My beautiful balloon (mortgage)!

Balloon mortgages are not a common form of financing for a primary residence. However, during the hot real estate market in Orlando, such financing arrangements were more frequently made.  For those homeowners in Orlando who may have financed the acquisition of their residential home with a balloon mortgage, a little known provision of the bankruptcy code may bring relief

I have previously written that while investors may “cram down” the balance of a mortgage loan to the fair market value of the property, congress in its infinite wisdom has denied this remedy to homeowners.    However, the cram down remedy is available to homeowners who have mortgage loans that are scheduled for the last payment to occur during the applicable period of a chapter 13 bankruptcy plan. Such plans may be from three to five years.  This means that if you have a mortgage loan that ends any time during the next three to five years, you may qualify for a “cram down” of the balance of the mortgage loan for your home.  This is the “holy grail” solution that homeowners with underwater homes have been seeking, and it may be available in a chapter 13 proceeding.

So, the “cram down” remedy is available to balloon mortgages that become due during the next three or five years.  It also applies to those balloon mortgage loans that have already become due, because chapter 13 also allows a homeowner to cure any default in their mortgage.  Finally, even with a conventional mortgage loan, if you are in the final years of repayment and your loan ends during the next three to five years, you may be elgible to have the balance “crammed down” in a chapter 13 plan.

For homeowners who wish to talk to an Orlando bankruptcy attorney about the “cram down” solution for their underwater home, I offer a free 30 minute consultation.