The number of bank and tax lien foreclosures continues to increase in most areas of California. Some homeowners though, have found that a bankruptcy code provision can actually be used to save their homes from getting foreclosed on or repossessed. This method involves getting the courts to declare a second mortgage void.
Some troubled homeowners try to sell their properties to avoid foreclosure. However, aside from investors, not a lot of people are willing to buy foreclosures in San Jose, in San Francisco or in other areas of the state. Others seek loan modification, while others explore short sales. However, a small number of homeowners in the state are using a code in the bankruptcy law which allows them to get rid of their second loan mortgages.
For some owners of bank foreclosures in California who have a second mortgage, filing for personal bankruptcy allows them to keep their homes and get rid of their second housing mortgage. Having eliminated the second mortgage, most of these people were able to have more time and more resources to pay for the first mortgage and other debts which can eventually save them from foreclosure. Under bankruptcy laws, homeowners are not allowed to eliminate their first mortgage debt, especially if they want to stay and keep their homes.
The second mortgage, though, can be considered an unsecured debt, particularly when the homeowner does not have enough home equity to cover this second loan. Since the rise in the number of bank and tax lien foreclosures in the region, the number of underwater homeowners or properties with negative equity has also risen. For these homeowners, the negative equity may be even considered a blessing in disguise, especially if they have a second loan mortgage.
If they cannot find someone willing to buy bank foreclosures, they can file for bankruptcy, have the second loan voided and free up more financial resources. They can then use this to pay for their first loans and save themselves from foreclosure. Real estate and bankruptcy lawyers in various parts of the state have reported that this strategy has been used by a number of borrowers in the region and has been proven to be effective in saving their homes.
According to some market observers, although this method has effectively helped a number of homeowners facing bank and tax lien foreclosures, most mortgage firms are not in favor of the strategy. However, lawyers stated that under current laws, this strategy is actually a legal one.
