Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: WEDNESDAY, June 2, 1993 TAG: 9306020060
SECTION: BUSINESS PAGE: C6 EDITION: METRO
SOURCE: Associated Press
DATELINE: WASHINGTON LENGTH: Medium
Mortgage lenders have a contractual right to repayment of the entire loan even when it exceeds the home's market value, Justice Clarence Thomas wrote for the court, which voted unanimously.
The Dallas couple involved in the case "propose to reduce the outstanding mortgage principal to the fair market value of the collateral, and, at the same time, they insist that they can do so without modifying the bank's rights," Thomas wrote. "That appears to be impossible."
Leonard and Harriet Nobelman filed in 1990 to reorganize their debts under Chapter 13 of federal bankruptcy law.
The couple owed about $71,000 on a condominium valued at $23,500. Their reorganization plan proposed to make payments to creditors only on the condominium's actual value, plus back mortgage payments they had missed.
The rest of the Nobelmans' loan from American Savings Bank would be declared an unsecured claim under the couple's proposal.
A federal bankruptcy judge refused to approve the plan, as did a federal judge and the 5th U.S. Circuit Court of Appeals.
The appeals court said one section of federal bankruptcy law that specifically bars the type of plan proposed by the Nobelmans overrides another section of the law that appears to allow it.
Four other federal appeals courts had allowed debtors to "strip down" their mortgages to the property's actual value.
Attorneys for the Nobelmans said that practice would benefit both debtors and mortgage lenders. Otherwise, lenders could wind up foreclosing on property that they might be unable to sell, the couple's lawyers said.
But American Savings' attorneys said allowing debtors to "strip down" their mortgages gives the debtors a windfall that is barred by the plain language of the law.
by CNB