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When Can You Strip Away A Second Mortgage In Bankruptcy?

When Can You Strip Away A Second Mortgage In Bankruptcy?
"""According to New York law, judgments and first and second mortgages serve as liens against real property. In other words, once a judgment is filed against a client, it functions as a lien against their real estate, in addition to a mortgage or Home Equity Line of Credit (""HELOC"") lien. These serve as secured debt that must be repaid when a property is refinanced or sold.

Only if the first and/or second mortgages exceed the value of the home can a judgment lien be """"stripped away"""", which means removed as a lien against the property and reduced to an unsecured debt under New York law. In addition, the """"Homestead Exemption"""" of $50,000 per spouse has priority over a judgment lien under New York state law. Therefore, a judgment title will be """"stripped away"""" if a first and/or second mortgage plus the Homestead Exemption exceeds the value of the real estate.

To remove a judgment lien, a Motion must be filed in the County Court where the judgment was filed and the property is located.

In the current real estate crisis, many residences are """"underwater"""". This indicates that the home's valuation is less than the amount of the first or second mortgage.

It is common for the Bankruptcy Court to remove a judgment lien if it is not secured by the value of the real estate. The elimination of a judgment attachment in bankruptcy court converts the debt to unsecured debt, which is either completely discharged in a Chapter 7 bankruptcy or paid off for pennies on the dollar in a Chapter 13 bankruptcy.

A second or third mortgage may also be eliminated in a bankruptcy proceeding if the mortgage's balance is """"entirely unsecured"""" by the real property. The New York bankruptcy law stipulates that if a mortgage is 100% unsecured by the property, it can be converted into an unsecured debt. Therefore, if the value of your client's mortgage plus the Homestead Exemption of $50,000 per spouse exceeds the value of the property, the second or third mortgage will be discharged in a Chapter 13 bankruptcy.

Until recently, a Chapter 7 bankruptcy party was not permitted to eliminate a second or third mortgage. Judge Eisenberg of the Eastern District of New York (Long Island) ruled in a recent case that a completely unsecured second mortgage may be eliminated in a Chapter 7 bankruptcy.

However, if the second or third mortgage or judgment lien is even one percent secured by the real estate's value, it cannot be converted to an unsecured debt.

The Bankruptcy Court judges in Westchester and the Hudson Valley (Southern District of New York) have not yet decided if they will follow Judge Eisenberg in paring down completely unsecured mortgages in Chapter 7 cases. In fact, the Bankruptcy Court of Appeals has declared against lien stripping in Chapter 7 cases in two separate cases.""

" - https://www.affordablecebu.com/
 

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"When Can You Strip Away A Second Mortgage In Bankruptcy?" was written by Mary under the Finance / Wealth category. It has been read 130 times and generated 1 comments. The article was created on and updated on 01 June 2023.
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