On December 20, 2013, in Economist Commentaries, by Ken Fears, Manager, Regional Economics and Housing Finance Policy
With the end of 2013 closing in, it is time to take stock of the impact from the strong 2013 housing market.
Home price growth was robust in 2013 compared to 2012 and is currently forecast by NAR Research to finish the year 11.3% stronger.
This improvement is important for the market as it has created equity for homeowners, boosted buyer confidence, and pulled many underwater homeowners into positive equity positions.
A borrower who purchased a median priced home[1] in 2004 and held it for nine years, the current median tenure of a homeowner according to NAR’s annual Profile of HomeBuyers and Sellers, would have $28,114 in equity from the combined benefit of price appreciation and paying down the mortgage principle.
A borrower who bought a median price home in 2012 would have more than $23,000 in equity. It is important to note that borrowers who purchased in 2006 and 2007 at the peak of the market and thus those who experienced the sharpest price declines are now nearly in positive equity. A person who purchased in 2006 and owned through 2012 (not pictured) would have been underwater by roughly $28,200, but by 2013 this gap was down to $4,700.
Continued price growth in 2014 will help to further ameliorate this gap. Homeowners who purchased since 2007 are in positive equity. Even through the visitudes of the great recession, for most homeowners housing remains an effective vehicle for building equity and wealth. [1] With a 10% downpayment at the prevailing average 30-year fixed mortgage rate Ken Fears, Manager, Regional Economics and Housing Finance Policy
Ken Fears is the Manager of Regional Economics and Housing Finance Policy. He focuses on regional and local market trends found in the Local Market Reports and the Market Watch Reports . He also writes on developments in the mortgage industry and foreclosures.
Friday, December 27, 2013
Monday, December 16, 2013
This Weeks Market Info
Why is the Fed FOMC Meeting this week such a big deal?
This week all eyes are on the Federal Open Market Committee meeting, as the market waits for the Federal Reserve’s tapering decision. Both the FOMC policy statement and its up-to-date economic and market projections will be released on Wednesday at 2 p.m. EST, followed by Fed Chairman Ben S. Bernanke’s press conference at 2:30 p.m. EST.
This week all eyes are on the Federal Open Market Committee meeting, as the market waits for the Federal Reserve’s tapering decision. Both the FOMC policy statement and its up-to-date economic and market projections will be released on Wednesday at 2 p.m. EST, followed by Fed Chairman Ben S. Bernanke’s press conference at 2:30 p.m. EST.
Why is this all such a big deal? In the real estate world, we are watching to see if the Fed begins tapering – the term used for cutting back on the purchases of Treasuries and MBS (Mortgage Backed Securities) that constitute the current round of quantitative easing, known as QE3. To oversimplify it, if the Fed begins tapering, it will likely drive mortgage rates up further.
So why is the Fed looking to taper these purchases now, and how likely is it that they will do so on Wednesday?
It all has to do with the health of the economy - the Fed needs to stop QE3 sometime, and it appears that the economy is showing enough signs of strength that now would be the time to begin. Specifically, how swiftly the Fed cuts its QE purchases will depend a lot on the evolution of the labor market. The Fed announced its most recent round of QE in September of last year, and it has been buying $85 billion a month since January ($45 billion in Treasuries, $40 billion in MBS). Recent economic data has shown signs that the economy is improving, and that jobs are stabilizing. Economic stability and improvment is exactly what the Fed has been waiting for to pull the trigger on tapering (which they did NOT do in September's meeting).
So what to do now?
Be prepared for lots of interest rate volatility this week as the markets work to stay ahead of the Fed moves and speculation abounds. Keep in close communication with your favorite Mortgage Loan Professional and have them keep you abreast of what happens throughout the week,
It all has to do with the health of the economy - the Fed needs to stop QE3 sometime, and it appears that the economy is showing enough signs of strength that now would be the time to begin. Specifically, how swiftly the Fed cuts its QE purchases will depend a lot on the evolution of the labor market. The Fed announced its most recent round of QE in September of last year, and it has been buying $85 billion a month since January ($45 billion in Treasuries, $40 billion in MBS). Recent economic data has shown signs that the economy is improving, and that jobs are stabilizing. Economic stability and improvment is exactly what the Fed has been waiting for to pull the trigger on tapering (which they did NOT do in September's meeting).
