Home Value and Discharging 2nd Mortgage

[Daedalus81]

Asked a dumb question - mods could you delete my thread - sorry!

[HHM]

Let's make sure we clarify the issues as your question indicates you have some confusion about how this works.

You need to keep in mind that a mortgage is really TWO things. (1) security interest in your home and (2) a personal debt owed by you (the borrower).

In chapter 7 bankruptcy, the debt obligation (#2) is discharged regardless of the value of the home. However, the security interest (#1) remains intact. A chapter 7 BK cannot remove a security interest from a debtor's primary residence. As such, in chapter 7, the home's value is irrelevant. The issue, of course, is what to do with the 2nd mortgage after the BK? Technically, if you are in default or stop making payments, the 2nd mortgage CAN foreclose. However, depending on the value of the home, it is unlikely the 2nd mortgage will do so. Nevertheless, the security interest stays there until you deal with it by either settling with the 2nd mortgage after BK or selling the house.

http://www.**********.com/blog/2011/...-7-bankruptcy/

[Daedalus81]

That is a very nice article - thanks!

I wonder though where he seems to imply the first and second mortgages are owned by separate entities. Mine are owned by the same bank. That wouldn't changes his premise would it?

[HHM]

That is a very nice article - thanks!

I wonder though where he seems to imply the first and second mortgages are owned by separate entities. Mine are owned by the same bank. That wouldn't changes his premise would it?

Doesn't matter.

In reality, the mortgages are probably only being "serviced" by the same lender. The true owners (a trust) are almost certainly different.

[despritfreya]

By the way, Daedalus81, there is no such thing as a "dumb question". . . well, actually there is. . . it is the one you do not ask.

Glad HHM was able to shed light on your question.

Des.

[IBroke]

In chapter 7 bankruptcy, the debt obligation (#2) is discharged regardless of the value of the home. However, the security interest (#1) remains intact. A chapter 7 BK cannot remove a security interest from a debtor's primary residence.

Since 5/11/2012, some debtors in Florida obviously can:

http://www.bankruptcyorlando.com/201...uit-court.html

[HHM]

True, but I am going to stick with the advice that applies to 99% of circumstances

[IBroke]

True, but I am going to stick with the advice that applies to 99% of circumstances

That's what I would do as well.

The info I just posted was provided to me by another member - so when I read what you posted, I got a little nervous if it's really true that Florida allows this stripping now. The court-decision has a huge impact on us so my post in this thread was an opportunity to find out how "watertight" this really is.

I'm living in Florida and I'm really curious why this court-decision made no public impact - especially in my state with so many potential cases that could take advantage of it.

HHM, since you know this business...I read a blog entry by a local attorney, stating that this decision will probably be appealed but that this process could take several years. So would it still be sufficient if my mother would file in a few months or should she go ahead, don't take any chances and file ASAP?

Thanks!

[HHM]

I haven't looked at it in a bit, so I don't know the procedural status of the case.

The 10th Circuit just came out (literally within the last few weeks) with a completely opposite decision. In re Woolsey, --- F.3d ----, 2012 WL 3797696 (10th Cir., Sept. 4, 2012) (sorry, no link handy). The issue was a little different, but any time the issue of chapter 7 came up in the decision, the 10th circuit continually pointed to the USSC Dewsnup decision that said no lien strips in chap. 7.

So, if you have the ability in FL (or any other 11th circuit state) to get a chap 7 strip done, you better do so ASAP. The only issue would be whether the 11th Cir stayed enforcement of its decision, which I don't think they did, but the attorneys on the ground there hopefully would know.

[IBroke]

The only issue would be whether the 11th Cir stayed enforcement of its decision, which I don't think they did, but the attorneys on the ground there hopefully would know.

Thanks for the info.

We already scheduled some appointments with local attorneys to see what's going on. I do know, however, that the courts have already issued some legal forms for filing to take care of this new situation.