Los Angeles, CA -- (SBWIRE) -- 09/22/2016 -- Under current laws, a second mortgage can be eliminated through Chapter 13 bankruptcy in a process known as lien stripping.
In the wake of the great recession of 2008, home values are still down in many parts of the country. Low home values resulted in homeowners having loans that are greater than the value of the home. When a homeowner is upside down on their primary mortgage, there is no equity to secure a second mortgage, or a third mortgage. In that case, a homeowner may seek legal action to eliminate unsecured liens on their property.
A Second mortgage lien is typically a home equity loan that originated after the primary mortgage on the property. The rule that allows a lien to be stripped is that there cannot be equity that secures the 2nd or 3rd lien in whole or in part. That means that the 2nd or 3rd lien must be completely unsecured; the value of the home cannot exceed the balance of the 1st loan. The borrower must prove that the value of the home is less than the amount owed for the 1st mortgage balance by undergoing an appraisal.
Chapter 13 Bankruptcy
While both Chapter 7 and Chapter 13 bankruptcy allow for discharge of certain debts, only Chapter 13 makes it possible for debtors to eliminate their unsecured mortgage liens. This is because in Chapter 13, unsecured mortgages liens are considered to be unsecured debts that can be eliminated. A lien is only deemed unsecured if the homeowner has no equity in their home to secure the loan. In such a case, the unsecured mortgage lien can be stripped away.
The Bankruptcy Lien Stripping Process
In order to have a second mortgage lien eliminated through Chapter 13 bankruptcy, the court requires a motion to strip the lien and a completed repayment plan, followed by a request for discharge. Unsecured junior liens are only discharged with approval of the court.
The Lien Stripping Process
The attorney for the debtor has to file an application to have any junior liens stripped once the homeowner has completed their payment plan. The specific chapter 13 bankruptcy lien stripping process depends on the jurisdiction of the bankruptcy court. Some courts require hearings and additional motions to determine the fair market value of the home and the amount of equity in the property.
How Does Lien Stripping Work?
Lauren Rode, a bankruptcy attorney with Consumer Action Law Group explained, "Chapter 13 lien stripping only works if the value of the first mortgage is greater than the value of the home. In other words, a lien strip is possible if the value of the home is less than the balance of the first mortgage. When that happens, any other debts are considered unsecured by the equity of the house, which makes the additional liens unsecured, similar to credit card debt."
Lien Stripping and Creditors
In the event that a second mortgage lien is stripped, homeowners can ask their creditor to remove it from their credit history. Not all creditors are willing to comply with debtors' requests when it comes to lien stripping. As a general rule, lenders of second mortgages can foreclose on properties if the debtor defaults on payments, so they may fight to preserve their claim.
Finding a Law Firm That Can Help Eliminate Unsecured Mortgage Liens
Homewoners who lives in California can contact Consumer Action Law Group to discuss what it takes to have their second mortgage lien eliminated. The Los Angeles Bankruptcy Attorneys of Consumer Action Law Group can handle claims for the lien stripping processes. First time callers will not be charged for a consultation.
For more information about getting rid of second mortgage lien with bankruptcy visit ConsumerActionLawGroup.com
About Consumer Action Law Group
Consumer Action Law Group of Panzarella, Gurevich, and Rode, PC, is a law firm dedicated to helping individuals in purchase-related matters or consumers that experienced fraud and misrepresentation. Attorneys on the team are knowledgeable and experienced in the areas of eliminating debt, mortgage fraud, auto fraud, and foreclosures. The legal team has direct experience in consumer fraud matters and helping individuals who are facing credit card debt, foreclosure, issues with employers, and problems with auto dealers.
Contact Person: Chuck Panzarella