Will this work? Using an entity to avoid 1322(b)(2) bar on modifying mortgages on personal residence.
Posted: Thu Mar 28, 2013 6:54 pm
It might work if the entity was old and was on title for a long time, but a xfer to a new entity is violative of the new debtor syndrome. I would not advise a person to create an entity at purchase of a home, just on the off chance the market fell. It costs $900 a year to keep the franchise. One could lose $20k waiting for an opportunity to do a lien strip.
D
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On Mar 26, 2013, at 6:23 PM, Alik Segal wrote:
> Assume an individual purchased a residence together with a wholly owned entity as cotenants or joint tenants. The entity might receive title as a "gift" or might contribute money towards the downpayment.
>
> In any case, a few years later, after the property went up and then down in value in a boom/bust cycle, it now has negative equity.
>
> 1. Could the owner cause his entity to file a chapter 11 bankruptcy case and cramdown on the first mortgage? Since the corporation does not have a residence, and since the individual who resides in the collateral is not a debtor in bankruptcy, it appears that section 1322(b)(2) ban will not apply. Would this planning allow one to avoid both the need to file bankruptcy and the need to move out of personal residence?
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> 2. Does this have any real property law or tax law implications?
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> I have not been able to find any cases on this issue.
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> --
> Alik Segal
> Alik.Segal@gmail.com
> 310-362-6157
> California Central District
>
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