Chapter 13 Mortgage Lien Strips.

[HHM]

I am new to BKForum and may be missing something but wasn't there a bill floating to the House Judiciary Committee that suggests allowing Chapter 13 trustees to modify primary residences? I have heard very little about this recently (just the Obama mortgage plan is discussed - which appears to be a lot of hot air). It doesn't make a bit of sense that someone may modify a vacation home loan and not a primary residence in Chapter 13. BTW- we are in pre-filing stage (dark days) and BKForum has been very informative! Thank you.

Yes, see this thread

http://www.bkforum.com/showthread.php?t=34932

But nothing has passed yet as of writing this post.

[sirlostalot]

I am new to BKForum and may be missing something but wasn't there a bill floating to the House Judiciary Committee that suggests allowing Chapter 13 trustees to modify primary residences? I have heard very little about this recently (just the Obama mortgage plan is discussed - which appears to be a lot of hot air). It doesn't make a bit of sense that someone may modify a vacation home loan and not a primary residence in Chapter 13. BTW- we are in pre-filing stage (dark days) and BKForum has been very informative! Thank you.

[TooMuchCredit]

I just got informed that lien stripping is not done in my district - Northern Georgia. Has anyone here actually stripped a lien in N. Georgia so I can prove the contrary? I thought the rulings had said they were allowable throughout the 11th circuit, but maybe it still varies by district?

[HHM]

So if I understand correctly,

If a property was initially a primary residence, then converted to a rental a few years later, the stripping would "NOT" be an option because the original loans were for primary residence purposes.

Correct, for the most part.

If an inferior lien has ZERO value you can still strip it. Also, if you can afford to pay the value of a crammed down inferior lien, you can still cram it down. What you would not be able to do is cram down the first on a home you owned for which the loan was stated as primary residence even if you later moved from the property and rented it. The rule for primary residence is the "intent of the loan".

[BKFreedom]

So if I understand correctly,

If a property was initially a primary residence, then converted to a rental a few years later, the stripping would "NOT" be an option because the original loans were for primary residence purposes.

[HHM]

It is very interesting information. Thanks.

Can you please clarify the statement you write:

"Note, these rules do not apply to investments properties, you can modify the mortgages of investment properties in a chapter 13."

The chapter 13 section of the BK code specifically restricts what you can do with the mortgages on your "primary residence" (namely, you can't do anything with the 1st, and you can strip the 2nd only if there is no equity securing it, other than that, you cannot do anything to primary residence mortgages).

However, there is no such restriction on investment properties (i.e. rentals, flips, etc). Note, the original loan on these second properties must specifically state that the home was not to be a primary residence. Thus, you can modify and strip mortgages on investments properties. Although that sounds good, it is really not all its cracked up to be, because any action you take on these mortgages, must be fully complete within the 60 months of the chapter 13 plan. For example, if you have a rental property that is worth $150K but you owe $200K, you "can" cram down that mortgage, but the CATCH is, you must pay the cramed down amount ($150K) within the chapter 13 plan, i.e. within 60 months. And no, you cannot modify interest rate.

[BKFreedom]

It is very interesting information. Thanks.

Can you please clarify the statement you write:

"Note, these rules do not apply to investments properties, you can modify the mortgages of investment properties in a chapter 13."

[pcn]

Thanks, I will ask for both of those. For some reason I thought the court would use the Quick Sale Value is that right?

[HHM]

Is there anything specific to askfor, or is asking for a CMA enough to let the realtor know what I need? Do I need to specifiy that it is for a quick sale, or within a certain time frame?

It is my understanding, that CMA's have there own internal criteria (but I am not a real estate agent, so I don't really know for sure). But there is no harm in asking for both a Current Fair Market Value, and then a Quick Sale Value...(Quick Sale value tends to simply be minus 10-20% off of Fair Market Value).

[pcn]

Is there anything specific to askfor, or is asking for a CMA enough to let the realtor know what I need? Do I need to specifiy that it is for a quick sale, or within a certain time frame?

[HHM]

Is it normal to have to bring the realtor to court to testify? I was told by an atty that if we did the lien strip we would need someone to testify rather than simply a written appraisal.

If the lender contests the valuation, then yes. If not, then usually no.

[pcn]

Is it normal to have to bring the realtor to court to testify? I was told by an atty that if we did the lien strip we would need someone to testify rather than simply a written appraisal.

[HHM]

Do banks typically challenge the real estate assessment, i.e., if you go into BK court and say your house is worth less than the first, is that challenged?

Generally not, but since you are the moving party (i.e. the one requesting the strip down), the burden is on you to present credible evidence of the homes worth. A zillow.com or other web based valuation is not sufficient. At the very least, you need a realtor to do a CMA (Competitive Market Analysis).

[mfez]

How Hard is This Issue to Litigate?

Do banks typically challenge the real estate assessment, i.e., if you go into BK court and say your house is worth less than the first, is that challenged?

[HHM]

As to

#1. That is fine. You don't have to wait, but there is no harm in waiting either. The true cut-off would be "confirmation".

#2. I am not 100% sure. I can certainly understand why your attorney thinks that. (the foreclosure costs, escrow deficiencies, and fees are contractual obligations as part of the underlying mortgage contract but not, strictly speaking, part of the secured debt). Past dues (arrears) do not get "added" to the principal as part of the valuation (the bulk of the payment is interest anyway), those are payments you should have made but didn't, they don't increase the amount actually owed on the lien. However, I would press your attorney for a justification and see what he/she says. But I believe your attorney is correct.