Bankruptcy Will Remove Your Second Mortgage!
By Michael G. Doan, San Diego Bankruptcy Attorney on May 26, 2008 in Bankruptcy Practice and Procedure, California, Chapter 13 Bankruptcy, General Bankruptcy Information
I have written in the past regarding eliminating junior lien holders on residential real estate, explaining the mechanics of what is involved. Nevertheless, in today’s market, I can not stress how common and important it is to remove these liens in most Chapter 13 cases that are filed.
Chances are, if you bought a home in the past 5 years and financed with an 80/20, where there was an 80% first mortgage and 20% second mortgage, that you can entirely “strip off” that second mortgage and other junior liens from your home!
In most markets across the United States, value has dropped in excess of 20% in the past year alone. In many areas of the Country, value has dropped significantly more. If you live in California like me, then you have experienced an over 30% drop just in the past 12 months! When we pull property values to substantiate property value listed in the Bankruptcy Cases we file, we are generally looking at home values that generally existed in 2003 and 2004.
So that means, at least throughout most of California, that anyone that bought or refinanced real estate since 2003 with an 80/20 loan, that the second mortgage can be removed! That means NO MORE PAYMENTS on that mortgage ever again and that LIEN BEING REMOVED! GOODBYE HELOCS!!!!
Imagine that. File chapter 13 Bankruptcy to eliminate all your credit card debt, reduce your car payments,cure the arrears on the first mortgage, and now entirely remove your second mortgage! It gets even better! What if in 5 years your house now bounced back with the value increasing back to where it previously was or even more? Thats right, ALL THAT EQUITY IS YOURS! That $150,000 second lien no longer exists and the $150,000 in equity is yours!
If the values dont improve, at least you are not paying anymore than the house is worth. And if values continue to decline, well then you can always just let the house go.
Over 90% of the new Chapter 13 case we are filing that have real estate are now resulting in lien avoidance actions. Under no circumstance should you continue to pay your second mortgage if the value of your house is equal to or less than the first mortgage. Its an easy test to take to see if you qualify:
1) Is the value of your house less than or equal to the amount you owe on the first mortgage?
2) Is your total secured debt(mortgages and auto liens) less than $1,010,650.00?
3) Is the total of all your other unsecured debt less than $336,900.00?
4) Do you have income?
If you answered YES to all four, you can REMOVE YOUR JUNIOR LIEN! The mortgage can not do anything about it because of Federal Laws. They can only try to dispute the value…… but do you think a judge will really find that the house is somehow more valuable that all the other similar homes in America?????
So if you are struggling with your home payments, and possibly other debt as well, be sure to consult with an attorney who concentrates in Chapter 13 Bankruptcy Practice. Now is the time to plan ahead, save that home, eliminate junior mortgages, and create lots of equity for the future!
Written by Michael G. Doan
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