I read this article today ( http://usat.ly/ISLVhm ) and thought the information was very applicable to bankruptcy filings. If only the general public were more informed of lien stripping in adversary proceedings amongst Chapter 13 bankruptcies…
As home prices increase over the next 5 years, it will become harder and harder for Ch. 13 Debtors to void junior mortgages on their properties. The controlling case is Nobleman vs. North American Savings Bank. A Nobleman adversary allows a Debtor to void a junior lien on real estate if there is not a single dollar of equity in the junior mortgage. If Debtors file quickly, they would be better able to strip these liens. Whereas if they wait until their home prices increase over next few years, in an effort to sell the home and break even (or heaven forbid, they make money!), they may miss the boat on lien stripping.
For example, if a Debtors home is worth $190,000, and they owe $195,000 on the 1st mortgage and $15,000 on the 2nd mortgage, there is no equity in the junior lien. Right now, they could strip the lien in an adversary and void the mortgage. Upon completion of the Ch. 13 bankruptcy, the creditor will release its junior lien (or the Debtor can file the adversary Judgment, which serves as a lien release). Debtor then only owes $195,000 on their home, which may be worth more than the loan balance at the time the bankruptcy completes.
If that same Debtor waited 2 years to file bankruptcy and his home value increases proportionately to the percentages indicated in this article, if/when he filed bankruptcy his home value might exceed the amount of the 1st mortgage (let’s say it’s now worth $198,000). In this case, a Nobleman adversary would no longer be an option.
My opinion would be to consult with a bankruptcy lawyer NOW so that you can at least assess whether this is an option for your mortgage debt.
For more information on bankruptcy, contact your local Kansas City bankruptcy lawyer, Betsy Lynch, at 816.434.6616 or see www.abankruptcyfirm.com.