Can part of the mortgage on the primary residence be considered non-consumer debt?

[BarkingCat]

One for the lawyers & experts!

Is anyone familiar with cases where any part of the first mortgage on the debtor’s primary residence was considered non-consumer debt?

Specifics: I did a cash-out refi of my primary residence in 2007 (I still live there) that funded payment of back (state) taxes and my enrolled agent’s fee for filing an OIC.

I’m hoping to file a non-consumer 7, currently interviewing attorneys. The one I’m leaning toward hiring insists that the first mortgage on the primary residence is always consumer debt, no exceptions. His firm handles a fair number of non-consumer cases and he’s a trustee (though not in my district) so I’m inclined to believe him… but thought I’d throw the question out there.

Many thanks!

[angles]

Just some thoughts…you could argue that a % of your home was used in the course of the business and should be considered non-consumer, but I am certain that the trustee would ask questions about it – especially if the numbers show you are close to being a consumer filer. If your past tax filings show part of the house was used for business then that would support your case and you could possibly breakdown the amount owed stating that % A is consumer and % B is non-consumer based on those tax filings. But it would a difficult road to go down because the loan itself was issued as a consumer loan. In that case, perhaps an argument could be made (by the bank/trustee) that the loan should be considered fraudulent because you applied for it as a consumer and therefore is not dischargeable? I’m not really sure (sorry if I am not helping), but I find it an interesting question.

[justbroke]

If you refinance your home and use a percentage for business purposes or non-personal (non-household) purposes, you could list that portion as non-consumer debt. You will need to demonstrate that the funds were actually directed to the taxes, if you are challenged.

From my experience, this is no different than refinancing and using a portion or all of the proceeds to start a business. The only problem is that there are some in the Office of the United States Trustee that will fight you on this, especially when you are over-the-median and claiming a non-consumer case. As for District-specific issues, some U.S. Trustees (USTs) will look solely at the Security Instrument (Mortgage/Deed of Trust) and check the Riders to determine if it was purchased (or re-financed) as an owner-occupied residence. They would use that as the basis for their argument that the entire debt is consumer. However, you'd need to challenge the UST's complaint to dismiss and show evidence that the refinance was used to pay for non-consumer debt.

[BarkingCat]

Many thanks for your insights, justbroke; they're always helpful.

If you refinance your home and use a percentage for business purposes or non-personal (non-household) purposes, you could list that portion as non-consumer debt.

That was my line of reasoning, too. The only related post-BAPCPA case law I’m aware of is Jones, which does seem to support that argument.

You will need to demonstrate that the funds were actually directed to the taxes, if you are challenged.

Definitely. I’ve got the records, cancelled checks, etc. If needed, I’m certain I could get an affidavit from my EA stating that she recommended the refi as a way to fund her fee for submitting the OIC and pay off some taxes we were not including in the offer.

The only problem is that there are some in the Office of the United States Trustee that will fight you on this, especially when you are over-the-median and claiming a non-consumer case.

And therein lies the rub: I need to find an attorney who’s willing to fight that battle. I'm sure I will eventually but for now, I'm still looking.