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How a ?Lien Strip? or ?Strip-Off? Can Help My Under Water Second Mortgage

By Brett Weiss, Maryland Bankruptcy Attorney

About 25% of all mortgages in the United States are “Under Water,” that is, a mortgage where the property is worth less than what is owed on the mortgage. Many people who own these properties also have second mortgages, equity lines,  HELOCs, or tax, HOA or other liens, pushing the property still farther into the red. A Chapter 11 or Chapter 13 bankruptcy may offer a solution: the “Lien Strip,” or “Strip-Off.”

A lien strip lets you stop paying the second mortgage (or equity line, HELOC or lien), treat it as a general unsecured claim, and at the conclusion of the case when you get the discharge, the lien must be released. Since liens generally survive a bankruptcy discharge, a lien strip requires that you file a Motion to Avoid Lien with the Court and have it granted. Then you have to make all of the required payments under your reorganization Plan and receive a discharge.

To be eligible for a lien strip, your first mortgage must be more than the value of your property.

This is not always a simple process, and you should discuss whether you are eligible for a lien strip with your bankruptcy attorney.

 

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Full post as published by Credit Law Network on March 10, 2011 (boomark / email).