The Short Answer
Yes — but only through Chapter 13 bankruptcy, and only under a specific condition: the value of your home must be less than what you owe on your first mortgage. If that's true, your second or third mortgage has no equity securing it, which means you may be able to "strip" that lien entirely through a Motion to Value Realty or an adversary proceeding filed in North Carolina bankruptcy court. If the lien is successfully stripped and you complete your Chapter 13 plan and receive a discharge, the second or third mortgage is treated as unsecured debt — and in many cases, eliminated. This strategy doesn't apply in Chapter 7, and it doesn't work if the home's value covers any portion of the second mortgage.
http://www.youtube.com/watch?v=B-sSvS141HQ
If you are like many people, your home is not worth what it was a few years ago. With the downturn of the economy, the value of your house has decreased. Suddenly, you are “upside down” on your home and the sales price is not enough to pay off the first, second and sometimes third mortgage on your home.
When the real estate market was strong, many people capitalized on the fact that their home was worth more than their first mortgage and obtained second and even third mortgage loans against their home. Often this money was used to pay off credit cards or medical bills, and in some cases it was used to update or upgrade the home. Regardless, the house is not worth what you owe on it today, and there is no way for you to sell the home without a short-sale or possible deficiency balance.
If the value of your home is less than what you owe on your first mortgage, you may be able to file Chapter 13 bankruptcy in a North Carolina bankruptcy court and “strip” the lien of the second mortgage. In other words, if you file Chapter 13 bankruptcy you may be able to either file a lawsuit (adversary proceeding) or file a Motion to Value Realty and eliminate a great deal, if not all, of the amount owed on the second and/or third mortgage. Obviously, the mortgage company has the right to argue the value placed on the property. However, if you have obtained a market assessment by a licensed real estate agent or an appraisal by a licensed appraiser, it will be more difficult for the mortgage company to argue the value.
The adversary proceeding or Motion to Value Realty must be filed in addition to your Chapter 13 bankruptcy case. For the lien of the second and/or third mortgage to be “stripped” or voided, you must have a bankruptcy court order canceling the lien on the second and/or third mortgage and you must receive a discharge in your Chapter 13 bankruptcy.
If you have questions on how you may be able to “strip” a lien on your home by filing Chapter 13 bankruptcy, please do not hesitate to contact us.
Key Takeaways
- Lien stripping is only available in Chapter 13 bankruptcy — not Chapter 7 — and requires the home's value to be less than the balance owed on the first mortgage.
- The process requires either an adversary proceeding or a Motion to Value Realty filed in addition to your Chapter 13 case.
- A licensed appraisal or market assessment from a real estate agent strengthens your position if the mortgage company challenges the property value.
- The lien is not officially removed until the bankruptcy court issues an order canceling it AND you receive a Chapter 13 discharge — completing the full plan is essential.
- If your home has even a dollar of equity beyond the first mortgage balance, the second mortgage lien cannot be stripped under this approach.
- Many NC homeowners with upside-down properties don't realize this option exists and walk away from homes — or keep paying junior mortgages — when they don't have to.
Attorney Insight
The mistake I see most often is homeowners continuing to pay a second or third mortgage on a home that's deeply underwater — sometimes for years — without knowing lien stripping was ever an option. In North Carolina, we've used the Motion to Value Realty process in both the Middle and Western Districts to strip junior liens down to zero when the appraisal clearly supports it. The mortgage company will almost always push back on valuation, which is exactly why I tell clients not to walk into this with a Zillow printout — get a licensed appraiser. And critically, if you don't complete your Chapter 13 plan and earn that discharge, the stripped lien can snap back, so the finish line matters just as much as the starting line.
