what does a lien mean
One of the great benefits of a Chapter 13 case ( and, as discussed below, Chapter 7 cases in some states ) is the ability to “strip,” or remove, a second or junior lien from your house if the value of the house is less than the outstanding balance of the first, or senior, lien. For example, If your house is worth $200,000 and you have a first priority loan with a balance of $205,000 and a second priority line of credit with a balance of $23,000, you can ask the Court to strip the second lien from the house. Why is this important? Because, assuming you complete your Chapter 13 Plan, that lien is gone forever. In addition, because you will have converted the secured debt into unsecured debt, which you paid in your Chapter 13 Plan, you will get a discharge of the remaining debt from that second priority loan. You will emerge from your Chapter 13 case with no lien and no debt for that line of credit, and can focus on paying off only the first mortgage. Importantly, the availability of lien stripping is a bright line test. If the house in the example is worth $206,000, the second lien cannot be stripped.
Let’s look at the same example as if lien stripping were not available, or the house is worth just a little more so that the second lien cannot be stripped. When you emerge from the Chapter 13 case, you still owe approximately $228,000 (or maybe a little less for principal paid during the Plan) for a house that is only worth $200,000, assuming the value remains constant. That means you will never own the house until you pay off both loans and you will not be able to sell it without lender approval until it reaches a point at which the house is worth more than the balances of both loans. If you cannot make the payments on both loans, you may face foreclosure. In the last few years, lien stripping in Chapter 13 cases has been a great benefit to many people because of the dramatic drop in property values. Even people who originally had equity above all loan balances found themselves in a position of owning a house that was not even worth the balance of the first loan. Of course, this analysis presumes you want to keep the house. You can always choose to give up a house, and get a discharge of all the debt, if you decide to do so (and the availability of lien stripping may be relevant to that decision).
In order to strip the junior lien, a motion is filed with the Bankruptcy Court, with notice to the lenders, requesting that the junior liens be stripped and setting out the basis for the request. In many cases, the lender will not even contest the motion unless they believe the debtor’s valuation of the house is wrong. How do you come up with the value for the motion? While judges in different districts may have different rules, in the Northern District of Georgia judges generally require at least an opinion from a real estate agent or broker. If the lender contests the motion, you will need to get an appraisal because the lender will probably have their own. While Zillow and other online resources are often good for a rough estimate, they should not be relied upon as evidence for the motion. The same applies to county tax assessments. An appraisal is a small price to pay for stripping a lien. In a contested case, the Judge will hold a hearing and each side will present their appraisals and the appraisers will testify. The appraisers will have the opportunity to justify their value and critique the other side’s appraisal. Ultimately, the judge will decide which value is correct, or perhaps come up with his or her own value somewhere in the middle. Generally, the burden is on the debtor to prove that they are entitled to strip the lien.
Finally, if you read about lien stripping on the internet, you will probably read that it is limited to Chapter 13 cases. That is still true in most states, and was true in all states until recently. However, in 2012, the 11th Circuit Court of appeals held that unsecured liens can also be stripped in Chapter 7 cases. The case is McNeal v. GMAC Mortgage, LLC and you can read more about the case in this post in the Georgia Bankruptcy Blog. While the issue is probably going to be decided by the Supreme Court or Congress in the near future, for now people in Georgia, Florida and Alabama can take advantage of the benefits of lien stripping even if the law is changed later. Update – Lien stripping in Chapter 7 cases no longer allowed after Supreme Court ruling.
Lien stripping is a powerful tool in Chapter 13 cases ( and some Chapter 7 cases ). If you are facing financial problems and believe you may be able to get rid of second or third priority liens on your house, make an appointment with a Bankruptcy lawyer or two to review your situation. While there is usually no need to rush to the Courthouse to file a case and strip a lien, the reality is that property values are rising in many areas and it may not be available if your house increases in value so that it is worth more than the first mortgage. If you are in Georgia, call a local Bankruptcy lawyer or contact us and set up a meeting or a phone call.
Can a Creditor Put a Lien on My House?
Yes. But there may be something you can do about it. Maine law has some protections for homeowners in this situation.
As a general rule, before a creditor can put a lien on your home, they must get a court judgment against you. A judge must decide that you actually owe the money and that the creditor has the right to try to collect it from you.
