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Reducing Principal Mortgage Balance on Rental Properties


While the law does not grant us the ability to reduce the amount owed on the first mortgage of your primary residence (only second/third mortgage(s) and lien(s)). we can reduce or “cram down” what you owe on a rental property.  How does this benefit you?  Through the terms of the Chapter 13 plan, we can propose that you pay only the current fair market value of the rental property to the mortgage lender.  With so many property owners feeling the squeeze of the depreciating housing market, this option provides welcomed relief.

Call us today at 866-261-8282 to understand your options for reducing the mortgage(s) on your rental property. We offer free phone or in-office consultations at any of our five office locations in: Ann Arbor, Southfield, Dearborn, Flint or Warren, Michigan. Why continue to pay more than what you owe? Use your renter’s money to pay for your rental property(s) free and clear within 3 – 5 years.

Terms of the Reduced Mortgage

In order to take advantage of reducing the rental property mortgage, a couple of factors must be present:

  • The entire value (again, current market conditions) of the property must paid to the creditor over the duration of the 3 -5 year repayment plan.
    • Example:  A client owes $75,000 on a home in Detroit that is currently worth only $10,000.  The $10,000 would be paid over 60 months or $166 per month plus interest at a reasonable rate to be determined by the Court.  At the end of the 60 month plan, the mortgage company would be required to release their mortgage and the home would be owned free and clear.  We can help you determine the market value of the home.
  • Interest is paid on the reduced note during the plan.  The rate is based on prime lending rates plus a nominal risk factor.  Currently, our clients are paying 5.25% interest.
  • The rental property must be generating enough income (i.e., rent payments from tenant) to exceed the expenses associated with the property:
    • Modified mortgage payment ($166.00 in above example)
    • Property taxes
    • Homeowners Insurance
    • Maintenance

Would this option be available for your rental property?  We offer free consultations to review your circumstances, decide if Chapter 13 would allow you to reduce what you owe on your rental property(s) and advise you on what other benefits the program may provide.

Other Chapter 13 Program Benefits

  • Remove Second Mortgage or Home Equity Loan on your primary residence.  Re-balance the equity in your home by removing secondary liens.  Pay back only what you can afford to pay over course of the 36 – 60 month repayment plan.  The balance is legally eliminated at the completion of the program.
  • Consolidate and likely reduce unsecured debts such as credit cards, medical bills, personal loans, etc.
  • Stop any pending creditor actions such as home foreclosure, car repossession, judgments or wage garnishments.  The protection is instant and continues through the duration of the program
  • Potential to reduce interest or even principal owed on a vehicle loan payment
  • Improve your credit score over the life of the plan.   According to FICO, 65% of your credit score is composed of 2 factors:
    • Payment history: Are you paying your creditors in a consistent and timely manner.
    • Debt-to-income ratio or leverage:  Amount of outstanding debt relative to your income and ability to pay.

Both of these factors are positively affected by the terms of the Chapter 13 program.  If you are meeting the Chapter 13 requirements, you would expect your credit score to improve throughout the program.

Let Us Help You Improve Your Finances

Imagine paying off the full balance on your rental property within 3 – 5 years just with rental income alone while also improving your credit?  It is possible and we can help.  Rental property owners have the unique opportunity to correct the devastating affects plummeting house prices in our region.  Turn a rental frustration into a source of revenue within 3 – 5 years.  After you own the rental home free and clear, your tenant’s monthly rent payment starts going to your bottom line.  Call us today at 866-261-8282 or click here to speak to a licensed and experienced attorney for a free consultation on how we can reduce your rental property mortgage balance, consolidate and improve terms on other debts and improve your credit. We have five convenient office locations in: Ann Arbor, Flint, Dearborn, Southfield and Warren, Michigan. We offer free, confidential consultations and look forward to speaking with you.