Chapter 13 Mortgage Lien Strips.

[justbroke]

HHM, what are your thoughts on the case cited, Re Lavelle (E.D.N.Y 11-19-2009) Case No. 09-72389-478? Could there be a trend to allow lien stripping in ch7's?

There's no trend. That's super minority position. Several appellate courts (DCAs) have already dealt with this and have overturned such lien strips.

I think LaVelle is special because the second mortgage was only $10,000. What I mean is that Bank of America didn't want to waste $20-30K on appeal... to get nothing in the end.

[HHM]

thanks hhm.. Fast response...i will do a 13.., but it must be discharged at the end to completely remove it correct?

Correct, for the lien strip to stick, you must receive a discharge in your chapter 13.

[pcn]

HHM, what are your thoughts on the case cited, Re Lavelle (E.D.N.Y 11-19-2009) Case No. 09-72389-478? Could there be a trend to allow lien stripping in ch7's? In your opinion, what in this case caused a result different than those in the past? One thing that worries me is that even though the debtors owed 411k on a 400k home, BOA chose to start foreclosure proceedings on the 10k 2nd mortgage. So, BOA was owed 421k on a 400k home. What benefit were they seeing in foreclosing? My concern comes because we will soon be starting down the ch7 2nd mortgage settlement road. Our 1st is approx 5k above the value of the home, our 2nd is 40k owned by BOA.

[bklawn]

probably not, the ability to lien strip in 7 is a very minority position. Any attempt you make to do it will likely need to be appealed.

See this post that explains the current status of the law on this issue.
http://askmethner.com/?p=871

thanks hhm.. Fast response...i will do a 13.., but it must be discharged at the end to completely remove it correct?

[HHM]

Justbroke, I just got my appraisal and my house is under my first.

Appraisal $255,000

1st balance $268,000
2nd balance $107,000 on second

Can I file a chapter 7 and lien strip 2nd?

Probably not, the ability to lien strip in 7 is a very minority position. Any attempt you make to do it will likely need to be appealed.

See this post that explains the current status of the law on this issue.

http://askmethner.com/?p=871

[pcn]

Lien strip is in a ch13. No lien strip in a ch7.

[bklawn]

You have this all backwards.

First you have to consider the interactions of 11 USC 506(a) and 11 USC 1322(b)(2). The anti-modification provisions in 1322(b)(2) reads that a plan may "modify the rights of holders of secured claims, , or of holders of unsecured claims, or leave unaffected the rights of holders of any class of claims".

However, in Tanner (See In Re Tanner 217 F.3d 1357 (11th Cir. 2000).) the Court found that the anti-modification provisions didn't apply.

The Tanner court relied on the landmark Supreme Court Nobleman decision (In Re Nobelman 508 US 324). Nobelman held that "the rights of an undersecured homestead lender are protected from modification in Chapter 13 bankruptcy proceedings". The Tanner Court, applying Nobelman, found that "wholly unsecured" lenders are not protected by the same anti-modification provisions in 1322(b)(2). (Thank God!)

If the "wholly unsecured" lender is not protected by the anti-modification clause in 1322(b)(2)... then they are subject to valuation like all other real and person property, under 506(a), and their lien avoided (or void) under 506(d)!

Sorry... you won't be able to strip the 2nd lien. The Nobelman case, Id., went to the Supreme court so it's the law of the land now. The debt on a primary residence continues to enjoy the anti-modification provisions in 1322(a)(2) because the debt is "partially" secured, and therefore, can use neither the valuation power in 506(a) nor the avoidance power in 506(d).

Justbroke, I just got my appraisal and my house is under my first.

Appraisal $255,000

1st balance $268,000
2nd balance $107,000 on second

Can I file a chapter 7 and lien strip 2nd?

[bklawn]

Thanks justbroke, love this website... I glad i found this site before i file..excellent information..i will pass it on to others if asked about bk...

Justbroke, I just got my appraisal and my house is under my first.

Appraisal $255,000

1st balance $268,000
2nd balance $107,000 on second

Can I file a chapter 7 and lien strip 2nd?

[ben1381]

thanks for the legal references

Thank you for the legal references.

[justbroke]

What is the statutory basis(e.g. bk code sections 506 and 1322) or case law decisions that says that partial lien stripping of a second mortgage is not allowed in a Chapter 13 case?

You have this all backwards.

First you have to consider the interactions of 11 USC 506(a) and 11 USC 1322(b)(2). The anti-modification provisions in 1322(b)(2) reads that a plan may "modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor’s principal residence, or of holders of unsecured claims, or leave unaffected the rights of holders of any class of claims".

