Bankruptcy law allows the modification of a mobile home loan in Chapter 13, the Eighth Circuit Bankruptcy Appellate Panel ruled this week. The 2005 amendments to bankruptcy law did not add mobile homes to real estate mortgages which are generally protected from modification.
Chapter 13 generally allows a person to modify the repayment owed to a secured lender down to the value of the collateral. This is called a “cramdown” and the goal is to allow the consumer to retain the collateral while giving the lender the value they would be entitled to if they recovered their property and sold it. And it also increases the chances that other creditors can be repaid more.
There are exceptions to the cramdown. Many have been discussed here before, including long-term mortgages on your principal residence and most automobiles purchased within the last 910-days. Traditionally this has not included mobile homes that were not permanently affixed to the land. But mobile home lenders, particularly Green Tree, believed that a change in the definition of “principal residence” in the 2005 bankruptcy amendments to include “mobile and manufactured homes” meant that Congress had intended to provide protection from cramdown to mobile home lenders.
The court in the Coleman case disagreed. It concluded that the anti-modification provision of bankruptcy law required the loan to be secured by both the consumer’s personal residence and an interest in real estate. In other words, unless the lender takes a mortgage on actual land that is also the home of the borrower, then they are still at risk for a cramdown to fair market value.
The decision is a victory certainly for consumers. But it is also a victory for other, unsecured creditors who might otherwise receive less in the overall scheme of Chapter 13 bankruptcy cases.
The decision is also in line with virtually all, if not all, the decisions of other courts in the country on this issue. In fact the Coleman court cited the litany of other similar rulings in its second footnote. One might imagine that with every case going against them, mobile home lenders might eventually focus their resources on something more fruitful. But only time will tell.
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Last modified: October 22, 2012