Can I Eliminate a Second or Third Mortgage by Filing Bankruptcy?

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If you are like many people, your home is not worth what it was a few years ago.  With the downturn of the economy, the value of your house has decreased.  Suddenly, you are “upside down” on your home and the sales price is not enough to pay off the first, second and sometimes third mortgage on your home.

When the real estate market was strong, many people capitalized on the fact that their home was worth more than their first mortgage and obtained second and even third mortgage loans against their home.  Often this money was used to pay off credit cards or medical bills, and in some cases it was used to update or upgrade the home.  Regardless, the house is not worth what you owe on it today, and there is no way for you to sell the home without a short-sale or possible deficiency balance.

If the value of your home is less than what you owe on your first mortgage, you may be able to file Chapter 13 bankruptcy in a North Carolina bankruptcy court and “strip” the lien of the second mortgage.  In other words, if you file Chapter 13 bankruptcy you may be able to either file a lawsuit (adversary proceeding) or file a Motion to Value Realty and eliminate a great deal, if not all, of the amount owed on the second and/or third mortgage.  Obviously, the mortgage company has the right to argue the value placed on the property.  However, if you have obtained a market assessment by a licensed real estate agent or an appraisal by a licensed appraiser, it will be more difficult for the mortgage company to argue the value.

The adversary proceeding or Motion to Value Realty must be filed in addition to your Chapter 13 bankruptcy case.  For the lien of the second and/or third mortgage to be “stripped” or voided, you must have a bankruptcy court order canceling the lien on the second and/or third mortgage and you must receive a discharge in your Chapter 13 bankruptcy.

If you have questions on how you may be able to “strip” a lien on your home by filing Chapter 13 bankruptcy, please do not hesitate to contact us.