Cascadia Project LLC, the developer of the 5,000 acre master-planned community, has filed a Chapter 11 bankruptcy in order to stop HomeStreet Bank from placing the property on bank foreclosures sales scheduled to be held at the County-City Building in Tacoma.

According to HomeStreet, Cascadia has defaulted on its two loans amounting to $72.9 million plus interest and fees. The bank said that one loan was due in February while the other one was due in July.

John Ladenburg, chief operating officer of Cascadia, said that the company is not bankrupt, adding that it has assets that are worth more than its outstanding loan with HomeStreet. The company likens itself to General Motors, expecting to be back on its feet within six months if it can restructure its debt.

Industry experts said that Cascadia has spent over $114 million on the planned community, more than the land value. They said that the company has received interest from two national corporations that will work on office and housing park projects. Additionally, the company expects to earn more revenue from other business ventures to keep its operation going.

Industry experts said that Cascadia is not losing any money and that it aims to continue to do business. However, they agree that it is too early to tell if the developer would be able to come out from the bankruptcy reorganization and continue the work on the development project.

Under the plan, Cascadia is targeted to be the largest master-planned community in Washington. It includes about 6,500 houses, 626-acre commercial space, three golf courses, a hotel and seven schools.

Meanwhile, Cascadia has a current debt of $200,000 to the city of Tacoma. It also agreed to spend $750,000 to redesign the Highway 410 and Sumner-Buckley Highway intersection.

Industry experts said that the worst scenario that could be expected from the case is that the judge would reject Cascadia’s reorganization plan and allow HomeStreet to go on with the bank foreclosures sales.

In the event that the bankruptcy case would be dismissed, the wine-themed destination development of Vineyards Resort would become a foreclosed bank owned property.

Attorney Ford Elsaesser, who represented the Vineyard Property LLC which plans the development of the property into a wine-themed destination, said during a court hearing that backers of the company have not yet develop a reorganization plan that will lead to the development of the project that will satisfy a Milwaukee, Wisconsin-based hedge fund company which is the major creditor of Vineyards Resort.

At the hearing, Elsaesser told Judge Frank Kurtz that an order dismissing the bankruptcy case of Vineyards Resort will take effect on September 4.

However, Elsaesser said that there are some events that would make the dismissal of the bankruptcy case not on anyone’s interest. In case a dismissal will not happen, Kurtz has scheduled the hearing for a possible dismissal on September 9.

Stark Onshore Master Holding, the Vineyards Resort creditor, has sought the dismissal of the bankruptcy case. If the company’s request would be granted, it is free to pursue with its planned foreclosure on Vineyards Resort.

Stark Onshore Master has been trying to collect on the almost $12.9 million loan taken out by Vineyard Property in 2006. According to the company, its interest in the 500-acre Vineyards Resort is in jeopardy, adding that property developers have no ability to finish the project.

Stark Onshore Master has sought judgment against five loan guarantors before the Yakima County Superior Court. The loan guarantors include Ellensburg-based Gary Scott, Yakima builder Craig Schultz, Colorado resort development firm owners Daniel Fitchett and Rich Barnes and Montana resident Lee Burrington.

Developers of Vineyards Resort plan to construct a golf and residential development project featuring over 500 houses, a hotel retail center and a golf course.

In a separate news, Vineyards Resort has settled with Dincom Inc. which it hired in 2008 to help it obtain financing.

According to court records, Vineyards Resort is seeking a refund of $3.2 million from initial buyers of lots in the development project as fee in the event that Dincom obtain about $80 million to finish the first phase of the project.

The absence of any funding forced Vineyards Resort to file for bankruptcy because of its failure to pay loans taken out from Stark Onshore Master.

The bill would authorize bankruptcy judges to modify loans by reducing mortgage payments for owners of foreclosure homes. It is currently in the Senate for consideration.

Last February 18, Obama unveiled the Homeowner Affordability and Stability Plan as part of his $275 billion anti-foreclosure homes program. The $75 billion plan is designed to help more than 9 million distressed owners of foreclosure homes.

