What is a Lien strip?

A Lien strip is possible only in a Chapter 13 bankruptcy and only if the fair market value of the property is less than the total amount of money due on the first mortgage. In that case a second and third mortgage if any can be stripped off the house. Why? Because in every bankruptcy a liquidate analysis is completed which starts with the following question: What would the creditors received if all the debtors assets were sold on the day he files for bankruptcy protection? Applying the result from this question to the lien strip would give 100% of the proceeds from the sale of the property to the holder of the first mortgage (Deed of Trust) and the holder of the second mortgage (Deed of Trust) would be treated as an unsecured creditor. So at the end of the Chapter 13 plan the debtor is only responsible to pay off the first mortgage in order to have a free and clear deed to their home.

Please contact a local Arizona Bankruptcy attorney to help you see all of your options.

Stephen M. Trezza