I 

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. 

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled, 

3 SECTION 1. SHORT TITLE. 

4 This Act may be cited as the ‘‘Bankruptcy Equity 

5 Act of 2012’’. 


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1 TITLE I—AMENDMENTS TO 

2 TITLE 11 OF THE UNITED 

3 STATES CODE 

4 SEC. 101. ELIGIBILITY FOR RELIEF. 

5 Section 109 of title 11, United States Code, is 

6 amended— 

7 (1) by adding at the end of subsection (e) the 

8 following: ‘‘For purposes of this subsection, the com9 putation of debts shall not include the secured or 

10 unsecured portions of— 

11 ‘‘(1) debts secured by the debtor’s principal res12 idence if the current value of that residence is less 

13 than the secured debt limit; or 

14 ‘‘(2) debts secured or formerly secured by real 

15 property that was the debtor’s principal residence 

16 that was sold in foreclosure or that the debtor sur17 rendered to the creditor if the current value of such 

18 real property is less than the secured debt limit.’’; 

19 and 

20 (2) by adding at the end of subsection (h) the 

21 following: 

22 ‘‘(5) The requirements of paragraph (1) shall not 

23 apply in a case under chapter 13 with respect to a debtor 

24 who submits to the court a certification that the debtor 

25 has received notice that the holder of a claim secured by 


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1 the debtor’s principal residence may commence a fore2 closure on the debtor’s principal residence.’’. 

3 SEC. 102. AUTHORITY TO MODIFY CERTAIN MORTGAGES. 

4 Section 1322 of title 11, United States Code, is 

5 amended— 

6 (1) in subsection (b)— 

7 (A) by redesignating paragraph (11) as 

8 paragraph (12), 

9 (B) in paragraph (10) by striking ‘‘and’’ at 

10 the end, and 

11 (C) by inserting after paragraph (10) the 

12 following: 

13 ‘‘(11) notwithstanding paragraph (2) and other14 wise applicable nonbankruptcy law, with respect to a 

15 claim for a loan originated before the effective date 

16 of this paragraph and secured by a security interest 

17 in the debtor’s principal residence that is the subject 

18 of a notice that a foreclosure may be commenced 

19 with respect to such loan, modify the rights of the 

20 holder of such claim (and the rights of the holder of 

21 any claim secured by a subordinate security interest 

22 in such residence)— 

23 ‘‘(A) by providing for payment of the 

24 amount of the allowed secured claim as deter25 mined under section 506(a)(1); 


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1 ‘‘(B) if any applicable rate of interest is 

2 adjustable under the terms of such security in3 terest by prohibiting, reducing, or delaying ad4 justments to such rate of interest applicable on 

5 and after the date of filing of the plan; 

6 ‘‘(C) by modifying the terms and condi7 tions of such loan— 

8 ‘‘(i) to extend the repayment period 

9 for a period that is no longer than the 

10 longer of 40 years (reduced by the period 

11 for which such loan has been outstanding) 

12 or the remaining term of such loan, begin13 ning on the date of the order for relief 

14 under this chapter; and 

15 ‘‘(ii) to provide for the payment of in16 terest accruing after the date of the order 

17 for relief under this chapter at a fixed an18 nual rate equal to the currently applicable 

19 average prime offer rate as of the date of 

20 the order for relief under this chapter, cor21 responding to the repayment term deter22 mined under the preceding paragraph, as 

23 published by the Federal Financial Institu24 tions Examination Council in its table entiVerDate Mar 15 2010 07:21 Feb 17, 2012 Jkt 019200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\H4058.IH H4058

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1 tled ‘Average Prime Offer Rates—Fixed’, 

2 plus a reasonable premium for risk; and 

3 ‘‘(D) by providing for payments of such 

4 modified loan directly to the holder of the 

5 claim; and’’, and 

6 (2) by adding at the end the following: 

7 ‘‘(g) A claim may be reduced under subsection 

8 (b)(11)(A) only on the condition that if the debtor sells 

9 the principal residence securing such claim, before receiv10 ing a discharge under this chapter and receives net pro11 ceeds from the sale of such residence, then the debtor 

12 agrees to pay to such holder— 

13 ‘‘(1) if such residence is sold in the 1st year oc14 curring after the effective date of the plan, 80 per15 cent of the amount of the difference between the 

16 sales price and the amount of such claim (plus costs 

17 of sale and improvements), but not to exceed the 

18 amount of the allowed secured claim determined as 

19 if such claim had not been reduced under such sub20 section; 

