2nd on Prop Bought as Primary, then Converted to Rental

[DecentHuman]

Hi,
I'm new to the forum. If I bought my home as my primary residence, then got a 2nd mtg HELOC, then converted it to a rental, and I owe 88k on 1st and 60k on 2nd and it's worth $130k, can I cram down the 2nd because it's an investment property now? Or what are my options? Thanks!

[BKParalegal]

The value of the house has to be equal to or less than the amount of the first loan to do a strip off. Based on your numbers, the home is worth more than that, so you wouldn't be able to do it.

Good Luck

[HHM]

Second: The home, if it was bought as a primary residence will ALWAYS have that status for purposes of BK. The intent of the loans (i.e. what you put on the loan declarations) is what determines the status of the property. If the HELOC was taking out and you designated the property as primary residence, it is not an investment property for purposes of a BK.

But, let's assume it is an investment property for a second, keep in mind, you must pay the crammed down value INSIDE the chapter 13 plan. So, based on your numbers, to cram down the 2nd, your chapter 13 plan would need to pay 42,000 to the second mortgage in 60 months or less.

Not that I am a real estate expert, but I suspect you have an overly optimistic valuation, you want to get a Current Market Analysis from a Realtor, and inform them you need a price that could sell the property in 30 days or less.

[DecentHuman]

REALTOR Stripping and Cramming

Wait, that didn't sound good

Anyway, I am a REALTOR, but I didn't realize for BK purposes the valuation was based upon what the property could bring in 30 days.

So do I have this right? On a primary residence, you can lien strip if the current property value is below the value of the first mortgage.

On an investment property, you can cram down the first or second to the current market value, but must pay off the crammed down mortgage within the ch 13 bankruptcy period.

Thanks.

[justbroke]

So do I have this right? On a primary residence, you can lien strip if the current property value is below the value of the first mortgage.

Yes! You can strip off the subordinate liens if the value of the property is less than the balance on the first mortgage.

On an investment property, you can cram down the first or second to the current market value, but must pay off the crammed down mortgage within the ch 13 bankruptcy period.

Yes. However, you would generally need to pay off the crammed down mortgage during the commitment period.

[DecentHuman]

Thanks!

Gotcha justbroke, thanks!