Tag Archives: LienStrip

Two weeks ago, we wrote about a rise in home equity loan delinquencies affecting homeowners across the country. However, more can be said about options available to homeowners who are underwater on their mortgages. Lien stripping is the process of categorizing second or junior mortgages as unsecured debt, thereby making such liens dischargeable at the completion of bankruptcy. How does it work? It depends on each individual situation, but there a few things that can help clarify how lien stripping works. To qualify for lien stripping in Chapter 13 bankruptcy, homeowners with multiple mortgages must owe more on their first mortgage than the market value of their house. For example, if the value of a house is appraised at $200,000 but a homeowner has a first mortgage for $250,000 with an additional second mortgage for $50,000, the second mortgage may be dischargeable. Lien stripping is not an option under Chapter…
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