Chapter 13 Mortgage Lien Strips.

[frankies_mom]

thanks jb and hhm. we live in connecticut and the firm we are working with has done quite a few of these over the last year. they say we are a good candidate. they did our 7 without a hitch so we are really hoping they are right. we file march 1st so we will see! we have a 60 month plan to pay our arrears and if we follow everything to the letter we should get our lien strip. fingers crossed!

[sicbp]

This is great information. We did a 7 and are now filing a 13 for a lien strip on our 2nd. I do have a question if anyone can answer. We did have to fall a bit behind on our first to do this so now of course we have incurred late fees, attorney fees (by the mortgage) etc. Are these fees included in our plan or can these fees be tacked onto to our first? I will of course ask our attorney too but wondering if anyone knows/has any experience with this? THANKS!!

Frankies_mom: I'm looking at this similar situation, just submitted my chap 7, 341 coming up, but I'm now learning about the chap 13 option to strip the second mortgage, I believe there is no value to support the second - did you already get an appraisal on your home to help it along?

[reluctant13]

My home is probably worth $290k. Coincidentally, that is what I currently owe on the 1st plus two HELOC's ($186k, $59k, $45k). My principle balance is dropping by $1,300 per month, so I will soon have some equity. The big problem is that I put my home up for collateral to rehab a [bad] investment property. Once it forecloses, which could be 2011, I could have a fourth lien for about $200,000. So, if I stay in this home, it will cost me an extra $200,000! But what if I move out (either sale, short sale, or foreclosure) of my current home? Will I avoid that fourth lien?

[cynmaxine]

I hope this works, more and more courts are holding that you cannot do a lien strip in a chapter 13 that is non-dischargeable; meaning filed within 4 years of filing your chapter 7 bankruptcy.

This is exactly what my bk atty just told me this week. I did a Ch. 7 in 2008. The second was included. She says I probably won't be able to get the second mort discharged again in a Ch. 13 and that it HAS to get discharged within the Ch. 13 process again in order to be able to proceed with a lien strip. The judge where I had my Ch. 7 done just ruled that the person could not get the second discharged in the 13 b/c it was just discharged in the 7. So, it was rejected. She says it's unlikely I will be successful. 2 years ago though she told me I could do it. Things have changed now that so many people are trying to do this. So, I have to let my house go b/c there's no way I can pay both mortgages and will not be able to refinance even the first for at least 10 years because the market will take that long for my house to be worth the amount of the first mortgage.

[windycitylaw]

I'm a Bankruptcy Attorney in Illinois, and lien stripping is starting to become very popular.

Some things you should know:

1. There cannot be 1 cent of equity that is securing the second mortgage. This is very hard to prove since the other side will usually come in with a contradicting appraisal and the judge will usually side with them.

2. A judge in for the Northern Illinois District just ruled that you cannot strip a lien through a plan, you MUST file an adversary proceeding and have a trial. Otherwise, its a due process violation (bc it takes property from the lender without a full hearing).

I'm very impressed with the knowledge of this site, I can even learn some stuff here.

This is a great resource.

Also, if you'd like to check out my site visit:

[URL Removed]

Chicago Bankruptcy Attorney

[mybk]

In Washington state at least, your plan can not be confirmed (or typically will not be) until your petition to lien strip has been responded by the lien holder. This is usually typical because the trustee will need to know how that payment is going to be handled and the creditors position (secured or unsecured) going forward.

Also, at least in Washington, it is important to note that 'lien strip' is rather misleading. It is actually lien avoidance, so your lien is still going to be in place in many cases even after discharge. Many lenders never issue a reconveyance letter so be prepared to press that with a laywer after the discharge or simply ignore the second lien after that. When you sell, refi, or pay off the home and the title company goes to record you simply present the court judgement along with discharge and the title company will remove the lien during that process (or avoid in other words).

[mybk]

This is exactly what my bk atty just told me this week. I did a Ch. 7 in 2008. The second was included. She says I probably won't be able to get the second mort discharged again in a Ch. 13 and that it HAS to get discharged within the Ch. 13 process again in order to be able to proceed with a lien strip. The judge where I had my Ch. 7 done just ruled that the person could not get the second discharged in the 13 b/c it was just discharged in the 7. So, it was rejected. She says it's unlikely I will be successful. 2 years ago though she told me I could do it. Things have changed now that so many people are trying to do this. So, I have to let my house go b/c there's no way I can pay both mortgages and will not be able to refinance even the first for at least 10 years because the market will take that long for my house to be worth the amount of the first mortgage.

Another option is to stop paying on the second, force them into a charge off, then negotiate a settlement down the road. If your home is under water, they are not going to want it. Better in this case than just dumping the home, they will be in a worse position than if they settle with you.

Sometimes though, it can take you putting out the first as well for awhile. If the second believes that foreclosure is going to happen and their loan is already at charge off (beyond 180 days late) they will likely settle for a more reasonable amount.

Be prepared to have 10% available though from friends/family.

[mybk]

These fees must be paid as "arrears" through your plan. Also, you need to be REALLY sure that your Chapter 20 lien strip is going to work. I know that it won't work in Florida, because we require a "discharge" (in the Chapter 13) in order for the lien strip to stick.

