Cramming Down Mortgage Liens: The Plot Thickens

cutting mortgage to sizeCan you afford to cram down a mortgage when cram down is permitted?

Mortgages on a debtor’s home are protected from cram down in Chapter 13 by 1322(b)(2). Mortgages on any other kind of real estate can be reduced to the value at filing of the collateral securing the debt as of the date of the filing of the case.

The practical dilemma posed by cramming down partially secured mortgage liens in Chapter 13 for us in the 9th Circuit has been the decision in Enewally. The debtor’s plan sought to reamortize the reduced claim over the remaining loan term. Enewally held that the reduced secured claim had to be paid in full during the life of the plan.

With the constriction of mortgage lending that has put refinancing out of reach and the BAPCPA provisions that secured claims be paid in equal installments, the real world utility of the right to strip down a lien is highly restricted.

So, I was tickled to see the court in Elibo, 447 B.R. 359 ( S.D. FL 2011) , hold that the debtor could reduce the debt to the current value of the collateral while maintaining the term of the loan.

Elibo is a trial court opinion outside of the 9th Circuit, so it has no immediate answer to the issue here in the 9th, but it is a beginning on what I hope is a judicial dialogue about cram down and long term debts.



  1. Robert E. Brien says

    Maybe Congress ought to amend the Bankruptcy Code immediately (versus every three years) to increase the limits for unsecured debts from $360,475 (next Congressional amendment to this limit is scheduled for April, 2013). That would help out California and every other state that have expensive bankruptcy estates. Of course, the housing bubble crisis will be over by then (LOL).

    See also “In re Smith, No. CC-09-1321-DMkJa (9th Cir. 07/08/2010)” for a more recent case of lien stripping in California that addresses 1322(b)(2).

    • Cathy Moran says

      Or by statute or from the bench, exclude consensual debt that is represented by a lien from the secured debt calculation. In an era after the super discharge, there seems little reason to restrict access by individuals toe Chapter 13.