[Congressional Bills 112th Congress]
[From the U.S. Government Publishing Office]
[H.R. 4058 Introduced in House (IH)]

112th CONGRESS
  2d Session
                                H. R. 4058

  To amend title 11 of the United States Code to provide authority to 
modify certain mortgages on principal residences of debtors to prevent 
                  foreclosure; and for other purposes.


_______________________________________________________________________


                    IN THE HOUSE OF REPRESENTATIVES

                           February 16, 2012

Mr. Blumenauer introduced the following bill; which was referred to the 
   Committee on the Judiciary, and in addition to the Committees on 
     Financial Services and Veterans' Affairs, for a period to be 
subsequently determined by the Speaker, in each case for consideration 
  of such provisions as fall within the jurisdiction of the committee 
                               concerned

_______________________________________________________________________

                                 A BILL


 
  To amend title 11 of the United States Code to provide authority to 
modify certain mortgages on principal residences of debtors to prevent 
                  foreclosure; and for other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Bankruptcy Equity Act of 2012''.

       TITLE I--AMENDMENTS TO TITLE 11 OF THE UNITED STATES CODE

SEC. 101. ELIGIBILITY FOR RELIEF.

    Section 109 of title 11, United States Code, is amended--
            (1) by adding at the end of subsection (e) the following: 
        ``For purposes of this subsection, the computation of debts 
        shall not include the secured or unsecured portions of--
            ``(1) debts secured by the debtor's principal residence if 
        the current value of that residence is less than the secured 
        debt limit; or
            ``(2) debts secured or formerly secured by real property 
        that was the debtor's principal residence that was sold in 
        foreclosure or that the debtor surrendered to the creditor if 
        the current value of such real property is less than the 
        secured debt limit.''; and
            (2) by adding at the end of subsection (h) the following:
    ``(5) The requirements of paragraph (1) shall not apply in a case 
under chapter 13 with respect to a debtor who submits to the court a 
certification that the debtor has received notice that the holder of a 
claim secured by the debtor's principal residence may commence a 
foreclosure on the debtor's principal residence.''.

SEC. 102. AUTHORITY TO MODIFY CERTAIN MORTGAGES.

