Loan Modification

Second Mortgages and Bankruptcy

By L. Jed Berliner, Marlborough & Springfield, MA For

You can get rid of a wholly unsecured mortgage in a Chapter 11 or Chapter 13 bankruptcy case.  In the Eastern District of New York, you can also do this in a Chapter 7 filing as well.  In re Lavelle, Bankr LEXIS 3795 (Bankr SD NY 2009).

A wholly unsecured mortgage is one where there is no home value greater than an earlier mortgage.  Commonly, the value of one’s home has decreased to below the balance of the first mortgage.  This leaves a second mortgage without any home value to secure it (and a third mortgage also), so we call it an unsecured mortgage.

We’ve been able to get rid of an unsecured mortgage in Chapter 13 cases (with repayments) since the Supreme Court’s Dewsnup decision in 1992.  Courts have split on doing this in Chapter 7 (no repayments), including the 4th (MD, WV, VA, NC, & SC) and the 6th (MI, OH, KY, & TN) Circuits and other lower courts.  The 3rd Circuit (PA, NJ, & DE) has expressly left the issue open.

Sometimes, an idea is so important that it bears repeating.  My colleague Dan Press wrote on this first at our affiliated BankruptcyLawNetwork site, and more information is available there.

Related posts:

1. Lien Stripping – Using Bankruptcy to Wipe out Second Mortgages
2. Can Junior Mortgages Foreclose?
3. Get Rid of a Second Mortgage

Full post as published by Mortgage Law Network on February 27, 2010 (boomark / email).