Daily Archives: January 30, 2014

Lien Stripping for Chapter 13

One of the most powerful tools available to consumers under Chapter 13 bankruptcy is the ability to lien strip a junior mortgage off their property.  In order to lien strip a junior mortgage the lien must be “wholly unsecured”.  The best way to explain what a wholly unsecured mortgage is by example.  Let’s say you have a home valued at $200,000 with a $300,000 first mortgage and a $100,000 second mortgage.  In this example the second mortgage is completely under secured because the home is worth less than you owe on the first mortgage.  In other words, if your home was foreclosed at auction no monies would be available to the second mortgage, because the first mortgage is greater than the value of the home.

So what exactly happens to your junior mortgage during a Chapter 13?  The mortgage because it has no equity to which to attach to is treated no differently than a credit card or any other unsecured debt.  Then upon completion of your Chapter 13 plan the lender will send a full reconveyance releasing the lien on your property.

If we recall that during the housing boom prices on real estate grew at astronomical rates and banks were lending money and handing out junior mortgages for thousands and hundreds of thousands of dollars based purely on the high value of the borrower’s property.  Once the housing market bubble popped, real estate values fell at unprecedented rates opening up the window to lien stripping.  However, since 2012 prices on real estate have again began to grow but not nearly at the rate seen during the housing boom.  Nevertheless, as property values slowly recover the lien stripping door may soon be closing.

Keep in mind that most mortgages take thirty years to pay back and with interest the amount paid back can easily be triple the original obligation.  The biggest mistakes most consumer and my clients make is waiting too long.  Waiting too long in this case may end up costing you hundreds of thousands dollars and up to thirty years of payments.  So don’t delay and call OneDayBK to get your lien stripped off today before it’s too late.