New York homeowners with more than one mortgage on their properties should be aware of of how bankruptcy laws may affect the foreclosure process. Even if a homeowner is current on a first mortgage, there could be a default under a second mortgage, and filing for bankruptcy won’t necessarily stop foreclosure by the junior lien holder. Filing for Chapter 13, however, can give a homeowner a fresh start under the right circumstances.
When the amount of a homeowner’s first mortgage loan is greater than the value of the home, a Chapter 13 bankruptcy would eliminate all junior mortgages. If the property value is even a dollar more than what is owed on the first mortgage, however, any junior mortgages cannot be eliminated. .
Many New York homeowners have taken out second mortgages with credit unions or similar smaller lending institutions. Credit unions often pay more attention to individual mortgages than do larger lending institutions. While a homeowner may wish to get an appraisal to determine whether the property’s value is less than the senior mortgage, a credit union will likely try to obtain an appraisal that is more favorable to its position.
Falling behind on mortgage payments and the threat of foreclosure can bring financial and emotional burdens to homeowners. A New York attorney with knowledge of Chapter 13 and other bankruptcy laws may be able to provide a homeowner in this type of situation with information about the various forms of debt relief that may be available. The attorney may be able to stop foreclosure proceedings and may also be able to help negotiate payment plans with the lien holders.
Source: Fox Business, “Can Chapter 13 Help Me Get Rid of Second Mortgage?“, Justin Harelik, September 11, 2013