Cramdown Clears House Panel - But There's a Catch!

The bankruptcy cramdown bill passed the House Judiciary Committee today. But there are a few catches that I think we should all be aware of:

1. lender could recoup losses if property is sold within 4 years of cramdown
2. bankruptcy protection would not apply if borrower committed fraud or misrepresented themselves
3. the bill is likely to change before it is finalized.

Comments:

1. If the homeowner must stay in the home for 4 years then the cramdown cannot be used to bring the sales price down to market rate in an effort to sell. It also means that once the cramdown value has been established, the homeowner is not protected if the market continues to drop over the 4 year period.
2. THIS IS VERY IMPORTANT: expect lenders to be very diligent in reviewing the INITIAL LOAN APPLICATION to look for any fraud or misrepresentations i.e. "stated" income loans in which the income was inflated to qualify. This would make the homeowner ineligible for the cramdown and could make put them at risk for further legal action.
3. We must continue to stay aware of the progress made on this bill. Much like the current bailout bill, the final draft was more than 500 pages larger than the initial bill and included many unrelated issues. I think we can expect the same for this bill.