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Real Property Lien Stripping

Monday, 01 April 2013 00:00
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    It's obvious that today's current depressed economy still has the real estate market struggling, although we are seeing some definite improvement. Many property owners are still finding their homes "underwater," which means they owe a greater amount than the current fair market value of their property. Lien stripping can be an essential tool for saving your home from foreclosure when filing a Chapter 13 Bankruptcy. Lien stripping can be extremely beneficial, having the advantage of both being able to help save your home and helping you

get back to an even playing field by getting rid of second and third trust deeds secured by your home, leaving you with ONLY the first trust deed.

    Lien stripping operates such that it allows you the debtor to extinguish a creditor's wholly unsecured claim, relegating it to unsecured debt status. The lien must be completely unsecured. For example,

1. Home Market Value:    $300,000.00
1st Trust Deed: 325,000.00
2nd Trust Deed: 125,000.00
In this example the 2nd Trust Deed can be avoided or stripped, leaving only the $325,000.00 1st.


2. Home Market Value $300,000.00
1st Trust Deed: 275,000.00
2nd Trust Deed: 125,000.00
In this example the 2nd Trust Deed cannot be avoided or stripped because the loan
is not entirely unsecured.

    If the loan is stripped, it then becomes an unsecured debt–just like most credit card debts. You then propose an affordable repayment plan which typically pays a percentage of the total of all unsecured claims over a period of 3 or 5 years depending upon your income and expenses. Upon completion of that period your lien is completely extinguished. This allows you to both save your home by decreasing the monthly payments and force your home debt to become more in line with current market values, so that you will benefit more quickly with an equity build-up when the market recovers. Obviously, if you are a candidate for this relief you do not want to wait so long that your home value increases and you can no longer strip off a second or third trust deed.
    As the value of homes have dropped tremendously and the employment situation has also declined, homes are becoming less affordable and many people are unnecessarily losing their homes. You may wonder if it is worth keeping your home. Filing a chapter 13 bankruptcy allows you anywhere from 3 to 5 years to catch up on the payments for which you have fallen behind. It not only gives you the benefit of catching up on overdue payments but also the option of removing your second mortgage or stripping a junior lien. The process outlined here is only for your real property, there is a somewhat different process for oversecured property, like your car or boat or any other personal property, which is the subject of another article.
    Here at the Law of Gloria D. Cordova we offer chapter 13 bankruptcy services. Please call to set up a free consultation for all your chapter 13 inquiries. Please also check in regularly to learn more bankruptcy facts. And check us out on https://www.facebook.com/gcordovalaw?ref=hl.

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The Law Offices of Gloria D. Córdova
t: (909) 612-5787 | www.GCordovaLaw.com
732 N. Diamond Bar Blvd., Ste. 210
Diamond Bar, CA 91765