“Cram Down” Bankruptcy Laws to Help San Diego

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New Bankruptcy Laws may soon go into effect to relieve San Diego County’s underwater real estate market, wherein mortgages may be modified or “crammed down” by Bankruptcy Judges. In the first week of March, 2009, the House of Representatives passed the long overdue Bankruptcy “Cramdown Bill” (a mortgage modification bill) by a vote of 234 - 191, otherwise known as H.R. 1106.

This new legislation will allow Bankruptcy Judges the discretion to modify the mortgage principal balances on primary residences, in addition to completely removing most other junior deeds of trust. In the past, virtually any secured debt on the planet could be modified, unless it was the principal residence. It made no sense whatsoever. But now this new legislation may bring equity to the modification of secured debt. The following example shows how this new legislation could possibly play out in a Chapter 13 case involving a family from South San Diego County.

Joe and Jill bought a home in South Bay for $1,000,000.00 in January, 2007. They received a stated income/stated asset loan, and put no money down. They have a 80% first to Countrywide and 20% second to New Century. Two months after the purchase, the wife was laid off and the husband’s income recently slashed in half due to the economy. Their income went from $14,000 per month now down to $5,000 per month. They have 3 kids and are financing two vehicles. They have amassed $250,000.00 in credit card debt just robbing peter to pay paul and stay in their home. The house is now worth $450,000. They could just walk away from the home and under CC 580b, the lenders could only pursue the property. THERE IS NO RECOURSE AT ALL AGAINST JOE AND JILL. So why not walk?

Read the full article at: Bankruptcy Law Network

Date published: Mar 08, 2009

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