Strip Second Mortgage

Do you owe more on your house than what it’s worth? Do you have more than one mortgage loan? If you answered yes to both questions, you may be able to eliminate some of that debt through bankruptcy and strip second mortgage—without giving up your house!

Unlike credit card or medical debt, mortgages are a secured debt. This means the property serves as collateral for the loan, and if you default on the mortgage, the lender can take the property from you. Filing for bankruptcy does not wipe out your mortgage debt. If you continue to own the property, you must make payments or risk foreclosure.

But what if you owe more than the property’s current market value? If you also have more than one mortgage, some of that debt may be considered unsecured. And, just like credit card debt, this unsecured debt can be discharged in bankruptcy. When asking for second mortgage forgiveness in bankruptcy, the process is called “stripping off.” Hence the saying, strip second mortgage.

How Does “Stripping Off” Work?

Let’s say your property has a $150,000 market value, you owe $175,000 on the original mortgage and $25,000 on a home equity loan. The original mortgage loan is secured by the property, but because the property’s market value of $150,000 is less than the original mortgage balance of $175,000, the home equity loan of $25,000 is essentially an unsecured debt.

This means you can strip second mortgage in bankruptcy. Of course, the entire balance is still a secured debt if your original mortgage balance is less than the market value. In that case, you would not be able to strip second mortgage.

The types of second mortgages that can be stripped off include down payment loans, home equity loans, home improvement loans, mechanic’s liens and liens for homeowner’s association dues and assessments.

Stripping Off in Chapter 7

Stripping off is usually only allowed in Chapter 13 bankruptcy, but after a ruling by the 11th Circuit U.S. Court of Appeals, residents of Alabama, Florida and Georgia are now able to strip off second mortgages in Chapter 7 bankruptcy as well. Recently though, Bank of America appealed two of these cases to the U.S. Supreme Court who has agreed to hear them. Bank of America will argue that the practice should be banned in Chapter 7. If the Supreme Court disagrees with Bank of America, homeowners across the country may soon be able to strip second mortgage as well.

If you are experiencing financial difficulty and are considering bankruptcy, contact our experienced bankruptcy attorneyshere for a free consultation and learn how you can strip second mortgage if needed.

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About Marc Aaron Goldbach

Marc Aaron Goldbach has worked tirelessly to develop a successful bankruptcy and civil law practice for clients located throughout Los Angeles County. Mr. Goldbach at GoldBach Law Group have represented a wide array of small businesses and individuals with 100% client success rate. Mr. Goldbach is always available to answer questions and willing to guide you through the entire legal process.
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