Bank Of America Continues To Win
February 9, 2012 – It was announced that the State of Nevada settled its Mortgage Servicing Foreclosure claim against Bank of America. According to the terms of the settlement, Bank of America, in addition to other settlement terms, would “set aside $750 million in first and second lien principal reductions . . .” See Attorney General Mastro Announces Two Historic Mortgage Servicing Foreclosure Settlements.
However, at least is some instances, the same debt that Bank of America is reducing as part of the terms of the Mortgage Servicing Foreclosure Settlement, have already been approved for elimination in separate Bankruptcy Court proceedings.
In a Chapter 13 Bankruptcy, second mortgages may be “stripped-off” and eliminated if the debt is wholly unsecured. In other words, if the value of the property is less than what is owed on the first mortgage, than the second mortgage may be “stripped-off” and eliminated, subject to other additional requirements.
In some instances, Bank of America is fulfilling its terms of the settlement with debt that has no value. No real cost to Bank of America. In fact, Bank of America may by collecting a dividend as part of the pool of Bankruptcy unsecured creditors, in cases where the second mortgage had been stripped.
While the “Forgiveness” letter informing borrowers that their debt would be forgiven does contain a paragraph about Bankruptcy, in many instances, the forgiveness of the second mortgage does not impact the debtor’s status in Bankruptcy in any beneficial manner. For example, such forgiveness does not necessarily reduce the Bankruptcy Plan payment or qualify the debtor for Chapter 7 bankruptcy. Conversely, it may actually place costly burdens upon the Bankruptcy Debtor.
I do not believe that Bank of America will be much deterred from continuing the conduct that caused this settlement, at least not by having to forgive the debt, already eliminated.