Due to the current low values of homes in Arizona, many of our clients find that the value of their home is less than their first mortgage, and that their second (and even third and forth) mortgages are completely upside down.
In these cases, when the client wishes to keep their home, we often recommend doing a Chapter 13 bankruptcy which in many cases will allow the liens with no equity in them to be stripped off (eliminated) in the bankruptcy. In other words, the lien is treated the same as unsecured credit card or medical debts, and the client can keep the house and continue to pay only the first mortgage. The subsequent mortgages may get paid a few cents for every dollar owed them, just as the credit card companies. In some cases, the credit card companies and the subsequent mortgages will not be paid any amount at all.
In order to do this, we must first make sure that all the owners of the property and all the people who signed on the mortgage note are filing bankruptcy. If the property is owned by both spouses, we cannot strip off the mortgage unless both spouses are filing bankruptcy. In addition, if both spouses signed on the mortgage note (as opposed to the Deed of Trust), we cannot strip off the mortgage unless both spouses file bankruptcy.
Next, we must put a value on the real property owned and which secures the mortgage (also known as a Deed of Trust). The reason for this is that, in order to strip off the mortgage, we have to prove that the real property is not worth more than the payoff balances of the other prior Deeds of Trust. That is, we need to prove that there is NO value, not even one dollar, left in the real property to secure the Deed of Trust we are trying to get rid of.
The process is complicated, and may be challenged by the Trustee requiring a hearing before the court. If you would like to keep your home, and you may have the ability to strip off the second or third mortgage, or if you have other financial difficulties and are contemplating bankruptcy, please call us today to schedule your free bankruptcy consultation. You can also find more information on our website at www.mcguiregardner.com.