Shed a mortgage lien in bankruptcy

08 Aug Shed a mortgage lien in bankruptcy

Bankruptcy law permits a homeowner to strip off a junior lien on their property where the senior liens equal or exceed the property’s present value. Homes that are impossibly encumbered on the face of it may be salvageable for the owner if one mortgage simply goes away.

As we come down from the lending frenzy and wildly appreciated property values to something approaching the real world, I’m seeing more and more California homeowners who can strip off the second mortgages or HELOC’s in Chapter 13. It’s really a two edged sword: good news is that you can eliminate a large amount of secured debt on your home; bad news is that you still have a home on which you owe more than it’s worth.

Homeowners still need to ask themselves whether it makes sense to try to keep a fully encumbered house. Are the mortgage payments manageable? Will the mortgage payments go up in the near future? Are you paying too much for housing?

If stripping off a junior lien might make it possible to save your house, see an experienced bankruptcy lawyer about Chapter 13.

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Cathy Moran, Esq.

I'm a certified specialist in bankruptcy law (California State Bar Board of Legal Specialization) practicing in the San Francisco Bay Area for more than 30 years. In addition to practicing bankruptcy law, I train new practitioners at Bankruptcy Mastery.
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