The general rule in Chapter 13 cases is that the first\nmortgage on the residence is protected by the antimodification provision of 11\nUSC 1322(b)(2). Accordingly, in\nvirtually every case, a consumer Debtor has two choices when it comes to\naddressing the mortgage on their home. \n1. They can surrender the property to the secured creditor., Or, they\ncan \u201ccure and maintain\u201d, which means they can maintain the ongoing mortgage\npayments (either directly or through the trustee, depending on the district)\nand provide for the cure of any arrearages through the Chapter 13 plan.<\/p>\n\n\n\n
Absent\ntitle defects or a manufactured home that was not converted to real estate,\nthere usually are no options for the Debtor to modify the first mortgage.<\/p>\n\n\n\n
However,\nthere is one narrow class of first mortgages that may be modified. 11 USC 1322(c)(2) allows for the first\nmortgage to be modified if the last payment is due during the life of the\nChapter 13 plan. So, mortgages that are\nat or near the end of their amortization that have a due date during the plan\nmay be modified. When one considers that\nthese loans are near their scheduled payoff, you would expect that most homes\nin that category have substantial equity, so cramdown isn\u2019t at play.<\/p>\n\n\n\n
But in\nthe rare instance that the loan is nearly paid off, but the property value has\ndiminished to an amount less than the balance, the Debtor may split the claim and\npay the creditor a secured claim based on the value of the property, and treat\nthe remainder of the claim as unsecured \u2013 the classic Cramdown.<\/p>\n\n\n\n
Courts\nin the Sixth Circuit (where we cover Ohio, Kentucky and Michigan) and Seventh\nCircuit (Indiana) have long held that 1322(c)(2) allowed for this. However, in the Fourth Circuit (West\nVirginia), courts had followed a standard from In re Witt<\/em>, 113 F.3d 508 (4th<\/sup> Cir. 1997), which only\nallowed the Debtor to modify the payment, but not the balance of the claim. In the 4th<\/sup> Circuit, the Debtor\ncould only stretch out the balance over the plan, but not cramdown.<\/p>\n\n\n\n