News & Insights

When a lien is stripped in Chapter 11 or Chapter 13, the security interest is removed from the property, but the debt itself does not fully go away.

Navigating the real estate market in Newport Beach can be rewarding, but it also comes with its share of legal challenges.

For homeowners facing financial pressure, lien stripping is only available through Chapter 13 or Chapter 11, not Chapter 7.

Under certain bankruptcy laws, unsecured mortgages can be reduced or removed when the property value is lower than the total owed on senior loans. This process, known as lien stripping, allows homeowners in Chapter 13 or Chapter 11 to eliminate second or junior mortgages that are no longer backed by equity.

A second mortgage may be removed through Chapter 13 bankruptcy if the home has no remaining equity to support it.

Homeowners can technically negotiate a short sale on their own, but it is strongly recommended to involve a real estate professional or attorney experienced in short sales.

A short sale may lead to tax consequences when the lender cancels part of the remaining debt after the sale is completed. In such cases, the forgiven amount can be reported to the homeowner through a 1099-C form, which treats the canceled debt as taxable income.

A short sale becomes more difficult when there is a second trust deed on the home because the second lien holder often receives little or no payment from the transaction.

Short sales can come with serious hidden obligations if the paperwork is not reviewed carefully.

One major risk in a short sale is that the homeowner may still be responsible for the remaining loan balance after the sale.

Banks often choose short sales because they allow the loan to be reset with a new borrower who qualifies for the reduced value of the property.