However, in Tanner (See In Re Tanner 217 F.3d 1357 (11th Cir. 2000).) the Court found that the anti-modification provisions didn't apply.

The Tanner court relied on the landmark Supreme Court Nobleman decision (In Re Nobelman 508 US 324). Nobelman held that "the rights of an undersecured homestead lender are protected from modification in Chapter 13 bankruptcy proceedings". The Tanner Court, applying Nobelman, found that "wholly unsecured" lenders are not protected by the same anti-modification provisions in 1322(b)(2). (Thank God!)

If the "wholly unsecured" lender is not protected by the anti-modification clause in 1322(b)(2)... then they are subject to valuation like all other real and person property, under 506(a), and their lien avoided (or void) under 506(d)!

I have a home that has 159K first mortgage and 124K second mortgage and its value being done by an appraisal will be around 200K. Any information on this topic would be appreciated.

Sorry... you won't be able to strip the 2nd lien. The Nobelman case, Id., went to the Supreme court so it's the law of the land now. The debt on a primary residence continues to enjoy the anti-modification provisions in 1322(a)(2) because the debt is "partially" secured, and therefore, can use neither the valuation power in 506(a) nor the avoidance power in 506(d).

[ben1381]

basis for not allowing partial lien stripping of second mortgages

What is the statutory basis(e.g. bk code sections 506 and 1322) or case law decisions that says that partial lien stripping of a second mortgage is not allowed in a Chapter 13 case? I have a home that has 159K first mortgage and 124K second mortgage and its value being done by an appraisal will be around 200K. Any information on this topic would be appreciated.

[overspent]

They won't

Out of curiosity...how does 2nd mortgage lien holder get their money from 1st mortgage holder if we're current with our first mortgage...we're awaiting confirmation on our ch 13...to this point all sources say home value is less than owed on 1st mortgage...1st 162k, 2nd 48k, value 115-120k...The reason i ask is because finally after about 6 months delinquent on 2nd...lien holder now threatens with foreclosure...I live in central FL...thanks

They may threaten but porbably won't because it costs at least 5K in fees and they have to pay off the first. They are tryibg to scare you into paying. I'll probalby in the same boat in a few months and will say go ahead.

By the way , I checked out the rental market to prepare just in case I have to into foreclosure. There are over 1500 listings for apt. and house rentals on Craiglist and bad credit is no problem and the rent is half o my mortgage payments.

[justbroke]

Thanks for the reply JUSTBROKE. Just to clarify- if the 2nd mortgage was never reaffirmed and discharged in the chapter 7, the owner of the debt - junk buyer or otherwise, has no recourse to pursue the debtor for any deficiency, correct?

No recourse to sue you personally for the debt, or otherwise seek to attach/levy wages or deposit accounts. They can foreclose though... although this is a dumb idea for junior lienholders that have no equity or no private insurance.

But of course, if the home appreciated enough- they could soak up all of the equity. In my case- it'll be years before there would be any upside for a 2nd holder- so I don't think it's going anywhere.

True, true.

[gmichael7]

Thanks for the reply JUSTBROKE. Just to clarify- if the 2nd mortgage was never reaffirmed and discharged in the chapter 7, the owner of the debt - junk buyer or otherwise, has no recourse to pursue the debtor for any deficiency, correct? But of course, if the home appreciated enough- they could soak up all of the equity. In my case- it'll be years before there would be any upside for a 2nd holder- so I don't think it's going anywhere.

[justbroke]

1) I've heard that lien stripping can be used for vehicle loans that are more than 910 days old. Does this apply to an RV or motorhome as well? i.e.- if the loan is for 20 K, but the blue book is only 7 K, can the 7 K be paid off in the plan, and the rest be stripped away?

That's actually called a cram down, not a lien strip. Yes, this is possible if the vehicle was purchased more than 910 days prior to filing.

2) I'm seeing a lot of questions and comments about wiping out 2nd mortgages in a Chapter 7 and still keeping the home. I went thru a Chapter 7 and never reaffirmed the 2nd mortgage. I've never heard from the bank again, and I was told that if I didn't reaffirm, that they would only get paid when the home sold because they had a lien, but that if they wanted to foreclose, they would have to pay off the 1st mortgage lender first, which I know they won't do. Any thoughts?

What you wrote is true. However, if your home starts appreciating... that could give the 2nd an opportunity to foreclose. Especially if the 2nd loan was sold to a Junk Debt Buyer (JDB) who will sit on it forever. Also, interest and penalties continue to accumulate, so that 2nd lien may be a lot more than you think, when you go to sell.