Removing 2nd & 3rd Mortgages

If your home has declined in value since you purchased it or you otherwise owe more than the home is worth, a Chapter 13 can help you keep your home and get rid of a second and third mortgage through a process called lien stripping.

How Lien Stripping Works

Lien stripping is an option in Chapter 13 that allows someone who is upside down on their mortgage to get rid of junior liens (2nd and 3rd mortgages). With a lien strip, the court takes the second and third mortgage and turns them into unsecured debts like credit card debt that can be discharged to remove the lien. This is an option because the mortgages are already essentially unsecured as the lenders could not receive any money in foreclosure or sale until the primary lender is paid in full.

The only way to strip a second or other junior liens is if the amount of your senior lien (first mortgage) exceeds the value of the home. If you want to remove or strip a third mortgage from the title, the value of your home must be less than the combined value of the first and second mortgage.

Once liens are stripped from your home, they are treated like any other nonpriority unsecured debt like credit card or medical debt when you file. You will not need to make payments on the debts outside of your bankruptcy repayment plan. If you complete the repayment plan (which takes 3 or 5 years), anything remaining on the mortgages will be discharged.

Benefits of Stripping Junior Mortgages

Through a Chapter 13 bankruptcy, you enjoy the immediate benefit of no longer making monthly payments on your second and third mortgages. That money can be instead put toward more important debts like catching up on the primary mortgage, paying back taxes, or paying for important living expenses.

Removing junior mortgages also helps you get closer to building equity in your home. As an example, if your home is worth $175,000 and you have a first mortgage of $190,000, a second mortgage of $20,000, and a third mortgage of $10,000 with a combined mortgage debt of $220,000, your home has negative equity of $45,000. By stripping the second and third mortgages, you only have negative equity of $15,000. This will shorten the wait to build equity if your home increases in value.

Contact a Bankruptcy Lien Stripping Attorney in Las Vegas

If you are struggling with debt and you want to save your home — but you are underwater with a second or even a third mortgage — Chapter 13 bankruptcy can be a good option to retain your home, remove the liens, and dramatically reduce your debt burden. Contact Las Vegas BK for a free consultation with an experienced Nevada lien stripping bankruptcy attorney to discuss your case.