- 08
- August
2011
Prior to the mortgage meltdown crisis, real estate was considered a relative safe investment. According to CBS News, home value appreciation was very consistent in the 100 years prior to the beginning of the housing bubble in 1995. In the years leading up to the subprime mortgage crisis, home prices rose at a rate of almost 70 percent.
The burst of the real estate bubble devastated the financial futures of many families who had purchased investment properties hoping to take advantage of increased cash flows and supplement retirement portfolios. Many families borrowed against their homes, cashed in stock portfolios and borrowed from their retirement plans to take advantage of the unprecedented rise in real estate values.
Those who still own investment properties are underwater on their mortgages, owing more than the properties are worth. A Chicago bankruptcy attorney may have a solution for these investors with a Chapter 13 bankruptcy.
The bankruptcy laws allow investors to "cram down" the mortgages on their investment properties to their fair market values. To take advantage of the cram down provision, investors must be able to pay the full fair market values of their properties within five years through their Chapter 13 plans.
The cram down works by dividing the mortgage into two parts, a secured portion and an unsecured portion. The secured portion is equivalent to the fair market value of the property. This is what is paid during the plan. The rest of the mortgage is unsecured and gets disposed of with the other unsecured debts, such as credit cards, which are paid with any remaining money left over after the secured debts are paid.
Clearly, this may not be an option for everyone with underwater investments. However for those with incomes to support these plans, they are an excellent way to get out from under and re-establish their financial futures.
1 Comment
Commercial Real Estate Investing
September 28, 2011 at 10:35 PM
The professional investor will know comparable purchase prices both in and around the area of the property in which he is interested. He will know the rental value that can be achieved for the property and will know the amount of the commercial mortgage he can expect to receive on the property. He will also know the value of the property which, as a professional investor, he will expect to be higher than the price he is willing to pay.
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