We all know a friend for whom real estate once, long ago, seemed to be a smooth sail to retirement. Sure the investor’s course required a lot of hard work: endless hours acquiring properties, weekends swinging a hammer, and evenings rushing to mow lawns before dark; but they were on track to find the calm waters of a fat equity position. Then came the storm of 2008, that drove so many investors onto the rocks of tightening credit, falling property values, and increasing costs. Eight years later many of these investors are still treading water and looking for the “recovery” Washington keeps bragging about. Perhaps that investor is you. I’m writing about a program that can restore your dream without abandoning the properties you have worked so hard to get.
If your portfolio looks like its been through the storm, Chapter 11 of the Bankruptcy law provides a mechanism for businesses to reorganize. People hear Chapter 11 and think only massive corporations can use the law-not true! Investors with no equity, whose income can’t support their payments, but own an otherwise viable real estate business are eligible for Chapter 11 relief to erase debt, reduce payments, and keep their properties.
We are using Chapter 11 to force banks to negotiate mortgage terms and balances. Yes, we can change the terms of a first mortgage and reduce balances. Even if the bank objects!
Consider this example. An investor built a multi-unit portfolio prior to ‘08. Total mortgage debt was $6.5 million, total rents about $18,000 per month. The bankruptcy plan will erase $4 million in debt, restructure the remaining $2.5 million at 3.5-4.5% over 30 years. This plan allows the investor to keep his property, reduce his debt, and lower his interest rates. The business coming out of bankruptcy, will allow the investor to successfully repay the remaining $2.5 million and take a reasonable income for managing his properties.
Chapter 11 isn’t for everyone. The portfolio needs to be underwater by significant amounts. We are recommending not less that $300,000 of debt in excess of the market value of the portfolio. The investor’s income must not be able to pay the mortgages anyway, and the investor must not have significant non-retirement assets. The investor’s credit will be hurt significantly for a few years. Legal fees and costs are significant and the court case will last a long time. But if you qualify, Chapter 11 may reduce debt and restructure payments.
For more information contact:
Richard E. Hackerd
Attorney at law
diverse areas of law Real estate Law,
Business litigation to serious felony defense
55 Public Square, Suite 2100 Richard@Hackerd.com
Cleveland, OH 44113 216.210.6484 m
The “Hard Hat” in real estate Law!