21 ‘‘(2) if such residence is sold in the 2d year oc22 curring after the effective date of the plan, 60 per23 cent of the amount of the difference between the 

24 sales price and the amount of such claim (plus costs 

25 of sale and improvements), but not to exceed the 


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1 amount of the allowed secured claim determined as 

2 if such claim had not been reduced under such sub3 section; 

4 ‘‘(3) if such residence is sold in the 3d year oc5 curring after the effective date of the plan, 40 per6 cent of the amount of the difference between the 

7 sales price and the amount of such claim (plus costs 

8 of sale and improvements), but not to exceed the 

9 amount of the allowed secured claim determined as 

10 if such claim had not been reduced under such sub11 section; and 

12 ‘‘(4) if such residence is sold in the 4th year oc13 curring after the effective date of the plan, 20 per14 cent of the amount of the difference between the 

15 sales price and the amount of such claim (plus costs 

16 of sale and improvements), but not to exceed the 

17 amount of the allowed secured claim determined as 

18 if such claim had not been reduced under such sub19 section. 

20 ‘‘(h) With respect to a claim of the kind described 

21 in subsection (b)(11), the plan may not contain a modi22 fication under the authority of subsection (b)(11)— 

23 ‘‘(1) in a case commenced under this chapter 

24 after the expiration of the 15-day period beginning 

25 on the effective date of this subsection, unless— 


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1 ‘‘(A) the debtor certifies that the debtor 

2 attempted, not less than 15 days before the 

3 commencement of the case, to contact the hold4 er of such claim (or the entity collecting pay5 ments on behalf of such holder) regarding 

6 modification of the loan that is the subject of 

7 such claim; or 

8 ‘‘(B) a foreclosure sale is scheduled to 

9 occur on a date in the 30-day period beginning 

10 on the date the case is commenced; and 

11 ‘‘(2) in any other case pending under this chap12 ter, unless the debtor certifies that the debtor at13 tempted to contact the holder of such claim (or the 

14 entity collecting payments on behalf of such holder) 

15 regarding modification of the loan that is the subject 

16 of such claim, before— 

17 ‘‘(A) filing a plan under section 1321 that 

18 contains a modification under the authority of 

19 subsection (b)(11); or 

20 ‘‘(B) modifying a plan under section 1323 

21 or 1329 to contain a modification under the au22 thority of subsection (b)(11).’’. 

23 SEC. 103. COMBATING EXCESSIVE FEES. 

24 Section 1322(c) of title 11, the United States Code, 

25 is amended— 


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1 (1) in paragraph (1) by striking ‘‘and’’ at the 

2 end, 

3 (2) in paragraph (2) by striking the period at 

4 the end and inserting a semicolon, and 

5 (3) by adding at the end the following: 

6 ‘‘(3) the debtor, the debtor’s property, and 

7 property of the estate are not liable for a fee, cost, 

8 or charge that is incurred while the case is pending 

9 and arises from a debt that is secured by the debt10 or’s principal residence except to the extent that— 

11 ‘‘(A) the holder of the claim for such debt 

12 files with the court (annually or, in order to 

13 permit filing consistent with clause (ii), at such 

14 more frequent periodicity as the court deter15 mines necessary) notice of such fee, cost, or 

16 charge before the earlier of— 

17 ‘‘(i) 1 year after such fee, cost, or 

18 charge is incurred; or 

19 ‘‘(ii) 60 days before the closing of the 

20 case; and 

21 ‘‘(B) such fee, cost, or charge— 

22 ‘‘(i) is lawful under applicable non23 bankruptcy law, reasonable, and provided 

24 for in the applicable security agreement; 

25 and 


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1 ‘‘(ii) is secured by property the value 

2 of which is greater than the amount of 

3 such claim, including such fee, cost, or 

4 charge; 

5 ‘‘(4) the failure of a party to give notice de6 scribed in paragraph (3) shall be deemed a waiver 

7 of any claim for fees, costs, or charges described in 

8 paragraph (3) for all purposes, and any attempt to 

9 collect such fees, costs, or charges shall constitute a 

10 violation of section 524(a)(2) or, if the violation oc11 curs before the date of discharge, of section 362(a); 

12 and 

13 ‘‘(5) a plan may provide for the waiver of any 

14 prepayment penalty on a claim secured by the debt15 or’s principal residence.’’. 