However, not all owners of foreclosure homes would be eligible for assistance under the plan. The revised bankruptcy measure is an added option for distressed homeowners who want to save their properties from foreclosure.

The number of foreclosure homes and pre-foreclosure filings in January of this year showed some improvement with nationwide figures of foreclosures dropping by 25.7 percent to 72,694 from 97,841 the previous month.

Pre-foreclosure filings in January dropped by 12 percent to 166,860 from 190,467 the previous month.

The decline in the number of repossessed homes in January 2009 was noticeably evident in Arizona, California, Florida and Texas. California foreclosures dropped to 14,351 from 20,952 the previous month. Florida foreclosures declined to 10,007, 5,367 in Texas and 5,250 in Arizona.

Meanwhile, pre-foreclosure filings in Florida dropped to 43,070 while California slide to 33,008 from 41,710.

However, despite some improvements in foreclosure figures, the decline barely made a dent on the foreclosure crisis as more and more homeowners are starting to feel the impact of the recession.

Lionel Ouelette of the advocacy group CHANGER pointed out that the measure, which would authorize bankruptcy judges to modify loans if mortgage servicers failed to come up with affordable terms for distressed homeowners, would be a great help to some homeowners.

The mortgage industry opposed the revised bankruptcy law and has lobbied against its enactment. The industry argued that the revised law could reward homeowners who borrowed irresponsibly and may lead to higher interest rates and fees.

It also pointed out that there is no way to determine how much is the cost involved in implementing the law to help troubled owners of distressed properties.

Some distressed homeowners are willing to consider the measure as their last hope to save their properties from foreclosures.

According to Chapter 13 – wherein bankruptcy for individuals who have failed to keep up with their debts but do not wish to be harsh to their creditors—new terms on automobiles, boats and vacation residences can be worked out by bankruptcy judges. This is legally called the cram-down process.

However, judges are strictly prohibited to cram down a mortgage debt on a principal house. Debtors can either comply with the original terms of the loan or undergo foreclosure. This rule is absolutely ridiculous. Judges can help you keep your assets by modifying loans on possessions that are relatively expendable, but what about your home?

A measure supported by Michigan Representative John Conyers Jr. that will likely pass the House could fix this inequality. However, it may not be enough to gain 60 votes to become a stand-alone bill. Bankers are still against the mortgage cram-downs. Last month, when Citigroup Inc. declared that it supports the change, other banks have regarded the company as a traitor.

Moreover, the mortgage lobby states that cram-downs would incite an impulsive rush to the Bankruptcy Court. Mortgage rates could go sky-high even for commendable home buyers since lenders would perceive more danger in the mortgage industry.

On the contrary, cram-downs are essentially bound to mortgages underwater, or those with balances surpassing the market value of the property. Such loans are already at the risk of foreclosure, so the lenders deal with massive losses unless someone similar to a bankruptcy judge knows how to create a solution.

For example, in the primary proposal in Congress, a classic strategy would work like this for a debtor who owes $225,000 at an adjustable-rate mortgage at a home currently priced at $200,000: the judge decreases the balance by $200,000. The extra $25,000 transforms into an unsecured debt towards the lender when the case concludes, or a process identified as the strip down.

The remaining loan can be modified by the judge through changing the adjustable rate into a set market rate, adding up 1 percent to 3 percent as a risk payment. Seasonal rate adjustments, balloon expenses, pre-payment costs, etc. can be deleted by the judge and prolong it up to 40 years.

A house would only go into foreclosure if the judge concludes that no form of combination of these modifications could create a mortgage in which a debtor could cope with. This procedure tackles the rights of bondholders as one huge barrier to mortgage workouts. The separation of the body servicing the loan from the faceless investors or loan owners was made possible through the securitization of housing loans.

Servicers are worried that if they change a mortgage to maintain payment flowing instead of foreclosing, then they will be charged by bondholders even though the outcome is possibly better in the future. The service can obtain legal cover if a judge commands the modification.

