What is a Mortgage Cram Down?

If you’re considering Chapter 13 Bankruptcy because you want to save property you might have already heard of a “mortgage cram down” which can save you a great deal of money on loans. Some of our clients have even had fears about this term, as they thought it might mean they would be required to make a huge lump sum payment on their mortgages before they’d be allowed to enter the bankruptcy process.

Fortunately, the cram down is way more beneficial to consumers than that, even if they are not available on your primary residence. You can only use them on vacation homes and rental homes you may own.

The cram down aligns the amount of money you’ll be asked to pay with the actual value of the property. It is a form of loan modification available to individuals whose mortgages are due to be paid off in three to five years. In other words, you’re eligible if you could potentially pay off this loan during the course of a normal Chapter 13 bankruptcy.

Cram downs are beneficial if you are upside-down on a loan. If you owe $75,000 on a home that’s only worth $50,000 the cram down will essentially treat the $25,000 difference as unsecured debt, then build the payment of the remaining $50,o00 into your Chapter 13 payments.

The value of the home must be proven, which means you’ll need to get an appraisal done.

How does one end up with an underwater mortgage so close to the finish line? Home values do drop, sometimes with surprising speed. It can happen through no fault of the homeowner. Factors which could impact the value of a home include having a large number of foreclosures in your neighborhood, increased mortgage rates and natural disasters which wipe out surrounding homes and businesses.

Home values can also drop in response to population shifts. If your city suddenly loses thousands of jobs and people start moving to find work elsewhere your home value could drop just because nobody is buying. Housing prices are very sensitive to supply and demand.

When you cram down a mortgage the debt is considered paid in full at the end of any bankruptcy plans. Your attorneys will include language in the cram down proposal which ensures your mortgage lender releases any liens at the end of the plan.

Like any part of the bankruptcy process there are no guarantees. Judges do not automatically award cram downs. If you’re someone who owns multiple properties you need a bankruptcy attorney more than ever. Your situation is complex, and you need someone who can help you sort through the bigger picture and attain all the relief you can get.

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