Multiple times per week, I get questions on how to strip mortgages off of real property. Since most people who read my blogs are not lawyers, and not specifically trained in the nuances of bankruptcy terminology, I will try to simplify how and when you can do this.
First, you can only do it in a Chapter 13 bankruptcy proceeding and you never can strip off a first mortgage. You can only strip off second or third mortgages. Second, you have to get your home appraised by a licensed real estate appraiser to determine the actual fair market value of your home. Third, your fair market value of your home must be less than the current payoff on your first mortgage. So for instance, if your house is worth $200,000, then your first mortgage must have a payoff balance of at least $200,000.01 at the time you file your bankruptcy. This is critical. If your house is worth more than your first mortgage, then you can not strip the second mortgage off. If you find yourself in the position where you first mortgage exceeds your fair market value of your home then it is entirely possible to strip off your second mortgage in a Chapter 13. Here's how it works. We file a Chapter 13 bankruptcy for you and an accompanying reorganization plan. Your plan has to conform to a variety of tests the bankruptcy court requires, but the simplest way to say what you have to repay is what your best efforts allow you to repay your creditors over a 3-5 year period. Once the bankruptcy is filed, we then file a lawsuit inside your bankruptcy against your second mortgage company alleging that they are wholly unsecured. We serve the mortgage company and then litigate the case. If the judge finds that the second mortgage is wholly unsecured then he will order it stripped. However, this does not mean you do not owe the money. Nor does it mean you get to run to the Circuit Court and file the Bankruptcy Court's order removing the lien. The Bankruptcy Court's order will come with conditions, primarily being that you must complete the terms of your Chapter 13 plan repayment. Once that occurs, and a Chapter 13 discharge is entered, that is when the lien is officially stripped. Many of my clients do all the work to get the order entered and then fail to complete the terms of their Chapter 13 plan. Essentially this makes everything they have done moot. If your Chapter 13 does not discharge, the order stripping the lien is void and has no effect.
So, if you really want to strip the pesky second mortgage, be ready to take the steps I have laid out in this article and we can assist you on getting you out of debt and knocking out a second mortgage while we are at it.
Attorney Timothy V. Anderson 757-301-3636