A lien strip is where the lien of a lienholder, other than the first mortgage, is stripped and ultimately changes the status of the obligation owed to the lienholder from \u201csecured\u201d to \u201cunsecured\u201d.<\/p>\n
Lien stripping allows you to get rid of the \u201cwholly unsecured\u201d liens on your property. When a mortgage or lien is put on your house, its priority against other liens is usually determined by when the lien was recorded with your county. For the most part, the earlier recorded lien has priority over any subsequent liens. So if your house gets foreclosed on, your first mortgage lender will be paid first from the sale proceeds before the lender on your second mortgage sees any money.<\/p>\n
In order to properly \u201cstrip\u201d a lien (be it a second mortgage, third mortgage, or a judgment lien), the value of the debtor\u2019s home must be less than the amount owed on the superior mortgages or liens.<\/p>\n
A commonly misunderstood aspect of lien stripping is understanding what is going on. If you owe money to someone, it is an \u201cobligation\u201d, or something that you are supposed to pay. Many companies that you incur an obligation to want to be extra sure they get paid. In order to do so, they make you give them a \u201clien\u201d against your property. There are, therefore, two parts to each obligation owing on your home. Usually, homeowners sign a note, which is the obligation, and a deed of trust, which is the lien. A chapter 7 bankruptcy can wipe out your obligation to pay a mortgage, but it does not wipe out the lien. If you do not pay, the lienholder can foreclose and take the property back. In other words, the lienholder can use the property that you gave them a lien on to satisfy the obligation, even though you might not technically owe it anymore.<\/p>\n