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Law Office James Palmisano
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Montpelier, Vermont 05602
Phone: (800) 585-3169
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.:Remove "Strip-Off" Second Mortgages on Your Home:.

"Strip-Off" is bankruptcy jargon for removing a second mortgage on your home. It can only be done in a Chapter 13 case, not in Chapter 7. Under Chapter 13, if a second motgage is wholly unsecured it may be "stripped" or "avoided" by the Court. However, if the mortgage is at least partially secured it connot be removed. Thus, if you have a first mortgage in which you owe $200,000, and a second mortgage in which you owe $50,000, however due to the adverse real estate market, your $300,000 house has fallen in value to $200,000, you can strip-off the second mortgage because the second mortgage is not secured by any equity in the real estate. The right to strip-off wholly unsecured second mortgages is the prevailing law in the U. S. Second Circuit Courts, which includes Vermont, In re Pond 252 F.3d 122 (2nd Cir.2001).

As such, an approved Chapter 13 plan that purports to turn the second mortgage into an unsecured debt may be approved, thus saving the homeowner significant money and possibly allowing that homeowner to keep his house and afford the remaining mortgage payment.

Examples of Strip-Off applied to a second mortgage

Two examples will illustrate how Strip Off can be applied to a $50,000.00 second mortgage/home equity loan on a $300,000.00 residence.

Example #1
If the first mortgage has a balance due of $295,000.00, then the entire $50,000.00 second mortgage cannot be Stripped Off, because there is $5,000.00 worth of equity (ie. $300,000.00 value minus $295,000.00 first mortgage equals $5,000.00 equity) for the second mortgage to attach to.

Example #2
However, if the balance due on the first mortgage were $305,000.00, the entire $50,000.00 second mortgage could be Stripped Off, as there is no equity in the residence for it to attach to.

Obviously, if a Second (or Third) mortgage can be Stripped Off it can dramatically improve a Debtor's Financial position as they would no longer have to make any payments to that second mortgage holder. In this instance the amount owed to the Second (or Third) mortgage holder would be treated as any other unsecured debt and repaid through the Plan payments made to your Chapter 13 Trustee, often resulting in the mortgage holder receiving only a fraction of the amount actually due.


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