Sometimes, the mortgage of a home may be greater than the actual value of the home. You should know, there are ways to remove any junior liens that you might have on your second, or even third mortgage. This process is called “lien stripping”, also known as “mortgage stripping.”
Tucker, Nong and Associates’s experienced chapter 13 bankruptcy lawyers can help you remove liens from your mortgage and drastically improve your financial situation.
What is Lien Stripping?
“Lien Stripping” is used in Chapter 13 bankruptcy to help people get rid of (strip) junior liens on a second or third mortgage. Lien stripping can be very useful for people who are under a large amount of pressure to meet mortgage payments. A second mortgage is considered a “secured debt”. Because your second mortgage is a secured debt, a lender has the right to foreclose on your property if you miss payments.
During lien stripping , the court directs a lender to remove a lien from your property. This converts your second mortgage (a secured debt) into an “unsecured debt”.
The Lien Stripping Process
There are certain criteria that must be met in order for you to be eligible for lien stripping. You are only able to strip a second mortgage and/or junior if the total amount of the senior lien on the property is greater than the home’s market value.
For example, if a homeowner has a first and a second mortgage on the house, the balance of the first mortgage must be greater than what the house is actually worth. If the first mortgage is greater than what the house is worth, the homeowner may be able to get rid of (strip) the second mortgage entirely.
In a similar situation, if a homeowner has three mortgages on their home, but the first mortgage is greater than what the house is worth, both the second and the third mortgage could be stripped.
Not Everyone Qualifies for Lien Stripping
However, qualifying for lien stripping is not always as simple as the scenarios provided above. For example, if your house is worth more than your first mortgage alone but not more than the combined balance of your first and second mortgages, then you can only strip your third mortgage. Situations involving lien stripping can become very complicated. If you are interested in learning whether you qualify for lien stripping, contact us right away.
Second Mortgages and Junior Liens
If you use lien stripping, when you file for Chapter 13 bankruptcy, your second mortgage (or any other junior lien) is classified as a “non-priority unsecured debt”. In Chapter 13 bankruptcy, this means the second mortgage or lien is treated the same as any other unsecured debt.
Using a Chapter 13 plan, you will only be responsible for paying a percentage of the total unsecured debt, this is usually a much smaller amount. If you complete your Chapter 13 bankruptcy plan, any debt left on the mortgage is discharged entirely.
If you file for Chapter 13 bankruptcy, you will immediately benefit by not having to make payments on your second mortgage. But remember, the lien on your second mortgage will not be discharged until you complete your chapter 13 plan entirely. Also, if your case is dismissed before you complete your payment plan, the second mortgage lien will not be stripped.
Using lien stripping in a Chapter 13 bankruptcy plan has some great benefits. It can immediately relieve financial pressure by requiring that you you only pay a portion of the second mortgage’s total unsecured debt. In addition, if you complete your payment plan, all remaining debt could be discharged entirely.
Pursuing lien stripping in a Chapter 13 bankruptcy case can be very complicated and it is highly recommended that you hire a qualified chapter 13 bankruptcy lawyer.
Are You Considering Filing For Bankruptcy?
If you feel bankruptcy is the best option for your financial situation you need to speak with an experienced bankruptcy lawyer as soon as possible. Please contact us online or call our Vienna, Virgnia office directly at 703.991.7978 or our Rockville, Maryland office at 301.637.5392 to schedule your free case consultation.