16 SEC. 104. CONFIRMATION OF PLAN. 

17 Section 1325(a) of title 11, the United States Code, 

18 is amended— 

19 (1) in paragraph (8) by striking ‘‘and’’ at the 

20 end, 

21 (2) in paragraph (9) by striking the period at 

22 the end and inserting a semicolon, and 

23 (3) by inserting after paragraph (9) the fol24 lowing: 


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1 ‘‘(10) notwithstanding subclause (I) of para2 graph (5)(B)(i), the plan provides that the holder of 

3 a claim whose rights are modified pursuant to sec4 tion 1322(b)(11) retain the lien until the later of— 

5 ‘‘(A) the payment of such holder’s allowed 

6 secured claim; or 

7 ‘‘(B) discharge under section 1328; and 

8 ‘‘(11) the plan modifies a claim in accordance 

9 with section 1322(b)(11), and the court finds that 

10 such modification is in good faith.’’. 

11 SEC. 105. DISCHARGE. 

12 Section 1328 of title 11, the United States Code, is 

13 amended— 

14 (1) in subsection (a)— 

15 (A) by inserting ‘‘(other than payments to 

16 holders of claims whose rights are modified 

17 under section 1322(b)(11)’’ after ‘‘paid’’ the 

18 1st place it appears, and 

19 (B) in paragraph (1) by inserting ‘‘or, to 

20 the extent of the unpaid portion of an allowed 

21 secured claim, provided for in section 

22 1322(b)(11)’’ after ‘‘1322(b)(5)’’, and 

23 (2) in subsection (c)(1) by inserting ‘‘or, to the 

24 extent of the unpaid portion of an allowed secured 


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1 claim, provided for in section 1322(b)(11)’’ after 

2 ‘‘1322(b)(5)’’. 

3 SEC. 106. EFFECTIVE DATE; APPLICATION OF AMEND4 MENTS. 

5 (a) EFFECTIVE DATE.—Except as provided in sub6 section (b), this title and the amendments made by this 

7 title shall take effect on the date of the enactment of this 

8 Act. 

9 (b) APPLICATION OF AMENDMENTS.— 

10 (1) IN GENERAL.—Except as provided in para11 graph (2), the amendments made by this title shall 

12 apply with respect to cases commenced under title 

13 11 of the United States Code before, on, or after the 

14 date of the enactment of this Act. 

15 (2) LIMITATION.—Paragraph (1) shall not 

16 apply with respect to cases closed under title 11 of 

17 the United States Code as of the date of the enact18 ment of this Act that are neither pending on appeal 

19 in, nor appealable to, any court of the United 

20 States. 


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1 TITLE II—RELATED MORTGAGE 

2 MODIFICATION PROVISIONS 

3 SEC. 201. ADJUSTMENTS AS A RESULT OF MODIFICATION 

4 IN BANKRUPTCY OF HOUSING LOANS GUAR5 ANTEED BY THE DEPARTMENT OF VETERANS 

6 AFFAIRS. 

7 (a) IN GENERAL.—Section 3732 of title 38, United 

8 States Code, is amended— 

9 (1) in subsection (a)— 

10 (A) by redesignating paragraph (2) as sub11 paragraph (A) of paragraph (2), and 

12 (2) by inserting after subparagraph (A) the fol13 lowing new subparagraph: 

14 ‘‘(B) In the event that a housing loan 

15 guaranteed under this chapter is modified 

16 under the authority provided under section 

17 1322(b) of title 11, United States Code, the 

18 Secretary may pay the holder of the obligation 

19 the unpaid balance of the obligation due as of 

20 the date of the filing of the petition under title 

21 11, United States Code, plus accrued interest, 

22 but only upon the assignment, transfer, and de23 livery to the Secretary (in a form and manner 

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1 terest, claims, evidence, and records with re2 spect to the housing loan.’’. 

3 (b) MATURITY OF HOUSING LOANS.—Paragraph (1) 

4 of section (d) of section 3703 of title 38, United States 

5 Code, is amended by inserting ‘‘at the time of origination’’ 

6 after ‘‘loan’’. 

7 (c) IMPLEMENTATION.—The Secretary of Veterans 

8 Affairs may implement the amendments made by this sec9 tion through notice, procedure notice, or administrative 

10 notice. 