A creditor with a court judgment has many ways to collect the money. One way is to use wage withholdings or bank account garnishments. You can learn more about this kind of debt collection in our Guide To Debt Collection in Maine.
They can also put a lien on your house. Once the creditor gets a judgment, they may record a lien in the registry of deeds. Usually, this means that the creditor is claiming a right to a part of your home's value.
What does having a lien on my house mean?
The creditor will get paid if you sell your home or if you refinance. But if the amount of value you have in the house is low, it may be protected against a judgment creditor.
What protections are there for Maine homeowners?
The value in your home that is more than what you owe on your mortgage is called your equity. So, if your home is worth $100,000 but you still owe $60,000 on your mortgage, you would have $40,000 in equity in your home.
Your equity inyour home is protected from a creditor up to $47,500. This protected value goes up to $95,000 if:
- a minor dependant lives with you, or
- you or are at least 60 years old or disabled, or
- you have a dependant who is at least 60 years old or disabled.
If a creditor put a lien on your home and the entire equity in your home is protected, you can demand that the creditor remove the lien. To do that, you can use this form: Request to Discharge Execution on Real Property.
Include evidence of the value of your property and any amount you owe on the property with the form. For example you could include the town’s assessed value or a real estate broker’s opinion of value. You can also attach a bank mortgage statement.
Make a copy of the form and your evidence. Keep your copy in a safe place. Send the original to the person or company who put the lien on your house. To make sure you have a record that your letter was delivered, send it by certified mail, asking for "return receipt" and "restricted delivery."
The creditor has 15 days to remove the lien from the time they get the form. If they don't, you can ask a court to order the creditor to remove it. If you win, the creditor must pay your court costs and attorney's fees. You may want to call an attorney to help you and they could get paid by the creditor.
What is a Mortgage Lien & What Does It Mean?
Do you have questions about mortgage liens? This article could help answer your questions.
According to one source, the definition of a mortgage lien is “a legal claim against a mortgaged property, which must be paid when the property is sold.”
So to put it more clearly, if you have a mortgage on a property, then the amount you owe to the bank, also known as the mortgage balance, is the lien portion. When you decide to sell your property, the amount left on the mortgage lien needs to be paid to the bank before any profit can be distributed to you.
For example let’s say John Doe decided to sell his property. The property was assessed at $500,000 and had a balance on the mortgage for $300,000. When John sold the property, the bank would take what was owed on the mortgage lien ($300,000) and John would keep the $200,000 profit (providing there were not any other outstanding liens on the property).
Another type of mortgage lien is when a company has a legal claim against your property. This can occur if you have had work performed or services completed on your property that you do not pay for. Companies that perform work such as renovation or construction, mechanics and electrical work that participate in construction and repair are an example of a type of company that may place a lien for unpaid services.
This type of mortgage lien gives them legal rights to claim money owed to them from the property unless you pay them before selling. However, this form of a lien only comes into play after your lien to the bank is fulfilled. Meaning, these companies only get money if there are extra funds left over after the mortgage lender has been paid. Also, foreclosure is usually involved in a case like this, is for this reason that title companies perform a search for liens on a property prior to a sale.
Any type of lien on a property is not ideal. Having a profit after paying the bank what is owed on the Mortgage Lien and avoiding additional liens is a good end-goal when buying a property. With the Ability to Repay (ATR) rules now in effect, the probability of more property owners being able to walk away with a profit is more feasible. This is because the ATR act requires creditors to make a “reasonable, good-faith determination of a consumer’s ability to repay any consumer credit transaction secured by a dwelling.” However these rules do not apply to all types of loans, including open-end credit plans, timeshare plans, reverse mortgages and temporary loans.
There are a few resources you can access to determine how much of a mortgage you can reasonably afford, however visiting your financial institution is always the best and safest way to determine your mortgage. Doing a little research on your own before heading in though can give you a rough idea of what you are looking at. Here are a few online tools that can help you in the process:
- If you are unsure what the property taxes may be, here is a
Hawaii Property Tax Calculator:
Of course there are several things to consider when looking at what you can reasonable afford, and writing down a budget is highly recommended. Don’t forget to include things such as groceries and entertainment. Even though you may be potentially buying your dream home, you will still want to leave enough wiggle room in your finances to enjoy such luxuries as eating at one or several of the best restaurants in Maui.
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