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There are a number of reasons that people have second and third mortgages.
- Some home owners take out second and third mortgages for home remodeling or repairs, such as installing a new roof, new kitchen, new bathroom, new windows or room addition.
- Other home owners take out home equity loans or lines of credit, creating flexible second mortgages in order to pay off other types of consumer debt, send a child to college, cope with medical bills or take a dream vacation.
A second mortgage is a lien on a home, meaning that the home cannot be sold without paying off that lender. When you finance property, be it a car or a home, you generally sign two separate agreements: a note (the money owed) and a lien (the mortgage securing your property). Although your bankruptcy can discharge the note, the lien cannot simply be discharged in Chapter 7 bankruptcy.
A key question for people preparing to file bankruptcy, then, is what to do about troublesome second or third mortgages. Sometimes payments for these additional mortgages are a large stumbling block in people's household budgets, and help tip family finances in the direction of bankruptcy.
In some states, filing bankruptcy can accomplish a "stripping" or elimination of second mortgages from the total debt burden when filing Chapter 13 bankruptcy. Debtors may accomplish this by demonstrating that they have negative equity in their homes, meaning the loan is not actually secured.
In Minnesota, stripping second mortgages in bankruptcy is not that straightforward and may not be successful. Our courts are currently deciding if such an action is allowable. For this reason, the position of Prescott & Pearson, P.A., is to address the second or third mortgage by negotiating a settlement including a greatly reduced payoff with the lender. As part of a total package of debt relief including Chapter 13 bankruptcy, settlement of a second or third loan may accomplish the overall goal of bringing out-of-control debt under control.
Workable Solutions for Financially Distressed Homeowners · "Stripping Off" Second Mortgages or Settling Them · Contact a St. Paul and Minneapolis Bankruptcy Lawyer for a Free Consultation Today
- Minneapolis-St. Paul Area: 651-968-8096
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To learn more about what to do when second and third mortgage payments become unaffordable, call or contact our bankruptcy attorneys today. We offer free initial consultations, quality services at competitive rates and effective representation statewide.