Be prepared for lots of interest rate volatility this week as the markets work to stay ahead of the Fed moves and speculation abounds. Keep in close communication with your favorite Mortgage Loan Professional and have them keep you abreast of what happens throughout the week,
Last Week's Mortgage Rate Recap
Mortgage Rates Currently Trending: NEUTRAL
Last week saw rates remain mostly flat, with most lenders worsening rebate pricing (the cost to obtain a rate or the credit the lender gives you towards your closing costs when selecting a rate) as MBS (Mortgage Backed Securities) sold off a net loss of -35 basis points. Most consumers would have seen their offered mortgage rate remain the same, but would have gotten a lower amount as a credit towards closing costs or would have paid a little bit more to obtain the same rate. The week started with a nice bounce back from the lows we experienced the week before. Wednesday was a bad day for rates as the MBS market sold off, giving back the gains from Monday and Tuesday. Thursday continued the sell off slightly, until we saw a reversal and a positive day for pricing on Friday. It's important to note that since November 18th, we've lost about 230 basis points in the MBS market, meaning that traders have priced themselves towards a Fed tapering.
This Week's Mortgage Rate Forecast
Mortgage Rates Forecast: VOLATILE, and heavily dependent on Wednesday's FOMC announcement
This week is going to prove to be volatile and hard to predict, both before the Fed's FOMC announcement on Wednesday, as well as after depending on what the Fed announces. There is a large consensus
that the Fed will announce their intent to begin tapering. If that does occur, we may very well see more selling off in MBS, even though the market has already been pricing that in. If the Fed announces that they are not yet ready to taper, as happened in September, the market should reacti very positively and MBS pricing will improve along with mortgage rates.
BOTTOM LINE: It is very important this week to stay in contact with your Mortgage Loan Professional, especially on Wednesday when the Fed makes their announcement. If they announce tapering, be prepared for rates to go up slightly. If they announce they will not yet taper, it is likely that rates improve anywhere from .125% to .250%. The only way to stay ahead of lenders who will raise interest rates when that happens is to stay in close contact with your LO who is monitoring the market in real time with an institutional grade Wall St. data feed. Be prepared for volatility later this week.
Saturday, December 7, 2013
Home sales "chugging along," as recovery continues
Brokers expect prices, mortgage rates to rise in 2014
December 4, 2013
-
NWMLS
The latest figures from Northwest MLS show year-over-year gains in inventory (up 4.8 percent), pending sales (up nearly 1.6 percent), closed sales (up 5.3 percent) and median selling prices (up 4.86 percent).
Brokers reported 6,624 pending sales (mutually accepted offers) of single family homes and condominiums during November, improving on the year-ago total of 6,522 for a 1.56 percent increase.
Closed sales across the 21 counties in the report outgained the volume of a year ago by 283 transactions, rising from 5,333 completed sales to 5,616 for a gain of 5.3 percent.
The median selling price on last month’s closed sales increased 4.86 percent, from $258,500 to $271,061. The condominium portion of those sales had double-digit price gains, jumping 14.2 percent. In King County, where 60 percent of the condominium sales occurred, prices were up 17.4 percent, rising from $204,500 to $240,000. Snohomish County condo prices shot up 19.7 percent from twelve months ago.
For single family homes (excluding condominiums), the median sales price was $280,000 area-wide, up about 4.1 percent. King County’s volume of closings dipped slightly compared to a year ago (down 2.9 percent), but prices increased more than 7.5 percent. The median selling price for single family homes that sold last month in King County was $414,000; a year ago it was $385,000.
OB Jacobi, president of Windermere Real Estate, believes the slowing pace of home prices, “is “actually a good thing,” saying, “As we saw in years past, continual double-digit price appreciation leads to boom and bust cycles that none of us want to relive.”
