“MA Bankruptcy Court Standing Order No. 09-03”
Massachusetts Bankruptcy Court Issues Standing Order Addressing Borrower Contact for Loan Modifications and Escrow Issues
May 2009Click here to review a copy of Massachusetts Bankruptcy Court Standing Order 09-03
In an effort to resolve questions involving whether loan modification negotiations are prohibited by bankruptcy, Standing Order No. 09-03 was signed by the Judges of the United States Bankruptcy Court for the District of Massachusetts on May 6, 2009. Standing Order No. 09-03 provides that secured creditors may negotiate loan modification terms with borrowers without seeking separate “relief from the automatic stay” orders. Relief from stay is deemed to have been granted for this limited purpose by virtue of the Standing Order. The secured creditor must discuss the proposed modification with the borrower’s counsel, if represented, or directly with the borrower if counsel has provided written authorization to do so. Please note that the final version of any loan modification agreement must be approved by the Bankruptcy Court so long as the collateral at issue is deemed “property of the estate”.
The Standing Order also allows a secured creditor or its representative to contact a borrower in bankruptcy when a borrower’s payment changes due to increases in charges for escrow items such as taxes and insurance premiums. A secured creditor is also permitted under the Standing Order to send other written correspondence to the borrower (debtor), with a copy to counsel, concerning mortgage statements, payment coupons, escrow analyses, insurance coverage and the like. Caution is recommended as no demands for payment or foreclosure threats can be made.
Creditor contact with the borrower must cease upon the borrower or his counsel’s written request to cease communication. Return