Facts: The owner of their principal residence encumbered by a short term second mortgage and a rent-a-room tenant paying rent under a leasing agreement files a petition for Chapter 13 bankruptcy protection. The property value is insufficient to cover the entire principal balance on the second mortgage. The homeowner submits a plan to cram down the second mortgage to eliminate the principal exceeding the value of the property. Also, the repayment plan increases installment payments retaining the balloon payment due date as it falls within the term of the plan. The rent from the tenant is included in the owner’s income to justify the new repayment scheduled in the plan.
Claim: The mortgage holder claims the proposed cram down and repayment plan are not permissible since mortgages on primary residences cannot be modified and the homeowner’s income isn’t high enough to repay the debt as proposed.
Counterclaim: The homeowner claims their proposed cram down and repayment plan are enforceable since short-term mortgages with a final due date occurring during the Chapter 13 repayment plan may be modified, and the rent from the tenant as the owner’s income is sufficient to repay the debt remaining on the second mortgage as proposed.
Holding: A United States court of appeals holds the cram down and proposed repayment plan are enforceable since short-term mortgages can be modified, and the homeowner’s income includes the rental income for repayment of the debt. [Mission Hen, LLC v. Lee (2025) 137 F4th 1008]
Mission Hen, LLC v. Lee
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May the payment amounts owed creditors in a confirmed Chapter 13 plan be increased by modification when the debtor has performed as scheduled in the plan?
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