    Section 1322 of title 11, United States Code, is amended--
            (1) in subsection (b)--
                    (A) by redesignating paragraph (11) as paragraph 
                (12),
                    (B) in paragraph (10) by striking ``and'' at the 
                end, and
                    (C) by inserting after paragraph (10) the 
                following:
            ``(11) notwithstanding paragraph (2) and otherwise 
        applicable nonbankruptcy law, with respect to a claim for a 
        loan originated before the effective date of this paragraph and 
        secured by a security interest in the debtor's principal 
        residence that is the subject of a notice that a foreclosure 
        may be commenced with respect to such loan, modify the rights 
        of the holder of such claim (and the rights of the holder of 
        any claim secured by a subordinate security interest in such 
        residence)--
                    ``(A) by providing for payment of the amount of the 
                allowed secured claim as determined under section 
                506(a)(1);
                    ``(B) if any applicable rate of interest is 
                adjustable under the terms of such security interest by 
                prohibiting, reducing, or delaying adjustments to such 
                rate of interest applicable on and after the date of 
                filing of the plan;
                    ``(C) by modifying the terms and conditions of such 
                loan--
                            ``(i) to extend the repayment period for a 
                        period that is no longer than the longer of 40 
                        years (reduced by the period for which such 
                        loan has been outstanding) or the remaining 
                        term of such loan, beginning on the date of the 
                        order for relief under this chapter; and
                            ``(ii) to provide for the payment of 
                        interest accruing after the date of the order 
                        for relief under this chapter at a fixed annual 
                        rate equal to the currently applicable average 
                        prime offer rate as of the date of the order 
                        for relief under this chapter, corresponding to 
                        the repayment term determined under the 
                        preceding paragraph, as published by the 
                        Federal Financial Institutions Examination 
                        Council in its table entitled `Average Prime 
                        Offer Rates--Fixed', plus a reasonable premium 
                        for risk; and
                    ``(D) by providing for payments of such modified 
                loan directly to the holder of the claim; and'', and
            (2) by adding at the end the following:
    ``(g) A claim may be reduced under subsection (b)(11)(A) only on 
the condition that if the debtor sells the principal residence securing 
such claim, before receiving a discharge under this chapter and 
receives net proceeds from the sale of such residence, then the debtor 
agrees to pay to such holder--
            ``(1) if such residence is sold in the 1st year occurring 
        after the effective date of the plan, 80 percent of the amount 
        of the difference between the sales price and the amount of 
        such claim (plus costs of sale and improvements), but not to 
        exceed the amount of the allowed secured claim determined as if 
        such claim had not been reduced under such subsection;
            ``(2) if such residence is sold in the 2d year occurring 
        after the effective date of the plan, 60 percent of the amount 
        of the difference between the sales price and the amount of 
        such claim (plus costs of sale and improvements), but not to 
        exceed the amount of the allowed secured claim determined as if 
        such claim had not been reduced under such subsection;
            ``(3) if such residence is sold in the 3d year occurring 
        after the effective date of the plan, 40 percent of the amount 
        of the difference between the sales price and the amount of 
        such claim (plus costs of sale and improvements), but not to 
        exceed the amount of the allowed secured claim determined as if 
        such claim had not been reduced under such subsection; and
            ``(4) if such residence is sold in the 4th year occurring 
        after the effective date of the plan, 20 percent of the amount 
        of the difference between the sales price and the amount of 
        such claim (plus costs of sale and improvements), but not to 
        exceed the amount of the allowed secured claim determined as if 
        such claim had not been reduced under such subsection.
    ``(h) With respect to a claim of the kind described in subsection 
(b)(11), the plan may not contain a modification under the authority of 
subsection (b)(11)--
            ``(1) in a case commenced under this chapter after the 
        expiration of the 15-day period beginning on the effective date 
        of this subsection, unless--
                    ``(A) the debtor certifies that the debtor 
                attempted, not less than 15 days before the 
                commencement of the case, to contact the holder of such 
                claim (or the entity collecting payments on behalf of 
                such holder) regarding modification of the loan that is 
                the subject of such claim; or
                    ``(B) a foreclosure sale is scheduled to occur on a 
                date in the 30-day period beginning on the date the 
                case is commenced; and
            ``(2) in any other case pending under this chapter, unless 
        the debtor certifies that the debtor attempted to contact the 
        holder of such claim (or the entity collecting payments on 
        behalf of such holder) regarding modification of the loan that 
        is the subject of such claim, before--
                    ``(A) filing a plan under section 1321 that 
                contains a modification under the authority of 
                subsection (b)(11); or
                    ``(B) modifying a plan under section 1323 or 1329 
                to contain a modification under the authority of 
                subsection (b)(11).''.

SEC. 103. COMBATING EXCESSIVE FEES.

    Section 1322(c) of title 11, the United States Code, is amended--
            (1) in paragraph (1) by striking ``and'' at the end,
            (2) in paragraph (2) by striking the period at the end and 
        inserting a semicolon, and
            (3) by adding at the end the following:
            ``(3) the debtor, the debtor's property, and property of 
        the estate are not liable for a fee, cost, or charge that is 
        incurred while the case is pending and arises from a debt that 
        is secured by the debtor's principal residence except to the 
        extent that--
                    ``(A) the holder of the claim for such debt files 
                with the court (annually or, in order to permit filing 
                consistent with clause (ii), at such more frequent 
                periodicity as the court determines necessary) notice 
                of such fee, cost, or charge before the earlier of--
                            ``(i) 1 year after such fee, cost, or 
                        charge is incurred; or
                            ``(ii) 60 days before the closing of the 
                        case; and
                    ``(B) such fee, cost, or charge--
                            ``(i) is lawful under applicable 
                        nonbankruptcy law, reasonable, and provided for 
                        in the applicable security agreement; and
                            ``(ii) is secured by property the value of 
                        which is greater than the amount of such claim, 
                        including such fee, cost, or charge;
            ``(4) the failure of a party to give notice described in 
        paragraph (3) shall be deemed a waiver of any claim for fees, 
        costs, or charges described in paragraph (3) for all purposes, 
        and any attempt to collect such fees, costs, or charges shall 
        constitute a violation of section 524(a)(2) or, if the 
        violation occurs before the date of discharge, of section 
        362(a); and
            ``(5) a plan may provide for the waiver of any prepayment 
        penalty on a claim secured by the debtor's principal 
        residence.''.

