Home > Research Legal Advice > Bankruptcy / Chapter 13 > Anyone in CA succeed in bifurcating a non-residential mortgage loan in c...
Asked almost 3 years ago - San Diego, CA
FlagI've read a few blogs that say the courts can cram down principal on the 1st mortgage of a rental property to it's current market value if you can pay it off in 5 years. So my question is, if you qualify for chapter 13, how does the court determine CMV and has anyone accomplished this recently? I'd just like to know how much disposable income one would need to have to ask the court to reduce a 163,000 principal to 100,000 or so. The unit is occupied and the tenant wants to sign another year lease. His rent payment covered the first mtg and property management fee, but when I added the second, HOA, insurance, and RE taxes, I would lose $477/month.
First, valuation of your rental property is not tied to your disposable income or the cash flow from the rental. The valuation is determined independently by the fair market value. This can be determined by a combination of comparables, appraisals and your testimony. You want strong evidence of the value if you are going to cram down a rental.
Once the value is determined, you have to show that you have enough disposable income to sustain the required payment for the duration of the plan. For example, if the FMV on your rental is $120,000, you would have to pay at least $2,000 per month for 60 months just to pay for that claim. Plus you have your other monthly expenses you need to cover over and above the rental.
Far too complicated of a subect to cover on AVVO. Speak with an attorney right away. My colleague Carl Starrett is located in your neck of the woods, and is a well respected bankrutpcy attorney. I placed a link to his website below. Good luck.
This information is not, nor is it intended to be, legal advice. This does not constitute the formation of an attorney-client relationship. You should consult an attorney for individual advice regarding the specifics of your situation. JC Law Group is a debt relief agency. We help people find relief by filing bankruptcy in California under the Bankruptcy Code.
What you are describing is not possible in a chapter 13. The only way to accomplish this cramdown is in a chapter 11, however, the costs are much higher, significantly higher. You are looking at $25,000 to $45,000 depending on numerous factors in legal fees alone.
Your question really needs to be answered on a consultative basis by an experienced chapter 11 bankruptcy attorney (not a bankruptcy mill) as there are many complexities associated with this type of proceeding.
Feel free to call my office and set up a free phone consultation with me to discuss.
Cram downs are possible in Chapter 13 so long as the property is used for a purpose other than as a primary residence and so long as you pay the outstanding balance within the 5 year term of the plan. If a property is a multi unit residential property where the owner/ debtor occupies one unit and rents the others, the rental income makes the use of the property other than as a primary residence and the mortgage debt can be stripped down to the current value of the property. The value of the property would need to be determined by a professional appraiser.
As for the amount of disposable income you would need, I do not have enough information about your monthly income and expenses to answer that. If you were to pay off a $100,000 balance in five years, your monthly payment would need to be around $1666.66. In addition, the other expenses of home ownership would need to be paid as would payments towards any other debt under your Chapter 13 plan.
Cram downs are allowed on real property so long as it is not the primary residence OR the lien also covers other things. In this case, it would be appropriate for Chapter 13. Some attorneys in other states have managed to get the entire note rewritten and reamortized.
[This communication is intended as general information and not specific legal advice, and this communication does not create an attorney-client relationship.]
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