Helping Homeowners Eliminate Second Mortgages

At Owenby Law, P.A., many of our bankruptcy clients' insolvency has resulted from collapsing real estate prices. Some of our clients experienced a substantial increase in the price of their residential homes, took out second mortgages or home equity lines of credit (HELOC), and then saw the value of their properties plummeted shortly after. Now, they are stuck with two mortgage payments. Our firm’s Jacksonville bankruptcy attorneys have utilized a provision in the U.S. Bankruptcy Code along with Chapter 13 to get second and third mortgages to be unattached from the home and treated as unsecured debt.

Have two mortgages? Give us a call at (904) 770-3141 for a Free Initial Consultation!

Using Section 506(A) to Remove Mortgage Liens

Under 506(a) of the U.S. Bankruptcy Code, if the market value of the home has fallen below the current balance of the first mortgage, other subordinated debts can be stripped from the property and treated as unsecured debt in a Chapter 13 bankruptcy. For example, consider a Jacksonville homeowner who owns a house that is currently worth $200,000, but the primary mortgage on it is $300,000. Additionally, when the market was better, the Jacksonville resident had secured a home equity line of credit and the remaining balance is $100,000. He now owes $400,000 on a home that is worth half that.

By filing for Chapter 13 bankruptcy, using Section 506(a):

  • The HELOC would likely be removed from the property.
  • The creditor who issued the second mortgage would still have to be included in the three to five year plan, but with it being an unsecured loan, there is no longer a danger of foreclosure emanating from the subordinated loan.

The important thing to note is that this section can only be applied if the market value of your home is less than the balance of your first mortgage. Otherwise, the second mortgage lender would have a claim against the property value by whatever amount it exceeds the first mortgage balance.

Looking for Guidance? Talk to Our Jacksonville Bankruptcy Lawyers!

With the three to five-year repayment plan, Chapter 13 bankruptcy tends to be complicated, which is why you need solid legal advice. If you believe that you may qualify for Chapter 13—regardless of whether you are attempting to eliminate a second mortgage—you need to seek our firm’s immediate well-versed assistance.

To learn more about eliminating second mortgages, call our firm today.