How can you strip away a second mortgage?

On Behalf of | Jan 21, 2019 | Uncategorized

There are several reasons homeowners take out a second mortgage on their homes, including but not limited to skirting homeowners’ insurance requirements, utilizing the equity in one’s home or borrowing against the home. Whatever your reason for pulling out a second mortgage on your Connecticut home, do not feel bad if your second mortgage has put you in over your head debt-wise. Also, know that relief options are available to you that do not involve foreclosing on your home.

According to SF Gate, you may be able to strip off your second mortgage via bankruptcy provided your home does not have equity in it and that you meet eligibility requirements. This is because bankruptcy courts, on occasion, treat second mortgages as unsecured loans. If you plan to go this route, there are a few steps you need to take before obtaining financial relief.

The first is to review your most current mortgage statements and get an idea of the remaining principal balances on each. You may qualify to lien strip your second mortgage if the amount you have to repay on your primary home loan is greater than the equity left in your home.

The next step is to file a lien stripping motion. Second mortgages are not unsecured debts, which means the bankruptcy courts cannot rightfully discharge them. If the courts approve your lien stripping motion, your second mortgage will change from a secured to an unsecured debt, thereby rendering it dischargeable. Once approved, the court will order the holder of the second mortgage to remove the lien from your property.

Your next step is to apply for Chapter 13 bankruptcy. Once in bankruptcy, the trustee assigned to your case will reorganize your secured loans, including your first mortgage, to make them more affordable. Your unsecured loans, which take the lowest priority, are likely to disappear. 

That said, if approved for Chapter 13, you will still have to repay a portion of your second mortgage. However, the amount is likely to be far less than what you originally owed and your monthly payments much more manageable. Once you complete your Chapter 13 repayment plan within three to five years, you should be free of the debt. 

It is important to note that not everyone qualifies for this type of debt relief. To qualify, you need to be able to prove you earn enough each month to pay off your secured debts. You must also show that you can repay at least some of your unsecured debts. The bankruptcy courts are unlikely to approve a case in which a debtor’s outstanding obligations are too high. 

This post is for purely informational purposes. It should not be used as legal advice.