SEC. 104. CONFIRMATION OF PLAN.

    Section 1325(a) of title 11, the United States Code, is amended--
            (1) in paragraph (8) by striking ``and'' at the end,
            (2) in paragraph (9) by striking the period at the end and 
        inserting a semicolon, and
            (3) by inserting after paragraph (9) the following:
            ``(10) notwithstanding subclause (I) of paragraph 
        (5)(B)(i), the plan provides that the holder of a claim whose 
        rights are modified pursuant to section 1322(b)(11) retain the 
        lien until the later of--
                    ``(A) the payment of such holder's allowed secured 
                claim; or
                    ``(B) discharge under section 1328; and
            ``(11) the plan modifies a claim in accordance with section 
        1322(b)(11), and the court finds that such modification is in 
        good faith.''.

SEC. 105. DISCHARGE.

    Section 1328 of title 11, the United States Code, is amended--
            (1) in subsection (a)--
                    (A) by inserting ``(other than payments to holders 
                of claims whose rights are modified under section 
                1322(b)(11)'' after ``paid'' the 1st place it appears, 
                and
                    (B) in paragraph (1) by inserting ``or, to the 
                extent of the unpaid portion of an allowed secured 
                claim, provided for in section 1322(b)(11)'' after 
                ``1322(b)(5)'', and
            (2) in subsection (c)(1) by inserting ``or, to the extent 
        of the unpaid portion of an allowed secured claim, provided for 
        in section 1322(b)(11)'' after ``1322(b)(5)''.

SEC. 106. EFFECTIVE DATE; APPLICATION OF AMENDMENTS.

    (a) Effective Date.--Except as provided in subsection (b), this 
title and the amendments made by this title shall take effect on the 
date of the enactment of this Act.
    (b) Application of Amendments.--
            (1) In general.--Except as provided in paragraph (2), the 
        amendments made by this title shall apply with respect to cases 
        commenced under title 11 of the United States Code before, on, 
        or after the date of the enactment of this Act.
            (2) Limitation.--Paragraph (1) shall not apply with respect 
        to cases closed under title 11 of the United States Code as of 
        the date of the enactment of this Act that are neither pending 
        on appeal in, nor appealable to, any court of the United 
        States.

           TITLE II--RELATED MORTGAGE MODIFICATION PROVISIONS

SEC. 201. ADJUSTMENTS AS A RESULT OF MODIFICATION IN BANKRUPTCY OF 
              HOUSING LOANS GUARANTEED BY THE DEPARTMENT OF VETERANS 
              AFFAIRS.

    (a) In General.--Section 3732 of title 38, United States Code, is 
amended--
            (1) in subsection (a)--
                    (A) by redesignating paragraph (2) as subparagraph 
                (A) of paragraph (2), and
            (2) by inserting after subparagraph (A) the following new 
        subparagraph:
                    ``(B) In the event that a housing loan guaranteed 
                under this chapter is modified under the authority 
                provided under section 1322(b) of title 11, United 
                States Code, the Secretary may pay the holder of the 
                obligation the unpaid balance of the obligation due as 
                of the date of the filing of the petition under title 
                11, United States Code, plus accrued interest, but only 
                upon the assignment, transfer, and delivery to the 
                Secretary (in a form and manner satisfactory to the 
                Secretary) of all rights, interest, claims, evidence, 
                and records with respect to the housing loan.''.
    (b) Maturity of Housing Loans.--Paragraph (1) of section (d) of 
section 3703 of title 38, United States Code, is amended by inserting 
``at the time of origination'' after ``loan''.
    (c) Implementation.--The Secretary of Veterans Affairs may 
implement the amendments made by this section through notice, procedure 
notice, or administrative notice.

