In a case originating in Minnesota, the Eighth Circuit Court of Appeals has upheld the legality of "lien stripping" wholly unsecured junior mortgages on residences in Chapter 13 cases. The decision follows earlier decisions in seven other federal appellate courts around the country, better settling the law for those of us who live in Minnesota. Congratulations are in order for local attorney Tim Theisen for his work on behalf of the homeowners in the case.
Homeowners with second or third mortgages that are underwater -- meaning the value of the residence is less than the amount owed on the primary mortgage(s) -- can rest easier in the knowledge that they can use a Chapter 13 reorganization plan as a means to removing those underwater mortgages entirely from their homes. For example, a homeowner who owns a home with a fair market value of $150,000 and a first mortgage with a principal balance of more than $150,000 could eliminate any additional mortgage debt on his or her home as part of a Chapter 13 filing.
There are, of course, other requirements that must be met before anyone with underwater mortgages can file a Petition under Chapter 13. But anyone with significant underwater mortgages on their residence may want to consider this avenue of debt relief, particularly if it means the difference between keeping and losing a home.
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