Much has been written since President Obama proposed giving Chapter 13 Bankrupcty Judges the power to “cram-down” home loans to current market value. Leglislation to do this passed the House of Representatives in March and is now stalled in the Senate.  The general impression in the marketplace has been that, other than for consumer debt such as boats and cars, cram-down was not available.  That might not be true.

Yesterday we wrote about how a little known legal filing under Bankruptcy Code 11 USC Section 506(a) may result in a cram-down of investment property valuation. This “506(a) Motion” as it has come to be called is used as part of a Chapter 13 Repayment Plan to do the consumer debt cram-down but most recently has found favor in reducing certain loans, particularly junior deeds of trust on investment property. See yesterday’s article for more.

An additional Code Section governing Chapter 13 Bankruptcies appears to also open the door for personal residence cram-downs when the loan must be paid off in a short time, such as a 5 year balloon loan. Under 11 USC Section 1322(c)(2), when the last payment of a loan’s original payment schedule for a loan secured only by the debtor’s principle residence is due before the date on which the final payment of the Ch 13 Plan is due, the Plan may provide for modification of the amount the lender claims is owed.  While this will not apply to everyone, anyone with a short term (ie: 5 years or less) payoff date on their loan needs to know about this.

If you or anyone you know is facing loss of their investment property or personal residence, make sure that they are getting competent and comprehensive legal advice that enables them to know where they stand and to formulate strategies to minimalize their risks and hopefully keep their property.

If you think that these cram-down Motions will benefit you in coping with your upside down properties, seek the advice of competent legal counsel as soon as possible to determine if you - and your property - qualify for this treatment.  If you have specific questions about your liability, foreclosure, or any legal issue, feel free to contact me at sjbeede@bpelaw.com.  Need help Coping with an Upside Down Loan? Checkout Steve’s audio-seminar and e-book at: http://www.stevebeede.com/copingwithanupsidedownmortgage/