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Foreclosure News 4/11/2009- Homeowners with mortgage payments that overwhelm their incomes face much greater challenges in saving their homes in foreclosure with a loan modification. The right to cure a mortgage default under § 1322(b)(5) of the Bankruptcy Code does not itself permit a homeowner to modify terms of a mortgage loan. Section 1322(b)(2) sets forth the general rules regarding modification of claims in foreclosure, permitting debtors to modify the rights of secured and unsecured creditors. Some of the ways that secured claims may be modified include altering the payment schedule, reducing The trustee collects payments the rule permitting the loan modification of secured claims is limited by additional language in the same section that creates an exception for certain mortgage loans. The exception prohibits the modification of “a claim secured only by a security interest in real property that is the debtor's principal residence.”22 This exception is commonly known as the “anti-modification” rule. This language means that homeowners in foreclosure cannot change or adjust the terms of their home mortgages. This restriction on loan modification can make it nearly impossible for debtors with unaffordable mortgage payments to save their homes from foreclosure through the bankruptcy process. Because families remain obligated to make their future mortgage payments according to the original loan terms, those who have severely unaffordable mortgage loans may be more likely to fail Bankruptcy law's current prohibition on modifying home mortgage loans is a serious limitation on bankruptcy's usefulness as a home-saving device. Families who have recovered from temporary income declines or whose primary financial problem is large unsecured debts may succeed in saving their homes in foreclosure. However, the families who are in financial distress because they are trapped in unaffordable home loans may find little relief under existing bankruptcy law. The remainder of this Article constructs an empirical measure of the affordability of bankrupt families' housing costs in relation to their current incomes and analyzes the implications of these findings for bankruptcy's potential as a foreclosure prevention system
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