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San Francisco Bankruptcy Attorney Discusses Second Mortgages and Lien Strips

Ed Hsu Feb. 15, 2023

Buying property has always been a good investment, up until it wasn’t.  Growing up, we always hear that property investment was a more safe and valuable investment than any other kind.  Afterall, why pay the high rents every month to a landlord when you can be paying yourself and owning your own home.  That was the case up until the early 2000’s when the mortgage industry started to take a large downward dip.  All of those bad loans that were so easy to obtain and were making so many people rich were now catching up to the homeowners.  Loans that were given with huge interest rates were coming due and the homeowners were unable to pay.  Home prices started to fall drastically; and the huge cash windfall people thought they were going to have when they sold their homes turned into a giant wind tunnel sucking them down into financial ruin.

Many of these homeowners took out second mortgages and equity lines of credit to help them survive.  What many of these people do not know is that if you are in a similar situation that is described above, you may be able to get rid of your second mortgage completely in a Chapter 13 bankruptcy.  In order to qualify for a Chapter 13 “lien strip” you need to show that your house is underwater as to the first mortgage (meaning: that the first mortgage is more than the value of the house).  Therefore, if you meet the Ch. 13 bankruptcy requirements and your house is underwater, the second mortgage can be stripped from the property completely.  Once you have completed your five year Ch. 13 repayment plan, the whole second mortgage is wiped and you are no longer liable for the debt.  The theory behind this is that in a hypothetical scenario, if the house were to foreclose and go through regular foreclosure proceedings, the first mortgage would take the house as the security leaving the second mortgage unpaid anyways.  The second mortgage then would be considered an unsecured debt that would be dischargeable in bankruptcy.

If you have a second mortgage that you think would qualify for a lien strip please speak with an attorney.  If you have questions about bankruptcy or lien strips please give EH Law Group a call us or visit our website at  Our San Francisco bankruptcy attorneys, San Jose bankruptcy attorneys or San Mateo bankruptcy attorneys will be able to assist you.  We will discuss your situation and assess what the best option is for you.  We look forward to speaking with you soon!