Is your home “upside down,” meaning that you owe more on your home loans than what your home is worth? When your home loan balances exceed the value of your property, you may, under certain conditions, be able to wipe out a second mortgage or Home Equity Line of Credit (HELOC loan) by performing a “lien strip” through a process called “lien stripping.” This results in wiping out your second loan and physically removing the loan and lien from the title to your property so that it is no longer an encumbrance against your property. To perform a lien strip and wipe out your second mortgage, you need to file a Chapter 13 bankruptcy and prove to the Court that the balance of your 1st mortgage exceeds the value of your property. If it does, then you can strip off (remove) your 2nd mortgage or HELOC loan, assuming you meet the other requirements for lienstripping.
The ability to do a lien strip is a very important benefit of bankruptcy. When done properly, a lien strip results in the Court issuing an order that has the effect of physically removing your lender’s deed of trust lien against your home, so that it is no longer encumbering your home. This results in two huge benefits. First, you erase the loan and lien so that it no longer exists against your property, meaning you’ll never have to make payments on it down the road and your lender will never be able to foreclose on the loan even when your property value goes up. Second, by physically removing the lien, when the value of your real estate goes up in a few years down the road, the lien will no longer be there and you will have more equity. You can sell your property and cash out the equity or you can just leave the equity there and let it continue to grow. The legal procedure for erasing a second loan is referred to as the lienstripping process and is accomplished through the mechanism of a lien strip motion filed in a Chapter 13 proceeding.
The bankruptcy process does not have a mechanism for allowing you to strip off your first position home loan. Your repayment terms on your first position mortgage loan will remain the same when you file bankruptcy. If you want to keep your home, you will have to make your regular monthly payments under the agreed upon contract terms between you and your lender. If you have any missed payments, you will have to also repay your missed payments over time through a Chapter 13 repayment plan.
Under appropriate circumstances you may be able to do a lien strip and totally eliminate your second position home loan or home equity loan. In general, if the balance of your first mortgage is greater than the value of your home, then you may be able to do a lienstrip and strip off the 2nd position loan and lien.
Lien stripping is accomplished through the bringing of special motion, called a lien strip motion. The way a lien strip motion works is based on 2-step process. The first step is to determine the value of your home, and, based on the value of your home, your 2nd mortgage loan or home equity loan can be modified and reclassified as “unsecured” debt, which essentially means it is treated just like your credit card debt. The second step is that based on the reclassification of your 2nd mortgage as unsecured debt, you can request a Court order stripping (removing) the Deed of Trust lien that is encumbering your property.
The lien strip order removing the deed of trust lien from your home will be contingent upon you successfully completing your repayment plan. As long as you complete your plan payments and otherwise comply with all provisions of your case, the deed of trust lien will be permanently removed from your home.
Lien stripping is not for amateurs. There are pitfalls in the lienstripping process and many lienstrip motions filed by inexperienced lawyers are denied. It truly takes a skillful lawyer, who specializes in lienstripping and has a firm grasp of how lienstrip motions work, to file your lienstrip motion successfully. Your lawyer should be one who specializes in Chapter 13 cases and has extensive experience specifically dealing with lienstrip motions. Your lawyer should also be intimately familiar with the way the San Diego judges and trustees view these motions, and the stances they have taken. It is critical that your lawyer knows the Court’s and trustees’ views on lienstrip motions if you want to be successful.
At Bankruptcy Legal Center we are Chapter 13 lien stripping experts. We have extensive experience and success with lienstrip motions. We can help you successfully strip off your 2nd mortgage or home equity loan through the lienstripping process. Importantly, we will also be able to advise you, in advance, how much (what percentage) of your unsecured debts that you would have to repay under your repayment plan. Hopefully, and in many cases, that percentage will be 0%. Call us today to set up a free consultation with a San Diego bankruptcy attorney specializing in Chapter 13 lienstripping, to learn how you can wipe our second mortgage or home equity loan through the lienstripping process. Call 619-501-9711.