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6 thoughts on “Bankruptcy Judges going rogue…

  1. Guys:

    Regarding the “cram down” issue with BK judges, it is my understanding ( although I do not handle Bankruptcies ) that the BK judge has the power to bifurcate the loan into secured & unsecured but only when it applies to investment property NOT THE PETITIONER’S PRINCIPAL RESIDENCE! Accordinly, they are not really changing the terms of the Note, they are merely changing the amounts on the Mortgage/ Deed of Trust specific to collateral.

    I may be misunderstanding this concept and, if so, please advise!!

    Bob Boudreau

    • Hey Bob it’s great to hear from you. We came across the rule about the investment homes but were surprised when we saw they were doing principals. Doug and I were concerned to learn this because it makes the constitution nothing but a page full of words. No one should be able to operate outside the laws and guidelines no matter if you were elected or appointed to the position. Still seems shady.

      Bob it’s great to hear from you. Keep intouch.

  2. I believe you are taking certain information out of context. The proposed revision from 2009, that did not pass, would have allowed the judge to cramdown the mortgage on a principal residence. This is not allowed under the current Bankruptcy Code and I am not aware of any instances where this happens.

    A “cramdown” of a mortgage that is secured by property other than the principal residence is allowed (i.e. second homes, investment property, commercial property, …). When a debtor seeks a “cramdown”, a motion is filed and the lender receives adequate notice and is given ample time to oppose the motion. Many times a lender will not even oppose the motion. If there is an opposition from the lender then a full evidentiary hearing will be held by a judge. The lender has the opportunity to raise issues such as if the property is a principal residence, the value of the property, interest rate, and such.

    This is not a mechanism that simply allows a judge to arbitrarily try to stick it to a lender. Also, the total of the debt is not simply wiped out or all converted into “unsecured debt”. The debt is split into two portions, secured and unsecured. The secured portion, which reflects the FMV of the property, still attaches to the property, while the unsecured portion receives the same treatment as the other unsecured debts.

    If you think about it, this places the lender in the same or better position than it would be in if the debtor simply decided to surrender the upside down property as part of their bankruptcy. If the property is surrendered, because it is too far upside down, the lender will ultimately foreclose on the property. Generally, a lender receives less than FMV at a foreclosure sale. Thus, the cramdown process allows the debtor to retain the property while giving the lender security to the actual value of the property, as opposed to the reduced value that it will most likely attain at a foreclosure sale.

  3. The previous post is correct from Shawn Christopher. The Cramdowns are done thru a Chapter 13 reorg. For investment properties only and the collective FMV of all the properties can not be more than 1.1 million. Concept: all creditors will be paid something but less than owed. In this case an appraisal is ordered & submitted to the court, the owner & mortgage company negotiate final value and new interest rate to be paid over the next 5 years.

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