No. of Recommendations: 1

"Thanks for the info. Mostly what I thought or was aware of."

Your welcome. I just wonder how many sellers who take back financing, but are not otherwise real estate investors, are similarly aware.

"The only point that is really new to me is the idea that there can be a 'cram down'. I am not sure that this is possible on a mortgage secured by the property."

It is.

Cramdown - "The ability of the Bankruptcy court to confirm a plan of Reorganization over the objections of some classes of creditors."

Cramdown: "A court-ordered reduction of the secured balance due on a home mortgage loan, granted to a homeowner who has filed for personal bankruptcy. In a cramdown, the bankruptcy court splits the outstanding mortgage balance into two parts. The amount of debt equal to the current appraised value of the home is treated as a secured claim, which the borrower must continue to pay. The amount of debt in excess of the current property's value becomes an unsecured claim, which is usually not repaid in full. In areas where home prices have depreciated, cramdowns can result in significant mortgage reductions. In some cases, the judge may order the remaining secured debt amortized over the remaining life of the loan term, thus lowering monthly payments. In other cases, monthly payments remain the same as before the cramdown, and the secured mortgage is simply paid off faster."

"The current conventional market rate of interest, rather than the contract rate, was properly awarded to a subprime lender in a Chapter 13 cramdown, the U.S. Court of Appeals for the Sixth Circuit ruled Jan. 8 (Household Automotive Finance Corp. v. Burden (In re Kidd), 6th Cir., No. 01-5074, 1/8/03).

The computation of the appropriate interest rate under Section 1325(a)(5)(B) of the Bankruptcy Code "does not entail an analysis of any particular debtor's credit rating but rather involves a more objective determination of the value of money over time so as to compensate a creditor according to the present value of its secured claim," Judge Martha C. Daughtrey said."

Bankruptcy can lower the interest rate paid, and, if the lender is undersecured, reduce the principal amount of the loan secured by the house.

"Supreme Court to Decide Four Bankruptcy Cases This Term - how much the debtor will need to make in present value interest payments in a chapter 13 cramdown"

See also:

"As to returns, I am talking about buying at a discount to face value and above average returns so more or less building in a risk premium and some added equity to compensate for the added risks."

You are a note buyer, which is different than the seller who takes back financing, and only confirms the illiquidity and further discounts required to sell the note.

"I note your point about the percentage of ones assets in this class. I take two views on this.

1. Is to not concentrate too much
2. Use other methods to compensate or otherwise provide protection or a risk premium.

Again, thanks for taking the time to highlight the points."

Your welcome. Regards, JAFO

The ability of the Bankruptcy court to confirm a plan of Reorganization over the objections of some classes of creditors.
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