You would be performing it in the wrong direction then. You perform the 7 to wipe off the unsecured, then file a 13 later for a lien strip. You will of course have to wait. Problem with doing it in this order is that many trustee find a problem in simply a plan payment that contains legal fees and one unsecured debtor (your 2nd) and you take the chance that given your 'disposable' income will not end up paying the lien in full or a great deal anyhow. Many of these cases likely could have a settlement worked out after the 7 with the 2nd lien holder without having to perform a lien strip.

A chapter 20 in the other direction will rarely ever work, almost all lien holders place a clause that the 13 must be discharged or the lien will not stick. Hence converting is not obtaining a discharge on the 13 and you fail the check.

[justbroke]

mybk, I more than understand lien stripping, Chapter 20s, and the confirmation process. Sometimes, the forum discussion format only provides for simplification of the process.

I don't know what you mean by "backwards". It would always be a Chapter 7 followed by a Chapter 13. In Florida, yes, we do require a discharge to get the affect of the lien strip, so it would never work in Florida. I would consider a Chapter 13 filed 4 years after a Chapter 7 discharge, to be a new case, and not the so-called "Chapter 20". I really don't understand what you're writing because it is what I wrote here in this thread, in other threads, and in my blog.

[mybk]

Reading your post, I was left with the impression that you were attempting a chapter 7 after a 13 (stating that you must get the discharge). Was just the way I read it, felt like it was backwards.

The lien strip process was just mentioned for the benefit of the thread and those that may not understand how it is going to work.

[cynmaxine]

Hi. I actually already did a Ch. 7 two years ago. I was attempting to do a 13. I have given that up now though and have decided (after lots of deliberation and consults with various people) to let it go. It's the best decision. The house is worth half of what I owe on it and I owe $670K. The modification gave me an interest only loan with no payment into principal and the lender told me they will never convert it into a fixed. Given how hard it will be to refi without stripping the second (and that I get now is really hard to do at least where I am) there's not point in keeping it.

Thanks for the advice and help all!

[Desertratz]

Request clarification for lien strip and 1st mortgage amount

Hello, my understanding if the value of your home (1st mortgage) is now worth less than what you originally borrowed on your home loan, a judge can remove your 2nd mortgage as part of your Chapter 13 bankruptcy (lien stripping). My question is:

Must the value of the 1st be based on the original loan amount? or the current loan amount?

For example, I originally purchased a home for $85K 10 years ago and refinanced it to its current loan amount ($175K). This is my 1st loan with a present balance amount = $175K (I refinanced my 1st from $85K up to $175K over the years). My current home value is $130K and I have a 2nd with a balance of $132K (which I want to strip).

Since the balance on my 1st is $175K and its worth $135K do I qualify to strip the 2nd? Or is the loan amount on the 1st based on the "original loan amount" ($85K) in which this amount would not be less than the current market value of my house.

[LadyInTheRed]

Hello, my understanding if the value of your home (1st mortgage) is now worth less than what you originally borrowed on your home loan, a judge can remove your 2nd mortgage as part of your Chapter 13 bankruptcy (lien stripping). My question is:

Must the value of the 1st be based on the original loan amount? or the current loan amount?

For example, I originally purchased a home for $85K 10 years ago and refinanced it to its current loan amount ($175K). This is my 1st loan with a present balance amount = $175K (I refinanced my 1st from $85K up to $175K over the years). My current home value is $130K and I have a 2nd with a balance of $132K (which I want to strip).

Since the balance on my 1st is $175K and its worth $135K do I qualify to strip the 2nd? Or is the loan amount on the 1st based on the "original loan amount" ($85K) in which this amount would not be less than the current market value of my house.

The value applicable for a lien strip is the value on the date you file.

[Desertratz]

Request clarification for lien strip and 1st mortgage amount

Re: "The value applicable for a lien strip is the value on the date you file"

Thank you LadyInTheRed!

[Brokeinohio]

Lien Strip Filing with Chapter 13 - ? Car with no lien but have a LOAN!

Okay - Providing an Update! A little over a week ago, my BK attorney filed my Chapter 13 with about $38k in CC debt and a 2nd mortgage of $140k to strip. I received a letter from the County BK court that was my copy of what they sent to the 2nd mortgage company - Fifth Third Bank. Basically it was an alert with the filing documentation attached informing them of the bankruptcy request to strip the 2nd mortgage due to no equity, etc. It also stated that 5/3rd had 14 days to respond to chalenge that request to strip the lien - they have until March 14, 2010 and that no response would be an assumption they are not challenging the request. This ought to be interesting.....

I also have one RISK factor about my filing - I purchased my car with a signature loan that did not require a lien be put on the car (I used to have stellar credit - before divorce, job loss and real estate crash). Now I technically owe $19,000 on the car - but i have the white title. We are asking that I keep the car and continue to make the payments on the loan even tho there is no lien -- it gets paid off in 2 years 10 months. Our proposal is that once the car is paid for, we would redirect that payment into the reppayment of the remaining creditors for the last 2+ years of my 5-year payment plan under the Chapter 13. What do you think the Trustee will do?