At MarketWatch, Richard Gibson reports on the double-standard that keeps the home foreclosure market healthy and creates jobs for process servers. A nugget:
When this (the value of a property drops precipitously–ed.) happens to commercial property owners, our law gives them an escape route. They can file a Chapter 11 reorganization. While Chapter 11 filings are expensive, risky and uncertain, Chapter 11 gives commercial property owners the power of “strip down:” They can reduce the principal of their mortgages to the current fair market value of the property.
The rest of the mortgage, the amount by which the mortgage exceeds the value of the property, can be “stripped down” under Bankruptcy Code Section 506, or converted into unsecured debt, which can be discharged. “Strip down” gives underwater commercial property owners a reasonable chance to reduce their debts, and to return to profitability.
But homeowners cannot use strip down. Under bankruptcy law, the only mortgages that cannot be stripped down are those against the principal residences of individuals or families. Donald Trump can use strip down to reduce multimillion-dollar mortgages against his casinos. A middle-class family, however, can’t use strip-down to save their home from foreclosure.