Using the Bankruptcy Cram Down to Save Investment Property

Ch. 13 Bankruptcy can provide the principal reduction and debt restructuring that can help save investment properties.

Many clients come in to my office seeking assistance with modifying their investment property mortgages. The first question I am usually asked is “will the bank reduce my principal down to what the property is worth?” The answer is that meaningful principal forgiveness is very rarely offered in conventional “HAMP” or “Proprietary” modifications. Unfortunately, this results in investment properties becoming unaffordable and impossible to maintain. However, these clients are often amazed when I advise them that they can cram the mortgage loan amount down to the fair market value of the property in Ch. 13 Bankruptcy.

A “cramdown” in a Chapter 13 bankruptcy enables the borrower to reduce the principal balance of a mortgage loan down to the actual market value of that property. While this Chapter 13 cram down may be utilized to save a car, boat, or other property, the benefits are best realized in saving investment real property. The catch is that most courts require that the balance be paid off in the 5-year Ch. 13 payment plan. However, there may be exceptions and an attorney should be consulted to determine and explain your options.

For those borrowers in South Florida who may benefit from and are considering the cram down, the time is now for doing so because property values in Broward & Palm Beach counties have been rebounding substantially in recent months. As the values go up, so does your potential balance under the Ch. 13 cram down. Also, the bankruptcy case can be filed and initiated at any point; whether you are current on the mortgage or in foreclosure.

If you have questions about Foreclosure, Loan Modification, Bankruptcy, Short Sale, or other alternatives, please feel free to call my office at 888-886-0020, send an e-mail to emil@fleysherlaw.com, or complete the contact form below.