The situation is as follows
a. A husband and wife own property together.
b. The property is a residence.
c. The residence has a value of $100,000
d. The residence has a first mortgage with a balance of $140,000.
e. The residence has a second mortgage with a balance of $50,000
The wife files for chapter 7 and receives a discharge.
The husband files a Chapter 13 bankruptcy alone and asks the court to strip off the second mortgage.
Some courts have allowed the mortgage stripping, holding that the stripping could be allowed as the second mortgage has no value for bankruptcy purposes, because the first mortgage is owed more than the value of the property. See In Re Strausbough, 426 B.R. 243 (2010).
Other bankruptcy courts have not allowed mortgage stripping. In effect, the Courts have held that both the husband and wife have an interest in the property, which is subject to a mortgage lien. One tenant cannot avoid a lien, “whether partially or wholly unsecured” on tenants by entirety property. See In Re Hunter 284 B.R. 806 (2002).
I could not find a case in Connecticut discussing the stripping of a mortgage by one party who owns property jointly with another party. (In Connecticut, most property is owned jointly with right of survivorship). However, the Strausbough case cited above did not rely on the type of ownership (i.e. tenants in the entirety) but rather the fact that the lien was unsecured under bankruptcy law, in allowing the mortgage stripping.
In Connecticut, the economy is slowing and the residential real estate market never fully recovered as in other parts of the country. Therefore, we may soon see a case of a debtor seeking the benefits of the Strausbough case.
If you have any questions about mortgage stripping in Connecticut, please feel free to contact
Attorney Robert M. Singer
2572 Whitney Avenue, Hamden, CT 06518
Serving New Haven County and all of Connecticut