It is presently basic Chapter 13 law that a mortgage secured by a principal residence is generally not modifiable in Chapter 13 bankruptcy. Chapter 13 law does though allow an exception to allow one to cure and reinstating your principal residence's mortgage arrearage. You also are allowed to avoid a junior mortgage if it is wholly unsecured.
The rule against mortgage modification though does not apply to mortgages that are not secured by a person's principal residence. Therefore mortgages on a second home or investment property generally would be modifiable. In fact, I have recently obtained modifications of mortgages on investment properties with a approximate 50% reduction in amount due. A few of the mortgage companies even agreed to the reduction without a Court hearing.
Today's residential real estate market crisis, especially in places such as South Florida, leads me to question whether the time has come in appropriate circumstances to try to use Chapter 13 to attempt to obtain an "agreed" modification of even principal residence mortgages. The market appears to be so desperate, that it may be in the self-interest of the mortgage holder to agree to a modification. In fact, the recent news that the FDIC has begun a serious effort to work with their recently acquired Indymac homeowners may be an indication that mortgage companies have begun to realize that these are indeed desperate times which require mortgage modifications for their own self-interests.
Modification of a principal residence mortgage may include various provisions of the mortgage. First and foremost, modification would include a reduction of the amount due down to the value of the real estate. A reduction in the interest rate to a market rate of perhaps 6.5% and a new term could also be proposed.Jordan E. Bublick, Miami, Florida, Attorney at Law, Practice Limited to Bankruptcy Law, Member of the Florida Bar since 1983