A 2nd trust deed refers to the lien that the holder of your 2nd mortgage or home equity line of credit has against your home. A trust deed is just another name for a deed of trust, which is the document that you sign giving your lender a lien against your house or rental property. Will filing Chapter 13 wipe out a 2nd deed of trust? Well, it depends…
Will Filing Bankruptcy in San Diego Wipe Out a 2nd Trust Deed?
When you buy real estate, unless you are paying for it in full and in cash, you will typically pay a small down payment and take out a mortgage loan for the balance of the purchase price. You will give the mortgage lender a trust deed (a deed of trust) securing the loan so that if you don’t pay the loan your mortgage lender can foreclose on your property. The deed of trust you give to this mortgage lender will be 1st in position and is referred to as a 1st position deed of trust.
If you take out a 2nd loan, whether it is a loan to pay for part of the purchase price or a home equity loan taken out at a subsequent date to draw from the equity in your home, you will also give the lender a trust deed. That lien will be 2nd in position to the 1st position trust deed. Hence, it is referred to by bankruptcy lawyers as a 2nd trust deed.
So a 2nd trust deed simply means that the lender’s lien is 2nd in position to another lien, typically the 1st position lien, that was previously given to another lender and filed with the county recorder.
Chapter 7 Bankruptcy
The filing of a Chapter 7 bankruptcy in San Diego will not wipe out a 2nd position deed of trust. A Chapter 7 filing simply eliminates your personal liability for a mortgage loan or home equity line of credit, but the deed of trust still remains as an encumbrance against your property. In order to get rid of a 2nd trust deed you will need to file a repayment bankruptcy, such as Chapter 13, and eliminate the lien encumbering your property through the lien stripping process.
Chapter 13 Bankruptcy
Similar to a Chapter 7 bankruptcy, filing a Chapter 13 bankruptcy in San Diego will eliminate your personal liability for a mortgage loan or home equity line of credit. But Chapter 13 offers an added benefit.
In a Chapter 13 repayment bankruptcy you can use the lienstripping process to remove a 2nd mortgage and wipe out the 2nd trust deed securing it. When you do a lien strip of your 2nd mortgage loan or home equity line, the 2nd position lien is wiped out so that it no longer is an encumbrance against your property. Assuming your lien strip is done correctly, you will actually get a court order stating that the 2nd position lien against your property is stripped off and wiped out from title.
Chapter 11 and 12
Similar to Chapter 13, in Chapter 11 and Chapter 12 bankruptcy you can do a lien strip of a 2nd position lien against your real estate.