Going for Ch. 13 with 2nd mortgage lien strip

[Brokeinohio]

Appraisal was by a Certified Appraiser

and it took place last week. If we are filing next week, we should be okay. I checked the website of the bank that holds the 2nd mortgage and they have a home appraisal tool on their site. Theirs says my house is worth even less - $479k vs. $488k owed on first mortgage. Which is a larger gap from loan to value on the first mortgage. I will keep you all posted. If this lien strip works - I will be so happy!

[walkthaplank]

The further under water the first is, the less likely the second will contest the lien strip. $8k might be in the realm where they'll put up a fight, but I really doubt it. It ends up being good money after bad and they are more likely to let it go. The question for you is, will your lawyer go for the lien strip with that small of an amount being the difference in whether or not the second is secured or unsecured? I talked with one lawyer in my area that wouldn't attempt a lien strip unless the first was under by at least $50k.

[NoTomatoCan]

I talked with one lawyer in my area that wouldn't attempt a lien strip unless the first was under by at least $50k.

That seems a bit extreme. I mean, you do get to a point where if you are SOOOO far underwater on your first, it no longer makes sense to keep the home. Having a home only $10k underwater on the first seems like sort of the ideal situation for a lien strip if it is successful. You could actually reasonably expect that in the near future you have some equity in the home.

IMHO, kinda sounds like an attorney who doesn't want to fight too hard for his clients...

[Brokeinohio]

Update - Chapter 13 filed

Well, my appraisal ended up between $450k and $510 wth the Appraiser finalizing on $485k as the final appraisal value. I owe $488k - guess we will wait to see if the 2nd mortgage company challenges. AGain their own web site says it's worth $479k - so I hope this doesn't become contentious. How long from filing until you have your 341 meeting? Does anyone know?

Thanks

[justbroke]

A 341 Meeting is generally scheduled 30-45 days after filing. In some busy Districts, it may be 60 days, but not more. As for the appraisal, so long as the "balance" on the first mortgage is higher, you should be good to go. I don't know if lien strips are done as a contested matter or via complaint in Ohio. (We get to do them as contested matters in Florida! Yipee!)

[walkthaplank]

That seems a bit extreme. I mean, you do get to a point where if you are SOOOO far underwater on your first, it no longer makes sense to keep the home. Having a home only $10k underwater on the first seems like sort of the ideal situation for a lien strip if it is successful. You could actually reasonably expect that in the near future you have some equity in the home.

IMHO, kinda sounds like an attorney who doesn't want to fight too hard for his clients...

I agree... that's why I went with a different lawyer

[huntington]

How did u get one with Chase?? Been trying for over a YEAR!! What was the result? How much of a decrease? Was it the loan amount or interest? Had you already BK when u did the modification? I would LOVE as much info as you can give!! Thanks

[Brokeinohio]

Chase Loan Modification

It took a while to get Chase's attention - it wasn't until May, 2009 when I was inquiring about a short sale and had missed about 6 payments that Chase started paying attention. It's a catch 22 as I ruined my credit pursuing the modification - but I had no choice. My modification "trial payments" were supposed to last 3 months - they lasted 10 months! This is where you "prove" you can make the adjusted payments. My modification went like this:

1) All missed payments and interest were added back into the loan amount - so it ate up almost ALL the equity I had gained over the 6 years of the mortgage - Original Mortgage was $490,000 and was down to $463,400 and is now back up to $488,400;
2) I did NOT have to pay penalties - but they still put a "late payment penalty" from 2008 on my very first statement and I am currently FIGHTING with them on that;
3) There was ZERO principal reduction;
4) My actual payment now is based on a 40-year loan with a balloon payment due in 25 years of $279,000.
5) The interest rate was reduced to 2% for the first 5 years then it goes up to 3% in year 6, 4% in year 7 and locks at 5% in year 8 for the remaining term (again 25 years with the balloon).
6) They require my payments include taxes and insurance - that is a stipulation of the Obama program - which for me is GREAT because my taxes were so high and I used credit cards to pay them a few times - $9200/year!

Essentially the bank had already collected well over $150,000 in interest from me the first 6 years. They will actually have made MORE money at the end of this road than had I stayed with the original loan. The BANK does NOT SUFFER -- PLUS they are subsidized $$ from the government FOR the modification! For me the payment being more "affordable" was worth it. I could NOT sell the house for what I owed NO WAY! Even on the first once real estate fees would be added in. Thus the bankruptcy!

I am filing Chapter 13 bankruptcy because I had accumulated credit card debt after my divorce and job loss (back to work @ about 60% of former income!). PLUS I still have the "under water" second mortgage (Fifth Third Bank). My ex and I did an 80/20 on a new construction (STUPID I know now!). But WHO anticipated the real estate market to TANK so badly?

I did NOT file the bankruptcy until the modification was a DONE deal and I received the countersigned paperwork back from the bank and I made my first payment under the new terms. This was at the advice of my bankruptcy attorney. This is a SMART move. Where are you in the modification process? YOU MUST drive them absolutely crazy, threaten to call your local TV station, etc. This is what I did!

Even though my modified payments are much lower -- I CAN'T make it with all these credit cards and I haven't paid on my 2nd mortgage since November of 2008 (stopped paying that at the same time as the first). My income is much lower now and I lost a spouse co-buyer! I am worried about my Chapter 13 bankrutpcy payment! But I guess we'll see.

[boochase]

Had meeting with BK attorney yesterday. Found the following article about 2nd mortgage stripping: "A second mortgage lien in the wife’s individual Chapter 13 bankruptcy case has been stripped by a Court, even though the mortgage and lien were in the name of the wife and her non-filing husband.

