There is some confusion about the difference between second mortgages and home equity loans. You take on a second mortgage is when you re-finance your home. A home equity loan is a line of credit that usually constitutes a second mortgage.
What is significant about both these entities is that they can be discharged. If you have a second mortgage or home equity loan and your house is worth less than the primary mortgage, then the second mortgage or home equity loan can be stripped under Chapter 13 bankruptcy.
This reclassification of a second mortgage or home equity loan as unsecured debt is called lien stripping, and it is a technique that has helped many homeowners avoid foreclosure.
Let’s say you bought a house 10 years ago that was appraised at $400,000. Two years after you purchased your house, it was appraised at $500,000. Then you took out a second mortgage for $50,000 to pay for your daughter’s college. Today your house is valued at $300,000, with a second mortgage at $50,000. You owe more than your house is worth.
With lien stripping, the second mortgage of $50,000 can be discharged. This allows you to keep your house, avoid foreclosure, and resume making the original mortgage payment.
The attorneys at David W. Brauer, PLLC will meet with you to discuss your mortgage and strategize the best possible approach for keeping your home.