'Foaming the Runway' for Homeowners: U.S. Bankruptcy Courts Preserving Homeownership in the Wake of the Affordable Modification Program

Abstract

Since 2008, Congress has enacted manifold legislation aimed at reversing the effects of a housing crisis, but each law has ultimately inured to the benefit of banks and financial institutions. Homeowners have rarely, if at all, experienced benefits of the legislation and often have experienced greater harm. In fact, banks and financial institutions have systematically leveraged their bailouts to pressure individual homeowners to continue paying in full mortgages on properties that no longer hold value. These results evidence the failure of the Home Affordable Modification Program ("HAMP") and other federal programs, but bankruptcy courts in the United States offer homeowners an alternative remedy: a forum in which banks must negotiate with homeowners in good faith and a mechanism for permanent modification of home mortgages. This Article discusses the ineffective assistance provided to individual homeowners under the Home Affordable Modification Program. Part II of this Article argues that the unequal protection provided by the bailout legal structures and the manner by which these programs entrench an emergent economic and political structure result from the neoliberal economic project. Part III of this Article describes how homeowners turned to the U.S. bankruptcy courts for alternatives to mortgage foreclosure in state court. Part IV discusses the authority under the Bankruptcy Code and bankruptcy rules for the implementation of formal mortgage modification programs. Part V describes how various courts address mortgage modification through existing practices. Part VI discusses, as a detailed example, the Middle District of Florida's residential mortgage modification mediation program. Finally, this Article considers whether bankruptcy court is an effective forum for mortgage modification.

Keywords: HAMP, Home Affordable Modification Program, housing crisis, bankruptcy, bankruptcy court, Bankruptcy Code, negotiation, mortgage, homeowner, home, bailout, foreclosure, mortgage modification, mediation