Eastern District of Michigan bankruptcy Judge Rhodes wrote the opinion, finding the debts totally unsecured.

In each case, it was agreed that the home was underwater, that is, worth less than the amount owed on the first-position loans.

lthough the non-filing spouse in each case had filed a prior Chapter 7, and discharged any personal liability on each secured debt, the Court said that did not matter in its opinion.

As with many Michigan homes, the value of the house did not even cover the amount owed on the first mortgage.

Though bankruptcy courts are powerless to modify the terms of a first mortgage securing the debtor’s principal residence, or home, even in Chapter 13 cases, for some years now, it has not been uncommon for debtors to get rid of the second mortgage lien.

That is, if they complete all their Chapter 13 payments and get a discharge.

Section 506 of the U.S. Bankruptcy Code says that a claim is secured only up the the value of the collateral securing the lien.

So, one debtor’s house was worth $120,000, with a first lien of $131,117.98, and a
second mortgage of $48,262.48.

The other was worth $100,000, with a first of $103,990.24 and a second of $45,598.48.

Nothing new so far.

The second mortgage holders claimed that, because the homes were owned as tenants by the entireties, by the filing debtor and the non-filing spouse, their second mortgage lien could not be stripped in an adversary proceeding brought by only one of the married couple.

The court carefully analyzed the facts and precedent, finding that there being no equity in the property, the bankruptcy estate had no interest in that property.

Many cases establish that the bankruptcy estate includes whatever entireties property is available to pay off joint claims, that is, claims against both spouses.

However, Judge Rhodes concluded that both spouses do not have to be in the bankruptcy or adversary case, even though the non-filing husband or wife benefits from the lien strip, it is just like benefiting from a run of the mill chapter 13 bankruptcy case, in which one spouse can file and stop a foreclosure."

Now, I am confused. When one says stripped, does that mean it is not added to the repayment plan along with the credit cards? My understanding is that it is excluded, and it is discharged after the repayment plan is completed (3-5 years). Am I understanding this correctly?

[momofthree]

Now, I am confused. When one says stripped, does that mean it is not added to the repayment plan along with the credit cards? My understanding is that it is excluded, and it is discharged after the repayment plan is completed (3-5 years). Am I understanding this correctly?

No. "Stripped" just means that the lien is removed from the property and the debt converts to unsecured debt which will be paid at the same rate as all the other unsecured debt in the plan. The note about the plan being completed is just to point out that the lien strip is not absolute until the plan is completed. If the plan fails, is dismissed, or is converted to a chapter 7, the lien remains on the property....

[boochase]

No. "Stripped" just means that the lien is removed from the property and the debt converts to unsecured debt which will be paid at the same rate as all the other unsecured debt in the plan. The note about the plan being completed is just to point out that the lien strip is not absolute until the plan is completed. If the plan fails, is dismissed, or is converted to a chapter 7, the lien remains on the property....

So, if this is true, then there is no more payback on this loan, for the unsecured debt holders are limited to what they would get if I filed CH7, in my case, there is only 14K available for the creditors. First mortgage holder gets the underwater house, and the two CC companies and the second mortgage holder get to split the 14K. Am I understanding this correctly? Also, are the attorney fees and trustee fees added to the devised monthly payment or are they added to it like a surcharge?

[NoTomatoCan]

Although the non-filing spouse in each case had filed a prior Chapter 7, and discharged any personal liability on each secured debt, the Court said that did not matter in its opinion.

Boochase - Please note that Judge Rhodes' opinion has not been generally accepted by the rest of the Eastern District in Michigan. Judge Rhodes, while being a pretty tough judge, seems to have a soft spot for lien strips. He essentially still allows a "Chapter 20" where you can receive a discharge in CH7, then almost immediately file a CH13 to strip off the lien on you unsecured 2nd.

Unless you live in SE Michigan and know that your case has been assigned to Judge Rhodes, I would be careful in making any plans based upon this article. The caselaw, even here in Michigan, is still a bit unsettled.

Definitely talk with your attorney about this, as he/she will be able to give you the best advice about a matter this complex.


Just saw on a later post that you are in Florida. I would definitely not put too much stock into a Judge Rhodes opinion....

[momofthree]

the unsecured debt holders are limited to what they would get if I filed CH7,

This statement is incorrect, the unsecured debt holders must get a MINIMUM of what they would receive in a ch. 7.

[Fallonedward]

Thanks, justbroke...

I actually gave my lawyer a CD copy of the judge's decision from the Frederickson case in Arkansas where the debtor had negative disposable monthly income and still got his Ch. 13 confirmed despite the trustee's objection.

I'm not one to just let the lawyer handle everything and not worry about it.
I feel like I have to be pro-active and gather as much information and knowledge as I can to help my case. After all, I'm the one who has something at stake here, not the lawyer. They get paid regardless of the outcome. This site (and your posts) have been a wealth of information.

I'll post updates as I go along.

Thank you so much, I really wanted a 3 year 13 but was told we had a negative dmi and would have to go 5 years and would have to put hubby's unemployment into the calculation even thou he does not qualify till September...I'm glad we asked the lawyer not to file the paperwork tomorrow, I want to be better educated. I don't want what is best for my attorney but what is best for me and my family

[boochase]

My impression for my lawyer was that lien stripping in Florida happens without problems. The problem he think exists for me is that both names are on the second mortgage even though I am the sole owner of the house. So, he believes that the lender will come after my wife. So, I am not so much looking at the allowing of the strip, but the part of the ruling that permits the strip without forcing the non-filing spouse to have to file.