SEC. 202. PAYMENT OF FHA MORTGAGE INSURANCE BENEFITS.

    (a) In General.--Subsection (a) of section 204 of the National 
Housing Act (12 U.S.C. 1710(a)) is amended--
            (1) in paragraph (1), by adding at the end the following 
        new subparagraph:
                    ``(E) Modification of mortgage in bankruptcy.--
                            ``(i) Authority.--If an order is entered 
                        under the authority provided under section 
                        1322(b) of title 11, United States Code, that 
                        (a) determines the amount of an allowed secured 
                        claim under a mortgage in accordance with 
                        section 506(a)(1) of title 11, United States 
                        Code, and the amount of such allowed secured 
                        claim is less than the amount due under the 
                        mortgage as of the date of the filing of the 
                        petition under title 11, United States Code, or 
                        (b) reduces the interest to be paid under a 
                        mortgage in accordance with section 1325 of 
                        such title, the Secretary may pay insurance 
                        benefits for the mortgage as follows:
                                    ``(I) Full payment and 
                                assignment.--The Secretary may pay the 
                                insurance benefits for the mortgage, 
                                but only upon the assignment, transfer, 
                                and delivery to the Secretary of all 
                                rights, interest, claims, evidence, and 
                                records with respect to the mortgage 
                                specified in clauses (i) through (iv) 
                                of paragraph (1)(A). The insurance 
                                benefits shall be paid in the amount 
                                equal to the original principal 
                                obligation of the mortgage (with such 
                                additions and deductions as the 
                                Secretary determines are appropriate) 
                                which was unpaid upon the date of the 
                                filing of by the mortgagor of the 
                                petition under title 11 of the United 
                                States Code. Nothing in this Act may be 
                                construed to prevent the Secretary from 
                                providing insurance under this title 
                                for a mortgage that has previously been 
                                assigned to the Secretary under this 
                                subclause. The decision of whether to 
                                utilize the authority under this 
                                subclause for payment and assignment 
                                shall be at the election of the 
                                mortgagee, subject to such terms and 
                                conditions as the Secretary may 
                                establish.
                                    ``(II) Assignment of unsecured 
                                claim.--The Secretary may make a 
                                partial payment of the insurance 
                                benefits for any unsecured claim under 
                                the mortgage, but only upon the 
                                assignment to the Secretary of any 
                                unsecured claim of the mortgagee 
                                against the mortgagor or others arising 
                                out of such order. Such assignment 
                                shall be deemed valid irrespective of 
                                whether such claim has been or will be 
                                discharged under title 11 of the United 
                                States Code. The insurance benefits 
                                shall be paid in the amount specified 
                                in subclause (I) of this clause, as 
                                such amount is reduced by the amount of 
                                the allowed secured claim. Such allowed 
                                secured claim shall continue to be 
                                insured under section 203.
                                    ``(III) Interest payments.--The 
                                Secretary may make periodic payments, 
                                or a one-time payment, of insurance 
                                benefits for interest payments that are 
                                reduced pursuant to such order, as 
                                determined by the Secretary, but only 
                                upon assignment to the Secretary of all 
                                rights and interest related to such 
                                payments.
                            ``(ii) Delivery of evidence of entry of 
                        order.--Notwithstanding any other provision of 
                        this paragraph, no insurance benefits may be 
                        paid pursuant to this subparagraph for a 
                        mortgage before delivery to the Secretary of 
                        evidence of the entry of the order issued 
                        pursuant to title 11, United States Code, in a 
                        form satisfactory to the Secretary.'';
            (2) in paragraph (5), in the matter preceding subparagraph 
        (A), by inserting after ``section 520, and'' the following: ``, 
        except as provided in paragraph (1)(E),''; and
            (3) by adding at the end the following new paragraph:
            ``(10) Loan modification program.--
                    ``(A) Authority.--The Secretary may carry out a 
                program solely to encourage loan modifications for 
                eligible delinquent mortgages through the payment of 
                insurance benefits and assignment of the mortgage to 
                the Secretary and the subsequent modification of the 
                terms of the mortgage according to a loan modification 
                approved by the mortgagee.
                    ``(B) Payment of benefits and assignment.--Under 
                the program under this paragraph, the Secretary may pay 
                insurance benefits for a mortgage, in the amount 
                determined in accordance with paragraph (5)(A), without 
                reduction for any amounts modified, but only upon the 
                assignment, transfer, and delivery to the Secretary of 
                all rights, interest, claims, evidence, and records 
                with respect to the mortgage specified in clauses (i) 
                through (iv) of paragraph (1)(A).
                    ``(C) Disposition.--After modification of a 
                mortgage pursuant to this paragraph, the Secretary may 
                provide insurance under this title for the mortgage. 
                The Secretary may subsequently--
                            ``(i) re-assign the mortgage to the 
                        mortgagee under terms and conditions as are 
                        agreed to by the mortgagee and the Secretary;
                            ``(ii) act as a Government National 
                        Mortgage Association issuer, or contract with 
                        an entity for such purpose, in order to pool 
                        the mortgage into a Government National 
                        Mortgage Association security; or
                            ``(iii) re-sell the mortgage in accordance 
                        with any program that has been established for 
                        purchase by the Federal Government of mortgages 
                        insured under this title, and the Secretary may 
                        coordinate standards for interest rate 
                        reductions available for loan modification with 
                        interest rates established for such purchase.
                    ``(D) Loan servicing.--In carrying out the program 
                under this section, the Secretary may require the 
                existing servicer of a mortgage assigned to the 
                Secretary under the program to continue servicing the 
                mortgage as an agent of the Secretary during the period 
                that the Secretary acquires and holds the mortgage for 
                the purpose of modifying the terms of the mortgage. If 
                the mortgage is resold pursuant to subparagraph 
                (C)(iii), the Secretary may provide for the existing 
                servicer to continue to service the mortgage or may 
                engage another entity to service the mortgage.''.
    (b) Amendment to Partial Claim Authority.--Paragraph (1) of section 
230(b) of the National Housing Act (12 U.S.C. 1715u(b)(1)) is amended 
by striking ``12 of the monthly mortgage payments'' and inserting ``30 
percent of the unpaid principal balance of the mortgage''.
    (c) Implementation.--The Secretary of Housing and Urban Development 
may implement the amendments made by this section through notice or 
mortgagee letter.

