Can I Strip a Second Mortgage Off My Home?
If you are one of the many Floridians that took out a second mortgage during times when home prices were on the rise, this entry is for you. I have met with many homeowners, especially in Southwest Florida, that are paying on two or more mortgages when their home value does not exceed the first mortgage. In these circumstances, a Chapter 13 bankruptcy may be able to help.
In a Chapter 13 bankruptcy, where the value of the home does not exceed the first mortgage, a Motion may be made to declare the second mortgage an unsecured non-priority debt, placing it in the same position as a credit card or other unsecured non-priority debt to be discharged. For example, where a home has a current value of $100,000, with a first mortgage balance of $150,000 and second mortgage value of $50,000, subsequent to the filing of a Chapter 13 bankruptcy petition, a Motion may be made to “strip” the $50,000 second mortgage, relieving the homeowner of that debt, allowing the homeowner the opportunity to focus on paying the first mortgage.
This situation may also arise where an individual has already filed bankruptcy. The following question has been posed to me by an individual that had filed a bankruptcy in 2008 – for example, where the home was worth $175,000 at the time of filing, with a first mortgage balance of $150,000 and a second mortgage value of $50,000, the second mortgage was not stripped when the bankruptcy was filed. However, now, in 2010, where the home price has fallen from $175,000 to $100,000, can anything be done to now amend or modify the Chapter 13?
Unfortunately, there is no easy answer to this question. It is likely an individual would receive opposition to amending/modifying their plan to strip the second mortgage, either from the trustee and/or second mortgage holder. However, an individual may have an alternative recourse should this situation arise – an individual may voluntary dismiss their current Chapter 13 bankruptcy case and re-file a subsequent Chapter 13, stripping the second mortgage in that bankruptcy. The downfall to the individual would be that a new Chapter 13 would need to be filed, resulting in the individual incurring the expense of a completely new case. This downfall, however, would have the benefit of stripping off the second mortgage – in the above-stated example, $50,000.
This blog was written by John Webb, Esq. of The Dellutri Law Group, P.A. Attorney John Webb practices in the areas of; FDCPA, FCRA, FCCPA, Foreclosure Defense and Bankruptcy.
