26 Oct Using Bankruptcy To Remove a Second Lien On a House In The Eastern District Of California
Chapter 13 bankruptcies have many benefits. In my opinion, one of the best is that, under the right circumstances, you can remove the second and/or third mortgage on your house.
Certain conditions must exist to do this including the ability to qualify for a Chapter 13 and the house must be worth less than the amount owed on the first mortgage. The rules allowing one to strip the second mortgage have been around for a long time, but only in the last few years have we see so many homes which are worth less than the first mortgage.
There are several articles in the Bankruptcy Law Network and the Mortgage Law Network lien stripping. I recommend you take a look at excellent work on Removing a Second Mortgage by Michael Doan and the equally superlative effort about having no equity in your home by Karen Oakes.
The actual process to accomplish this varies from district to district. In the Eastern District of California, the judges have endorsed a method where the debtor files a motion to value the property at the time of confirmation of the plan. If the property is found to be worth less than the amount owed on the first mortgage, then the second mortgage can be treated in the plan as an unsecured debt.
In order to finalize removing the lien from the property, however, the debtor has to complete the plan, obtain a discharge, and bring an adversary at the end of the plan. Obviously, this process requires knowing the procedure and the law it isn’t something you should try without competent counsel to help you.
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