Similarly, fewer distressed sales bode well for the market, according to Northwest MLS director Darin Stenvers. “The real estate industry is supported by reduced rates of short sales and foreclosures, thus returning almost all markets to a healthy position for consumers. Rising home values have helped sellers who wish to avoid the long drawn-out and painful short sale process,” stated Stenvers, the office managing broker at John L. Scott in Bellingham.
In most cases Stenvers said those sellers are able to repair their credit in a short time, and maybe even re-enter the marketplace with more affordable budgets. “Foreclosures and the percent of short sales have sent a clear message to buyers that the market is stable and they can feel confident in their investments,” Stenvers suggested.
MLS director John Deely agreed. With rising prices, the number of homeowners with negative equity continues to shrink, he noted, citing data from the Case Schiller index. “Many sellers do not realize they have gained back substantial equity and that we are close to the peak values of the Seattle market,” said Deely, the principal managing broker at Coldwell Banker Bain in Seattle.
Commenting on recent activity along with expectations of a holiday season slowdown, some brokers noted there are multiple ̶ and sometimes, unrealized ̶  advantages to buying and selling homes as the year winds down. “Waiting will not provide much benefit,” suggested Mike Gain, CEO and president of Berkshire Hathaway HomeServices Northwest Real Estate in Seattle.
MLS director Frank Wilson agreed. He believes it will be more expensive to buy a home during 2014. “Slow but steady price appreciation, upward pressure on interest rates and increased costs of getting a loan will all work to decrease the buyer’s purchasing power,” said Wilson, the branch managing broker and Kitsap District manager for John L. Scott in Poulsbo.
Deely attributes the threat of interest rate hikes with spurring some activity in the midst of the holidays. “In 2014 the big question is not if interest rates will rise but when. This concern appears to be encouraging buyers to continue their home search during this holiday season, defying the seasonal slowdown,” he observed.
MLS spokespeople also point to inventory shortages in some areas as another challenge for buyers.
“As we approach the holiday season when we typically experience the seasonal slowdown, the housing market is showing signs of stability and resilience,” said Gain, but added, “Even though November’s new listings were up 10.1 from a year ago, and pending sales were up 1.6 percent, the lack of inventory is holding sales down.”
Many Seattle neighborhoods are still experiencing high demand for listings, noted Gary O’Leyar, designated broker and co-owner of Prudential Signature Properties. “Although the pace of the in-city Seattle market has leveled off somewhat, we are still seeing many instances of multiple offers due to high demand in several of the most sought-after neighborhoods,” he commented.
Multiple listing service figures underscore O’Leyar’s report. Most of the MLS map areas comprising Seattle show only around 1.5 months of supply – well below the 4-to-6 months many industry analysts say indicates a “balanced” market.
Tight inventory is not limited to Seattle. “Once again, this year we will be heading into the New Year with shortages and low inventory of homes for sale in the price ranges where 90 percent of the sales activity is taking place,” said Lennox Scott, chairman and CEO of John L. Scott Real Estate.
Scott and others believe sellers who are thinking of selling could benefit by listing now instead of waiting for the expected ramp-up of activity in January. “Traditionally, the number of new listings coming on the market during the holidays declines at a higher rate than buyer demand, thereby making the buyers-to-new-listings ratio advantageous for sellers.”
Mike Gain agreed, referring to a checklist his company uses that outlines advantages of listing a home during the holiday season. Among the benefits it cites are “decked halls look great,” “only serious buyers are out,” and “the process will be quicker.”
“All in all, the real estate market is chugging along nicely thanks in part to the health of our local economy,” observed Jacobi. Rising interest rates are playing a part in motivating buyers as well, he added. It’s typical to see housing sales slow during this time of year because of the holidays, he acknowledged, but even so, he said “sales are still strong.”
Wilson said Kitsap County’s momentum is “slowing a bit,” but noted cumulative figures for the year show the volume of pending sales is up 14 percent. As for prices, he seemed satisfied with Kitsap’s modest increases compared to double-digit jumps elsewhere. “We are happy to let the Seattle market steal that limelight,” he declared, noting Kitsap’s affordability advantage as a result of the differences.
