Debtor Who Lives in half of Duplex can Modify Mortage—and possibly condominium lien

In In re Colcord, the debtor resided in half of a duplex and rented out the other half.  She had a mortgage on the duplex. She filed a Chapter 13 bankruptcy case and proposed in the plan to “cram down” the debt to the value of the the duplex, which is significantly lower than the balance due on the mortgage. The mortgagee objected, arguing that 11 USC Sec 1322(b)(2) prohibits a debtor from modifying a mortgage secured only by the debtor’s principal residence.

The court held that, because part of the property is not the debtor’s principal residence (e.g., the half of the duplex occupied by the tenant), the mortgage could be modified.  The court note that, among other things, the debtor could not claim a principal residence exemption on taxes on the tenant-occupied half of the duplex as evidence that the mortgage was secured by more than the debtor’s principal residence.

The Michigan Condominium Act provides that, when a co-owner is delinquent on assessments and owns more than one unit in the condominium project, the association may record a lien against ALL of the units, even though some of them may not be delinquent.  The downside of doing so is that, if the debtor files a Chapter 13 case, the condominium lien might be modified or crammed down to fair market value.

© Steve Sowell 2018