Over equity 2nd mortgage and ch7

[daytona]

This might be in the wrong section but if a 2nd home equity line was taken out as a 125% loan to the appraisal can it be included in chapter 7? Another words the lendor made the loan based on an LTV that was way over the appraisal amount and paid various unsecured debts off with the proceeds...which are right in the closing documents...Is it possible to "strip" the unsecured portion of the "over equity" portion in Chapter 7 since it was unsecured at the time it was made....not even taking into account any home price depreciation? Thx

[biotechsolution]

No. Only in a Chapter 13.

[OhioFiler]

There is a new theory being explored that the 2nd can effectively be stripped in a Chapter 7 if you are willing to play hardball with the 2nd mortgage holder since they have zero equity in the property. There are several threads on BKFORUM about this including one where the member was successfu in gettin t it stripped post-bk for pennies on the dollar..

[daytona]

No. Only in a Chapter 13.

That's the way I always understood it...But, if a significant portion of the loan was knowingly made unsecured and its right in their own closing documents I don't see why that "portion" of the 2nd (unsecured) wouldn't be included in a Ch7 along with other unsecureds. Another words keep the 2nd in place that was the "secured" portion of the loan at closing...I'm not even taking into account any home price depreciation which there has been in the past 3yrs since closing.

[StartingOver08]

There is no lien strip mechanism in the BK law now for a Ch 7.
But as OhioFiler has pointed out, there is an 'informal' lien strip where you do not reaffirm your mortgages (first or second). You continue to pay on time for the first mortgage but you stop payment on the second. After several months of non payment settle the second for pennies on the dollar in exchange for a release of lien. Check out the posts by Relief...she is one of the members that has successfully done this very thing recently. (And both of her mortgages were serviced by the same lender!)

The advantage of doing it this way is that it does not really matter if the entire 2nd is unsecured or not - you are treating it as if it were. (Of course, in the Ch 13 lien strip it makes a big difference because the law is specific. Since there is no formal Ch 7 lien strip you have more latitude) This would be a big issue if the second was only partically unsecured, but with the way most of the valuations are coming in now...there is little danger that you have a secured second on recent loans. Check your values to be sure.