Looking ahead, brokers tend to agree positive momentum will continue, but hurdles such as unrealistic sellers, new loan regulations, and threats to purchasing power remain.
“The market is poised for another solid year in 2014, but buyers are “out of breath,” said Dick Beeson, noting attention is diverted to holidays and national uncertainties. “If we could just get buyers off fences and sellers’ expectations in line with 2013 pricing not 2005, we’d be just fine,” he quipped. Beeson, the principal managing broker at RE/MAX Professionals in Tacoma, also worries about “the poor job market” in many parts of the state that aren’t faring as well as Seattle. “Without a strong job market, housing sales eventually show down,” he noted.
New loan regulations are also troublesome, according to Beeson. “If anything will kill a good market, tightening the money supply will,” he emphasized.
Asked about his projections, Wilson said he thinks 2014 will be more of the same. “We are in a familiar cycle in which buyers in 2015 will be saying….I wish I would have bought a home back in 2013.”
O’Leyar has a similar outlook. “I think the ‘wild cards’ for the 2014 Greater Seattle real estate market will be the Federal Reserve’s policy decisions and stricter lending standards.” He believes both factors could shrink the number of buyers. He also expects a leveling off of price appreciation, but continued strong demand due to the robust nature of Puget Sound’s vibrant economy.
Stenvers expects 2014 will be another year of stabilization and recovery for home and condo sales around the Pacific Northwest, and points to upticks in new home construction and commercial leasing as positive signs for job creation.
Northwest Multiple Listing Service, owned by its member real estate firms, is the largest full-service MLS in the Northwest. Its membership includes more than 21,000 real estate brokers. The organization, based in Kirkland, Wash., currently serves 21 counties in Washington state. Statistical Summary by Counties: Market Activity Summary – November 2013
| Single Family Homes + Condos |
LISTINGS | PENDING SALES |
CLOSED SALES | MONTHS SUPPLY |
|||
| New Listings |
Total Active |
# Pending Sales |
# Closings |
Avg. Price |
Median Price |
||
| King |
2,051
|
4,876
|
2,617
|
2,244
|
$452,285
|
$379,202
|
1.86
|
| Snohomish |
900
|
2,451
|
1,010
|
833
|
$308,095
|
$288,000
|
2.43
|
| Pierce |
1,042
|
3,384
|
1,131
|
878
|
$226,932
|
$205,000
|
2.99
|
| Kitsap |
289
|
1,356
|
325
|
255
|
$279,993
|
$220,000
|
4.17
|
| Mason |
90
|
650
|
77
|
59
|
$206,297
|
$158,000
|
8.44
|
| Skagit |
132
|
720
|
143
|
138
|
$281,745
|
$247,750
|
5.03
|
| Grays Hbr |
118
|
737
|
76
|
79
|
$123,733
|
$122,500
|
9.70
|
| Lewis |
99
|
669
|
83
|
64
|
$153,627
|
$140,000
|
8.06
|
| Cowlitz |
87
|
434
|
92
|
79
|
$154,093
|
$140,000
|
4.72
|
| Grant |
81
|
487
|
52
|
47
|
$173,182
|
$162,225
|
9.37
|
| Thurston |
301
|
1,176
|
302
|
262
|
$235,437
|
$220,000
|
3.89
|
| San Juan |
15
|
366
|
25
|
21
|
$633,405
|
$450,000
|
14.64
|
| Island |