SEC. 203. ADJUSTMENTS AS RESULT OF MODIFICATION OF RURAL SINGLE FAMILY 
              HOUSING LOANS IN BANKRUPTCY.

    (a) Guaranteed Rural Housing Loans.--Subsection (h) of section 502 
of the Housing Act of 1949 (42 U.S.C. 1472(h)) is amended--
            (1) in paragraph (7)--
                    (A) in subparagraph (A), by inserting before the 
                period at the end the following: ``, unless the 
                maturity date of the loan is modified in a bankruptcy 
                proceeding or at the discretion of the Secretary''; and
                    (B) in subparagraph (B), by inserting before the 
                semicolon the following: ``, unless such rate is 
                modified in a bankruptcy proceeding'';
            (2) by redesignating paragraphs (13) and (14) as paragraphs 
        (14) and (15), respectively; and
            (3) by inserting after paragraph (12) the following new 
        paragraph:
            ``(13) Payment of guarantee.--In addition to all other 
        authorities to pay a guarantee claim, the Secretary may also 
        pay the guaranteed portion of any losses incurred by the holder 
        of a note or the servicer resulting from a modification of a 
        note by a bankruptcy proceeding.''.
    (b) Insured Rural Housing Loans.--Subsection (j) of section 517 of 
the Housing Act of 1949 (42 U.S.C. 1487(j)) is amended--
            (1) by redesignating paragraphs (2) through (7) as 
        paragraphs (3) through (8), respectively; and
            (2) by inserting after paragraph (1) the following new 
        paragraph:
            ``(2) to pay for losses incurred by holders or servicers in 
        the event of a modification pursuant to a bankruptcy 
        proceeding;''.
    (c) Implementation.--The Secretary of Agriculture may implement the 
amendments made by this section through notice, procedure notice, or 
administrative notice.
                                 <all>