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Gideon Gratsiani, Foreclosure and Bankruptcy expert Speaks on the “Cram Down” Tool
While most people that file for bankruptcy, do so in response to some kind of financial emergency such as aggressive collection efforts from lenders or foreclosure on their homes or real estate investments, there are generally little known advantages to borrowers within the bankruptcy code that could mean a large difference to the equity they hold in their property. According to Gideon Gratsiani, a South Florida, foreclosure and bankruptcy expert, one of these tools is the “cram down”. By utilizing the bankruptcy code, a debtor who has filed a chapter 13 or chapter 11 bankruptcy with non-homestead real estate or vehicles purchased prior to 910 days before filing for bankruptcy, can obtain a court order cramming a lien on the property or vehicle down, so that its secured only up to the actual value of the property. Once the court makes its ruling on the value, the debtor can pay off the new lower balance on its loan throughout the life of the reorganization plan, usually 3 or 5 years. The amount of the original loan that was erased from the security interest on the property becomes unsecured and discharged after the bankruptcy is complete. While this course of action is most commonly employed on vehicles, if a Debtor can afford to pay off the value of their investment real estate through however long the bankruptcy lasts, they will end the bankruptcy owning the property free and clear of the lien.
Gideon Gratsiani: Foreclosure, Bankruptcy, and The “Strip Off”
While most people that file for bankruptcy, do so in response to some kind of financial emergency such as aggressive collection efforts from lenders or foreclosure on their homes or real estate investments, there are generally little known advantages to borrowers within the bankruptcy code that could mean a large difference to the equity they hold in their property. According to Gideon Gratsiani, a South Florida, foreclosure and bankruptcy expert, one of these tools is the “strip off”. The code allows a home owner who has a second mortgage on their homestead to strip off that second mortgage if the first mortgage or other superior lien holders take up all the equity. An experienced attorney can move the bankruptcy court to make an official ruling on the value of a property and by showing that the second mortgage is not secured by any property value after the higher liens, the second mortgage loses its secured status and becomes an unsecured debt, discharged after completion of the bankruptcy. Doing this in a bankruptcy case at the very least involves putting forth the facts about the property and the liens and serving it in compliance with the very strict rules for notifying banks about actions concerning their loans.
While it is common for second mortgage holders to not bother to defend the security of their loan, if they do force the matter to trial in the bankruptcy court, a property owner’s attorney must have the skills necessary to conduct a winning argument concerning the value of the property.
Gideon Gratsiani Speaks on Foreclosure and Bankruptcy
To most residents of South Florida, two words that indicate an oncoming financial nightmare are bankruptcy and foreclosure. Homeowners here, where a national spotlight is constantly displaying South Florida as the epicenter of the fiscal health of the country, especially when it comes to real estate, the word foreclosure is the financial equivalent of the death penalty. Bankruptcy too is most often considered a thing to avoid at all costs, even when that cost is the removal of a person from the home they have put years of effort and money into. But, in many cases, foreclosure and bankruptcy can provide an opportunity to homeowners and investors who are familiar with the foreclosure and bankruptcy process and laws to protect their homes or discover real estate investments not available outside of the world of bankruptcy.
The average homeowner who believes that a foreclosure will soon be forced upon them by the bank can benefit greatly from understanding how bankruptcy can stop the foreclosure process in its tracks, giving them time to either work out with the bank a plan to become current with their mortgage or to sell the property at terms much better than without the protection of the bankruptcy code. While the foreclosure action is frozen in court, by virtue of the automatic stay of any actions against the homeowner or their property provided by the Bankruptcy Code of the United States, homeowners get the breathing room necessary to establish a communication with their creditors to come up with terms that include staying in their property and negotiating a lower monthly payment. Even if keeping the property is not an option, any deficiency created by the foreclosure sale, when the property is sold for less than the remaining balance on the mortgage, is discharged like any other debt through the bankruptcy, meaning the homeowner won’t be on the hook for hundred of thousands of dollars.
Bankruptcy also provides a benefit to those not in financial distress and looking to invest in real estate. Bankruptcy trustees try to find buyers for properties under their control every day and here too the bankruptcy code provides ample benefits not generally available without the Bankruptcy Code’s terms. Bankruptcy Trustees can sell residential and commercial real estate free and clear of existing liens and their huge caseload means they are usually more than happy when they find a buyer interested in one of their properties.
I have worked in the real estate market for decades, specifically within the world of bankruptcy auctions and foreclosures auctions and I highly recommend to all homeowners to hire a bankruptcy attorney or a foreclosure defense attorney in their area to utilize their rights within the law on how to make a confusing process work out for their best interests