Chapter 13 Mortgage Lien Strips.

[turnipblood]

Two questions. First, can you use the county's tax appraisal value for this purpose (they just redid it this month), or does it have to be a separate appraisal?

Second, we're rightside up on the mortgage by about $1200 with the county's value. If we go on a loan forebearance with BOA for two months, will that raise the principal, put us upside down, and make the strip possible?

[justbroke]

I do have one more question though, what does the "Default Judgment" do on a lien strip. In short, the recorded document states that the lien is wholly unsecured under the provisions of 11 USC & 506.

The lien strip is done based on 11 USC 506. The default judgment, just means that the creditor didn't contest the lien strip. It's not that 11 USC 506 specifically states how you can treat a creditor, the real reason is buried in multiple parts of the BK code. Specifically, it has to do with what happens with a discharge, and what the rights are of creditors who have a security interest in property. If you don't receive the discharge, then most things that happened inside the Bankruptcy are undone.

[clos96]

Thanks to all of you who have responded.

I am meeting with her on 8/12 and will post a reply once I hear what she has to say.

I actually work representing Fannie Mae in helping borrowers stay in their homes so I know that at least the bank that I work for is not foreclosing on the 2nd lien. They're pretty much just charging off the lien off the books but it still does remain on title.

I do have one more question though, what does the "Default Judgment" do on a lien strip. In short, the recorded document states that the lien is wholly unsecured under the provisions of 11 USC & 506.

I'm guessing the provision is what states what I don't want to hear correct?

Talk to all of you next week.

[justbroke]

Can you point me where I can read the Florida law online to question her?

It's not Florida Law... it's 11th Circuit Court of Appeals, as well as the Bankruptcy Code. Anyone practicing in the Middle District of Florida knows this stuff (or should know it).

Here are excerpts from "lien strip" forms, that is readily available on line, for the different Divisions within the Middle District of Florida.

ORLANDO

4. Upon entry of a discharge, the Lien is avoided and extinguished automatically without further order; provided, however, if the debtors fail to make all required payments and no discharge is entered, the Lien shall survive and remain fully enforceable.

TAMPA

4. The mortgage held by ABC Mortgage Company recorded on April 1, 2002, at Book XXXX, Pages XXXX, Instrument No. XXXX of the official records of Hillsborough County, Florida, shall be deemed void, and shall be extinguished automatically, without further court order, upon entry of the Debtor’s discharge in this Chapter 13 case; provided, however, that
the Court reserves jurisdiction to consider, if appropriate, the avoidance of ABC Mortgage Company’s mortgage lien prior to the entry of the Debtor’s discharge.

What does she mean by "finer" explanation?

Probably because you took one of the more harsh statements from HHM's thread which indicates that you would lose the house. HHM is absolutely correct that it could put you in a bad spot with the 2nd lienholder, but with home prices today, the likelihood of the 2nd lienholder actually foreclosing (when you are underwater on the first)... is extremely low.

Do you know of any workarounds besides the hardship 13 discharge?

Absolutely none. There are no workarounds. This is the law. And don't kid yourself, Hardship Discharges in a Chapter 13 aren't easy. There was a recent article on Bankruptcy Law Network in which a the debtor killed her joint debtor spouse. He Motion for a Hardship Discharge was rejected. Generally, you'd have to show a real debilitating disease, or other condition, which prevent you from ever working again.

http://www.************************/...arge-for-wife/

[pcn]

search for "ch7 lien strip" - not really the correct description, but there are several interesting threads on doing the ch7 and settling with the 2nd lien holder. That is the route we are going. At least one person here has done it, I think her story is over on the Foreclosure forum.

[clos96]

Can you point me where I can read the Florida law online to question her?

What does she mean by "finer" explanation? Do you know of any workarounds besides the hardship 13 discharge?

I completely agree with your statement above. If you can strip and convert to a 7, then everyone would be doing it.

Thanks,

Carlos

[justbroke]

I apologize I live in Florida, Middle district. The default judgment was recorded on 3/31/2009. My lender has never done or said a thing during the whole transaction. When I go to their website to check the status the 2nd lien is still available on their website for me to make payment. It's as either their oblivious to what happened or have not decided to take any action yet.

Nope. That lien is not gone. It only is gone (for good) once you receive a discharge in your Chapter 13. Should your convert to a Chapter 7 or otherwise be dismissed, the lien will bounce back in full force. This is standard language (now) for Florida.

I thought you mentioned that the "satisfaction" of mortgage was actually recorded. You won't get that until the earlier of, the underlying mortgage is paid in full, or you receive a discharge in your Chapter 13.

[clos96]

I apologize I live in Florida, Middle district. The default judgment was recorded on 3/31/2009. My lender has never done or said a thing during the whole transaction. When I go to their website to check the status the 2nd lien is still available on their website for me to make payment. It's as either their oblivious to what happened or have not decided to take any action yet.

I appreciate the prompt reply.

Here is quote, what my attorney said when I questioned her on the subject:

I knew you would be contacting me regarding this. What you have read needs a finer explanation.

Let’s meet next month and discuss all.

If you want to meet sooner, please let me know.

This was my original E-Mail to her:

Good Morning:

Was reading a little more into lien strips and found this online:

"In order for the lien strip to stick, you must receive a discharge of your chapter 13. If your chapter 13 is dismissed or converted to a 7, you will lose the lien strip and more than likely lose your home because you have not been paying your 2nd mortgage during the chapter 13 (it would be very hard to get caught up). If during the chapter 13, you become eligible for a chapter 7, you should first look at requesting a hardship discharge of your chapter 13 under BK Code 1328(b) to preserve the lien strip."

