Can I get rid of my 2nd mortgage in bankruptcy?

Only if your property is underwater (the mortgage exceeds the value of the house). Generally, both first and second mortgages are secured debt. Secured debt cannot be eliminated in bankruptcy. But if your first mortgage is more than the value of your home, your second mortgage (and any other junior mortgages) is considered unsecured. This is because if your primary mortgage holder forecloses on your home, there will be no funds left from the sale of the home to pay the second mortgage holder, meaning the second mortgage is not secured by the property. This process of removing your second mortgage from your house is called lien stripping.

Example. Let’s say your house is worth $200,000 and you have a $250,000 first mortgage and a $50,000 second mortgage.  Since your first mortgage is more than your house is worth, you can strip your second mortgage.  (If you also had a third mortgage, then you could get rid of that too).  But if your house was worth $280,000, then you have $30,000 of equity above the first mortgage so you cannot strip your second mortgage.

Similarly, if the home is worth less than the outstanding principle on the first mortgage, the court may cram down (reduce) the mortgage principle to reflect its current market value. The excess debt is then unsecured and  can be eliminated.

For more information or help with getting rid of a junior mortgage, reducing a first mortgage, or advice on dealing with underwater property, contact a Seattle Bankruptcy Attorney.

Weitz Law Firm, PLLC
520 Kirkland Way, Ste 103
Kirkland, WA 98033