A second mortgage is a secured loan that uses the borrower’s home as collateral. Although the lender is a junior lien holder, it has the right to foreclose on the property if a payment or payments are not made. However, it may be possible to strip the lien through bankruptcy. Those who are filing for Chapter 13 bankruptcy may be able to ask that the lien be stripped after the debt repayment plan has been completed.
In Chapter 13 bankruptcy, existing debts are reorganized and subject to a repayment plan that lasts three to five years. The process for getting a lien stripped is fairly straightforward in some jurisdictions. For instance, debtors in some states may be able to get the lien removed simply by filling out a form and presenting it to the court.
Once the court orders the lien to be removed, a former debtor may ask the creditor to update his or her account status. Those who do not want to go through the hassle of dealing with a former creditor may wish to ask an attorney to do it for them. The attorney may be able to handle the process of having the lien stripped, credit information updated and obtaining a copy of any promissory note or title deed from the creditor.
Those who have equity lines of credit or have taken out a home equity loan may face foreclosure if they fall behind on the debt. However, a real estate attorney may be able to help property owners get rid of any lien that a second mortgage holder may have. This may absolve a property owner of any obligation to continue paying the debt once it has been discharged.
Source: SF Gate, “How to Strip Away a Second Mortgage Through a Bankruptcy“, Tony Guerra, December 16, 2014