No one believes that the cram-down is perfect, nor is it the single solution to the foreclosure crisis. But its advantage is that its focal point is the debtors that are really serious in keeping their houses and are the least expected to re-default.A good question to be asked by people nowadays in this economic recession is why the Bankruptcy Court is not permitted to be one of the solutions to the foreclosure crisis?

Even with President Obama’s compromises, not even one Republican agreed with the proposed economic stimulation and recovery plans. The bill is thought to be delayed until spring or until it could be attached to other legislation. It is just sad to see politics as a hindrance to a good economic and foreclosure relief.

The bankruptcy fix could have been a good foundation to start rebuilding the weakened economy. Bad loans triggered the beginning of the crisis, followed by delinquencies then repossessions as the housing industry dwindle with lower home prices. Repossessed homes are now stagnant in the market, bringing home prices down. With financially unequipped homeowners, this will be a cycle- prices fall, delinquencies increase, foreclosures multiply.

Depreciating homes and rising defaults worsens the credit crisis. As long as banks lose, they become more difficult to borrowers.

Lenders are putting their own efforts to help their borrowers to modify their cases and prevent the looming foreclosure. But these efforts seem not good enough.

Bankruptcy fix could be the remedy. When a trouble homeowner would rather fix his loan through payment than to lose their home through foreclosure, a court settlement is possible. This will promote voluntary loan modifications.

It was said that the current administration is willing to shell out $100 billion for foreclosure relief but this is not enough. We need a bankruptcy reform. A bankruptcy fix will even be better for all tax payers because it will cost them nothing.

And if lender participation is desired, discretion is needed. The Obama administration must assure and clear the thought that their foreclosure battle will be lost under the wings of a judge.

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It was made apparent to lawmakers by Obama’s economics adviser Jason Furman that Obama believes the alleged “cramdown” stipulation would sacrifice GOP votes and jeopardize bipartisan support in the Senate.

On the other hand, key supporters of the cramdown stipulation believe the issue has to be dealt with the soonest. Although risky, it may even be worth sacrificing some Republican cooperation to aid homeowners in the foreclosure problem.

With the bankruptcy provision, homeowners nearing foreclosure who owe more than what the value of their house is can seek assistance and can report for bankruptcy. A bankruptcy judge can lessen the home loan into the original worth of the home.

Democrats have urged for the change in the law as a means of aiding homeowners trapped in the foreclosure problem, compelling lenders to adjust more home loans rather than letting a bankruptcy judge reduce payments more harshly. However, lenders argued that the law would initiate a rise in mortgage rates due to an increase in loan charges that might be soon revised by a judge.

Lenders such as Citigroup and Durbin gave their approval to the change in law for as long as it is restricted to loans prior to endorsing the bill. According to Matt Gleischman, Durbin’s spokesman, there are high expectations of the bill to be passed in both the House and Senate.

A possibility could be including the cramdowns into an “omnibus” spending proposition to complete the appropriations work left unresolved by Congress last year. The House is expected to review the bill as soon as it passes the stimulus to the Senate. Cramdowns can also be set in legislation revising terms of the $700 billion bailout ratified in the fall. Still, there are some who are not confident that the bill will be passed in the Senate.

None the less, many people are giving up their homes because of foreclosure each day. It is important that the provision will be approved as soon as possible.

Boyd said the modification would tempt borrowers who had been trying their best to maintain their mortgages to default. He also said that most of the homeowners whose mortgages were modified in 2008 had already defaulted and had lost their homes to foreclosure.

Under current Chapter 13 bankruptcy law, judges do not have the power to reduce the first mortgage debt owed on a primary residence. Under the House proposal endorsed by Democrats, judges would have authority to reduce the homeowner’s debt by ordering principal reduction and interest reduction.

The remaining balance from the original principal would be classified as unsecured. Unsecured debts could be discharged in bankruptcy proceedings.

