In October of 2008, as a response to the foreclosure crisis, the New Jersey Judiciary announced the implementation of the Foreclosure Mediation Program to Assist Homeowners at Risk of Losing Their Homes. The mediation process involves the Lender, the Borrower and a court‐trained mediator. It is a process that allows the Lender to review the Borrower’s financial situation in order to determine whether or not an alternative to the foreclosure is possible. Alternatives to foreclosure may include approval of short sale, a deed in lieu of foreclosure and are most often in the form of a loan modification.
A Chapter 7 or Chapter 13 Bankruptcy is often filed by Debtors as a way to avoid or delay the loss of their primary residence during the foreclosure process. Pursuant to either type of filing , the automatic stay provisions of the Bankruptcy Code get implemented directing all creditors, including Mortgage Lenders, to cease their collection activities thus providing homeowners a sense of relief from the looming loss of their home.
Borrowers and Lenders are well advised, however, that in New Jersey, the Board of Judges for the Bankruptcy Court have recognized that participation in the New Jersey Foreclosure Mediation Program during an active Bankruptcy filing does not violate the terms of the automatic stay provisions. Further, any communications and/or negotiations about loan modifications are also not violations of the automatic stay. Keeping this in mind, Borrowers can benefit from this relaxation as a potential for home retention. Likewise, Mortgage Lenders are given the opportunity to be able to review the borrower without having the automatic stay hampering those efforts. As such, this caveat in the automatic stay should be implemented by both Lenders and Borrowers as a viable alternative to home retention negotiations during Bankruptcy.