Chapter 13 Mortgage Lien Strips.

[spidge]

So is it correct that in a lien strip the 2nd doesn't need to be current to qualify?

Core question.

[divorce]

Chapter 13 Mortgage Lien Strips.

From what I have read online in various blogs/forums you can strip a 2nd mortgage off in a Chapter 13 if the value of the house doesn't cover the 2nd mortgage at all. Thus making it an unsecured debt.
Our lawyer has told us that nothing has been passed by the government allowing this to happen, unless it is lender approved.
Is this true ? We live in Virginia if that makes a difference.
I am wondering if this is just something that is hard (but not impossible) to get done and our lawyer doesn't want to fool with it.

[spidge]

I am wondering if this is just something that is hard (but not impossible) to get done and our lawyer doesn't want to fool with it.

This is most likely the reason.

[h0usekeeper]

Different strokes for different folks. There are lawyers advertising stripping 2nd mortgages. Our business is stripping 2nd's and cramming down the first. We have been doing the cram downs on firsts and have not been challenged. It is the approach to the method of bifurcation that has to make sense to the lenders for them to approve our position.

[MinotLaW]

Very informative... Can you clarify one last thing here. Our client owns a second home on the Outerbanks of NC. The home is now worth about $250,000 (if that), SunTrust Bank offered a loan mod which would push the loan up to $450K (4% for 40 yrs - PITI plus escrow) If they filed a Chapter 13, and a cram-down was granted bringing the debt down to $250K would the payments be $250K divided by 60 payments $4,166 a month?? or would they be able to make reduced payments on the $250K and have the option to sell the home in Year 5?

[h0usekeeper]

Payment is based on the the reduced balance (250k) and the agreed interest rate (prime plus) for 35 -40 yrs. Sell after 5 yrs with no equity sharing.

[justbroke]

Very informative... Can you clarify one last thing here. Our client owns a second home on the Outerbanks of NC. The home is now worth about $250,000 (if that), SunTrust Bank offered a loan mod which would push the loan up to $450K (4% for 40 yrs - PITI plus escrow) If they filed a Chapter 13, and a cram-down was granted bringing the debt down to $250K would the payments be $250K divided by 60 payments $4,166 a month?? or would they be able to make reduced payments on the $250K and have the option to sell the home in Year 5?

Here's my partially informed opinion...

You have it pretty accurate that the second property (non-homestead) would require paying the entire cramdown value of the property over the applicable commitment period (ACP). If it's 60 months, then your math is right. You could also change the interest to the Till Rate, so it's more than $4,166/month. Currently Till Rate (Kansas) is 4.75% as of June, 2009. At that rate, the payment would be $4,689.23.

What's worse, is that you would also have to pay your unsecured creditors, at least $250K over the 60 month period. So if your client has $250K in unsecured debt... add another $4,689.23 to that plan!

Or would they be able to make reduced payments on the $250K and have the option to sell the home in Year 5?

No. That is not going to happen. They would have to pay the uncrammed payments, or do the cramdown. The problem comes with if they dont' pay it off, then they'd be subject to foreclosure at the close of the case in the best case... or be subject to a RFS during the plan in the worse case. Secured creditors must be protected. Since the market value of the home is way less than the balance on the property, the creditor is way way undersecured. This could work, though, because the payments on $250K over 60 months is definitely more adequate protection than the normal payment (amortized over 40 years) on $450K.

I don't have a good recommendation. I have an investment property too, and I decided to give it up. I don't see why the client would want to keep it unless they have some serious resources! If they do, I don't see how they do this without being in a 100% plan anyhow.

Just my read.

[MinotLaW]

When you say no equity sharing, do mean that if in year 5 they sell the home for $350K they do not share the $100K gain with the bank?

[justbroke]

When you say no equity sharing, do mean that if in year 5 they sell the home for $350K they do not share the $100K gain with the bank?

I think in cases where you get a loan modification that includes a principal reduction, you agree that if you should sell the property within x number of years (let x = 5 for this example), then you would have to share any equity gained.

So, in your example, you would have to share the $100K gain with the bank at 50%-50%.

Now, that's if you can find a bank willing to do a principal reduction as part of a loan modification... and on a second home. (Second homes are riskier than primary/homestead properties.)

[clos96]

13 Confirmed w/ Lien Strip done... now converting to a 7

Hello Everyone!!

