Bankruptcy is a HELOC Solution
Did you know you can file a lien avoidance motion (lien strip motion) in a bankruptcy to remove a Home Equity Line of Credit or HELOC (Also known as 2nd mortgage, 2nd home loan, line of credit, junior lien, junior loan)? If your house is underwater due to a HELOC, here is a solution for you. A lien strip motion or a motion to avoid a lien has the capability to completely remove the 2nd or junior loan from your home if there is no equity behind the loan. Don’t wait until the next recession before you deal with this issue. You don’t have to be unemployed or have low income to use this solution.
We can illustrate further with an example. We can use our fictional home owner named John. John has a home loan of $300k on his first mortgage which is considered to be his first lien. John also has a second mortgage or second lien on his home for $100k in the form of a Home Equity Line of Credit or HELOC. So, the total debt amount on the home is $400k. The home is worth $250k in the current market value, considered “upside down” in value because the debt amount on the home is larger than the current market value of the home. John was able to obtain a BPO or Broker Price Opinion from a real estate agent, broker, or appraiser to prove the value at $250k. In a Chapter 13 bankruptcy, John can file what is called a Motion to Avoid Lien or commonly called a lien strip motion. If John qualifies for the Chapter 13, John can utilize the Motion to Avoid Lien to remove his $100k lien from the home.
Once the lien is removed, it will be included as $100k of debt in his Chapter 13 which will be resolved in the bankruptcy. When John’s Chapter 13 bankruptcy is concluded, there will be no existing lien on the home for the $100k HELOC which John took out as a 2nd lien on the home. Years later, when John sells the home, there is only one mortgage that he needs to worry about covering in the sale which is the first lien for $300k. Now, John can sell his home for $300k and have no left over debt if he chooses to sell the property in the future.
A lien strip motion is an excellent alternative to actually paying off the 2nd loan or HELOC. If John, in our example above, does not execute the lien strip motion, he would have to wait until his house is worth $400k to sell it without a deficiency on the debt that exists on the home, but with a lien strip motion, John will only be concerned with covering $300k in the future if he decides to sell the home. In addition, removing the 2nd lien will allow John to eliminate his payment on the $100k HELOC so that he can focus his resources on paying the $300k mortgage.
Southern California was one of the most impacted areas during the real estate bubble due to an inflation of home values. If you are one of the Orange County or Inland Empire residents who are struggling with dealing with multiple liens on your home, contact Bankruptcy Law Professionals at (855) 257-7671 to check your options. We have offices in Riverside and Orange County to help you. Call us to set a free consultation with our highly skilled Riverside bankruptcy attorney or Orange County bankruptcy attorney to discuss your situation.