Chapter 13 Mortgage Cram-Down On Multi-Family Building When Debtor L...

Chapter 13 debtors can cram-down the value of mortgages on properties other than their principal residence. The debtor initiates the process by filing a motion to value the underlying property. If the property is under water the court will modify the mortgage to reduce the loan balance to the current property value.

A Florida bankruptcy court considered a motion to value on a debtor’s duplex. The debtor lived in one unit and rented the other unit. The issue was whether the property was whether the property is ineligible for valuation and mortgage reduction because the debtor lived in one of the units, or whether the property was an investment eligible for valuation.

The court said that when a debtor resides in part of a multi-unit building the cram-down requests must be examined on a case by case basis with particular attention to the loan agreement. The court must focus on the predominant character of the loan transaction to see what the lender bargained for.  This judge noted that the debtor’s mortgage documents do not require the debtor to occupy the property at all, and therefore the predominant character of the transaction is that of a commercial loan. The court said that this commercial loan could be crammed down even though the debtor lives in one unit. In re Zaldivar Case No. 10-34719-BKC-JKO