More On Lien Stripping Of Wholly Unsecured 2nd Mortgages Encumbering Underwater Homes In Chapter 13 Bankruptcy Proceedings

White Plains, New York bankruptcy attorney Jeffrey M. Binder writes the following in the Poughkeepsie Journal on lien stripping of "wholly unsecured" second mortgages on underwater homes(1) in Chapter 13 proceedings in Federal bankruptcy court:

• During the lien stripping process you are required to file a Chapter 13 Bankruptcy and it can only be filed if your property value is less than the balance owed on your first mortgage which has to be less than one million dollars. You must arrange and pay for an appraisal of your property.

• For example, if your home is worth $500,000 and your first mortgage payoff balance is $525,000, you have no equity. If you have a second mortgage loan balance of $50,000, this second loan is a wholly unsecured mortgage and you can strip the lien in a Chapter 13 case. The lien now becomes an unsecured debt just like a credit card debt which can be wiped out after a period of time. If, however, the home is worth $530,000, you cannot strip off the second lien because it is merely undersecured, not wholly unsecured.

• Chapter 13 lien stripping is ideal for the large pool of borrowers who took out 80/20 loans or HELOCs where the 2nd lien is completely underwater. If such a lien is stripped, it can be treated as an unsecured debt in the Chapter 13 payment plan and paid a fraction over 5 years. (The actual percentage paid depends on several factors, including the value of the homeowner's assets and disposable income.) Homeowners don't have to fall behind on payments to be eligible for lien stripping.

For more, see Learn the Secrets of Lien Stripping ... and Save Your House!

See also: Cramdowns & Lien Stripping Of Home Mortgages Under Existing Bankruptcy Law.

(1) Underwater home = property that is worth less than the amount owed on the existing mortgage(s) encumbering the real estate; also referred to as property with "negative equity."