106
|
661
|
112
|
99
|
$321,670
|
$245,000
|
5.90
|
| Kittitas |
58
|
382
|
63
|
53
|
$257,200
|
$206,750
|
6.06
|
| Jefferson |
46
|
385
|
39
|
49
|
$283,883
|
$265,000
|
9.87
|
| Okanogan |
26
|
427
|
35
|
25
|
$214,150
|
$169,500
|
12.20
|
| Whatcom |
200
|
1,283
|
236
|
199
|
$294,779
|
$260,000
|
5.44
|
| Clark |
50
|
216
|
42
|
51
|
$261,352
|
$242,000
|
5.14
|
| Pacific |
30
|
379
|
34
|
32
|
$118,672
|
$84,625
|
11.15
|
| Ferry |
6
|
64
|
3
|
2
|
$106,750
|
$106,750
|
21.33
|
| Clallam |
44
|
325
|
63
|
66
|
$206,891
|
$162,625
|
5.16
|
| Others |
82
|
633
|
64
|
81
|
$220,263
|
$192,000
|
9.89
|
| MLS TOTAL |
5,853
|
22,061
|
6,624
|
5,616
|
$334,831
|
$271,062
|
3.33
|
(Totals include King, Snohomish, Pierce & Kitsap counties)
| Jan | Feb | Mar | Apr | May | Jun | Jul | Aug | Sep | Oct | Nov | Dec | |
| 2000 | 3706 | 4778 | 5903 | 5116 | 5490 | 5079 | 4928 | 5432 | 4569 | 4675 | 4126 | 3166 |
| 2001 | 4334 | 5056 | 5722 | 5399 | 5631 | 5568 | 5434 | 5544 | 4040 | 4387 | 4155 | 3430 |
| 2002 | 4293 | 4735 | 5569 | 5436 | 6131 | 5212 | 5525 | 6215 | 5394 | 5777 | 4966 | 4153 |
| 2003 | 4746 | 5290 | 6889 | 6837 | 7148 | 7202 | 7673 | 7135 | 6698 | 6552 | 4904 | 4454 |
| 2004 | 4521 | 6284 | 8073 | 7910 | 7888 | 8186 | 7583 | 7464 | 6984 | 6761 | 6228 | 5195 |
| 2005 | 5426 | 6833 | 8801 | 8420 | 8610 | 8896 | 8207 | 8784 | 7561 | 7157 | 6188 | 4837 |
| 2006 | 5275 | 6032 | 8174 | 7651 | 8411 | 8094 | 7121 | 7692 | 6216 | 6403 | 5292 | 4346 |
| 2007 | 4869 | 6239 | 7192 | 6974 | 7311 | 6876 | 6371 | 5580 | 4153 | 4447 | 3896 | 2975 |
| 2008 | 3291 | 4167 | 4520 | 4624 | 4526 | 4765 | 4580 | 4584 | 4445 | 3346 | 2841 | 2432 |
| 2009 | 3250 | 3407 | 4262 | 5372 | 5498 | 5963 | 5551 | 5764 | 5825 | 5702 | 3829 | 3440 |
| 2010 | 4381 | 5211 | 6821 | 7368 | 4058 | 4239 | 4306 | 4520 | 4350 | 4376 | 3938 | 3474 |
| 2011 | 4272 | 4767 | 6049 | 5732 | 5963 | 5868 | 5657 | 5944 | 5299 | 5384 | 4814 | 4197 |
| 2012 | 4921 | 6069 | 7386 | 7015 | 7295 | 6733 | 6489 | 6341 | 5871 | 6453 | 5188 | 4181 |
| 2013 | 5548 | 6095 | 7400 | 7462 | 7743 | 7374 | 7264 | 6916 | 5951 | 6222 | 5083 |
Copyright © 2013 Northwest Multiple Listing Service
ALL RIGHTS RESERVED
Friday, November 15, 2013
Rates as of November 15, 2013
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Friday, November 8, 2013
7 Ways to Build Good Credit.
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Thursday, November 7, 2013
Home prices level off with slight Sept. increase
Tuesday, November 5, 2013, 1:08 p.m.
Home prices level off with slight Sept. increase
WASHINGTON -- A measure of U.S. home prices rose slightly in September from August, a sign that prices are leveling off after big gains earlier this year.
Real estate provider CoreLogic said Tuesday that home prices increased 0.2 percent in September from the previous month. That's sharply lower than the 0.9 percent month-over-month gain in August and well below the 1.8 percent increase in July.
Prices still rose 12 percent in September compared with a year ago.
