Cramdown on a 1st mortgage for rental property?

[Ren430]

Does anyone have experience with cramdowns on a first mortgage for a rental property? I bought a house with my first husband, kept it after we got divorced, refied it into my own name, and then the market plummeted. I've been renting it out (on paper) for over a year now. I've since remarried and live in my husband's home, which he owned before we got married. I have been paying rent to him. I am hugely upside-down in this house. Its worth $344k. I owe $428k on the first, and 89k on the second. I am fair game for a deficiency judgement in CA if I walk away because the loan is refinanced (no longer purchase money loan). From what I've heard, I should be able to strip away the second. I've read on a few legal sites, that you can possibly cram down the first on a rental or investment property. Does anyone know anything about this? I emailed my attorney about it and he thought it might be a good point. I'm wondering how a rental property is defined, like if there is a timeline. I'll be so relieved when I at least know what I have to do. Sleepless nights are getting old.

[forgotten]

Does anyone have experience with cramdowns on a first mortgage for a rental property? I bought a house with my first husband, kept it after we got divorced, refied it into my own name, and then the market plummeted. I've been renting it out (on paper) for over a year now. I've since remarried and live in my husband's home, which he owned before we got married. I have been paying rent to him. I am hugely upside-down in this house. Its worth $344k. I owe $428k on the first, and 89k on the second. I am fair game for a deficiency judgement in CA if I walk away because the loan is refinanced (no longer purchase money loan). From what I've heard, I should be able to strip away the second. I've read on a few legal sites, that you can possibly cram down the first on a rental or investment property. Does anyone know anything about this? I emailed my attorney about it and he thought it might be a good point. I'm wondering how a rental property is defined, like if there is a timeline. I'll be so relieved when I at least know what I have to do. Sleepless nights are getting old.

If you cram down the first mortgage it needs to be fully paid off durring your CH13, so you would need to pay $344k durring your CH13, and that would only be allowed if you were paying all unsecured creditors at 100% which would include the second lien holder and any other debt you have.

So... its not exactly realistic.

[justbroke]

Exactly what frogger wrote is the process in my Florida District. For most, unless the investment/vacation home is really close to paying off... it's usually unrealistic. For a $344K home, that's over $5,000 a month to pay it off, or the lesser of 100% to unsecured creditors or $5,000. That's a lot of money. Perhaps you have it.

Personally, you should just let it go. It's an investment that just didn't pan out. Cut your losses and run, not walk. Besides, even if you did cram down the mortgage value, the "unsecured" portion will be just that, unsecured. It will be lumped in with the other unsecured debt, making your unsecured pool a minimum of $173K! You could literally end up paying for it anyhow.

A lien strip on the second would be the next "test". Alas, being $84K or about 25% (of $344K) under, is not something I recommend to anyone do, so that's not an option in my book.

That leaves you with the third option. Surrender.

[Ren430]

So if I let it go, let them come after me, and then file...would that be best, or can I just let it go in Chapter 13, (be proactive)?

[TexasEx]

Either way would work. The problem with letting them come after you could be that it will ruin your credit and then you could have problems with interest rates on credit cards shooting through the roof. The sooner you get it over with the better. That was our opinion. You could gamble and see, but do you really want to take the chance? We surrendered our rental in our 13 (case was confirmed earlier this month). Not a peep from the bank since. It has been almost one year since we stopped making payments and who knows how long the bank will take to foreclose, meanwhile we continue to get rent money on it

[Ren430]

Was the rental income considered in your plan for the trustee? I'm also considering short sale, because I don't have a ton of dischargeable debt other than the house. Hope all works out well in your situation.

[justbroke]

Rental income is considered inasmuch as it offsets your secured debt payments on the rental property. In other words, you must be making enough rent on that unit to cover all costs for that unit, including, but not limited to, mortgage, tax, insurance, upkeep, turnover, etc. You cannot have a "negative" income from the rental in any way.

[TexasEx]

Like justbroke said, in our case because the rent was more than $800 a month less than the mortgages and expenses (!) the rent income did not count towards our plan. Obviously we will stop receiving the rent at some point in the future, but who knows when. Given that the house is in one of the epicenters of the housing meltdown (Nevada) it could be up to another year before they foreclose on the house.