Will you be requesting this "hardship discharge of our Chapter 13" to help us preserve the lien strip?
You said in our conversation a couple of weeks back that the lien strip was done and gone. I keep on reading where this isn't the case.

I know you said to trust you but you did tell me that this was your first go around with a lien strip and just want to make sure what to look forward to once we get out of this.

Thanks,

Carlos

[justbroke]

I now qualify for a 7. My attorney told me that the 2nd would remain stripped even though I'm converting. This website says no. I'm very concerned as she had admitted to me that my lien strip was her 1st go around. It wasn't cheap.

If you tell us what State you are in, we can check to see if Lien Strips only stick if you get a discharge. In every jurisdiction I've seen, the Lien Strip can be immediate, but the underlying rule is that if you don't receive your discharge in Chapter 13, then the lien comes back in force.

If your lender actually recorded a Satisfaction of Mortgage... wow. I'd say you're good to go if they did that. If an actual recordation of a Satisfaction of Mortgage wasn't recorded, then you may have issues.

You see, if what your attorney says is true, a Chapter 7 debtor, would go into Chapter 13 first, to strip the lien, then convert to Chapter 7.

[clos96]

13 Confirmed w/ Lien Strip done... now converting to a 7

Hello Everyone!!

I'm a newbie and am getting mixed views from different attorneys.

My 13 was just confirmed last week. A couple of months back we stripped my 2nd lien and made it unsecured. It's been recorded and everything.... $51,000. I have since stopped making payments.

My job stopped paying OT beginning 7/1. Naturally I was milking it to make ends meet and now I'm screwed and have a monthly deficit.

I now qualify for a 7. My attorney told me that the 2nd would remain stripped even though I'm converting. This website says no. I'm very concerned as she had admitted to me that my lien strip was her 1st go around. It wasn't cheap.

I'm ecstatic of getting out of my 13 but am really worried that my attorney is wrong and I might be SOL w/ my strip and am now 4 months behind (even though I know they'll modify)

What are your opinions on this? What is she talking about that would allow the 2nd lien to remain stripped?

Thanks,

CJ

[justbroke]

When you say no equity sharing, do mean that if in year 5 they sell the home for $350K they do not share the $100K gain with the bank?

I think in cases where you get a loan modification that includes a principal reduction, you agree that if you should sell the property within x number of years (let x = 5 for this example), then you would have to share any equity gained.

So, in your example, you would have to share the $100K gain with the bank at 50%-50%.

Now, that's if you can find a bank willing to do a principal reduction as part of a loan modification... and on a second home. (Second homes are riskier than primary/homestead properties.)

[MinotLaW]

When you say no equity sharing, do mean that if in year 5 they sell the home for $350K they do not share the $100K gain with the bank?

[justbroke]

Very informative... Can you clarify one last thing here. Our client owns a second home on the Outerbanks of NC. The home is now worth about $250,000 (if that), SunTrust Bank offered a loan mod which would push the loan up to $450K (4% for 40 yrs - PITI plus escrow) If they filed a Chapter 13, and a cram-down was granted bringing the debt down to $250K would the payments be $250K divided by 60 payments $4,166 a month?? or would they be able to make reduced payments on the $250K and have the option to sell the home in Year 5?

Here's my partially informed opinion...

You have it pretty accurate that the second property (non-homestead) would require paying the entire cramdown value of the property over the applicable commitment period (ACP). If it's 60 months, then your math is right. You could also change the interest to the Till Rate, so it's more than $4,166/month. Currently Till Rate (Kansas) is 4.75% as of June, 2009. At that rate, the payment would be $4,689.23.

What's worse, is that you would also have to pay your unsecured creditors, at least $250K over the 60 month period. So if your client has $250K in unsecured debt... add another $4,689.23 to that plan!

Or would they be able to make reduced payments on the $250K and have the option to sell the home in Year 5?

No. That is not going to happen. They would have to pay the uncrammed payments, or do the cramdown. The problem comes with if they dont' pay it off, then they'd be subject to foreclosure at the close of the case in the best case... or be subject to a RFS during the plan in the worse case. Secured creditors must be protected. Since the market value of the home is way less than the balance on the property, the creditor is way way undersecured. This could work, though, because the payments on $250K over 60 months is definitely more adequate protection than the normal payment (amortized over 40 years) on $450K.

I don't have a good recommendation. I have an investment property too, and I decided to give it up. I don't see why the client would want to keep it unless they have some serious resources! If they do, I don't see how they do this without being in a 100% plan anyhow.

Just my read.

[h0usekeeper]

Payment is based on the the reduced balance (250k) and the agreed interest rate (prime plus) for 35 -40 yrs. Sell after 5 yrs with no equity sharing.

[MinotLaW]

Very informative... Can you clarify one last thing here. Our client owns a second home on the Outerbanks of NC. The home is now worth about $250,000 (if that), SunTrust Bank offered a loan mod which would push the loan up to $450K (4% for 40 yrs - PITI plus escrow) If they filed a Chapter 13, and a cram-down was granted bringing the debt down to $250K would the payments be $250K divided by 60 payments $4,166 a month?? or would they be able to make reduced payments on the $250K and have the option to sell the home in Year 5?