News of bankruptcy reforms heightened last week when Citigroup Inc. endorsed the proposal, adding its own willingness to help mitigate foreclosures by helping its non-defaulting borrowers stay away from situations that would put them at risk of foreclosure. The Center for Responsible Lending also applauded the proposal, asserting that the bill would prevent the foreclosure of about 600,000 mortgage loans from 2009 to 2010.

However, the bill has not been endorsed by other banks. Worse, it has been opposed by industry groups such as the American Bankruptcy Institute and the Financial Services Roundtable. They argue that loan modifications would increase mortgage costs, as bankers would find ways to cover their increased risks.

Furthermore, according to Boyd, judge-ordered mortgage modification would encourage consumers to file for bankruptcy at the slightest indication of hardship and would increase losses by mortgage firms and credit-card lenders.

Nevertheless, Boyd is hopeful about the Federal Reserve’s decision to lower mortgage rates and acquire $500 billion worth of mortgage bonds. The action is expected to revitalize the housing market which has long been languishing in foreclosure.

ABI executive director Samuel Gerdano said ABI expects consumer bankruptcies to rise more swiftly throughout 2009 because of job losses, lack of job openings that match the skills of the unemployed, foreclosure problems and inabilities to pay credit card loans and other consumer debts.

Gerdano also said consumers have become more enlightened about the Bankruptcy Abuse Prevention and Consumer Protection Act. When the law was passed by Congress in 2005, there was a general consumer perception that the law made it very difficult and very unpalatable to file for bankruptcy. Before the law was implemented, the total number of personal bankruptcy filings increased by a record 32 percent as people rushed to get approvals before the law went into effect. In 2006, overall filings fell by 72 percent as people were informed about the adverse consequences of bankruptcy filings.

But consumers become more informed as they find ways to get out of their financial and foreclosure problems and survive. Chapter 7 bankruptcy filing was created to help extremely troubled consumer debtors get out of the pit and make a fresh start. After a debtor’s filing is approved, his assets are sold and the proceeds given to secured creditors and other priority creditors. All other debts unpaid after the payouts are cancelled.

Henry Sommer, an officer of the Consumer Bankruptcy Assistance Project in Philadelphia, said the foreclosure problem also contributes to the rise in bankruptcy filings as homeowners could not use their home equity to solve their financial troubles.

So far, all the federal programs launched to help reduce the number of foreclosed homes nationwide achieved little success. The Hope of Homeowners program administered by the U.S. Federal Housing Agency had only 69 applicants as of December 2008.

When a troubled borrower can no longer keep up with his mortgage payment and has suffered from a crippling financial loss such as unemployment, medical emergency or divorce, it is not unusual for him to think of bankruptcy as the best way to stop foreclosure.

If you are also considering such option, you should first be aware of some facts about bankruptcy. For starters, you should know that bankruptcy judges can reduce or even eliminate some of your debts but the total mortgage debt you owe and the existing interest rate cannot be altered. This means, that sooner or later, you will still have to deal with the entire amount you owe in mortgage loan.

Democrats and consumer advocates have been rallying behind the revision of existing bankruptcy laws in order to benefit distressed homeowners. If certain adjustments and changes could be made, it would become easier for homeowners to be free from their mortgage debts.

But for the Republicans and the entire mortgage industry, such change might drive interest rates up since lenders will be unwilling to take the risks involved. According to the MBA, mortgage rates could go up by as much as 1.5 percent.

For some experts, a bankruptcy filing can only be beneficial if it would allow you to eliminate some of your debts and help you focus on your mortgage payments. On the other hand, if you are just hoping that your mortgage can be reduced or eliminated, then you are looking at the wrong option. You might want to consider a loan modification instead.

It should be clear to troubled borrowers that a bankruptcy option can only be explored if you are only planning to walk away from your mortgage debt even if you have an above average income and could actually afford it. Under the present bankruptcy law, you can only declare a Chapter 7 bankruptcy under special circumstances.

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