That’s a question a New York bankruptcy lawyer should ask whenever a debtor seeks to strip a lien off an (allegedly) underwater junior mortgage in a chapter 13 bankruptcy. I’ve discussed this before, but as a quick review, debtors who owe multiple mortgages can strip the liens off junior mortgages that have no equity in them. Debtors benefit from doing so because the mortgages then become unsecured debts that they can discharge at the end of their repayment plans. When debtors file in chapter 7, the junior mortgage is discharged but the lien on the property remains. This is not a good situation for debtors who want to keep their homes but can’t pay their second mortgages in the long run.
However, many debtors interested in ridding themselves of their junior mortgages will run into a snag: How do we know it’s underwater?
The answer: The house will need to be assessed—and well.
I’ve already covered home-value assessments in bankruptcy, but debtors will help themselves (and their lawyers) if they have some understanding of what their houses are worth by the time they attend their first consultations. Even a public assessment will do. After that, a more thorough assessment can be conducted. It’s usually not a hurdle for debtors whose properties have lost so much value that the issue is moot as far as lien-stripping is concerned.
If there is some chance that the house has value beyond the first mortgage, though, the mortgagee can contest a debtor’s intent to strip its lien. It will conduct its own assessment, and if that provides the lender with a number it thinks is worth fighting over, then it will initiate an adversary proceeding against the debtor. At that point the bankruptcy court will decide which appraisal is more accurate.
If your case looks like it’s a close call, then the credibility of your assessment is going to matter. For sure, some of the informal assessments I suggested in the linked post won’t be very convincing, such as advice from realtors or looking at comparable properties on the Internet. An independent assessment by a licensed appraiser will provide good evidence that your home is really worth less than what the bank thinks.
More importantly, the timing of the assessment matters because it’s a lot easier for your bankruptcy lawyer to help you with it before you file than afterwards. If the second mortgage appears to have any value, then it’s better to know before going to court than later because a chapter 13 bankruptcy won’t resolve your financial situation as effectively. Thus, consulting with an experienced New York bankruptcy lawyer beforehand will give you a much better opportunity to decide whether chapter 13 is the best course of action—and to fight the bank if it disagrees later.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced bankruptcy attorney Brooklyn NY Bruce Weiner for a free initial consultation.