Posts Tagged ‘Consumer Bankruptcy Q&A’

Stripping Second Mortgages in Chapter 13 Bankruptcy Cases in Maryland

September 10, 2010

A couple of months back I was in line on ‘Chapter 13 Day’  waiting to talk to the Trustee with all the other counsel.  While waiting we got to discussing ‘shop’.  The topic of stripping 2nd mortgage liens came up and the consensus was that while the law had allowed it for years in the District of Maryland, it has only been in the couple of last years or so that we have had the facts to really make use of the provision.  “Stripping” is a term used to describe judicially voiding a lien (security interest).    In this discussion it refers to a second mortgage lien on real property, but it can refer to other types of security interests.

The key facts necessary to strip the 2nd mortgage lien is that the balance on the first mortgage has to be greater than the value of the property.   With falling real estate values, this is now frequently the case.  This can only be done in a Chapter 13 wage earning reorganization case.   One issue is that the lien stripping is only effective upon the completion of the Chapter 13 Plan and the entry of a discharge order in favor of the debtor.  

 The motion to strip the lien should be filed at the outset of the case.  The motion is filed under §506 of the Bankruptcy Code.  Local Rule 3012-1 and Local Rule 3012-2 for the U.S. Bankruptcy Court for the District of Maryland govern the procedure and there is also in Appendix A of the Local Rules a form for the motion (Local Bankruptcy Form G). 

One issue that I see arising in the years to come in that the new prevalence of these motions to strip liens will lead to title problems in the years to come.   Most title companies and real estate practices are not all that informed about bankruptcy practice.  There is no requirement that the order granting the stripping of the lien be recorded in the land records of the county where the property is situated.  My practice is to put recording information for the lien being stripped in the Order the Bankruptcy Court signs.  The idea is to make it possible to record certified copies of the two orders (Lien Stripping Order and Discharge Order) side by side in the local land records and have it indexed against the property so that a future title search will not show an unreleased mortgage that will cause marketability problems.

Dan Carroll
www.carrollandferguson.com
danc@carrollandferguson.com
September 10, 2010
 

How to use the Bankruptcy Q and A

August 25, 2009

Under the resources section of www.carrollandferguson.com is a question and answer format document that provides bankruptcy information.  (http://carrollandferguson.com/BankrQ&A.pdf)  It is several pages long and might seem to answer all your quesitons.  It does not and can not answer all your questions about bankruptcy law.  It does provide some basic informaiton and will point you in the right direction.    After reading the Q&A, it would not be surprising if you had new questions that you need to ask one of our lawyers.  An example of this occured the other day when a client, after reading the section on earned but unpaid wages and vacation leave was concerned that sick leave was treated the same way.   Sick leave is in fact treated differently and it is uselly exempt.   If after going through the Questions and Answers, you have more questions, contact use at info@carrollandferguson.com and we will try to get back to you.  You can also make an appointment to come in and discuss your case in greater detail.

  Daniel Carroll

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