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Under 11 USC Section 506, an unsecured second and/or third mortgage may be voided if it is determined that the whole mortgage is deemed “unsecured.”  In today’s real estate market the value of most houses has dramatically decreased leaving many homeowners to pay on additional mortgages that are not secured by the value of the house.  For example, if a home is appraised by a Certified Pennsylvania Real Estate Appraiser in the amount of $300,000.00 and is encumbered by a first mortgage in the amount of $300,000.00 or less any 2nd or even 3rd mortgage(s) would be deemed unsecured based on the appraised value of the subject property.  The voiding or stripping of additional mortgages can only be done in a Chapter 13 Bankruptcy proceeding and is inapplicable through a Chapter 7 Bankruptcy.  Furthermore, the process of voiding a wholly unsecured mortgage is done by way of an Adversary Proceeding filed against the subject mortgage company in the United States Bankruptcy Court.  The Adversary is generally titled a Complaint to Determine Validity of Lien Held by the name of the subject mortgage company.  The goal of the Adversary Complaint is for the Court to enter and Order reclassifying the 2nd or 3rd mortgage(s) as an “unsecured” debt, therefore relieving the filing  party of their obligation to pay their contractual mortgage payments.

11 USC Section 506 is cited below in relevant part:

Determination of secured status. (a)(1)An allowed claim of a creditor secured by a lien on property in which the estate has an interest, or that is subject to setoff under section 553of this title, is a secured claim to the extent of the value of such creditor’s interest in the estate’s interest in such property, or to the extent of the amount subject to setoff, as the case may be, and is an unsecured claim to the extent that the value of such creditor’s interest or the amount so subject to setoff is less than the amount of such allowed claim.

If there are any general questions or topics you would like to read about relating to bankruptcy law in the Philadelphia, Pennsylvania region, you may contact the Philadelphia Bankruptcy Lawyers at Sadek Law Offices, LLC at 215-545-0008  or toll free at (877) 4-LAW-411 or email brad@sadek-cooper-site. Thank you.