investment property

[mtgbk2008]

I own a rental property value is $350k, loan is $430k, upside down. if I file BK Chap13, does anyone can answer my question: If judge will ask lender modify my loan: reduce priciple to $350, and possible to reduce my interest rate as well? Thank you.

[justbroke]

I own a rental property value is $350k, loan is $430k, upside down. if I file BK Chap13, does anyone can answer my question: If judge will ask lender modify my loan: reduce priciple to $350, and possible to reduce my interest rate as well? Thank you.

No, Judge won't necessarily do that. Some were able to modify the terms, but I know that I did get some grief from the lender on my investment property. Combine that with the Trustee wanting to get more for unsecured creditors.

For you to keep that rental property, it would have to 100% pay for itself (complete "debt service"). You cannot have a business, as that what it will be treated as, where you are losing money. While you can keep it, you need to make sure it 100% pays for itself.

Having wrote all that, in order to get to force a cramdown of the principal on your investment property, you may have to file a motion to value and you may have to payoff the mortgage in the 5 years of the Chapter 13.

[mtgbk2008]

Thank you for the information.

If I have all the money to pay off the mortgage in 5 years, I think I won't file BK. It is upside down, I am losing money, even though I put down payment. I hate to lose all my down payment, 20%.

Are you sure if the lender modify the loan, and I have to pay it off in 5 years?

Thank you.

[HHM]

1. You can modify the "balance" of the loan in a chapter 13, you can also modify the interest rate of the loan. But here is the CATCH. In order to get that benefit, you MUST pay the value of the cramed-down amount WITHIN the chapter 13 (meaning, within 60 months).

2. The judge is not going to negotiate a modification of your mortgage, that is up to you.

[bkause]

I am meeting an Attorney on Wednesday to discuss this exact situation. Can the Judge Cram Down the 1st mortgage leaving the existing interest rate in place? Or do you have to negotiate the Cram Down with the Bank along with the rate?

[justbroke]

I am meeting an Attorney on Wednesday to discuss this exact situation. Can the Judge Cram Down the 1st mortgage leaving the existing interest rate in place? Or do you have to negotiate the Cram Down with the Bank along with the rate?

The key to cramming down a first mortgage on an investment property, will probably come down to whether you would need to pay off the "secured value" over the duration of the Plan (60 months).

Now, there are exceptions to the rule, but I wouldn't get all excited about this. Besides, you will probably need to pay 100% to unsecured creditors or the value of the property anyhow.

Let us know what your lawyer thinks.

[mtgbk2008]

I am meeting an Attorney on Wednesday to discuss this exact situation. Can the Judge Cram Down the 1st mortgage leaving the existing interest rate in place? Or do you have to negotiate the Cram Down with the Bank along with the rate?

Please let me know how it goes. I have not even started the process yet. I am really scared about bk. My husband and I are never late on any of our bills, but these days we noticed it seems the rules always punish good, and reward bad, so we might have to being bad in order to get help...

Thank you

[mtgbk2008]

1. You can modify the "balance" of the loan in a chapter 13, you can also modify the interest rate of the loan. But here is the CATCH. In order to get that benefit, you MUST pay the value of the cramed-down amount WITHIN the chapter 13 (meaning, within 60 months).

2. The judge is not going to negotiate a modification of your mortgage, that is up to you.

Would you please explain which part we must pay off within 60 months, for example, if the loan amt is $430k, value is $350, if the loan reduced to $350k at the court, it means we have to pay off the differences $80k within 60 months? correct?

Thank you.

[justbroke]

Would you please explain which part we must pay off within 60 months, for example, if the loan amt is $430k, value is $350, if the loan reduced to $350k at the court, it means we have to pay off the differences $80k within 60 months? correct?

No, you would have to pay off the principal (the $350K). The majority opinion, at this time, is that a cramdown of any secured debt requires the debtor to address the entire amount in their Plan over the Plan's duration. This can be achieved through refinance at the end of the Plan (sort of like a balloon payment) , or paying down the entire balance (the secured portion) by the end of the Plan.

I haven't heard of many of these because of the restrictions. You might be able to get a stipulation from the creditor to allow a modification to do this (and extend beyond the life of the Plan). However, for a Judge to change the terms beyond the life of the Plan... is just not common. I can't think of one case... and I looked because I had an investment property that I wanted to modify the terms on.

[mtgbk2008]

No, you would have to pay off the principal (the $350K). The majority opinion, at this time, is that a cramdown of any secured debt requires the debtor to address the entire amount in their Plan over the Plan's duration. This can be achieved through refinance at the end of the Plan (sort of like a balloon payment) , or paying down the entire balance (the secured portion) by the end of the Plan.

I haven't heard of many of these because of the restrictions. You might be able to get a stipulation from the creditor to allow a modification to do this (and extend beyond the life of the Plan). However, for a Judge to change the terms beyond the life of the Plan... is just not common. I can't think of one case... and I looked because I had an investment property that I wanted to modify the terms on.

Thanks for your explaination. You are right, The only way to pay it off within 60 months, is refi, hopefully by then the value is up, otherwise no lender will refi investment property at LTV100%. Or sell the house at least $350k?

It seems nothing and nobody is helping Amreican people, we are stucked anyway, so sad...

[HHM]

How this typically works is an outside investor is brought in to buy out the property from the chapter 13 plan. In your example, you would need to pay the $350K within the plan.

You will have a tough time getting a chapter 13 plan confirmed with a provision that calls for the refi of the investment property at the end of the plan. The lender will want significant adequate protection and you will need to make the mortgage payments in the mean time.

[CH33 Paralegal]

The judge won't do that. The judge WILL ask you why you want to hang onto an asset that is over 100K underwater though. It will be a faith issue

[bkause]

Please let me know how it goes. I have not even started the process yet. I am really scared about bk. My husband and I are never late on any of our bills, but these days we noticed it seems the rules always punish good, and reward bad, so we might have to being bad in order to get help...

Thank you

The attorney said that investment properties could not be lien stripped. I don't know if he was correct or not. I may pay for another consultation down the line. I have a loan modification request in with my lender to see if they will make my mortgage more affordable long term. I have an ARM so hopefully I won't have to BK.

[justbroke]

The attorney said that investment properties could not be lien stripped.

You probably mena crammed down, but they can be crammed down and/or lien stripped. The same section of the code which allows it on primary residences is much less stringent on other real property. (It's actually hard on primary residences to lien strip, and there are no cram downs on primary residences.)

I don't know if he was correct or not. I may pay for another consultation down the line. I have a loan modification request in with my lender to see if they will make my mortgage more affordable long term. I have an ARM so hopefully I won't have to BK.

Look for another attorney who understands lien strips.

But again, it's more difficult on investment properties because a.) the structure of the mortgage on them is usually that an investment property only has one mortgage (no seconds), and b.) you'd have to payoff the entire crammed down value during the Plan life.

[bklawn]

No, you would have to pay off the principal (the $350K). The majority opinion, at this time, is that a cramdown of any secured .

justbroke, are you saying that if I have a investment property with a balance of $37,000. I can cram that down in a chapter 13.. That being the FMV which is about $25,000. So. $25,000 over 5 years.