Many Florida homeowners take out second, third and even fourth mortgages against their property in order to finance repairs, education or other major expenses. However, as you are probably aware, there are risks associated with this practice. What seems like a manageable leverage strategy at first has the potential to take a turn for the worse if the situation changes.
These additional mortgages, also known as liens, are different from primary mortgages in that they are secondary financial responsibilities. Because you would generally not have to pay them off first, they would probably have a higher interest rate than the primary mortgage you take on to purchase your home. Additionally, you might be able to use a certain type of debt management strategy with these liens.
According to the Administrative Office of the U.S. Courts, completing chapter 7 bankruptcy would not lift any liens against your assets. However, you might be able to manage these liabilities through chapter 13. Your eligibility for debt forgiveness would depend on your ability to repay your debts according to a schedule the court determines as part of your bankruptcy decision.
It bears mentioning that, bankruptcy courts would likely require you to present your relevant financial information in a very specific way in order to strip the lien from your property before reaching a decision. In most cases, this information would include:
- The amount you owe on primary and subsequent mortgages
- Your home’s current market value
- The nature of your home loans
After this, you could potentially convert any mortgage debt in excess of your home’s value into a more manageable form. However, you would probably have to satisfy a number of requirements to do so — not the least of which is being eligible for chapter 13 bankruptcy in the first place. As such, please do not think of this as legal advice. It is only meant to educate.