Bankruptcy — cram-down mortgages

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United States Bankruptcy Court

Civil

Bankruptcy — cram-down mortgages

Debtors who have acquired encumbered property in violation of due on sale clauses cannot cure mortgage defaults though Chapter 13 over the objections of the creditor.

“The debtors are not seeking to cure and reinstate the mortgage. The cases that allow curing of a default and reinstatement of a default might be persuasive, but they simply do not apply to what the debtors are trying to do. They want to reduce the creditor’s secured claim and to pay total payments equaling only the present value of the collateral.”

“The right to cram down a secured creditor’s interest in a debtor’s principal residence does not arise from lack of personal liability on the note. The creditor still has the bundle of rights described in Nobelman, and these cannot be modified by the debtors’ proposed plan provision. See In re Garcia, 276 B.R. 627, 635 (Bankr. D. Ariz. 2002) (noting ‘a cure is not an exception to the antimodification provision, because modifications and cures deal with wholly distinct, mutually exclusive, legal concepts’). The creditor is not attempting to collect personally from the debtors; it is entitled to its in rem rights in the property, which are embodied in the original note and mortgage, but that does not equate to personal liability on the part of the debtors. Ms. Anderson took the property with these rights attached, and the debtors could walk away from the property with no further personal liability. The inclusion of the debtors’ cramdown provision renders the plan unconfirmable.”

11-22650 In re Anderson

E.D.Wis., McGarity, Bankr. J.