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Stripping lien on non-principal residence
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I'm not a Chapter 13 guru at all, but I distinctly recall cases saying that
if you are stripping a lien to less than 100% unsecured, then you MUST pay
the remaining secured obligation in full over the life of the plan. It
seems to make sense. If you are modifying a $400K loan down to $300K over
the creditor's objection what are the payments over the remaining 25 years
(or whatever) of the "new" (remaining) loan based on? The $300K principal?
The $400k?
That's also why (I think) the new proposed legislation had to define what
the parameters of a re-write can be (i.e. 40 year amortized fixed at prime +
"risk"). The idea of stripping part of a loan and not paying it off within
the plan is foreign to Chapter 13, right now. Am I wrong?
-Jeffrey B. Smith
CURD, GALINDO & SMITH, L.L.P.
301 East Ocean Blvd. #1700
Long Beach, CA 90802
(562) 624-1177
(562) 624-1178 fax
(310) 993-6560 cellular
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Here's a 9th Circuit case that I believe says debtor has to pay a stripped down lien in full within the five year period (not just any arrearage), even though the original terms of the loan were longer than that. In re Enewally, 368 F3d 1165 (9th Cir.), cert denied, 543 U.S. 1021 (2004). A 2nd Circuit case to the contrary is In re Bellamy, 962 F.2d 176 (2nd Cir. 1992).
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If a debtor files a motion to value on an investment property (not principal
residence) and in so doing eliminates the 2nd mortgage, and reduces the
first mortgage down to the value of the property, let's say FMV=$300,000,
how does that remaining $300,000 get treated in the plan? Must it be paid
in full in Class 3 during the 5 years or is there some way to re-amortize
it over 30 years? I don't see a Class that it fits in.
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