Voiding NYC Mortgage Liens in Bankruptcy
One of the great benefits of a Chapter 13 bankruptcy is the ability to void a second lien on your home. What this means is that if you have a first and a second mortgage, and the value of the house is less than the balance due on the first mortgage, you can get rid of the second mortgage entirely.
The second mortgage company may get some small payment through your Chapter 13 Plan payments, but once the five years of payments have been made, you never have to pay on the second mortgage again.
An example is the following:
A bankruptcy client has a house in Queens that has come down in value and is now worth $300,000. There is a first mortgage with a balance of $325,000 and a second mortage with a balance of $75,000. Because there is no equity in the house above the first mortage, the second mortgage lien can be voided.
Voiding a lien means taking away its status as a mortgage. It is still a debt and entitled to a share of the Chapter 13 plan payments. If the plan provides for the payment of 10 percent of debts, the second mortgage will receive 10 percent of its value. The other 90 percent of the second mortgage debt, along with the other 90 percent of all other debts, is discharged when all of the plan payments have been made.
Upon the successful completion of the Chapter 13 Plan, the lien of the second mortgage will be eliminated, and after the plan is over, the client will never have to make another payment on that second mortgage.
This relief is not available in a Chapter 7 case and that is why some clients have filed Chapter 13 cases and made small payments for five years just to get rid of their second mortgage.
Allan Bloomfield practices bankruptcy law in Forest Hills, Queens. Contact Allan today for a free consultation.