Chapter 13 Mortgage Lien Strips.

[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?

[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.

[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.

[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.

[pcn]

What was the benefit to them foreclosing?

[justbroke]

What was the benefit to them foreclosing?

Bank of America held both the first and the second mortgage. As stated in Lavelle, Bank of America was foreclosing on the second mortgage. So, they'd be literally, paying themselves off. This was really just a leverage play if you ask me, and I'm thinking the Judge secretly allowed the strip because of the position Bank of America was in, holding both mortgages.

If you do have a lender who holds your first and second mortgage, and you're current on your first but in arrears on the second... do not be surprised that they foreclose on the 2nd mortgage, even when you have negative equity below the first! I think of this as a leverage position and they would certainly have the upper ahnd!

[pcn]

But, there's only leverage if the debtor wanted to keep the house, right? Otherwise, when faced with the foreclosure and having been discharged in the ch7, they just walk away. (I don't remember reading that they reaffirmed, but may have missed that.) Thanks for helping me understand this.

[iv65536]

I think the final two paragraphs of the discussion are perhaps the most telling:

DewsnupDewsnup to its specific facts, and in light of the persuasive argument of Justice Scalia in the dissent regarding the requirement to interpret a seemingly unambiguous statute according to its plain textual meaning, Dewsnup should be narrowly interpreted. Because this case is substantially distinguished from Dewsnup (Emphasis added.)

[justbroke]

Yeah, notice how the Judge dances all around it, and sides with Scalia, the only dissenting justice in the landmark Dewsnup case. What's telling, is the Judge's statement as "where the future is unknown, bankruptcy principles of giving the debtor a fresh start should apply". That's more telling than anything.

I mean, the guy actually ignored Dewsnup which was a Chapter 7 case, seeking to lien strip an inferior mortgage. 11 USC 506(a) clearly reads that the property must be part of the estate for it to work, and exempt or abandoned property is not. That's why it works in a Chapter 13 (pre-confirmation and/or before the property reverts back tot eh debtor).

I guess, once you say it (Dewsnup) doesn't apply, you can do whatever you want. Deswnup was about "undersecured" property, so I guess since this one was "wholly unsecured", the Judge said it doesn't apply. However, that's an extremely narrow view and most Judges don't do that. This Judge was "looking" for a way to strip the lien.

I wonder how many more Chapter 7 lien strips this Judge has allowed since that decision??? I mean, is he consistent?

[iv65536]

Here's the link to the whole ruling: http://www.nyeb.uscourts.gov/opinion...36_opinion.pdf

It's not like anything can be done by Congress for BoA on the 2nd in this case - it would be instantly challenged as an ex post facto law.

[justbroke]

It's not like anything can be done by Congress for BoA on the 2nd in this case - it would be instantly challenged as an ex post facto law.

I've read the whole ruling before, along with Tanner and Nobelman. I did a lien strip in a Chapter 13 and need to know that I had a chance to win it. The Judge in the minority view, danced around the issue and good for him if he found the language "convincing". However, there's no precedence in that Circuit so it would be up to BofA to appeal it, which it won't because it's too late. It was only $10K anyhow.

The fact is that in that case, the Judge didn't want to use Dewsnup at all because it would hurt his ruling... being a Supreme Court ruling and setting precedence. You just say "I don't believe Dewsnup was right" and then make your own law. 'Tis okay with me, as it's within the Judge's power.

[pcn]

I have a "Chapter 20" question related to lien strips. Sorry, ch20 and chapter20 don't search well. If I understand what little I have been able to find, one could file a ch13 after receiving a discharge in ch7 in order to take advantage of the lien striping that is available in a ch13. What I don't understand, is why would someone file ch7 and then the ch13 with lien strip, when they could just do the ch13 with lien strip to begin with. Is it because the ch7 would remove their personal liability for the 1st and 2nd immediately? If there is a ch20 sticky or thread you can point me to I would appreciate learning more about the thinking behind this. Thanks.

[andy28]

Hi! I can't find anything about selling the house after CH 13..
Can I sell my house and get the profit or do i have to give the profit to the CH 13 trustee or wait till 5 years??

[justbroke]

Hi! I can't find anything about selling the house after CH 13.. Can I sell my house and get the profit or do i have to give the profit to the CH 13 trustee or wait till 5 years??

If you're talking about a house that was lien stripped... you're not going to be able to sell it until after discharge unless you payoff the inferior (stripped) liens.

If you sell property for profit in an active Chapter 13, you would first need permission, and then the proceeds are going to be used to payoff things.

[jade73]

We just found out a house right down the road from us appraised @ $50,000, very shocked at that. It is a 3 bedroom/2 bath, ours is 3 bedroom/ 1 1/2 bath. Our 1st mortgage is $68,000 and our 2nd mortgage is $23,000. we are 6 months into our Chap 13. Any chance of getting a lien strip at this point if our home appraised this low?