Mortgage Claim which shall be executed and presented to the court by uploading the document via the court’s E-Order system. Approval of all other loan modifications offered and entered into outside of the Court’s loss mitigation program must be approved via motion on notice as required under the Bankruptcy Code and Bankruptcy Rules.
• Southern District – The SDNY Judges require a motion be filed pursuant to Bankruptcy Rule 9019 for approval of the loan modification. Same may be done on notice to all creditors via notice of Presentment. Judge Morris requires that either party file a loss mitigation request and for a loss mitigation Order to be entered before she will approve any motion to approve the modification where the modification was negotiated and obtained outside of the Court’s loss mitigation program.
• Eastern District (Brooklyn) – Judges require a motion on notice to be filed and served on all creditors where modification approval is sought whether done inside or outside of the Court’s loss mitigation program.
• Western District – there is no loss mitigation program in the WDNY but any loan modification must be approved by the Court pursuant to Bankruptcy Rule 9019 by filing a motion on notice.

If a loan modification is entered into, must it be filed with the court? When approval is sought for the motion, a fully executed copy of the modification agreement should be attached to the motion (in some case parties file with only the Debtor executed copy). EDNY will not approve the motion if only a Debtor signed copy of the loan modification is attached.

Who may file the Motion to Approve Loan Modification, if applicable: In all districts in NY, either party may file the Motion to Approve Loan Modification.

Local rules / nuances related to loan modifications: In all districts, in a chapter 13 case, the Order should either instruct the Trustee to make no further disbursements on the Proof of Claim and more specifically state that the Proof of Claim arrears are deemed amended to reflect the amount paid by the Trustee
as of the date of the Order. The Order should not state that the arrears are deemed amended to $0.00 in post confirmation cases where the Trustee has already made disbursements as this would require the Secured Creditor to refund disbursements to the Trustee. The Order can also state that the Proof of Claim will be amended within 30 days of the Order Approving but Trustee’s prefer to receive the guidance on the POC in the Order approving the loan modification.

If a loan modification is entered into, must the servicer file a notice of payment change? All districts – A payment change notice is recommended even if it would be considered otherwise to be untimely. It is recommended to notate on the notice that it is being filed for informational purposes and set forth the new payment and indicate same was previously disclosed in the Order authorizing / approving the modification.

Should an amended POC be filed in a Chapter 13 case after a loan modification is agreed to and/or approved by the court? All districts – An amended POC should be filed after loan modification.

Is court approval of a Partial Claim required? In all districts in NY, a partial claim is treated as a form of loss mitigation modification and the same mechanisms for approval are employed. The Order should clearly state that automatic stay is lifted for the limited purpose of allowing HUD to record the partial claim mortgage.

The following procedure must be followed for filing a claim where a partial claim lien is created: In NY, it is typically not asked or required by the Court to file a claim for any partial claim mortgage the Debtor obtains post-petition.

If applicable, is the creditor prohibited from filing / proceeding with MFR while in loss mitigation? MFR proceedings are typically stayed while engaged in loss mitigation. Below is specific information regarding the details of proceeding with Relief from Stay while engaged in loss mitigation in each district:

• Eastern District – the Loss Mitigation Program Procedures state in section V(A)(3) that “If a Creditor has filed a motion for relief from the automatic stay pursuant to Bankruptcy Code Section 362 (a “Lift-Stay Motion”), the Debtor may serve and file a request to enter into the Loss Mitigation Program at any time before the conclusion of the hearing on the Lift Stay Motion. The bankruptcy court may consider the Debtor’s request and any opposition by the Creditor at the hearing on the Lift-Stay Motion” The Loss Mitigation Program Procedures further state in Section VI(B)(3) that “A Creditor may not file a Lift-Stay Motion, except where necessary to prevent irreparable injury. A Lift-Stay Motion filed by the Creditor before the entry of the Loss Mitigation Order shall be adjourned to a date following the Loss Mitigation Period, and the stay shall be extended pursuant to Bankruptcy Code Section 362(e).” The Court generally carries the lift stay motion with the loss mitigation conferences.
• Southern District – the Loss Mitigation Program Procedures state in section V(A)(4) that “If a Creditor has filed a motion requesting relief from the automatic stay pursuant to section 362 of the Bankruptcy Code (a “Lift-Stay Motion”), at any time prior to the conclusion of the hearing on the Lift-Stay Motion, the Debtor may file a Loss Mitigation Request. The Debtor and Creditor shall appear at the scheduled hearing on the Lift-Stay Motion, and the Bankruptcy Court will consider the Loss Mitigation Request and any opposition by the Creditor.” The Loss Mitigation Program Procedures further state in Section VI(C)(2) except where necessary to prevent irreparable injury, loss or damage, a Creditor shall not file a Lift-Stay Motion while Loss Mitigation is pending.” Finally, the Loss Mitigation Program Procedures state in Section VI(C)(3) that “Any Lift-Stay Motion filed by the Creditor prior to the entry of the “Loss Mitigation Order” shall be adjourned to a date after the “Order Terminating Loss Mitigation and Final Report,” and the stay shall be extended pursuant to section 362(e) of the Bankruptcy Code.” The Court generally carries the lift stay motion with the loss mitigation conferences.
• Northern District – the Loss Mitigation Program Procedures state in section VI (B)(2) that “A Creditor may not file a Motion for Relief from Stay regarding Property that is subject to Loss Mitigation. A pending Motion for Relief from Stay by a Creditor that is a Loss Mitigation Party filed before the entry of the Loss Mitigation Order shall be adjourned by the Creditor to the date of the initial Status Conference by filing an Adjournment Request / Withdrawal / Settlement Notification of Loss Mitigation Status Conferences; Related Motions for Relief from Stay and/or Confirmation Hearings (Albany & Syracuse Divisions) form, or Adjournment Request / Withdrawal / Settlement Notification of Loss Mitigation Status Conferences; Related Motions for Relief from Stay, Confirmation Hearings, and/or Motions to Dismiss (Utica Division) form, and the stay shall be extended pursuant to 11 U.S.C. § 362(e).” The Loss Mitigation Program Procedures further state in section VI (B)(2) that “A Loss Mitigation Party that wishes to file a Motion for Relief from Stay or to restore a pending Motion for Relief from Stay to the court’s calendar must first make a motion requesting termination of Loss Mitigation pursuant to section IX(B)(4) of these Procedures. A Loss Mitigation Party that wishes to restore a pending Motion for Relief from Stay to the court’s calendar may request that relief as ancillary to its motion requesting termination of Loss Mitigation.”