11 SEC. 202. PAYMENT OF FHA MORTGAGE INSURANCE BENE12 FITS. 

13 (a) IN GENERAL.—Subsection (a) of section 204 of 

14 the National Housing Act (12 U.S.C. 1710(a)) is amend15 ed— 

16 (1) in paragraph (1), by adding at the end the 

17 following new subparagraph: 

18 ‘‘(E) MODIFICATION OF MORTGAGE IN

19 BANKRUPTCY.— 

20 ‘‘(i) AUTHORITY.—If an order is en21 tered under the authority provided under 

22 section 1322(b) of title 11, United States 

23 Code, that (a) determines the amount of 

24 an allowed secured claim under a mortgage 

25 in accordance with section 506(a)(1) of 


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1 title 11, United States Code, and the 

2 amount of such allowed secured claim is 

3 less than the amount due under the mort4 gage as of the date of the filing of the peti5 tion under title 11, United States Code, or 

6 (b) reduces the interest to be paid under a 

7 mortgage in accordance with section 1325 

8 of such title, the Secretary may pay insur9 ance benefits for the mortgage as follows: 

10 ‘‘(I) FULL PAYMENT AND AS11 SIGNMENT.—The Secretary may pay 

12 the insurance benefits for the mort13 gage, but only upon the assignment, 

14 transfer, and delivery to the Secretary 

15 of all rights, interest, claims, evidence, 

16 and records with respect to the mort17 gage specified in clauses (i) through 

18 (iv) of paragraph (1)(A). The insur19 ance benefits shall be paid in the 

20 amount equal to the original principal 

21 obligation of the mortgage (with such 

22 additions and deductions as the Sec23 retary determines are appropriate) 

24 which was unpaid upon the date of 

25 the filing of by the mortgagor of the 


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1 petition under title 11 of the United 

2 States Code. Nothing in this Act may 

3 be construed to prevent the Secretary 

4 from providing insurance under this 

5 title for a mortgage that has pre6 viously been assigned to the Secretary 

7 under this subclause. The decision of 

8 whether to utilize the authority under 

9 this subclause for payment and as10 signment shall be at the election of 

11 the mortgagee, subject to such terms 

12 and conditions as the Secretary may 

13 establish. 

14 ‘‘(II) ASSIGNMENT OF UNSE15 CURED CLAIM.—The Secretary may 

16 make a partial payment of the insur17 ance benefits for any unsecured claim 

18 under the mortgage, but only upon 

19 the assignment to the Secretary of 

20 any unsecured claim of the mortgagee 

21 against the mortgagor or others aris22 ing out of such order. Such assign23 ment shall be deemed valid irrespec24 tive of whether such claim has been or 

25 will be discharged under title 11 of 


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1 the United States Code. The insur2 ance benefits shall be paid in the 

3 amount specified in subclause (I) of 

4 this clause, as such amount is reduced 

5 by the amount of the allowed secured 

6 claim. Such allowed secured claim 

7 shall continue to be insured under sec8 tion 203. 

9 ‘‘(III) INTEREST PAYMENTS.— 

10 The Secretary may make periodic pay11 ments, or a one-time payment, of in12 surance benefits for interest payments 

13 that are reduced pursuant to such 

14 order, as determined by the Secretary, 

15 but only upon assignment to the Sec16 retary of all rights and interest re17 lated to such payments. 

18 ‘‘(ii) DELIVERY OF EVIDENCE OF

19 ENTRY OF ORDER.—Notwithstanding any 

20 other provision of this paragraph, no insur21 ance benefits may be paid pursuant to this 

22 subparagraph for a mortgage before deliv23 ery to the Secretary of evidence of the 

24 entry of the order issued pursuant to title 


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1 11, United States Code, in a form satisfac2 tory to the Secretary.’’; 

3 (2) in paragraph (5), in the matter preceding 

4 subparagraph (A), by inserting after ‘‘section 520, 

5 and’’ the following: ‘‘, except as provided in para6 graph (1)(E),’’; and 

7 (3) by adding at the end the following new 

8 paragraph: 

9 ‘‘(10) LOAN MODIFICATION PROGRAM.— 

10 ‘‘(A) AUTHORITY.—The Secretary may 

11 carry out a program solely to encourage loan 

12 modifications for eligible delinquent mortgages 

13 through the payment of insurance benefits and 

14 assignment of the mortgage to the Secretary 

15 and the subsequent modification of the terms of 

16 the mortgage according to a loan modification 

17 approved by the mortgagee. 

