Health & Fitness
Stripping Without a Pole, Lien Stripping a Second Mortgage in Bankruptcy
What to do when a mortgage modification is denied. Remove the second mortgage by a process known as lien stripping.
Georgia ranked fourth nationally in foreclosure rates during August 2011, according to the tracking firm RealtyTrac.
I meet daily with despairing homeowners. Many of them are middle-class American workers who have been hit with the double-whammy of the misleading mortgage modification processes and intermittent unemployment. They are expecting their government to step up and help them.
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The mortgage modification programs reminds me of Charlie Brown looking at Lucy holding a football for him to kick. Homeowners are being accused of not providing paperwork that was provided numerous times, being offered unaffordable modifications based on grossly miscalculated income, and finally not being offered any modification. Since HAMP regulations remain generally unenforced by the Administration, consumers have no effective recourse when those regulations are simply ignored by the untrained and oblivious modification staff of the mortgage servicers.
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In 2009 legislation was introduced that would have help save hundreds of thousands of homes from foreclosure by allowing for court-supervised modification of home mortgages. This proposal was publicly endorsed by President Obama, but when it came to a vote, the Bankers called in their chips (from the Administration and both parties) and it failed.
I tell my clients “They are not your mortgage company, they are your landlord.” If the rent is to high, move. If you have just one mortgage on your home, the mortgage companies almost never pursue you, like on a auto repossession. They just put a foreclosure on your credit report and make a claim for the mortgage insurance. If you have more than one mortgage, just walking away, without filing bankruptcy, may not be an option.
There is one method that is available in limited situations known as lien stripping. A lien strip allows a Chapter 13 debtor to use the power of the Bankruptcy Court to transform a secured second mortgage or home equity line of credit into an unsecured debt. Then the debt is paid pennies on the dollar through a chapter 13 plan.
In order to strip the second mortgage, the Debtor’s home must have an appraised value on the date of the Bankruptcy filing that is less than the first mortgage. That happens more often than you would think, especially in neighborhoods with foreclosures sales. Most homes in Atlanta that were purchased in the past few years with an 80% first mortgage and a 20% second will qualify. Also homeowners that obtained an Equity Line in the past few years may be able to strip it.
There are draw backs; Chapter 13 lien strips are expensive, even though the costs are paid in monthly installments over 60 months. Many Debtors tell me for what a lien strip cost they could move and file a chapter 7. Most of the time a complete bankruptcy (chapter 7) makes the most economic sense. But in cases of a homeowner that wants to keep THEIR house, for whatever reason, the extra cost is worth it. I have helped homeowners that have handicap modifications and home offices that would be cost prohibited in a rental house.
In order to get rid of your second you must complete your chapter 13. It can last for 60 monthly payments, that’s 5 years. If you make 59 payments, and cannot make the last payment, all your expense and efforts are lost.
If you have made up your mind to save your home, and could if you only had a first mortgage, call, I may be able to help.
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Austell GA 30168
