Chapter 13 Mortgage Lien Strips.

[h0usekeeper]

Different strokes for different folks. There are lawyers advertising stripping 2nd mortgages. Our business is stripping 2nd's and cramming down the first. We have been doing the cram downs on firsts and have not been challenged. It is the approach to the method of bifurcation that has to make sense to the lenders for them to approve our position.

[spidge]

I am wondering if this is just something that is hard (but not impossible) to get done and our lawyer doesn't want to fool with it.

This is most likely the reason.

[divorce]

Chapter 13 Mortgage Lien Strips.

From what I have read online in various blogs/forums you can strip a 2nd mortgage off in a Chapter 13 if the value of the house doesn't cover the 2nd mortgage at all. Thus making it an unsecured debt.
Our lawyer has told us that nothing has been passed by the government allowing this to happen, unless it is lender approved.
Is this true ? We live in Virginia if that makes a difference.
I am wondering if this is just something that is hard (but not impossible) to get done and our lawyer doesn't want to fool with it.

[spidge]

So is it correct that in a lien strip the 2nd doesn't need to be current to qualify?

Core question.

[divorce]

Chapter 13 Mortgage Lien Strips.

If you file Chapter 13 Bankruptcy you may be able to have the court remove the second or third mortgage from your home. This is possible if there is no equity in the second or third mortgage. Assume the home is worth $300,000.00 and there is a first Mortgage of $320,000.00 and a second mortgage of $85,000.00 on the house. In this example since the balance of the first loan is higher than the current market value of the home, there is no equity in the second loan rendering it an unsecured debt. You can ask the court to remove the second mortgage under these circumstances.

[spidge]

I was thinking specifically of the lien strip, and that it would be similar to cc's, in that paying it would be throwing away money if one intended to file. I personally could find several things to "use up" that money for a few months while preparing to file. So is it correct that in a lien strip the 2nd doesn't need to be current to qualify?

I have the same question concerning the 2nd mortgage.

Also, if filing a ch 13 can I go past due on my first in order to pay the legal fees? I could make it up by taping the 401k through a hardship withdrawal using a notice of default and become current for filing.

Just trying to figure out where to come up with the $$ for the legal fees.

[pcn]

I was thinking specifically of the lien strip, and that it would be similar to cc's, in that paying it would be throwing away money if one intended to file. I personally could find several things to "use up" that money for a few months while preparing to file. So is it correct that in a lien strip the 2nd doesn't need to be current to qualify?

[lrprn]

Do people also stop paying their 1st and 2nd, while getting organized to file, since in a ch13 you can cure arrearages? What are the +/-'s of doing so?

Negatives: If you deliberately stop making asset payments on assets you want to keep, then your monthly Ch 13 payment will be higher to cover the larger arrearages. Why do that to yourself for five years when you could be paying less? Also not paying mortgages that won't be stripped, car payments, etc. before filing just gives you more cash to get rid of before filing.

Positives: Frankly, I can't think of any long-term positives to deliberately *not* make asset payments you can afford to make before filing. The large majority of Ch 13 lawyers allow filing with the remainder of their fee rolled into the Ch 13, so there's no need to use the saved mortgage payments to pay the lawyer's fee in full before filing.

If you aren't making mortgage and car payments before filing because even after stopping unsecured payments, you can't afford them, then you can't afford them after filing either.

If other members can think of compelling reasons to not make asset payments before filing when the filer can afford them, please post them.

[pcn]

Does the 2nd need to be current as a qualification for a lien strip? As a related question, I understand that people stop paying cc's once they determine a ch13 is in their future. Do people also stop paying their 1st and 2nd, while getting organized to file, since in a ch13 you can cure arrearages? What are the +/-'s of doing so? Thanks.

[HHM]

"Until recently, Massachusetts and Rhode Island Bankruptcy Courts differed in their application of the Code and Nobleman to the issue of what constitutes a "principal residence." In Massachusetts, bifurcation of secured claims had been liberally granted. Even though the real property was clearly the debtor's principal residence, other uses to which the property was put were generally not a bar to modification. See, e.g., In re McGregor, 172 B.R. 718, 719 (Bankr. D. Mass. 1994) (debtor, residing in one unit of a four-unit apartment building, was permitted to modify the mortgage); In re Brown, 175 B.R. 129, 131 (Bankr. D. Mass. 1994) (modification permitted where debtor resided in one unit of a two-unit complex).

