What’s required to void a mortgage?

When I was quoted on the front page of the Mercury News  about voiding home loans in bankruptcy,  I was inundated with inquires about how lien stripping in bankruptcy works. So here goes: A voluntary lien, like a deed of trust securing a second loan, line of credit, or HELOC, can be voided only in Chapter 13 or Chapter 11. It can be stripped only if there is no equity in the property after deducting the payoff balances of the liens senior to the lien from the fair market value of the property. The lien is permanently voided only upon the successful completion of the reorganization plan. Thanks to lobbying by the mortgage lenders more than twenty years ago, bankruptcy courts are prohibited from compelling any changes to mortgages liens secured only by the debtor’s home. So, the work-around, if you like, is a finding by the bankruptcy court that the junior lien isn’t really “secured” by any value in the home.  If there is a dollar’s…

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