Mortgage Lien Stripping by Marc R. Tow

If you own real estate with a second or other subsequent lien after your first, chances are you can remove that morgage in a Chapter 13 Bankruptcy Case. This is most common these days as a result of the lowering real estate market. In many instances, at least locally in Orange CountyCounty, we are seeing real estate prices at 2004/2005 levels.
With real estate lowering as much as it has, most second and other liens we see beyond the first are totally unsecured. In fact, in many cases, we are finding that even the first deed of trust/mortgage on the home is greater than the price of the house. So how can you avoid a second mortgage on real estate? Its thru a little code provision in Chapter 13 called 11 USC 1322.
For example: Suppose a debtor bought a residence at the top of the market towards the end of 2006 for $900,000.00 in Moreno Valley, CA. They purchased the house with a $700,000 first deed of trust from Bank Of America and $200,000 second deed of trust from Bank Of America. Suppose now, in 2008, the house has now dropped to $690,000. Since the second of $200,000 is not secured by the real estate anymore, they are considered “totally undersecured.” In chapter 13, you can “avoid” a “wholly undersecured” mortgage on your personal home. If one were to avoid the mortgage, then they would now have a house valued at $690,000 with only a first deed of trust for $700,000. The $200,000 second was “stripped” from the property and is treated as an unsecured creditor in the chapter 13 case no different than a Citibank Mastercard.
While mortgage cramming is most common on undersecured liens, there are also several other ways to avoid second liens in Bankruptcy. Other examples of mortgage cramming can take place if 1) there is a balloon payment due during the life of the chapter 13 case, 2) the second is secured by other assets in addition to the house (personal property, road, ally, etc.), or 3) the property is not the “debtor’s principal residence.” Moreover, if you are a farmer and file chapter 12, you can avoid all liens down to the fair market value of the property!
So while many people are starting to surrender their real estate back to the bank, think twice before you make your decision and speak with a competant bankrutpcy attorney. You just might be able to remove the second mortgage and keep the house with a more affordable mortgage payment!
Marc R. Tow
Real Estate and Bankruptcy attorney for 30 years. Mortgage Broker for 20 years. I have been in business this long because I actually care for my clients. Consultations are free. Call today (888)445-4140. Source: Www.Towlawbankruptcy.Com