Note the distinguishing facts, these were debtors who owned multi-unit complexes. In those cases, the issue was the definition of "primary residence", not whether you could cram down on a primary residence. If the real estate is not your primary residence, you can cram down (e.g. investment properties, vacation homes etc.)

[zeezee]

Okay. Thank you. I'm stuck. I was just hoping that I may have had another avenue to pursue. Housekeeper and HHM, thanks much for the responses!

[h0usekeeper]

"Until recently, Massachusetts and Rhode Island Bankruptcy Courts differed in their application of the Code and Nobleman to the issue of what constitutes a "principal residence." In Massachusetts, bifurcation of secured claims had been liberally granted. Even though the real property was clearly the debtor's principal residence, other uses to which the property was put were generally not a bar to modification. See, e.g., In re McGregor, 172 B.R. 718, 719 (Bankr. D. Mass. 1994) (debtor, residing in one unit of a four-unit apartment building, was permitted to modify the mortgage); In re Brown, 175 B.R. 129, 131 (Bankr. D. Mass. 1994) (modification permitted where debtor resided in one unit of a two-unit complex).

[HHM]

[QUOTE=h0usekeeper;284544]

Alrighty then, let me try this again. I guess from the responses (or lack thereof) I didn't make my question clear.

1. Is "cram down" the same as "lien stripping"?

Cram Down example. First mtge is 350,000. 2nd is $50,000. House value today is $300,000.00. So heres what happens. $300,000 is secured, $50,000 is placed in unsecured debt. 2nd mtge of $50,000 is stripped.

Although in principal correct, that example is misleading when it comes to distinguishing cram down vs lien strip.

Note, you cannot cram-down a loan on your primary residence, section 1322(b)(2). Section 1322 prohibits modifying the rights of secured creditors who have a security interest in the debtor's primary residence. The reason you can lien strip is that 1322 says "holders of secured claims", the courts have interpreted that to mean if a claim holder is "entirely unsecured", then 1322 does not apply because the creditor does not have a secured claim. However, if there is even 1$ of a security interest in a primary residence, the claim and lien stay. Again, it's all or nothing. You cannot "modify" (e.g. cramdown) a mortgage, but you can lien strip assuming the lien has no "secured value"

So, to provide you the clear answer, YOU CANNOT CRAMDOWN a 2nd Mortgage.

Thus, in your example,
1st $332,000
2nd $98,000
Home value $370,000
Given those numbers and assuming the house is your primary residence, you are stuck. A chapter 13 can do NOTHING to change anything about those mortgages.

Cramdowns are typically used on personal property (cars, computers etc). Your car is worth $10,000, you owe $20,000, you can cram down the car and pay the value ($10,000) inside the chapter 13 plan (caveat, note the 910 day rule).

[h0usekeeper]

[QUOTE=zeezee;284056]Alrighty then, let me try this again. I guess from the responses (or lack thereof) I didn't make my question clear.

1. Is "cram down" the same as "lien stripping"?

Cram Down example. First mtge is 350,000. 2nd is $50,000. House value today is $300,000.00. So heres what happens. $300,000 is secured, $50,000 is placed in unsecured debt. 2nd mtge of $50,000 is stripped.

[zeezee]

Alrighty then, let me try this again. I guess from the responses (or lack thereof) I didn't make my question clear.

1. Is "cram down" the same as "lien stripping"?

2. If my 1st is valued at $370k (I owe $332), my second I owe $98k. I know I can't do the strip because the house is not valued at $332 or less. Right?

3. Okay. So overall I owe $430k (1st & 2nd). In CH13 can I take and pay off the amount that the 2nd is covered by over 60 months? Meaning $430k - $370k = $60K gone, and pay $370k - $332k (what I owe) = $38k to the 2nd mortgage over 60 months.
Then the 2nd is paid off after discharge. Is this feasible?

Sorry to be a pain but I wanted to make sure I was clearly understanding. Thanks for info!