Are lien strips often contested?

[intipuca]

Hello all,

I just found this forum and have been reading a whole lot of new information I didn't know. I have one question that still has me a little worried.

Are lien strips contested often by the lender? I owe my first mortgage 325K and a have a HELOC with 134K. My attorney says that my home is valued at $7 less than my first mortgage and that she will remove the HELOC. Also, she says that with all the late fees I've incurred (I'm 4 months behind), that I actually owe 335K and that should give me a bigger cushion. Both loans are with the same lender. I don't know where my attorney got her number for the home value from. According to zillow.com, my home is worth 341K, which would not work for me. According to cyberhomes.com, my home is worth 276K, which is excellent for me.

If the lien strip does not go through, then the CH13 will not work for me. My 341 isn't for another 6 weeks, so there's a lot of days left with fingers crossed.

thanks for any info you can share.

[imaloser]

i don't think you can add on the late fees and arrears to "what you owe" - it is the value of the original note - that being 325 k . the only way to know for sure is to get an appraisal. my junior contested the lien strip - but, according to my lawyer "backed down" once he saw the appraisal.

[mgdebt]

Hi Intipuca - I'm am in the same exact position as you! I was also going to count my arrears to my balance owed on my first - to give me the extra cusion. I am going to talk to an atty. on Thursday, so I'll let you know. Cyberhomes also worked for me....Zillow has been going up?!? I am doing the same thing...if the lien does not get stripped, then I would do a 7 instead of the 13. I will be getting a bankrupcy appraisal in the next couple of months, so hopefully home prices will continue down just a little bit more. Good Luck!

[rjl0206]

I thought you could not file a chapter 7 if you have mortgage arrears, at least thats what my attorney said. Anyone care to clarify?

Ray

[intipuca]

My attorney said that what counts is the payoff amount, and not just the principal balance. She told me to write a letter asking for a full payoff summary and that is the number she is using.

Stripping my second mortgage just seems too good to be true since the home is so close in value to the first mortgage, so I think it probably is just wishful thinking.

[justbroke]

Here's from experience and litigating this on my own.

First, lien stripping is a contested matter by procedure. This means that a hearing is usually held in order to determine the status. In my District, we can use something called negative noticing which allows an "uncontested" matter to have a default judgment rendered without a hearing! Fancy speak for... you can actually settle a contested matter without any hearings.

Anyhow, if you do it properly -- that is, you properly document the lien strip -- many lenders won't bother responding or fighting the issue, because it's just a waste of money for them.

As far as what constitutes the balance on the first mortgage... it's whatever the lender put on the claim! That is, if there were arrearages and attorney fees, those count as the balance of the loan.

Here's a perfect example (and close to my example!). Say your original loan on your home was $470,000 with an interest only payment. Over the years you paid on time, but suddenly you're 6 months behind. Your payment was $2,000 a month and you now have $12,000 in back payments due (the interest only payment for 6 months), plus some other fees. Let's just say the total of the fees and back payments amounts to $15,000.

Say you have a second mortgage at $100,000. Let's say the value of the house, via a professional appraisal, comes back at $480,000. Guess what, you can strip the second even though it exceeds the principal balance of $470,000 because the value is less than what's owed on the first mortgage. (You actually owe $470,000 plus $15,000 or $485,000 to the first lien holder.)

However, if the value came in at $485,001 or higher, you couldn't strip the second lien.

Does that example work?

[BnkrptcyLwyr]

The simple way to help make sure that you can strip the second mortgage is to simply pony up the $300 (here in Michigan anyways) to get an appraisal.

Get an HONEST appraisal ... and tell the appraiser that. Don't give him a target. You want this appraisal to hold up in court potentially.

If you don't, and the bank does decide to challenge, that will extend your case out longer ... and you may end up paying many months more of payments. You can either make 2-4 months of extra payments ... or spend $300 for the appraisal. Seems obvious to me that spending $300 (even if it seems wasted) to ensure that your valuation won't be challenged is money well spent.

[intipuca]

But my attorney told me to NOT pay the 2nd mortgage. She told me to forget about it. So, even if the confirmation is delayed, I won't be paying extra.

Or do you know if I'd have to start paying it if the lender contests it?

[justbroke]

I agree 100% with BnkrptcyLwyr. I spent $300 in order to get an Appraisal. When the appraiser came out he kept asking what the Appraisal was for. I told him that I was just interested in what the current market value was. He asked if it was going to a Bank, I told him no.

He came at the right value and it wasn't coerced by me. The Bank didn't contest it, so that told me alot.

If you really are planning to strip the lien and your lawyer didn't yet arrange an appraisal, ask why!!! It doesn't make sense not to get the appraisal.

[TooMuchCredit]

OK, say you do strip the lien. Is your plan filed taking that into consideration or is it filed as if you were still paying it. I.E. without the strip, the plan would pay $500/mo which will pay 15%. If your 2nd lein's payment was $900, do you now pay $1400 for a 39% payback to all OR do you still pay everyone, including the lien, 15%? If you owed $80K on the 2nd, 15% of that would be $12K, then divide by 60 months = $200, so your original $500 would become $700/mo.

[BnkrptcyLwyr]

OK, say you do strip the lien. Is your plan filed taking that into consideration or is it filed as if you were still paying it. I.E. without the strip, the plan would pay $500/mo which will pay 15%. If your 2nd lein's payment was $900, do you now pay $1400 for a 39% payback to all OR do you still pay everyone, including the lien, 15%? If you owed $80K on the 2nd, 15% of that would be $12K, then divide by 60 months = $200, so your original $500 would become $700/mo.

It will be treated as any other general unsecured debt and paid its pro rata portion ... whether 0%, 5%, 25% or whatever your proposing to pay to unsecured creditors.

[BnkrptcyLwyr]

But my attorney told me to NOT pay the 2nd mortgage. She told me to forget about it. So, even if the confirmation is delayed, I won't be paying extra.

Or do you know if I'd have to start paying it if the lender contests it?

What I mean is that you will still be making your regular plan payments ... whether or not it goes specifically to your second mortgage. It's just extra payments ... period.

The time to confirmation is approximately 3-4 months from filing. If you extend that time out to 6-7 months because you didn't get an appraisal and the bank decides to contest your valuation then that's 3-4 extra months of making payments that you didn't need to make. If you're paying $1000/month ... you just forked over extra money that might go to unsecured creditors versus paying the $300 up front and avoiding the challenge.

[TooMuchCredit]

It will be treated as any other general unsecured debt and paid its pro rata portion ... whether 0%, 5%, 25% or whatever your proposing to pay to unsecured creditors.

Wow, thanks! That means if I am able to strip, I will not be forking over as much money as I thought. And in 5 years when my plan is done I really will be in good shape.

Now I just have to wait and see what the appraisal says to see if I can even go that route.