Cramdown in Chapter 13!!

see Bradsher Cramdown in Chapter 13

This case is an example of why forensic audits need to go much further than they currently do. Brad Keiser’s Workshop on forensic analysis will focus on the important issues that are usually missed in TILA or other reviews.

As the case points out, the usual rule is that lien stripping and cram-down on residential loans in a Chapter 13 are not possible. BUT in this case they did exactly that. The astute lawyer read the documents. It turns out that the “security instrument” (mortgage or deed of trust, depending upon where you are) secured not only the payment of the note but also the payment of taxes, insurance and other things. Thus, the court reasoned that the debt COULD be bifurcated into secured and unsecured.

The debt was originally $65k, but it was reduced to $22k as against the property because that is all the property was worth. The rest was unsecured, subject to normal Chapter 13 plan and treatment. Thus the debtor/petitioner got to keep their home, make the payments on the new secured loan balance and treat the rest as unsecured debt.

Most mortgages seem to have similar provisions. Forensic analysts should look carefully at the wording, since a lawyer or expert evaluating the case would need to know if the mortgage is subject to cram-down in this fashion.

6 Responses

  1. Ditto what’s yours

  2. Drew

    Do you have the really smart lawyers in MN?
    I need to connect with you. What’s your e-mail?

  3. LA Dodger…….go back under the rock you came from. Your a juice box

  4. dont waste you money

  5. Just looking quickly at a couple of sections in my Deed of Trust, notice what actually can “become additional debt of Borrower secured by this Security Instrument”, which to me it does not appear in my case that “the claims are secured solely by a security interest in real property that is the Debtor’s residence”

    Quote from Deed of Trust:
    If Borrower fails to maintain any of the coverages described above Lender may obtain insurance
    coverage, at Lender’s option and Borrower’s expense. Lender is under no obligation to purchase any
    particular type or amount of coverage. Therefore, such coverage shall cover Lender, but might or might not
    protect Borrower, Borrower’s equity in the Property, or the contents of the Property, against any risk, hazard or liability and might provide greater or lesser coverage than was previously in effect. Borrower acknowledges that the cost of the insurance coverage so obtained might significantly exceed the cost of insurance that Borrower could have obtained. Any amounts disbursed by Lender under this Section 5 shall become additional debt of Borrower secured by this Security Instrument. These amounts shall bear interest at the Note rate from the date of disbursement and shall be payable, with such interest, upon notice from Lender to Borrower requesting payment.

    Note that I maintained insurance coverage and still maintain insurance coverage (with no lapse) even though the servicer asked the insurance company to “remove the insurance and send any refund back to the servicer” … The insurance company refused and the servicer still force placed insurance.

    Another quote from Deed of Trust:
    Any amounts disbursed by Lender under this Section 9 shall become additional debt of Borrower
    secured by this Security Instrument. These amounts shall bear interest at the Note rate from the date of
    disbursement and shall be payable, with such Interest, upon notice from Lender to Borrower requesting payment.

    Dan Edstrom
    dmedstrom@hotmail.com

  6. Neil and Brad,

    I might also add that I am doing more research into the actual “security interest” that is supposed to be on file in the form of a UCC-1 statement at the Secretary of State’s office. A lot of borrowers are having trouble finding them. I would think if the original lender was paid in full at the time they sold the note, that the “security interest” would have to be updated and perfected in order to be legitimate, as the original creditor was paid in full (or replaced with a new security filing). This mechanism should also be part of a forensic audit.

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