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Lien Stripping Second Mortgages with Bankruptcy in Tennessee
People can remove underwater second mortgages on their homesteads by a process called lien stripping in a Chapter 13 bankruptcy.
September 27, 2011 /Mens Interest PR News/ -- Lien Stripping Second Mortgages with Bankruptcy in Tennessee
Millions of borrowers in Nashville are stuck in underwater home mortgage loans, caught by the collapse of the real estate bubble. The economic reality is that it may take years, or even decades, in some markets for values to recover.
The options for borrowers are not overly attractive; staying in a home and paying 25 to 30 percent more per month for a mortgage than one would pay for renting a comparable house, or walking away in a strategic default and dealing with the potential damage to your credit score and tax consequences.
For families who have invested years into their homes, the idea of leaving their home where they've built so many memories is not an easy thing to do. Yet for many, they're feeling forced out the door with mortgages they can no longer manage. There may be another alternative.
For those who qualify, a Chapter 13 bankruptcy can give you five years to repay the arrears owed on your first mortgage, if any, remove your second mortgage from your home and recover your financial well-being.
The Second Mortgage Bubble
Second mortgages were often added to homes when values were at their peak. Households secured them with the rapidly escalating equity in their homes. Families bet on the swelling bubble using home equity loans to pay off credit cards, make improvements to their homes and finance educations.
With the bursting of the real estate market, that large equity cushion began to shrink, and in many cases, evaporated completely. Home values continued to fall, until many were below the original value of the first mortgages.
And as bad as the situation is with first mortgages and home valuation, it is even worse when you add second mortgages into the mix. Keith Jurow described the contours of the situation. He discusses a Federal Reserve Board report that examined the effect of negative equity (underwater) have on borrowers' likelihood of strategic default.
He has highlighted the "looming disaster" of Home Equity Lines of Credit (HELOC). He notes that while 25 percent of all homes are underwater, if you add second liens (mortgages) the true number could be close to 50 percent.
Lien Stripping
Lien stripping is emerging as an attractive solution to many families struggling to stay afloat in the depressed economy. Using a Chapter 13 bankruptcy plan, some borrowers are able to strip their unsecured second mortgages from their homes while keeping the house. To qualify for a lien strip, several conditions must be met.
First, the property to be stripped must be the debtor's homestead. Second, the second mortgage must be completely unsecured. This means the property's value must be so low that if it were sold the proceeds from the house would be insufficient to pay any portion of the second mortgage. Typically, this means the homeowner is slightly underwater on their primary mortgage as well. Finally, the debtors must have sufficient income to afford a Chapter 13 bankruptcy plan.
Things to Consider
To determine if this is your best option, you should speak with a bankruptcy attorney who is experienced at stripping off second mortgages. There are many factors that must be considered before making any decisions.
For example, if you are seriously underwater on your first mortgage, you may want to consider the use of a strategic default. A strategic default is when you stop paying your mortgage until the lender eventually forecloses and forces you out of your home. With the money you save during the months before a foreclosure combined with lower rental payments for a comparable home, you may be considerably better off than straining under a grossly underwater mortgage.
Being able to afford a Chapter 13 plan is another consideration. You need to be able to afford to pay for your Chapter 13 plan while maintaining the current payments on your first mortgage. With other expenses this may appear difficult if not impossible. There are a number of ways a Chapter 13 bankruptcy lawyer can structure a plan that may make it feasible.
A second mortgage is not the only thing that can be removed using a Chapter 13 plan. Most unsecured debts can also be removed with this type of bankruptcy. The elimination of your second mortgage and credit card bills may be all that is needed to allow you to cover your other expenses.
Another benefit of the Chapter 13 is it allows you to pay any arrearage from your primary mortgage over the five-year duration of the plan. This means you can bring your mortgage current while designing a budget (the plan) that you can live with.
Speak with Experts First
The complexity of this decision should not be underestimated. The guidance of a Nashville Chapter 13 bankruptcy lawyer will be important when considering the valuation of your home, your first and second mortgages, debts, mortgage arrears as well as your current income stream.
If you feel as though you are treading water, you should speak with an experienced bankruptcy lawyer will be able to evaluate your situation and present you with your options.
Article provided by David F. Cannon
Visit us at www.nashvillebankruptcylaw.com
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