As a consumer attorney, it isn’t often that I get to say “bankruptcy” and “exciting news” in the same conversation, let alone in the same breath.But in May, the 11th Circuit Court of Appeals, which covers all of Florida, made some exciting bankruptcy news. A three-judge panel ruled that homeowners with a completely underwater second or junior mortgage can now wipe the mortgage away, or strip it, in chapter 7 bankruptcy.
For example, you purchased a home in 2005 during the height of the market for $250,000. Your first mortgage was $200,000, and you took a second mortgage maybe to avoid private mortgage insurance PMI, or maybe you cashed out equity later for $50,000. With the mortgage meltdown, your home is now worth $175,000. Your second mortgage is completely underwater, or unsecured, because there is no equity protecting the mortgage.
via Strip Off: When Bankruptcy and a Second Mortgage Are an Opportunity for Florida Homeowners.