Stripping Down to Avoid Foreclosure
By: Gerri L. Elder
With a reported one in six homeowners now upside down in their mortgages, meaning that they now owe more than their homes are worth, the end of the foreclosure crisis is nowhere in sight. However, there is a new strategy, developed by sharp bankruptcy lawyers, to help people who are facing foreclosure hang on to their homes.
The Las Vegas Business Press reports that a new practice called "lien stripping" is gaining popularity. It can be used to help homeowners get out from under double mortgage payments so that they can pay their original mortgage loans and save their homes.
Efforts towards lien removal have increased recently as property values continue to diminish. Several Las Vegas area bankruptcy lawyers are performing lien stripping for their clients and at least one lawyer has made it the focus of her practice.
Bankruptcy lawyer Dorothy Bunce has launched a marketing campaign to let homeowners know that they could be able to get a handle on their mortgage payments again by having second and third liens on their homes stripped away.
Bunce has set up a Web site on the topic and has been sending out statements to get homeowners in the know. She also has a hotline that homeowners can call to get more information about how lien stripping can help them keep their property.
She says that she encounters a lot of disbelief in her claims that unpaid liens can be removed. However, Bunce cites both bankruptcy law and a groundbreaking 2002 9th U.S. Circuit Court of Appeals decision as proof that her lien stripping methods are effective.
According to Bunce, a lien has to be tied to something. In the case of a home that no longer has any equity, the lien is no longer a secured debt. When the debt is no longer secured by any equity in the home, it is simply a procedural matter of separating the lien from the title.
In order to have the now unsecured liens stripped from the title of the property, the homeowner must file Chapter 13 bankruptcy and have the lien removal approved by the bankruptcy court. Under Chapter 13 bankruptcy, debts are reorganized to allow the debtor to repay a portion of their unsecured debts based on their income.
Bunce says that creditors do not usually oppose the motion to strip the second lien. The reason that there is little resistance is that if the home goes into foreclosure, the second lien holder knows they will not recover anything. Since there is no equity left in the home, there will be nothing left over after the first lien holder salvages whatever is possible.
Lien stripping is a relatively new tool in bankruptcy lawyers' arsenals. Before the housing market collapsed, most homeowners had plenty of equity and the lien stripping would not have been possible. In today's housing market, this is not the case. Now many homeowners would qualify for lien stripping and potentially avoid foreclosure by filing bankruptcy.