In re Gray - Cramming Down Your Momma's Reverse Mortgage

        Reverse mortgages are a unique lending device. They allow senior citizens to live their golden years with peace off the equity of their homestead property.  Borrowers take out a certain amount and do not have to make mortgage payments only maintain the taxes and insurance. Upon their death the loan is accelerated and the home is foreclosed.
        But what happens when the heirs still live in the home? Previously, an heir's only option was to sell the property. There was no curing the default in a Chapter 13 Bankruptcy under 11 U.S.C. 1322 (b) (2) because the loan was accelerated and it was the heir's homestead.  The majority of lenders do not allow the heirs to modify either since they are not on the original note. This leaves families with no other option then to move out of the only home they have not because they cannot pay a monthly mortgage payment but because that is not an option.
      We represented Ms. Gray, Debtor, in a Chapter 13 case. She was granted her motion to value the reverse mortgage that was encumbering her homestead property. In re Gray, 14-31097 BKC RAM, 2015 WL 1956802.  The Debtor's mother executed the reverse mortgage in 2007 which provided for interest payments and acceleration of the balance upon her death.  The mortgagor, passed away in 2011 and the property was transferred to her daughter and only heir, the Debtor. Fannie Mae commenced foreclosure in July 2012 and Ms. Gray filed for Chapter 13 relief September 2014.
         In the Chapter 13 case, the Debtor proposed to pay the Fair Market Value of  the property which according to the Debtor's appraisal came in at $45,000 through the plan over 60 months at 5.25%, seeking modification of the obligation under §1322(c)(2) and §1325(a)(5).  The mortgage company objected on the basis that the property was the Debtor's Homestead and that she could not modify under §1322(b)(2).  
       The Court accepted the finding that §1322(c)(2) provides an exception to the anti-modification language of §1322(b)(2) when the final payment on the original payment terms on the mortgage is due prior to the final plan payment.  It is precisely because the final payment on the mortgage was moved upon the death of the obligor to a date prior to the final plan payment that the mortgage can be modified under §1322(c)(2).
       The Debtor  relied on  In re Paschen (296 F.3d 1203), Fed..Nat'l Mortg. Ass'n v. Griffin (In re Griffen), 489 B.R. 638 (Bankr.Md. 2013). In which the Court reviewed the following similar cases, In re Brown, 428 B.R. 672 (Bankr.D.S.C. 2010), a case that, for all practical purposes, is on all fours with this on.
       Therefore, my client was granted the Motion to Value and is paying the mortgagee $50,000 after settling the difference in appraisals over 60 months at 5.25% within the Chapter 13 plan. There will not be an unsecured claim as she is not liable on the note.
       11 U.S.C. 1322 (b)(2) places the heirs in a very favorable position because not only can they modify and "cram down" the reverse mortgage they will have no unsecured claim as these mortgage state that there is no personal liability.
       For more information and a free consultation on these and other bankruptcy related issues, call our office at 305-822-5513 today or you can visit us at www.jclawmiami.com

COPYRIGHT 2015 JANET C. TACORONTE, ESQ.

        

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