Stuck with All of the Mortgage

Bankruptcy provides an opportunity for a filer to reduce a lien to the value of the property. It is difficult to do this, however, when the property is your home. The recent case of In re Birmingham illustrates this. Attempting to take advantage of a bankruptcy code provision that insulates mortgages secured solely by the debtor’s principal residence from modification, the debtor argued that three provisions of the mortgage secured property other than the home. These provisions permitted a security interest in escrow items, property insurance proceeds, and miscellaneous proceeds. The Fourth Circuit Court of Appeals held that these property items were similar enough to the home to be a part of it and thus the mortgage could not be stripped down or reduced to the value of the home. Remember, however, that when the circumstances are right you can strip off a second mortgage completely, and it will no longer be a mortgage, but unsecured debt, subject to substantial reduction.

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