Second Mortgage and Chapter 13

Because of the mounting foreclosures, there has been a lot of talk lately about “lien stripping” in bankruptcy.  And, along with it, came many misconceptions.  Here are some facts about stripping of junior mortgages in bankruptcy:

·      They can be stripped, if at all, in a Chapter 13 bankruptcy case.

·      The value of the second mortgage has to be wholly unsecured.  Even if there is only a $1 of value left in the second mortgage, the second mortgage is considered secured.

·     That means that the appraised value of the property in question has to be equal to or lesser than the amount owed on first mortgage.  “Appraised” in this case means a full blown, independent appraisal; not an undervalued one that favors the homeowner, or a market value of property for property tax purposes.  Only then, can your bankruptcy attorney consider filing a motion with the court, or an adversary proceeding, to strip the second mortgage. 

·     If the court grants the motion, or rules in your favor in the adversary proceeding, the debt is not erased, but becomes unsecured, and is treated on par with all the other unsecured debts.

For more information regarding the second mortgages and Chapter 13 contact our office.

Second Mortgage and Chapter 13

Because of the mounting foreclosures, there has been a lot of talk lately about “lien stripping” in bankruptcy.  And, along with it, came many misconceptions.  Here are some facts about stripping of junior mortgages in bankruptcy:

·      They can be stripped, if at all, in a Chapter 13 bankruptcy case.

·      The value of the second mortgage has to be wholly unsecured.  Even if there is only a $1 of value left in the second mortgage, the second mortgage is considered secured.

·     That means that the appraised value of the property in question has to be equal to or lesser than the amount owed on first mortgage.  “Appraised” in this case means a full blown, independent appraisal; not an undervalued one that favors the homeowner, or a market value of property for property tax purposes.  Only then, can your bankruptcy attorney consider filing a motion with the court, or an adversary proceeding, to strip the second mortgage. 

·     If the court grants the motion, or rules in your favor in the adversary proceeding, the debt is not erased, but becomes unsecured, and is treated on par with all the other unsecured debts.

For more information regarding the second mortgages and Chapter 13 contact our office.