Higher mortgage rates and steady price increases began to slow home sales in September. As a result, price gains have cooled off.
Mortgage rates are still very low. And the average rate on a 30-year fixed loan has fallen to 4.1 percent in the past month, down from a two-year high of nearly 4.6 percent over the summer.
"This deceleration is natural and should help keep market fundamentals in balance over the longer-term," said Anand Nallathambi, president and CEO of CoreLogic.
Real estate provider CoreLogic said Tuesday that home prices increased 0.2 percent in September from the previous month. That's sharply lower than the 0.9 percent month-over-month gain in August and well below the 1.8 percent increase in July.
Prices still rose 12 percent in September compared with a year ago.
Higher mortgage rates and steady price increases began to slow home sales in September. As a result, price gains have cooled off.
Mortgage rates are still very low. And the average rate on a 30-year fixed loan has fallen to 4.1 percent in the past month, down from a two-year high of nearly 4.6 percent over the summer.
"This deceleration is natural and should help keep market fundamentals in balance over the longer-term," said Anand Nallathambi, president and CEO of CoreLogic.
Tuesday, October 29, 2013
Lien Avoidance/Lien Stripping - Interesting Information
McFerran & Burns, P.S.
Practicing Real Estate Law in Western Washington since 1986
October 28th, 2013
Lien Avoidance/Lien Stripping
Did you know judgment liens can be removed from a property through bankruptcy? Did you know a bankruptcy can reduce junior mortgages to the status of unsecured debt? Today I want to discuss the tools in our bankruptcy tool box that allow us to do just that.
Lien Avoidance
The other day a broker called me with a problem. She had a Purchase and Sale Agreement for a piece of property. Unfortunately, the seller did not tell her there were two judgments against him. Her first notice was the title report. She wanted to know if there was anything that could be done other than paying the judgments. The answer was yes; if the seller qualifies for a Chapter 7 bankruptcy, the judgment liens can be “avoided.”
Let me explain. The standard rule in bankruptcy is that debts are discharged, but liens pass through bankruptcy unchanged by the bankruptcy discharge. So, while the debtor is no longer personally liable on the debt, the lien survives. Fortunately, we have the ability to avoid a judgment lien in a Chapter 7 under Section 522 of the Bankruptcy Code, if it impairs an exemption.
Both the State of Washington and the Bankruptcy Code allow a debtor to “exempt” a certain amount of value in residential real estate. If the judgment lien has attached to that real estate and “impairs” the exemption, then the judgment lien can be avoided in its entirety. The result is a discharge of the debt and the removal of the lien.
So, how do we determine if the judgment lien impairs an exemption?
The Bankruptcy Code sets for a formula to determine if an exemption is impaired. Under the Code, if the lien to be avoided and all other liens on the property and the debtors’ exemption exceed the value of the debtors’ interest in the property, the exemption is impaired and the judgment lien can be removed from the property.
Here’s an example:
In Washington, debtors are allowed to exempt $125,000.00 in equity in real estate. So, if there is a judgment against the debtors for $20,000.00 and the property is worth $150,000 with a $100,000.00 mortgage, would the judgment lien be avoided?
Mortgage: $100,000
Exemption: $125,000
Judgment lien: $20,000
Total of liens and exemption: $245,000
Debtor’s interest in the house (value): $150,000
Because the total of the liens and exemptions on the property ($245,000) exceed the debtor’s interest ($150,000), the judgment lien can be avoided in a Chapter 7. As a result the debtor’s personal liability would be discharged and the property would be free of the judgment lien.
Practice Pointer: The filing of a bankruptcy does not automatically avoid the lien. A separate motion must be filed with the court, and a Court Order avoiding the lien must be obtained. Due to laziness or lack of diligence, some bankruptcy attorneys do not take this crucial step. As a result, the lien survives the bankruptcy. Because we focus on real estate issues at McFerran and Burns, we always check for judgments and if appropriate, take the necessary steps to remove judgment liens in Chapter 7 bankruptcies.
