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Mortgage Can Be Modified By Ch. 11 Plan, Even If Debtor Is Not Indebted, But Cram-Down Limited
By Andrew C. Kassner and Joseph N. Argentina Jr.
As the old saying goes — interesting facts make interesting law. In this post-great recession era where mortgage lenders are carefully scrutinizing borrowers for credit worthiness and have tightened underwriting criteria, the assumption is that they know the identity of their borrowers, and if the mortgaged property is transferred, the lender can demand payment of its loan.
Today we review a situation where a 50% interest in mortgaged commercial real estate was transferred without the consent of the lender, and the new tenant-in-common owner subsequently filed a Chapter 11 case and attempted to modify the payment terms of the mortgage loan to which he is not a party. Can this be done in bankruptcy? And what happens to the nondebtor 50% tenant-in-common borrower under the loan?
In a recent decision in In re Taing, Case No. 22-40896-CJP, the U.S. Bankruptcy Court for the District of Massachusetts held that a mortgagee holds a claim that could be modified by a Chapter 11 plan even if the debtor was not indebted under the mortgage, but limited the ability to “cram down” the plan terms against the lender to the extent it modified the lender’s rights against the nondebtor obligor.
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