I'm a newbie and am getting mixed views from different attorneys.

My 13 was just confirmed last week. A couple of months back we stripped my 2nd lien and made it unsecured. It's been recorded and everything.... $51,000. I have since stopped making payments.

My job stopped paying OT beginning 7/1. Naturally I was milking it to make ends meet and now I'm screwed and have a monthly deficit.

I now qualify for a 7. My attorney told me that the 2nd would remain stripped even though I'm converting. This website says no. I'm very concerned as she had admitted to me that my lien strip was her 1st go around. It wasn't cheap.

I'm ecstatic of getting out of my 13 but am really worried that my attorney is wrong and I might be SOL w/ my strip and am now 4 months behind (even though I know they'll modify)

What are your opinions on this? What is she talking about that would allow the 2nd lien to remain stripped?

Thanks,

CJ

[justbroke]

I now qualify for a 7. My attorney told me that the 2nd would remain stripped even though I'm converting. This website says no. I'm very concerned as she had admitted to me that my lien strip was her 1st go around. It wasn't cheap.

If you tell us what State you are in, we can check to see if Lien Strips only stick if you get a discharge. In every jurisdiction I've seen, the Lien Strip can be immediate, but the underlying rule is that if you don't receive your discharge in Chapter 13, then the lien comes back in force.

If your lender actually recorded a Satisfaction of Mortgage... wow. I'd say you're good to go if they did that. If an actual recordation of a Satisfaction of Mortgage wasn't recorded, then you may have issues.

You see, if what your attorney says is true, a Chapter 7 debtor, would go into Chapter 13 first, to strip the lien, then convert to Chapter 7.

[clos96]

I apologize I live in Florida, Middle district. The default judgment was recorded on 3/31/2009. My lender has never done or said a thing during the whole transaction. When I go to their website to check the status the 2nd lien is still available on their website for me to make payment. It's as either their oblivious to what happened or have not decided to take any action yet.

I appreciate the prompt reply.

Here is quote, what my attorney said when I questioned her on the subject:

I knew you would be contacting me regarding this. What you have read needs a finer explanation.

Let’s meet next month and discuss all.

If you want to meet sooner, please let me know.

This was my original E-Mail to her:

Good Morning:

Was reading a little more into lien strips and found this online:

"In order for the lien strip to stick, you must receive a discharge of your chapter 13. If your chapter 13 is dismissed or converted to a 7, you will lose the lien strip and more than likely lose your home because you have not been paying your 2nd mortgage during the chapter 13 (it would be very hard to get caught up). If during the chapter 13, you become eligible for a chapter 7, you should first look at requesting a hardship discharge of your chapter 13 under BK Code 1328(b) to preserve the lien strip."

Will you be requesting this "hardship discharge of our Chapter 13" to help us preserve the lien strip?
You said in our conversation a couple of weeks back that the lien strip was done and gone. I keep on reading where this isn't the case.

I know you said to trust you but you did tell me that this was your first go around with a lien strip and just want to make sure what to look forward to once we get out of this.

Thanks,

Carlos

[justbroke]

I apologize I live in Florida, Middle district. The default judgment was recorded on 3/31/2009. My lender has never done or said a thing during the whole transaction. When I go to their website to check the status the 2nd lien is still available on their website for me to make payment. It's as either their oblivious to what happened or have not decided to take any action yet.

Nope. That lien is not gone. It only is gone (for good) once you receive a discharge in your Chapter 13. Should your convert to a Chapter 7 or otherwise be dismissed, the lien will bounce back in full force. This is standard language (now) for Florida.

I thought you mentioned that the "satisfaction" of mortgage was actually recorded. You won't get that until the earlier of, the underlying mortgage is paid in full, or you receive a discharge in your Chapter 13.

[clos96]

Can you point me where I can read the Florida law online to question her?

What does she mean by "finer" explanation? Do you know of any workarounds besides the hardship 13 discharge?

I completely agree with your statement above. If you can strip and convert to a 7, then everyone would be doing it.

Thanks,

Carlos

[pcn]

search for "ch7 lien strip" - not really the correct description, but there are several interesting threads on doing the ch7 and settling with the 2nd lien holder. That is the route we are going. At least one person here has done it, I think her story is over on the Foreclosure forum.