Lien Stripping (Chapter 13)
As indicated above, the standard rule in bankruptcy is that debts are discharged, but liens pass through bankruptcy unchanged by the bankruptcy discharge. So, while the debtor is no longer personally liable on the debt, the lien survives.
An exception to that rule is provided by Chapter 13. When the value of the collateral available to secure the lien is less than the debt secured by the lien, the lien may be “stripped” off and the debt “crammed down” to the value of the collateral that secures it. The exception to the exception is mortgages on the debtor’s primary residence. In that case it’s all or nothing.
Here’s how it works. The first mortgage cannot be modified by a Chapter 13. The first position lender must be paid its regular payments. However, if there is more than one lien on the debtor’s residence, and the value of the property is less than the balance on the first mortgage, junior mortgages or liens can be “stripped”, and the debts paid the same as unsecured creditors. However, if there is any equity above the first mortgage balance, the second gets the same treatment as the first.
I realize this can be confusing. I think some examples will help to clarify.
Example #1: The debtor’s home is worth $150,000. The first mortgage balance is $175,000 and the second is $100,000. Even though the balance on the first exceeds the value, the lender in first position is still entitled to its regular payments. But because the balance on the first mortgage ($175,000) exceeds the value of the property ($150,000), the second mortgage can be stripped. The second mortgage will be treated as an unsecured debt, and will be paid the same percentage as credit cards and medical debt. That percentage can be as low as 0% depending on the debtor’s circumstances. At the conclusion of the Chapter 13 (3-5 years) the second will be removed from the property, and the remaining debt discharged.
Example #2: The debtor owns a home valued at $150,000. There is a first mortgage of $125,000 and a second with a balance of $100,000. Because the value ($150,000) is greater than the amount of the first mortgage ($125,000), the second mortgage cannot be stripped. Both mortgages must be paid according to their terms. It doesn’t matter how much equity there is above the first. Even if it’s only $1.00, the second cannot be stripped.
Practice Pointers:
• The rules are different if the property is not the primary residence of the debtor.
• The key to the analysis for either lien avoidance or lien stripping is value.
• Lien stripping is only available in a Chapter 13, and is not final until the debtor completes the plan payments.
• Lien avoidance can be used in either a Chapter 7 or a Chapter 13, but only applies to non-consensual (judgment) liens.
• Lien stripping and lien avoidance can only be accomplished by pleadings separate and apart of the initial bankruptcy filing. Simply filing a bankruptcy will not strip or avoid any liens or mortgages.
The rules surrounding lien stripping and lien avoidance are complex, complicated and fact specific. The methods of stripping and avoiding liens are technical. Only an experienced bankruptcy practitioner is qualified to give advice and file the appropriate Chapter and the pleadings within the bankruptcy case to accomplish the ultimate goal of removing certain liens from your client’s real estate. I have seen many cases over the years where the debtor’s attorney failed to take the steps necessary to avoid a judgment lien. The failure and its consequences do not become apparent until the debtor tries to sell the property. By then, it may be too late.
If your client has an underwater second, we may be able to strip the lien in a Chapter 13. If you have a client with a judgment lien that’s holding up your sale, maybe we can help. Call 253-284-3838, Option 1 to set up a free bankruptcy consultation. We have offices throughout the Puget Sound; Tacoma, Seattle (Northgate), Kent, Silverdale, Kirkland and Everett. At McFerran and Burns, our practice is focused on all things real estate. Our bankruptcy group is now up and running at full speed. We want to make sure our clients get the full benefit of their bankruptcy, which may include more than just a discharge.
If you have a specific question, try our new “McFerran & Burns Legal Line”. It is available to our industry partners at no cost or expense when you email your questions to us at legalline@mbs-law.com.
Your question will be sent to each of our attorneys. One of us will get back to you within 24 hours of receipt. It may be an email answer or it may be a phone call back to you so please include your name, agency name and phone number with your question. There is no charge for this service. The only restrictions are that you must be a licensed real estate professional and it must pertain to areas of our real estate, tax, business and bankruptcy practice. Just email us at legalline@mbs-law.com.
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