HOME RESCUE LAW
The ‘Home Rescue Law’ takes effect on October 1. If creditor selects her for this program, Countrywide will accept a payment of 90% of $400,000, or $360,000 from a fresh loan guaranteed by the Federal government at 30 years fixed and a low interest. In exchange, creditor will forgive the difference of $60,000 on the first trust deed, and $160,000 on the second trust deed and write the amount of $220,000 as a loss. Client will benefit with a lower fixed mortgage payment, have 10% equity in their residence, and owe only $360,000 on their residence instead of $580,000. Creditor is assured that they will get at least $360,000, instead of losing more than $220,000 if it foreclosed on the house. Client informed me yesterday that Countrywide told her that it would not select her for the ‘Home Rescue Law’ because she had a second trust deed of $160,000 even though the second trust deed was also from Countrywide. What this implies is that homeowners with second trust deeds probably will not be selected to participate in the rescue program even if the second trust deed came from the same bank that holds the first trust deed. But homeowners with only one trust deed on their residences have a better chance of being selected to participate in this program.
Homeowners who have a second trust deed on their houses should still check out their first trust deed creditor first before going for a Chapter 13 lien stripping because different banks have different selection criteria. But after you have been rejected for the ‘Home Rescue Law’ and you still want to explore the other possibility of saving your house, you can still rely on Chapter 13 bankruptcy to get rid of the second trust deed.
CHAPTER 13 LIEN STRIPPING
This is how it works. A chapter 13 can be used to avoid or strip a second trust deed from the residence if there is no equity supporting that trust deed. In client’s case the $160,000 second trust deed has no equity supporting it. After the chapter 13 case is filed, a motion to strip the second trust deed can be filed to prove to the court that there is no equity supporting the second and requesting the court to strip it. A valuation hearing will occur and after evidence and arguments are presented, the court will decide what the current fair market value of the property is. If the motion to strip is granted, the second trust deed will be converted into an unsecured debt. The entire $160,000 will become like a credit card debt. However, debtor must complete all plan payments in his case. After the plan payments have been completed, the unsecured $160,000 will be discharged, and the creditor will be ordered to issue a reconveyance to debtor. Thus, the second trust deed is ‘suspended’ while debtor continues to make the chapter 13 plan payments. Lien stripping in chapter 13 cases was authorized by the bankruptcy court in the San Fernando Valley and adopted by all bankruptcy courts in California about ten years ago and continues to be good law today.
If you need debt relief, contact my office. I will analyze your case personally.
Lawrence Bautista Yang specializes in bankruptcy, business, real estate and civil litigation and has successfully represented more than five thousand clients in California. Please call Angie, Barbara or Jess at (626) 284-1142 for an appointment at 1000 S Fremont Ave Bldg A-1 Suite 1125 Unit 58 Alhambra, CA 91803.
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