The Real Estate Market and How a Chapter 13 May Help

Five or six years ago the real estate market was booming. It seemed that values would just continue to escalate as there was no end in sight to the real estate boom. Many people refinanced during this period or took out second mortgages on their residences, as mortgage companies had many programs that made such financing readily available to most people. Many people were put into mortgages, like adjustable rate mortgages, no interest mortgages or negative amortization mortgages that they never should have been in, but for the fact that the mortgage broker told them it was a way to keep their mortgage payment down in the short term and that they would be able to refinance again, down the road, before the interest rate adjusted and the payment became unmanageable.
That all sounded great, but we now know how that all turned out. The real estate market crashed, thus there was no longer any equity in most people’s homes. This led to the mortgage industry crisis (which is a story for another day) and ultimately to the situation many people find themselves in today. That is that you are sitting in your residence that is now worth much less than what you owe on it, your mortgage payment is now much higher than you can afford and there is no chance to refinance. What options do you have?
Well if part of your problem is that you have both a first and second mortgage a possible solution could be to file a Chapter 13 bankruptcy case. In a Chapter 13, the Bankruptcy Code allows us to “Strip off” secondary liens on real estate. This is permitted when there is no equity for the secondary lien to attach. For example, if your property is worth $200,000.00 and you have a first mortgage with a payoff balance in the amount of $250,000.00, then any secondary liens that you may have on that property can be stripped off in a Chapter 13 case. This means that you will not have to make that second mortgage payment while you are in the Chapter 13 case. Then once you have completed your case the second mortgage company will be required to discharge the mortgage lien of record. You will also be discharged from any personal obligation on the mortgage debt. Thus, at the end of your Chapter 13 case, you will be left with only the first mortgage on your home.
In a time where most people are looking at the equity postion in their homes and wondering when if ever they will have equity again, getting rid of a second mortgage in a Chapter 13 case is one way to speed up that process. Let’s face it, for most people their home is more than just an asset, it is a place where memories have been made, where families have grown up. Most people are looking for ways to save their homes not walk away from them, stripping off a second mortgage in a Chapter 13 is one way to help you do just that.


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