18 ‘‘(B) PAYMENT OF BENEFITS AND ASSIGN19 MENT.—Under the program under this para20 graph, the Secretary may pay insurance bene21 fits for a mortgage, in the amount determined 

22 in accordance with paragraph (5)(A), without 

23 reduction for any amounts modified, but only 

24 upon the assignment, transfer, and delivery to 

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1 dence, and records with respect to the mortgage 

2 specified in clauses (i) through (iv) of para3 graph (1)(A). 

4 ‘‘(C) DISPOSITION.—After modification of 

5 a mortgage pursuant to this paragraph, the 

6 Secretary may provide insurance under this 

7 title for the mortgage. The Secretary may sub8 sequently— 

9 ‘‘(i) re-assign the mortgage to the 

10 mortgagee under terms and conditions as 

11 are agreed to by the mortgagee and the 

12 Secretary; 

13 ‘‘(ii) act as a Government National 

14 Mortgage Association issuer, or contract 

15 with an entity for such purpose, in order 

16 to pool the mortgage into a Government 

17 National Mortgage Association security; or 

18 ‘‘(iii) re-sell the mortgage in accord19 ance with any program that has been es20 tablished for purchase by the Federal Gov21 ernment of mortgages insured under this 

22 title, and the Secretary may coordinate 

23 standards for interest rate reductions 

24 available for loan modification with inter25 est rates established for such purchase. 


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1 ‘‘(D) LOAN SERVICING.—In carrying out 

2 the program under this section, the Secretary 

3 may require the existing servicer of a mortgage 

4 assigned to the Secretary under the program to 

5 continue servicing the mortgage as an agent of 

6 the Secretary during the period that the Sec7 retary acquires and holds the mortgage for the 

8 purpose of modifying the terms of the mort9 gage. If the mortgage is resold pursuant to sub10 paragraph (C)(iii), the Secretary may provide 

11 for the existing servicer to continue to service 

12 the mortgage or may engage another entity to 

13 service the mortgage.’’. 

14 (b) AMENDMENT TO PARTIAL CLAIM AUTHORITY.— 

15 Paragraph (1) of section 230(b) of the National Housing 

16 Act (12 U.S.C. 1715u(b)(1)) is amended by striking ‘‘12 

17 of the monthly mortgage payments’’ and inserting ‘‘30 

18 percent of the unpaid principal balance of the mortgage’’. 

19 (c) IMPLEMENTATION.—The Secretary of Housing 

20 and Urban Development may implement the amendments 

21 made by this section through notice or mortgagee letter. 


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1 SEC. 203. ADJUSTMENTS AS RESULT OF MODIFICATION OF 

2 RURAL SINGLE FAMILY HOUSING LOANS IN 

3 BANKRUPTCY. 

4 (a) GUARANTEED RURAL HOUSING LOANS.—Sub5 section (h) of section 502 of the Housing Act of 1949 (42 

6 U.S.C. 1472(h)) is amended— 

7 (1) in paragraph (7)— 

8 (A) in subparagraph (A), by inserting be9 fore the period at the end the following: ‘‘, un10 less the maturity date of the loan is modified in 

11 a bankruptcy proceeding or at the discretion of 

12 the Secretary’’; and 

13 (B) in subparagraph (B), by inserting be14 fore the semicolon the following: ‘‘, unless such 

15 rate is modified in a bankruptcy proceeding’’; 

16 (2) by redesignating paragraphs (13) and (14) 

17 as paragraphs (14) and (15), respectively; and 

18 (3) by inserting after paragraph (12) the fol19 lowing new paragraph: 

20 ‘‘(13) PAYMENT OF GUARANTEE.—In addition 

21 to all other authorities to pay a guarantee claim, the 

22 Secretary may also pay the guaranteed portion of 

23 any losses incurred by the holder of a note or the 

24 servicer resulting from a modification of a note by 

25 a bankruptcy proceeding.’’. 


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1 (b) INSURED RURAL HOUSING LOANS.—Subsection 

2 (j) of section 517 of the Housing Act of 1949 (42 U.S.C. 

3 1487(j)) is amended— 

4 (1) by redesignating paragraphs (2) through 

5 (7) as paragraphs (3) through (8), respectively; and 

6 (2) by inserting after paragraph (1) the fol7 lowing new paragraph: 

8 ‘‘(2) to pay for losses incurred by holders or 

9 servicers in the event of a modification pursuant to 

10 a bankruptcy proceeding;’’. 

11 (c) IMPLEMENTATION.—The Secretary of Agriculture 

12 may implement the amendments made by this section 

13 through notice, procedure notice, or administrative notice. 

Æ 


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