Bankruptcy Cram-Downs Being Used on Primary Residences

Bankruptcy Cram-Downs Being Used on Primary Residences

By Daniel Edstrom
DTC Systems, Inc.

A “cram-down” is where the principal balance is reduced, usually to fair market value.  DSNews.com is reporting that the research firm and ratings agency DBRS has learned from various servicers that cram-downs are being done in some bankruptcy courts.  We have seen the occasional cram-down but this shows that it is far more prevalent then most people realize.  The effect of a cram-down is that the loan principal balance is reduced to fair market value and all amounts over that are “unsecured”, meaning they could be fully discharged.  For example if a homeowner owes $750,000.00 on their primary residence, but the actual market value is $440,000.00,  the bankruptcy court could cram-down the loan so that the actual principal balance is $440,000.00 and the rest ($310,000.00) is unsecured debt.

For more, read the DSNews.com article here: http://www.dsnews.com/articles/mortgage-cram-downs-by-bankruptcy-judges-are-taking-place-dbrs-2011-05-02

You can view more about DBRS here: http://dbrs.com/

Author: dmedstrom

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